The FDIC has revised its interagency examination procedures to reflect the requirements of the TILA/RESPA integrated disclosures (TRID) rule. The CFPB has issued a proposal to postpone the TRID rule’s effective date from August 1 to October 3, 2015.
The revised procedures also reflect the following amendments to other provisions of TILA Regulation Z and RESPA Regulation X:
- the alternative definition of the term “small servicer” for certain nonprofit entities in the mortgage servicing rules
- the provisions in the ability-to-repay/qualified mortgage rule that give creditors or assignees meeting certain requirements a limited period of time in which to review a transaction and “cure” excess points and fees for purposes of maintaining QM status
- additional exempt transactions under the appraisal rule for higher-priced mortgage loans
In May 2015, the OCC released revisions to the TILA and RESPA chapters of its examination manual for consumer compliance exams to incorporate the requirements of the TRID rule.
A recent American Banker article written by officials of three community groups urges President Obama to publicly denounce Director Cordray for failing to issue regulations implementing the small business lending data requirements of Dodd-Frank Section 1071.
Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. Such data includes the race, sex, and ethnicity of the principal owners of the business. In April 2011, the CFPB issued guidance indicating that the CFPB would not enforce Section 1071 until it issued implementing regulations. Section 1071 was not mentioned in the CFPB’s most recent semiannual rulemaking agenda issued in May 2015.
In their article, the community group officials state that “[p]utting a spotlight on banks’ business lending practices can help diminish redlining and prod them to market to a relatively untapped business sector. Large banks in particular have a lot of room for improvement.” They further state that “[f]air lending practices are a crucial step in easing our nation away from the ravages of the Great Recession, and putting Section 1071 into action is an important part of this effort.”
In August 2014, the National Community Reinvestment Coalition issued a white paper that urged the CFPB to take an expansive approach in developing regulations to implement Section 1071. Given its numerous other pending regulatory initiatives that are in various stages of completion, we hope the CFPB will resist pressure to move forward hastily on Section 1071 regulations and not place further burdens on the consumer financial services industry, which is already struggling to cope with what is becoming a regulatory avalanche.
In a letter to the Government Accountability Office (GAO), Senator David Vitter questioned “the adequacy and thoroughness of the CFPB’s analysis of small entity impacts” in connection with its payday lending rulemaking process and asked the GAO to conduct an investigation and issue a report on its findings. Senator Vitter chairs the Senate Committee on Small Business and Entrepreneurship.
In March 2015, in preparation for convening a small business review panel required by the Small Business Regulatory Enforcement Fairness Act (SBREFA) and Dodd-Frank, the CFPB released its contemplated proposals taking aim at payday (and other small-dollar, high-rate) loans. As Mark Furletti reported, a SBREFA panel met in April 2015 to discuss the proposals. (Mark participated at the SBREFA panel as an advisor to a small entity representative (SER).)
In his letter, Senator Vitter listed seven issues he wants the GAO to examine. Those issues include whether:
- the CFPB conducted the selection of SERs in a way that guarantees adequate input from a reasonable distribution and representation of small entities that would likely be impacted by the CFPB’s proposals;
- the SBREFA panel process allows the CFPB to adequately consider the SERs’ views, concerns and data prior to issuing a proposed rule; and
- the CFPB, in the materials distributed to the SERs of how its proposals would impact the cost of credit for small business, provided an adequate analysis.
Senator Vitter also asked the GAO to interview SERs who participated in the SBREFA panels to gauge their views on the panel process, including whether they believe (1) their respective industry was adequately represented in the selection of participants, and (2) the materials distributed to them adequately prepared them to provide constructive input.
The CFPB published notices in today’s Federal Register seeking comments on the following information collections:
- “Consumer Response Government and Congressional Boarding Forms.” The notice states that the CFPB has developed portals for state and federal agencies and congressional offices to view and search consumer complaint data. While not expressly stated in the notice, based on the CFPB’s use of other boarding forms, it would appear that the boarding forms would have to be completed by an agency or office seeking access to the portals. Comments are due on or before August 24, 2015.
- A generic information collection plan to conduct surveys of people about their experiences in consumer credit markets using the Consumer Credit Panel (a proprietary sample dataset from one of the national credit reporting agencies). The notice states that survey responses “will be used for general, formative, and informational research on consumer financial markets and consumers’ use of financial products and will not directly provide the basis for specific policymaking at the Bureau.” Comments are due on or before
July 27, 2015.
- A generic information collection plan to conduct research to improve the quality of data collection by examining the effectiveness of data collection procedures and processes, including potential psychological and cognitive issues. The notice states that the research is intended to “improve [the CFPB’s] understanding of how consumers engage with financial marketplaces.” Comments are due on or before July 27, 2015.
As of today, consumer narratives are publicly available on the CFPB’s consumer complaint database. In its press release, the CFPB stated that the database now includes “for the first time over 7,700 consumer accounts of problems they are facing with financial companies concerning mortgages, bank accounts, credit cards, debt collection, and more.”
In March 2015, despite widespread industry criticism, the CFPB announced that it had decided to adopt its plans to publicly disclose the narratives. According to a new CFPB blog post about the availability of the narratives, since the CFPB’s complaint form began advising consumers of their right to opt-in to disclosure of their narratives, approximately 59 percent of consumers submitting complaints through the CFPB’s website have opted-in.
The CFPB’s press release also describes various enhancements to the database accompanying the disclosure of the narratives. According to the press release, database users can now do the following:
- Search consumer narratives for product names or features such as the brand name of a credit card or a mortgage feature.
- Search for terms in consumer descriptions of what happened (with the CFPB giving as examples “lost paperwork,” “foreclosure scam,” or “robo-signing”).
- Sort complaints by state and zip code.
The CFPB’s announcement regarding the narratives was accompanied by the issuance of a Request for Information seeking “best practices for normalizing relevant data in the Database.” The RFI describes “normalization” as the process of “making raw complaint data more meaningful by supplementing that data with a context more useful for consumers and other market participants,” such as by providing information on the size of a credit card issuer’s business as compared to others. The RFI contains a series of questions to which the CFPB is specifically interested in receiving responses. In the RFI, the CFPB states that it does not anticipate publishing a proposed policy statement on the subject of the RFI. Responses will be due on or before 60 days after the RFI’s publication in the Federal Register.
The U.S. Supreme Court ruled this morning that disparate impact claims are cognizable under the Fair Housing Act. Justice Kennedy wrote the majority opinion in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., in which Justices Ginsburg, Breyer, Sotomayer and Kagan joined. Justice Alito wrote a dissenting opinion, in which Chief Justice Roberts and Justices Thomas and Scalia joined. Justice Thomas also wrote a separate dissenting opinion.
We will be closely reviewing the three opinions, which total 75 pages in length. On
July 1, 2015, from 12:00 PM to 1:00 PM ET, we will hold a webinar in which we will analyze the decision and its rationale and explore its potential implications for mortgage and
non-mortgage creditors. A link to register is available here.
Just days after the release of the final diversity standards under Section 342 of the Dodd-Frank Act, several prominent lawmakers and business leaders have criticized the new standards for not going far enough to promote diversity and inclusion within the financial services industry. The standards were issued jointly on June 9 by six federal agencies—the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. The standards apply both to any entity subject to regulation by these agencies, including financial institutions, mortgage companies, and all publicly traded companies.
Under Section 342, federal financial agencies are required to create Offices of Minority and Women Inclusion, each charged with “assessing the diversity policies and practices of entities” subject to regulation by the agencies. Issued as a result of this directive, the new standards provide covered entities with a framework to conduct annual self-assessments of their diversity practices and commitments, to provide opportunities for minorities and women in hiring practices and vendor relationships, and to increase transparency with respect to diversity and inclusion practices. The standards offer “assessment factors” for each of these areas. The final standards, however, are “voluntary,” according to the agencies.
The voluntary nature of the standards has drawn sharp criticism from members of Congress and civil rights advocates. Congresswoman Maxine Waters (D-CA), one of the chief architects of Section 342, said the new standards are disappointing in both structure and scope. In essence, Waters views the final standards as hobbled by ambiguity and a lack of meaningful enforcement mechanisms. In a June 18 press release issued by Waters and Congresswoman Joyce Beatty (D-OH), the two lawmakers criticized the federal agencies for paying little more than “lip service” to important diversity issues. U.S. Senator Bob Menendez (D-N.J.) and SEC Commissioner Luis A. Aguilar also spoke out against the final standards. According to Senator Menendez, the new standards “unfortunately fall short of what is necessary to achieve real progress” with respect to diversity in the financial industry. Commissioner Aguilar issued a formal dissent to the final standards, pointing to the financial sector’s historically poor diversity record while expressing disappointment that the agencies responsible for the new standards chose “to do what is convenient for the companies, rather than the right thing for the long-term benefit of our country.”
Stuart Ishimaru, Executive Director the CFPB’s Office of Minority and Women Inclusion, responded to the criticism by noting that the standards are a “first step” and that the CFPB is developing plans to use the standards to engage with regulated entities and to encourage increased levels of diversity and inclusion.
Some observers see good reasons why regulated entities should and will pay attention to diversity issues, notwithstanding the voluntary nature of the final standards. Many companies regard diversity and inclusion as the right thing to do from a corporate social responsibility perspective. Moreover, regulated entities will likely find themselves in front of one or more of these agencies at some point, seeking regulatory approval or defending their actions. Under these circumstances, opting to ignore the standards will not put the entity in a positive regulatory light. In addition, many entities recognize the competitive advantage that diversity and inclusion offers when competing for diverse talent and attempting to expand market share into the expanding U.S. multicultural market.
The CFPB has issued its formal proposal to delay the effective date of the TILA-RESPA Integrated Disclosures (TRID) rule until Saturday, October 3, 2015. The new effective date comes only a week after the CFPB announced it would delay the effective date until October 1, 2015 due to an administrative error that was made in the rules disclosure and review process. Specifically, under the Congressional Review Act, Congress and the Government Accountability Office must receive any new rule at least 60 days prior to the rule taking effect. However, the CFPB failed to submit its notice until after the 60 day deadline had passed and was forced to delay the effective date of the TRID rule as a result.
Although based on when the CFPB completed the required filing, the effective date of the TRID rule would have been delayed until August 15, 2015, the CFPB decided to propose a longer delay. In the CFPB’s press release, the agency says it believes pushing back the effective date to the first Saturday of October “may facilitate implementation by giving industry time over the weekend to launch new systems configurations and to test systems.” The Saturday launch date is also consistent with original industry plans to transition to the new TRID rule on Saturday, August 1, 2015. According to the CFPB, “moving the effective date may benefit both industry and consumers with a smoother transition to the new rules.” As we noted previously, concerns with the finalization of the necessary software to comply with the TRID rule may have been a factor in the CFPB’s decision.
The proposal will be published in the Federal Register on June 26, and comments are due by July 7.
Despite a reported endorsement from Senator Elizabeth Warren, it appears that, at least for now, Rohit Chopra, the CFPB’s former student loan ombudsman, will not be moving into the job of Superintendent of the New York Department of Financial Services.
According to Politico, Mr. Chopra has joined the Center for American Progress, where he will be a senior fellow focusing on issues facing young people and the economy.
In its Summer 2015 Supervisory Highlights, which covers supervision work generally completed between January and April 2015, the CFPB highlights legal violations resolved using non-public supervisory actions involving consumer reporting, debt collection, student loan servicing, mortgage origination and servicing, and fair lending. The report indicates that recent supervisory resolutions in the areas of mortgage origination, fair lending, mortgage servicing, deposits, payday lending and debt collection have resulted in remediation of approximately $11.6 million to more than 80,000 consumers.
As we have previously commented, the publication of such Supervisory Highlights is a tremendous tool for companies to learn of the CFPB’s non-public supervisory actions and to inform ongoing efforts to remain in compliance with Federal consumer financial law. Our experience indicates that highlights such as this distill findings from dozens of exams and can provide significant insight into the CFPB’s priorities and likely future supervisory focus.
The CFPB’s “supervisory observations” include the following:
- Consumer reporting. In examinations of consumer reporting agencies, CFPB examiners found weaknesses in policies and procedures at one or more CRAs for vetting and overseeing new furnishers, such as not updating policies and procedures to describe actual practices or failing to conduct regular monitoring to ensure furnishers followed the CRA’s vetting requirements. Other deficiencies related to information collection included a lack of formal programs to oversee and manage data provided by furnishers and weak oversight of public records providers. CFPB examiners also found a lack of quality control policies and procedures to test consumer reports for accuracy.
- Debt collection. Deficiencies in compliance management systems at financial institutions found by CFPB examiners included (1) a failure by boards of directors of one or more institutions to hold regularly scheduled meetings or receive information sufficient to oversee compliance practices, and (2) weaknesses in inquiry and complaint management for collection operations, such as a failure to record, categorize or process complaints forwarded by third-party debt collectors. CFPB examiners also found that one or more debt collectors were deleting trade lines of accounts after they received disputes without fulfilling the requirement to conduct a reasonable investigation with respect to disputed information. The CFPB noted that online statements made by one or more entities that they rarely deleted trade lines and regularly investigated disputes were deceptive in violation of the FDCPA when, in practice, such entities summarily deleted trade lines or failed to conduct investigations. CFPB examiners also found that one or more debt collectors lacked appropriate written policies and procedures regarding the accuracy and integrity of consumer information they furnished to CRAs.
- Student loan servicing. During one or more examinations, CFPB examiners found that servicers had (1) included deceptive language on periodic statements suggesting that borrowers could not deduct interest paid on student loans unless they paid more than $600 in interest, and (2) failed to include all required information in FCRA adverse action notices when denying cosigner release requests.
- Mortgage origination. CFPB examiners found that one or more supervised entities violated the Regulation Z loan originator compensation rule by failing to maintain written procedures instructing employees how to comply with the entity’s written policies on loan originator compensation. During one or more examinations, CFPB examiners found that supervised entities failed to give mortgage applicants the list of housing counseling agencies required by Regulation X. Other Regulation X violations found in one or more examinations were failing to (1) provide a timely GFE or revised GFE, (2) include all fees on a GFE, and (3) ensure that the HUD-1 settlement statement accurately reflected actual settlement charges paid by the borrower.
With regard to home equity loans, CFPB examiners found that the agreements used by one or more supervised entities included language which provided that consumers who signed the agreement waived all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of the agreement. Regulation Z provides that an agreement relating to a loan secured by a consumer’s principal dwelling cannot be applied or interpreted to bar a consumer from bringing a lawsuit for damages or other relief in connection with an alleged federal law violation. CFPB examiners found the waiver language to be deceptive because it implied that the borrower was agreeing to a waiver that is unenforceable as to any claims based on federal law.
- Mortgage servicing. Deficiencies at one or more servicers found by CFPB examiners relating to Regulation X loss mitigation requirements included (1) sending borrowers loss mitigation acknowledgment notices requesting documents the borrower had previously submitted or that were inapplicable to the borrower’s circumstances and which the servicer did not need to evaluate the borrower for loss mitigation, and (2) failing to send loss mitigation acknowledgement notices to borrowers who had requested short-term payment relief. It is interesting that the CFPB took issue with a servicer requesting documents that were inapplicable to the borrower’s circumstances or not necessary for evaluation. The general approach of the Regulation X loss mitigation procedures is to evaluate a borrower for the full spectrum of loss mitigation options, regardless of the borrower’s circumstances or even the borrower’s initial stated preference for a particular option. Further, the Official Staff Commentary makes it clear that “[a] servicer has flexibility to establish its own application requirements and to decide the type and amount of information it will require from borrowers applying for loss mitigation options.”
CFPB examiners also found a deceptive practice related to the disclosure by one or more servicers of the terms of a payment plan that deferred payments for daily simple interest mortgage loans. The communications incorrectly suggested that deferred interest would be repayable at the end of the loan term when, in fact, it would be collected immediately after the deferment ended. With regard to transferred loans, CFPB examiners found that one or more servicers failed to honor the terms of some trial modifications after transfer. This was cited as an unfair practice.
Unfair or deceptive foreclosure-related practices of at least one servicer found by CFPB examiners included sending notices (1) of intent to foreclose to borrowers approved for a trial modification before the modification’s first payment was due without first verifying whether the borrower had a pending loss mitigation plan, and (2) warning borrowers who were current on their loans that foreclosure was imminent (with the practice stemming from a system error that caused default letters to be generated for borrowers with low-balance home equity credit lines and no monthly payment due.) CFPB examiners also found that (1) periodic statements sent by one or more servicers did not comply with Regulation Z for various reasons that included listing the same fee twice in the transaction history section of the statement, and (2) one or more servicers violated the Homeowners Protection Act by failing to automatically cancel PMI of borrowers who became current on their mortgages after having been delinquent when their mortgage balances reached 78 percent of the original property value.
- Fair Lending. CFPB examiners found that one or more institutions were improperly excluding or refusing to consider income derived from Section 8 Homeownership Program Vouchers or restricting the use of such vouchers to only certain mortgage products or delivery channels. (Last month, the CFPB issued a compliance bulletin (Bulletin 2015-02) to remind creditors of their obligation not to discriminate against applicants because their income includes such vouchers.)
- Supervision program developments. The CFPB discussed its mortgage origination examination procedures, its risk-based prioritization approach to supervision, its use of Potential Action and Request for Response (PARR) letters, and its Action Review Committee process after an entity responds to a PARR letter.