On February 23, 2024, the Consumer Financial Protection Bureau published an order establishing supervisory authority over a small-loan consumer finance company, using a Dodd-Frank Act provision that allows the Bureau to supervise certain nonbanks that it has reasonable cause to determine pose risks to consumers.

In Mayer Brown’s Legal Update, we summarize relevant aspects of the Bureau’s supervisory authority and highlight key takeaways from the order.

On March 5, the CFPB issued a final rule that would significantly reduce late fees that may be charged on consumer credit card accounts from $30 or more to $8 in most cases. A proposed rule on this subject matter was issued February 1, 2023, and the credit card industry has paid close attention to the rulemaking process since.

The final rule amends provisions of Regulation Z, implementing the Truth in Lending Act, related to permissible penalty fees—including late fees, NSF fees, returned payment fees, etc.— that a card issuer may impose on consumers who violate the terms of a credit card account subject to the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act”).

Continue Reading CFPB Finalizes Significant Restrictions on Credit Card Late Fees

FHA branch offices could become a thing of the past.

The Department of Housing and Urban Development published a final rule on February 2, 2024, eliminating the requirement for lenders to register each branch office where lenders and mortgagees conduct FHA business with HUD. FHA addressed questions from stakeholders in Frequently Asked Questions.

By eliminating the branch registration requirement, HUD hopes that by reducing burdens and eliminating barriers, more lenders will originate FHA-insured loans and expand the availability of FHA programs to underserved communities.

In Mayer Brown’s Legal Update, we discuss the background of HUD’s branch office requirements, the changes the final rule makes to those requirements, and takeaways for stakeholders.

On February 7, 2024, the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking on certain US residential real estate transactions (“2024 NPRM”). The 2024 NPRM would require certain professionals involved in real estate closings and settlements to report information to FinCEN about non-financed transfers of residential real estate to legal entities or trusts. The 2024 NPRM describes the circumstances in which a report would be filed; who would file a report; what information would need to be provided—including information about the beneficial owners of the legal entities and trusts—and when a report about the transaction would be due.

Potentially affected participants should consider submitting comments on the 2024 NPRM by the April 16 deadline to encourage FinCEN to finalize a revised proposal that appropriately weighs the goals of preventing money laundering with potentially burdensome compliance obligations. 

Read more here.

Mayer Brown has published a new edition of Licensing Link, a periodic publication that will keep you informed on hot topics and new developments in state licensing laws, and provide practice tips and primers on important issues related to state licensing across the spectrum of asset classes and financial services activities.

In this issue, we discuss pending legislation in California that would impose new licensing and fiduciary duty obligations on commercial loan brokers, the New York governor’s push for a new licensing and regulatory regime governing Buy Now, Pay Later financing, and the continued trend of state legislatures introducing “true lender” laws. Check it out and subscribe to receive future issues directly.

The New York Department of Financial Services finalized guidance on how banks and mortgage institutions should manage climate-related financial and operational risks. The agency’s guidance creates extensive obligations for New York institutions, particularly mortgage lenders and servicers for which those risk management expectations may be new. Also, the NYDFS emphasizes that those institutions must still recognize the interplay between safe-and-sound climate risk policies and the goal of providing access to affordable credit to all communities and customers. NYDFS will begin requesting information from institutions on their climate risk progress and plans during 2024.

Read about the NYDFS final Climate Risk Management Guidance in Mayer Brown’s Legal Update.

On November 7, 2023, the Federal Housing Finance Agency proposed a series of significant regulatory and legislative reforms for the Federal Home Loan Bank System in a much-anticipated report, “FHLBank System at 100: Focusing on the Future”, containing the results of a year-long comprehensive review of the FLHB System. This Legal Update provides an overview of the report and its most noteworthy legislative and regulatory recommendations.

Mayer Brown is pleased to provide the latest edition of its UDAAP Round-Up. This newsletter is designed to provide readers with a periodic resource to stay abreast of federal activities regarding the prohibition on unfair, deceptive, or abusive acts or practices in the consumer financial services space. In this edition, we cover notable policy, enforcement, and supervisory developments from April 2023 through September 2023.

Mere days before Halloween, California enacted California Senate Bill 666, imposing a set of restrictions on the fees that commercial financers may charge their small business customers. Signed by the governor on October 13, the legislation marks an escalation of the state’s regulation of commercial financing. What began as a disclosure-based regime with California’s broad 2018 commercial finance disclosure law (the “CFDL”) has developed into the direct regulation of commercial financing business practices with the affirmative prohibition of charging certain fees to “small businesses.” SB 666 closely follows an August 2023 rulemaking by the California Department of Financial Protection and Innovation (“DFPI”) targeting unfair, deceptive, or abusive acts or practices (“UDAAPs”) in commercial financing and requiring commercial financers to submit annual reports of their activities to the state.

Read more in this Mayer Brown Legal Update.

The CFPB’s 1071 Rule is on hold.  On October 26, 2023, the United States District Court for the Southern District of Texas issued a nationwide injunction that enjoins the Consumer Financial Protection Bureau (“CFPB”) from implementing and enforcing its small business lending data collection rule (the “1071 Rule”).  The injunction stems from a lawsuit filed by a group of lenders and trade associations seeking to set aside the 1071 Rule on the grounds that the rule was issued using funds that were unconstitutionally appropriated to the CFPB, pursuant to the United States Court of Appeals for the Fifth Circuit’s ruling in Community Financial Services Ass’n v. CFPB, which held that the CFPB’s funding mechanism violates the US Constitution’s Appropriations Clause and separation of powers.  We previously reported on the 1071 Rule litigation on our recent podcast, available here. With the court’s ruling, the CFPB is now enjoined on a nationwide basis from enforcing and implementing the 1071 Rule against any “covered financial institution,” subject to the Supreme Court’s ruling in Community Financial Services Ass’n, which is expected in 2024.

The CFPB’s 1071 Rule (which we have addressed in detail in previous Legal Updates) requires certain “covered financial institutions” that receive applications for financing from small businesses to collect and report data about their small business lending activities, with the purpose of facilitating enforcement of fair lending laws with respect to women-owned, minority-owned, and small businesses.  After a lengthy rulemaking process, the CFPB issued its final 1071 Rule on March 30, 2023, with a tiered effective date between October 24, 2024 and January 1, 2026, depending on a lender’s volume of small business financing activity.

The path to the court’s ruling began shortly after the final 1071 Rule was issued, when Rio Bank, the American Bankers Association, and the Texas Bankers Association filed a lawsuit in the United States District Court for the Southern District of Texas alleging the rule was invalid because it was issued using funds that were unconstitutionally appropriated to the CFPB.  In its motion in opposition to the plaintiffs’ motion for a preliminary injunction in that case, the CFPB argued that even if an injunction were to be granted, any injunction should be narrowly tailored and applied only to the plaintiffs before the court.  While the court granted injunctive relief to Rio Bank and banks that are members of the American Bankers Association or Texas Bankers Association on July 31, 2023, the court declined to issue a broader nationwide injunction at that time. 

The patchwork nature of the injunction caught the eye of some industry groups.  In August 2023, a consortium of trade associations sent a letter to CFPB Director Rohit Chopra requesting that the CFPB ensure “parity and consistency” across financial institutions subject to the 1071 Rule.  Noting that the 1071 Rule was stayed for some financial institutions who were parties to litigation where an injunction had been issued, but not other financial institutions, the trade associations requested that the CFPB pause the 1071 Rule’s effective date and compliance dates until the Community Financial Services Ass’n case is resolved by the Supreme Court.  The trades’ position was strengthened when a federal court in Kentucky granted similar injunctive relief in a lawsuit brought by the Kentucky Bankers Association and a group of Kentucky banks on September 14, 2023. 

After the Southern District of Texas issued its order granting a preliminary injunction in Rio Bank’s lawsuit, a consortium of depository institutions, credit unions, and commercial finance trade associations moved to intervene in the litigation and, eventually, moved for their own preliminary injunction.  The intervenor plaintiffs requested that the court issue a nationwide injunction covering all “covered financial institutions” subject to the 1071 Rule, arguing that the prospect of a limited injunction and changed circumstances since the original preliminary injunction ruling risks causing smaller financial institutions with less ability to challenge the 1071 Rule to incur costs implementing compliance controls and processes “that prove unnecessary and unrecoverable.”  The court sided with the intervenor plaintiffs on the remainder of the arguments, and granted the intervenor plaintiffs’ motion for a preliminary injunction. 

The court then proceeded to the question of whether a nationwide injunction was merited.  Finding that “[t]o limit the injunction would undermine the goals of preventing inequality in lending and harm to the constitutional structure pending U.S. Supreme Court review of the question at issue,” the court extended the preliminary injunction to all financial institutions subject to the 1071 Rule, on a nationwide basis.  The court clarified that its injunction requires the CFPB to cease implementation and enforcement of the 1071 Rule against all covered financial institutions, but it does not prevent the CFPB from answering inquiries or publishing guidance materials, since these actions do not qualify as “conduct taken against any financial institution[.]”

Industry groups will likely be watching closely for the CFPB’s next move on the 1071 Rule, including whether the CFPB will extend the 1071 Rule’s effective dates to account for the period that implementation of the rule is stayed pending the Supreme Court’s resolution of the Community Financial Services Ass’n case.