The US Consumer Financial Protection Bureau has finalized its December 2022 preliminary determination that commercial finance disclosure laws recently enacted in California, New York, Utah and Virginia are not preempted by the federal Truth in Lending Act. The CFPB’s final determination confirms for a wide range of small business financers and brokers that they are
Truth in Lending Act/Regulation Z
CFPB Preliminarily Determines State Commercial Financing Disclosure Laws Not Preempted by Truth in Lending Act
Small business lenders hoping for federal intervention will be disappointed to learn that the Consumer Financial Protection Bureau (CFPB) has reached a preliminary determination that New York’s new commercial financing disclosure law is not preempted by the federal Truth in Lending Act (TILA). The CFPB’s public notice indicates that it initially takes the same view…
CFPB to Rethink QMs Again
Apparently time flies when you’re Director Chopra of the Consumer Financial Protection Bureau (“CFPB”). On June 17, Director Chopra issued a blog post titled “Rethinking the Approach to Regulations,” indicating that the agency will move toward “simpler and clearer rules” that are easy to understand and enforce. As part of that effort, the…
CFPB Finds that Income Share Agreements are Credit Products
On September 7, 2021, the CFPB announced that it had entered into a consent order with an education finance nonprofit (“nonprofit”) in connection with the nonprofit’s offering of income share agreements (“ISAs”). In the consent order, the CFPB asserted that ISAs are extensions of credit covered by the Consumer Financial Protection Act and the Truth in Lending Act (“TILA”) as well as TILA’s requirements with respect to “private education loans.” Because the CFPB asserts in the consent order that it views the nonprofit’s ISAs as credit, the CFPB takes the position that they are also subject to numerous other federal consumer financial protection laws that impose requirements and restrictions on student loan products. This consent order has significant implications for those in the ISA market, as it indicates how the CFPB views re-characterization for ISAs and similar products.
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Reminder: LO Comp Cannot Vary Based on Product Type
A mortgage loan product is a bundle of loan terms. That is what the Consumer Financial Protection Bureau (CFPB) reminds us in its latest Supervisory Highlights.
The CFPB first used that phrase back in 2013, but you may have missed it. It appeared in the fine print of footnote 82 in the CFPB’s lengthy…
A QM Freeze in the Forecast
The CFPB announced today that it expects to propose a rule to delay the July 1, 2021 date to comply with the new Qualified Mortgage (“QM”) rule.
The CFPB’s statement provides that the extension would allow lenders more time to make QM loans based on their debt-to-income ratio (and Appendix Q), or based on the…
Will the CFPB Freeze the GSE QM Patch?
Since the Inauguration on January 20th, the Biden Administration has busily issued orders to reverse certain policies of the prior administration. In customary fashion upon a change in political parties in the White House, President Biden’s Chief of Staff also sent a memorandum to executive departments and agencies to consider postponing pending rulemakings to allow review by the new slate of policymakers. Among those rules are two Qualified Mortgage (“QM”) Rules of the Consumer Financial Protection Bureau (“CFPB”).
New White House Chief of Staff Ronald Klain’s memorandum specifies that for rules that have already been published or issued but have not yet taken effect, the agencies must consider postponing the rules’ effective dates for 60 days from the date of the memorandum (i.e., until March 21, 2021). If the agency postpones the effective date, the agency must consider opening a 30-day period for interested parties to provide more comments. The memorandum then instructs those agencies to consider whether even further delays are appropriate.
Speaking of engaging interested parties, the CFPB has been reconsidering QM issues for years. The agency has been spurred by a statutory requirement to assess and report on the 2013 QM Final Rule, as well as the January 10, 2021 expiration date of the special QM category for loans eligible for purchase by Fannie Mae or Freddie Mac (the so-called “GSE Patch”). In all, over the course of several years, the CFPB has reportedly received more than 680 comments on QMs from creditors, industry groups, consumer advocacy groups, elected officials, and others. In response to that input, the CFPB issued a final rule extending the GSE Patch until the “mandatory compliance date” of a separate final rule that would revise the general QM category (or until the GSEs emerge from conservatorship), essentially erasing that looming GSE Patch expiration date. Then the CFPB issued two other final QM rules – one to revise the general QM definition and establish that mandatory compliance date, and one to create a seasoned QM category for certain mortgage loans that experience a period of timely payments.
In comparing the effective dates of those rulemakings to the White House’s January 20th memorandum, one can see that the CFPB successfully eliminated the January 2021 GSE Patch expiration date, because that rule became effective before the memorandum. However, the other two rules – which establish the Patch’s new expiration date/Mandatory Compliance Date (July 1, 2021), the new definition of QMs, and the seasoned QM – could get caught in the Biden Freeze.
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Is It Credit? CFPB Issues Advisory Opinion on Earned Wage Access Programs
On November 30, 2020, the US Consumer Financial Protection Bureau (CFPB) issued its final Advisory Opinion Policy, along with two Advisory Opinions (AOs) addressing the applicability of the Truth in Lending Act (TILA) to certain earned wage access (EWA) programs and private education loans. The CFPB first proposed a pilot AO program in June 2020.…
That’s the Spirit: The Haunting of the CFPB’s GSE Patch
On October 20, 2020, the Consumer Financial Protection Bureau (the Bureau) issued a final rule extending the Government-Sponsored Enterprise (GSE) Patch until the Bureau’s general qualified mortgage (QM) changes kick in. To keep from spooking the residential mortgage markets, the Bureau’s final rule accomplishes three main objectives:
- Retains the temporary GSE qualified mortgage (QM) safe harbor until compliance with the Bureau’s revised general QM definition becomes mandatory, but without any overlap period as some commenters requested;
- Establishes an implementation period to facilitate the transition to the revised general QM loan definition, and suggests the adoption of an “optional early compliance period” for transitioning to the revised general QM before the mandatory compliance date; and
- Resolves the frightful gap the Bureau’s proposal threatened to create by terminating the GSE Patch in accordance with the date of loan application, as opposed to the date of loan consummation.
For those who have been cowering in the shadows, the GSE Patch refers to a temporary compliance safe harbor the Bureau granted in 2014 for loans eligible for purchase by Fannie Mae or Freddie Mac. Those GSE-eligible loans have been deemed to comply with federal ability-to-repay requirements applicable to closed-end residential mortgage loans. The GSE Patch grants QM status to certain loans excluded by the general QM definition – notably, loans with a debt-to-income ratio that exceeds 43%. The GSE Patch is set to expire on January 10, 2021, or when the GSEs are released from conservatorship, whichever occurs first. The Bureau is otherwise revising its general QM definition, in part to ensure that the Patch expiration does not deprive worthy borrowers of access to credit.
In establishing the end date for the GSE Patch, the Bureau’s final rule first clarifies that there will not be an “overlap period.” …
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A Coming of Age Story: CFPB Proposal to Allow Seasoned Loans to Grow Into QMs
The Consumer Financial Protection Bureau (CFPB) is proposing to allow a loan to become a Qualified Mortgage (QM) when it grows up. On August 18th, the CFPB issued a proposal that would amend the agency’s Ability-to-Repay (ATR) Rule to provide that a first-lien, fixed-rate loan meeting certain criteria, that the lender has held in its portfolio, could become a QM after 36 months of timely payments. Figuring that if a borrower has made payments on a loan, the lender must have made a reasonable determination of ability-to-repay, the proposal would open the safe harbor door to non-QMs (including those originated as such intentionally or inadvertently) and higher-priced QMs that otherwise receive only a rebuttable presumption of compliance with the Rule. The proposal also would, consequently, close the door on those borrowers’ ability to challenge the lender’s underwriting determination in a foreclosure, which otherwise would last far beyond the three-year period.
Specifically, the CFPB proposes that a covered loan for which an application is received on or after this rule becomes effective could become a “seasoned QM” and earn a conclusive safe harbor under the ATR Rule if:
- The loan is secured by a first lien;
- The loan has a fixed rate for the full loan term, with fully amortizing payments and no balloon payment;
- The loan term does not exceed 30 years; and
- The total points and fees do not exceed specified limits (generally 3%).
In addition, the creditor must have considered the consumer’s debt-to-income ratio (DTI) or residual income and verified the consumer’s debt obligations and income. In alignment with the CFPB’s pending rulemaking revising the general QM definition, the creditor would not have to use the Rule’s Appendix Q to determine the DTI. Also, as indicated above, a loan generally would be eligible as a seasoned QM only if the creditor holds it in portfolio until the end of the three-year seasoning period.
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