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On November 8, the FHFA and the CFPB announced the release of a new loan-level dataset that was collected through the National Survey of Mortgage Originations (NSMO). Since 2014, in each quarter, FHFA and the CFPB send the NSMO survey to borrowers who recently obtained a mortgage to gather feedback on their experiences, perceptions, and future expectations of the mortgage market. This is the first public release of the compiled NSMO data. The NSMO is a component of the National Mortgage Database, which the FHFA and the CFPB launched in 2012 to help regulators better understanding mortgage market trends to support policymaking and research efforts and to fulfill the mortgage survey and mortgage market monitoring requirements of the Housing and Economic Recovery Act (HERA) and the Dodd Frank Act.
On October 31, the OCC published in the Federal Register proposed changes to its “stress test” rules for covered financial institutions, as required by the Dodd-Frank Act. The proposal would, among other things, (i) revise the OCC reporting requirements to mirror the Federal Reserve Board’s proposed Comprehensive Capital Analysis and Review (CCAR) reporting form FR Y-14A for covered institutions with total consolidated assets of $100 billion or more; (ii) implement the revised asset threshold mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act; and (iii) remove the Retail Repurchase worksheet. Comments on the proposed changes must be received by December 31.
On October 26, the CFPB released an assessment report of its Remittance Rule, in accordance with the Dodd-Frank Act’s requirements that the Bureau conduct an assessment of each significant rule within five years of the rule’s effective date. The Bureau’s 2013 Remittance Rule (Rule), including its subsequent amendments, requires providers to (i) give consumers disclosures showing costs, fees and other information before they pay for a remittance transfer; (ii) provide cancellation and refund rights; and (iii) investigate disputes and remedy certain errors. The assessment was conducted using the Bureau’s own research and external sources. Key findings of the assessment include:
- Money services businesses (MSBs) conduct 95.6 percent of all remittance transfers and the volume of transfers from these businesses was increasing before the effective date of the Rule and continued to increase afterwards at the same or higher rate.
- The average price of remittances was declining before the Rule took effect and has continued to do so.
- Initial compliance costs for the Rule were between $86 million, based on analysis at the time of the rulemaking, and $92 million, based on estimates from a survey of industry conducted by the Bureau.
- Ongoing compliance costs are estimated between $19 million per year and $102 million per year.
- Consumers cancel between 0.3 percent and 4.5 percent of remittance transfers, according to available data sources, and there is evidence of some banks initiating a delay in the transfer to make it easier to provide a refund if a consumer cancels within the 30-minute cancellation window permitted under the Rule.
- Approximately 80 percent of banks and 75 percent of credit unions that offer remittance transfers are below the 100-transfer threshold in a given year and are therefore, not subject to the Rule’s requirements.
On October 9, the Department of Veterans Affairs (VA) published a status update in the Federal Register to inform the public that it will not publish a final rule to adopt provisions outlined in its May 2014 interim final rule (IFR). The IFR was issued to implement provisions of Dodd-Frank concerning ability-to-repay standards and qualified mortgages (QM) as defined under TILA. According to the status update, section 309 of Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) superseded certain elements of the IFR. Specifically, the EGRRCPA’s “seasoning and recoupment requirements for [Interest Rate Reduction Refinance Loans] effectively eliminated the category of rebuttable presumption QM.” The VA reminded program participates to refer to Circular 26-18-13, previously issued in May and covered by InfoBytes, which addressed “loan churning” of VA-guaranteed refinance loans and set out new requirements for VA eligibility as addressed by EGRRCPA. The VA commented that it will publish future rulemaking to supersede the IFR, but that in the meantime, the IFR remains in effect to the extent the provisions do not conflict, or are not superseded by, EGRRCPA.
On September 6, the SEC announced a whistleblower award totaling more than $54 million— $39 million to one (the second-largest award given under the SEC’s whistleblower program) and $15 million to another—for critical information and continued assistance, which helped the agency bring an enforcement action. The redacted order highlights the denial of related-action claims by both claimants and notes an exception made to the “voluntary submission” requirement for claimant two.
According to the order, the SEC denied claimant one’s request for an additional award based on another agency’s related action, because the claimant failed to demonstrate the causal relationship required to establish that the “submission significantly contributed to the success of the [related action].” Specifically, the SEC noted that the claimant’s information was never directly transmitted to the other agency, which relied on the SEC’s order to pursue its action. The SEC rejected the claimant’s argument that providing information directly to another agency would be “at war with Congress’ clear instruction that the identity of a whistleblower must be protected” due to the fact that the other agency may not offer the same anonymity as possible under the SEC’s whistleblower program. The SEC notes that while a whistleblower may choose not to provide the information to another agency themselves, the rules allow for the SEC to transmit the information directly, while requiring the other agency to maintain confidentiality, which was not done in this case.
The SEC also denied claimant two’s related action request, concluding that the claimant should seek an award through the alternative program available from the other agency. The SEC noted that if the claimant were to receive a related-action award there would be the potential that the cumulative award would exceed the 30-percent ceiling established by Congress and would produce an “irrational result” encouraging “multiple ‘bites at the apple’” as it would allow whistleblowers to have multiple opportunities to adjudicate and obtain separate rewards on the same enforcement actions.
Notably, for claimant two, the redacted order demonstrates that the SEC made an exception to the “voluntary” submission requirements under the rules. Specifically, Rule 21F-4(a)—in order to create an incentive for whistleblowers to proactively provide information about possible violations—requires that a whistleblower “must come forward before the government or regulatory authorities designated in the rule seek information from the whistleblower.” In this instance, it was undisputed that claimant two provided the SEC information after an investigative review by another agency; however, the SEC exercised discretionary authority to grant a limited waiver of Rule 21F-4(a) and permit an award to claimant two. The SEC determined that a limited waiver was appropriate because, although claimant 2 previously “appeared before [the other agency] for an investigative interview” regarding the same violations, at the time of that appearance the claimant was unaware of the information that would ultimately be deemed by the SEC to be the “critical basis” for the whistleblower claim. The SEC concluded that once claimant two became aware of the critical information, they promptly reported it to both agencies, despite no legal obligation to do so and having no other “self-interested motive to come forward,” achieving a primary policy goal of the program to encourage prompt reporting of information about possible securities law violations.
On September 12, the U.S. District Court for the Southern District of New York issued an order dismissing the New York Attorney General’s (NYAG) claims against a New Jersey-based finance company and its affiliates (defendants) under the Consumer Financial Protection Act (CFPA). In doing so, the court reversed its June ruling that the NYAG could proceed with its CFPA claims despite the court’s conclusion that the CFPB’s organizational structure, as defined by Title X of the Dodd-Frank Act, is unconstitutional and therefore, the CFPB lacks authority to bring claims against the defendants, as previously covered by InfoBytes.
According to the new order, the remedy for Title X’s constitutional defect is to invalidate Title X in its entirety, which therefore invalidates the NYAG’s statutory basis for bringing claims under the CFPA. The court concluded that it lacked jurisdiction over NYAG’s remaining state law claims and dismissed the NYAG’s action against the defendants in its entirety.
The amended order is the culmination of a process that began with an August request by the CFPB for the court to enter a final judgment with respect to its dismissal of the CFPB’s claims, which would allow the Bureau to appeal to the U.S. Court of Appeals for the 2nd Circuit. (Previously covered by InfoBytes here.) After numerous letters were submitted by all the parties, the court granted the CFPB’s request for entry of final judgment and granted the defendant’s request to stay the NYAG claims during the pendency of the CFPB’s appeal. The NYAG subsequently responded with a letter requesting clarity on the court’s jurisdiction over the claims, which resulted in the new order dismissing the NYAG claims in their entirety.
On September 10, the CFPB rejected the arguments made by two Mississippi-based payday loan and check cashing companies (appellants) challenging the constitutionality of the CFPB’s single director structure. The challenge results from a May 2016 complaint filed by the CFPB against the appellants alleging violations of the Consumer Financial Protection Act (CFPA) for practices related to the companies’ check cashing and payday lending services, previously covered by InfoBytes here. The district court denied the companies’ motion for judgment on the pleadings in March 2018, declining the argument that the structure of the CFPB is unconstitutional and that the CFPB’s claims violate due process. The following April, the 5th Circuit agreed to hear an interlocutory appeal on the constitutionality question and subsequently, the appellants filed an unopposed petition requesting for initial hearing en banc, citing to a July decision by the 5th Circuit ruling the FHFA’s single director structure violates Article II of the Constitution (previously covered by InfoBytes here).
In its September response to the appellants’ arguments, which are similar to previous challenges to the Bureau’s structure—specifically that the Bureau is unconstitutional because the president can only remove the director for cause—the Bureau argues that the agency’s structure is consistent with precedent set by the U.S. Supreme Court, which has held that for-cause removal is not an unconstitutional restriction on the president’s authority. The brief also cited to the recent 5th Circuit decision holding the FHFA structure unconstitutional and noted that the court acknowledged the Bureau’s structure as different from FHFA in that it “allows the President more ‘direct control.’” The Bureau also argues that the appellants are not entitled to judgment on the pleadings because the Bureau’s complaint— which was filed under the previous Director, Richard Cordray— has been ratified by acting Director, Mick Mulvaney, who is currently removable at will under his Federal Vacancies Reform Act appointment and therefore, any potential constitutional defect in the filing is cured. Additionally, the Bureau argues that even if the single-director structure were deemed unconstitutional, the provision is severable from the rest of the CFPA based on an express severability clause in the Dodd-Frank Act.
On September 6, a Texas bank and two associations (petitioners) filed a petition for writ of certiorari with the U.S. Supreme Court challenging the constitutionality of the CFPB’s structure. Specifically, the petition asks the Court (i) whether the CFPB as an independent agency headed by a single director that can only be removed from office for cause violates the Constitution’s separation of powers; (ii) whether a 1935 Supreme Court case upholding removal restrictions on members of the FTC should be overturned; and (iii) weather the CFPB’s “perpetual, on-demand funding streams” are permitted under the Appropriations Clause. The petition results from a 2012 lawsuit challenging the constitutionality of several provisions of the Dodd-Frank Act, which resulted in the June decision by the D.C. Circuit to uphold summary judgment against the petitioners. That decision was based on the January 2018 D.C. Circuit en banc decision concluding the CFPB’s single-director structure is constitutional (covered by a Buckley Sandler Special Alert.
On September 6, the U.S. Court of Appeals for the 5th Circuit declined to enforce a Civil Investigative Demand (CID) issued by the CFPB against a Texas public records company, after holding the Bureau did not comply with Dodd-Frank when it issued the CID. After initially receiving the CID, the Texas company objected to its Notification of Purpose as inadequate, as it read, “whether consumer reporting agencies, persons using consumer reports, or other persons have engaged or are engaging in unlawful acts and practices in connection with the provision or use of public records information in violation of the Fair Credit Reporting Act . . . or any other federal consumer law.” In response, the Bureau filed a petition in federal court seeking to enforce the CID and the lower court granted the petition, holding that the Notification of Purpose provided fair notice of the violations under investigation as required by the Dodd-Frank Act. The 5th Circuit disagreed, however, finding that the CID did not identify an alleged violation. The court noted that the CID only made references to the FCRA, a “broad provision of law that the CFPB has authority to enforce,” and “any other federal consumer financial law,” which subsequently “defeats any specificity provided by the reference to the FCRA.” The court emphasized that it could not review the CID under the “reasonable relevance” standard, because the CID failed to identify the conduct under investigation and concluded that the Bureau does not have “unfettered authority to cast about for potential wrongdoing.”
On September 10, the CFPB published a proposal to revise its trial disclosure policy in order to “more effectively encourage companies to conduct trial disclosure programs.” The current trial disclosure policy, authorized by Section 1032(e) of the Dodd-Frank Act, was finalized in 2013 and allows for approved company disclosures to be deemed in compliance with, or exempted from, applicable federal disclosure requirements during the testing period. For the past five years, under the current policy, the Bureau has not approved a single company program for participation. The proposed revisions intend to create a “Disclosure Sandbox” and increase company participation in the program by, among other things, (i) streamlining the application process and providing formal determinations within 60 days of submission; (ii) increasing guidance during the testing period; (iii) providing procedures for requesting extensions of successful programs, as the Bureau expects most testing periods will start at two years; (iv) coordinating with other regulators of similar programs to allow companies to conduct a Bureau Disclosure Sandbox program without going through the Bureau’s application process; and (v) clarifying that trade groups may apply to the program on behalf of its members. Comments on the proposal must be received by October 10.
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Jeffrey P. Naimon and Jonice Gray Tucker to discuss "Enforcement and litigation trends" at the American Bankers Association General Counsel Meeting
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- David S. Krakoff to discuss "The DOJ corporate enforcement policy and your disclosure calculus one year in: Are companies benefitting?" at the American Conference Institute International Conference on the Foreign Corrupt Practices Act
- Moorari K. Shah to discuss "Legal & regulatory issues" at the Opal Group Marketplace Lending & Alternative Financing Summit
- Jonice Gray Tucker to discuss "Hot topics in consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "New CDD Rule: Pitfalls in compliance" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference
- Daniel P. Stipano to discuss "Anti-money laundering/OFAC compliance" at the Institute of International Bankers U.S. Regulatory/Compliance Orientation Program