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CFPB Director Testifies Before House Committee, Promises CARD Act Ability to Repay Rule
On September 20, CFPB Director Richard Cordray appeared before the House Financial Services Committee in connection with the CFPB’s Semiannual Report issued July 30, 2012. During the House hearing the Director faced questions on topics covered during prior committee hearings, including (i) the status and potential impact of the CFPB’s qualified mortgage/ability to repay (QM) rule, (ii) whether that rule will provide a safe harbor or a rebuttable presumption, (iii) whether the CFPB will commit to a definition of “abusive” practices, and (iv) whether the CFPB will raise the threshold for banks exempt from compliance with new CFPB remittance rules. Mr. Cordray reiterated that the QM rule will be finalized before the end of 2012, and that while the final regulations are still under consideration, the CFPB intends to provide bright line standards to help limit litigation risk. He continued to avoid offering a definition or description of abusive practices and did not express a willingness to revisit the remittance standards. Mr. Cordray also revealed that the CFPB has determined that it cannot resolve through the issuance of guidance a problem with the application of the Federal Reserve Board’s credit card ability to repay rule that is restricting access to credit for stay-at-home spouses. Mr. Cordray committed to releasing a proposed rule to remedy the problem prior to Congress’ return following the November elections.
FinCEN Publishes Form for Electronic Reporting of Cash Payments
On September 19, FinCEN announced the availability of electronic reporting of cash payments. Under the Bank Secrecy Act any person engaged in a trade or business that, in the course of that trade or business, receives more than $10,000 in cash in one transaction or in two or more related transactions is required to report such transactions. FinCEN encourages covered persons to begin using the new electronic Form 8300 to report cash payments. FinCEN will continue to accept paper filings of Form 8300 for the near future, but eventually will require electronic filing of all reports.
FDIC to Host Teleconferences on CFPB Proposed Mortgage Rules
On September 18, the FDIC announced in Financial Institution Letter FIL-39-2012 that it plans to host two teleconferences in the coming weeks to discuss the CFPB’s mortgage-related proposed rules. The teleconferences will be conducted by staff from the FDIC’s Division of Depositor and Consumer Protection and are being offered to officers and employees of FDIC-supervised institutions. The first call will take place on September 27, 2012 and will cover (i) mortgage origination standards, (ii) appraisals for “higher-risk” mortgages, (iii) ECOA appraisal requirements, and (iv) mortgage servicing standards. On October 10, 2012, FDIC staff will discuss (i) RESPA/TILA mortgage disclosure integration, (ii) qualified mortgages and the ability to repay standard, (iii) escrow requirements for “higher-priced mortgage loans”, and (iv) high-cost HOEPA loans.
Massachusetts Federal Court Reverses Prior Certification of Class in Fair Lending Case
On September 18, the U.S. District Court for the District of Massachusetts decertified a class of borrowers who allege that their mortgage lender violated the Equal Credit Opportunity Act and the Fair Housing Act by allowing its brokers to impose charges not related to a borrower’s creditworthiness. Barrett v. Option One Mortg. Corp., No. 08-10157, 2012 WL 4076465 (D. Mass. Sep. 18, 2012). The borrowers claim that the lender’s policy had a disparate impact on African-American borrowers who allegedly received higher rates than similar white borrowers. In March 2011, the court certified this class of borrowers, holding that the plaintiffs demonstrated commonality sufficient for class certification based on a statistical analysis comparing APRs paid by white and African-American borrowers that appeared to show slightly higher APRs for minority borrowers. Subsequent to the court’s March 2011 decision, the Supreme Court held in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) that a policy that allows local units discretion to act can only present a common question if the local units share a mode of exercising that discretion. Following the Supreme Court’s decision, the lender in this case moved to decertify the class. The court agreed with the lender that the borrowers’ statistical analysis based on aggregate data does not consider each individual broker. The court held that the borrowers in this case lack commonality because they cannot show that all of the lender’s brokers exercised discretion in the same way and granted the lenders motion to decertify the class.
FHFA Inspector General Publishes Two Reports
On September 18, the Inspector General (IG) for the FHFA published a report on the FHFA’s oversight of management of high-risk sellers and servicers by Fannie Mae and Freddie Mac (the Enterprises). The high-risk seller/servicer report presents a review of the Enterprises’ high risk counterparties and noted that more than 300 are on the Enterprises’ watch lists while more than forty have been blocked from doing business with the Enterprises. To better manage counterparty risk, the IG recommends that the FHFA promulgate standards for the Enterprises to develop contingency plans for handling a large seller/servicer’s failure, and that the FHFA finalize its proposed guidance for FHFA examiners to use in assessing the Enterprises’ contingency plans.
On the same day, the FHFA IG published a report regarding Fannie Mae’s purchase and transfer of certain mortgage servicing rights on approximately 384,000 loans for roughly $512 million. The IG determined that the amount paid was consistent with other such purchases made as part of a Fannie Mae program through which Fannie Mae transferred mortgage servicing rights from a regular servicer to a specialty servicer. While it determined that Fannie Mae did not overpay for the servicing rights in context, the IG recommended that the FHFA (i) consider requiring the Enterprises to seek approval for high costs initiatives, (ii) ensure additional scrutiny of pricing of future significant servicing transactions, (iii) reevaluate the Fannie Mae transfer program, and (iv) follow through with Fannie Mae’s implementation of prior FHFA directions regarding the purchase and transfer of mortgage servicing rights.
FFIEC Releases 2011 HMDA Data
On September 18, the Federal Financial Institutions Examination Council (FFIEC) released data collected in 2011 under the Home Mortgage Disclosure Act (HMDA). The data include information on loan amount, loan type and purpose, property type and location, pricing, and applicant characteristics. The FFIEC release notes that the 2011 data reflect that (i) the FHA’s share of first-lien loans declined in 2011, but there remains a heavy reliance on the FHA program, (ii) only a small minority of first lien loans had APRs above the loan price reporting thresholds, and (iii) for conventional home-purchase loans, black and Hispanic white applicants experienced higher denial rates than non-Hispanic white applicants, similar to in prior years. While examiners consider HMDA data when assessing lender compliance with fair lending laws, the FFIEC cautions that such data do not include many potential determinants of creditworthiness and loan pricing, such as the borrower's credit history, debt-to-income ratio, and the loan-to-value ratio.
CFPB Readies for Launch of Short-Form Credit Card Agreement Pilot Program
On September 18, the CFPB published a Notice and Request for Comment on information it plans to collect with regard to a pilot program designed to test a short-form credit card agreement. The CFPB announced last year its plan to partner with Pentagon Federal Credit Union to test its prototype agreement. The recently-published notice indicates that Pentagon Federal Credit Union will begin sending the short-form agreement to new cardholders in the fourth quarter of 2012 and the first quarter of 2013, and that the CFPB plans to conduct qualitative research through surveys of new cardholders. Parties interested in commenting on the CFPB’s proposed research have through October 18, 2012 to do so.
Fannie Mae Names New General Counsel
On September 18, Fannie Mae announced that Bradley Lerman will join the company on October 1, 2012 as Executive Vice President, General Counsel, and Corporate Secretary. Mr. Lerman previously was associate general counsel and chief litigation counsel at Pfizer, Inc. Prior to his work at Pfizer, Mr. Lerman was in private practice, focusing on white collar defense, product liability, and securities litigation. Before that he served as Assistant U.S. Attorney for the Northern District of Illinois.
FinCEN Plans Roundtable on Customer Due Diligence Proposal, Releases Materials from July Hearing
On September 17, FinCEN announced that it will host a roundtable discussion on its proposed customer due diligence requirements on September 28, 2012 in Chicago, Illinois. The announcement identifies a series of “key issues” on which the roundtable discussion will focus, including (i) how institutions currently identify, collect, and verify beneficial ownership information, (ii) the costs associated with collecting and verifying such information, and (iii) how institutions currently conduct due diligence on trust accounts. Last week, FinCEN released a summary of a public hearing held in July on its customer due diligence proposal. The summary provides the final agenda for the hearing, a general summary of topics covered, and statements and other materials submitted for the record.
NIST Finalizes Information Security Risk Assessment Guidelines
On September 18, the National Institute of Standards and Technology released a final version of its risk assessment guidelines, which are designed to advise all types of government and private organizations—including financial institutions—about information security risks and information technology infrastructures. The Guide for Conducting Risk Assessments provides guidance regarding (i) threats, (ii) vulnerabilities, (iii) impact to missions and business operations, and (iv) the likely threat of exploitation of vulnerabilities in information systems and their physical environment to cause harm or adverse consequence.