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Earlier this week, the Bureau released the Winter 2019 edition of Supervisory Highlights.  This marks the first edition issued under the CFPB’s new Director, Kathy Kraninger, who was confirmed to a five-year term in December.  The report describes observations from examinations that were generally completed between June and November 2018 and summarizes recent publicly-released enforcement actions and guidance.

Like the sole edition of Supervisory Highlights issued under Acting Director Mick Mulvaney’s tenure, this edition emphasizes that “it is important to keep in mind that institutions are subject only to the requirements of relevant laws and regulations,” and that the purpose of disseminating Supervisory Highlights is to “help institutions better understand” how the Bureau examines them for compliance—statements that signal a shift in how the Bureau approaches its supervisory role. Continue Reading First Supervisory Highlights Under Director Kraninger Reflects Focus on Corrective Action and Prevention of Harm

On February 6, 2019, the CFPB issued a proposal to reconsider the mandatory underwriting provisions of its pending 2017 rule governing payday, vehicle title, and certain high-cost installment loans (the Payday/Small Dollar Lending Rule, or the Rule).

The CFPB proposed and finalized its 2017 Payday/Small Dollar Lending Rule under former Director Richard Cordray. Compliance with that Rule was set to become mandatory in August 2019. However, in October 2018, the CFPB (under its new leadership of former Acting Director Mick Mulvaney) announced that it planned to revisit the Rule’s underwriting provisions (known as the ability-to-repay provisions), and it expected to issue proposed rules addressing those provisions in January 2019. The Rule also became subject to a legal challenge, and in November 2018 a federal court issued an order staying that August 2019 compliance date pending further order.

The 2017 Rule had identified 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 the loan; and (2) absent express consumer authorization, making attempts to withdraw payments from a consumer’s account after two consecutive payments have failed. Under that 2017 Rule, creditors would have been required to underwrite payday, vehicle title, and certain high-cost installment loans (i.e., determine borrowers’ ability to repay). The Rule also would have required creditors to furnish information regarding covered short-term loans and covered longer-term balloon loans to “registered information systems.” See our previous coverage of the Rule here and here. Continue Reading CFPB Announces Proposal to Revoke (Most of) the Payday/Small Dollar Lending Rule

While most of the federal government remained shuttered in mid-January, the Consumer Financial Protection Bureau (CFPB or the Bureau) was on the job, thinking about the Military Lending Act (MLA or the Act). On January 17, 2019, the Bureau’s Director, Kathleen Kraninger, issued a statement asking Congress to “explicitly grant the Bureau authority to conduct examinations specifically intended to review compliance with the MLA.” Director Kraninger’s predecessor, Mick Mulvaney, reportedly halted MLA-related examinations last year, citing the lack of statutory authority . It appears from the Director’s request that the CFPB may not conduct MLA compliance examinations without new legislation.

The MLA—enacted in 2006 and implemented by the Department of Defense—provides enhanced protection to active duty service members, their spouses, and their dependents when they obtain certain types of loan products. One of the main protections prevents creditors from imposing more than a 36% Military Annual Percentage Rate (an annualized rate including interest and other fees) on a covered individual for certain products. The Act also prohibits certain loan terms, such as mandatory arbitration clauses or prepayment penalties.

Congress granted the Bureau enforcement authority for the MLA’s requirements in 2013. At the time, the Bureau interpreted the scope of that new authority to include supervision—the authority to proactively examine covered institutions for violations of the Act. In its Supervisory Highlights for Winter 2013, the Bureau stated that it would ensure adherence to the MLA through both enforcement and supervision activity, and noted that it had updated its short-term, small-dollar loan examination procedures with guidance on how to identify MLA violations. The Bureau then issued a set of standalone examination procedures for MLA compliance in 2016. The Bureau has taken one enforcement action based on MLA violations—a consent order issued in 2013.

The Bureau has not issued any formal guidance regarding MLA-related supervisory activity since 2016. However, in August 2018, it was widely reported that then-Acting Director Mulvaney planned to suspend MLA-related examinations. The basis for the suspension was reportedly that, although the MLA legislation granted the Bureau enforcement authority, the Act did not grant supervisory authority. In other words, the Bureau planned to continue to exercise its enforcement authority as violations of the MLA came to its attention, but CFPB examiners would not proactively monitor covered institutions for violations.

Subsequent to those reports, Democratic members of the House Committee on Financial Services (HCFS)—including current HCFS Chair Maxine Waters—sent a letter to Director Kraninger requesting that she commit to resuming MLA-related supervisory activity. The Director responded by issuing the above-mentioned request for legislation explicitly granting the Bureau supervisory authority over the MLA. Based on the wording of Director Kraninger’s request, it appears that the Bureau may not conduct “examinations specifically intended to review compliance with the MLA” until it receives explicit legislative authority from Congress.

In conjunction with her request, Director Kraninger submitted to lawmakers proposed legislation that would grant the Bureau supervisory authority for the MLA’s requirements. A week prior to the Director’s request, Representative Andy Barr introduced House Resolution 442, which would also grant the requested authority. The prospects for either proposal are unclear in a divided Congress.

The Bureau of Consumer Financial Protection now has the third Director in its history. On December 6, the Senate confirmed Kathleen (“Kathy”) Kraninger on a 50-49 party-line vote to a five-year term as Director, ending Mick Mulvaney’s year-long tenure as Acting Director. Mulvaney’s tenure was marked by elements of both change and continuity from the agency’s first Director, Richard Cordray, as we discuss here. The most marked departures from the Cordray era relate to the number of enforcement actions brought by the agency and the retreat from the payday lending rule that the agency had finalized at the end of Cordray’s tenure.

The independence of the Director, which Democrats have tenaciously fought for, may now come back to haunt them, as Kraninger’s term runs to December 2023—nearly three years into the next presidential administration. As then-Judge Kavanaugh pointed out at the oral argument in the PHH case before the D.C. Circuit (in a line that drew laughter from the audience for its not-so-veiled reference to Elizabeth Warren), “the new President, might be a different party, might have run on a platform of consumer protection, might be the person who created the Consumer Protection Agency, and will not have the authority to do anything about that for three years.” Of course, there are still pending challenges to the constitutionality of the agency, and maybe the result of those challenges—or other political realities—will lead to the creation of a Commission to run the agency. But for now, Director Kraninger is in charge. As has been the case throughout the Bureau’s history, the political spotlight will continue to shine on it.

The Summer 2018 edition of Supervisory Highlights –the first one the BCFP has issued under Mick Mulvaney’s leadership – is much the same as previous editions. In it, the Bureau describes recent supervisory observations in various industries, and summarizes recent public enforcement actions as well as supervision program developments.

One aspect of the report that is notably different, however, is the introductory language. In prior regular editions of Supervisory Highlights, the report’s introduction would emphasize the corrective action that the Bureau had required of supervised institutions. It would highlight the amount of total restitution to consumers and the number of consumers affected by supervisory activities, and would note the millions of dollars imposed in civil money penalties.

This new version eliminates all of that discussion from the introduction. Instead, the Bureau has added language emphasizing that “institutions are subject only to the requirements of relevant laws and regulations” and that the purpose of disseminating these Supervisory Highlights is to “help institutions better understand how the Bureau examines institutions” to help industry limit risks to consumers.

The first sentence of the report, which in previous iterations used to say that the Bureau is “committed to a consumer financial marketplace that is fair, transparent, and competitive, and that works for all consumers” now says the Bureau is committed to a marketplace that is “free, innovative, competitive, and transparent, where the rights of all parties are protected by the rule of law, and where consumers are free to choose the products and services that best fit their individual needs.”

Ultimately, time will tell whether this is simply rhetoric or if the Bureau’s supervisory and enforcement posture will be dramatically different from that under Mulvaney’s predecessor. Continue Reading BCFP’s Latest Supervisory Highlights

On July 30, 2018, the U.S. Department of the Treasury issued its much-anticipated report on reshaping Fintech regulation.  “A Financial System That Creates Economic Opportunities — Nonbank Financials, Fintech, and Innovation,” available here, focuses on the regulation of financial technology and makes more than 80 recommendations related to Fintech and nonbank financial policy, including:

  • endorsing so-called regulatory sandboxes;
  • ending the CFPB’s small-dollar lending rule;
  • increasing consumers’ control over their data;
  • establishing a national data breach notification standard; and
  • endorsing the OCC’s Fintech charter proposal.

The report also proposes an approach to conforming some of the differences in state-by-state financial regulation and advocates for greater legal certainty in nonbank lending.  Stay tuned for Mayer Brown’s forthcoming analysis of the key aspects of the report.

 

On July 26, 2018, the Federal Reserve Board (“FRB”) announced the launch of a new publication called the Consumer Compliance Supervision Bulletin. Similar to the Bureau of Consumer Financial Protection’s (“BCFP”) Supervisory Highlights, the new publication summarizes examiners’ observations from recent supervisory activities and offers guidance on what supervised institutions can do to address consumer compliance risks. The first bulletin focuses on three areas: fair lending, unfair or deceptive acts or practices (“UDAP”), and recent regulatory and policy developments. Continue Reading Key Takeaways from the Fed’s July 2018 Consumer Compliance Supervision Bulletin

Nearly seven months into Mick Mulvaney’s tenure as Acting Director of the Bureau of Consumer Financial Protection (Bureau), the agency issued just its second enforcement action under his leadership on June 13, 2018. You may have missed it, as the press release was not pushed out through the Bureau’s email notifications and the cursory press release may have flown under your radar. The settlement is with a parent company and its subsidiaries that originated, provided, purchased, serviced, and collected on high-cost, short-term secured and unsecured consumer loans. The consent order contains allegations of violations of the prohibition on unfair practices under the Consumer Financial Protection Act and of the Fair Credit Reporting Act, and requires the respondents to pay a $5 million civil money penalty. Notably, the consent order does not require any consumer redress, despite Mr. Mulvaney’s stated intent to only pursue cases with “quantifiable and unavoidable” harm to consumers.

Debt Collection Practices

The Bureau alleges that respondents engaged in unfair in-person debt collection practices, including discussing debts in public, leaving the respondents’ “field cards” (presumably identifying the respondents) with third parties (including the consumers’ children and neighbors), and visiting consumers’ places of employment. The Bureau alleges that these practices were unfair because they caused substantial injury such as humiliation, inconvenience, and reputational damage; consumers could not reasonably avoid the harm because consumers were not informed of whether and when such visits would occur and could not stop respondents from engaging in the visits; and any potential benefit in the form of recoveries were outweighed by the substantial injury to consumers. The consent order notes that respondent attempted 12 million in-person visits to more than 1.3 million consumers over a five-year period, and requires respondents to cease in-person collection visits at consumers’ homes, places of employment, and public places. Continue Reading Mulvaney’s Bureau Issues Second Enforcement Action: Debt Collectors Beware?

Despite changes in leadership at numerous federal agencies, Washington D.C. continues to focus on lending to servicemembers. In December, Congress extended the time period for protections against foreclosure under the Servicemembers Civil Relief Act. Otherwise, those protections would have expired at the end of 2017.

In addition, the Department of Defense recently amended its Military Lending Act interpretive rule. Among other topics, the amendments address loans to purchase a motor vehicle or other property, and the extent to which the Act’s requirements exempt loans that finance amounts in addition to the purchase price.

Read more in Mayer Brown’s Legal Update.

In an email to staff, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray announced on Wednesday, November 15, that he will be stepping down this month.  His departure was widely anticipated.  Because the CFPB is headed by a single director – as opposed to a 5-member commission – the agency’s director wields enormous power. Below we address some of the most frequently asked questions regarding Director Cordray’s resignation.

Continue Reading CFPB Director Richard Cordray to Step Down