On August 19, the U.S. Department of Housing and Urban Development (HUD) published a proposed rule for the purpose of aligning HUD’s 2013 Disparate Impact Rule with the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities. HUD sought comments from relevant stakeholders and the public on the proposed rule.

Mayer Brown partners Tori Shinohara and Melanie Brody helped prepare a comment letter on behalf of the American Financial Services Association (AFSA). AFSA’s comment letter, which was submitted on October 18, can be found here.

For many years it was unclear whether mortgage debt was covered under the California Rosenthal Fair Debt Collection Practices Act (the “Rosenthal Act”), which is California’s corollary to the federal Fair Debt Collection Practices Act (“FDCPA”). That issue was resolved on October 7, 2019, when California Governor Gavin Newsom signed into law legislation that expressly includes “mortgage debt” within the Rosenthal Act’s definition of “consumer credit.” Senate Bill 187 (“SB 187”), which is effective January 1, 2020, amends the Rosenthal Act to expressly apply to debt collection activities involving residential mortgage loans.

SB 187 also amends the Rosenthal Act so that it now includes attorneys in the definition of “debt collector.”  Until the amended Rosenthal Act goes into effect, attorneys are excluded from that definition. Continue Reading California Legislature Declares that Mortgage Debt Is Regulated under the State’s Debt Collection Law

Mayer Brown offers its Global M&A Podcast Series as an easy way to stay up-to-date on the latest M&A trends globally—legal issues and other related, timely topics. Available on iTunes, each episode draws on the perspective that our lawyers have gained from doing deals in various regions around the world.

In a recent episode, partners Nina Flax, Michelle Gross, and Melissa Richards of our Northern California offices discuss the impact of the California Consumer Privacy Act (CCPA) on M&A transactions.

*27 minutes, recorded on September 5, 2019

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Subscribe to the Mayer Brown Global M&A Podcast Series via iTunes (recommended). (Subscribing will only work on a device with iTunes installed. Alternatively, you can access the audio here.)

Earlier this month, the Bureau released its Summer 2019 edition of Supervisory Highlights.  This is the second edition issued under Bureau Director Kathy Kraninger, who was confirmed to a five-year term in December 2018.  The report covers examinations that were generally completed between December 2018 and March 2019 and, as such, is the first edition of Supervisory Highlights to cover examination activities that occurred during Kraninger’s tenure as Director.  This edition is much the same as previous editions, but unlike many past versions, it does not address any mortgage servicing-related findings.  Instead the report focuses on, among other things, UDAAPs (including, notably, an abusiveness finding), furnishing of consumer report information, and technical regulatory violations.  The report also details supervision program developments.

Remarkably, there is no mention of any public enforcement action resulting from supervisory examination work.  It is standard practice for the Bureau to use these reports to tout both public and nonpublic remedial actions that stemmed from examinations—but here we don’t see that, and it is not clear whether that is because none of the enforcement actions the Bureau has taken as of late actually came out of supervisory exams or if they chose not to highlight remedial actions for some other reason.  Continue Reading CFPB’s Latest Supervisory Highlights Focuses on UDAAPs, Furnishing, and Technical Regulatory Requirements

The Department of Labor has finalized its new salary thresholds applicable to an employer’s obligation to pay overtime and minimum wage. Beginning on January 1, 2020, white collar employees who earn less than $684 per week will not qualify for the executive, administrative, or professional employee exemption, and therefore will be entitled to those protections. The Department estimates that the higher salary thresholds will create approximately 1.3 million additional eligible employees.

As we described here previously, the Department acknowledged earlier this year that the current thresholds are outdated, and sought to expand the eligibility for overtime to additional employees. The Department has long used a salary level test, as well as a duties test, to define who is a bona fide executive, administrative, or professional (“EAP”) employee who is exempt.

Effective January 1, 2020, the standard salary level for the EAP exemption will be $684 per week ($35,568 per year), with special salary levels applicable to employees in U.S. Territories. The final rule will allow employers to satisfy up to 10% of the standard or special salary levels with nondiscretionary bonuses or incentive payments, including commissions, provided that such payments are paid no less frequently than on an annual basis. Employers may meet the salary level requirement by making a catch-up payment within one pay period of the end of the 52-week period.

“Highly compensated” employees (“HCEs”), who receive a certain (higher) amount of compensation and meet a less-stringent duties test, also are exempt from federal overtime and minimum wage requirements. The Department’s final rule establishes the new HCE total annual compensation level at $107,432. Continue Reading U.S. Department of Labor Finalizes Overtime Rule

Several of Mayer Brown’s Consumer Financial Services partners will be featured at the upcoming Regulatory Compliance Conference in Washington DC, sponsored by the Mortgage Bankers Association.

On Sunday, September 22, Tori Shinohara will address Fair Lending and Equal Opportunity Laws.

On Monday, September 23, Phil Schulman will address marketing and advertising activities in compliance with the Real Estate Settlement Procedures Act (RESPA).

In addition, on Monday, Krista Cooley will discuss FHA Rules and Regulations.

On Tuesday, Keisha L. Whitehall Wolfe will participate in the State Legislative and Regulatory Policy Update.

Other members of Mayer Brown’s team also will attend, including Christa Bieker, Frank Doorley, Michael McElroy, Brian Stief, and David Tallman.

Welcome to DC!

Many thought that with former Director Richard Cordray’s resignation, the Consumer Financial Protection Bureau (CFPB) would stop using its abusiveness authority in enforcement actions. After all, claims of abusiveness were the epitome of what critics derided as “regulation by enforcement,” as abusiveness was a new concept whose contours were not well defined. While that has largely proven true, there have been some exceptions. Last October, under then-Acting Director Mick Mulvaney, the CFPB issued a Consent Order against a payday lender that also offered check cashing services, which contained a single claim of abusiveness. That claim was based on the entity’s practice, when providing check-cashing services, of using check proceeds to pay off outstanding payday loan debts and providing only the remaining funds to the consumer. That, however, was the only abusiveness claim among the ten enforcement actions of the Mulvaney era (although the Mulvaney-led CFPB did continue to litigate abusiveness claims filed under Cordray).

Continue Reading Abusiveness Isn’t Dead Yet

If only the U.S. Treasury had a magic wand to ensure that the dozens of recommendations released last night in its long-awaited reform proposals for housing finance would become a reality; in that case, one could expect real-time results in the quest for an end to GSE conservatorship and the strengthening of the FHA. Instead, the two reports – one on FHA and Ginnie Mae and one on the GSEs – might simply be regarded as new acquisitions by the large public library devoted to the hundreds of dormant proposals for housing finance reform. It is not yet clear whether these two proposals would be shelved in the sections on fiction or non-fiction.

Don’t get me wrong. The reports are timely, thoughtful, and comprehensive, and housing finance geeks like me will pore over the details for several hours and debate among ourselves. The question is:  will the recommendations go anywhere? Underlying this question is the fact that the reports are replete with the word “should,” without any accompanying action plan or implementation plan to convert the normative “should” into the actual “will.”

The proposals include various admonitions that the Administration may act unilaterally with administrative actions to implement certain of the recommendations if Congress does not pick up the ball and run with it. But it is hard to see how realistic that is as we move into an election year. At this point, housing finance reform is not a potent election issue, and the complexities of reform are very multi-layered, much like in the health care reform debate. And like health care reform, many of the moving parts are inextricably tied together, making it harder for unilateral administrative action to be effective without accompanying legislative action.

It is hard to boil down the two detailed proposals into a one-pager, but I’ll try. Generally speaking, these are the themes that emerge from the two proposals:

  • Shrink the role of the federal government in its support of housing to more limited, well-defined missions.
    • Limit unfair and unnecessary competition with private capital
    • Clearly define, tailor and pay for the role the government will play
    • Synchronize the roles of the different government players to avoid overlaps
    • Permit the approval of private guarantors
    • Transition to this reduced role of government in a responsible manner
  • Run FHA, Ginnie Mae, and the GSEs like a business.
    • Impose sufficient capital, liquidity and reserves requirements
    • Improve risk management, including counterparty risk
    • Improve technology
    • Hire qualified staff
    • Set the amount of mortgage insurance premiums and guaranty fees to reflect the risk
    • Empower FHFA to supervise and oversee the GSEs
    • Review the safety and soundness of underwriting criteria
  • Recognize and rely on the interdependent relationship between the private sector and the government.
    • FHA needs private lenders and it should not play “gotcha” with opaque requirements or immaterial issues
    • In exchange for full faith and credit guarantee of P&I on MBS, require significant first loss private capital
    • Look to private investors to provide equity investments into the GSEs
  • Build in appropriate protections of consumers and small lenders.

Each of these bullet points and sub-bullet points could benefit from pages of further detail and explanation. Net-net, the proposals generally are consistent with the orthodoxy that espouses limiting the role of government, promoting and not crowding out private capital, and making sure the more limited government role is carried out in a responsible and accountable way.

Only time will tell whether these two proposals will get their own wing in the housing finance public library, or even their own building, but at least they are thorough and comprehensive and will find an enthusiastic audience among some of the library patrons. But don’t expect “should” to morph into “will” anytime soon, at least in a holistic way.

The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) requires the CFPB to prepare a biennial report to Congress regarding the consumer credit card market. On August 27th, the CFPB issued its fourth such report (previous reports were issued in 2013, 2015 and 2017) which describes the CFPB’s findings regarding, among other things, the cost and availability of credit, credit card performance trends and innovations in the credit card marketplace. As you might expect, the CFPB compiles a huge amount of credit card data from several sources including federal agencies and credit card issuers. For those interested in the credit card market, the report contains a wealth of statistics and data points.

Some of the core findings from the report include:

  • “Total outstanding credit card balances have continued to grow and at year-end 2018 were nominally above pre-recession levels. Throughout the post-recession period, including the period since the Bureau’s 2017 Report, purchase volume has grown faster than outstanding balances. After falling to historical lows in the years following the recession, delinquency and charge-off rates have increased over the last two years. Late payment rates have increased for new originations of general purpose and private label cards, both overall and within different credit tiers.”
  • “The total cost of credit (TCC) on revolving accounts has increased over the last two years and in 2018 stood at 18.7 percent, which is the highest overall level observed in the Bureau’s biennial reports. Recent TCC increases are largely the result of increases in the indices underlying variable rates, such as the prime rate. General purpose cards, which generally have interest rates linked to the prime rate, have driven the increase across every credit tier. TCC has fallen over the last two years for private label cards, in part because relatively fewer of these cards have rates linked directly to index rates, offset by a decline in fees as a share of balances.”
  • “Most measures of credit card availability—overall and across credit score tiers—have remained stable or decreased slightly since the Bureau’s 2017 Report. Measured by application volume, consumer demand for credit cards peaked in 2016. Approval rates have also declined slightly since 2016. Driven by lower approval rates, annual growth in the number of credit card accounts opened and the amount of credit line on new accounts has also leveled off. Even so, total credit line across all consumer credit cards reached $4.3 trillion in 2018, nearly equal to its pre-recession high, largely due to the growth in unused line on accounts held by consumers with superprime scores.”

We expect market participants to use the data provided by the CFPB in the report as a benchmark for evaluating performance and regulatory trends for credit card programs.

On Tuesday (September 3, 2019), the U.S. District Court for the District of Columbia issued an order dismissing a lawsuit filed by the Conference of State Bank Supervisors (CSBS) seeking to block the Office of the Comptroller of the Currency (OCC) from issuing federal charters to fintech companies. As explained in a prior blog post, in April 2018, the same court dismissed a prior version of the lawsuit, finding that the CSBS did not have standing to sue because the OCC had not yet officially decided that it would issue fintech charters.  For the same reason, the court found that the CSBS’s claims were not ripe for adjudication. The CSBS re-filed the lawsuit in October 2018, and the OCC then moved to dismiss the re-filed lawsuit.

In Tuesday’s order, U.S. District Court Judge Dabney L. Friedrich found that the CSBS continued to lack standing to sue and that the CSBS’s claims were not ripe for adjudication. Judge Friedrich explained that the CSBS still had not alleged that any fintech company had applied for a charter, let alone that the OCC had issued any fintech charters.

The CSBS’s re-filed complaint highlighted two recent events: (1) the Senate confirmed Joseph Otting as Comptroller of the Currency in November 2017, and (2) the OCC finalized and released its policy on chartering fintech companies on July 31, 2018. In the policy, the OCC announced that it would begin accepting charter applications from fintech companies. However, Judge Friedrich found that the CSBS continued to lack standing to bring the lawsuit because the harms it alleged were “contingent on whether the OCC charters” a fintech company, and no company had even applied for a charter. For the same reason, the court found that the CSBS’s challenge was not yet ripe for adjudication.

As explained in a prior post, in May 2019, a federal district court in the Southern District of New York issued an order denying a motion to dismiss a similar lawsuit filed by the New York Department of Financial Services (DFS), which also sought to block the OCC from issuing fintech charters.  In that case, Judge Victor Marrero rejected the OCC’s argument that the challenge was premature. In a footnote in Tuesday’s order, Judge Friedrich “respectfully disagree[d]” with Judge Marrero’s decision to the extent the reasoning in the two opinions conflicted. The lawsuit by the DFS remains pending in New York federal court.