The CFPB has issued a proposed rule with request for public comment containing both substantive amendments and technical corrections (collectively, Proposed Amendments) to the final TILA-RESPA Integrated Disclosure (TRID) rule that became effective on October 3, 2015. In a press release the CFPB advised that the Proposed Amendments are “intended to formalize guidance in the rule, and provide greater clarity and certainty.” Comments are due on or before October 18, 2016. The CFPB is proposing that the final rule based on the proposal would be effective 120 days after publication in the Federal Register, but is expressly requesting comment on the timeframe to implement the Proposed Amendments.
Four of the Proposed Amendments that are highlighted by the CFPB in the press release would (1) create a tolerance for the total of payment calculation; (2) exclude recording fees and transfer taxes from the one percent fee limit that applies to the TRID rule exemption for down payment assistance and similar subordinate lien loans often made by housing finance agencies, non-profits, and similar entities; (3) amend the scope of the TRID rule to cover units in a cooperative, whether or not they are considered real property; (4) clarify how a creditor may provide separate Closing Disclosures to the consumer and the seller through the removal of information that raises privacy concerns.
In addition to the Proposed Amendments highlighted by the CFPB, the proposal would make numerous other changes, including a change that addresses the so-called “black hole” by providing creditors with greater flexibility to use the Closing Disclosure to reset tolerances. Currently, only the Loan Estimate may be used to reset tolerances, subject to an exception that permits a creditor to use a Closing Disclosure to reset tolerances in a limited situation. Essentially, the exception applies when the creditor would not have sufficient time after learning of a change to be able to issue a new Loan Estimate and also satisfy the pre-consummation waiting period requirements under the TRID rule. The exception has proven to be too narrow in many cases, resulting in creditors having to absorb increases in fees or require that the consumer reapply for a loan. To address these unintended consequences, the CFPB proposes to expand the exception to include both (1) the current situation that is based on the timeframe between when a creditor learns of a change requiring revised disclosures and the consummation of the loan, and (2) any situation in which a Closing Disclosure has already been issued.
Other topics addressed by the Proposed Amendments include, among others, affiliate charges, the calculating cash to close table, construction loans, decimal places and rounding, escrow account disclosures, escrow cancellation notices, the treatment of gift funds, the written list of service providers, the distinction between model forms and sample forms, principal reductions, the summaries of transactions table, the total interest percentage calculation, and informational updates to the Loan Estimate.
We are continuing to analyze the Proposed Amendments and will provide a more detailed summary of the proposal in the next edition of the Mortgage Banking Update.
CFPB has issued its July 2016 complaint report which highlights complaints about credit cards and complaints from consumers in Washington and the Seattle metro area. The CFPB began taking credit card complaints on July 21, 2011, the day on which the CFPB officially opened its doors for business. In its first and second biennial reports on the credit card market, the CFPB identified deferred interest products and rewards programs as “areas of concern” for consumers. We previously commented that these “areas of concern” would likely be the subject of heightened CFPB supervisory scrutiny and enforcement activity. As noted below, in the new complaint report, the CFPB describes deferred interest and rewards programs as issues about which consumers “continue” to complain. We expect the CFPB’s continued receipt of complaints about such programs to further fuel its supervisory and enforcement activity directed at such programs.
General findings include the following:
- As of July 1, 2016, the CFPB handled approximately 930,700 complaints nationally, including approximately 24,500 complaints in June 2016. Debt collection continued to be the most-complained-about financial product or service in June 2016, representing about 29 percent of complaints submitted. Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 67 percent of the complaints submitted in June 2016.
- Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 62 percent from the same time last year (April to June 2015 compared with April to June 2016). In March 2016, the CFPB began accepting complaints about federal student loans. Previously, such complaints were directed to the Department of Education. As we noted in blog posts about prior complaint reports issued since March 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects the change in where such complaints are sent.
- Payday loan complaints showed the greatest percentage decrease based on a three-month average, decreasing about 15 percent from the same time last year (April to June 2015 compared with April to June 2016). Complaints during those periods decreased from 453 complaints in 2015 to 383 complaints in 2016. In the March, April, May, and June 2016 complaint reports, payday loan complaints also showed the greatest percentage decrease based on a three-month average.
- North Dakota, Alaska, and Wyoming experienced the greatest complaint volume increases from the same time last year (April to June 2015 compared with April to June 2016) with increases of, respectively, 40. 31, and 30 percent.
- Hawaii, Delaware, and Maine experienced the greatest complaint volume decreases from the same time last year (April to June 2015 compared with April to June 2016) with decreases of, respectively, 18, 18, and 14 percent.
Findings regarding credit card complaints include the following:
- The CFPB has handled approximately 97,100 credit card complaints, representing about 10 percent of total complaints. Credit cards are the fourth most-complained-about product or service.
- The most-complained-about issue involved billing disputes.
- “A number of consumers” complained about how their payments were applied to accounts with multiple balances and different expiration periods that resulted from balance transfers, cash advances, or deferred interest purchases, with consumers frequently indicating they were not adequately informed about how their payments would be applied and were surprised that payments were not applied to promotional or deferred interest balances.
- Credit card complaints were the subject of the CFPB’s October 2015 complaint report. In that report, the CFPB included deferred interest programs as the subject of complaints. In the June 2016 report, the CFPB states that such programs “continued to be the subject of complaints.” According to the CFPB, “many” consumers complained that the terms of such programs were not adequately explained to them.
- Although rewards programs were not mentioned in the October 2015 report, the CFPB states in the June 2016 report that consumers “continue to complain about misleading offers” for such programs. According to the CFPB, consumers “often state that they have difficulty receiving promised benefits, or that the terms and conditions of the programs were not clearly explained when they opened the card.”
Findings regarding complaints from Washington consumers include the following:
- As of July 1, 2016, approximately 18,900 complaints were submitted by Washington consumers of which approximately 58 percent(about 11,000) were from Seattle consumers.
- Mortgages were the most-complained-about product, representing 29 percent of the complaints submitted by Washington and Seattle consumers and 25 percent of complaints submitted by consumers nationally.
- The percentage of debt collection complaints submitted by Washington and Seattle consumers, 27 and 28 percent, respectively, was similar to the 27 percent national average.
On June 29, 2016, BancorpSouth Bank announced a proposed settlement and consent order with the CFPB and the U.S. Department of Justice of charges that the bank’s mortgage lending practices violated the Equal Credit Opportunity Act and Fair Housing Act by redlining majority-minority neighborhoods in the Memphis MSA and illegally discriminating against African Americans in the underwriting and pricing of certain mortgage loans. The charges stemmed from what the CFPB characterized as its first use of testers or “mystery shoppers” posing as consumers to support discrimination charges. Another unique aspect of the case is that the consent order, if approved, will require the Bank to adopt or revise diversity policies and practices as part of a written compliance plan to ensure that it does not engage in discrimination.
Under the consent order, the Bank agreed to engage a third-party compliance management system consultant to assist in the review and revision of its fair lending management system. The consultant will conduct a detailed assessment, including a review of the Bank’s diversity policies and practices in the Memphis MSA. This aspect of the assessment appears to parallel the Dodd-Frank Act diversity standards which call for regulated entities to conduct an annual self-assessment of their diversity policies and practices in four areas: (1) organizational commitment to diversity and inclusion, (2) workforce and employment practices, (3) procurement and business practices, and (4) practices to promote the transparency of organizational diversity and inclusion.
The consent order further will require the Bank to submit a written compliance plan which must include adoption or revision of its diversity policies and practices, as informed by the consultant’s findings. The consent order also touches upon several recognized diversity and inclusion practices, including that the Bank must conduct fair lending training for covered employees with an implicit racial bias component and that the Bank must develop or expand community partnerships designed to enhance financial education around credit, homeownership, and foreclosure prevention.
Ballard Spahr’s Diversity Team is working with numerous financial institutions and publicly traded companies to undertake self assessments in the diversity and inclusion arena and to adopt measures in conjunction with the Dodd-Frank Act diversity standards. On July 26, 2016, Ballard Spahr attorneys conducted a webinar on the BancorpSouth Bank consent order: “Fair Lending Lessons That Go Beyond Mortgages – The BancorpSouth Bank Consent Order.” Last July, Ballard Spahr attorneys conducted a webinar on the Dodd-Frank Act diversity standards: “Complying with the Final Diversity and Inclusion Standards.”
The CFPB has posted on its website an updated index to include the various questions regarding the TILA/RESPA Integrated Disclosure (TRID) rule that were addressed during the March 1, 2016 and April 12, 2016 webinars on the rule conducted by CFPB staff. The updated index identifies the questions addressed in all seven of the TRID rule webinars conducted by CFPB staff.
The index includes a link to the CFPB webpage that has links to the recordings of all the previous webinars. Also, the reference date of the applicable webinar that addresses each question is linked to the Table of Contents for that webinar.
The American Bankers Association and the Consumer Bankers Association (the Associations) have sent a letter to the Office of Information and Regulatory Affairs (OIRA) (part of the Office of Management and Budget (OMB)) urging OIRA to update its existing guidance on information collections to ensure that the CFPB or other agencies do not improperly use the generic clearance process.
In May 2016, the ABA sent a comment letter to the CFPB challenging its use of the generic clearance process to conduct research in connection with its overdraft rulemaking. The ABA’s letter was submitted in response to the CFPB’s March 2016 request to OMB under the Paperwork Reduction Act of 1995 for re-approval of an existing generic clearance “to collect quantitative data on effective strategies and consumer experiences….” (Qualitative Consumer Education Generic Clearance). In its letter, the ABA asserted that after obtaining approval for the Qualitative Consumer Education Generic Clearance in 2013, the CFPB improperly used the clearance to seek approval, without prior public notice, for an information collection on “Qualitative Research of Consumer Understanding and Decision-making Related to Overdrafts.” The ABA stated that because the collection would clearly inform the CFPB’s overdraft rulemaking, such as the need for increased disclosures and limitations on usage, it should have been pursued through a standard clearance. The ABA urged the CFPB to refrain from improperly using a generic clearance to conduct an individual collection on substantive or policy issues and to seek approval for a standard clearance when it plans to conduct such a collection.
The Associations’ letter to OIRA was sent as a comment to the CFPB’s renewed request in June 2016 for comments on its March 2016 request for re-approval. In their letter, the Associations renew the concerns raised by the ABA in its May 2016 comment letter regarding the CFPB’s improper use of the generic clearance process. In addition to commenting on the CFPB’s specific request for re-approval, the Associations urge OIRA to update its existing guidance on information collections by making the following two revisions to the clearance process:
- Imposing an explicit term of clearance on every generic clearance, including the Qualitative Consumer Education Generic Clearance should OIRA decide to re-approve it, that prohibits the requesting agency from using the clearance to conduct substantive or policy-related collections.
- Requiring an agency to provide notice to the public whenever it requests approval, under a generic clearance, of an individual information collection on a topic that is or may be the subject of rulemaking. The Associations assert that this step would give the public an opportunity to comment when an agency seeks to conduct a collection that could impact a rulemaking or other policy activity of the agency.
The CFPB is publishing a notice in tomorrow’s Federal Register to correct the comment deadline for its payday loan Request for Information (RFI). The corrected deadline will be November 7, 2016.
The RFI seeks feedback regarding consumer protection concerns pertaining to (1) loan products outside the scope of the CFPB’s proposed payday loan rule, and (2) “risky” credit practices not covered by the proposed rule.
Last Friday, the CFPB’s proposed payday loan rule and RFI were published in the Federal Register. When they were issued in June, the proposal and RFI had comment deadlines of, respectively, September 14, 2016 and October 14, 2016. In the version published in the Federal Register, the comment deadline for the payday loan proposal was extended to October 7. However, October 14 remained the comment deadline for the RFI in the published version.
The CFPB and Federal Reserve Board have proposed amendments to their official Regulations Z and M staff commentaries to memorialize the calculation method used by the agencies each year to adjust the thresholds for exempt consumer credit transactions and consumer leases.
Both the CFPB’s and Fed’s Regulations Z and M and their accompanying commentaries provide that the exemption thresholds will be adjusted annually effective January 1 of each year based on any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) that was in effect on the preceding June 1. If there is no annual percentage increase in the CPI-W, the CFPB and Fed do not adjust the exemption thresholds from the prior year. The agencies base this position on Section 1100E(b) of the Dodd-Frank Act, which states that the thresholds must be adjusted by the “annual percentage increase” in the CPI-W (emphasis added).
The CFPB and Fed propose to add new commentary for each regulation that would:
- provide that if the CPI-W in effect on June 1 does not increase from the CPI-W in effect on June 1 of the previous year, the threshold amount effective the following January 1 through December 31 will not change from the previous year.
- set forth the calculation method the agencies would use in years following a year in which the exemption threshold was not adjusted because there was no increase in the CPI-W from the previous year.
Comments on the proposals must be received on or before 30 days after their publication in the Federal Register.
The Department of Education has released a memorandum to provide policy direction for the new federal student loan “state-of-the-art loan servicing ecosystem” that the ED is currently procuring. According to the memorandum, ED expects the policy direction to guide the development of contract provisions in the new contracts that the ED will enter into with the “customer service providers” it selects to participate in servicing federal student loans on the new servicing ecosystem. ED also states that it “will continue to work with federal and state law enforcement agencies and regulators to apply this policy direction expeditiously to the servicing of all student loans, to the maximum extent possible.” However, not only has ED acknowledged that applicable law could currently prohibit some of the measures it contemplates (in a footnote, it states that “[t]o the extent aspects of this policy guidance are not currently allowable under Education’s regulations, they should be considered for future rulemakings”), ED’s focus on implementing the new requirements through contractual provisions strongly suggests that it does not consider these measures to be required under applicable law.
The memorandum builds on the joint principles issued last fall by the ED, CFPB and Treasury Department and the borrower “rights and expectations” concerning student loan repayment rights that were part of a vision for student loan servicing outlined by the ED earlier this year. In prepared remarks, Director Cordray called the memorandum’s release “an important milestone in our continued efforts to better protect consumers by addressing the many student loan servicing problems that we have highlighted in recent years.” He noted that the CFPB “also remain[s] committed to taking immediate action to protect consumers in this market, and we will use our enforcement and supervisory tools to address illegal student loan servicing practices.”
The memorandum gives direction to the ED’s Financial Student Aid Division (FSA) in five specific areas:
- Economic Incentives. The ED makes a series of “performance-based contracting recommendations” to FSA that “contemplate a servicing incentive structure designed to balance the need to keep borrowers current and the need to direct servicer resources to borrowers most in need of assistance.” The recommendations suggest specific changes to the compensation structure and performance measurements included in the federal Direct Loan servicing contracts “with the goal of maximizing the financial incentives for servicers to provide borrowers with high-quality customer service.”
- Accurate and Actionable Information. To improve oral and written communications with borrowers, the ED wants FSA to direct its contractors “to designate, train, and appropriately compensate a specialized unit of servicing personnel to assist at-risk borrowers and borrowers who have expressed interest in a more affordable monthly payment.” The memorandum contains a set of standards to be followed by such specialized personnel (termed “high-touch servicing staff” by the ED) when interacting with borrowers, and details notices and procedures that should be used in connection with recertifying income and family size of borrowers in income-driven repayment plans, enrolling or re-enrolling borrowers in such repayment plans, and serving the needs of military borrowers. It also includes steps to be taken by servicers to “strengthen the consumer experience” for all borrowers through “accurate servicing, actionable, personalized communications and state-of-the-art technology.”
- Consistency. The memorandum contains a set of standards to provide consistency in the handling, processing, and application of payments by servicers. It also contains standards to provide consistency in (1) how information about student loans is reported to credit bureaus, (2) borrower access to payment histories and billing statements, (3) the payoff process, and (4) the process for transferring servicing.
- Accountability. On July 1, 2016, the ED launched a new online complaint system, the “FSA Feedback System,” which was required by a Presidential directive. The memorandum describes how the complaint data should be analyzed and used by FSA in monitoring servicers and deciding whether to take action. It directs FSA to identify thresholds for servicers (such as a certain number of complaints identifying the same servicing error, certain types of “serious” errors, and/or unreasonable delays in responding to complaints) that would trigger “appropriate remediation plans or sanctions…requir[ing] the servicing servicers to pay for the costs resulting from the action.” (In another footnote, the ED states that it is also “exploring additional ways to expand the role borrowers can play when policing servicers for compliance with servicer obligations under the law and under any contract servicers may hold with Education.”) The memorandum also provides standards for servicers to follow in taking, tracking, and resolving borrower requests for assistance and account disputes, such as policies and procedures that should apply if an account dispute cannot be fully resolved in the borrower’s favor within ten days.
- Transparency. The memorandum describes servicer-level data that should be published by servicers or the ED on portfolio performance and composition, customer service performance, payment processing and borrower preferences relating to repayment, enrollment in income-driven repayment plans and other repayment plans, administration of borrower benefits and protections, and the performance of previously-defaulted borrowers. The memorandum provides standards for internal tracking, monitoring of servicing personnel, automated processes, and requests for assistance and account disputes.
To commemorate its fifth anniversary, the CFPB released a series of “fact sheets” touting its initiatives. The “fact sheets” consist of the following:
- CFPB: By the numbers. The CFPB lists various statistics, such as $11.7 billion in consumer relief, $440 million in civil penalties, 27 million consumers to receive relief as a result of CFPB enforcement and supervisory work, and 937,000 complaints handled, intended to demonstrate the CFPB’s value to consumers.
- CFPB: Establishing strong consumer protections. The CFPB highlights its rulemaking relating to mortgages, remittances and credit cards, describes the categories of non-banks it supervises as “larger participants,” describes its eRegulations resource, describes its proposed arbitration, payday loan and prepaid card rules, discusses its rulemaking plans for debt collection, and discusses its 2012 RFI and June 2013 and August 2014 reports related to overdrafts in connection with its “weighing [of] new consumer protections for checking account overdraft practices.”
- CFPB: Helping consumers help themselves. The CFPB describes its handling of consumer complaints, Know Before You Owe initiatives for mortgage and auto loans, consumer resources such as online tools and sample letters, and consumer advisories.
- CFPB: Enforcing federal consumer protection laws. The CFPB describes its supervisory work and highlights enforcement actions involving credit cards, mortgage servicing, mortgage discrimination, RESPA, mortgage modification scams, auto finance, checking accounts, payday and installment loans, debt collection, student lending, debt relief services, consumer reporting, and wireless cramming.
The CFPB’s proposed payday loan rule and related Request for Information (RFI) were published in this past Friday’s Federal Register. The RFI seeks feedback regarding consumer protection concerns pertaining to (1) loan products outside the scope of the proposed payday loan rule, and (2) “risky” credit practices not covered by the proposed rule.
When they were issued in June, the proposal and RFI had comment deadlines of, respectively, September 14, 2016 and October 14, 2016. In the version published in the Federal Register, the comment deadline for the payday loan proposal is extended to October 7. However, October 14 remains the comment deadline for the RFI in the published version.