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The California legislature was active in 2018, enacting several new requirements and provisions applicable to the financial services industry. Those requirements include an important and comprehensive privacy regime (the California Consumer Privacy Act of 2018, or CCPA), which establishes new protections for personal information that covered commercial enterprises collect. The CCPA becomes effective January 1, 2020, with implementing regulations due July 1, 2020.

However, many new California provisions become effective on January 1, 2019, including new foreclosure protections (and the reinstatement of certain protections from the California Homeowner Bill of Rights) and the exclusion of reverse mortgage loans from certain successor-in-interest protections. A new requirement to provide mortgage loan modification disclosures in the language in which they are negotiated (e.g., in Spanish, Chinese, Tagalog, Vietnamese, or Korean) becomes effective for covered entities once the regulator develops those disclosures.

California also imposed new restrictions and requirements applicable to debt collectors and a new licensing obligation for servicers of student loans, and expanded certain financial protections for servicemembers.

Read more about California’s active legislature in Mayer Brown’s recent Legal Update.

Oversight of the Consumer Financial Protection Bureau (Bureau) by the U.S. House of Representatives is expected to become more aggressive when the 116th Congress convenes in January 2019. On December 11, 2018, members of the new Democratic House majority nominated Representative Maxine Waters to chair the House Financial Services Committee, which oversees the Bureau. During Rep. Waters’ time as ranking member on the Committee, she heavily criticized many of the changes Acting Director Mick Mulvaney made at the Bureau. Mayer Brown summarized those changes in a recent Legal Update.

As chair, Rep. Waters will set the Committee agenda, enabling her to turn her criticism into more direct pressure on the Bureau and its new Director Kathleen Kraninger. Proposed legislation sponsored by the incoming chair may hold some clues to the actions the Committee may take.

In September 2018, Rep. Waters introduced the Consumers First Act. The bill is largely designed to restore the Bureau to how it looked and functioned before Acting Director Mulvaney’s tenure. Some of its major topics include the following: Continue Reading House Oversight of CFPB Expected to Become More Aggressive Under Chair Waters

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.

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

The Summer 2018 edition of Supervisory Highlights –the first one the BCFP has issued under Mick Mulvaney’s leadership – is much the same as previous editions. In it, the Bureau describes recent supervisory observations in various industries, and summarizes recent public enforcement actions as well as supervision program developments.

One aspect of the report that is notably different, however, is the introductory language. In prior regular editions of Supervisory Highlights, the report’s introduction would emphasize the corrective action that the Bureau had required of supervised institutions. It would highlight the amount of total restitution to consumers and the number of consumers affected by supervisory activities, and would note the millions of dollars imposed in civil money penalties.

This new version eliminates all of that discussion from the introduction. Instead, the Bureau has added language emphasizing that “institutions are subject only to the requirements of relevant laws and regulations” and that the purpose of disseminating these Supervisory Highlights is to “help institutions better understand how the Bureau examines institutions” to help industry limit risks to consumers.

The first sentence of the report, which in previous iterations used to say that the Bureau is “committed to a consumer financial marketplace that is fair, transparent, and competitive, and that works for all consumers” now says the Bureau is committed to a marketplace that is “free, innovative, competitive, and transparent, where the rights of all parties are protected by the rule of law, and where consumers are free to choose the products and services that best fit their individual needs.”

Ultimately, time will tell whether this is simply rhetoric or if the Bureau’s supervisory and enforcement posture will be dramatically different from that under Mulvaney’s predecessor. Continue Reading BCFP’s Latest Supervisory Highlights

On July 26, 2018, the Federal Reserve Board (“FRB”) announced the launch of a new publication called the Consumer Compliance Supervision Bulletin. Similar to the Bureau of Consumer Financial Protection’s (“BCFP”) Supervisory Highlights, the new publication summarizes examiners’ observations from recent supervisory activities and offers guidance on what supervised institutions can do to address consumer compliance risks. The first bulletin focuses on three areas: fair lending, unfair or deceptive acts or practices (“UDAP”), and recent regulatory and policy developments. Continue Reading Key Takeaways from the Fed’s July 2018 Consumer Compliance Supervision Bulletin

The Office of Students and Young Consumers (Office of Students) has been an important component of the Consumer Financial Protection Bureau (CFPB or the Bureau) since its creation in 2011. On May 9, 2018, the CFPB’s Acting Director announced plans to fold the Office of Students into the Office of Financial Education. The Student Loan Ombudsman, a position the Dodd-Frank Act created, will also reportedly be part of the Office of Financial Education. This move could signal a major shift in the CFPB’s approach to the student loan market. 

As its name indicates, the Office of Financial Education focuses on consumer education. Specifically, its stated focus is “strengthen(ing) the delivery of financial education . . . and creat[ing] opportunities for people to obtain the skills to build their financial well being.” Given that mission, some have speculated that the recent movement of the Office of Students within the Bureau’s Office of Financial Education may lead to fewer examinations, investigations, and enforcement actions against participants in the private student loan market. Continue Reading CFPB to Eliminate Student Loan Office

On Tuesday, a federal district court in the Southern District of New York issued an order dismissing a lawsuit brought by the New York Department of Financial Services (NYDFS) regarding a proposal of the Office of the Comptroller of the Currency (OCC) to issue federal charters to certain fintech firms. In dismissing the case, U.S. District Court Judge Naomi Reice Buchwald held the NYDFS did not have standing to sue because the OCC had not yet officially decided to issue charters to fintech companies. Judge Buchwald explained that because the OCC had not made “a final determination” that it will issue such charters, the injuries alleged by the NYDFS are “too future-oriented and speculative” to support the lawsuit.

By way of background, in December 2016, the OCC announced plans to study whether it could issue special purpose charters to fintech firms. In March 2017, OCC Comptroller Thomas J. Curry announced the OCC would be issuing charters to fintech companies. In the same month, the OCC released a document describing how fintech companies could apply for a charter. In May 2017, Mr. Curry stepped down from his position, and President Trump named Keith Noreika Acting OCC Comptroller.

The NYDFS then sued the OCC regarding the proposal to grant charters to fintech companies. According to the NYDFS, the OCC did not have authority to issue a charter to fintech companies and should not allow such companies to operate in New York without complying with the state’s usury law and other consumer financial regulations. In the following months, Acting Comptroller Noreika stated several times that the OCC had not reached a final decision about whether to issue charters to fintech companies. Joseph Otting was then nominated by President Trump as permanent Comptroller of the Currency and was confirmed in November 2017. In Judge Buchwald’s decision, she noted that she was not aware of any statement by Mr. Otting indicating his position on fintech charters.

The Conference of State Bank Supervisors filed a similar lawsuit against the OCC in the U.S. District Court for the District of Columbia. The OCC filed a motion to dismiss that lawsuit as premature, which motion is currently pending before the court.

Once again, the Consumer Financial Protection Bureau (“CFPB”) is providing compliance tips through its Supervisory Highlights for lenders making non-Qualified Mortgages (“non-QMs”). In its latest set of Highlights, the CFPB addresses how a lender must consider a borrower’s assets in underwriting those loans, and clarifies that a borrower’s down payment cannot be treated as an asset for that purpose, apparently even if that policy has been shown to be predictive of strong loan performance.

The Dodd-Frank Act and the CFPB’s Ability to Repay Rule generally require a lender making a closed-end residential mortgage loan to determine that the borrower will be able to repay the loan according to its terms. A lender may choose to follow the Rule’s safe harbor by making loans within the QM parameters. Alternatively, a lender may opt for more underwriting flexibility (and somewhat less compliance certainty). When making a non-QM, a lender must consider eight mandated underwriting factors and verify the borrower’s income or assets on which it relies using reasonably reliable third-party records. As one of those eight factors, the lender must base its determination on current or reasonably expected income from employment or other sources, assets other than the dwelling that secures the covered transaction, or both. Continue Reading CFPB Prohibits Considering Down Payments for Non-QMs

In March 2017, the CFPB issued a special edition of its Supervisory Highlights addressing consumer reporting from the perspective of consumer reporting companies (“CRCs”) (commonly referred to as credit bureaus or consumer reporting agencies) and furnishers. This follows the CFPB’s February 2017 Monthly Complaint Report, which focused on complaints related to credit reporting. These publications, along with recent statements by Director Robert Cordray, suggest that the CFPB will be placing additional supervisory focus on credit reporting for both CRCs and furnishers of consumer information. Continue Reading Time for Some Spring (Credit Reporting) Cleaning