Rulemaking

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Just two months after financial institutions submitted their so-called “new” data as required under the Home Mortgage Disclosure Act (HMDA), the Consumer Financial Protection Bureau (CFPB) is considering whether to eliminate or revise the requirement to collect and report those new data elements, and whether to change the requirements to report certain business- or commercial-purpose transactions.

Specifically, the CFPB issued an advance notice of proposed rulemaking (ANPR) on May 8, 2019, asking the public for input on those changes. (An agency may issue an ANPR to gather information needed to formulate a proposed rule.) The ANPR fulfills part of the promise announced by former CFPB acting director Mick Mulvaney last year to reconsider nearly all aspects of HMDA reporting, including not just the new data points, but also newly-covered institutions and transactions.

While HMDA (as amended by the Dodd Frank Act) requires certain institutions to collect and report a significant list of data elements regarding the institutions’ home lending activities, the CFPB revised and added to that list during a comprehensive 2015 HMDA rulemaking.…
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The Department of Labor is fulfilling its promise to rethink the salary thresholds applicable to an employer’s obligation to pay overtime. The Department published a proposed rule on March 22nd that would expand eligibility for overtime (and minimum wage) to certain previously exempt employees. As explained in a prior update, Labor Secretary Alexander Acosta has acknowledged that the overtime exemption needed updating, as the current thresholds were established decades ago.

As relevant to the mortgage industry, the Department announced in 2010 that it interprets the typical duties of a mortgage loan originator not to qualify for the “administrative” exemption from the federal obligation to pay employees overtime and minimum wage. Mortgage lenders had relied on previous guidance that those originators were exempt, but then had to analyze their originators’ duties to determine whether recharacterization of the originators as exempt or nonexempt was necessary.

Paying overtime compensation to mortgage loan originators can be a complex and difficult task. They often work nonstandard schedules, seeking to be available to potential borrowers, realtors, and others on a near “24/7” basis. Accordingly, keeping track of exact working hours can be tricky. In addition, they likely earn commissions (or a mix of a salary plus commissions), making the calculation of their weekly overtime rate of pay a challenge. The Department recognizes that employers of all types may decide to raise salary levels, reorganize workloads, adjust work schedules, or spread work hours in order to avoid payment of overtime.

Under the Department’s recent proposal, the salary levels for meeting the administrative exemption would increase, broadening the scope of overtime eligibility, but not as much as the Department’s prior attempt, issued in 2016. (A Texas federal court struck down that 2016 rule, holding that the Department exceeded its authority by raising the salary thresholds so high as to essentially supplant other criteria for the overtime exemption.) The current standard salary threshold is $455 per week ($23,600 per year). The Department’s proposal would raise that threshold to $679 per week ($35,308 per year).…
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Congress amended the Truth in Lending Act in May 2018 by directing the Consumer Finance Protection Bureau to prescribe ability-to-repay regulations with respect to Property Assessed Clean Energy (“PACE”) financing. PACE financing helps homeowners cover the costs of home improvements, which financing results in a tax assessment on the consumer’s property. Ability-to-repay regulations, which TILA…

Federal banking agencies issued a final rule, effective July 1, 2019, implementing the requirement in the Biggert-Waters Flood Insurance Reform Act (the “Act”) for the acceptance of private flood insurance on covered properties. The final rule largely mimics the proposal (which we addressed previously here), but with a few interesting revisions and additional details.

First, the agencies adopted the proposed definition of “private flood insurance” largely unchanged. The Act defines the term, so the agencies had little discretion. However, the agencies clarified what coverage is “at least as broad as” coverage provided under a standard flood insurance policy (“SFIP”). Specifically, the final rule removes the requirement that the policy cover both the mortgagors and mortgagees as loss payees.

The most important change from the proposed stage may be a revision to the rule’s so-called compliance aid. To assist in determining whether a particular private flood insurance policy meets the necessary criteria, the agencies initially proposed that a policy would meet the definition of “private flood insurance” if: (1) the policy includes a written summary identifying the policy provisions meeting each criterion and confirming the insurer’s licensing/approval status; (2) the regulated lending institution verifies in writing the provisions identified in the summary, and that those provisions in fact satisfy the criteria; and (3) the policy includes the following assurance clause: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”

The final rule indicated that the reaction to that proposed compliance aid was largely negative. …
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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.…
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The Consumer Financial Protection Bureau issued final policy guidance on December 21, 2018, explaining how it will make available to the public data submitted by financial institutions under the Home Mortgage Disclosure Act (HMDA). The CFPB comprehensively revised HMDA reporting requirements in 2015, and extensive new data collection requirements became effective this year, with a reporting deadline of March 2019. With three months to go before that deadline, the CFPB could not have waited much longer to announce how it will publicly disclose the HMDA data while still protecting sensitive information.

Under the new HMDA requirements, reporting financial institutions must notify the public that the institutions’ data may be obtained on the CFPB’s website. The CFPB is then responsible for protecting applicant and borrower privacy, even as privacy risks evolve. The industry has expressed concern about the breadth of the data the CFPB will be collecting under the new HMDA reporting requirements, and about the increased reidentification risks that could arise upon making the data public (that is, the risk that someone could link an identified individual to his or her HMDA data). Commenters emphasized that if borrowers or applicants could be identified from the HMDA data, predators could target consumers for identity theft, fraudulently pose as the borrower’s lender, or otherwise misuse the data.

However, the CFPB declined to follow the commenters’ requests to exclude from the public all the new data required to be reported under the 2015 HMDA final rule. The CFPB recognized the inherent reidentification risk, but determined that the benefits of certain data disclosure outweigh that risk. The CFPB determined that most of the HMDA data is not sensitive and does not substantially facilitate reidentification or create a risk of harm. The CFPB reportedly employed a balancing test, requiring that HMDA data be excluded from public disclosure or modified when the release of the unmodified data would create risks to applicant and borrower privacy interests that are not justified by the benefits to the public of that release.

Accordingly, at least for 2018 data, the CFPB will modify the HMDA loan-level data to exclude the following fields:…
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The Consumer Financial Protection Bureau recently proposed amendments to its earlier policy for issuing no-action letters, and proposed a process for participating in a so-called regulatory “sandbox,” which would provide certainty in or exemptions from complying with certain federal consumer protection laws. Comments on the proposals are due by February 19, 2019.

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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.

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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.…
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On October 17, 2017, in response to an investigation concluding that title insurance companies and agents were spending millions of dollars a year in “marketing costs” provided to attorneys, real estate professionals, and mortgage lenders in the form of meals, gifts, entertainment, free classes, and vacations that ultimately were passed on to consumers through heightened title insurance rates, the New York Department of Financial Services (“DFS”) issued Insurance Regulation 208, in which it identified a non-exhaustive list of prohibited inducements and permissible marketing expenses. The new rule went into effect on February 1 of 2018. Five months later, on July 5th, 2018, the New York State Supreme Court (the state’s trial-level court) annulled the part of the DFS regulation addressing marketing practices, holding that any such rule must be issued by the state legislature, not a regulating agency.…
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