On January 13, 2021, the Bureau issued a guidance statement regarding the provision of financial products and services to consumers with limited English proficiency (the Statement). In the Statement, the Bureau defines a consumer with “limited English proficiency” or a “limited English proficient” (LEP) consumer as a person who has a limited ability to read, write, speak, or understand English.

Noting that LEP consumers have considerable credit needs but often encounter language access issues that make it difficult for them to participate in the consumer financial marketplace, the Bureau issued its Statement to encourage financial institutions to promote access to credit by better serving LEP consumers. Financial institutions and other interested parties have been anticipating this guidance for some time. LEP was one of the topics that received the most comments in response to the Bureau’s ECOA RFI, with many commenters calling for the Bureau to issue guidance to reduce regulatory uncertainty and provide lenders with flexibility to proactively reach out to LEP consumers in their preferred language. Many financial service providers expressed a desire to offer financial products and services to LEP consumers, but concern about how to do so in compliance with applicable regulations, including UDAAP and ECOA. Two of the biggest questions revolved around challenges that arise in making (1) language selection (in which language or languages to provide products and services), and (2) product and lifecycle selections (which products and services should be offered in non-English languages and at what stages of the product lifecycle).

The Statement offers guidance in two main parts. Section B.1 provides five general principles for financial institutions to consider. Section B.2 provides guidelines for implementing those principles and developing compliance solutions.

The guiding principles of section B.1 are:

  1. The Bureau encourages financial institutions to better serve LEP consumers while ensuring compliance with relevant Federal, State, and other legal requirements.
  2. Financial institutions that wish to implement pilot programs or other phased approaches for rolling out LEP-consumer-focused products and services may consider doing so in a manner consistent with the guidelines in section B.2.
  3. Financial institutions may consider developing a variety of compliance approaches related to the provision of products and services to LEP consumers consistent with the guidelines in section B.2.
  4. Financial institutions may mitigate certain compliance risks by providing LEP consumers with clear and timely disclosures in non-English languages describing the extent and limits of any language services provided throughout the product lifecycle.
  5. Financial institutions may wish to consider extending credit pursuant to a legally compliant special purpose credit program (SPCP) to increase access to credit for certain underserved LEP consumers.

The guidelines and key considerations of section B.2 include the following key considerations:

Language selection. The Bureau noted that RFI commenters pointed out that because there are over 350 languages spoken in the United States, it would be unrealistic and cost prohibitive for any financial institution to fulfill all the credit needs of all customers in all languages. Accordingly, the Statement provides that financial institutions are permitted to consider documented and verifiable information such as Census Bureau data or the stated language preferences of its customers in determining whether to offer non-English language services and in which language or languages to do so. The Bureau is not mandating any particular approach, but says it has previously noted that nationwide institutions largely choose to focus on serving Spanish-speaking consumers, while regional institutions typically align with local demographics.

Product and service selection. In terms of product and service selection, financial institutions are free to consider things like the extent to which LEP consumers use particular products as well as the availability of non-English language services. They may also consider which activities and communications have the most significant impact on consumers; for example, verbal or written communications conveying essential information about credit terms and conditions.

Language preference collection and tracking. The Bureau specifically states that financial institutions do not violate ECOA or Regulation B when they collect an applicant’s language preference in a credit transaction. The Bureau notes that in the mortgage context, it previously issued an official approval of the final redesigned Uniform Residential Loan Application (URLA), which was to include a question about language preference. Even though FHFA opted to remove that question from the URLA, the Bureau confirms in the Statement that institutions may use that question without violating Regulation B or ECOA. The Bureau cautions that language preference information should not be used in a discriminatory way, such as by excluding consumers from offers they would have otherwise been provided.

Translated documents. Certain federal and state laws require the provision of translated documents under certain circumstances, and the Statement reminds financial institutions that nothing in the Statement alters the applicability of those requirements. But where a translation is not legally mandated, financial institutions are free to assess whether to provide translated documents. If they choose to do so, however, they must ensure the accuracy of those translations. This is obviously a big concern for many institutions, but the Bureau notes that several federal financial regulatory agencies have published resources to draw from, including glossaries of financial terms, for example. The Statement again suggests that financial institutions should seek to prioritize communications and activities that have the most significant impact on consumers. The Bureau indicated its commitment to providing more translated documents in the future.

Section B.2 also discusses certain generally applicable compliance management system (CMS) guidelines. Strong compliance management systems will affirmatively consider how to serve LEP consumers. The Statement offers some specific detail about components that can be included to mitigate fair lending and other risks.

Documentation of decisions. The Statement encourages financial institutions to document its decision making in the selection of language, products, and services.

Monitoring. Financial institutions should consider assessing the quality of customer assistance provided in non-English languages, and should monitor or conduct regular assessments of their advertising and marketing.

Fair lending testing. The Bureau encourages lenders to engage in regular statistical analysis of loan-level data for potential disparities on a prohibited basis in underwriting, pricing or other aspects of the credit transaction.

Third-party vendor oversight. Financial institutions are responsible for ensuring that their third-party service providers offering products or services on its behalf to LEP consumers do not violate applicable laws. Accordingly, they should implement an oversight program, with particular attention paid to third parties who participate in underwriting or pricing decisions.

Serving LEP consumers is a complicated area with many challenges, but the Statement tries to achieve the right balance by offering compliance principles and guidelines that encourage financial institutions to assist LEP consumers, without being overly prescriptive.

On November 30, 2020, the US Consumer Financial Protection Bureau (CFPB) issued its final Advisory Opinion Policy, along with two Advisory Opinions (AOs) addressing the applicability of the Truth in Lending Act (TILA) to certain earned wage access (EWA) programs and private education loans. The CFPB first proposed a pilot AO program in June 2020. In this Legal Update, we analyze the EWA AO, including: (1) the regulatory landscape for EWA programs prior to the AO; (2) application of TILA and consumer credit laws to EWA programs based on the AO; and (3) the practical implications of the AO on EWA programs more generally.

Read more in Mayer Brown’s Legal Update.

The Consumer Financial Protection Bureau (“CFPB”) issued two relatively welcome surprises yesterday. First, along with ditching a debt-to-income ratio (“DTI”) ceiling, the agency expanded its proposed general Qualified Mortgage (“QM”) to include loans up to 2.25 percentage points over the average prime offer rate. Mortgage lenders can opt in to the new QM as early as 60 days after the rule is published (so, likely by late February 2021), although compliance becomes mandatory July 1, 2021. Second, the CFPB will begin allowing loans to season into a QM after 36 months of timely payments, so long as the loan is not sold more than once (and is not securitized) during that time.

The CFPB otherwise recently issued a separate final rule, confirming once and for all that the GSE Patch – a temporary QM category for loans eligible for purchase by Fannie Mae or Freddie Mac – would expire on the mandatory compliance date of the agency’s rule revising the general QM definition. Since 2014, in general terms, a closed-end residential mortgage loan could only constitute a QM if the borrower’s DTI did not exceed 43%, or if the loan were GSE-eligible. As the GSE Patch’s expiration date (January 10, 2021) loomed, the CFPB promised to rethink the 43% DTI requirement and provide for a smooth and orderly transition to a post-Patch QM. In considering the public comments it received, the CFPB decided to loosen up on a couple of its proposals.

Specifically, the new general QM and its compliance protection will apply, under the final rule, to a covered transaction with the following characteristics:

  • The loan has an annual percentage rate (“APR”) that does not exceed the average prime offer rate (“APOR”) by 2.25 or more percentage points;
  • The loan meets the existing QM product feature and underwriting requirements and limits on points and fees;
  • The creditor has considered the consumer’s current or reasonably expected income or assets, debt obligations, alimony, child support, and DTI ratio or residual income; and
  • The creditor has verified the consumer’s current or reasonably expected income or assets, debt obligations, alimony, and child support.

The final rule removes the 43% DTI threshold and the troublesome Appendix Q. Continue Reading CFPB Issues New QM Definition and Seasoning Provisions

Consumer financial services providers likely think of state licensing requirements as a state law compliance issue. But the Consumer Financial Protection Bureau (CFPB) views these issues as federal matters as well. In a consent order issued December 8, 2020, the CFPB asserted that an unlicensed debt collector’s threat of suit and actual suit to collect on a debt violated the federal prohibition against deceptive practices. The consent order represents the CFPB’s latest action that essentially federalizes state law violations. Continue Reading State Licensing and Federal UDAAP – What’s the Connection?

On October 30, 2020, the US Consumer Financial Protection Bureau announced a final rule, Regulation F, to implement the Fair Debt Collection Practices Act.  The final rule comes nearly 18 months after the proposed rule and more than four years after the CFPB first released an initial outline of debt collection proposals.  The final rule does not deviate substantially from the proposals, but covered entities should take careful note of the final rule’s many detailed procedures and examples, particularly with respect to email and text communications, time and place restrictions, frequency of telephone contact, and communications via social media. With an implementation deadline looming in approximately one year, covered entities should begin preparing now for the many changes ahead.

Read more in Mayer Brown’s Legal Update.

Should US state nonbank mortgage servicers be subject to “safety and soundness” standards of the type imposed by federal law on insured depository institutions, even though the nonbanks do not solicit and hold customer funds in federally insured deposit accounts or pose a direct risk of a government bailout? Well, state mortgage banking regulators think so. On September 29, 2020, the Conference of State Bank Supervisors, an organization made up of state regulators, released proposed prudential standards for state oversight of nonbank mortgage servicers. The CSBS pointed to a “changed nonbank mortgage market” as the driver of the proposed standards, emphasizing that nonbank mortgage servicers now service roughly 40% of the total single-family residential mortgage market. Comments from interested parties are due by December 31, 2020.

Read more in Mayer Brown’s Legal Update.

On October 28, 2020, the CFPB’s Private Education Loan Ombudsman published its annual report on student loans, as required by the Dodd-Frank Act. Despite an increased focus on student loans by many state legislatures and regulators and some members of Congress, the report reflects a significant decline in the number of consumer complaints about student loans over the past year. The report analyzes complaints submitted by consumers about student lenders and servicers between September 2019 and August 2020. Notably, the report covers a period during which many student loan borrowers have experienced financial hardships as a result of the COVID-19 pandemic and the federal government – as well as some state governments (in partnership with holders of private student loans) – has offered a myriad of loss mitigation options for eligible student loan borrowers.

Continue Reading 2020 CFPB Student Loan Ombudsman’s Report Shows Significant Trend of Declining Consumer Complaints

Last week, a pair of fair housing organizations got their wish when a federal judge in Massachusetts granted their request for a preliminary injunction and stay of the effective date of the Department of Housing and Urban Development’s (HUD) new disparate impact rule (the “2020 Rule”), discussed in our recent fair lending newsletter. Plaintiffs Massachusetts Fair Housing Center and Housing Works, Inc. filed a motion in the U.S. District Court for the District of Massachusetts seeking to vacate HUD’s 2020 Rule under the Administrative Procedure Act (APA), on the grounds that it is “contrary to law,” “arbitrary and capricious,” and that certain of its provisions violate the APA’s notice and comment requirements. The court only addressed the plaintiffs’ second argument—that the 2020 Rule is arbitrary and capricious—which it found was likely meritorious.

The court compared the disparate impact rule HUD had issued in 2013 (“2013 Rule”) to the 2020 Rule. Both versions of the rule state the general premise that liability may be established under the Fair Housing Act based on a practice’s discriminatory effect, if the practice was not motivated by a discriminatory intent. But as the court noted, the 2020 Rule significantly altered the 2013 Rule’s standards. The court found that the changes HUD had made constituted a “massive overhaul” of HUD’s disparate impact standards, by introducing onerous pleading requirements on plaintiffs while simultaneously easing the burden on defendants and arming them with broad new defenses. Continue Reading More Uncertainty around the Future of the Disparate Impact Theory of Liability

We recently received a response to several FOIA requests we had made  to the Consumer Financial Protection Bureau (CFPB or Bureau) regarding various enforcement statistics and processes. Because the CFPB does not make these materials generally available to the public, we share them here. The materials include the Enforcement Policy and Procedures Manual and Consent Order template, and data regarding the number enforcement investigations, opened, closed and pending each fiscal year, and the number of matters referred from supervision to enforcement.  Continue Reading CFPB: Enforcement Manual and Stats

On October 20, 2020, the Consumer Financial Protection Bureau (the Bureau) issued a final rule extending the Government-Sponsored Enterprise (GSE) Patch until the Bureau’s general qualified mortgage (QM) changes kick in. To keep from spooking the residential mortgage markets, the Bureau’s final rule accomplishes three main objectives:

  1. Retains the temporary GSE qualified mortgage (QM) safe harbor until compliance with the Bureau’s revised general QM definition becomes mandatory, but without any overlap period as some commenters requested;
  2. Establishes an implementation period to facilitate the transition to the revised general QM loan definition, and suggests the adoption of an “optional early compliance period” for transitioning to the revised general QM before the mandatory compliance date; and
  3. Resolves the frightful gap the Bureau’s proposal threatened to create by terminating the GSE Patch in accordance with the date of loan application, as opposed to the date of loan consummation.

For those who have been cowering in the shadows, the GSE Patch refers to a temporary compliance safe harbor the Bureau granted in 2014 for loans eligible for purchase by Fannie Mae or Freddie Mac. Those GSE-eligible loans have been deemed to comply with federal ability-to-repay requirements applicable to closed-end residential mortgage loans. The GSE Patch grants QM status to certain loans excluded by the general QM definition – notably, loans with a debt-to-income ratio that exceeds 43%. The GSE Patch is set to expire on January 10, 2021, or when the GSEs are released from conservatorship, whichever occurs first. The Bureau is otherwise revising its general QM definition, in part to ensure that the Patch expiration does not deprive worthy borrowers of access to credit.

In establishing the end date for the GSE Patch, the Bureau’s final rule first clarifies that there will not be an “overlap period.” Continue Reading That’s the Spirit: The Haunting of the CFPB’s GSE Patch