On January 11, Elena Babinecz, a CFPB attorney, spoke as part of a panel relating to the revised HMDA rule at the Winter Meeting of the Consumer Financial Services Committee of the Business Law Section of the American Bar Association. Ms. Babinecz confirmed that the CFPB is engaged in a follow-up policymaking process to allow the public to provide input on privacy concerns relating to new data that those subject to HMDA’s reporting requirements are required to collect, record and report.
As we have previously reported, the new HMDA rule includes numerous new data points. For example, Covered Institutions will be required to collect, record and report information about applicants and borrowers, including age, credit score, and debt-to-income ratios. Moreover, for data collected in or after 2018, the new rule will require a Covered Institution to allow applicants to self-identify ethnicity or race using disaggregated ethnic and racial subcategories, which information will be reported accordingly.
Ms. Babinecz acknowledged that the CFPB received comments on the rule drawing attention to the fact that many of these new data points implicate important privacy rights. We agree that privacy is a critical issue, and join those who have raised concerns about expansion of data points under the new rule. For example, the new rule will require Covered Institutions to collect and record sensitive information about individuals, which will be accompanied by additional data security burdens.
The CFPB has not provided details on how it intends to ensure that the sensitive information about consumers that will be reported to, and maintained by, the CFPB will be protected from unauthorized access or disclosure. Finally, while the public will be able to obtain HMDA data using the new Internet-based tool being built by the CFPB, what portion of the reported data will be made publicly available is still under consideration by the CFPB.
We look forward to learning more about the CFPB’s policymaking relating to data privacy under the new HMDA rule.
The CFPB has released a report for FY 2015 prepared by KPMG LLP of its independent audit of selected CFPB operations and budget. An annual independent audit is required by the Dodd-Frank Act. The report dated December 18, 2015 reflects work performed by KPMG during the period June 15, 2015 to November 24, 2015.
The audit evaluated the CFPB’s (1) budget process relative to CFPB policies and procedures established over budget formulation, execution, and monitoring; (2) Investment Review Board (IRB) process relative to CFPB policies and procedures; (3) information privacy function relative to CFPB policies and procedures concerning compliance with privacy laws and applicable regulations and guidance, and (4) corrective actions taken to resolve the findings included in KPMG’s FY 2014 audit.
KPMG did not identify any findings related to the CFPB’s budget process or IRB process but made several recommendations for strengthening those processes. It also found that the control deficiencies found in the FY 2014 audit had been remediated.
With regard to the CFPB’s privacy policies and procedures, KPMG found that the CFPB had not completed a reconciliation of data necessary to determine whether the CFPB is in compliance with its privacy policies and procedures, and that its privacy policies did not include procedures and options to assure destruction of storage that contains or contained personally identifiable financial information. KPMG recommended that the CFPB complete the reconciliation and update its privacy policies to include such procedures and options.
The CFPB has issued what it calls a “fact sheet” regarding the disclosure of construction-to-permanent loans under the TILA/RESPA Integrated Disclosure (TRID) rule, which the CFPB refers to as the Know Before You Owe rule. The fact sheet falls far short of the detailed guidance sought by the mortgage industry.
A construction-to-permanent loan is a single loan that has an initial construction phase while the home is being built, and then a permanent phase for when construction is complete and standard amortizing payments begin. Although, as noted below, the TRID rule does address such loans, the rule does not provide detailed guidance on how to complete the Loan Estimate and Closing Disclosure for such loans, nor are sample disclosures included with the TRID rule.
In the fact sheet, the CFPB notes that Regulation Z section 1026.17(c)(6)(ii) and Appendix D to Regulation Z continue to apply in the new TRID rule world, and the CFPB specifically notes that they apply to the Loan Estimate and Closing Disclosure. The cited section provides that when a multiple-advance loan to finance the construction of a dwelling may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction. The fact sheet indicates, as the CFPB staff had informally advised in a May 2015 webinar, that a construction-to-permanent loan may be disclosed in a single Loan Estimate and single Closing Disclosure, or the construction phase and permanent phase can be disclosed separately, with the construction phase being set forth in one Loan Estimate and Closing Disclosure and the permanent phase being set forth in another Loan Estimate and Closing Disclosure.
Appendix D provides guidance on how to compute the amount financed, APR and finance charge for a multiple advance construction loan, when disclosed either as a single transaction or as separate transactions. The TRID rule added a commentary provision regarding Appendix D to address the disclosure of principal and interest payments in the Projected Payments sections of both the Loan Estimate and Closing Disclosure. The commentary provision does not address other elements of the Projected Payments sections. Additionally, the CFPB does not clarify in the fact sheet that Appendix D applies only when the actual timing and/or amount of the multiple advances are not known.
Likely realizing that this guidance would fall short of the detailed guidance, and sample disclosures, sought by the industry, the CFPB’s final statement in the fact sheet is “The Bureau is considering additional guidance to facilitate compliance with the Know Before You Owe mortgage disclosure rule, including possibly a webinar on construction loan disclosures.”
The industry needs and deserves more than a webinar. It deserves detailed written guidance with sample disclosures. The failure of the CFPB to provide written guidance on other aspects of the TRID rule has significantly contributed to the confusion and uncertainty in the industry regarding TRID rule requirements. It is frustrating to the industry that the CFPB continues to resist providing written guidance on TRID rule matters (as well as other matters), particularly when its sister federal agencies regularly provide written guidance on important matters.
A new FTC report, “Big Data: A Tool for Inclusion or Exclusion? Understanding the Issues,” warns that certain uses of big data consisting of consumer information may implicate various federal consumer protection laws. In the report, the FTC puts companies on notice that it intends “to monitor areas where big data practices could violate existing laws” and “bring enforcement actions where appropriate.”
The report discusses the potential applicability of the Fair Credit Reporting Act (FCRA), the Equal Credit Opportunity Act (ECOA), and Section 5 of the FTC Act to big data practices (which prohibits unfair or deceptive acts or practices). The CFPB also has FCRA and ECOA enforcement authority, as well as authority to enforce the Dodd-Frank Act prohibition of unfair, deceptive, or abusive acts or practices. As a result, companies subject to CFPB jurisdiction face the possibility that the CFPB could also begin using that authority to target big data practices (perhaps using the FTC’s report as a roadmap). In addition, companies supervised by the CFPB could face scrutiny of their big data practices in CFPB examinations and potential supervisory actions.
In its July 2014 report on the use of remittance histories in credit scores, the CFPB noted that use of remittance histories could have a disproportionately negative impact on certain racial or national origin groups and thereby implicate fair lending concerns. At the American Bar Association’s Consumer Financial Services Committee meeting in Park City, Utah earlier this week, a CFPB representative commented on the potential discriminatory impact of using big data in credit decisions. My colleague Joseph Schuster, who attended the meeting, will be blogging about those comments.
For more on the FTC’s report, see our legal alert. On February 17, 2016, from 12 p.m. to 1 p.m ET, Ballard Spahr attorneys will hold a webinar, “Big Problems with Big Data? FTC Report Warns Against Using Big Data in Ways That Violate Federal Consumer Protection Laws.” The webinar registration form is available here.
The CFPB has announced that it will hold a field hearing in Louisville, Kentucky about access to checking accounts on January 27, 2016.
In October 2014, the CFPB held a forum on checking account screening policies and practices. In his remarks, Director Cordray raised concerns about the accuracy of the reports obtained by banks and credit unions from specialty consumer reporting agencies that are used to determine whether to open a checking account for new customers. He also raised concerns about the ability of consumers to access these reports and dispute incorrect information and about how the reports were being used.
Given the CFPB’s history of using field hearings as a venue for announcing new developments, we expect the January 27 hearing to coincide with an announcement by the CFPB of steps it is taking to address these concerns.
The CFPB has issued a guide that is intended to assist near-retirees with private sector payment plans in deciding whether to choose monthly payments or a lump-sum payout. The guide includes a series of questions for consumers to consider before accepting a lump sum. For consumers who plan to take a lump-sum payout, the guide also provides advice on detecting errors in the payment calculation, consideration of future needs, planning for tax consequences, and avoiding frauds and scams.
In November 2015, the CFPB released a new online tool is intended to assist consumers in deciding when to claim social security benefits. The tool allows consumers to estimate how much they can expect to receive in benefits at different ages.
Politico has reported that Rohit Chopra, the CFPB’s former student loan ombudsman, has joined the Education Department in a senior leadership position focused on protecting student borrowers. Politico also reported that in his new position Mr. Chopra will look at how to judge the financial solvency of colleges, examine state level consumer protections for borrowers, seek ways to make data more publicly available, and work on improving loan protections for military members.
Mr. Chopra left the CFPB in June 2015 to join the Center for American Progress, where he served as a senior fellow. While at the CFPB, Mr. Chopra was highly critical of private student loan lenders and servicers. In his new role, he is likely to be an advocate for more aggressive Education Department oversight of federal student loan holders and servicers as well as higher education institutions. He is also likely to take an active role in the Education Department’s development of a federal student loan complaint system.
In an effort to publicize its online complaint system and bring in more complaints, the CFPB is now soliciting complaints through Internet advertising. When browsing the Internet recently, we came across the following which appeared to be a Google ad placed by the CFPB:
The ad links to the “Submit a complaint” page on the CFPB’s website.
The CFPB has issued a request for information (RFI) seeking information on what changes to the CFPB’s HMDA Resubmissions Guidelines may be appropriate. The RFI responds to comments received by the CFPB in connection with its final HMDA rule issued in October 2015 that it consider changes to the Resubmission Guidelines to reflect the expanded data to be collected under the final rule.
The RFI contains 12 principal questions to which commenters are asked to respond. (Each principal question is supplemented by one or more follow up questions.) The questions include (1) whether the CFPB should continue to use error percentage thresholds to determine the need for data resubmission, (2) whether the error percentage thresholds, if retained, should (a) be calculated differently, (b) treat systemic and non-systemic errors differently, (c) continue to include separate thresholds for the entire HMDA loan/application register (LAR) sample and individual data fields within the LAR sample, or (d) include different thresholds for institutions with different LAR sizes and for different HMDA fields based on LAR size, (3) whether the CFPB should separately survey a financial institution’s internal data for HMDA-reportable transactions that were omitted from the institution’s LAR, (4) whether the CFPB should require correction and resubmission for some kinds of errors and, for other kinds of errors, should require only that an institution ensure the errors will not be found in future HMDA submissions, and (5) whether changes are needed in how the CFPB conducts HMDA data integrity reviews, including how it selects HMDA samples for such reviews.
The CFPB states in the RFI that it anticipates it will not separately propose and solicit comments on changes to its Resubmission Guidelines before finalizing and publishing changes. In short, this may be the industry’s only chance to submit comments on revisions to the Resubmission Guidelines. Comments on the RFI will be due on or before 60 days after it is published in the Federal Register.
The CFPB has announced that David Silberman will replace Meredith Fuchs as the CFPB’s Acting Deputy Director beginning next week. Mr. Silberman has been serving as the CFPB’s Associate Director for Research, Markets, and Regulations since 2011 and will retain that position.
In its announcement, the CFPB stated that Mr. Silberman will serve as Acting Deputy Director “while a search for a replacement is conducted.” Since Steven Antonakes resigned as Deputy Director in July 2015, the CFPB has not filled that position.