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Senator Perdue renews attempt to change CFPB funding

Posted in CFPB General

Republican Senator David Perdue has introduced a bill, S.1383 entitled the ‘‘Consumer Financial Protection Bureau Accountability Act of 2015,” that would make the CFPB subject to the congressional appropriations process.  Currently, pursuant to Dodd-Frank, the CFPB is entitled to receive automatic annual funding through transfers from the Fed that are capped at a fixed percentage of the Fed’s total 2009 operating expenses.

The introduction of the bill follows Senator Perdue’s attempt in March 2015 to make the CFPB subject to the congressional appropriations process through an amendment to the Senate’s 2015 Budget Resolution.

U.S. Dept. of Education proposes new restrictions on campus financial products

Posted in Campus Financial Products

The U.S. Department of Education has issued proposed revisions to its Title IV Higher Education Act (HEA) cash management rules that include significant new restrictions on financial products used to disburse credit balance funds to students.  Credit balances result when the amount of Title IV HEA program funds credited to a student’s account exceeds the amount of tuition and fees, room and board, and other allowed charges.  The proposal is the result of a negotiated rulemaking process, which was actively supported by the CFPB.  The CFPB made a presentation to the negotiated rulemaking committee in which it provided its views on financial products marketed to students.

Among the key restrictions in the proposal are a prohibition against a college requiring students or parents to open or obtain an account or access device offered by or through a specific financial institution; a requirement for colleges to provide a list of account options that students and parents can choose from to receive program funds in which options are presented in a neutral manner and the student’s or parent’s preexisting account is shown prominently as the first and default option; and a prohibition on overdraft and point-of-sale fees in arrangements between colleges and third-party servicers.  Comments on the proposal are due on or
before July 2, 2015.  For more information on the proposal, see our legal alert.



FDIC to hold teleconference on CFPB mortgage rules

Posted in Mortgages

The FDIC’s Division of Depositor and Consumer Protection will hold a teleconference on
May 21, 2015 on implementation of the CFPB’s mortgage rules.  FDIC staff will share observations made by FDIC examiners during initial examinations since the rules became effective in January 2014.  In addition, FDIC staff will highlight a number of practices currently used by some institutions to ensure compliance with the mortgage rules.

Democrats release alternative regulatory relief bill

Posted in Mortgages, Privacy

Democrats on the Senate Banking Committee have released a regulatory relief bill intended to be an alternative to the bill released by Senator Richard Shelby.  While Senator Shelby’s bill is entitled the “Financial Regulatory Improvement Act of 2015,” the alternative bill is entitled the “Community Financial Institution Regulatory Relief and Consumer Protection Act of 2015.”

The bill released by Democrats includes the same provision as Senator Shelby’s bill directed at the annual financial privacy notice required by the Gramm-Leach-Bliley Act (GLBA).  Like Senator Shelby’s bill, the alternative bill would amend the GLBA to create an exception under which a financial institution would not have to deliver an annual financial privacy notice if it satisfied certain conditions. Key among such conditions is that the institution has not changed its policies and practices with respect to sharing nonpublic personal information from those disclosed in its most recent annual financial privacy notice.

The alternative version would also amend the Consumer Financial Protection Act to add various provisions of the Servicemembers Civil Relief Act to the “enumerated consumer laws” that can be enforced by the CFPB.  In addition, it would amend the TILA ability to repay provision by creating a safe harbor for mortgage loans that meet certain conditions and are held in portfolio by banks and credit unions with less than $10 billion in assets.  This safe harbor is substantially narrower than the safe harbor that Senator Shelby’s bill would create.

Senator Shelby’s bill is scheduled for markup on May 21, 2015.

CFPB launches financial coaching initiative

Posted in Financial Literacy

The CFPB has announced the launch of its Financial Coaching Initiative which targets
recently-transitioned veterans and economically vulnerable consumers. (The CFPB first announced its plans for launching the program in 2013, at which time it was expecting a 2014 launch date.)

The CFPB is calling the Financial Coaching Initiative its first program paid for by the CFPB’s Civil Penalty Fund (CPF).  When the CFPB collects civil penalties in an enforcement action, it is required to deposit them in the CPF.  The funds are first to be used to compensate consumers who were harmed by the activities for which civil penalties were imposed.  If funds remain after the CFPB has provided full compensation to all eligible victims or if payments to victims are impracticable because victims cannot be located or it is otherwise impracticable to pay victims, the CFPB can use the funds for consumer education and financial literacy programs.

In its announcement, the CFPB states that the coaches hired for the program have experience working with the populations they will serve, are trained in financial coaching techniques, and will be accredited by the Association for Financial Counseling and Planning Education.  In partnership with the Department of Labor, and after a nationwide search, the CFPB selected 60 partner organizations from around the country to host the professional financial coaches.  The organizations include various nonprofits, as well as Department of Labor American Job Centers, that provide resources to help people find jobs, identify training programs, and gain job skills.  According to the CFPB, all of the nonprofits it selected to host financial coaches for economically vulnerable consumers also provide services that complement financial coaching, such as job training and education, social, and housing services.


Ballard Spahr Consumer Financial Services Group number one again in Chambers USA

Posted in CFPB General

Chambers USA has once again ranked the Ballard Spahr LLP Consumer Financial Services (CFS) Group in the highest tier nationally in the category of Financial Services Regulation: Consumer Finance (Compliance and Litigation). The 2015 edition quotes our clients who say, “They give definitive answers and I trust their advice” and “That is the only firm that I will go to for guidance because I can get an answer quickly and I’m confident it’s right.  The CFS group leader Alan Kaplinsky is recognized for his “energetic and active” approach and is “one of if not the top consumer expert in the United States.” Group Co-leader Jeremy Rosenblum is known “a very good, talented lawyer.”   Atlanta partner Christopher Willis is described by clients as “a nice guy and an incredibly hard worker.”  Up-and-coming partner Mark Furletti is known for his expertise in Telephone Consumer Protection Act (TCPA) matters, laws governing electronic payments, and other state and federal consumer lending laws. Washington, D.C. partner Richard Andreano is known as “extremely responsive,” and note that he is “an encyclopedia – he has a wealth of knowledge on mortgage rules” and John Culhane is noted as “a very talented lawyer.”

Shelby regulatory relief bill would create GLBA annual privacy notice exception

Posted in Privacy

In addition to the numerous mortgage-related provisions in Senator Shelby’s regulatory reform bill entitled the “Financial Regulatory Improvement Act of 2015,” the bill contains a provision directed at the annual financial privacy notice required by the Gramm-Leach-Bliley Act (GLBA), which is implemented by Regulation P.  In October 2014, a CFPB amendment to Regulation P became effective that allows financial institutions that meet certain requirements to deliver annual financial privacy notices to their customers using an alternative online delivery method.

Section 101 of the regulatory relief bill would go a step further by amending the GLBA to create an exception under which a financial institution would not have to deliver an annual financial privacy notice if it (1) does not share nonpublic personal information (NPPI) with nonaffiliated third parties in a manner that triggers GLBA opt-out rights, (2) has not changed its policies and practices with respect to sharing NPPI from those disclosed in the most recent annual privacy notice, and (3) otherwise provides customers access to the institution’s most recent annual privacy notice in electronic or other form permitted by regulations.

CFPB Holds a Field Hearing on Student Loan Servicing Issues

Posted in Student Loans

On May 14th, the same day that the CFPB launched a public inquiry into student loan servicing loan practices (the “Request for Information”), the CFPB held a public field hearing in Milwaukee, Wisconsin to address issues with the student loan servicing industry. After a brief introduction by Zixta Martinez, Assistant Director of Community Affairs for the CFPB, Under Secretary of the U.S. Department of Education, Ted Mitchell gave opening remarks, during which he emphasized the Department of Education’s goal of having a zero default rate among student loan borrowers. In an effort to achieve this goal, Under Secretary Mitchell noted that the Department of Education has worked (and will continue to work) closely with the student loan servicers to improve the quality and effectiveness of the servicing programs that are being offered, including establishing definitive performance standards.

Director Richard Cordray spoke next, and his remarks were published online before the field hearing and are available here. His remarks outlined the CFPB’s concerns with student loan borrowers’ experiences with servicers, which was based on the responses the CFPB received in connection with a public notice and hearing that took place two-years ago addressing the alleged “student debt domino effect.” Director Cordray then described the Request for Information that was issued by the CFPB related to student loan servicing practices and outlined a number of areas the CFPB may need to address depending on the responses received to the Request for Information:

  • Whether the student loan servicing industry is doing things that make repayment more complicated and more costly for consumers. For instance, whether payments are applied in ways that maximize fees or lengthen the amount of time for repayment.
  • Whether servicers are forwarding enough information to the new company when the rights to a loan are sold.
  • Whether there are economic incentives for inadequate service.
  • Whether the reforms that the CFPB has made to the mortgage servicing market, such as payment handling, loan transfers, error resolution, loan counseling, and treatment of distressed borrowers, may also benefit student loan borrowers.

Following these remarks, the CFPB moderated a panel discussion during which participants from industry, consumer advocacy groups, and representatives from financial aid offices and associations had the opportunity to provide remarks and answer questions. The CFPB panel included:

  • Richard Cordray, Director, CFPB
  • Steven Antonakes, Deputy Directory, CFPB
  • Rohit Chopra, Student Loan Ombudsman, CFPB.

The guest panelists were:

  • Jennifer Wang, Policy Director, Young Invincibles
  • Timothy Fitzgibbon, Senior Vice President, National Counsel of Higher Education Resources
  • Deanne Loonin, Attorney with the National Consumer Law Center (NCLC) and Director of NCLC’s Student Loan Borrower Assistance Project
  • Justin Draeger, President and CEO, National Association of Student Financial Aid Administrators
  • Richard D. (Dick) George, President and CEO, Great Lakes Higher Education Corporation
  • Chuck Knepfle, Director of Financial Aid, Clemson University
  • Ted Mitchell, Under Secretary, U.S. Department of Education.

The panelists first answered questions posed by the CFPB and Under Secretary Mitchell including: (i) What standards and protections that have been provided for consumers of other financial products can and should be used in the student loan servicing context?; (ii) What data exists that would indicate warning signs for troubled student loan borrowers?; and (iii) What is the quality of advice that is given by the servicers?

In answering these questions, the consumer advocate panelists urged the CFPB to (i) require objective counseling of the full range of rights that a student borrower may have since it was their experience that many student loan borrowers are not provided with sufficient counseling so that they understand all of the options that they may have; (ii) allow private enforcement actions against the servicers; and (iii) establish servicing standards for the student loan servicing industry. They also voiced their frustration with the few repayment options that are available for borrowers of private student loans.

Dick George, the sole panelist representing the industry, acknowledged the importance of the issues that were being discussed, but wanted the panelists to focus on the fact that most student loan borrowers are not in default. Rather, the vast majority of the student loan borrowers that have defaulted on their loans consist of students that dropped out of school early and never earned a degree. In his opinion, “the most important thing we can do in the servicing environment,” is to “find a way to communicate” early on with the most vulnerable of cohort student loan borrowers—the dropouts. Later, Dick George had a sensible suggestion that the Department of Education condition Title IV eligibility on having financial literacy courses at the college or university.

The representatives from financial aid offices and associations offered unique perspectives to the group. They encouraged the modernization of the rules that implement the Telephone Consumer Protection Act. Because most student loan borrowers exclusively use cellular phones, the servicers should be allowed to speak with the borrowers and offer them solutions by directly contacting them on their cellular phones, and not be forced to rely on a website and collection letters. In addition, they recommended the creation of a “policy and procedures manual” that highlights “how different servicers handle different loan interactions” so that the institutions could understand how servicers handle the various repayment options.

After the panel concluded, the CFPB entertained comments from approximately 15 members of the public who had registered in advance. The speakers were each afforded two minutes to comment. Student loan borrowers and consumer advocates made up the largest group of speakers. Two of the speakers were particularly noteworthy. The first, a veteran who had been deployed to Afghanistan, expressed frustration regarding the increase of the cost of higher education, and explained that he was essentially forced to join the military in order to attend school. He also urged that veterans not be required to payback their student loans during their deployment. The second speaker also cited the cost of higher education, and urged the group not to ignore the “elephant in the room”: that increased costs to attend post-secondary schools is the main reason for the so-called student loan debt crisis.

Shelby Draft Regulatory Relief Bill Addresses Various Residential Mortgage Issues

Posted in CFPB General, CFPB People, Mortgages, TILA / RESPA

On May 12, 2015 Senator Richard Shelby (R-AL) released a draft of a regulatory reform bill entitled the Financial Regulatory Improvement Act of 2015.  The draft bill addresses various residential mortgage lending issues, a number of which are summarized below.  The draft bill is scheduled for markup on May 21, 2015.

TRID Safe Harbor.  Section 117(b) of the draft bill would effectively allow lenders to continue to provide the existing Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosures for residential mortgage loans even after the scheduled August 1, 2015 effective date of the TILA/RESPA Integrated Disclosure (TRID) rule.  Under the section an entity that provides the existing TILA and RESPA disclosures would not be subject to any civil, criminal, or administrative action or penalty for failure to fully comply with the Dodd-Frank provision under which the CFPB adopted the TRID rule.

The safe harbor would apply until 30 days after the date that the CFPB Director publishes a certification in the Federal Register that the TRID rule model disclosures (the Loan Estimate and Closing Disclosure) are accurate and in compliance with all state laws.  The concept of federal disclosures being “in compliance” with state laws is interesting given federal preemption.  Potentially the concept is intended to address a concern raised by the industry that many state laws in some fashion incorporate the existing disclosures under TILA and RESPA, and have not been updated to reflect the Loan Estimate and Closing Disclosure under the TRID rule.

The industry also has raised concerns about the requirement under the TRID rule to disclose the cost of the lender’s title insurance policy and the owner’s title insurance policy in a manner that differs from the actual pricing of the policies.  Potentially the requirement that the Director certify that the Loan Estimate and Closing Disclosure are “accurate” is intended to address the concern.

TRID Waiting Period.  A summary of the draft bill provides that section 117 would remove the three business day waiting period under the TRID rule in cases in which the only change from the prior disclosure is that the annual percentage rate (APR) is lowered.  Under the TRID rule, the Closing Disclosure must be received by the borrower at least three business days before consummation, and a revised Closing Disclosure with a new waiting period is required if the APR becomes inaccurate, a prepayment penalty is added or the loan program (or certain loan features) change.

The TRID rule uses the same standard in effect today for determining if the APR becomes inaccurate, which triggers the need to provide a revised Truth in Lending Disclosure with a new three business day waiting period.  One element of the standard is the regulatory APR overstatement tolerance.  Under that tolerance, if the finance charge is overstated and the APR is also overstated, but by no more than the equivalent finance charge overstatement, the APR is deemed to be accurate.  Because the availability of the APR overstatement tolerance depends on the relationship of the disclosed APR to the disclosed finance charge, many industry participants do not rely on the overstatement tolerance.  It is believed that many industry members will adopt the same approach to determining whether a new Closing Disclosure with a new waiting period must be provided under the TRID rule.  Apparently, the intent of the draft bill is to eliminate this uncertainty by making clear that if the only change is a decrease in the APR, no new waiting period is required under the TRID rule.

Unfortunately, the current version of section 117(a) in the draft bill would not achieve the apparent intent.  The draft bill would modify the separate disclosure requirement under TILA that applies to high-cost mortgage loans.  The waiting period under the TRID rule is not contained in TILA—it is set forth in Regulation Z.  Section 117(a) would need to be modified to achieve what appears to be the intent of the draft bill.  The change could be accomplished during the May 21, 2015 mark-up.

Ability to Repay Safe Harbor.  Section 106 of the draft bill would modify the ability to repay provisions under TILA by creating a safe harbor with respect to a loan if the creditor retained the loan in portfolio since origination or a person acquiring the loan has continued to hold the loan in portfolio since the acquisition, and certain conditions were satisfied.  The conditions are that (1) the loan was not acquired through a securitization, (2) any prepayment penalties comply with the phase out requirements for prepayment penalties that apply to qualified mortgages, (3) the loan does not have a negative amortization feature, interest-only features, or a term of more than 30 years, and the (4) the creditor documented the consumer’s income, employment, assets and credit history.

Loan Originator Licensing.  Section 118 of the draft bill would create a temporary license for a loan originator who (1) is a registered loan originator (i.e., a loan originator who works for a depository institution) and then becomes employed as a loan originator with a state-licensed mortgage lender, banker or servicer or (2) is a registered loan originator or loan originator licensed in one state and then becomes employed as a loan originator with a state-licensed mortgage lender, banker or servicer in another state.  The temporary license would be effective for 120 days.  The mortgage industry has long sought a transitional license to allow loan originators to continue to perform loan origination functions when they move from a depository institution to a state-licensed mortgage entity, or from one state (working as a loan originator for a state-licensed mortgage entity) to a state-licensed mortgage entity in another state.  Currently, loan originators who change employment from a depository institution to a state-licensed mortgage entity cannot perform loan originator functions until they become licensed.  Similarly, with the exception of six states that have implemented a transitional license structure, loan originators who move from one state to a state-licensed mortgage entity in another state cannot perform loan originator functions until they become licensed in that state.  This impedes freedom of movement by individual loan originators, and requires state-licensed entities to bear the costs of employing a loan originator during the period that the originator can perform no loan origination functions.  A number of state regulators in states that have not adopted a transitional license structure have taken steps to facilitate the movement of loan originators from one state-licensed entity to another, such as by the adoption of the Uniform State Test and use of the Approved-Inactive status for loan originators.  However, a more global solution is necessary to ensure uniformity among the states.

Points and Fees.  Section 107 of the draft bill would amend the definition of “points and fees” for purposes of qualified mortgage loans and high-cost mortgage loans to exclude amounts that are escrowed for the future payment of insurance and exclude premiums for accident insurance.  The exclusion of amounts escrowed for the future payment of insurance is viewed as a conforming change, as amounts escrowed for the future payment of taxes are already excluded from points and fees.

Unlike the Mortgage Choice Act of 2015 (H.R. 685), which the House passed in April 2015 (and prior versions were also passed by the House), the draft bill would not exclude from points and fees any fees or premiums for title examination, title insurance or similar purposes when received by an affiliate of the creditor.  Current law excludes such fees and premiums from points and fees if received by a party that is not an affiliate of the creditor, even if the fees and premiums are the same as or exceed the fees and premiums that would be charged by an affiliate of the creditor.  However, section 107 would require the Comptroller General of the United States, who is the head of the General Accountability Office (GAO), to conduct a study on various access to credit issues and also “on the ability of affiliated lenders to provide mortgage credit.”  The study may be a compromise approach to address the different treatment of title charges, and certain other real estate related charges, for points and fees purposes based on whether the charges are received by an affiliate or non-affiliate of the creditor.

Studies.   Among other provisions, the draft bill also would (1) require the GAO to conduct a study and provide a report to Congress regarding whether the data published under the Home Mortgage Disclosure Act (HMDA) creates various privacy and identity theft risks (section 111), and (2) require the federal banking agencies to conduct a joint study and provide a report to Congress regarding the appropriate capital requirements for mortgage servicing assets of banking institutions, including the effect of the Basel III capital requirements.  The HMDA data study likely is intended to address the expanded data reporting requirements under Dodd-Frank that are expected to be finalized later this year when the CFPB adopts the final version of a rule  proposed by the CFPB in July 2014 and published in the Federal Register in August 2014.  The industry has raised privacy concerns regarding the expanded data elements, and a backdrop to the concerns is a GAO finding that the CFPB needs to improve its privacy and data security procedures.