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On September 15, 2020, the CFPB published a detailed outline of proposed options it is considering to implement a rule under Section 1071 of the Dodd Frank Act. Ten years ago, Section 1071 amended the Equal Credit Opportunity Act (ECOA) to require that financial institutions collect and report information concerning credit applications made by women- or minority-owned businesses and by small businesses. Although the CFPB was tasked with drafting rules to implement Section 1071, it did not take significant steps to meet that obligation until 2017, when it reported on some preliminary research, and then later in November 2019, when it held an information-gathering symposium.

As we previously noted, once Section 1071 is implemented, certain financial institutions will be required to collect information regarding the race, sex, and ethnicity of the principal owners of small businesses and women- and minority-owned businesses and submit this information to the CFPB, similar to what is currently required by the Home Mortgage Disclosure Act for mortgage loans. The CFPB’s outline released this week proposes several potential options for developing the small business lending data collection rule and is a precursor to any future proposed rulemaking. At this stage, the CFPB is seeking feedback on the direction of the rule. Feedback and comments on the scope of the rule can be sent to 2020-SBREFA-1071@cfpb.gov until December 14, 2020. The CFPB is also seeking feedback on the potential impacts on small business entities and has requested submission of such feedback by November 9, 2020.

Below, we summarize the key aspects of the Bureau’s outline and its proposals regarding the scope of the rule.
Continue Reading CFPB Finally Makes Progress on Implementing Small Business Lending Data Collection Requirements

On Thursday, June 18, 2020, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) announced a new pilot program to issue advisory opinions (“Pilot AO Program”) on areas of regulatory or statutory uncertainty. The CFPB simultaneously issued a proposed procedural rule on a permanent advisory opinion program (“AO Program”). The Bureau intends to issue advisory opinions (“AOs”) to address ambiguities in legal requirements that are not suited to be addressed through other Bureau programs such as the Regulatory Inquiries Function and Compliance Aids. The proposed AO Program comes more than two years after industry participants requested such a program in response to the Bureau’s March 2018 Request for Information Regarding Bureau Guidance and Implementation Support.

The proposed AO Program is similar to those offered by other state and federal regulators and, if implemented properly, could provide much needed certainty for regulated entities and consumers alike. The AO Program is intended to address areas of regulatory and statutory uncertainty and provide publicly available guidance for similarly situated parties and affected persons. AOs will be issued as interpretive rules under the Administrative Procedures Act, published in the Federal Register, and signed by the Director of the CFPB. Where information submitted to the Bureau is information the requestor would not normally make public, however, the Bureau will treat it as confidential to the extent applicable under its confidentiality regulations. The CFPB will summarize the material facts of the request, and the AOs will apply to situations that conform to those facts. The AO will also indicate where a safe harbor may apply, such as those under certain consumer financial protection laws. The AO Program is not intended for situations that would require a regulatory change or to create bright-line rules where the regulation or statute is intended to require a fact-intensive analysis.

The AO Program will focus on four of the Bureau’s five statutory objectives under 12 U.S.C. 5511(b)—namely, that: (1) consumers are provided with timely and understandable information to make responsible decisions about financial transactions; (2) outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; (3) Federal consumer financial law is enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition; and (4) markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

Notably, the Bureau will not use the AO Program to address the statutory objective that “consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination,” stating that “other regulatory tools are often more suitable for addressing” these issues.…

Continue Reading Mind the Gap: CFPB Attempts to Address Regulatory Uncertainty With New Advisory Opinion Program

On May 20, 2020, the Office of the US Comptroller of the Currency announced its final rule overhauling the Community Reinvestment Act regulations. The CRA requires insured depository institutions to participate in investment, lending, and service activities that help meet the credit needs of their assessment areas, particularly low- and moderate-income  communities and small businesses…

On Friday, the United States Office of the Comptroller of the Currency (“OCC”) finalized a regulation regarding the “Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred” by national banks and federal savings associations. Initially proposed in November 2019, the regulation provides that interest on a loan that is permissible under provisions of federal banking laws establishing the interest authority of national banks and federal savings associations is not affected by a sale, assignment, or transfer of the loan—effectively permitting subsequent holders of loans originated by OCC-regulated entities to take advantage of the originators’ “Interest Exportation Authority.” The rule will be effective 60 days after publication in the Federal Register.
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Continue Reading The OCC Finalizes “Madden Fix” Regulation, Codifying the “Valid-when-Made” Doctrine as Applicable to Loans Made by National Banks and Federal Savings Associations

How do documents get signed and notarized when the parties signing the documents are faced with stay-at-home orders?  While both the federal Electronic Signatures In Global And National Commerce Act and state-enacted versions of the Uniform Electronic Transactions Act authorize notaries to perform electronic notarizations, electronic notarization is different than remote online notarization (RON).  Without…

Federal regulators and Congress continue to release new guidance and requirements to assist residential mortgage loan borrowers facing economic hardships due to the pandemic. But in light of the anticipated volume of requests and associated burden on servicers, they also are offering some regulatory relief. This alert contains a summary of relevant mortgage servicing requirements,…

The Consumer Financial Protection Bureau (“CFPB”) has settled a lawsuit seeking to compel it to undertake the rulemaking required by Section 1071 of the Dodd-Frank Act (“Section 1071”). Section 1071, 15 U.S.C. § 1691c-2, requires financial institutions to collect and maintain information about loan applications by women-owned, minority-owned and small businesses, and requires the CFPB to collect and publish this data annually. It also requires the CFPB to issue implementing regulations. The settlement sets forth a specific date by which the CFPB must begin the rulemaking process and establishes a framework for determining, along with plaintiffs or subject to court order, a final timeline for promulgation of the required rule. The settlement should result in a final rule in 2022, a dozen years after Congress first required the CFPB to act.
Continue Reading Long-Awaited Section 1071 Small Business Rulemaking Is Finally on the Horizon

According to the Mortgage Bankers Association, the Consumer Financial Protection Bureau intends to revise its Qualified Mortgage definition by moving away from a debt-to-income ratio threshold, and instead adopting a different test, such as one based on the loan’s pricing. The CFPB also apparently indicated it may extend, for a short time, the temporary QM…

The agencies responsible for the securitization credit risk retention regulations and qualified residential mortgages (“QRMs”) are asking for public input as part of their periodic review of those requirements. Comments on the review are due by February 3, 2020.

Five years ago, in response to the Dodd-Frank Act, an interagency final rule provided that a securitizer of asset-backed securities (“ABS”) must retain not less than five percent of the credit risk of the assets collateralizing the securities. Sponsors of securitizations that issue ABS interests must retain either an eligible horizontal residual interest, vertical interest, or a combination of both. The Act and the rule establish several exemptions from that requirement, including for ABS collateralized exclusively by residential mortgages that qualify as “qualified residential mortgages,” as defined in the rule.

The Act provides that the definition of QRM can be no broader than the definition of a “qualified mortgage” (“QM”), as that term is defined under the Truth in Lending Act (“TILA”) and applicable regulations. QMs are a set of residential mortgage loans deemed to comply with the requirement for creditors to determine a borrower’s ability to repay. The Office of the Comptroller of the Currency (“OCC”), Federal Reserve Board, Federal Deposit Insurance Corporation (“FDIC”), Securities and Exchange Commission (“SEC”), Federal Housing Finance Agency (“FHFA”), and Department of Housing and Urban Development (“HUD”) decided to define a QRM in full alignment with the definition of a QM. The agencies concluded that alignment was necessary to protect investors, enhance financial stability, preserve access to affordable credit, and facilitate compliance. Their rule also includes an exemption from risk retention for certain types of community-focused residential mortgages that are not eligible for QRM status but that also are exempt from the TILA ability-to-pay rules under the TILA. The credit risk retention requirements became effective for securitization transactions collateralized by residential mortgages in 2015, and for other transactions in 2016.

The agencies of the credit risk retention regulations committed to reviewing those regulations and the definition of QRM periodically, and in coordination with the CFPB’s statutorily mandated assessment of QM.
Continue Reading Agencies to Review QRM / Securitization Credit Risk Retention Rule

Along with other federal agencies, the Consumer Financial Protection Bureau recently released its Fall 2019 regulatory agenda, announcing its intentions over the next several months to address the GSE QM Patch, HMDA, payday/small dollar loans, debt collection practices, PACE financing, business lending data, and remittances. Over the longer-term, the CFPB indicated it may even address feedback on the Loan Originator Compensation Rule under the Truth in Lending Act.

  • Qualified Mortgages. As we have previously described, the CFPB must in short order address the scheduled expiration of the temporary Qualified Mortgage status for loans eligible for purchase by Fannie Mae or Freddie Mac (often referred to as the “Patch”). The Patch is set to expire on January 10, 2021, leaving little time to complete notice-and-comment rulemaking, particularly on such a complex and arguably controversial issue. The CFPB has indicated that it will not extend the Patch, but will seek an orderly transition (as opposed to a hard stop). The CFPB asked for initial public input over the summer, and announced that it intends to issue some type of statement or proposal in December 2019.
  • Home Mortgage Disclosure Act. The CFPB intends to pursue several rulemakings to address which institutions must report home mortgage data, what data they must report, and what data the agency will make public. First, the CFPB announced previously that it was reconsidering various aspects of the 2015 major fortification/revamping of HMDA reporting (some – but not all – of which was mandated by the Dodd Frank Act). The CFPB announced its intention to address in one final rule (targeted for next month) its proposed two-year extension of the temporary threshold for collecting and reporting data on open-end lines of credit, and the partial exemption provisions for certain depository institutions that Congress recently enacted. The CFPB intends to issue a separate rule in March 2020 to address the proposed changes to the permanent thresholds for collecting and reporting data on open-end lines of credit and closed-end mortgage loans.

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Continue Reading CFPB Announces its Fall 2019 Regulatory Agenda