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CFPB Succession: Bureau dismantles Office for Students; no longer plans student loan regulations; and more
On May 9, according to multiple reports, the CFPB internally announced that the Bureau would eliminate the Office of Students & Younger Consumers and move its staff into the Office of Financial Education as part of acting Director Mulvaney’s agency reorganization. The Bureau will continue to have a Student Loan Ombudsman position, which is required by the Dodd-Frank Act. It is also reported that the Bureau intends to create a new “Office of Cost Benefit Analysis” and rename certain existing offices. As previously covered by InfoBytes, acting Director Mulvaney plans to move the Office of Fair Lending and Equal Opportunity from the Division of Supervision, Enforcement and Fair Lending to the Office of the Director, in order to focus on “advocacy, coordination and education.” Day-to-day responsibility for enforcement and supervision oversight will remain in the renamed Division of Supervision and Enforcement (SE).
The Office of Management Budget (OMB) released the CFPB’s Spring 2018 rulemaking agenda, which no longer includes “Student Loan Servicing” as a Long-Term Action. In previous agendas, the Bureau described its plan for Student Loan Servicing as “The CFPB will continue to monitor the student loan servicing market for trends and developments. As this work continues, the Bureau will evaluate possible policy responses, including potential rulemaking. Possible topics for consideration might include specific acts or practices and consumer disclosures.” In addition to dropping Student Loan Servicing, the Spring 2018 agenda also no longer lists plans for Supervision of Larger Participants in Markets for Personal Loans, Overdraft Services, or Submission of Credit Card Agreements under TILA (more information on the CFPB’s previous plans for these rules can be found here).
As expected, the Spring 2018 agenda also included two new additions to the Proposed Rule Stage:
- HMDA. The Bureau has previously announced it intends to engage in a broader rulemaking to (i) re-examine the criteria determining whether institutions are required to report data; (ii) adjust the requirements related to reporting certain types of transactions; and (iii) re-evaluate the required reporting of additional information beyond the data points required by the Dodd-Frank Act (InfoBytes coverage here). The Bureau indicates it expects a Notice of Proposed Rulemaking (NPRM) on any changes to the HMDA rule before 2019.
- Payday, Vehicle Title, and Certain High-Cost Installment Loans. In January, the Bureau announced the intention to reconsider the 2017 payday rule (covered by InfoBytes here). The OMB agenda indicates the Bureau expects a NPRM by February 2019.
Notably, the CFPB continues to include “Debt Collection Rule” in a Proposed Rule Stage, as it has in previous agenda iterations. However, the Bureau has extended the deadline for its NPRM to February 2019.
5th Circuit will hear CFPB constitutionality challenge
On April 24, the U.S. Court of Appeals for the 5th Circuit agreed to hear a challenge by two Mississippi-based payday loan and check cashing companies to the constitutionality of the CFPB’s single-director structure. The CFPB filed a complaint against the two companies in May 2016 alleging violations of the Consumer Financial Protection Act 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, rejecting their arguments that the structure of the CFPB is unconstitutional and that the CFPB’s claims violate due process. However, the district court granted the companies’ motion to certify an interlocutory appeal as to the question of the constitutionality of the CFPB’s structure, referencing the D.C. Circuit’s decision in PHH Corp. v. CFPB, (covered by a Buckley Sandler Special Alert here), and noting the “substantial ground for difference of opinion as to this issue as exhibited by the differences of opinion amongst the jurists in the [D.C. Circuit] who have considered this issue.” The district court emphasized that the question is a “controlling question of law” that the 5th Circuit has yet to decide and, if the CFPB were determined to be an unconstitutional entity, this would materially advance the underlying action’s termination. A panel of the 5th Circuit has now granted the companies’ motion for leave to appeal from the interlocutory order on the issue of the constitutionality of the CFPB’s structure.
CFPB Succession: Mulvaney pleads for Congress to restructure the CFPB; oral arguments held in English litigation
On April 11 and 12, acting Director of the CFPB, Mick Mulvaney, testified before the House Financial Services Committee and the Senate Banking Committee regarding the Bureau’s semi-annual report to Congress. (Previously covered by InfoBytes here). Mulvaney’s prepared testimony, which was submitted to both committees, covers the salient points of the semi-annual report but also includes the same request to Congress that he made in the report: change the law “in order to establish meaningful accountability for the Bureau.” This request, which includes four specific changes (such as, subjecting the Bureau to the Congressional appropriations process and creating an independent Inspector General for the Bureau), was the focus of many of Mulvaney’s responses to questions posed by members of each committee. Specifically, during the House Financial Services hearing, Mulvaney encouraged the members of the committee to include the CFPB restructure in negotiations with the Senate regarding the bipartisan regulatory reform bill, S.2155, which passed the Senate last month. (Previously covered by InfoBytes here).
Mulvaney also fielded many questions regarding the Bureau’s announcement that it plans to reconsider the final rule addressing payday loans, vehicle title loans, and certain other extensions of credit (Rule); however, his responses gave little indication of what the Bureau’s specific plans for the Rule are. As previously covered by InfoBytes, resolutions have been introduced in the House and the Senate to overturn the rule under the Congressional Review Act. Additionally, on April 9, two payday loan trade groups filed a lawsuit in the U.S. District Court for the Western District of Texas asking the court to set aside the Rule because, among other reasons, the CFPB is unconstitutional and the Bureau’s rulemaking failed to comply with the Administrative Procedure Act. The complaint alleges that the Rule is “outside the Bureau's constitutional and statutory authority, as well as unnecessary, arbitrary, capricious, overreaching, procedurally improper and substantially harmful to lenders and borrowers alike.” The complaint also argues that the rule is a product of an agency that violates the Constitution’s separation of powers due to the Bureau’s structure of a single director who may only be removed by the president “for cause.” A similar argument in CFPB v. PHH Corporation was recently rejected by the U.S. Court of Appeals for the D.C. Circuit (covered by a Buckley Sandler Special Alert).
Additionally, on April 12, the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in English v. Trump. In this suit, Leandra English, the current deputy director of the CFPB, challenges Mulvaney’s appointment as acting director. Unlike previous arguments, which focused on the president’s authority to appoint Mulvaney under the Federal Vacancies Reform Act (FVRA), the court spent considerable time discussing Mulvaney’s concurrent role as head of the Office of Management and Budget (OMB), and whether that dual role is inconsistent with the independent structure of the Bureau, as established by the Dodd-Frank Act.
Pennsylvania district court denies payday lender’s transfer request to bankruptcy court
On April 3, the U.S. District Court for the Eastern District of Pennsylvania denied a motion to move an action, filed by a group of online payday lenders (defendants), from Pennsylvania to Texas. The defendants—who filed for bankruptcy in Texas last year—sought to centralize lawsuits referred to by the court as ”rent-a-bank” and “rent-a-tribe” schemes. (See previous InfoBytes coverage on the allegations here.) The defendants argued that the presumption of trying cases related to a bankruptcy proceeding in the court where the proceeding is pending, which is commonly recognized under 28 U.S.C. Section 1412, should apply. The court, however, found that Section 1412’s presumption of transfer does not apply to police and regulatory actions. In support, the district court cited to a Montana federal judge’s decision this past January, which denied a transfer request in a similar suit brought by the CFPB against one of the defendants. In the summary of its findings, the court noted “[s]imply put, Congress has favored the interest of permitting states’ regulatory and police actions to independently proceed over the interest in centering the administration of the defendant’s related bankruptcy proceedings.”
CFPB appeals $10 million order in payday lender suit
On March 27, the CFPB filed a notice of appeal to the U.S. Court of Appeals for the 9th Circuit in response to a district court’s order that an online loan servicer and its affiliates pay a $10 million penalty for offering high-interest loans in states with usury laws barring the transactions—a penalty which fell far short of the $50 million the CFPB had requested. As previously covered in InfoBytes, the district court found that a lower statutory penalty was more appropriate than the CFPB’s requested amount because the CFPB failed to show the company “knowingly violated the CFPA.” It further rejected the Bureau’s request for restitution and denied a request for a permanent injunction. The notice of appeal seeks review of all parts of the final judgment as well as the parts of the findings of facts and conclusions of law that are adverse to its position.
CFPB Succession: CFPB drops payday lawsuit, new CRA measures introduced in Congress
On March 22, Senator Moran, R-Kan, with 15 GOP co-sponsors introduced a resolution under the Congressional Review Act to block the CFPB’s Bulletin 2013-02 (Bulletin) on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). The resolution follows a December 2017 letter issued by the Government Accountability Office (GAO) to Senator Pat Toomey (R-Pa.) stating that the Bulletin is a “general statement of policy and a rule” that is subject to override under the CRA, previously covered by InfoBytes here.
On the same day, Senator Graham, R-SC, introduced a resolution to overturn the CFPB’s final rule addressing payday loans, vehicle title loans, and certain other extensions of credit. A similar resolution was introduced in the House in December 2017 by a group of bipartisan lawmakers. As previously covered by InfoBytes, while acting Director Mick Mulvaney has suggested he would not seek his own repeal of the Bureau’s rule but may “reconsider” it, he has expressed his support for the Congressional measures to block the rule. Additionally, according to media reports, the CFPB has recently dropped a case against an online payday loan company and Mulvaney is currently reviewing whether to continue three other investigations into lenders of similar products.
Florida allows 60 - 90 day payday loan
On March 19, the Florida governor signed legislation, SB 920, which authorizes the lending of an additional type of payday loan (referred to as, “deferred presentment installment transaction”). The legislation now allows loans under $1,000 that have a repayment term between 60 and 90 days with maximum fees of 8 percent of the outstanding transaction balance charged on a biweekly basis. Fees must be calculated using a simple interest calculation. Previously, Florida only authorized small-dollar loans under $500 that had repayment terms between seven and 30 days (referred to as, “deferred presentment transaction[s]”).
The expansion of the allowable small-dollar loans, appears to be in response to the CFPB’s final rule addressing payday loans, vehicle titles loans, and certain other extensions of credit (previously covered in a Buckley Special Alert), which covers most transactions with repayment terms of less than 45 days. While the CFPB’s rule became effective on January 16, compliance for most of the rule’s provisions is not required until August 2019. Moreover, in January, the CFPB announced its plan to reconsider the final rule (covered by InfoBytes here).
Indiana amends financial services legislation, adds allowable charges
On March 13, the Indiana governor signed HB 1397 and SB 377, which make a variety of changes to various Indiana banking, consumer, and financial services laws administered by the state’s Department of Financial Institutions (DFI). Among other things, HB 1397 amends Indiana’s Universal Commercial Credit Code (UCCC) to codify current DFI practice, which allows for additional charges in connection with a consumer credit sale or loan, including charges for a skip-a-payment service ($25 maximum), an expedited payment service ($10 maximum), and a guaranteed asset protection agreement. The legislation also adds electronic funds transfers to the list of return payments that may be assessed a $25 charge. For payday loans, the legislation clarifies that a borrower, during the third consecutive loan or any subsequent consecutive loan, may request an extended payment plan if the rescission period has expired and the borrower has not previously defaulted on the outstanding loan. Indiana’s SB 377 allows for the director of DFI to use certain technology solutions to oversee compliance with and enforce state laws associated with the regulation of payday loans.
Both pieces of legislation are effective July 1.
OCC announces March 2018 enforcement actions and terminations
On March 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The new enforcement actions include a cease and desist order, a civil money penalty order, notices filed, and recently terminated enforcement actions. Two notable actions are as follows:
Cease and Desist Consent Order. On February 12, the OCC issued a consent order against a New Jersey-based bank for deficiencies related to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) rules and regulations. Among other things, the consent order requires the bank to (i) appoint an independent third-party consultant to conduct a review of the bank’s BSA/AML compliance program; (ii) review and update a comprehensive BSA/AML compliance action plan and monitoring system; (iii) create a comprehensive training program for “appropriate operational and supervisory personnel, and the Board of Directors, to ensure their awareness of their responsibility for compliance with” the BSA; (iv) develop policies and procedures related to the collection of customer due diligence and enhanced due diligence when opening accounts; (v) appoint a BSA officer; (vi) develop and conduct ongoing BSA/AML risk assessments to monitor accounts for “high-risk customers”; and (vii) conduct a “Look-Back” plan to determine whether suspicious activity was timely identified and reported by the bank and whether additional SARs should be filed for previously unreported suspicious activity. Furthermore, the bank is prohibited from opening new accounts for commercial customers designated as “medium risk or higher” in areas such as “money services businesses, foreign or domestic correspondent banks, payment processors, or cash-intensive businesses” without prior authorization. The bank, while agreeing to the terms of the consent order, has neither admitted nor denied any wrongdoing.
Termination of enforcement action. On February 14, the OCC terminated a 2002 consent order issued against a Texas-based payday lender after determining that “the safe and sound operation of the banking system does not require the continued existence of” previously issued restrictions. In 2002, the OCC claimed the payday lender engaged in “unsafe and unsound” practices, including violations of ECOA and TILA for failing to safeguard customers’ loan files. Among other things, the consent order fined the payday lender a $250,000 civil money penalty, imposed record-keeping requirements, and prohibited it from “entering into any kind of written or oral agreement to provide any services, including payday lending, to any national bank or its subsidiaries without the prior approval of the OCC.”
Payday lender settles with California DBO for interest rate cap avoidance
On March 12, the California Department of Business Oversight (DBO) announced a $160,000 settlement with the California subsidiary of a payday lender for allegedly adding improper fees to installment loan principle amounts in order to avoid the California Finance Law’s (CFL) interest rate cap. The settlement resulted from a DBO examination in which the DBO issued a finding that: (i) the lender failed to exclude fees payable to the California DMV when calculating the principal amount of certain vehicle title loans; (ii) excluding the DMV fees, the bona fide principal amount of the loans at issue was less than $2,500; and (iii) the loans were, therefore, subject to the CFL interest rate cap on loans with a principal amount of less than $2,500, which was exceeded on 591 loans. Without admitting to any wrongdoing, the lender agreed to pay an administrative penalty of approximately $78,000 to the DBO and to refund approximately $82,000 to allegedly affected borrowers.