Yesterday, the following four CFPB-related bills were passed by the House Financial Services Committee:
- H.R. 3192, the “Homebuyers Assistance Act”: The bill would provide a hold harmless period for the TILA/RESPA Integrated Disclosure (TRID) rule that is scheduled to go into effect on October 3, 2015. Although the CFPB recently delayed the effective date of the TRID rule until such date, it declined to adopt a formal hold harmless period, despite industry calls for such a period. H.R. 3192 provides that the TRID rule may not be enforced against any person until February 1, 2016, and that no suit may be filed against a person for a violation of the TRID rule occurring before such date, so long as the person has made a good faith effort to comply with the rule. Passed by a vote of 45 to 13, the bill’s bi-partisan support in the Committee likely signals passage by the full House. Prospects in the Senate, however, are less clear. An existing bill, S. 1711 (which is a companion bill to H.R. 2213), would provide for a TRID rule hold harmless period until January 1, 2016. The bill was introduced on July 7, 2015 and referred to the Committee on Banking, Housing and Urban Affairs, but no further action has been taken.
- H.R. 1210, the “Portfolio Lending and Mortgage Access Bill”: The bill would modify the TILA ability to repay provisions by creating a safe harbor for depository institutions without regard to their size for loans that the institution retains in portfolio from origination where any prepayment penalties comply with the phase-out requirements for prepayment penalties on qualified mortgages. The bill would also create a safe harbor from the TILA anti-steering provision (for which the CFPB has not yet proposed implementing regulations) that prohibits a mortgage originator from steering a consumer from a qualified mortgage for which the consumer is qualified to a mortgage that is not a qualified mortgage. The conditions for the safe harbor are that the creditor on the loan is a depository institution that has informed the mortgage originator that it intends to retain the loan in portfolio for the life of the loan and the originator informs the consumer that the creditor intends to do so. The bill also had bi-partisan support in the Committee, passing by a vote of 38 to 18.
- H.R. 1737, the “Reforming CFPB Indirect Auto Financing Guidance Act”: The bill would nullify the CFPB’s indirect auto finance guidance issued in March 2013 and require the CFPB to provide for a notice and comment period before issuing any new guidance onindirect auto finance. The bill also includes requirements for the CFPB when proposing and issuing such guidance to (1) make publicly available “all studies, data, methodologies, analyses, and other information” it relied on, (2) consult with the Fed, FTC and DOJ, and (3) conduct a study of the guidance’s impact on consumers and “women-owned, minority-owned, and small businesses.” The bill passed by a vote of 47 to 10.
- H.R. 1941, the “Financial Institutions Examination Fairness and Reform Act”: The bill would establish deadlines within which the banking regulators and CFPB must hold exit interviews after an examination and issue final examination reports. The bill would also establish an Office of Independent Examination Review from which financial institutions can seek an independent review of a material supervisory determination contained in a final examination report. The bill passed by a vote of 45 to 13.
The Office of Inspector General (OIG) for the Fed and CFPB recently completed its review of the information system security controls for the CFPB’s Data Team (DT) Complaint Database. The DT Complaint Database supports the CFPB’s Consumer Response System through which the CFPB collects and responds to consumer complaints and is the source of consumer complaint information published on the CFPB’s website. The OIG did not release a full audit report. Instead, it only issued an executive summary in which it stated that because of “the sensitivity of information security review work, [OIG] reports in this area are generally restricted.”
The OIG found that overall, the CFPB has taken steps to secure the DT Complaint Database in accordance with the Federal Information Security Management Act of 2002, as amended by the Federal Information Security Modernization Act of 2014 (FISMA), and the CFPB’s information security policies and procedures. However, the OIG identified several control deficiencies related to configuration management, access control, and audit logging and review. Specifically, the OIG identified improvements that are needed in the timely installation of database level patches, the enforcement of password expiration and user access requirements, and the logging and review of security events.
The OIG’s full report included seven recommendations to strengthen controls for the DT Complaint Database in these areas. The CFPB’s Chief Information Officer has agreed with those recommendations and outlined actions that have been or will be taken to address them.
The CFPB has issued a Spanish version of “Your Home Loan Toolkit” (“Toolkit”), that is designed to be used with disclosures provided under the TILA/RESPA Integrated Disclosure (“TRID”) rule. The Toolkit will replace the current “Settlement Cost Booklet” (also known as the “Special Information Booklet”) when the TRID rule goes into effect on October 3, 2015. The CFPB has also released a Spanish translation of the disclosures that a company must include in the Toolkit for it to place its logo on the Toolkit cover.
As we have previously blogged, the Toolkit has been redesigned to explain to consumers how the Loan Estimate and the Closing Disclosure work, and how the two documents interact during a home loan purchase. Among other things, the Toolkit provides questions consumers should consider to help define their homeownership goals and mortgage lending choices. Lenders must deliver or mail the Toolkit to consumers no later than three days after receipt of an application. The CFPB has also encouraged all market participants, including realtors, to integrate the Toolkit with its consumer marketing materials.
Earlier this month, American Honda Finance Corporation (AHFC) entered into a settlement with the CFPB and the Department of Justice to resolve charges that it engaged in unlawful discrimination in violation of the Equal Credit Opportunity Act (ECOA). The settlement includes AHFC’s agreement to change its auto dealer compensation policy, pay $24 million in restitution, and distribute $1 million towards the administration and operation of a consumer financial education program. It is noteworthy, however, that the settlement does not include payment of any monetary penalties by AHFC, which perhaps reflects statements in the DOJ’s and CFPB’s press releases praising AHFC for its industry “leadership” in agreeing to change its policy.
When the settlement was announced, we prepared a detailed legal alert. We intended to share the alert with our blog readers at that time but due to an oversight, belatedly share it now.
The Department of Defense (DoD) dramatically expanded the scope of the Military Lending Act (MLA) on July 22, 2015, publishing its Final Rule amending the MLA’s implementing regulation. The DoD consulted with the CFPB in developing the Final Rule, and the CFPB actively supported the DoD’s plans to expand MLA coverage.
MLA coverage was previously limited to only three types of consumer credit extended to active-duty service members and their dependents: closed-end payday loans with a term of 91 days or less in which the amount financed does not exceed $2,000, closed-end vehicle title loans with a term of 181 days or less, and closed-end tax refund anticipation loans. The Final Rule extends the MLA’s 36 percent interest cap and other restrictions to a host of additional products, including credit cards, installment loans, private student loans and federal student loans not made under Title IV of the Higher Education Act, and all types of deposit advance, refund anticipation, vehicle title, and payday loans (residential mortgages and purchase-money personal property loans are excluded). Although the Final Rule takes effect on October 1, 2015, it will apply only to consumer credit transactions or accounts that are consummated or established after October 3, 2016 for most products, and after October 3, 2017 for credit cards.
On August 24, 2015, Ballard Spahr attorneys will hold a webinar on the Final Rule from 12 p.m. to 1 p.m. ET. The webinar registration form is available here.
For more on the Final Rule, see our legal alert.
The issue of the CFPB’s constitutionality reemerged last week in court and Congress.
On the judicial front, the U.S. Court of Appeals for the D.C. Circuit, in State National Bank of Big Spring, Texas, et al. v. Lew, et al., reversed the district court and ruled that the bank had standing to challenge the constitutionality of the CFPB and Director Cordray’s recess appointment. The D.C. Circuit did not, however, rule on the merits of the bank’s constitutionality claims. (In January 2014, in the CFPB’s enforcement action against Morgan Drexen, a California federal court rejected on the merits a challenge to the CFPB’s constitutionality.)
The case before the D.C. Circuit was originally filed in June 2012 by State National Bank of Big Spring (SNB) and two D.C. area non-profit organizations that joined SNB as plaintiffs. Eleven Republican state Attorneys General subsequently joined as plaintiffs on the amended complaint filed in September 2012. The original complaint challenged the constitutionality of Director Cordray’s recess appointment. It also alleged that the CFPB’s structure and authority violated the Constitution’s separation of powers and that the Financial Stability Oversight Council (FSOC) created by Dodd-Frank was unconstitutional. The AGs did not join those portions of the amended complaint and instead only joined a newly-added challenge that had nothing to do with the CFPB but dealt with their states’ status as potential creditors of a failed financial institution in the event of an “orderly liquidation” under Title II of Dodd-Frank. In August 2013, the district court granted the CFPB’s and other defendants’ motion to dismiss on standing and ripeness grounds.
The D.C. Circuit’s decision consisted of the following four rulings:
- SNB has standing to challenge the CFPB’s constitutionality and the challenge is ripe because SNB is regulated by the CFPB. The court used the CFPB’s Remittance Rule as an example of the CFPB’s exercise of its regulatory authority to impose new obligations on SNB. SNB had alleged that the increased compliance costs resulting from the Remittance Rule, coupled with an alleged loss of business, provided sufficient injury to establish standing. According to the court, SNB was not required to violate the Remittance Rule and trigger an enforcement action to challenge the legality of the CFPB itself. The D.C. Circuit remanded to the district court for it to consider the merits of SNB’s constitutionality claim.
- SNB has standing to challenge the constitutionality of Director Cordray’s recess appointment and such challenge is ripe for the same reasons. While it reversed and remanded to the district court to consider the merits of the issue in light of the U.S. Supreme Court’s decision in Noel Canning, the D.C. Circuit also noted that it “leave[s] it to the District Court to consider the significance of Director Cordray’s later Senate confirmation and his subsequent ratification of the actions he had taken while serving under a recess appointment.”
- SNB does not have standing to challenge the FSOC because SNB could not rely on the doctrine of “competitor standing” to argue that the designation of another entity as “too big to fail” indirectly harmed SNB by creating a “reputational benefit” for the competitor.
- The State AGs do not have standing to challenge Dodd-Frank’s order liquidation authority and the claim is not ripe. Among the reasons given by the D.C. Circuit was that it was premature for a court to consider the legality of how the government might wield its orderly liquidation authority in a potential liquidation or reorganization.
On the Congressional front, the CFPB’s constitutionality was the focus of testimony given to the Senate Judiciary Committee at a hearing last week entitled “The Administrative State v. The Constitution: Dodd-Frank at Five Years.” Among the witnesses was Professor Neomi Rao of George Mason University School of Law. In her written testimony, Professor Rao provided extensive support for the position that the CFPB is unconstitutional. According to Professor Rao, because of its “super independence and expansive delegated authority, the CFPB’s structure undermines the Constitution’s checks and balances.” She also asserted that the CFPB’s “constitutional infirmities have predictably resulted in agency overreach on matters of fundamental importance to the consumer financial marketplace.” (The written testimony of the other witnesses is available on the Judiciary Committee’s website.)
The CFPB has announced a proposed settlement with Student Financial Aid Services, Inc. (SFAS) to resolve charges that the company engaged in unlawful sales and billing practices in connection with offering fee-based financial aid assistance and preparation services to consumers. The proposed Stipulated Final Judgment and Order provides for a judgment to be entered against SFAS in the amount of $14.5 million for the purpose of consumer redress. However, due to the company’s financial condition, the amount the company must pay towards the judgment is limited to $5.2 million. In addition, also due to the company’s financial condition, the order only imposes a $1 civil money penalty.
The complaint, filed in a California federal court, alleged that the financial aid assistance and preparation services provided by SFAS included assistance with preparing the federal government’s Free Application for Federal Student Aid (FAFSA). According to the complaint, SFAS operated websites, including FAFSA.com and SFAS.com, and related call centers, through which it offered FAFSA preparation services for a fee. The CFPB alleged that when consumers provided credit card or bank account information to pay for FAFSA preparation services, SFAS began to bill them annually for FAFSA preparation services without accurately disclosing in understandable terms that they would be subject to automatic recurring annual charges for an unspecified number of years. The CFPB claimed that SFAS (1) engaged in unfair and deceptive acts in practices in violation of the CFPA, (2) engaged in deceptive telemarketing in violation of the Telemarketing Sales Rule, and (3) violated Electronic Fund Transfer Act/Regulation E requirements for “preauthorized electronic fund transfers.”
In addition to the monetary provisions, the proposed Stipulated Final Judgment and Order includes a provision requiring SFAS to cancel and not reinitiate any recurring automatic charges except those for which SFAS has “a separate, express, written authorization from the consumer agreeing to the specific amounts and schedule of charges.” The order also permanently enjoins SFAS from engaging in the alleged unlawful practices that were the subject of the complaint.
In its press release about the settlement, the CFPB stated that on July 13, 2015, SFAS announced its intention to transfer the website domain name “FAFSA.com” to the U.S. Department of Education. In June 2012, 20 State Attorneys General entered into a settlement with the owner of websites, including one with the name“GIBill.com,” that marketed educational institutions to military servicemembers and their families. The settlement included a requirement for the website owner to relinquish ownership of the domain “GIBill.com” to the Department of Veterans Affairs.
The Senate Judiciary Committee held a hearing yesterday entitled “The Administrative State v. The Constitution: Dodd-Frank at Five Years.” The hearing was focused on constitutional issues relating to the Dodd-Frank Act, including the constitutionality of the CFPB.
The witnesses were: The Honorable C. Boyden Gray of Boyden Gray & Associates, PLLC: Deepak Gupta of Gupta Wessler PLLC; Professor Neomi Rao of George Mason University School of Law; Professor Adam J. Levitin of Georgetown University Law Center; and Dr. Mark Calabria of the Cato Institute. Their written testimony is available on the Committee website.
We reported earlier this week that the CFPB had recently posted a job opening for an administrative law judge (ALJ) and that the government jobs website indicated that the position was closed. We saw this as suggesting that the position has been filled.
In response to our blog post, Judge James G. Gilbert, Chief Administrative Law Judge with the United States Postal Service Judicial Office, contacted us to advise that it is unlikely that the position has been filled and that the closing of the position most likely means only that the application period has ended. Judge Gilbert advised that the CFPB will presumably now interview candidates before selecting an ALJ. He also commented that it normally takes about 6 to 8 weeks after the close of the application period for a selection to be made, and often takes longer.
In our blog post, we also reported on the recent decision of an Atlanta federal court calling into question the constitutionality of the SEC’s use of ALJs. The court issued a preliminary injunction enjoining an SEC administrative proceeding, having found that the appointment of the ALJ in question was “likely unconstitutional” under the Appointments Clause of Article II of the U.S. Constitution. Judge Gilbert commented that the Appointments Clause issue is being closely watched by all federal ALJs.
The Federal Trade Commission will be holding a workshop in Washington, D.C. on
October 30, 2015 to explore the growing use of online lead generation in various industries, including consumer lending. The workshop is free and open to the public.
Participants in the workshop, “Follow the Lead: An FTC Workshop About Online Lead Generation,” will include industry representatives, consumer advocates, and government regulators. The workshop will focus on consumer protection issues raised by the practices of the lead generation industry, such as what types of lead generation conduct may be unlawful under the FTC Act’s prohibition against unfair or deceptive practices.
We recently blogged about a lead generation company that filed a petition with the CFPB to modify or set aside a civil investigative demand (CID). Among the arguments made in the petition for why the CID should be set aside is that the company is neither a “service provider” nor “covered person” as defined in Dodd-Frank. It will be interesting to see if the government regulators participating in the workshop include a CFPB representative.