Bureau of Consumer Financial Protection (BCFP)

On October 17, the Bureau of Consumer Financial Protection (“BCFP” or “Bureau”) issued its Fall  2018 regulatory agenda.  Notable highlights include:

  • Payday Lending Rule Amendments. In January 2018, the Bureau announced that it would engage in rulemaking to reconsider its Payday Lending Rule released in October 2017.  According to the Bureau’s Fall 2018 agenda, the Bureau expects to issue a notice of proposed rulemaking by January 2019 that will address both the merits and the compliance date (currently August 2019) of the rule.
  • Debt Collection Rule Coming. The Bureau expects to issue a notice of proposed rulemaking addressing debt collection-related communication practices and consumer disclosures by March 2019.  The Bureau explained that debt collection remains a top source of the complaints it receives and both industry and consumer groups have encouraged the Bureau to modernize Fair Debt Collection Practices Act (“FDCPA”) requirements through rulemaking.  The Bureau did not specify whether its proposed rulemaking would be limited to third-party collectors subject to the FDCPA, but its reference to FDCPA-requirements suggests that is likely to be the case.
  • Small Business Lending Data Collection Rule Delayed. The Dodd-Frank Act amended the Equal Credit Opportunity Act (“ECOA”) to require financial institutions to submit certain information relating to credit applications made by women-owned, minority-owned, and small businesses to the Bureau and gave the Bureau the authority to require financial institutions to submit additional data.  In May 2017, the Bureau issued a Request for Information seeking comment on small business lending data collection.  While the BCFP’s Spring 2018 agenda listed this item as in the pre-rule stage, the Bureau has now delayed its work on the rule and reclassified it as a long-term action.  The Bureau noted that it “intends to continue certain market monitoring and research activities to facilitate resumption of the rulemaking.”
  • HMDA Data Disclosure Rule. The Bureau expects to issue guidance later this year to govern public disclosure of Home Mortgage Disclosure Act (“HMDA”) data for 2018.  The Bureau also announced that it has decided to engage in notice-and-comment rulemaking to govern public disclosure of HMDA data in future years.
  • Assessment of Prior Rules – Remittances, Mortgage Servicing, QM; TRID up next. The Dodd-Frank Act requires the Bureau to conduct an assessment of each significant rule adopted by the Bureau under Federal consumer financial law within five years after the effective date of the rule.  In accordance with this requirement, the Bureau announced that it expects to complete its assessments of the Remittance Rule, the 2013 RESPA Mortgage Servicing Rule, and the Ability-to-Repay/Qualified Mortgage Rule by January 2019.  At that time, it will begin its assessment of the TILA-RESPA Integrated Disclosure Rule (TRID).
  • Abusiveness Rule? Consistent with recent statements by Acting Director Mick Mulvaney that while unfairness and deception are well-established in the law, abusiveness is not, the Bureau stated that it is considering whether to clarify the meaning of abusiveness through rulemaking.  The Bureau under former Director Richard Cordray rejected defining abusiveness through rulemaking (although the payday rule relied, in part, on the Bureau’s abusiveness authority), preferring instead to bring abusiveness claims in enforcement proceedings to establish the contours of the prohibition.  Time will tell if the Bureau will follow through on this.

Continue Reading BCFP’s Fall 2018 Regulatory Agenda

Last week the Bureau of Consumer Financial Protection (“BCFP” or “Bureau”) issued guidance on the operations of financial institutions and other supervised entities in the wake of major disasters and emergencies. The guidance explains that supervised entities have flexibility under the existing regulatory framework to take action that could benefit affected consumers.

This is not the first time the Bureau has issued guidance on this topic. Last year, the Bureau released a statement on Hurricanes Harvey and Irma and another on Hurricane Maria. Unlike the prior guidance, the statement released last week does not address a particular emergency or disaster but applies to emergencies in general.

The new guidance echoes prior guidance by providing examples in which regulations allow flexibility. For instance:

  • Although RESPA’s Regulation X generally prohibits residential mortgage servicers from offering a loss mitigation option to borrowers based on an evaluation of an incomplete application, the guidance notes servicers may nonetheless offer short-term loss mitigation options. Because it could be difficult for consumers impacted by a disaster to obtain and submit the necessary documents to complete a timely application, this exception may allow servicers to better assist those borrowers.
  • Although ECOA’s Regulation B generally requires creditors to provide first-lien loan applicants with copies of appraisals or other written valuations promptly upon completion, or three business days prior to consummation or account opening, whichever is earlier, the guidance notes that the applicant generally may waive that timing requirement and agree to receive the copy at or before consummation or account opening (except where otherwise prohibited by law). That exception may allow supervised entities to give consumers impacted by a disaster quicker access to credit.

Unlike prior guidance that expressly “encouraged” supervised entities to take these steps, this latest guidance only states that supervised entities are permitted to use the flexibility. Continue Reading BCFP Releases New Guidance on Major Disasters and Emergencies

As the Mortgage Bankers Association gathers for its Regulatory Compliance conference next week in Washington, DC, Mayer Brown’s Consumer Financial Services group will be addressing all the hot topics.

Melanie Brody will be talking about the Equal Credit Opportunity Act (ECOA) on a panel called “Fair Lending and Equal Opportunity Laws” on Sunday, September 16.

On Monday, September 17th, Phillip Schulman will discuss trends in RESPA Section 8 compliance. He will also join in the round-table discussion of RESPA later that afternoon.

Ori Lev will speak on panel entitled “UDAAP Compliance.”

Krista Cooley will be discussing the latest developments in FHA servicing compliance. She will also field questions on the topic during the afternoon servicing round-table.

On Tuesday, September 18th, Keisha Whitehall Wolfe will discuss state compliance issues.

Also in attendance from Mayer Brown will be new partner Michael McElroy, partner David Tallman, and associates Christa Bieker, Joy Tsai, and James Williams.

We look forward to seeing you there!

 

The Bureau of Consumer Financial Protection (“BCFP” or the “Bureau”) wants your input on its proposed changes to the Trial Disclosure Programs Policy (“TDP Policy”). Under Dodd-Frank, the BCFP can permit covered persons to conduct trial disclosure programs and to provide a safe harbor (or waiver) from the corresponding applicable regulatory requirements. 12 U.S.C. § 5532(e). These trials can include modifications or replacements to existing disclosures or forms, changed delivery mechanisms, or the elimination of certain disclosure requirements. The BCFP previously published the TDP Policy in October 2013. However, as the Bureau noted, the prior version of the policy “failed to effectively encourage trial disclosure programs: The Bureau did not permit a single such program in the nearly five years since the Policy was issued.”

The proposed TDP Policy looks quite similar to the 2013 version, with a few differences that reflect the BCFP’s renewed focus on innovation and a desire to lessen the burden of approving trial programs. Continue Reading BCFP’s Focus on Innovation Continues with Revival of the Disclosure Sandbox; Comments are Due October 10, 2018

Senators Mark Warner (D-VA) and Mike Rounds (R-SD) recently introduced Senate Bill 3401 to facilitate access to residential mortgage loans for consumers who are self-employed or otherwise receive income from nontraditional sources. The lawmakers indicated that lenders have shied away from loans to those consumers due to overly strict or ambiguous federal requirements for documenting the consumers’ income. The bill would, if enacted, provide mortgage lenders greater flexibility in documenting income during the underwriting process. They call the bill the Self-Employed Mortgage Access Act.

Federal regulations require that for most closed-end, dwelling-secured loans, a lender must make a reasonable and good faith determination that the consumer will have a reasonable ability to repay the loan, based on (among other factors) the consumer’s verified income. To take advantage of a presumption of compliance with that requirement, most lenders follow the regulations’ Qualified Mortgage (QM) guardrails, described in part in Appendix Q of the regulations. Appendix Q generally dictates the type of income documentation a lender must obtain.

For example, for a self-employed individual (any consumer with a 25 percent or greater ownership interest in a business), Appendix Q requires that a lender seeking to make a QM must get the consumer’s signed, dated individual tax returns, with all applicable tax schedules, for the most recent two years. For a corporation, “S” corporation, or partnership, the lender must get signed copies of the federal business income tax returns, with all applicable tax schedules, for the last two years. Finally, the lender must get a year-to-date profit-and-loss statement and a balance sheet. Appendix Q does not expressly provide for any flexibility in those documentation requirements. Continue Reading Qualified Mortgages for Self-Employed Borrowers; Bill on the Hill

The Bureau of Consumer Financial Protection (the “Bureau”) has struck out again in trying to enforce a Civil Investigative Demand (“CID”) that contains broad and generic language about the nature of the agency’s investigation. For the second time, a US Court of Appeals has ruled that a CID issued by the Bureau was invalid because the agency failed to meet the statutory requirement that the CID identify the conduct constituting the alleged violation under investigation and the provision of law applicable to such violation, as required by 12 U.S.C. § 5562(c)(2). As we previously discussed, last year the DC Circuit ruled that a CID that the Bureau issued to a college accrediting agency failed to meet the statutory threshold when it merely identified “unlawful acts and practices in connection with accrediting for profit colleges” as the conduct under investigation. CFPB v. ACICS, 854 F.3d 683 (D.C. Cir. 2017).

Now, a unanimous panel of the Fifth Circuit has followed suit and held that a CID issued to the Source for Public Data, “a company that provides public records to the public through an Internet-based search engine,” is invalid because it uses similarly broad language that does not comply with the statute. Continue Reading Another One Bites the Dust: BCFP Loses CID Appeal

On September 5, 2018, a coalition of 14 state attorneys general, led by North Carolina’s attorney general, Josh Stein, wrote to Acting BCFP Director Mick Mulvaney to express “grave concerns” that the BCFP may seek to abandon the federal government’s longstanding position that ECOA provides for disparate impact liability. A copy of the letter can be found here.

The letter appears to have been inspired by at least two relatively recent developments – the revocation of the then-CFPB’s March 2013 Indirect Auto Lending Bulletin and Acting Director Mulvaney’s public comments stating that the Bureau will be “reexamining” the requirements of ECOA.  The letter emphasized that the disparate impact theory has been critical to the effective enforcement of federal and state antidiscrimination laws and warned that the Attorneys General “will not hesitate to uphold the law” if the BCFP concludes that disparate impact is not available under ECOA.

At this point, it remains to be seen whether and how the BCFP will “reexamine” ECOA. The most likely approach would be for the Bureau to propose amendments to Regulation B that would remove the rule’s current language allowing for disparate impact liability.  This would likely prompt strong condemnation from the 14 Attorneys General who signed the letter (among others), and possibly litigation over whether the BCFP has the authority to gut disparate impact under ECOA given that the Supreme Court held in 2015 that the theory was viable under similar language in the Fair Housing Act.

The Bureau of Consumer Financial Protection (the Bureau) issued an interpretive rule on August 31, 2018, explaining how depository institutions that originate fewer than 500 open- or closed-end home mortgage loans annually may take advantage of data collection and reporting relief.

The Home Mortgage Disclosure Act (HMDA) has for decades required mortgage lenders to collect and report significant data on their applications for, and originations or purchases of, residential mortgage loans. In 2015, in response to the Dodd-Frank Act, the Bureau significantly amended the regulations under HMDA, revising which institutions must collect and report the data, what data those institutions must report and in connection with which transactions, and how the institutions must submit the data to the government. Those expansive changes, requiring significant systems updates and hours of training, have already largely become effective. For applicable institutions, the bulk of the changes kicked in on January 1, 2018

However, in May 2018, Congress enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), amending HMDA to allow certain depository institutions to avoid the collection and reporting of so-called “new” data elements. While those institutions may have wished this relief had come before they were forced to implement all the changes needed to collect the new data, the actual reporting deadline for that data is still months away. In the meantime, those institutions (and their regulators) had many questions about what exactly they could or should do now. The Bureau’s interpretive rule attempts to provide them some guidance. Continue Reading HMDA Clarification: Relief for Lower-Volume Banks, Credit Unions

In a June 21, 2018 opinion, Judge Loretta Preska of the U.S. District Court for the Southern District of New York held that the structure of the Bureau of Consumer Financial Protection (“BCFP” or the “Bureau”) is unconstitutional. This ruling is inconsistent with the D.C. Circuit’s en banc decision in PHH Corp. v. CFPB (“PHH”).

The case, CFPB v. RD Legal Funding, LLC, involves joint claims brought by the Bureau and the New York State Office of the Attorney General. RD Legal offers cash advances to consumers waiting on payouts from settlement agreements or judgments entered in their favor. The claims allege that the company defrauded 9/11 first responders and NFL retirees by misleading them regarding cash advances that were represented as valid sales but instead were loans made in violation of state usury law.

RD Legal argued that the BCFP’s structure as an independent bureau within the Federal Reserve System violates Article II of the United States Constitution, as the Bureau’s Director can be removed only “for inefficiency, neglect of duty, or malfeasance in office.” In reviewing that claim, Judge Preska sided with one of the dissenting opinions in PHH. Specifically, she noted that she “disagrees with the holding of the en banc court and instead adopts Sections I-IV of Judge Brett Kavanaugh’s dissent…, where, based on considerations of history, liberty, and presidential authority, Judge Kavanaugh concluded that the CFPB ‘is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single director.’” Continue Reading SDNY Finds BCFP Structure Unconstitutional, Breaking With DC Circuit

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?