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Category Archives: Consumer Financial Protection Bureau

CFPB’s Amendments To The “Escrows Final Rule” Seek To Maintain Consumer Protections Applicable To Higher-Priced Mortgage Loans And To Clarify The “Rural” And “Underserved” Definitions

Posted by Yesenia Garcia Perez on Posted in CFPB; Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (“CFPB”) recently issued a final rule clarifying the 2013 Escrows Final Rule issued by CFPB on January 10, 2013. The CFPB indicates that the clarifying and technical amendments to the 2013 Escrows Final Rule seek to (1) maintain consumer protections and (2) to clarify the “Rural” and “Underserved” definitions.

Maintaining Consumer Protections

The 2013 Escrows Final Rule amends an existing rule that provides protections regarding assessments of consumers’ ability to repay and prepayment penalties on certain “higher-priced” mortgage loans. These protections include, for example, lengthening the time for which a mandatory escrow account established for a higher-priced mortgage loan must be maintained. The 2013 Escrows Final Rule, however, can be interpreted to cut off the old protections pertaining to “higher-priced” mortgage loans before the new expanded protections take effect. This would create a six-month period when those consumer protections would not apply. The clarifying and technical amendments to the 2013 Escrows Final Rule establish a temporary provision to ensure existing protections remain in place for higher-priced mortgage loans until the expanded provisions take effect in January 2014.

“Rural” and “Underserved” Definitions

The 2013 Escrows Final Rule also established an exemption from the escrow requirement for certain creditors that operate predominantly in “rural” or “underserved” areas. The CFPB’s amendments to the 2013 Escrows Final Rule clarify how to determine whether or not a county is considered “rural” or “underserved” for purposes of applying an exemption in the 2013 Escrows Final Rule and special provisions adopted in three other Dodd-Frank Act mortgage rules issued in January 2013. The CFBP used the amendments to the 2013 Escrows Final Rule to compile its final 2013 rural or underserved counties list.

CFPB Zeroes in on Payday Loans

Posted by Thomas I. Elkind on Posted in Bureau of Consumer Financial Protection; CFPB; Consumer Financial Protection Bureau

During the past year, the CFPB has engaged in an in-depth review of short term and small dollar loans, specifically payday loans extended by non-depository institutions and deposit advance products offered by depository institutions to their customers. These are loans that are due to be repaid on the consumer’s next payday, or when a significant deposit is expected. On April 24, 2013, the CFPB published a white paper titled “Payday Loans and Deposit Advance Products” containing its findings. CFPB Director Richard Cordray has described the purpose of the CFPB study as being “to help us figure out how to determine the right approach to protect consumers and ensure that they have access to a small loan market that is fair, transparent, and competitive.”

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As the CFPB Turns … And Other Consumer Financial Services News

Posted by Christine T. Adams on Posted in Bureau of Consumer Financial Protection; CFPB; Class Actions; Consumer Financial Protection Bureau; Fair Credit Reporting Act; State Consumer Protection Laws

In this week’s episode of As the CFPB Turns questions remain regarding Director(?) Richard Cordray’s constitutional authority to act as the Director of the CFPB.  House Financial Services Committee Chairman, Jeb Hensarling, R-Texas, advised Cordray that the D.C. Circuit’s recent decision, which found that President Obama’s recess appointments to the National Labor Relations Board were unconstitutional, applied to the CFPB director as well. Mr. Hensarling advised Director(?) Cordray that “absent contrary guidance from the United States Supreme Court, you do not meet the statutory requirements of a validly serving director of the CFPB, and cannot be recognized as such.” Thus, Mr. Hensarling advised Director(?) Cordray that he was not allowed to testify before the House Financial Services Committee. Mr. Hensarling’s comments received the expected cheers from the right side of the legislative aisle and jeers from the left. Stay tuned for next week’s episode to find out whether Director(?) Cordray and Mr. Hensarling will meet for beers at the White House. On to other news …

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Hanging Out to Air: CFPB Expands Consumer Complaint Database

Posted by Timothy S. Crisp on Posted in CFPB; Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) recently expanded its existing Consumer Complaint Database to cover additional consumer financial products and services. 

The CFPB had previously included consumer complaints relating to credit cards in the database; now, the database also covers mortgage loans, other consumer loans and leases, student loans, and bank accounts and services. In expanding and releasing the publicly-accessible database, the CFPB is underscoring its commitment to soliciting and revealing consumers’ complaints about financial products and services and their providers.

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Negotiating the Enforcement Maze: A CFPB Civil Investigative Demand

Posted by Jennifer M. Keas on Posted in Bureau of Consumer Financial Protection; CFPB; Consumer Financial Protection Agency; Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB or Bureau), through its Office of Enforcement, may conduct inquiries of institutions or persons to investigate compliance with the federal consumer financial laws for which it is responsible. The CFPB currently has many such investigations underway. The CFPB’s basic investigative tool is a Civil Investigative Demand (CID), or a demand for documents and written answers to questions. A CID also may seek tangible things, reports, or oral testimony in an investigational hearing. The CID will specify the enforcement staff involved, instructions for dealing with the dreaded electronically stored information (ESI), and the deadline for response (which is typically fairly short). 

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CFPB Gives Heads Up to Mortgage Servicers

Posted by Michael C. Lueder on Posted in Bureau of Consumer Financial Protection; Compliance; Consumer Financial Protection Act; Consumer Financial Protection Agency; Consumer Financial Protection Bureau; Mortgage Foreclosures; Real Estate Settlement Procedures Act

During the Great Recession courts expressed frustration with sloppy paperwork and borrowers’ inability to get anyone to help them work out problem loans. Many courts refused to allow mortgage foreclosures to proceed because of the perceived mess. The Consumer Financial Protection Bureau just made it clear it was not going to tolerate these problems when it comes to the transfer of mortgage servicing rights. 

On Monday, the CFPB issued guidance directing servicers to “make sure consumers are not collateral damage in the mortgage servicing transfer process.” Servicer must be careful when transferring loans servicing rights. The CFPB wants servicers to know that, where appropriate, they will be required to prepare and submit “informational plans describing how they will be managing the related risk to consumers” when making transfers. 

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Consumers Have Another Channel to Make Complaints

Posted by Martin J. Bishop on Posted in Consumer Financial Protection Bureau

Many cities and municipalities have non-emergency “hotlines” designed to provide access to non-urgent municipal services (e.g., tree trimming, dead animal removal, sidewalk repair). As of yesterday, this list of services has expanded to consumer questions and complaints about consumer financial products and services, at least in Newark, New Jersey. The Bureau announced that it is teaming up with the municipality to connect consumers with the Bureau’s Office of Consumer Response. Newark consumers can now simply dial the local 4311 hotline and, voila!, they will be connected with the Bureau.

Does this development raise UDAAP concerns? You bet! Consumer complaints are a key source of information and a potential jumping off point for Bureau investigations. Indeed, in connection with the Bureau’s announcement of this new program, Director Cordray invoked UDAAP sentiments when he said that “[t]he CFPB’s job is to help consumers navigate the often confusing financial marketplace and to hold financial institutions accountable.”

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Raj Date Steps Down at CFPB; Steve Antonakes Named as Acting Deputy Director

Posted by Pooja S. Nair on Posted in Consumer Financial Protection Bureau

On January 31, 2013, Deputy Director Raj Date officially stepped down from his position as the second-highest official in the CFPB. Date was the first deputy director of the agency, and was closely involved with Elizabeth Warren in the formation of the CFPB. Date’s departure was confirmed in November 2012. Date has been a notable leader in the CFPB, and there was early speculation that he was a possible appointee for the director position. Date took a major role in the agency’s mortgage-related initiatives.

CFPB Director Cordray stated:

“We will be forever grateful to Deputy Director Raj Date for his tremendous work to protect American consumers. As the CFPB’s first deputy director, Raj has helped to lead the agency’s organizational, strategic, and policy efforts and put in place key new mortgage rules that will benefit all Americans.”

Although the agency has yet to name a permanent replacement for Date, Cordray announced that Steven Antonakes will serve as acting deputy director as the search is in progress. Antonakes joined the CFPB in November 2010 and is currently the associate director for Supervision, Enforcement, and Fair Lending. He will continue to maintain the responsibilities of his current position while temporarily stepping into the deputy director role.

Cordray Renominated as Bureau’s Director, But Court Ruling Jeopardizes His Recess Appointment and Bureau’s Powers

Posted by Timothy S. Crisp on Posted in Consumer Financial Protection Bureau

It’s been the best of times and the worst of times for Richard Cordray this week.

First, President Obama renominated Cordray to be the Consumer Financial Protection Bureau’s (the Bureau) director on January 24, 2013. Cordray had been nominated for this post in 2011, but Senate Republicans blocked confirmation of his nomination. President Obama responded by purporting to make a “recess appointment” of Cordray in January 2012, and Cordray has held the job since then. Pursuant to the Constitution, Cordray’s recess appointment lasted only until the new session of Congress commenced in January 2013, making a reappointment necessary.

That was yesterday. Today, the validity of Cordray’s 2012 recess appointment, and of many of the Bureau’s activities during the last year, are in doubt in light of a federal appellate court ruling.

On January 25, 2013, the U.S. Court of Appeals for the D.C. Circuit ruled that President Obama’s purported recess appointments to the National Labor Relations Board (NLRB) are constitutionally invalid. The NLRB recess appointments were made on the same day as Cordray’s recess appointment, and President Obama relied on the same precedent and justification.

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CFPB Proposes Amendments to New Final Ability-to-Repay Rule, Solicits Comment on Calculating Loan Originator Compensation

Posted by Jennifer M. Keas on Posted in Bureau of Consumer Financial Protection; Consumer Financial Protection Act; Consumer Financial Protection Agency; Consumer Financial Protection Bureau; Truth in Lending Act; Uncategorized

On January 10, 2013, the CFPB issued its final ability-to-repay rule (Rule), which implements Dodd-Frank mortgage reforms requiring creditors to make a reasonable and good faith determination that a consumer will have a reasonable ability to repay the loan according to its terms. Failure to comply with these requirements may give rise to various damages under TILA, and consumers also may assert an ability-to-repay violation as a defense to a foreclosure action. There is no time limit on the use of this defense (although there is a cap on the recoupment or setoff of finance charge and fees), which applies against assignees of the loan in addition to the original creditor.

Loans that meet the criteria to be a “qualified mortgage” (“QM”) are entitled to either safe harbor or a rebuttable presumption of compliance with the ability-to-repay requirements.

Qualified mortgage criteria prohibit certain risky features and practices such as negative amortization. A loan also cannot be a QM unless the consumer has a total debt-to-income ratio of less than or equal to 43 percent (although the CFPB has provided a temporary QM definition softening the debt-to-income ratio). In addition, the transaction’s total “points and fees,” cannot exceed specified thresholds. For a loan of $100,000 or more, the QM threshold is 3% of the total loan amount. 

Many in the industry are currently examining the loans they make loans to assess what percentage are expected to exceed the 3% threshold when the Rule becomes effective on January 10, 2014. The element of loan originator compensation remains an important — and unresolved — factor in this analysis.

Loan originator compensation as an element of “points and fees”

Under the Ability-to-Repay Rule, points and fees includes, among other things, all compensation paid directly or indirectly by a consumer or creditor to a loan originator that can be attributed to that transaction at the time the interest rate is set.” A “loan originator” includes mortgage broker firms and individual employees hired by either brokers or creditors, but generally excludes creditors themselves. 

Before the CFPB issued the final Rule, many in the industry commented that including all loan originator compensation in points and fees makes little sense.  Commenters pointed out that as a practical matter, compensation paid to individual employee originators is already included in the cost of the loan in the form of origination fees or as part of the interest rate.  Furthermore, including loan originator compensation in points and fees will often result in “double-counting.”  For example, points and fees include mortgage broker fees, including fees paid directly to the broker or the lender for delivery to the broker.  But also included is compensation paid to individual loan originators (i.e., loan officers who are employed by mortgage brokerage firms) to the extent their compensation can be attributed to the transaction at the time the interest rate is set.  Similarly, money collected by a creditor in up-front charges from consumers (which is already counted toward the points and fees thresholds as items in the finance charge) would be counted a second time as loan originator compensation if the creditor passed it on to its employee loan officer.

The CFPB proposes amendments on this issue

The CFPB is still considering exactly how it should require the inclusion of loan originator compensation under the Ability-to-Repay Rule.  The agency has expressed its belief that Congress did intend the Dodd-Frank statute to literally require that loan originator compensation be treated as “additive” to the other elements of points and fees.  Nonetheless, the CFPB is not convinced that “an automatic literal reading of the statute in all cases would be in the best interest of either consumers or industry…”  In particular, the CFPB does not believe that it is necessary or appropriate to count the same payment between a consumer and a mortgage broker firm twice, simply because it is both part of the finance charge and loan originator compensation. 

Therefore, concurrent with the final Ability-to-Repay Rule, the CFPB issued proposed amendments to the Rule that would provide that loan originator compensation is not necessarily always counted against the QM points and fees threshold if it is already counted elsewhere in points and fees.

  • The CFPB proposes a new comment that would provide that mortgage broker fees already included in the points and fees as items included in the finance charge need not be counted again as loan originator compensation. 
  • Another proposed comment would clarify that compensation paid by a mortgage broker to its individual loan originator employee is not loan originator compensation.
  • With regard to the creditor context, the CFPB has proposed two alternatives. 
    • The first alternative would enshrine double-counting by creditors, specifying that a creditor must include compensation paid by a consumer or creditor to a loan originator in points and fees in addition to any fees or charges paid by the consumer to the creditor.  
    • Under the second alternative, the CFPB would permit all consumer payments of up-front fees and points to offset creditor payments to the loan originator.  This alternative would provide that a creditor should reduce the amount of loan originator compensation included in the points and fees calculation by any amount paid by the consumer to the creditor and included in the points and fees calculation as part of the finance charge. For example, if the consumer paid a creditor a $3,000 origination fee and creditor paid the loan originator $1,500 in compensation attributed to the transaction, points and fees would include the $3,000 origination fee but not the $1,500 in loan originator compensation.  However, if the consumer paid the creditor a $1,000 origination fee and the creditor paid the loan originator $1,500 in compensation, then the points and fees would include the $1,000 origination fee as well as $500 of the loan originator compensation.

Comments on these important issues are due by February 25, 2013.  A link for submitting comments to the CFPB may be found here.

CFPB Proposes Revisions to Rules on International Money Transfers by Consumers

Posted by Thomas I. Elkind on Posted in Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) recently issued proposed changes to the rule it originally proposed on January 20, 2011, governing certain electronic money transfers by consumers that was required by the Dodd-Frank Act. See http://www.gpo.gov/fdsys/pkg/FR-2011-05-23/pdf/2011-12019.pdf for the original proposed rule. The proposed rule is the first federally mandated disclosure, error resolution and cancelation rule imposed on ”remittance transfer providers,” which include both financial institutions, and non-depository entities such as money transmitters which previously were regulated only by state law. Providers that handle 100 or fewer remittances per year would be exempt from the requirements of the rule under a previous revision to the original proposed rule. Only consumer to business transactions for personal, family or household purposes are covered by the proposed rule, including bill payment services.  

One of the proposed changes loosens the disclosure requirements of the rule. See https://www.federalregister.gov/articles/2012/12/31/2012-31170/electronic-fund-transfers-regulation-e for all revisions to the proposed rule. Under the original proposed rule a provider would have been required to disclose to the ”sender ” (a consumer  located in the United States) the total amount of any foreign taxes and fees that would be assessed on the amount transferred. Providers were concerned that they may not have enough information from the sender to determine all the taxes and fees that would be assessed. The new proposed rule allows providers to rely on a sender’s representations regarding these variables and to estimate such taxes and fees by disclosing the highest possible foreign taxes and fees that could be imposed.

Another proposed change would also ease the requirement that all foreign taxes and fees be disclosed, by obligating providers only to disclose foreign taxes and fees imposed by a central government, not by sub-national jurisdictions.

Finally, where a transfer ends up in the wrong account due to incorrect information provided by the sender, the original proposed rule required providers to either refund the funds provided by the sender or to resend the transfer at no cost to the sender. A proposed change would only require a provider to attempt to recover the sent funds, but if those funds could not be recovered the provider would not be liable for the misdirected funds. In cases where transfers are resent by the provider, the proposed change would also allow the provider to make oral, streamlined disclosures.

All of the proposed changes were made after remittance transfer providers expressed concern that that original proposed rule could put them out of the business of transferring international funds for consumers. The original proposed rule was scheduled to take effect on February 7, 2013, but the CFPB has proposed to delay that date to allow comments on the proposed changes, which are due on January 30, 2013.

Final Rule Issued on Ability-to-Repay/Qualified Mortgages

Posted by Jennifer M. Keas on Posted in Consumer Financial Protection Bureau; Truth in Lending Act; Uncategorized

The Consumer Financial Protection Bureau (CFPB) issued its final ability to repay rule (Rule) on January 10, 2013. The Rule implements ability-to-repay provisions of the Dodd-Frank Act, which imposed strict underwriting standards upon lenders to ensure that prospective buyers have the ability to repay their mortgages. A failure to comply with these requirements will constitute a violation of the Truth In Lending Act (TILA) and subject the lender to significant penalties and possible rescission of the loan. However, loans that meet the definition of what has been termed a “qualified mortgage” (QM) are either exempt from these ability to pay requirements if the loans are viewed as prime, or will give rise to a rebuttable presumption of compliance if they are higher cost loans.

Qualified Mortgages and Treatment of Smaller Loans

In general, the Rule requires that monthly payments be calculated based on the highest payment that will apply in the first five years of the loan and that the consumer have a total debt-to-income ratio that is less than or equal to 43 percent. In order for a mortgage to be a qualified mortgage, the loan in essence must not contain certain undesirable terms or features such as negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. So-called “no-doc” loans where the creditor does not verify income or assets also cannot be qualified mortgages. Additionally, a loan generally cannot be a qualified mortgage if the points and fees paid by the consumer exceed three percent of the total loan amount for loans of $100,000 or more.

The Rule provides that points and fees retained by the affiliate of a creditor — such as the title insurance fees charged by an title agent or company that is affiliated with the lender — must be counted toward the 3% points and fees limit for QM, even though the same (or higher) fees of an unaffiliated company would not be counted toward this limit. This means that some lenders will be discouraged or prevented from using their affiliated title companies in many transactions because doing so may cause them to go over the 3% limit whereas if they used an independent title company, the fees would not count and they could avoid the risk of making a non-QM loan.

The CFPB raised the small loan exemption from $75,000 to $100,000. Under the Rule, the revised points and fees limits for smaller loans are a mix of percentage and flat dollar limits, as follows:

  • For a loan amount greater than or equal to $60,000 but less than $100,000, $3,000;
  • For a loan amount greater than or equal to $20,000 but less than $60,000, 5 percent of the total loan amount;
  • For a loan amount greater than or equal to $12,500 but less than $20,000, $1,000 of the total loan amount;
  • For a loan amount of less than $12,500, 8 percent of the total loan amount.

 According to the CFPB, it intended its revised points and fees limits for loans under $100,000 to include more transactions in the exemption for smaller loans, which it believes will allow creditors making such loans a reasonable opportunity to recover their costs through points and fees and still originate qualified mortgages. The CFPB chose not to enlarge the exemption for smaller loans. It noted that in 2011, slightly under 21% of first-lien home mortgages were below $100,000 and another 22% were between $100,000 and $150,000. “Thus, increasing the threshold to $150,000 would more than double the number of loans entitled to an exception to the congressionally-established points and fees cap and would capture over 40 percent of the market,” which the CFPB believed “would be an overly expansive construction of the term ‘smaller loans’ for the purpose of the exception to the general rule capping points and fees for qualified mortgages at three percent.”  

The effective date of the Rule is January 10, 2014, one year from the date of issuance. Under the Rule, all points and fees limits will be indexed for inflation. The CFPB declined to adopt a tolerance that would allow creditors to exceed the points and fees limits by small amounts.

Safe Harbor or Rebuttable Presumption?

With respect to the issue of what legal protection a QM will provide against a challenge based upon a violation of the ability to repay requirement — i.e., a safe harbor or a rebuttable presumption — the CFPB split the baby. The Rule distinguishes between two types of QMs based on the mortgage’s Annual Percentage Rate (APR) relative to the Average Prime Offer Rate (APOR). For loans that exceed APOR by a specified amount — loans denominated as “higher-priced mortgage loans” — the Rule provides a rebuttable presumption. In that instance, although the lender will be presumed to have determined that the borrower had an ability to repay the loan, the consumer can challenge that presumption by making certain showings. For all other loans, i.e., loans that are not “higher-priced,” the Rule will afford the creditor a safe harbor, which in essence provides the lender with an exemption from the ability to repay rules and accords far more protection than the rebuttable presumption.

Temporary Alternative QM Definition

Because the CFPB viewed implementation of its 43 percent debt-to-income ratio threshold as potentially harsh, it opted to provide a “temporary alternative” definition as a substitute for the general qualified mortgage definition. The temporary definition will apply to loans that meet the prohibitions on certain risky loan features (e.g., negative amortization and interest only features) and the limitations on points and fees and are eligible for purchase or guarantee by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) or eligible to be insured or guaranteed by certain federal agencies such as the U.S. Department of Housing and Urban Development and the Department of Veterans Affairs.

Looking Forward

In the days to come, lender and brokers — particularly those with affiliated settlement service providers — will be examining the intricacies of the “points and fees” test and assessing what percentage of the loans they are making would run afoul of the 3% test under the Rule and at what loan amount. Legislative and business solutions (such as the possible use of no cost loans) will likely be fully explored during the coming year.

At the same time it issued the final QM Rule, the CFPB has released proposed amendments to the Rule that would, among other things, exempt certain nonprofit creditors that work with low- and moderate-income consumers, make exceptions for certain homeownership stabilization programs, and provide QM status for certain loans made and held in portfolio by small creditors. The proposed amendments also seek comment on how to calculate loan origination compensation under the QM points and fees test.

House Committee on Oversight and Reform: CFPB a Threat to Credit Access

Posted by Pooja S. Nair on Posted in Consumer Financial Protection Bureau

On December 14, 2012, the House of Representatives Committee on Oversight and Government Reform, Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs issued a scathing staff report entitled: The Consumer Financial Protection Bureau’s Threat to Credit Access in the United States. The report, from Committee Chair Darrell Issa and Subcommittee Chair Patrick McHenry, was a critique of the CFPB and it’s potential effects on restricting access to credit.

The report began by criticizing the regulatory structure and powers granted to the CFPB:

The CFPB, an unelected and unaccountable bureaucracy unlike any other government agency, has been given vast and vague regulatory authority over virtually the entire financial services industry. With its broad and sweeping power to regulate consumer financial products and services, the CFPB has been called the “most powerful agency in American history.” Despite its immense authority, the Bureau lacks the vital external and internal controls that ordinarily govern federal agencies. Even the most basic of constitutional safeguards – the Senate’s advice and consent power – was violated when President Obama installed Richard Cordray as CFPB director during a self-proclaimed “recess” of the Senate in January 2012. These circumstances have created the conditions for the CFPB to become a run-away financial regulator that is poised to add uncertainty and illiquidity to domestic credit markets.

The report focused on the possibility that the White House would seek to influence agency policy, limiting congressional oversight. It also found that despite the CFPB’s mandate, it structure reflected a “weak reliance on economics” and it did not do a standard cost-benefit analysis of policies.

The report also outlined the struggles for small businesses and consumers to access credit under current economic conditions. It found that the current state of the economy already contributed to a lack of access to credit and theorized that the CFPB could exacerbate this problem. The report discussed the Dodd-Frank mandate enabling the CFPB to prevent “unfair, deceptive, or abusive” practices and noted that the term “abusive” was undefined, creating an atmosphere of uncertainty for creditors in determining what services could be deemed illegal by the CFPB. Additionally, the report found that current CFPB proposals, including the rule to regulate international remittance transfers sent by individuals in the United States to consumers overseas and changes in mortgage regulations would cause smaller banks and credit unions to simply stop providing regulated consumer financial services and thus reduce consumer access to financial services.

Given the hostility reflected in the report, the CFPB may face challenges with congressional approval as it implements more policies in 2013.

Is Your Company Using the Right Form for Background Checks?

Posted by Rebecca Hanson on Posted in Consumer Financial Protection Bureau; Fair Credit Reporting Act

The Consumer Financial Protection Bureau (the “Bureau”) has taken over rulemaking and enforcement responsibilities for the Fair Credit Reporting Act (“FCRA”) and has updated an important FCRA form that employers must use when utilizing consumer reports in conducting background investigations of prospective and current employees. Employers must use the new form beginning in January.

The FCRA is a federal law that imposes a number of obligations on employers who use reports from consumer reporting agencies (“CRAs”) to conduct background screenings of potential and current employees. If an employer uses such reports as the basis of an adverse employment action, such as terminating or failing to hire an employee, without complying with the FCRA, the employer is subject to liability under the FCRA. 

The Bureau has updated the form entitled “A Summary of Your Rights Under the Fair Credit Reporting Act” (“Summary of Rights”) to indicate that it has primary responsibility for the FCRA. Previously, the Federal Trade Commission (“FTC”) had responsibility for the FCRA. On the new form – which employers must use – the Bureau encourages employees to visit its website for further information about their rights. 

An employer is required to provide the Summary of Rights to job applicants and current employees before it obtains an investigative consumer report (a report that contains information gathered through personal interviews with people who know the applicant or employee) from a consumer reporting agency. Employers are also required to provide the Summary of Rights with any pre-adverse action notice sent to an employee when the employer plans to rely on the information contained in the background report to make an employment-related decision. 

Employers must use the new form – and doing so provides them with the ability to raise a defense against a claim of improper disclosure under the FCRA.

By updating the Summary of Rights (as well as other forms used by CRAs), the Bureau has indicated that the FCRA is on its radar.  Employers should expect that the Bureau will use its enforcement powers to ensure employer compliance with the FCRA.

Be sure to use the right form!  The Bureau announced on November 14 that the forms it previously issued late last year for use by January 2013 contained typos and other errors. The Bureau recently reissued corrected forms, which can be found here. While the forms issued late last year are sufficient for the time being, the Bureau will discontinue use of those forms at some point in 2013, so it is important to make the switch to the proper form as soon as practicable.

National Mortgage Database Formed

Posted by Thomas I. Elkind on Posted in Bureau of Consumer Financial Protection; Consumer Financial Protection Act; Consumer Financial Protection Agency; Consumer Financial Protection Bureau; Mortgage Foreclosures

The Consumer Financial Protection Bureau (“CFPB”) and the Federal Housing Finance Agency (FHFA”) have agreed to jointly produce a National Mortgage Database containing detailed mortgage loan information. In a press release dated November 1, 2012, the CFPB said: “The database will primarily be used to support the agencies’ policymaking and research efforts and to help regulators better understand emerging mortgage and housing market trends.”

The National Mortgage Database will include comprehensive information regarding a mortgage loan, from its origination through servicing, and will include borrower characteristics. It will include loan-level data about the mortgage, including the borrower’s credit profile, the terms of the mortgage, the property financed, and the payment history of the loan. Data will be updated monthly and will be available back to 1998. Additionally, this database fulfills an FHFA requirement under prior legislation to conduct a monthly mortgage market survey.

The database will not contain personally identifiable information, and appropriate precautions will be taken by the agencies to ensure that individual consumers cannot be identified through the database. However, the agencies will undoubtedly use the information from the database to better monitor the mortgage industry and to further develop consumer protections.

The agencies hope that the database will help them track the health of the mortgage markets and of consumers, by showing whether payments are being made on time, as well as information regarding loan modifications, foreclosures, and bankruptcies. The database will also be used to conduct surveys to understand consumer decision-making and how they shop for mortgages and deal with distressed homeownership. The agencies will also monitor the performance of various products to identify potential problems or risks. The database will allow policy makers to see how many mortgages consumers may have and how they are performing. The database will be the first comprehensive database to permit such analysis. The database will also include information about a borrower’s other debts, such as auto loans and student loans.

The agencies expect early versions of the full dataset to be complete in 2013. The agencies hope to be able to share database information with other federal agencies, academics an the public once the database is complete.

Chicago Joins CFPB in Information-Sharing Partnership; City Takes Additional Measures

Posted by Timothy S. Crisp on Posted in Consumer Financial Protection Bureau; Uncategorized

In a first-of-its-kind partnership with a municipality, CFPB Director Richard Cordray and Chicago Mayor Rahm Emanuel jointly announced a framework for sharing of information between the City and the CFPB. Under the agreement, Chicago becomes the first city in the nation to agree to directly report alleged violations of federal consumer financial protection laws and regulations to the CFPB.

Director Cordray’s prepared remarks noted that the CFPB “want[s] to know what you are seeing and how that informs what we should be doing – where our supervision and enforcement teams should focus their attention, and what problems our policymakers should undertake to fix.” Cordray suggested that similar agreements with other municipalities may be forthcoming, noting that “[c]ollaborations like this one are at the heart of our efforts to improve how consumer financial markets work for people…. By working together, we can succeed in educating, empowering, and protecting our citizens.”

In his prepared remarks, Mayor Emanuel announced additional actions that the City is taking:

  • On December 12, 2012, the City Council will introduce new proposed ordinances (a) to regulate and license debt collectors and to enforce compliance with fair debt collection laws and (b) to give its Department of Business Affairs & Consumer Protection enhanced supervision and enforcement powers against businesses for alleged violations of federal and state consumer financial protection laws.
  • The City will collect information on “predatory and deceptive acts associated with home repair loans, payday loans, small dollar loans, reverse mortgage products, and mortgage origination and servicing.”
  • The City plans to tighten zoning regulations to “limit the proliferation” of payday lenders, auto-title lenders, and “other predatory financial services.”

The Consumer Financial Protection Bureau Targets Mortgage Advertising in Its Continuing Enforcement Efforts

Posted by Rebecca Hanson on Posted in Consumer Financial Protection Bureau

Just on the heels of announcing settlements of enforcement actions against several credit card companies, the Consumer Financial Protection Bureau (the “Bureau”) seems to have set its sights on the target of its next round of enforcement actions – lenders who are allegedly violating the Mortgage Acts and Practices – Advertising Rule (“MAP Rule”). The Bureau has launched formal investigations of six companies who it believes have violated the MAP Rule, a rule that addresses claims and statements in mortgage advertising that may be misleading to consumers. The Bureau is particularly focused on advertisements and claims aimed at the elderly and veterans.

In a blog on its Web site, the Bureau has specifically warned against these types of advertisements, which the Bureau says come from complaints it has received from consumers:

  • Advertisements including “[o]fficial-looking seals or logos that imply some kind of government status,” misleading the consumer into believing they come from the VA or HUD;
  • Promises of “amazingly low rates,” which, in reality, are only in effect for a short period and are readjusted under the terms of the loan to a much higher rate;
  • Promises that reverse mortgages will allow a consumer to stay in their home payment-free, with no mention of the need to keep up with tax and insurance payments;
  • Announcements of “pre-approval” and the availability of “large amounts of cash or credit,” without reference to the need to go through a standard qualification process.

These types of misleading advertisements not only implicate the MAP Rule, but such practices, if true, also could also violate Dodd-Frank Act’s prohibition against the “unfair, deceptive, or abusive acts or practices” (“UDAAP”).  

Mortgage lenders can learn from the Bureau’s recent enforcement actions involving UDAAP. In the ensuing settlements with a number of credit card companies, the Bureau provided some limited guidance on what it considers to be deceptive acts and practices under Dodd-Frank through those enforcement actions. The Bureau has indicated, for instance, that it “will take all necessary steps to ensure that consumers are protected from deceptive sales and marketing practices, including those resulting from failures to adequately disclose important product terms and conditions, or other violations of Federal consumer financial law.”  The Bureau specifically warned that marketing materials have to “reflect the actual terms and conditions of the product and are not deceptive or misleading to consumers.” 

The Bureau has yet to offer guidance on what it considers unfair acts or practices or what the “abusive” standard means, however. Abusive is a new concept in the financial services industry – and the Bureau has done nothing to define the term, leaving financial institutions in the dark as to how they can avoid abusive acts and practices. 

Likely, the financial services industry will have to wait for further enforcement actions to glean any meaning out of these other terms – and the mortgage industry may be the means by which the Bureau provides such guidance.

Party Crashers: CFPB Files Amicus Briefs in Private Lawsuits, Seeks Referrals

Posted by Timothy S. Crisp on Posted in Consumer Financial Protection Bureau; Fair Debt Collection Practices Act; Truth in Lending Act

Since late 2011, the Consumer Financial Protection Bureau has been quietly filing amicus curiae (or friend-of-the-court) briefs in some federal appellate cases brought by private litigants. The Bureau is now publicizing its amicus program–and it is actively seeking additional case referrals.  According to the Bureau, “strong candidates” include cases which have been, or imminently will be, filed with a federal appellate court or a state supreme court and which address important issues under the federal consumer financial protection statutes and regulations enforced by the Bureau.

To date, the Bureau has filed amicus briefs in six appellate cases. Not surprisingly, in each case the Bureau advocated for the consumer’s position, in essence becoming a potent and authoritative ally of the consumer plaintiff’s attorney. In several cases, the Bureau sought to reverse an emerging consensus of federal appeals courts.Continue reading this entry

An Uplifting Look into Non-Bank Supervision

Posted by Christine T. Adams on Posted in Bureau of Consumer Financial Protection; Compliance; Consumer Financial Protection Act; Consumer Financial Protection Bureau

Legislation was introduced in Congress August 2, 2012 that would prevent the Federal Reserve from designating nonbanks as systemically significant. This bill is significant, because it in effect prevents the Federal Reserve from supervising insurance companies and other nonbanks. Under Dodd Frank, nonbank entities that are designated as systemically important are subject to the Federal Reserve’s rules governing capital, contingency and succession planning (“living wills”). Entities designated as systemically significant are also subject to the FDIC’s authority. 

Concerns regarding the Federal Reserve’s oversight of nonbank entities first began to surface when the Federal Reserve announced the results of its “stress test” for large nonbank entities, such as MetLife. After MetLife and others failed the “stress test,” it was apparent that the Federal Reserve was trying to fit square pegs into round holes. The Federal Reserve was employing the same metrics it had historically used to evaluate depository banks. Those metrics do not translate well to determine the viability and sustainability of large nonbank entities. 

The proposed legislation is an extension of that square peg-round hole argument. It seeks to prevent the Federal Reserve from classifying nonbank entities as “too big to fail.” Trade groups argue that the designation of nonbank entities as systemically significant would subject such entities to such massive compliance costs, thereby forcing them out of business, or at the very least, further stifling an economic rebound.  

Critics disagree. Critics of the bill argue that allowing nonbank entities to escape the Federal Reserve’s supervision may cause a financial panic. Thus, based on the opposing sentiments, it appears we have come full circle to damned if you do, or damned if you don’t. 

Hot Off of the Regulatory Printer — CFPB Releases Its Proposed “Know Before You Owe” Disclosures

Posted by Christine T. Adams on Posted in Bureau of Consumer Financial Protection; Compliance; Consumer Financial Protection Act; Consumer Financial Protection Agency; Consumer Financial Protection Bureau; Fair Housing Act; Real Estate Settlement Procedures Act; Truth in Lending Act

For weeks the Consumer Financial Protection Bureau has been advertising the pending release of its proposed mortgage loan disclosures that “are easier for both consumers and lenders to understand and use.”  Alas, await no more.  The CFPB released its proposed mortgage loan disclosures today.   The purpose of the new, supposedly friendlier disclosures, is for the CFPB to meet the requirement under the Dodd-Frank Act that the Truth in Lending Act (commonly referred to as TILA) and the Real Estate Settlement Procedures Act (commonly referred to as RESPA) disclosures be combined into one easy-to-read disclosure.  If adopted, the new rule will modify the rules commonly known as Regulations X and Z.Continue reading this entry

Bureau and Prudential Banking Regulators to Coordinate Certain Supervisory Activities

Posted by Timothy S. Crisp on Posted in Consumer Financial Protection Act; Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (the Bureau) recently entered into a Memorandum of Understanding on Supervisory Coordination (the MOU) with the Board of Governors of the Federal Reserve System (the Federal Reserve Board), the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency (collectively, the Prudential Regulators). The existence of the MOU was disclosed today, though it was signed on behalf of the Bureau and the Prudential Regulators on various dates in early- and mid-May 2012 and it became effective on May 16, 2012. Congress mandated coordination of supervisory activities and sharing of examination reports among the Bureau and the Prudential Regulators in various sections of Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The MOU applies to certain examinations conducted by, and certain supervisory activities of and information sharing among, the Bureau and Prudential Regulators with respect to (a) insured banks, thrifts and credit unions with more than $10 billion in total assets, and their depository and non-depository affiliates, and (b) non-depository subsidiaries of banks, thrifts and credit unions with $10 billion or less in total assets. (The Bureau and the Federal Reserve Board plan to enter into a separate agreement with respect to holding companies and their subsidiaries.) 

The supervisory activities covered by the MOU include: evaluation of compliance with with federal consumer financial laws and certain other laws; obtaining information about activities subject to such laws and related compliance systems and procedures; detecting and assessing risks to consumers and to markets for consumer financial products and services; consumer compliance risk management programs and systems (including vendor management); underwriting, sales, marketing, servicing, collections and other activities related to consumer financial products and services; and other matters mutually agreed upon between the Bureau and a Prudential Regulator.

Pursuant to the MOU, the Bureau and each Prudential Regulator will designate a point of contact for each covered institution. Those points of contact will consult regarding the scheduling, and any material changes in timing, of regularly scheduled examinations of each covered institution and will agree to a reasonable timetable for sharing scheduling information for the coming year or supervisory cycle. 

The agencies will generally conduct point-in-time examinations and prescheduled targeted review examinations in a simultaneous (though not necessarily a joint) manner; however, a covered depository institution may request that examinations be conducted separately, and the Bureau may ask a covered depository institution to make such a request so that the Bureau may conduct concurrent examinations of affiliated entities which are regulated by different Prudential Regulators. The agencies have agreed to provide each other with the maximum practicable prior notice of supervisory activities that are not included in the annual schedule of examinations.

The Bureau and Prudential Regulators will share with each other examination request letters and draft examination reports, and they will have up to 30 days to provide comments on draft reports to the issuing agency prior to issuance of final examination reports. 

The agencies have agreed to share with each other supervisory letters, memoranda of understanding and other supervisory actions, appeals of material supervisory determinations and the relevant agency’s response, final examination reports (including those with respect to depository institutions with total assets of $10 billion or less), and other supervisory information which the agencies may agree to share.

CFSL Action Update: March 15, 2012 – April 16, 2012

Posted by Pooja S. Nair on Posted in Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau issued new regulations on topics including confidentiality protections and information collection:

CFPB Strengthening Confidentiality Protections

77 FR 15286
On March 15, 2012, the Consumer Financial Protection Bureau (CFPB) issued a proposed amendment to 12 CFR Part 1070, subpart D that will reinforce the confidentiality protections for supervised entities that provide information to the CFPB. The proposed amendments strengthen the prior regulation and “clarify that it is intended to be a rule with the force and effect of law.” The rule is intended to govern all federal and state claims that an entity supervised by the CFPB has waived privilege by providing information to the CFPB.

Amending Regulation Z
77 FR 21875
On April 16, 2012, the CFPB issued a proposed rule to amend Regulation Z of the Truth in Lending Act (TILA). Regulation Z currently limits the total amount of fees that a credit card issuer may require a consumer to pay for an account to 25% of the credit limit in effect when the account is opened. The proposed rule would apply the limit only during the first year after account opening.

Collecting Information on Payday Lending
77 FR 18793
On March 28, 2012, the CFPB posted a notice of its field hearing on payday lending, held in the Birmingham field location. The agency requested further public feedback on issues that came up during the field hearing including the impact of payday loans on consumers, marketing of these loans, and the effect of how the loan is provided to the consumer.

Information Collection
77 FR 18795
On March 28, 2012, the CFPB announced that it would commission a yearly consumer research survey in order to “better understand the attitudes, understanding, and behaviors of American adult consumers around issues of consumer finance.” The first year survey would create a baseline, and then subsequent surveys would build off the baseline results.

77 FR 18794
On March 28, 2012, the CFPB announced its intention to commission periodic user testing of information the Bureau provides to consumers to help them achieve their financial goals and to better understand financial products and services available to them. This information collection will help the CFPB understand which information communication methods are best for consumer information.

77 FR 18793
On March 28, 2012, the CFPB proposed quantitative testing of the integrated disclosures once they have been published. This quantitative testing would examine whether integrated disclosures actually help consumers understand the terms of their mortgage loans.

The Consumer Financial Protection Bureau Proposes Boundaries for its Nonbank Supervision of Debt Collection and Credit Reporting Organizations

Posted by Michael S. Lawrence on Posted in Consumer Financial Protection Bureau

On February 16, 2012, the Consumer Financial Protection Bureau (“CFPB”) proposed a new regulation, pursuant to Section 1024 of the Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Act) (the “Act”), intended to establish “the scope of coverage of the Bureau’s supervision authority for nonbank covered persons,” in particular as pertains to credit reporting and debt collection organizations.Continue reading this entry

Defying Senate, President Obama purportedly makes recess appointment of Cordray to lead CFPB

Posted by Timothy S. Crisp on Posted in Consumer Financial Protection Bureau

For nearly six months, President Obama’s nomination of Richard Cordray to be the first Director of the Bureau of Consumer Financial Protection (CFPB) has been blocked by Senate Republicans. Today, the President is attempting to call the Senate’s bluff by making a legally questionable recess appointment of Cordray.

Under Article II, Section 2, Clause 3 of the federal Constitution, the President is empowered to make appointments to fill vacancies while the Senate is in recess. These so-called “recess appointments” have a limited duration, expiring when the next session of Congress ends, so Cordray’s appointment would not be effective for the full five-year term contemplated by the Dodd-Frank Act unless he were renominated by the President and confirmed by the Senate.

Continue reading this entry