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CFPB Consumer Advisory Board to discuss arbitration at October 22 meeting

Posted in Arbitration

The CFPB has announced that its Consumer Advisory Board will meet on October 22, 2015 in Washington, D.C.  The meeting, at which Director Cordray is scheduled to give opening remarks, will include a discussion of arbitration, trends and themes in the marketplace, and reaching limited English speaking consumers.

According to the meeting agenda, the arbitration discussion will be led by Will Wade-Gery, CFPB Assistant Director, Card & Payments Markets, and Eric Goldberg, CFPB Senior Counsel, Regulations.  Presumably, the discussion will focus on the CFPB’s proposal announced last week to issue rules that would prohibit consumer financial services companies from using class action waivers in consumer arbitration clauses.  (Last month, the CFPB announced new appointments to the Consumer Advisory Board.)

The meeting is open to the public, but an RSVP is required to attend.

Fair Lending Director Ficklin Discusses Small Business Lending, LGBT issues, LEP consumers and Inclusive Communities at ABA Institute

Posted in Fair Lending

Last Thursday, I had the pleasure of teaching a class on payments and banking products to new lawyers at the American Bar Association’s Consumer Financial Services Institute.  I arrived early for the class and got to hear a lunch address on fair lending by Patrice Ficklin, Director of the CFPB’s Office of Fair Lending.  In her prepared remarks, Ms. Ficklin discussed the CFPB’s enforcement priorities and areas of interest.  Much of what she said tracked information previously released by the CFPB, but the following items caught my attention:

First, she said that the CFPB was starting its first fair-lending-focused exams of business lenders.  She expected the exams to provide the CFPB with information about small business loan underwriting criteria and indicated that the exams would help inform the CFPB’s rulemaking under Section 1071 of Dodd-Frank (which is more or less like a HMDA requirement for small business loans).  My understanding is that the CFPB does not have examination authority over most small business lenders, so I assume that she was referring to exams of the small business lending operations of banks over which the CFPB does have exam authority.  In any event, she listed small business loans as the CFPB’s fourth fair lending product priority after mortgages, auto loans and credit cards.

Second, she said the CFPB is focusing on LGBT consumers and the challenges they face.  She suggested that the ECOA’s prohibition against discrimination on the basis of “sex,” includes discrimination on the basis of gender identity and sexual orientation.  My colleagues John Culhane and Tristram Wolf will touch on the legal merits of this position and other LGBT issues in an upcoming webinar on the Supreme Court’s same-sex marriage decision in Obergefell v. Hodges.  For more information, click here.

Third, Ms. Ficklin indicated that limited English proficiency (“LEP”) borrowers are a priority.  In speaking about LEP consumers, she explained that the CFPB had received an inquiry from a consumer who spoke a rare dialect of Hmong that the CFPB’s language services had not supported.  Ms. Ficklin proudly stated that the CFPB, within just one day, modified its services to support this rare dialect.  I took this example as a suggestion that lenders should be able to do the same as to rare languages spoken by lenders’ customers.  We will be hosting a webinar on LEP consumers and more information about that webinar can be obtained here.

At the conclusion of her remarks, I asked Ms. Ficklin about the practical impact of the Supreme Court’s decision in Inclusive Communities regarding disparate impact.  She first noted that the case was decided under the FHA, not the ECOA, such that it had limited application to the ECOA.  She then said that some had interpreted language in the case as being helpful to defendants with respect to the burden shifting that takes place under a disparate impact analysis.  She said any such language was mere “dicta” and that the case did not lighten or change a defendant’s burden.  That the CFPB would take this position is not surprising.  Our experience in the exam context has been that the burden rests with the lender to show both a business justification as well as that there is no less discriminatory means of achieving the same result.  That is, a lender is guilty until it proves itself innocent.

Transitional period and initial supervisory practice over TRID

Posted in CFPB Enforcement, CFPB Rulemaking, Federal Agencies, Hot Issues, Mortgages, TILA / RESPA

The CFPB sent industry trade groups a letter on October 1, 2015 to address the approach of the FFIEC member agencies during the initial months following the implementation of the TILA-RESPA Integrated Disclosure (TRID) rule on October 3, 2015. In the letter, the CFPB noted that it and the other FFIEC member agencies recognized the implementation challenges presented by the TRID rule and the significant efforts made by the industry to implement the rule. Notably, the letter acknowledges that “additional technical and other questions are likely to be identified once the new forms are used in practice after the effective date.”

The CFPB advises that during initial examinations for TRID rule compliance, examiners will look at an institution’s compliance management system and its overall efforts to comply. The CFPB also advised that examiners will expect institutions to make good faith efforts to comply in a timely manner, and will consider the institution’s implementation plan, including actions taken to update policies, procedures and processes; its training of appropriate staff; and, its handling of early technical problems or other implementation challenges.

As we previously reported earlier this year, the CFPB stated that it would be sensitive to the progress made by institutions that have squarely focused on making good faith efforts to come into compliance with the TRID rule on time. In 2013, the CFPB made a similar statement regarding its approach to assessing compliance with the mortgage rules that became effective in January 2014, as we reported.

Fannie Mae and Freddie Mac (collectively, the “GSEs”) also released guidance to their sellers explaining that they expect lenders to make good faith efforts to comply with the TRID rule in a timely manner as well. While the GSEs will evaluate whether a lender used the correct forms, until further notice, the GSEs will not conduct routine post-purchase loan file reviews for technical compliance with the TRID rule during this transitional period. However, the GSEs also advised that they will exercise contractual remedies, including repurchase, in the following two “limited circumstances”: (1) the required form is not used, or (2) if a particular practice would impair enforcement of the note or mortgage or would result in assignee liability, and a court of law, regulator or other authoritative body has determined that such practice violates the TRID rule. Fannie Mae also indicated that it will post FAQs on its website that will answer additional questions about the TRID rule.

The efforts of the CFPB and other FFIEC member agencies fall short of requests by the industry that institutions who have acted in good faith to implement the TRID rule be protected from legal liability for a transitional period. As we have described, H.R. 3192, entitled the “Homebuyers Assistance Act,” would provide a hold harmless period for the TRID rule until February 1, 2016. The bill provides that a suit cannot be filed for violations of TRID before then as long as good faith efforts are made to comply. H.R. 3192 passed in the House on October 7, 2015 and will be reviewed by the Senate.

House Passes Bill to Delay TRID

Posted in Mortgages

On October 7, 2015, the U.S. House of Representatives passed a bill that would provide a safe harbor from the new TILA/RESPA Integrated Disclosure (TRID) rule for a period of five months. By a vote of 303 to 121 the House passed the “Homebuyers Assistance Act” (H.R. 3192), which would provide a hold harmless period until February 1, 2016 for good-faith efforts to comply with the TRID rule, which went into effect October 3, 2015. The CFPB had previously delayed the effective date of the TRID rule from August 1, 2015 until October 3. The CFPB declined to adopt a formal hold harmless period despite industry requests for such a period based on the considerable difficulty of implementing the TRID rule, which was compounded by the lack of formal guidance on compliance issues posed by the rule. However, the CFPB has indicated it would take into account good-faith efforts to comply with the new requirements. The bill now heads to the Senate where its prospects remain unclear. The House passed the bill by a substantial bipartisan majority, despite a White House threat that it would veto any hold harmless bill.

U.S. Supreme Court Hears Oral Arguments in Case to Decide Whether Loan Guarantors Are “Applicants” Under ECOA

Posted in Fair Credit

Earlier this week the Supreme Court heard oral arguments in the case of Hawkins v. Community Bank of Raymore. We have issued an E-alert discussing this important case, which we expect will resolve whether a spouse-guarantor is an “applicant” under the ECOA. Notably, the CFPB joined in an amicus brief filed by the United States in support of Regulation B’s definition of “applicant,” which includes guarantors. The outcome of this case will likely turn on whether the Court agrees that the CFPB’s view is a permissible interpretation of the ECOA.

Be Careful What You Ask For, You May Get It—The CFPB Addresses Marketing Services Agreements Under RESPA

Posted in CFPB General

The residential mortgage settlement service industry has been asking the CFPB for guidance on the legality of marketing service agreements (MSAs) under RESPA. When questioned on the issue last week at a House Financial Services Committee hearing, Director Cordray indicated that the CFPB would issue guidance. One week later the CFPB has now issued non-binding guidance in the form of Bulletin 2015-05.

In the first paragraph the CFPB sets the tone for the Bulletin by stating that (1) while it has received numerous inquiries and whistleblower tips “describing the harm that can stem from the use of MSAs, [it] has not received similar input suggesting the use of those agreements benefits either consumers or industry” and that (2) based on the CFPB’s investigative efforts, “it appears that many MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees.” In the end, the Bulletin provides no actual guidance on how to structure a compliant MSA. Instead it simply summarizes CFPB concerns with MSAs.

Presumably based on its position that RESPA section 8(c)(2) is not an exemption from the RESPA section 8(a) referral fee prohibition, the CFPB states that “any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction.” Without specifically identifying any past CFPB enforcement action, the CFPB describes MSA issues that it considered to be harmful to consumers in the Lighthouse Title, Realty South, Amerisave and Genuine Title settlements.

The CFPB addresses the use of a third party to value services to be performed under an MSA in stating that “independently established market-rate compensation for marketing services, alone, does not suffice to ensure the legality of an MSA.” The CFPB also addresses the related issue of monitoring whether the services contemplated under an MSA are in fact performed in stating it found that “efforts made to adequately monitor activities that in turn are performed by a wide range of individuals pursuant to MSAs are inherently difficult.” These statements clearly convey that an appropriate valuation of marketing services by itself does not make an MSA compliant with RESPA, and that demonstrating to the CFPB that the marketing services paid for were actually performed may prove to be difficult.

The CFPB concludes with the ominous statement that “the Bureau’s experience in this area gives rise to grave concerns about the use of MSAs in ways that evade the requirements of RESPA. In consequence, the Bureau reiterates that a more careful consideration of legal and compliance risk arising from MSAs would be in order for mortgage industry participants generally.”

CFPB Proposes Ban on Class Action Waivers

Posted in Arbitration

Today, the CFPB announced at a field hearing in Denver, Colorado that it is considering proposing rules that would prohibit consumer financial services companies from using class action waivers in consumer arbitration clauses.   The CFPB has published an outline of its proposals in preparation for convening a Small Business Review Panel to gather feedback from small industry stakeholders.  This is the first step in the process of a potential rulemaking on this issue.  Alan Kaplinsky testified at the CFPB’s invitation to present the financial services industry’s position on the proposed rules.  We have issued an E-alert on this important development which contains a link to the CFPB’s outline of its proposals.

CFPB Information Security Remains a Challenge

Posted in CFPB General, Cybersecurity, Privacy, Technology

The Office of the Inspector General (OIG) has released the “2015 list of major management challenges” faced by the CFPB that the OIG believes will hamper the CFPB’s ability to accomplish the CFPB’s strategic objectives.  Like the 2014 list, one of the challenges identified by the OIG is the need to ensure that the CFPB has an effective information security program.  Due to the advanced persistent threats faced by the federal government, the OIG concluded that the CFPB needs to strengthen its defenses against attacks from outside governments, organized groups, and other threats.  The OIG identified four high-priority security risk areas for CFPB improvement:

  • Continuous monitoring to assess security controls and system configurations
  • Configuration management of CFPB systems
  • Role-based security training for individuals with significant security responsibilities
  • Incident response and reporting

The OIG applauded the CFPB’s efforts to build out its Cybersecurity Program Management Office, but the OIG recommended that the CFPB should continue improving its information security program, overseeing the security of contractor-operated information systems, transitioning IT resources from the Treasury Department, and ensuring that personally identifiable information (PII) is properly protected, including the PII that the CFPB receives from consumer complaints about credit card accounts, mortgage loans, and other consumer financial products and services.

CFPB, DOE, Treasury Issue Joint Statement on Student Loan Servicing

Posted in Student Loans

A new Joint Statement issued by the Consumer Financial Protection Bureau, Department of Education, and Department of the Treasury presents a framework to standardize student loan servicing practices across the various federal and private borrowing programs. The agencies expect the new principles will guide rulemaking for better servicing practices and, ultimately, reduce student loan defaults.

The Joint Statement was released in conjunction with a new Student Loan Servicing Report. The Joint Statement and Report are the result of a March 2015 Presidential directive and highlight the CFPB’s recent efforts to establish industry-wide rules to increase minimum standards for servicing practices and borrower protections. The directive, included in the Presidential Memorandum on a Student Aid Bill of Rights to Help Ensure Affordable Loan Repayment, charged the CFPB to issue a report by October 1, 2015 with recommendations for student loan servicing standards. The CFPB launched a public inquiry in May 2015 to identify areas of concern.

The Joint Statement identifies four broad target areas for reform to ensure that student loan servicing is:

  • Consistent

The Joint Statement identifies a lack of clear expectations and minimum requirements for student loan servicers. The agencies view current industry practices as lacking effective customer service—including timely responses to consumer requests, error resolution, transfers, and payment processing. Particularly, the Joint Statement aims for improvements in practices to account for variations across loan products.

  • Accurate and Actionable

The agencies identified shortcomings in the accuracy of information provided to student loan borrowers by servicers. The Joint Statement aims to mitigate the risk of default by ensuring that basic information about account features, borrower protections, and loan terms are relayed in a more reliable fashion.

  • Accountable

The Joint Statement alerts all student loan servicers—government, for-profit, and not-for-profit—that they will be held accountable for violations of federal or state consumer financial laws, the HEA, contractual requirements, and federal regulations by ensuring that officials have continuing access to appropriate channels for recourse.

  • Transparent

The agencies also indicated that borrowers may benefit from increased information regarding the performance of individual loans, lenders, and servicers. Forthcoming initiatives will establish uniformity by raising private-sector lenders and servicers to current standards applicable to federal student loans.  Those standards include information related to loan origination, terms and conditions, borrower characteristics, portfolio composition, delinquencies, defaults, use of forbearance and deferment, and complaints.

The CFPB’s 151-page report incorporated over 30,000 public comments. Richard Cordray, CFPB director, stated in a press release announcing the report that the findings underscore the need for “market-wide student loan servicing reforms to halt harmful practices and boost assistance for distressed borrowers.” The press release attributed “a wide range of sloppy, patchwork practices” as creating obstacles to repayment that drive struggling borrowers to default.

The report indicates that with one in four of the nation’s 41 million student borrowers delinquent or in default, new rules are justified to standardize practices among servicers—the “critical link between borrowers and lenders.” The CFPB expressed particular concern with servicer practices causing lost records, slow payment processing, incomplete and outdated account information, surprise bills demanding extra payments, auto-defaults, and accounting procedures that maximize costs and fees.

The CFPB also noted the need for servicers to provide “additional support” so that borrowers can understand and access repayment options to avoid default. This support includes information about alternative repayment plans, deferments, forbearances, refinancing, and modification of loan terms. Specifically, the report identified special populations—service members, veterans, borrowers with disabilities, and older consumers—as underserved.

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CFPB’s Credit Union Advisory Council to meet on October 8

Posted in CFPB General

A meeting of the CFPB’s Credit Union Advisory Council has been scheduled for October 8, 2015 at the CFPB’s offices in Washington, DC.  The agenda indicates that the “Council will discuss consumer challenges in payments.”

On July 9 of this year, the CFPB released, and we blogged about, nine “Consumer Protection Principles” that are intended to express the CFPB’s “vision of consumer protection in new faster payments systems.”