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:

Continue Reading NMLS and NMLS Consumer Access Scheduled to Take a Summer Break

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.

As we detailed in our prior Legal Update, on January 19, 2021, the FHA expanded eligibility to apply for FHA-insured mortgages to individuals residing in the United States under the DACA program by waiving certain FHA Handbook requirements.[1]  On May 28, 2021, the FHA published Mortgagee Letter 2021-12, which clarifies FHA’s existing eligibility requirements for DACA participants and other non-permanent residents who apply for FHA loans and implements the eligibility requirements instituted by the prior waiver into the HUD Handbook.[2]

Specifically, non-permanent residents, including DACA participants, individuals with refugee or asylee status, citizens of the Freely Associated States (“FAS”)[3] and individuals with an H-1B visa, must meet the following requirements:

Continue Reading FHA Issues Guidance on Eligibility of DACA Recipients

Earlier this year, the Federal Housing Finance Agency (“FHFA”) issued a Request for Input (“RFI”) on the risks of climate change and natural disasters to the national housing finance markets. The RFI posed 25 questions on how FHFA can best identify, assess and respond to those risks for the entities FHFA regulates (Fannie Mae, Freddie Mac and the Federal Home Loan Banks) and the housing finance markets in general. This Legal Update summarizes highlights from the comments received from a variety of stakeholders.

Read more in Mayer Brown’s Legal Update.

In a March 30, 2021 announcement, the Biden administration announced that it would be extending relief to approximately 1.14 million student loan borrowers who previously were not covered under the CARES Act relief enacted last year. These are borrowers who have defaulted on loans issued pursuant to the Federal Family Education Loan Program (“FFELP”). Specifically, under the measure, borrowers who have defaulted on FFELP loans will not face further penalties (and will see penalties already assessed unwound) and will also see their current interest rates reset to 0%.[1] The Biden administration’s action will be retroactive to March 13, 2020—the day the governmental formally declared a state of emergency due to the COVID-19 pandemic—and will return FFELP loans that defaulted during this period to good standing, with credit bureaus asked to remove any related negative credit reporting, allowing the applicable borrowers to rehabilitate their credit scores.[2] Continue Reading Approaching Student Loan Relief Piecemeal: The Biden Administration Extends CARES Relief to Defaulted FFELP Student Loan Borrowers; Weighs Options for Further Measures

The Consumer Financial Protection Bureau is finalizing its proposal to extend until October 1, 2022 the mandatory effective date of the new Qualified Mortgage definition based largely on a loan’s annual percentage rate (the “APR-Based QM”). For applications received prior to that date, lenders seeking to make QMs may opt for either the original QM definition based largely on the debt-to-income ratio (the “DTI-Based QM”) or the new APR-Based QM. In fact, the CFPB also extended the availability of QM status for loans eligible for purchase by Fannie Mae or Freddie Mac (the “Temporary GSE QM”), although as explained below, the availability of that option will be limited by forces outside the CFPB’s control.

After a significant public outreach process, the CFPB under prior Director Kraninger was set to terminate the DTI-Based QM (and repeal the stodgy Appendix Q) as of March 1, 2020. The agency initially provided a four-month transition period (until July 1, 2021) during which both the DTI-Based QM and the newly-minted APR-Based QM would be available. Additionally, the CFPB extended the availability of the Temporary GSE QM (often called the “GSE Patch”) until July 1, 2021. The CFPB intended that the four-month period would provide for an orderly transition, but without unnecessary delay. However, after the change in the Presidential Administration, which brought new leadership to the CFPB, and after several more months of pandemic-related economic concerns, the agency proposed to lengthen that transition period with the stated goal of making affordable mortgage credit available to the greatest extent possible.

In the meantime, while the “new” CFPB has been considering whether to delay the mandatory compliance date of the “old” CFPB’s QM rule, the Department of Treasury amended its preferred stock purchase agreements (PSPAs), to which the GSEs’ are subject, to impose new limits on the GSEs’ loan purchases. Among other limitations, the amended PSPAs provide that as of July 1, 2021, the GSEs may only purchase QMs that comply with the new APR-Based definition. The GSEs have each subsequently clarified that in light of the PSPA restrictions, they will no longer acquire loans for which an application is received on and after July 1, 2021 that do not meet the APR-Based QM Rule. The CFPB recognized that while its recent rule would allow GSE Patch loans to be QMs until October 1, 2022, it cannot control or predict restrictions placed through the PSPAs or by the Federal Housing Finance Agency.

Some industry participants had urged the CFPB to allow the transition to the new APR-Based QM to take place in July, pointing out that is a good solution reached after months of input from all sides. Still, some lenders, vendors, investors, and ratings agencies are continuing to work through how to ensure compliance with the new standards and measure risk. As we approach what may be the end of the current forbearance era this fall, the CFPB asserts that the more options, the better.

On March 23, 2021, Illinois Governor JB Pritzker signed into law Senate Bill 1792, enacting the Predatory Loan Prevention Act (PLPA) and capping interest at an “all-in” 36% APR (similar to the Military Lending Act’s MAPR) for a variety of consumer financing, effective immediately. The PLPA uses an expansive definition of interest, applies to a wide array of businesses, and voids any contract that exceeds the cap. Companies providing consumer financing in Illinois and secondary market purchasers should review their business practices and ensure that their financing arrangements do not violate the PLPA. We describe the requirements of the PLPA, discuss the transactions and entities subject to (and exempt from) the legislation, consider “true lender” and Madden implications, identify particular products affected, and set out penalties for violations in Mayer Brown’s Legal Update.

A little more than a month after rescinding its prior Policy Statement on abusive acts or practices, the Consumer Financial Protection Bureau (CFPB) has brought its first post-rescission abusiveness claim. In a complaint against a debt settlement company, the CFPB alleged that the company’s alleged practice of prioritizing the settlement of debts owed to affiliated lenders constituted an abusive act or practice. The complaint against the company quotes its website as stating that the company’s “‘skilled negotiators work to get your creditors to agree to discounted lump sum payoff amounts’” and quotes its sales scripts as saying that the company is “‘not owned or operated by any of your creditors.’” In reality, according to the complaint, the company’s owner was also the owner of one of the prioritized creditors and the owner of the other prioritized creditor was a former employee of the company’s owner. Taking these facts together, the CFPB alleged that the company violated the prong of the abusiveness prohibition that prohibits acts or practices that take unreasonable advantage of a consumer’s reasonable reliance on a company to act in the interests of the consumer. Continue Reading Abusiveness: Muddying the Waters

In January, we wrote about the CFPB’s latest lawsuit predicating an alleged federal UDAAP violation on the violation of a state law. The case involves claims against a mortgage lender who allegedly employed individuals working as loan originators, but who were not licensed as loan originators as required by state law. We noted that the CFPB claimed this conduct not only violated Regulation Z—which requires loan originators to be licensed in accordance with state law—but was also deceptive. The deception claim only alleged that the misrepresentation that the loan originators were licensed “might have” impacted consumer decisionmaking. As we previously noted, however, “a representation is only material if it is ‘likely’ to affect a consumer’s behavior—that a consumer ‘might have acted differently’ is not enough.”

The CFPB has now apparently recognized the deficiency in its pleading and recently filed an amended complaint in the case. The amended complaint adds no new claims; its primary purpose appears to be shoring up the deception claim by striking “might have” and replacing it with “would likely have,” so that the CFPB’s allegation now reads: “[The Lender’s] misleading misrepresentations, omissions, or practices were material because a reasonable consumer would likely have acted differently, including by taking their business elsewhere, saving time and money, if informed of the truth.” (emphasis added) To drive the point home, the CFPB has also added a new paragraph to the complaint alleging that “[the Lender’s] express misrepresentations were material to consumers’ decision-making with respect to choosing their mortgage originator, because they presumptively affected the consumer’s conduct or decision with regard to their mortgage originator.” (emphasis added) Here, the CFPB is relying on the principle that express misrepresentations are presumed to be material. These edits appear to cure the prior pleading deficiency, but it will be interesting to see if the defendant or the court pick up on the CFPB’s prior formulation to argue that the Complaint does not allege any facts demonstrating such likely consumer reliance. In any event, the CFPB appears firmly committed to alleging federal UDAAP claims whenever it believes it can do so, regardless of whether other more clearly applicable claims also apply to the conduct at issue.