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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 and the CFPB currently impose in connection with most closed-end residential mortgage loans, would generally require a creditor to consider specific factors about a consumer’s finances, including income, assets, and debt obligations, and to verify the income and assets with reliable third-party documentation, prior to extending the financing.

On March 4, 2019, the CFPB issued an Advance Notice of Proposed Rulemaking (“ANPR”) seeking information regarding, and responses to specific questions related to, PACE financing.

Read more in Mayer Brown’s Legal Update.

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. Continue Reading Acceptance of Private Flood Insurance – Final Rule

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

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: Continue Reading CFPB Issues Final Guidance on Public Disclosure of HMDA Data

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.

Read more in Mayer Brown’s Legal Update.

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

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

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. Continue Reading New York Court Annuls DFS Effort to Curb Unscrupulous Title Practices

On June 20, the U.S. Department of Housing and Urban Development (“HUD”) published an advance notice of proposed rulemaking (“ANPR”) that seeks public comment on whether and how to amend its 2013 rule under the Fair Housing Act (“FHA”). The ANPR follows HUD’s May 10 announcement of its intention to formally seek public comment on the rule in light of the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., in which the Court recognized disparate impact as a cognizable theory under the FHA, but imposed meaningful limitations on the application of the theory.

The ANPR, together with the statement of Bureau of Consumer Financial Protection Acting Director Mick Mulvaney this spring that the Bureau would be “reexamining the requirements of ECOA” in light of “a recent Supreme Court decision” (i.e., Inclusive Communities), signals that the Trump administration is likely seeking to retreat from the Obama administration’s enthusiastic use of disparate impact liability in lending discrimination cases.

The Disparate Impact Rule and Inclusive Communities

HUD finalized its disparate impact rule in February 2013. The rule codified HUD’s Obama-era view that disparate impact is cognizable under the FHA. In contrast to disparate treatment claims, in which a plaintiff must establish a discriminatory motive, a disparate impact claim challenges practices that have a disproportionately adverse effect on a protected class that is not justified by a legitimate business rationale. The rule states that a practice has a “discriminatory effect” where “it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.” HUD explained that it had “consistently concluded” that facially neutral policies that resulted in a discriminatory effect on the basis of a protected characteristic violated the FHA, and that the rule merely “formalize[d] its longstanding view.” The rule also formalized a three-part burden-shifting test for determining whether a practice had an unjustified discriminatory effect.

At the time HUD issued the rule, the nonprofit Inclusive Communities Project, Inc. was embroiled in a lawsuit against the Texas Department of Housing and Community Affairs, in which it brought a disparate impact claim under the FHA. After HUD issued the disparate impact rule, the Texas Department filed a petition for a writ of certiorari to the Supreme Court on whether the FHA recognized disparate impact claims. In its 2015 decision, the Supreme Court held that disparate impact claims are cognizable under the FHA, but the Court articulated a rigorous standard for a successful claim. The Court did not explicitly address the merits of HUD’s rule, nor did the rule form the basis of its holding.  Continue Reading HUD Seeks Public Comment on Disparate Impact Rule

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.