Briefing has now been completed in CFPB v. Great Plains Lending, LLC, et al., the case before the U.S. Court of Appeals for the Ninth Circuit in which three tribally-affiliated payday lenders are challenging the CFPB’s authority to issue civil investigative demands (CIDs) to entities that are arms of sovereign tribes.
Last July, a California federal court rejected the lenders’ arguments that (1) as arms of sovereign tribes, they were “sovereigns” and therefore were not “persons” to whom the CFPB can issue CIDs under the Consumer Financial Protection Act, and (2) the CIDs were barred by tribal sovereign immunity. The court did agree, however, to the lenders’ request for a stay pending their appeal to the Ninth Circuit.
Briefs have been filed with the Ninth Circuit by the lenders and the CFPB, and the lenders have also filed a reply brief.
The Office of Inspector General for the Fed/CFPB has sent a memorandum to the CFPB, the subject of which is “The CFPB Can Enhance Its Process for Notifying Prudential Regulators of Potential Material Violations.” The memo follows up on a report issued last month by the Offices of Inspector General for the Fed/CFPB, FDIC, Treasury and NCUA setting forth the results of their review of the extent to which the CFPB and prudential regulators (FDIC, Fed, OCC and NCUA) were coordinating their supervisory activities and avoiding duplication of regulatory oversight responsibilities.
For insured depository institutions and credit unions with assets of $10 billion or less, Dodd-Frank left the authority to examine such institutions for compliance with federal consumer financial laws with the prudential regulators but allowed the CFPB to include its examiners on a sampling basis in examinations. While the OIGs found that the CFPB and prudential regulators were generally coordinating their regulatory oversight activities for federal consumer financial laws consistent with Dodd-Frank, they found various opportunities for enhanced coordination, including with regard to the CFPB’s approach for providing notifications or recommendations to the prudential regulators when the CFPB believes a smaller institution has violated a federal consumer financial law.
In its memorandum, the Fed/CFPB OIG states that it was unable to verify that the CFPB has been consistently complying with Section 1026(d) of Dodd-Frank, which requires the CFPB to notify the relevant prudential regulator in writing and recommend appropriate action if it has reason to believe that an insured depository institution or credit union with assets of $10 billion or less has committed a material violation of a federal consumer financial law. Section 1026(d) also requires the relevant prudential regulator to respond in writing within 60 days. The OIG found that the CFPB did not have a policy to require the tracking of such written notifications and recommendations or responses and also did not have guidelines outlining the factors to be considered when assessing the materiality of a violation, detailing any approvals needed for such a determination, or describing when a written notification or recommendation is necessary.
The Fed/CFPB OIG’s memorandum contains a recommendation for the CFPB to develop and implement a policy that (1) outlines the process for assessing the materiality of a violation and provides guidance on determining whether a written notification or recommendation is necessary, and (2) requires the tracking of such written notifications and recommendations and responses. The memo indicates that since the OIG discussed its recommendations with the CFPB, the CFPB finalized a policy that outlines an escalation and approval process that precedes a written notification and a tracking process for written notifications and recommendations. In his response to the memo, CFPB Deputy Director Steven Antonakes indicated that the CFPB also plans to track written responses received from prudential regulators.
The Fed/CFPB OIG noted in its memorandum that there have already been three instances in which the CFPB has notified prudential regulators of a potential material violation of federal consumer financial law by a smaller institution. As a result, smaller institutions should expect to see more such notifications from the CFPB to prudential regulators.
On July 15, 2015, the Senate Committee on Banking, Housing and Urban Affairs will hold a hearing on “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress.” Director Cordray is the only scheduled witness.
In its new report containing its findings from a survey of prepaid card users, The Pew Charitable Trusts urges the CFPB’s “speedy adoption” of its proposed prepaid card rule. The CFPB’s proposal, which would mandate new disclosures, error resolution procedures, consumer liability limits for unauthorized transactions, fee limits, and added requirements for cards with overdraft or credit features, was issued in November 2014. In its Spring 2015 agenda, the CFPB indicated that it expects to issue a final rule in January 2016.
The Pew report states that its findings are based on “a nationally representative telephone survey of [general purpose reloadable] prepaid cardholders—defined as adults who use these cards at least once a month.” Among the report’s key findings are that:
- Prepaid card use is becoming more common, with use jumping by more than 50 percent between 2012 and 2014
- Unbanked prepaid cardholders use their prepaid cards more like traditional checking accounts and to manage their budgets, checking their balances more regularly, reloading more frequently, and registering their cards more often than banked cardholders do
- Most prepaid card users do not want the option to overdraw their accounts
- Most users do not know whether their liability for fraudulent use is limited, funds are FDIC-insured, or cards have arbitration clauses
According to Pew, its findings “demonstrate the need for the [CFPB] to finalize its proposed rules on prepaid cards.” Pew “commends the CFPB for the proposed rule” and states that it “would promote clear disclosure and ensures protections that limit liability for unauthorized transactions and ban high-cost credit products.”
Among the issues highlighted in comments on the proposal submitted by industry are the difficulties industry members would face in implementing the proposal’s new disclosure requirements as well as the vagueness of other new requirements. We are hopeful that the CFPB’s timetable is an indication that the CFPB is giving careful consideration to these comments.
A sharply divided U.S. Supreme Court announced its decision in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. on June 25, 2015, holding that disparate impact claims are cognizable under the Fair Housing Act.
Inclusive Communities does not resolve the question of whether disparate impact claims are cognizable under the Equal Credit Opportunity Act. We have prepared an analysis of the decision in which we discuss the considerations identified by the Court as the basis for its holding with respect to the FHA and explain how the decision thereby serves to highlight material differences between the FHA and the ECOA.
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.