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  • Bills Introduced on Regulation of Short Term, Small Dollar Lending

    Consumer Finance

    On July 18, Representatives Luetkemeyer (R-MO) and Baca (D-CA) introduced H.R. 6139, a bill that would create a national charter for qualified non-depository creditors, to be known as National Consumer Credit Corporations (NCCCs). The bill would task the OCC with assessing applications with a focus on the applicant institution’s ability to offer products that provide credit to underserved consumers, and developing a process for approving financial products to be offered by NCCCs.  The OCC would be able to establish an annual fee for a charter, but it would not be permitted to restrict the method by which an NCCC offers its products, or to establish usury limits. NCCCs would be subject to certain restrictions, including a prohibition on consumer loans with terms of 30 days or less. The House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit held a hearing to consider H.R. 6139 on July 24, 2012.

    On July 24, Senators Merkley (D-OR), Udall (D-NM), and Durbin (D-IL) introduced a bill, first revealed by Senator Merkley in March 2012, and now formalized as S. 3426, the Stopping Abuse and Fraud in Electronic Lending Act. According to a press release, the bill seeks to  (i) ensure that a third party doesn’t gain control of a consumer’s account through remotely created checks, (ii) allow consumers to cancel a debit in connection with a small-dollar loan, (iii) require all lenders, including banks, to abide by a state’s rules for small-dollar, payday-like loans they offer customers in the state, (iv) ban lead generators and anonymously registered payday lending websites, and (v) give the CFPB authority to shut down payment processing for lenders that are violating state and other consumer lending laws through the Internet.

    CFPB Payday Lending Nonbank Supervision

  • Congress Acts on Bills Regarding Protection of Information Submitted to CFPB and ATM Fee Disclosure Requirements

    Fintech

    On July 12, Representatives Renacci (R-OH) and Perlmutter (D-CO) introduced H.R. 6125, a bill that would amend the Federal Deposit Insurance Act to grant protections to documents and information submitted by banks and nonbanks to the CFPB and state bank and financial regulators. H.R. 4014, a similar bill, previously passed the House with broad bipartisan support. The House also recently passed by a wide margin H.R. 4367, a bill to eliminate the EFTA requirement that ATM providers attach a fee disclosure placard to their machines. On July 17, Senate Banking Committee Chairman Johnson (D-SD) introduced with the support of Ranking Member Shelby (R-AL) S. 3394, which combines versions of H.R. 4014 and H.R. 4367 for Senate consideration.

    CFPB Nonbank Supervision

  • CFPB Releases Semiannual Regulatory Agenda

    Consumer Finance

    On July 16, the CFPB announced the release of its spring 2012 rulemaking agenda. The agenda lists the regulatory matters that the CFPB anticipates pursuing during the period June 1, 2012 through May 31, 2013. It also updates the CFPB’s first-ever such agenda, published as part of the fall 2011 Unified Agenda. For example, the updated agenda indicates that the CFPB expects to issue by January 2013, an Advance Notice of Proposed Rulemaking regarding the registration of certain nonbank entities, whereas the fall 2011 agenda anticipated a Notice of Proposed Rulemaking on this topic by March 2012. Similarly, the new rulemaking agenda updates the date by which the CFPB expects to take further action on developing regulations concerning the expanded HMDA data collection required by the Dodd-Frank Act from October 2012 to April 2013.

    CFPB Dodd-Frank Nonbank Supervision Bank Compliance

  • CFPB Finalizes Rule to Supervise "Larger Participant" Consumer Reporting Agencies

    Consumer Finance

    On July 16, the CFPB finalized a rule that will allow it to begin supervising certain consumer reporting agencies (CRAs). Under the Dodd-Frank Act, the CFPB has authority to supervise, regardless of size, nonbanks offering (i) certain mortgage-related products and services, (ii) private education loans, and (iii) payday loans. The CFPB also has the power to supervise “larger participants” in any other market for consumer financial products or services, provided that it first conducts a rulemaking to define “larger participants.” Under this first “larger participant” rule, the CFPB will have supervisory authority over CRAs with more than $7 million in annual receipts from consumer reporting activities, effective September 30, 2012. The CFPB believes that the $7 million threshold will cover 30 companies that account for 94% of total industry receipts. The final rule is divided into two parts: (i) Subpart A sets the definitions and other terms applicable to the CFPB’s supervision of “larger participants” in general, and (ii) Subpart B identifies the market, terms, and “larger participant” test for the CRA industry. This latter part will be expanded for each new market the CFPB opts to supervise under its “larger participant” authority. While the rule as proposed also included a threshold for use in identifying “larger participants” in the debt collection market, the CFPB has postponed issuance of the final debt collection “larger participant” rule until the fall. The CFPB described the final rule as “the first in a series of rules to define larger participants of other markets.”

    CFPB Dodd-Frank Nonbank Supervision Debt Collection Consumer Reporting

  • CFPB Finalizes Multiple Rules Governing Enforcement Activities, Issues New Interim Rule

    Consumer Finance

    On June 6, the CFPB released final versions of three rules governing aspects of the CFPB’s enforcement activities and issued a new interim rule. The three rules set forth, respectively, the CFPB’s (i) authority and procedures for conducting investigations, (ii) practices for adjudication proceedings, and (iii) procedures through which state officials update the CFPB on state enforcement activities. While the rules have been in effect since July 2011 (in interim form), the final versions include some changes in response to public comments received. For example, the final investigations rule (i) specifies the CFPB staff members that have authority to initiate or close an investigation, (ii) adds to the CID process a conference between the parties within 10 calendar days of service, (iii) provides CID recipients a number of procedural options when additional time is needed to respond, and (iv) clarifies the rights of witnesses and which objections are appropriate for counsel to make during investigations. Additionally, the CFPB issued a new interim final rule to implement the Equal Access to Justice Act and will accept public comments for 60 days after publication in the Federal Register.

    CFPB Examination Dodd-Frank Nonbank Supervision

  • State Law Update: Several States Alter Mortgage and Other Consumer Finance Laws

    Consumer Finance

    CSBS and NMLS Issue New Forms for Expanded Use of Registry. On April 16, the Conference of State Bank Supervisors and the National Mortgage License and Registry System (NMLS) issued new licensing forms to support the CSBS’s previously announced plans to expand the use of NMLS to include nonbank, non-mortgage financial service providers. With the issuance of the new forms, the NMLS announced that 11 states have committed to requiring non-mortgage financial services institutions to begin using the NMLS this year, with WashingtonVermont, and Rhode Island as the most recent to provide transition plans. The other states include theDistrict of Columbia,Idaho,Louisiana,Maryland,Massachusetts,New Hampshire,Oklahoma,Tennessee, andPennsylvania. Nebraska Expands NMLS Use and Alters Mortgage Licensing. On April 5, Nebraska enacted Legislative Bill 965 to require and provide for the transition of the state’s manual licensing of installment loan companies to licensing through the NMLS. This change will take effect beginning January 2013. The law also amends the Residential Mortgage Licensing Act to, among other things (i) update and add certain exemptions for mortgage banker and mortgage loan originator licensing requirements, and (ii) adjust the powers of the Department of Banking and Finance to administer the mortgage banker and loan originator licensing process. Kentucky Enacts Numerous Bills Impacting Mortgages and Vehicle Finance. On April 11, Kentucky Governor Steve Beshear signed several bills impacting consumer lending. House Bill 417 makes a variety of amendments impacting motor vehicle installment contracts, including, among other things, (i) altering the form and required content of retail installment contracts, (ii) adjusting the permissible delinquency and collection charge on an installment in arrears for a period of 10 or more days, (iii) creating a safe harbor for retail installment contracts that satisfy the requirements of the Truth in Lending Act, and (iv) making various amendments regarding retail installment sales that are precomputed. House Bill 62 and House Bill 396 relate to foreclosures. The former requires a mortgage holder to file a deed in lieu of foreclosure with the county clerk within 45 days of the instrument's execution and allows for a penalty in the form of a violation of law for any mortgage holder who fails to do so. The bill also exempts filing deeds in lieu of foreclosures from the state’s transfer tax on property as well as the voluntary surrender under a mortgage in lieu of a foreclosure proceeding. The latter relates to an expedited sale mechanism for foreclosures involving vacant and abandoned real property and amends the offense of defrauding a secured creditor to add situations where collateral is intentionally damaged. Finally, House Bill 409, among other things, exempts from most laws and regulations applicable to mortgage loan companies and brokers persons other than natural persons that originate four or fewer mortgage loans per year and do not hold themselves out to be primarily in the mortgage loan business, while House Bill 533 prohibits private transfer fees. Oregon Establishes Foreclosure Mediation Process. On April 11, Oregon established a foreclosure mediation process when it enacted Senate Bill 1552. The law requires that a beneficiary (i) enter into mediation with a grantor for the purpose of negotiating a foreclosure avoidance measure and (ii) notify a grantor if they are not eligible for any foreclosure avoidance measure or if the grantor has not complied with the terms of a foreclosure avoidance measure. The new law details the form for notices required under the new process and establishes potential penalties for a beneficiary failing to comply with the new procedures. The bill took effect on April 11, with most of the new requirements becoming operative 91 days after the effective date. Maryland Alters Mortgage Licensing Exemptions, Expands Commissioner’s Enforcement Power. On April 10, Maryland enacted Senate Bill 302which removes the mortgage licensing exemption for a person who makes three or fewer mortgage loans per calendar year and brokers no more than one mortgage loan per calendar year. The law also expands the authority of the Commissioner of Financial Regulation to investigate and enforce state law with regard to a subsidiary or affiliate of an institution over which the Commissioner has jurisdiction. The law becomes effective on January 1, 2013.  Colorado Amends Foreclosure Law. On April 12, Colorado passed a law amending administrative procedures under its foreclosure law. Pursuant to Senate Bill 30, effective September 1, 2012 counties must (i) notify a homeowner during the foreclosure process that they may be due money if excess funds are obtained through the sale of their foreclosed property, (ii) attempt to locate the homeowner and notify them of excess funds obtained from the public auction of their foreclosed property, and (iii) turn excess funds over to the state treasurer if the homeowner cannot be located. The state will hold the funds in perpetuity, allowing a homeowner to claim the funds at any time. Under existing law, counties are not required to conduct any initial outreach and can retain for themselves any money not claimed within five years of the sale.

    Foreclosure Mortgage Licensing Nonbank Supervision Auto Finance

  • CFPB Puts Consumer Lenders on Notice Regarding Discriminatory Practices

    Consumer Finance

    The CFPB today put consumer lenders on notice that it “will use all available legal avenues, including disparate impact, to pursue lenders whose practices discriminate against consumers.” The CFPB intends to employ disparate impact when examining auto lenders, credit card issuers , student lenders, mortgage lenders, and other providers of consumer credit, allowing the CFPB to claim an institution has engaged in discriminatory lending based on the effects and not the intent of the lending practices. In remarks to the National Community Reinvestment Coalition today, CFPB Director Richard Cordray stated that “[t]he consequences of ‘disparate impact’ discrimination are very real and they affect consumers just as significantly as other forms of discrimination.” To help consumers identify and avoid credit discrimination, the CFPB also compiled and released new lending discrimination “tips and warning signs.”

    Concurrent with the announcement, the CFPB published Bulletin 2012-04 to specifically reaffirm its commitment to applying  disparate impact when conducting supervision and examination under the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. In support of this application, the CFPB cites what it refers to as the “consensus approach” outlined by a 1994 interagency Policy Statement on Discrimination in Lending, which notes court findings that discriminatory lending in violation of ECOA can be established through (i) overt evidence of discrimination, (ii) evidence of disparate treatment, and (iii) evidence of disparate impact. The CFPB also argues that the ECOA legislative history, as characterized in the original Regulation B adopted by the Federal Reserve Board, supports application of the disparate impact doctrine.

    Credit Cards CFPB Nonbank Supervision Auto Finance Fair Lending

  • CFPB Issues Bulletin Regarding Supervision of Vendors

    Consumer Finance

    On April 13, the CFPB issued Bulletin 2012-3, which states the CFPB's expectation that supervised banks and nonbanks have an effective process for managing the risks of service provider relationships. In a press release announcing the Bulletin, the CFPB promised to “take a close look at service providers’ interactions with consumers” and “hold all appropriate companies accountable when legal violations occur.” According to the Bulletin, the CFPB expects supervised institutions to (i) conduct thorough due diligence to verify that a service provider understands and is capable of complying with the law, (ii) request and review a service provider’s policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities, (iii) include in the contract with a service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities; (iv) establish internal controls and on-going monitoring to determine whether a service provider is complying with the law, and (v) take prompt action to address fully any problems identified through the monitoring process.

    CFPB Nonbank Supervision

  • FSOC Approves Final Rule to Designate Systemically Important Nonbanks

    Consumer Finance

    On April 3, the Financial Stability Oversight Council (FSOC) voted to approve a final rule and interpretive guidance regarding the process it intends to use in designating nonbank financial companies as systemically important and subject to supervision by the Federal Reserve Board (FRB). The final rule and guidance follow an advanced notice of proposed rulemaking, two proposed rules, and proposed guidance. The final designation process is substantially similar to that outlined in the second proposed rule, issued in October 2011, with some clarifications. For example, the final rule provides a longer time period (no less than 30 days) for companies to respond to a notice that it is being considered for a systemically important determination and makes clear that hearings conducted as part of the determination process are nonpublic. The FSOC also clarified in response to comments that it intends to interpret the term "company" broadly to include any corporation, limited liability corporation, partnership, business trust, association, or similar organization, but not unincorporated associations. The rule does not provide any industry-based exemptions and the FSOC indicated that it does not intend to provide any, but will consider related comments as part of the determination process. Regarding coordination, the FSOC declined to delay finalizing this rule until related regulatory activities are completed, for example, the FRB's rule for determining if a company is "predominantly engaged in financial activities," choosing to view those considerations as non-essential to its consideration of whether a nonbank financial company could pose a threat to U.S. financial stability.

    Nonbank Supervision Federal Reserve

  • FRB Reissues Proposal to Determine Significant Nonbanks

    Consumer Finance

    On April 2, the FRB released an amended proposed rule to establish requirements for determining whether a company is “predominantly engaged in financial activities.” The original proposal also defined the terms “significant nonbank financial company” and “significant bank holding company.” Comments received in response to the February 2011 proposed rule raised questions as to whether conditions imposed on the conduct of financial activities by the Bank Holding Company Act and the FRB’s implementing regulations should be considered in defining financial activities. In response, the FRB amended the proposal to clarify that any activity referenced in section 4(k) of the Bank Holding Act will be considered to be a financial activity without regard to conditions that were imposed on bank holding companies that do not define the activity itself. The revised proposal also adds an appendix that lists all activities that would be considered to be financial activities as of April 2, 2012.  While the FSOC can designate nonbanks as systemically important, it can only do so with regard to nonbank financial companies that are predominantly engaged in financial activities which, under Section 102 of the Dodd-Frank Act, means that  85 percent or more of the company’s revenues or assets are related to financial activities, as defined in section 4(k) of the Bank Holding Act. The FRB is tasked with establishing the detailed criteria for determining whether a company meets this definition.

    Nonbank Supervision Federal Reserve

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