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 …
Tag Archives: CFPB
Revealing UDAAP Comments From Cordray
Posted in CFPBYesterday, CFPB Director Cordray delivered a speech to the Consumer Advisory Board in Washington, D.C. The director’s prepared remarks are revealing and likely foreshadow more of what is to come for our industry.
First, Director Cordray emphasized the importance of the Bureau’s UDAAP duties:
The new financial reform law makes it illegal to engage in unfair, deceptive, or abusive acts or practices in connection with consumer financial products or services, and directs us to enforce this prohibition. More generally, we are charged with the duty of ensuring fair, transparent, and competitive markets. We recognize that a key to protecting consumers is strong and vigilant enforcement.
Consumers Have Another Channel to Make Complaints
Posted in Consumer Financial Protection BureauMany 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.”
The CFPB Is Taking a Closer Look at Financial Products Marketed to Students Enrolled in Institutions of Higher Education
Posted in Bureau of Consumer Financial Protection; Credit CARD ActOn January 31, 2013, the Consumer Financial Protection Bureau (“CFPB”) published a notice in the Federal Register seeking information regarding the impact of financial products marketed to students enrolled in institutions of higher education (the “Notice”). Although the Credit Card Accountability, Responsibility and Disclosure Act of 2009 includes requirements that financial companies publicly disclose credit card agreements with colleges, universities and alumni associations, less is known about other financial products marketed to students, including debit cards to access student loan funds and bank accounts. At this time, we can only speculate about the outcome of the CFPB’s inquiry, but it is possible that it may lead to requirements, similar to those relating to credit cards, that financial companies publicly disclose these types of agreements with institutions of higher education.
Raj Date Steps Down at CFPB; Steve Antonakes Named as Acting Deputy Director
Posted in Consumer Financial Protection BureauOn 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 in Consumer Financial Protection BureauIt’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.
CFPB Proposes Amendments to New Final Ability-to-Repay Rule, Solicits Comment on Calculating Loan Originator Compensation
Posted in Bureau of Consumer Financial Protection; Consumer Financial Protection Act; Consumer Financial Protection Agency; Consumer Financial Protection Bureau; Truth in Lending Act; UncategorizedOn 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 in Consumer Financial Protection BureauThe 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.
CFPB Issues Final Rules Amending Regulation X and Regulation Z
Posted in Bureau of Consumer Financial Protection; Real Estate Settlement Procedures Act; Truth in Lending ActToday, the CFPB issued final rules amending Regulation X (Real Estate Settlement Procedures Act (“RESPA”)) and Regulation Z (Truth in Lending Act (“TILA”)). The amendments focus on mortgage servicing requirements and servicer obligations, and largely track the CFPB’s proposed rules issued August 10, 2012. The CFPB’s announcement of the final rules includes the preamble, regulatory text and official interpretations of the final rules. The final rules and supporting documentation have not yet been published in the Federal Register.
The stated goal of the rules are to provide better disclosure to consumers of their mortgage loan obligations and to provide better information and assistance with available options to consumers having difficulties meeting their mortgage loan obligations. As with the proposed rules, the two final rules are set forth in different notices titled “2013 RESPA Servicing Final Rule” and “2013 TILA Servicing Final Rule.” The Major Topics covered in each are listed below:
The Regulation Z amendments cover:
- Periodic Billing Statements;
- Interest Rate Adjustment Notices; and
- Prompt Payment Crediting and Payoff Statements.
The Regulation X amendments cover:
- Force-Placed Insurance;
- Error Resolution and Information Requests;
- General Servicing Policies, Procedures and Requirements;
- Early Intervention With Delinquent Borrowers;
- Continuity of Contact With Delinquent Borrowers; and
- Loss Mitigation Procedures.
The final rules (and supporting material) span 753 pages and will take effect on January 10, 2014. Prior to the effective date, mortgage loan servicers should take the time to review their business practices and implement any necessary changes. We will continue to post more detailed analysis and commentary regarding the amendments as the full scope of the final rules is assessed.
Final Rule Issued on Ability-to-Repay/Qualified Mortgages
Posted in Consumer Financial Protection Bureau; Truth in Lending Act; UncategorizedThe 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 in Consumer Financial Protection BureauOn 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 in Consumer Financial Protection Bureau; Fair Credit Reporting ActThe 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 in Bureau of Consumer Financial Protection; Consumer Financial Protection Act; Consumer Financial Protection Agency; Consumer Financial Protection Bureau; Mortgage ForeclosuresThe 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 in Consumer Financial Protection Bureau; UncategorizedIn 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 in Consumer Financial Protection BureauJust 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.
Capital One Required to Pay $140 Million in Consumer Refunds
Posted in Bureau of Consumer Financial ProtectionToday, the Consumer Financial Protection Bureau (“CFPB”) engaged in its first major enforcement action by requiring Capital One to refund 2 million consumers approximately $140 million for profits gained from deceptive marketing practices related to its credit card protection services. The settlement was reached following an investigation, prompted by a March 2011 Government Accountability report on the high costs of credit card protection services, and numerous consumer complaints about Capital One’s credit card add-on products. The add-ons consisted of certain payment protection and credit monitoring products. The consent order not only required the $140 million refund, but also fined Capital One with a $25 million civil penalty and required it to take a variety of remedial measures, including developing a compliance plan before reengaging in these programs.
The Consumer Financial Protection Bureau Is Challenged as Unconstitutional
Posted in Bureau of Consumer Financial ProtectionThis past Thursday, June 21, 2012, the State National Bank of Big Spring (“National Bank’”), the Competitive Enterprise Institute (“CEI”), and the 60 Plus Association, Inc. (“the Association”), filed suit against the Consumer Financial Protection Bureau (“CFPB”), the U.S. Department of the Treasury and various financial officials, including Richard Cordray, Director of the CFPB, in their official capacities. In a 32- page Complaint, the Petitioners railed against what they characterized as the unchecked power of the CFPB and the “chilling effect” its operation would have on small financial institutions. The Petitioners challenged the CFPB on three separate grounds: (1) violation of the separation of powers for failure to provide any meaningful checks and balances on the CFPB; (2) violation of the Appointment Clause for fraudulently appointing Mr. Cordray; and (3) violation of the separation of powers for failure to provide any meaningful checks and balances on the Financial Stability Oversight Council (“FSOC”).
CFPB Issues Final Rules (Part 4 of 4): Compliance With the Equal Access to Justice Act
Posted in Bureau of Consumer Financial ProtectionOn Wednesday June 6, 2012, the Consumer Financial Protection Bureau (“the Bureau”) also issued an interim rule with request for public comment, on the rules drafted to bring the Bureau into compliance with the Equal Access to Justice Act (“EAJA”). The rules set out the guidelines for payment of attorney’s fees for certain parties, excluding the United States. The Bureau followed closely to the model rules created by the Administrative Conference of the United States. While the interim rule outlines various modifications made to modernize the model rules, the Bureau adopted the majority of the model rule.
CFPB Issues Final Rules (Part 3 of 4): Investigative Procedures and CIDs
Posted in Bureau of Consumer Financial ProtectionOn June 6, 2012 the Consumer Financial Protection Bureau (the “Bureau”) issued a final rule providing more on their investigative procedures. Codified in Section 1080, the rules have only further delineated the practices and processes already in use by the Bureau. Yet, the regulations provide further structure and clarity to the Bureau’s intended investigation procedures.
As noted in an earlier posting, the final investigation and adjudication rules are modeled heavily after those presently employed by the Federal Trade Commission (“the FTC”). Yet, the Bureau also reviewed the guidelines of other law enforcement agencies. The Director, Assistant Director, and the Deputy Assistant Director of the Office of Enforcement (“the Bureau leadership”) are authorized to issue civil investigative demands (CID’s). This authority is non-delegable. The Bureau has broad authority to request documentary material, tangible things, electronically stored material, written reports, answers to questions, or oral testimony from the target of an investigation pursuant to the investigative demands. Each type of evidentiary material is outlined and defined in the final rule. Additionally, the Bureau leadership has broad power to modify CID’s, to extend time (although disfavored) in order to cooperate with the parties.
CFPB Issues Final Rules (Part 2 of 4): State Official Notification
Posted in Bureau of Consumer Financial ProtectionThe Consumer Financial Protection Bureau (“the Bureau”) promulgated various final rules dealing with their enforcement powers on June 6, 2012. Among them was the final rule for state official notification. While short in comparison to the other rules issued, this rule provided some guidelines for state officials and attempted to create a process that will keep the Bureau informed of all consumer protection actions initiated by the states.
More CFPA Rules Released
Posted in Bureau of Consumer Financial ProtectionThe Bureau of Consumer Financial Protection also released the proposed interim rules relating to investigations (Title 12, Chapter X, Part 1080, in case you’re keeping track). The rules apply to Bureau investigations conducted pursuant to section 1052 of the Act (12 U.S.C. 5562).
CFPB Releases Interim Rules Regarding Procedures for States to Notify Bureau of Actions to Enforce CFPA
Posted in Bureau of Consumer Financial ProtectionThe interim rule went into effect today, July 28, 2011, regarding the process by which state officials are to notify the CFPB of actions or proceedings undertaken to enforce any requirements of the Consumer Financial Protection Act (“CFPA”).
State officials are required prior to initiating any action or proceeding in any court or other administrative or regulatory proceeding against any covered person o enforce any provision of the CFPA or any regulation prescribed thereunder, including but not limited to the filing of a complaint, motion for relief, or other document which initiates an action or proceeding.
CFPA Q&A: Which Laws Are Within The Bureau’s Purview?
Posted in Consumer Financial Protection ActVirtually every well- and lesser-known federal consumer financial protection statute. Under the CFPA, the Bureau will regulate the offering and provision of any consumer financial product or service under the “Federal Consumer Financial Laws,” which includes, among other things, the CFPA, any rules promulgated by the Bureau, and the “Enumerated Consumer Laws.” The CFPA expressly excludes the Federal Trade Commission Act from the definition of the Federal Consumer Financial Laws.
The CFPA defines the Enumerated Consumer Laws to include all of the following statutes: