In response to the significant impacts of the COVID-19 pandemic, the US Consumer Financial Protection Bureau (“CFPB”) announced in July 2020 that it would shift its supervisory priorities and begin performing Prioritized Assessments instead of planned examinations. On January 19, 2021, the CFPB issued its findings in a COVID-19 Prioritized Assessments Special Edition of Supervisory Highlights (the “Report”), which is explained further in this Legal Update. Supervised entities in the areas discussed should evaluate the Report findings, as these may become future supervisory and enforcement priorities.

Read more in Mayer Brown’s Legal Update.

We are pleased to present the Winter 2021 edition of the Mayer Brown Fair Lending Newsletter. In this edition, we discuss some of the fair housing priorities that President-elect Biden previewed during the presidential campaign, and take a look at notable developments from the past quarter. We hope you will enjoy reading.

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From a new Policy Statement on Abusiveness to the use of novel deception claims in public enforcement actions, 2020 was an active year in the application of the prohibition on unfair, deceptive, or abusive acts or practices (“UDAAP”) in the consumer financial services space. In this inaugural edition of the UDAAP Round-Up, we look back on how federal regulators applied the prohibition on UDAAP in the policy, enforcement, and supervisory contexts, and look ahead to what 2021 may bring. You can read the Round-Up here.

 

On January 28, 2021, the Consumer Financial Protection Bureau (CFPB or the Bureau) provided the first official details regarding its new direction under the Biden administration. In a statement originally issued internally to Bureau employees, Acting Director Dave Uejio outlined his two main priorities: (1) relief for consumers facing hardship due to COVID-19 and the related economic crisis and (2) racial equity. While these two areas of focus were largely expected, the details of Acting Director Uejio’s statement provide helpful clarity to companies subject to the Bureau’s supervisory and/or enforcement jurisdiction. Continue Reading CFPB will Prioritize COVID-19 Relief and Racial Equity under Acting Director Uejio

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. Continue Reading Will the CFPB Freeze the GSE QM Patch?

With President Joe Biden’s inauguration as the Nation’s 46th President, change is coming to Washington. And that change will be felt quickly and acutely at the Consumer Financial Protection Bureau (CFPB). At President Biden’s request, CFPB Director Kathy Kraninger submitted her resignation on Wednesday, clearing the way for the President to appoint current FTC Commissioner and former CFPB official Rohit Chopra as the next Director of the agency. Given the CFPB’s single Director structure, the new Director will have significant opportunities to shape the direction of the CFPB over the next four years. Below we address what we can expect to see from CFPB under the new administration. Continue Reading A New Day Dawns at the CFPB

In late December 2020, New York Governor Andrew Cuomo signed S.B. 5470 into law, which will impose a range of Truth in Lending Act-like disclosure requirements on providers of commercial financing in amounts of $500,000 or less. The law will have a significant impact on providers beyond traditional commercial lenders, as it broadly defines “commercial financing” to include the providers, and third-party solicitors, of sales-based financing, closed-end commercial financing, open-end commercial financing, factoring transactions, and other forms of commercial financing as the New York Department of Financial Services may provide. S.B. 5470 will affect a broad range of nonbank and fintech companies offering smaller balance commercial financing, following in the footsteps of a similar law enacted in California in 2018.

Read more in Mayer Brown’s Legal Update.

On January 13, 2021, the Bureau issued a guidance statement regarding the provision of financial products and services to consumers with limited English proficiency (the Statement). In the Statement, the Bureau defines a consumer with “limited English proficiency” or a “limited English proficient” (LEP) consumer as a person who has a limited ability to read, write, speak, or understand English.

Noting that LEP consumers have considerable credit needs but often encounter language access issues that make it difficult for them to participate in the consumer financial marketplace, the Bureau issued its Statement to encourage financial institutions to promote access to credit by better serving LEP consumers. Financial institutions and other interested parties have been anticipating this guidance for some time. LEP was one of the topics that received the most comments in response to the Bureau’s ECOA RFI, with many commenters calling for the Bureau to issue guidance to reduce regulatory uncertainty and provide lenders with flexibility to proactively reach out to LEP consumers in their preferred language. Many financial service providers expressed a desire to offer financial products and services to LEP consumers, but concern about how to do so in compliance with applicable regulations, including UDAAP and ECOA. Two of the biggest questions revolved around challenges that arise in making (1) language selection (in which language or languages to provide products and services), and (2) product and lifecycle selections (which products and services should be offered in non-English languages and at what stages of the product lifecycle).

The Statement offers guidance in two main parts. Section B.1 provides five general principles for financial institutions to consider. Section B.2 provides guidelines for implementing those principles and developing compliance solutions.

The guiding principles of section B.1 are:

  1. The Bureau encourages financial institutions to better serve LEP consumers while ensuring compliance with relevant Federal, State, and other legal requirements.
  2. Financial institutions that wish to implement pilot programs or other phased approaches for rolling out LEP-consumer-focused products and services may consider doing so in a manner consistent with the guidelines in section B.2.
  3. Financial institutions may consider developing a variety of compliance approaches related to the provision of products and services to LEP consumers consistent with the guidelines in section B.2.
  4. Financial institutions may mitigate certain compliance risks by providing LEP consumers with clear and timely disclosures in non-English languages describing the extent and limits of any language services provided throughout the product lifecycle.
  5. Financial institutions may wish to consider extending credit pursuant to a legally compliant special purpose credit program (SPCP) to increase access to credit for certain underserved LEP consumers.

The guidelines and key considerations of section B.2 include the following key considerations:

Language selection. The Bureau noted that RFI commenters pointed out that because there are over 350 languages spoken in the United States, it would be unrealistic and cost prohibitive for any financial institution to fulfill all the credit needs of all customers in all languages. Accordingly, the Statement provides that financial institutions are permitted to consider documented and verifiable information such as Census Bureau data or the stated language preferences of its customers in determining whether to offer non-English language services and in which language or languages to do so. The Bureau is not mandating any particular approach, but says it has previously noted that nationwide institutions largely choose to focus on serving Spanish-speaking consumers, while regional institutions typically align with local demographics.

Product and service selection. In terms of product and service selection, financial institutions are free to consider things like the extent to which LEP consumers use particular products as well as the availability of non-English language services. They may also consider which activities and communications have the most significant impact on consumers; for example, verbal or written communications conveying essential information about credit terms and conditions.

Language preference collection and tracking. The Bureau specifically states that financial institutions do not violate ECOA or Regulation B when they collect an applicant’s language preference in a credit transaction. The Bureau notes that in the mortgage context, it previously issued an official approval of the final redesigned Uniform Residential Loan Application (URLA), which was to include a question about language preference. Even though FHFA opted to remove that question from the URLA, the Bureau confirms in the Statement that institutions may use that question without violating Regulation B or ECOA. The Bureau cautions that language preference information should not be used in a discriminatory way, such as by excluding consumers from offers they would have otherwise been provided.

Translated documents. Certain federal and state laws require the provision of translated documents under certain circumstances, and the Statement reminds financial institutions that nothing in the Statement alters the applicability of those requirements. But where a translation is not legally mandated, financial institutions are free to assess whether to provide translated documents. If they choose to do so, however, they must ensure the accuracy of those translations. This is obviously a big concern for many institutions, but the Bureau notes that several federal financial regulatory agencies have published resources to draw from, including glossaries of financial terms, for example. The Statement again suggests that financial institutions should seek to prioritize communications and activities that have the most significant impact on consumers. The Bureau indicated its commitment to providing more translated documents in the future.

Section B.2 also discusses certain generally applicable compliance management system (CMS) guidelines. Strong compliance management systems will affirmatively consider how to serve LEP consumers. The Statement offers some specific detail about components that can be included to mitigate fair lending and other risks.

Documentation of decisions. The Statement encourages financial institutions to document its decision making in the selection of language, products, and services.

Monitoring. Financial institutions should consider assessing the quality of customer assistance provided in non-English languages, and should monitor or conduct regular assessments of their advertising and marketing.

Fair lending testing. The Bureau encourages lenders to engage in regular statistical analysis of loan-level data for potential disparities on a prohibited basis in underwriting, pricing or other aspects of the credit transaction.

Third-party vendor oversight. Financial institutions are responsible for ensuring that their third-party service providers offering products or services on its behalf to LEP consumers do not violate applicable laws. Accordingly, they should implement an oversight program, with particular attention paid to third parties who participate in underwriting or pricing decisions.

Serving LEP consumers is a complicated area with many challenges, but the Statement tries to achieve the right balance by offering compliance principles and guidelines that encourage financial institutions to assist LEP consumers, without being overly prescriptive.

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. In this Legal Update, we analyze the EWA AO, including: (1) the regulatory landscape for EWA programs prior to the AO; (2) application of TILA and consumer credit laws to EWA programs based on the AO; and (3) the practical implications of the AO on EWA programs more generally.

Read more in Mayer Brown’s Legal Update.

The Consumer Financial Protection Bureau (“CFPB”) issued two relatively welcome surprises yesterday. First, along with ditching a debt-to-income ratio (“DTI”) ceiling, the agency expanded its proposed general Qualified Mortgage (“QM”) to include loans up to 2.25 percentage points over the average prime offer rate. Mortgage lenders can opt in to the new QM as early as 60 days after the rule is published (so, likely by late February 2021), although compliance becomes mandatory July 1, 2021. Second, the CFPB will begin allowing loans to season into a QM after 36 months of timely payments, so long as the loan is not sold more than once (and is not securitized) during that time.

The CFPB otherwise recently issued a separate final rule, confirming once and for all that the GSE Patch – a temporary QM category for loans eligible for purchase by Fannie Mae or Freddie Mac – would expire on the mandatory compliance date of the agency’s rule revising the general QM definition. Since 2014, in general terms, a closed-end residential mortgage loan could only constitute a QM if the borrower’s DTI did not exceed 43%, or if the loan were GSE-eligible. As the GSE Patch’s expiration date (January 10, 2021) loomed, the CFPB promised to rethink the 43% DTI requirement and provide for a smooth and orderly transition to a post-Patch QM. In considering the public comments it received, the CFPB decided to loosen up on a couple of its proposals.

Specifically, the new general QM and its compliance protection will apply, under the final rule, to a covered transaction with the following characteristics:

  • The loan has an annual percentage rate (“APR”) that does not exceed the average prime offer rate (“APOR”) by 2.25 or more percentage points;
  • The loan meets the existing QM product feature and underwriting requirements and limits on points and fees;
  • The creditor has considered the consumer’s current or reasonably expected income or assets, debt obligations, alimony, child support, and DTI ratio or residual income; and
  • The creditor has verified the consumer’s current or reasonably expected income or assets, debt obligations, alimony, and child support.

The final rule removes the 43% DTI threshold and the troublesome Appendix Q. Continue Reading CFPB Issues New QM Definition and Seasoning Provisions