On September 7, 2021, the CFPB announced that it had entered into a consent order with an education finance nonprofit (“nonprofit”) in connection with the nonprofit’s offering of income share agreements (“ISAs”). In the consent order, the CFPB asserted that ISAs are extensions of credit covered by the Consumer Financial Protection Act and the Truth in Lending Act (“TILA”) as well as TILA’s requirements with respect to “private education loans.” Because the CFPB asserts in the consent order that it views the nonprofit’s ISAs as credit, the CFPB takes the position that they are also subject to numerous other federal consumer financial protection laws that impose requirements and restrictions on student loan products. This consent order has significant implications for those in the ISA market, as it indicates how the CFPB views re-characterization for ISAs and similar products. Continue Reading CFPB Finds that Income Share Agreements are Credit Products
Today the Bureau finally released its long-awaited proposed rulemaking on small business lending data collection. Section 1071 of the Dodd-Frank Act mandated that the CFPB collect data about small business lending to facilitate enforcement of fair lending laws.
After ten years of fits and starts on this topic, the Bureau ultimately was pressured by a lawsuit filed against it to make forward progress on a proposal. As we previously reported, a court settlement last year mandated a timeline for the CFPB to take certain steps to initiate a Section 1071 small business lending data collection rulemaking. Among other steps, the settlement required the CFPB to convene a Small Business Advocacy Review panel (“Panel”) by October 15, 2020. The Panel met and provided feedback on the CFPB’s proposals under consideration and released its report in December.
The 918-page proposed rule issued today is the culmination of years of research and CFPB engagement with stakeholders. Continue Reading CFPB Issues Proposed Small Business Lending Rule
Nearly four years after the Consumer Financial Protection Bureau (“CFPB”) first promulgated its rule regulating payday loans, a federal district court in Texas upheld the payment provisions of the rule against various constitutional and other challenges. The court, which had previously stayed the rule’s original compliance date, also provided that the provisions would become effective in 286 days—on June 13, 2022. Continue Reading CFPB Payday Rule Upheld
On August 10, 2021, the CFPB’s Office of Supervision Policy published a report titled Mortgage Servicing COVID-19 Pandemic Response Metrics: Observations from Data Reported by Sixteen Servicers (“Servicing Metrics Report”). Although the Servicing Metrics Report doesn’t allege any compliance deficiencies in the servicers’ performance, the topics addressed in the report and the CFPB’s accompanying press release indicate areas of focus for the CFPB, and servicers should take note.
On August 6, 2021, the U.S. Department of Education announced that it would extend the moratorium on federal student loan payments until January 31, 2022. According to the Department’s press release, this will be the final moratorium extension.
As we discussed back in 2020, the CARES Act provided temporary financial relief to federal student loan borrowers. That relief included (1) a pause on federal student loan payments, (2) the suspension of interest accrual during the moratorium, and (3) a freeze on involuntary student loan collections. These measures were initially set to expire on September 30, 2020, but subsequent extensions by Presidents Trump and Biden ultimately pushed back the expiration date to September 30, 2021. By the time the moratorium expires, federal student loan borrowers will have received CARES Act relief for roughly 22 months.
In its press release, the Department indicated that it will begin notifying federal student loan borrowers about this final extension in the coming days and that it will release information about how to plan for payment restart as the end of the pause approaches. It remains to be seen what, if any, support the Department will provide to federal student loan servicers to ensure that they do not run into issues while attempting to restart payment activity for millions of borrowers at the same time.
Many states established separate voluntary partnership programs with private student loan holders and loan servicers to provide financial relief to borrowers impacted by the pandemic. These voluntary programs generally provided private student loan borrowers with interest-accruing forbearance up to a certain number of months. They are not affected by the most recent extension of the federal student loan moratorium.
The set of federal agencies tasked with determining which residential mortgage loans may be exempt from credit risk retention in securitizations are continuing to think about it. Late last month, the Securities and Exchange Commission, Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Reserve Board, Federal Housing Finance Agency (“FHFA”), and the Department of Housing and Urban Development (together, the “Agencies”) announced that they hope to have more answers by the end of this year. It seems likely those Agencies will continue to define those exempt mortgage loans (called “qualified residential mortgages,” or “QRMs”) in a manner that is fully aligned with the “qualified mortgage” (“QM”) definition of the Consumer Financial Protection Bureau (“CFPB”) (which interestingly is not among the Agencies tasked with the QRM/risk retention rules). If it were that easy, though, the Agencies probably would have done that by now. Of course, the CFPB’s QM definition has been a moving target itself. Continue Reading Agencies Still Pondering QRM
The Dodd-Frank Act provides the Consumer Financial Protection Bureau (“CFPB”) with authority to obtain a broad range of legal and equitable remedies, as well as civil money penalties. Our recent Legal Update discusses a recent opinion from the 7th Circuit in CFPB v. Consumer First Legal Group, LLC, which provides critical judicial guideposts for how and when these remedies apply. This decision should play an important role in future CFPB enforcement actions. The Legal Update can be found here.
The California Department of Financial Protection and Innovation (“DFPI” or the “Department”) will have no shortage of applications to process before year end. Last week, the DFPI reminded industry participants that, beginning on September 1, 2021, it will make available through the Nationwide Multistate Licensing System (“NMLS”) the application needed to apply for a license under the Debt Collection Licensing Act (“DCLA”). Passed in September of 2020, the DCLA (SB 908) requires any person engaged in the business of debt collection, which includes debt buyers, to apply for a license on or before Friday, December 31, 2021, in order to continue to operate as a debt collector in California when the DCLA goes into effect on January 1, 2022. Failure to submit an application by the December 31st application deadline will preclude a debt collector from lawfully operating as a debt collector until the issuance of a license (Fin. Code §§ 100000.5, 100001(a)). For more details, the DFPI has published a series of Frequently Asked Questions (FAQs) at: Debt Collectors: Frequently Asked Questions | The Department of Financial Protection and Innovation (ca.gov).
Also, nearly two years after publishing a Notice or Proposed Rulemaking that will require all California Financing Law (“CFL”) licenses to be issued through the NMLS, and one day prior to an extended NMLS maintenance period (covered in our prior blog post), the DFPI announced that existing CFL licensees are now eligible to begin transitioning their licenses to the NMLS. Oddly, the announcement was made two days prior to the July 22nd end date for the comment period relating to the most recently proposed modifications to the proposed rules (see Fifth Notice of Modifications to Proposed Regulations). Upon final approval of the regulations, it is expected that all CFL licenses will be issued through the NMLS by December 31, 2021. This change may not be welcome for entities that do not presently have an NMLS record because establishing a Company Record through the NMLS to transition an existing CFL license onto the system is a separate process that takes time and effort.
Given the typical processing times (usually 90 days) for CFL license applications and the upcoming NMLS renewal period that begins on November 1, 2021, CFL licensees that do not have an existing NMLS Company Record should consider starting the transition process sooner rather than later. Continue Reading California Licensing Update
As many of us look forward to our summer vacations, the NMLS also has plans to take time off this summer. Due to system maintenance, beginning Wednesday, July 21 at 8:00 p.m. ET, the NMLS and NMLS Consumer Access will be unavailable for four full days, July 22 through July 25, with an anticipated return to operations on Monday July 26 at 7:00 a.m. ET. This maintenance period is significantly longer than previous maintenance periods, which typically occur over a weekend. The system will be completely inaccessible during this time, meaning that all Company and Individual users will be unable to log into their record to make any filings or amendments to the record, or to review any status updates or licensing deficiencies. Regulators also will be unable to access the NMLS or NMLS Consumer Access during this maintenance period. The NMLS Call Center will remain open during the system maintenance.
Below, we offer a few suggestions for users to ensure you and/or your Company are ready for the upcoming NMLS maintenance period:
A mortgage loan product is a bundle of loan terms. That is what the Consumer Financial Protection Bureau (CFPB) reminds us in its latest Supervisory Highlights.
The CFPB first used that phrase back in 2013, but you may have missed it. It appeared in the fine print of footnote 82 in the CFPB’s lengthy final rulemaking preamble. In that discussion, the CFPB addressed public comments from “a diverse variety of industry commenters” wondering whether mortgage loan originators could receive compensation based on “variations in the amount of credit extended for different products, such as differentially compensating loan originators for jumbo loans, conventional loans, and credit extended pursuant to government programs for low-to moderate-income borrowers (which typically have smaller amounts of credit extended and smaller profit margins).” While Regulation Z prohibits compensation to loan originators that is based on the terms of closed-end residential mortgage loans, the commenters were concerned that the typical method of paying loan originators (through basis points on the loan amount) would create a disincentive for them to originate smaller loans. In responding to those concerns, the CFPB dropped the somewhat off-topic footnote 82, stating that it is “not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.”
In the CFPB’s recent Supervisory Highlights, the agency cites footnote 82 to support examiners’ demands that mortgage lenders stop compensating loan originators differently for bond loans under state Housing Finance Agency (HFA) programs or for construction loans. After all, the CFPB stated, since it is not permissible to compensate loan originators based on loan terms, it is not permissible to do so based on product type, since a loan product is simply a bundle of loan terms.
Although the CFPB cites footnote 82 for its premise that loan originator compensation must not vary based on product type, the agency could have pointed to a lengthier discussion found elsewhere in its preamble. At the time of that 2013 rulemaking, through which the CFPB revised the Federal Reserve Board’s previously issued LO Comp Rule (as it has come to be known), commenters argued in favor of exemptions for certain loan types – for instance, for prime loans or government products. In addition, mortgage lenders and HFAs have for years urged the CFPB to exempt HFA products developed for lower-income households or poorly-served communities, loans offering down-payment or closing cost assistance, or loans under employees’ assistance programs for affordable homes near their work. The CFPB declined to allow compensation distinctions between loan products, however, responding that it would be contrary to the Dodd-Frank Act, regardless of the social or economic goals that the products may advance.
In addition to HFA loans, the Supervisory Highlights mention construction loans, which often require specialized expertise and additional time and effort to originate. Certainly it is difficult to imagine that a loan originator could steer a consumer into a construction loan in order to increase the loan originator’s compensation. Similarly, many lenders and loan originators argue that there is little risk of steering in connection with HFA products, because borrowers who obtain those loans generally are ineligible for other products. Still, the CFPB maintains that those and other loan products are bundles of loan terms, and loan originator compensation cannot vary based on loan terms.