Rulemaking

Subscribe to Rulemaking

On May 8, 2018, the House of Representatives used the Congressional Review Act (“CRA”) to vote to repeal the Consumer Financial Protection Bureau’s (CFPB’s) March 2013 bulletin addressing indirect auto lending and compliance with the Equal Credit Opportunity Act (“ECOA”). That vote follows the Senate’s April 18 CRA vote to repeal the bulletin. President Trump is expected to sign the joint resolution (S.J. Res. 57) within 10 days.

In that bulletin, the CFPB (under the leadership of former director Richard Cordray) had stated that some indirect auto lenders may be subject to ECOA and Regulation B, and advised them to “take steps to ensure that they are operating in compliance” with those antidiscrimination principles. Most significantly, the bulletin noted that indirect auto lenders may have direct liability under ECOA for allegedly discriminatory pricing disparities. In an indirect auto lending arrangement, instead of providing financing directly to the consumer, the auto dealer facilitates financing through a third party. The CFPB bulletin stated that some indirect auto lenders have policies that allow dealers to mark up lender-established rates and then compensate dealers for those markups, which may result in pricing disparities on a basis prohibited under ECOA.

As explained in a prior Mayer Brown Legal Update, the CRA allows Congress to pass a resolution of disapproval of an agency rule within 60 legislative session days of the rule’s publication. Such a resolution, if passed by both houses of Congress and signed by the President (or passed by a two-thirds majority in both houses to overcome a presidential veto), invalidates the rule. The CRA allows Congress to use expedited procedures that effectively prohibit filibusters in the Senate.

The 60-day clock for introduction of a disapproval resolution in Congress begins on the “submission or publication” date of the rule, which the CRA defines as the later of the date on which Congress receives the agency’s report related to the rule or the date the rule is published in the Federal Register, if it is published. Although the CFPB issued its indirect auto lending bulletin more than 60 days ago, the CFPB did not submit to Congress a report on the bulletin or publish it in the Federal Register, so arguably the 60-day clock did not begin in 2013.

Upon signing this resolution, President Trump will have used the CRA to invalidate 16 agency rules. Prior to the Trump administration, the CRA had been used only once to invalidate a rule. However, this resolution marks the first time Congress has used the CRA to invalidate agency guidance. Previously, Congress had used the CRA only to repeal rules that the respective agencies viewed as legislative rules or regulations subject to the Administrative Procedure Act’s notice-and-comment requirements. Unlike those legislative rules, the CFPB’s indirect auto lending bulletin is informal guidance that, as the Government Accountability Office (“GAO”) concluded, “offers clarity and guidance on the Bureau’s discretionary enforcement approach.” Nonetheless, the GAO found that the CFPB bulletin qualifies as a “rule” subject to the CRA. The GAO has responded to requests from members of Congress to opine on the status of agency issuances by consistently noting that the scope of the definition of a rule under the CRA is broad. In a 2012 letter, the GAO explained that the “definition of a rule has been said to include ‘nearly every statement an agency may make.’”

If the CRA is available to Congress to invalidate agencies’ non-rule guidance that was not reported to Congress or published in the Federal Register, it is unclear what, if any, timing boundaries apply. This novel approach could implicate a large swath of informal agency guidance issued since the CRA’s passage. Further, a CRA disapproval extends beyond the rule (or non-rule guidance) itself, and prohibits the agency from issuing any rule that is “substantially the same” as the invalidated rule, absent subsequent statutory authorization.

It is unclear, however, what this means in the context of agency guidance. If agency guidance is an interpretation of existing statutes and regulations, and Congress repeals only the guidance/interpretation, but not the existing statutes (or regulations, if applicable), it is possible that an agency could simply attempt to return to its initial stance (for instance, a CFPB director could possibly refocus on indirect auto lenders, using an approach similar to that announced in the CFPB’s 2013 bulletin). Certainly, the actions of Congress under the CRA do not protect entities from scrutiny by the Department of Justice, the Federal Trade Commission, or the states, which also have enforcement authority under ECOA, or from private plaintiffs, who have a cause of action.

In any event, Congress definitely has clarified that it is willing to use the CRA to invalidate both agency regulations and informal guidance, and it remains to be seen which additional Obama-era regulations or guidance documents may be the CRA’s next victim.

A creditor’s inability to reset fee tolerances with a revised Closing Disclosure more than four business days before closing has been one of the more adverse unintended consequences of the TILA-RESPA Integrated Disclosure (“TRID”) regulations that became effective in October 2015. However, a fix is on the horizon. On Thursday, April 26, 2018, the Consumer Financial Protection Bureau (“CFPB”) announced final amendments to TRID to eliminate the timing restrictions that have plagued creditors and, in certain cases, increased creditors’ costs to originate residential mortgage loans. With an effective date 30 days after the final amendments are published in the Federal Register, this change is a welcome relief to mortgage lenders.  Continue Reading A Ray of Light Through the “Black Hole”: TRID Amendment Permits Tolerance Reset with Revised Closing Disclosure

On March 8, the Consumer Financial Protection Bureau (“CFPB”) finalized the amendment to its 2016 Mortgage Servicing Final Rule (“2016 Final Rule”) to clarify the transition timing for mortgage servicers to provide periodic statements and coupon books when a consumer enters or exits bankruptcy.

Under the 2016 Final Rule, mortgage servicers will be required (as of April 19, 2018) to provide modified periodic statements to borrowers who file for a bankruptcy plan and to provide unmodified (i.e., regular) statements to borrowers who subsequently exit such a plan.

However, servicers need time to transition between statement formats. As we described previously, the 2016 Final Rule would have given servicers a single billing cycle to switch the statement format. The industry informed the CFPB about operational complexities with that approach, so the CFPB proposed a rule on October 4, 2017 to address those challenges.

That proposal, which the CFPB has now finalized, replaces the single-billing-cycle transition period with a single-statement transition period. As of the date that a borrower becomes a debtor in bankruptcy, a servicer is exempt from providing the modified statement or coupon book with respect to the next periodic statement or book that would otherwise have been required, but thereafter must provide the modified statement or book.  Similarly, a servicer has a single billing cycle before it must provide a borrower who exits a bankruptcy plan with an unmodified statement or coupon book.  The Official Interpretations illustrate when and how a servicer must comply with those new requirements.

While this new transition period rule may alleviate certain operational challenges with transitioning between the modified and unmodified periodic statements, certain industry trade groups have called upon the CFPB to rethink many of the bankruptcy statement requirements altogether. With the April 19 deadline fast approaching, any additional guidance must come quickly.

On February 6, 2018, the Pennsylvania Department of Banking and Securities issued draft regulations in response to the state’s recent law requiring licensing of mortgage loan servicers. The new regulations provide a great deal of information about what servicers will be required to do, but no additional guidance on exactly which entities must obtain the new license.

As we wrote previously, Pennsylvania Senate Bill 751 (also referred to as “Act 81” of 2017) amended the state’s Mortgage Licensing Act to require a person servicing mortgage loans to obtain a license. “Servicing a mortgage loan” for that purpose is defined as “collecting or remitting payment or the right to collect or remit payments of principal, interest, tax, insurance or other payment under a mortgage loan,” without limiting that phrase (and thus without limiting the licensing obligation) to servicing activity conducted only for others. As we indicated, that could be interpreted to require licensing even of persons servicing their own portfolio, unless the servicer also originated the loans (or unless an exemption otherwise applies, such as for banking institutions, their subsidiaries, or their affiliates, which are exempt from licensing upon registering). The legislation also does not indicate whether the licensing obligation applies to an entity that merely holds mortgage servicing rights without directly servicing the loans.

Unfortunately, the Department’s recent draft regulations do not provide guidance on whether such entities must obtain the license. Continue Reading Pennsylvania Drafts Mortgage Servicing Regulations to Track RESPA Requirements

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

New title insurance regulations in New York restrict the marketing practices of title insurance agencies and affect the operation of affiliated businesses.

The New York Department of Financial Services (“DFS”) issued two final regulations on October 17, 2017 that follow a DFS investigation into the marketing practices and fees charged by title insurance industry members. The DFS stated that the investigation revealed that members of the title industry spend millions each year in “marketing costs” provided to attorneys, real estate professionals, and mortgage lenders in the form of meals, gifts, entertainment, and vacations and then include those expenses in the calculation of future title insurance rates. The DFS had already implemented emergency regulations to address those practices. The recent final regulations represent permanent guidelines on certain behavior the DFS deems prohibited and permissible under the state’s title insurance statutes. Continue Reading New York Takes Aim at Title Insurance Marketing Practices

The anti-arbitration rule issued by the Consumer Financial Protection Bureau in July is now just one short step away from elimination.

The Senate tonight voted 51-50 (with Vice President Pence casting the deciding vote) to invalidate the CFPB’s rule under the Congressional Review Act (CRA). That vote follows the House of Representatives’ disapproval of the rule in July.

The last remaining step is the President’s signature on the legislation, which seems highly likely given the Administration’s statement today urging the Senate to invalidate the rule.

The President’s approval will trigger two provisions of the CRA.

First, the rule “shall not take effect (or continue)” (5 U.S.C. § 801(b)(1)). In other words, the rule no longer has the force of law and businesses are no longer required to comply with its terms.

Second, the CFPB may neither re-issue the rule “in substantially the same form” nor issue a new rule that is “substantially the same” as the invalidated rule—unless Congress enacts new legislation “specifically authoriz[ing]” such a rule (5 U.S.C. § 801(b)(2)). The scope of this “substantially the same” standard has not been addressed by the courts, but it seems clear that at the very minimum the Bureau cannot issue (a) a new rule banning class action waivers; (b) an express ban of pre-dispute arbitration clauses; (c) a rule that has the practical effect of eliminating pre-dispute arbitration clauses; or (d) any other rule that imposes similar burdens on the use of arbitration.

Invalidation of the rule under the CRA also will moot the pending broad-based industry lawsuit against the CFPB challenging the legality of the regulation. (Mayer Brown represents the plaintiffs in the litigation).

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

Appraisal management companies (“AMCs”) are one step closer to being required to pay annual registry fees. The Appraisal Subcommittee (“ASC”) of the Federal Financial Institutions Examination Counsel published a final rule on September 25, 2017, pursuant to its authority granted under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), to govern a state’s collection of annual registry fees from AMCs. The final rule will take effect on November 24, 2017.

The Dodd-Frank Act amended Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) to require states that opt to register and supervise AMCs to collect an annual AMC registry fee. The federal law requires such states to collect (i) from AMCs that have been in existence for more than one year, an annual registry fee of $25 multiplied by the number of appraisers working for or contracting with the AMC in the state during the previous year; and (ii) from AMCs that have not been in existence for more than a year, $25 multiplied by an appropriate number determined by the ASC. The Dodd-Frank Act gives the ASC discretion to increase the $25 fee to $50 if necessary to satisfy the ASC’s functions under the Dodd-Frank Act.

The ASC proposed regulations in May 2016 to implement the registry fee requirement and received 104 public comment letters. Most notably, the proposed regulations offered the ASC’s interpretation of what it means to be “working for or contracting with” an AMC for purposes of the registry fee. The final rule effectively adopts the standards from the proposed rule and establishes the annual AMC registry fee for AMCs in states that opt to register and supervise AMCs as follows:

  1. For AMCs that have been in existence for more than one year, $25 multiplied by the number of appraisers who have performed an appraisal for the AMC in connection with a covered transaction in said State during the previous year; and
  2. For AMCs that have been in existence for less than one year, $25 multiplied by the number of appraisers who have performed an appraisal for the AMC in connection with a covered transaction in said State since the AMC commenced doing business.

The final rule defines “performed an appraisal” to mean “the appraisal service requested of an appraiser by the AMC was provided to the AMC.”  Continue Reading FFIEC Finalizes Regulations for the Payment of AMC Registry Fees