Photo of Kristie D. Kully

On October 4, the Consumer Financial Protection Bureau (“CFPB”) issued an interim final rule and a proposed rule related to the 2016 Mortgage Servicing Final Rule to clarify the timing of and facilitate the provision of certain required communications with borrowers.

The CFPB amended its mortgage servicing rules in August 2016, to go into effect in large part on October 19, 2017 (the “2016 Final Rule”). One provision of the 2016 Final Rule requires mortgage servicers to send certain delinquent borrowers early intervention notices, modified for use with a borrower who has requested a cease in communication under the Fair Debt Collection Practices Act (“FDCPA”). The FDCPA allows borrowers to request that servicers and other companies refrain from contacting them except in certain circumstances, such as when a borrower becomes delinquent. The 2016 Final Rule exempts servicers from sending the early intervention notices only in situations where the borrower does not have a loss mitigation option available or where the borrower is a debtor in bankruptcy.

Under the 2016 Final Rule, mortgage servicers, when communicating with consumers who have invoked the FDCPA’s cease communication right, were required to provide the consumers modified early intervention notices, but only once every 180 days. Continue Reading It’s All in the Timing: CFPB Addresses Timing Challenges in 2016 Mortgage Servicing Rules

On October 5th, the CFPB finalized its long-awaited payday lending rule, reportedly five years in the making. The final rule is substantially similar to the proposal the Bureau issued last year. However, the Bureau decided not to finalize requirements for longer-term high-cost installment loans, choosing to focus only on short-term loans and longer-term loans with a balloon payment feature.

The final rule will be become effective in mid-summer 2019, 21 months after it is published in the Federal Register (except that provisions facilitating “registered information systems” to which creditors will report information regarding loans subject to the new ability-to-repay requirements become effective 60 days after publication).

The final rule identifies two practices as unfair and abusive: (1) making a covered short-term loan or longer-term balloon payment loan without determining that the consumer has the ability to repay; and (2) absent express consumer authorization, making attempts to withdraw payments from a consumer’s account after two consecutive payments have failed. Continue Reading CFPB’s Final Payday Lending Rule: The Long and Short of It

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

As part of MBA’s Compliance Essentials program (and in support of its Certified Mortgage Compliance Professional (CMCP) designation), Kris Kully will participate in a panel outlining how the Dodd Frank Act and its regulations continue to change the compliance framework for mortgages. That panel takes place on Sunday, September 17th.

On Monday, September 18th, Melanie Brody will address HMDA issues, including several that are still unresolved as we approach the 2018 effective date.

Also on Monday, Phillip Schulman will participate in a roundtable discussion on the always-hot RESPA Section 8 issues.

On Tuesday, September 19th, Krista Cooley will participate in a panel on mortgage loan servicing. The “Servicing Compliance Developments under the New CFPB Rule” panelists will cover topics including the CFPB’s new regulatory requirements and recent legal decisions impacting mortgage servicing. Krista’s comments will focus on developments in government loan servicing, including recent regulatory reform efforts in this area.

Also on Tuesday, Larry Platt will join a panel of other experts to discuss hot topics in mortgage compliance.

We look forward to seeing you!

The ABA Business Law Section is holding its 2017 Annual Meeting in Chicago next week and will offer over 90 CLE programs and many more committee meetings and events.

Mayer Brown’s Financial Services Regulatory & Enforcement (FSRE) partner David Beam (Washington DC) will moderate a panel on payment network rules and their impact in the marketplace. FSRE partner Melanie Brody (Washington DC) will participate on a panel on how fintech is changing the way consumer credit offerings work.

FSRE associate Matthew Bisanz (Washington DC) will co-moderate, and FSRE partner Stephanie Robinson (Washington DC) will participate on, a panel discussing innovative enforcement techniques being employed by bank regulators and how the industry can adapt to them. FSRE associate Eric Mitzenmacher (Washington DC) will participate on a panel on bank technology services and marketplace lending developments.

Mayer Brown’s Government Relations partner Mitchell Holzrichter (Chicago) will participate on a panel discussing the life-cycle of public-private partnership projects.

For more information, please visit the event webpage.

A Texas federal court has struck down the 2016 U.S. Department of Labor’s rule that would have greatly increased the number of employees eligible for overtime pay.

This may seem like old news to those who have been following the rule. In November 2016, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued a preliminary junction, preventing the rule from becoming effective (which would otherwise have occurred in December 2016). The rule would have significantly raised the salary level that qualifies an employee for an exemption from overtime eligibility under the Fair Labor Standards Act regulations. Judge Mazzant stated that, pending further review by the court, the rule’s challengers were likely to be able to show that such a significant increase would exceed the agency’s authority.  (We addressed that decision in a prior post on this blog.)

The Department (then under the Obama Administration) appealed that ruling to the Court of Appeals for the Fifth Circuit. Even after the change in administration, the Department asked the court to overturn the injunction, asserting that the Department has the authority to use a salary test for the exemption. New Labor Secretary Acosta reportedly indicated in congressional hearings that while he believes the rule set the salary test too high, the overtime exemption nonetheless needed updating. The Department requested public input on whether the exemption should have a salary level test, and if so what that level or levels should be. The request also addressed certain other topics related to the exemption, such as the extent to which commissions should count toward meeting the test, and whether the level should be automatically updated. The comment period for the Department’s request ends on September 25th.

The news is that last week, Judge Mazzant issued a final summary judgment in the original challenge to the rule. He agreed with his preliminary statements that the Department lacks the authority to establish such a high salary test, as that test then essentially supplants other criteria (such as the types of duties the employee performs) for determining who is exempt from overtime eligibility. The court’s ruling makes the pending appeal to the Fifth Circuit moot.

Questions remain, though, as to what the current administration will do regarding employees’ eligibility for overtime pay. According to estimates, the prior rulemaking would have affected 4.2 million employees, but it faced opposition from many types of employers (and consequently from many on Capitol Hill). The Department now specifies that it will not advocate for such an expansion. Accordingly, if and when Secretary Accosta resurrects the overtime exemption, odds are that number will come down.

The Consumer Financial Protection Bureau issued a proposed rule that would raise the threshold temporarily for institutions that will be required to collect and report data on home equity lines of credit (HELOCs).

Financial institutions that must collect and report data under the Home Mortgage Disclosure Act (HMDA) will start to feel the brunt of the CFPB’s HMDA overhaul relatively soon. Beginning January 1, 2018, new thresholds for determining which institutions must collect and report HMDA data (including the extensive set of new data elements) are set to become effective. As it stands, those institutions will include those that, in addition to other criteria, originated at least 25 closed-end mortgage loans or 100 open-end lines of credit in each of the two preceding calendar years. Accordingly, in connection with HELOCs, if the institution did not originate 100 open-end lines of credit in both of those past two years, the Bureau will not require the institution to collect and report data on those loans.

As indicated in the Bureau’s recent proposed rule, it has learned that the 100-HELOC threshold may be too low, and may impose significant costs on relatively small HELOC lenders. The Bureau indicated that the number of open-end loan originations is continuing to rise, so the threshold may capture more institutions than previously estimated. Further, while the Bureau previously thought that the start-up costs of implementing new technology for capturing and reporting data on HELOCs are sometimes not quite as overwhelming for small institutions (since they may not be as burdened by legacy systems), the Bureau now believes it may have underestimated those costs. HMDA reporting on HELOCs has historically been voluntary – many lenders originate those loans through separate business units using separate systems, and have not needed to consolidate those processes or otherwise collect that data until now. Accordingly, the Bureau is proposing to relieve those institutions that originate fewer than 500 open-end lines of credit in either of the preceding two years from having to collect and report data on those loans.

This higher threshold applies both to whether an institution is a reporting “financial institution,” and with regard to the types of transactions a reporting “financial institution” must report.

The proposed rule would raise the HELOC threshold to 500 open-end lines of credit just for two years, until January 1, 2020, at which time the threshold will revert back to 100 such loans. The agency will use that time to reassess whether it should adjust the threshold permanently.

Comments on the proposed rule are due in just two weeks (by July 31, 2017) – arguably indicating that the Bureau does not expect much opposition to this proposal. The Bureau reportedly hopes to finalize this rule along with the technical corrections it proposed in April 2017.

UPDATE June 8:
The House of Representative approved the Financial CHOICE Act, with a vote largely on party lines of 233 to 186.  While the Senate Banking Committee is and has been considering financial reform proposals, it is unlikely that the Financial CHOICE Act as passed by the House will progress in the Senate.

UPDATE June 7:
As expected, House Rules Committee approved a rule on June 6 allowing 90 minutes of general debate that will permit the Republicans to offer 6 amends. Floor consideration expected to start this afternoon or first thing tomorrow morning.

The House Rules Committee has scheduled a meeting on the CHOICE Act for 5:00 PM Tuesday, June 6, to consider the amendments that have been submitted as well as a rule for floor consideration. It is expected that the Committee will issue a rule to bring the bill to the House floor on Wednesday, and that rule is likely to provide for debate and floor consideration of amendments.

There is some speculation that Democratic members may withdraw their amendments in a show of opposition to the bill, similar to their decision last Congress not to participate in the Committee mark-up.  We understand that the Majority Whip, Rep. McCarthy (R-CA), has placed the bill on the calendar for Wednesday, June 7th, subject to the Rules Committee completing its work. Depending on the final number of amendments to be considered (if any), and the time provided for debate, it is possible that the bill could pass as early as Wednesday evening.

*John Mirvish is not admitted to practice law in the District of Columbia.

Flood insurance reform continues to generate interest from Congress, particularly in the context of the National Flood Insurance Program (NFIP) reauthorization debate. (The program will expire September 30, 2017, absent reauthorization or a continuing resolution.)

In December we discussed a proposed rule to implement the statutory definition of “private flood insurance.” That proposal was related to the Biggert-Waters Flood Insurance Reform Act’s requirement that the agencies issue a rule directing lending institutions to accept such insurance, with the goal of stimulating the private flood insurance market.  In March, Senators Heller (R-NV) and Tester (D-MT), and Reps. Ross (R-FL) and Castor (D-FL),** reintroduced legislation to further define “private flood insurance,” seeking to clarify the issue, and the Senate Committee on Banking, Housing, and Urban Affairs recently held hearings on the Senate version of that legislation. Continue Reading Redefining Private Flood Insurance*

On May 15, the Supreme Court held that a debt collector does not violate the Fair Debt Collections Practices Act (FDCPA) by knowingly attempting to collect a debt in bankruptcy proceedings after the statute of limitations for collecting that debt has expired. As explained in Mayer Brown’s Decision Alerts, the FDCPA generally prohibits a debt collector from using false, deceptive, or misleading representations or means in collecting debts. In the opinion for the Court, Justice Breyer looked to state law to determine whether the creditor had a right to payment. Under Alabama law, a creditor has the right to payment of a debt even after the limitations period has expired. Accordingly, a creditor may legitimately claim the existence of a debt even if the debt is no longer enforceable in a collection action. Likewise, the streamlined rules of bankruptcy proceedings mean that it is not obviously “unfair” for a creditor to inject an additional claim into the proceedings, even if it would be unfair for a creditor to file a standalone civil action to collect a time-barred debt.

In addition, the Court also held that the Federal Arbitration Act (FAA) preempts any state law that discriminates against arbitration on its face, and any rule that disfavors contracts with features of an arbitration agreement. Mayer Brown, which represented the petitioner before the Court, explained the case in its Decision Alerts.  The FAA requires courts to place arbitration provisions on an equal footing with other contract terms. However, the Kentucky Supreme Court had refused to enforce two arbitration provisions executed by individuals holding powers of attorney, because the power-of-attorney documents did not specifically mention arbitration or the ability to waive the principals’ right to trial by jury. The Supreme Court held that Kentucky’s rule violates the FAA by singling out arbitration agreements for disfavored treatment, explaining that “the waiver of the right to go to court and receive a jury trial” is a “primary characteristic of an arbitration agreement.” The Court explained that the FAA “cares not only about the ‘enforce[ment]’ of arbitration agreements, but also about their initial ‘valid[ity]’—that is, about what it takes to enter into them.”  The Court also pointed out that a contrary interpretation would make it “trivially easy” for courts hostile to arbitration to undermine the FAA—“indeed, to wholly defeat it.”

For more docket reports and decision alerts, go to Mayer Brown’s appellate.net.

Once again, the Consumer Financial Protection Bureau (“CFPB”) is providing compliance tips through its Supervisory Highlights for lenders making non-Qualified Mortgages (“non-QMs”). In its latest set of Highlights, the CFPB addresses how a lender must consider a borrower’s assets in underwriting those loans, and clarifies that a borrower’s down payment cannot be treated as an asset for that purpose, apparently even if that policy has been shown to be predictive of strong loan performance.

The Dodd-Frank Act and the CFPB’s Ability to Repay Rule generally require a lender making a closed-end residential mortgage loan to determine that the borrower will be able to repay the loan according to its terms. A lender may choose to follow the Rule’s safe harbor by making loans within the QM parameters. Alternatively, a lender may opt for more underwriting flexibility (and somewhat less compliance certainty). When making a non-QM, a lender must consider eight mandated underwriting factors and verify the borrower’s income or assets on which it relies using reasonably reliable third-party records. As one of those eight factors, the lender must base its determination on current or reasonably expected income from employment or other sources, assets other than the dwelling that secures the covered transaction, or both. Continue Reading CFPB Prohibits Considering Down Payments for Non-QMs