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  • Special Alert: CFPB Proposes Amendments to 2015 HMDA Rule

    On April 13, the Consumer Financial Protection Bureau (CFPB) issued a proposal to amend the 2015 Home Mortgage Disclosure Act (HMDA) rule. The changes are primarily for the purpose of clarifying data collection and reporting requirements, and most of the clarifications and revisions would take effect in January 2018. Comments on the CFPB’s proposal are due 30 days after publication in the Federal Register.

    The CFPB describes the changes as being non-substantive in nature, noting that the proposal is meant to provide “clarifications, technical corrections, or minor changes.” While we describe the more significant proposed amendments below in greater detail, highlights of the proposal include:

    • Clarification of the definitions of “automated underwriting system,” “closed-end mortgage loan” (specifically, extension of credit), “dwelling” (specifically, multifamily residential structures and communities), “home improvement loan,” and “home purchase loan” (specifically, construction and permanent financing)
    • Permission for institutions to report “not applicable” for loan purpose and the loan originator’s Nationwide Mortgage Licensing System and Registry ID when reporting certain purchased loans originated before Regulation Z’s loan originator rules took effect
    • Clarification of the exclusions for temporary financing and construction loans, commercial or business purpose loans, financial institutions that do not meet the loan-volume threshold, and new funds in advance of consolidation with New York State consolidation, extension, and modification agreements (CEMA)
    • Provision of a safe harbor for bona-fide errors related to incorrect census tract reporting if the institution properly uses the geocoding tool published on the CFPB website

    ***
    Click here to read full special alert.

    If you have questions about the amendments or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.

    HMDA CFPB

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  • New York Fed Unveils Community Advisory Group to Offer “Views and Perspectives” Held by Local Community Stakeholders

    Federal Issues

    On April 12, the Federal Reserve Bank of New York (New York Fed) launched the “Community Advisory Group” (CAG)—a “private-sector advisory group,” that is composed of leaders from the non-profit sector and will meet at least three times a year to advise the New York Fed “on socio-economic and financial conditions faced by communities in the Second District” of the Federal Reserve System. According to the Community Advisory Group Charter, “[t]he primary goal of the Group is to present . . . views and perspectives on the economy and monetary policy held by individuals and households in a diverse set of communities.” The Charter also explains that the 10-15 Group members, selected by the New York Fed to serve a three year term, will be appointed “based on their ability to represent the views of one or more communities in the Second District.” The Group’s first meeting is scheduled for April 19.

    Federal Issues Federal Reserve Bank of New York Lending

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  • New Mexico Enacts New Laws Affecting Payday Lenders, Check Cashing Service Providers, and the Enforcement of Service Contracts / Warranties

    State Issues

    On April 6, New Mexico enacted H.B. 347, a bill amending the New Mexico Small Loan Act of 1955 (NMSLA) and Bank Installment Loan Act of 1959 (NMILA) to effectively eliminate “payday loans” in the state by requiring that loans of $5,000 or less be made pursuant to the NMSLA or NMILA. Specifically, the new law caps the annual percentage rate of such loans at 175% and requires lenders operating in New Mexico to provide loan terms of at least 120 days, and a minimum repayment schedule of four installments of substantially equal amounts. The new law also limits the fees and charges a lender may assess in connection with loans made under the NMSLA or NMILA as well as the number of times a lender may present a check or other debit for payment. Furthermore, lenders are prohibited from extending loans under the NMSLA or NMILA if the consumer has not repaid any loans previously obtained under these acts, and all lenders must report the terms of these loans to consumer reporting agencies. Notably, these new requirements do not apply to federally insured depository institutions. Moreover, H.B. 347—which takes effect on January 1, 2018—will be enforced exclusively by the state. Counties, municipalities, and other political subdivisions of the state are preempted from any regulation of terms and conditions regarding these loans whether by ordinance, resolution, or otherwise. A violation of either the NMSLA or the NMILA will constitute an unfair or deceptive trade practice under New Mexico’s Unfair Practices Act.

    Also on April 6, Governor Susana Martinez signed into law S.B. 220, a bill that amends the Service Contract Regulation Act by adding and amending definitions; providing for surety through insurance policies; and providing specific information to be included into contracts and warranties. Specifically, the amendments—which are scheduled to take effect on June 16—allow providers to obtain a reimbursement insurance policy in lieu of maintaining a deposit with the Superintendent of Insurance.

    That same day, Governor Martinez also enacted H.B. 276, a bill that increased from $500 to $2,500 the revenue threshold within a 30-day period that triggers New Mexico’s Uniform Money Services Act licensing requirement for check cashing businesses. H.B. 276 is scheduled to take effect July 1.

    State Issues Payday Lending Check Cashing Insurance

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  • CFPB Proposes Amendment to Regulation C to Clarify HMDA Rule

    Agency Rule-Making & Guidance

    On April 13, the CFPB announced the release of its proposal to amend Regulation C (12 CFR Part 1003), the regulation that implemented the Home Mortgage Disclosure Act (HMDA) and requires lenders to collect, report and disclose data on home loan applications, originations, and purchases of mortgage loans. On October 15, 2015, the Bureau updated the HMDA reporting requirements to expand the data collection scope, while simultaneously streamlining certain existing requirements (see Special Alert: CFPB Adopts Significant Expansion of HMDA Reporting Requirements). According to the Bureau’s press release, the 2017 proposed amendment is intended to “help financial institutions comply with the 2015 HMDA Final Rule by clarifying the information they are required to collect and report about their mortgage lending.” Specifically, the regulation, as amended, will establish “transition rules” for both “loan purpose” and the “unique identifier” for the loan originator. The transition rules will also allow financial institutions to report “not applicable” for these two data points. Furthermore, the proposal will make additional amendments to clarify certain key terms, such as “temporary financing” and “automated underwriting system,” and create a new reporting exception for certain transactions associated with New York State agreements. Comments on the proposal will be due within 30 days of its publication in the Federal Register.

    Additional information and materials covering the new HMDA Rule (amending Regulation C) can also be found in BuckleySandler’s HMDA Resource Center.  And, as recently covered by InfoBytes, the CFPB has also made available two webinars and various "Quick Reference" guides that help explain the HMDA.

    Agency Rulemaking & Guidance Lending HMDA Regulation C CFPB

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  • D.C. Circuit Rules FCC Lacks Authority Under TCPA to Regulate Faxes Sent with Recipient’s Consent

    Courts

    In a 2-1 split decision, the U.S. Court of Appeals for the District of Columbia Circuit recently ruled that the Federal Communications Commission (FCC) lacks authority under the Telephone Consumer Protection Act (TCPA) to regulate facsimiles sent with the recipient’s consent. Bais Yaakov of Spring Valley et al. v. F.C.C. et al., No. 14-1234 (D.C. Cir. Mar. 31, 2017) (Dkt. No. 1668739). Specifically, the court found that a 2006 FCC Rule (the “Solicited Fax Rule”) that required a sender to include an opt-out notice on faxes sent with the “recipient’s prior express permission”—and which has formed the basis for countless putative TCPA class actions—exceeds the scope of authority given to the FCC under the TCPA. Based on this finding, the court vacated the 2006 FCC Order implementing the rule. Ultimately, the majority was not persuaded by the FCC’s argument that agency action—in this case, the FCC’s requiring opt-out notices on solicited fax advertisements—is permissible so long as Congress had not prohibited the agency action in question.

    Shortly after ruling was handed down, FCC Chairman Ajit Pai issued a statement expressing support for the court’s ruling, which he said emphasized “the importance of the FCC adhering to the rule of law.” The recently-appointed Chairman explained further that he had, in fact, “dissented from the FCC decision that the court has now overturned because, as [he] stated at the time, the agency’s approach to interpreting the law reflected ‘convoluted gymnastics.’” Chairman Pai continued, “[g]oing forward, the Commission will strive to follow the law and exercise only the authority that has been granted to us by Congress.”

    Courts FCC TCPA

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  • Cordray Discusses Consumer Credit Reporting at Operation HOPE Global Forums Annual Meeting

    Consumer Finance

    On April 11, CFPB Director Richard Cordray delivered prepared remarks at the Operation HOPE Global Forums Annual Meeting in Atlanta addressing, among other things, financial challenges facing the “economically vulnerable”—most notably with respect to credit reporting and the handling of consumer disputes. As previously covered in InfoBytes, credit reporting was one of the top three consumer complaint categories for 2016. In his speech, Cordray cited a FTC study that found that “millions of people had an error on at least one of their credit reports that was serious enough to materially affect their credit score” and outlined the Bureau’s position for addressing these concerns such as (i) requiring credit reporting companies to improve quality control systems; (ii) creating easier access for consumer to dispute errors; and (iii) cleaning up information initially provided to the credit reporting companies by examining the ways in which banks and financial companies furnish the information.

    Consumer Finance CFPB Cordray Consumer Complaints Credit Scores Consumer Reporting Agency

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  • Education Secretary Rolls Back Obama Administration Federal Student Loan Servicing Policies

    Lending

    On April 11, Education Secretary Betsy DeVos rolled back Obama administration policies designed to reform how student loan servicers collect debt. In a memo sent to Federal Student Aid Chief Operating Officer James Runcie, DeVos formally withdrew several policy memos issued last year by former Education Secretary John B. King Jr. and former Education Undersecretary Ted Mitchell, citing the need to promptly address “shortcomings” and “inconsistenc[ies]” in the student loan servicing procurement process. DeVos further emphasized the need for change because of “a myriad of moving deadlines, changing requirements and a lack of consistent objectives” as well as a need to move forward “with precision, timeliness and transparency.” The withdrawn memos, dated June 30, 2016 and July 20, 2016 (as well as the corresponding October 17 addendum), were developed to guide the way in which the federal government contracts with outside servicers to ensure that borrowers get the service and protection they deserve. The guidance was intended to strengthen student loan servicing by increasing consistency, transparency, and accountability in the student lending marketplace (see previous InfoBytes post). By rescinding these memos, DeVos also removed the requirement that the FSA consider servicers’ past behavior when awarding contracts, including whether the company misled borrowers or engaged in abusive consumer service.

    Lending Student Lending Department of Education FSA

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  • PHH Submits Reply Brief in Case Against CFPB; DOJ Allocated 10 Minutes at May 24 Oral Argument

    Courts

    As recently covered by InfoBytes, on March 31 the CFPB and seven amicus curiae respondents each filed briefing in PHH Corp. v CFPB urging the D.C. Circuit to uphold the constitutionality of the Bureau’s single-director, independent-agency structure. On April 10, PHH filed a reply brief responding to the arguments raised by the CFPB and other respondents, and reiterating its position that, among other things, the en banc court should declare that the Dodd-Frank Act’s creation of the CFPB violated constitutional separation of powers requirements and that the only satisfactory remedy is the complete invalidation of the Bureau.

    Citing Myers v. United States, 272 U.S. 52 (1926), PHH contends that, “the Constitution does not permit Congress to assign any portion of the executive power to an ’independent’ officer who is not accountable to, and removable by, the President.” Id. at 113. Moreover, in addressing comparisons between the CFPB and the FTC, the mortgage lender’s reply argues that “[t]he CFPB’s broad executive, legislative, and adjudicative authority further refutes its claim that it is functionally ‘indistinguishable’ from the FTC in 1935” because, among other reasons, “[i]n 1935, the FTC had no substantive rulemaking powers—the FTC disclaimed that authority until 1962.” In support of this claim, PHH highlights the fact that “the CFPB has all the authority—and more—of a cabinet department such as Treasury or Justice” but “unlike most cabinet positions, the Director may unilaterally appoint every subordinate official in the agency, as well as hire and compensate all CFPB employees outside the normal competitive-service requirements” (emphasis added). In addition to addressing the constitutional issue, PHH’s reply brief also notes that the CFPB has offered no support for its effort to enforce a reinterpretation of the Real Estate Settlement Procedures Act against the companies.

    Oral argument is scheduled for May 24. As provided in a Per Curiam Order issued on April 11, the Court has allocated 30 minutes per side for the argument and an additional ten minutes of argument for the United States as amicus curiae. For additional background, please see our recent PHH Corp. v CFPB Case Update.

    Courts PHH v CFPB Consumer Finance CFPB Dodd-Frank FTC

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  • New Mexico Enacts Data Breach Notification Act

    Privacy, Cyber Risk & Data Security

    On April 6, New Mexico Governor Susana Martinez signed into law the Data Breach Notification Act (H.B. 15), making New Mexico the 48th state to pass a data breach notification law. Under the new law—which is scheduled to take effect on June 16—companies are now required to notify any New Mexico residents (and in certain circumstances consumer reporting agencies and the state’s attorney general) following the discovery of a “security breach” involving that resident’s “personal identifying information.”  The Act—which unanimously cleared both New Mexico’s House and Senate—also establishes standards for the secure storage and disposal of data containing personal identifying information and provides for civil penalties for violations.

    According to the Act, “personal identifying information” consists of an individual’s first name or first initial and last name in combination with any one or more of the following data elements: (i) Social Security number; (ii) driver's license number or government issued identification number; (iii) account number, credit card, or debit card number, in combination with any required security code, access code, or password that would permit access to an individual's financial account; or (iv) biometric data. As with many other states’ breach notice laws, the term “security breach” is defined as “the unauthorized acquisition of unencrypted computerized data, or of encrypted computerized data and the confidential process or key used to decrypt the encrypted computerized data, that compromises the security, confidentiality or integrity of personal identifying information maintained by a person.” However, notice to affected residents is not required if the entity “determines that the security breach does not give rise to a significant risk of identity theft or fraud.” The Act also sets out the required contents of, and methods for providing, notification—which generally must be made no later than 45 days after the breach was discovered—including substitute methods if certain criteria are met. Certain entities, including those subject to GLBA or HIPAA, are exempt from the requirements of the Act.

    Notably, the Act does not provide its citizens with a private right of action, but rather charges the state’s attorney general with enforcing the Act through legal actions on behalf of affected individuals. The Act provides for the issuance of injunctive relief and/or damages for actual losses including consequential financial losses. For knowing or reckless violations of the Act, a Court also may impose civil penalties of $25,000, or in the case of a failure to notify, a penalty of $10 per instance up to a maximum penalty of $150,000.

    Privacy / Cyber Risk & Data Security State Issues Data Breach State AG

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  • State AGs, Industry Groups Submit Comments Addressing CFPB’s Proposed Delay of Prepaid Accounts Rule

    State Issues

    As previously covered in InfoBytes, the Bureau released its final rule (the “Prepaid Accounts Rule”) on prepaid financial products in October of last year in order to provide consumers with additional federal protections under the Electronic Fund Transfer Act and also to offer consumers standard, easy-to-understand information about prepaid accounts. Recently, however, the CFPB announced its intention to delay the effective date of its Prepaid Accounts Rule by six months. If approved, the proposed extension would push back the current October 1, 2017, effective date to April 1, 2018. According to the proposed rule and request for public comment published by the Bureau in the March 15 Federal Register, the extension comes in response to comments received from “some industry participants” who “believe they will have difficulty complying with certain provisions.” The CFPB has taken the position that extending the deadline for compliance “would, among other things, help industry participants address certain packaging-related logistical issues for prepaid accounts that are sold at retail locations.” Comments on the proposal were due April 5.

    State AG’s Letter. On April 5, attorneys general from 17 states and the District of Columbia submitted a letter to congressional leaders presenting various arguments against pending House and Senate resolutions (S.J. Res. 19, H.J. Res. 62, and H.J. Res. 73) providing for congressional disapproval and effectively nullifying the CFPB’s Prepaid Accounts Rule. The state attorneys general—including AGs for the District of Columbia, California, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington, along with the Executive Director of the Hawaii Office of Consumer Protection—argued, among other things, that consumer protections provided by the Rule are important because, among other things, “consumers frequently report concerns about hidden and abusive fees as well as fraudulent transactions that unfairly deplete the funds loaded onto prepaid cards.” The AGs’ letter notes further that prepaid cards are often used by “vulnerable consumers” who have limited or no access to a traditional bank account. Notably, although they characterize these congressional resolutions as a “misplaced effort,” the state AGs acknowledge that the Congressional Review Act “gives Congress, with the President’s signature, a window to veto a rule from going into effect.”

    American Bankers Association (ABA) Letter. In another comment letter, submitted on April 3, the ABA commended the CFPB for “proposing to extend the deadline” because, among other things, “some industry participants, especially those offering prepaid cards in retail stores, may have difficulty complying with certain provisions.”  The ABA also noted that the extension of time presents an opportunity for the Bureau to “consider making adjustments as appropriate to ensure unnecessary disruption to consumers’ access to, and use of, prepaid accounts.” As explained in the letter, the ABA’s primary concern about the Prepaid Accounts Rule “remains the inconsistency and lack of clarity of the regulation’s distinction between checking accounts and prepaid accounts.” To this end, the ABA recommends that the Bureau use the extra time to “remove inconsistencies in the Rule and clarify the distinction between a prepaid account and a checking account to ensure that banks do not inadvertently violate the regulation and risk significant potential liability and supervisory actions.” The ABA’s letter also calls for “similar changes” to the “definition of ‘payroll account’” in order to further distinguish product types.

    Independent Community Bankers of America (ICBA) Letter. Also on April 3, the ICBA also submitted a short comment letter stating, among other things, that it “fully supports extending the effective date” as the additional time will “ensure that systems and technology changes could be made to facilitate compliance.”

    State Issues State AG CFPB Prepaid Rule EFTA ABA ICBA

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