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CFPB Deputy Director Addresses Community Bank Advisory Council on Financial Data Usage
On April 25, CFPB Deputy Director David Silberman addressed the Community Bank Advisory Council (CBAC) in Washington, D.C. on the Bureau’s work involving the use of data in the financial marketplace. CBAC was established almost five years ago to ensure that the Bureau had a direct line of communication with community banks. The Bureau is focused on understanding “how consumers are exercising control over their personal financial data, including the data that is maintained by their financial institutions.” In November of last year, the CFPB issued a Request for Information (RFI) regarding ways to “address the risks and technological challenges posed when consumers seek ready access to this data and seek to share it electronically with third parties.” The Bureau’s goal is to evaluate how to balance consumer needs without exposing the providers that maintain this data to undue costs and risks, while also making sure consumer data is not misused.
Silberman discussed the use of new types of data to assess the creditworthiness of consumers when applying for credit. The Bureau is exploring the possibility that “thoughtful and responsible use of alternative data—that is, data that is not part of the traditional credit reporting system—could expand the credit available to underserved consumers.” (See previous InfoBytes summary.) In February 2017, the CFPB issued another RFI to seek feedback about the “potential benefits and risks of using, applying, and analyzing unconventional sources” such as rent or utility payments to “assess people’s creditworthiness.” Silberman acknowledged community banks’ skill and “willingness to go beyond the numbers” in order to make lending decisions based on the totality of information they have available about their customers. The Bureau is exploring ways to combine the objectivity and rigor of automated underwriting with the community banks approach.
NY AG Schneiderman Releases Guidance on Student Loan Cancellation
On April 21, New York Attorney General Eric T. Schneiderman released guidance for eligible individuals who attended certain programs operated by a group of for-profit post-secondary education California-based colleges. The colleges—which ceased operations in 2015—allegedly made misrepresentations about the employment success of graduates of certain programs and used “false promises of career success to lure students, leaving many with enormous debt and few job prospects.” As a result, students who enrolled in those programs during specified time periods are eligible for the discharge of their federal student loans. It is estimated that up to 3,000 students in New York are eligible for federal loan cancellations based on the findings of an investigation conducted by the U.S. Department of Education (DOE). New York joins 43 other states and the District of Columbia in an outreach effort to assist students in submitting loan cancellation applications. If a student’s application is approved by the DOE, the loan(s) will be cancelled and payments previously made will be refunded.
CFPB Orders Law Firm to Comply with CID
On April 10, the CFPB issued a Decision and Order denying a law firm’s petition to set aside a civil investigative demand (CID) asking for information about the firm’s business practices to determine whether debt relief providers or lead generators engaged in “unlawful acts or practices in the advertising, marketing, or sale of debt relief services or products, including but not limited to debt negotiation, debit elimination, debt settlement, and credit counseling.” Specifically, the Bureau determined that none of the objections raised by the law firm warrant setting aside or modifying the CID.
On March 19, the firm filed a petition to set aside the CID (issued on February 27, 2017), offering four key reasons why the CID should not be enforced:
- the CFPB’s structure is unconstitutional and the CID should be stayed pending the PHH Corp. v. CFPB case;
- the CFPB lacks supervisory and enforcement authority with respect to the law firm;
- the CID’s requests are “excessively vague and overly broad”; and
- the CID was issued after the Bureau failed to prevail on a contempt order before the district court.
In responding to these arguments, the CFPB took the following positions. First, the Bureau contended that the law firm had waived its objection to the Bureau’s authority by failing to raise it during the meet-and-confer process with Bureau enforcement counsel. Second, the CFPB noted that under the Consumer Financial Protection Act, the Bureau has the authority to issue CIDs to “any person” who may have relevant information. Third, the Bureau disagreed that the requests in the CID were “excessively vague and overly broad,” and stated that the time to have raised this challenge was during the meet-and-confer process. However, the Bureau stated it is willing to engage in further discussions to determine if modifications may be appropriate. Fourth, the Bureau determined that the mere fact that the law firm in question was never held in contempt by a court of law does not preclude the CFPB “from issuing a CID or investigating whether it violated federal consumer financial law.” Pursuant to the Decision and Order, the law firm is required to produce documents and provide answers to interrogatories within 10 calendar days.
CFPB Issues Final Rule Delaying Effective Date for Prepaid Accounts Rule to April 1, 2018
On April 20, the CFPB released a final rule delaying the general effective date of its rule governing prepaid accounts by six months, to April 1, 2018. As previously covered in InfoBytes, the Bureau, after reviewing comments, decided last month to delay the effective date of the rule—which, among other things, provides consumers with additional federal protections under the Electronic Fund Transfer Act on prepaid financial products, mobile wallets, person-to-person payment products, and other electronic accounts with the ability to store funds. The CFPB explained that the six-month extension “provides for an appropriate balance between the interests of the consumers who will receive the benefits of the rule and the needs of industry for an adequate implementation period.” For additional background information, please see our earlier InfoBytes coverage of the Prepaid Rule.
CFPB Releases Updates to Rulemaking Ex Parte Policy
On April 18, the CFPB issued a release revising its Policy on Ex Parte Presentations in Rulemaking Proceedings. The Policy, originally posted on the Bureau’s website on August 16, 2011, generally requires public disclosure of ex parte communications made to the CFPB’s decision-making staff about pending rules. Per the release, the Bureau asserts that the updates are based on feedback from the public as well as the Bureau’s experiences in implementation and are intended to ensure “fairness and transparency in [the Bureau’s] rulemaking proceedings while also encouraging candid input from state entities.” The majority of the revisions are non-substantive and serve to “clarify the Policy’s provisions and requirements, ensure consistency in terminology . . ., make technical amendments, and facilitate compliance with the procedures in the Policy.” However, the revision includes two key updates. First, it adds an exemption for state entities, similar to the exemption that exists for Federal agencies. These state entities include state attorneys general or their equivalents, state bank regulators, and “state agencies that license, supervise, or examine consumer financial products or services.” The Bureau states that due to the sometimes sensitive nature of the communications from the entities, it “believes that these entities are likely to provide more frank and robust feedback if communications are not subject to the disclosure requirements of the Policy.” A second key update to the Policy specifies that outside parties no longer bear responsibility for both sending ex parte communications to the Bureau and posting them to regulations.gov. Rather, stakeholders are instructed to send communications directly to the Bureau, and Bureau staff will post the communications to the public docket. The updated Policy also extends the time period for outside parties to summarize meetings and presentations from three to ten business days.
OCC Updates Comptroller’s Handbook, Issues New Guidance for Evaluating Retail Lending Risk Management
On April 12, the OCC issued Bulletin OCC 2017-15 announcing its new booklet, “Retail Lending,” which discusses retail lending risks and measures for evaluating retail credit risk management activities. The booklet, part of the Comptroller’s Handbook, applies to “examinations of all institutions engaged in retail lending” and supplements the following core assessment sections: “Large Bank Supervision,” “Community Bank Supervision,” and “Federal Branches and Agency Supervision.” According to the Bulletin, Examiners should reference this booklet when review beyond the core assessment is appropriate because the specific products, services, or activities “have a material impact on the risk profile and financial condition” of banks. The new booklet describes (i) “characteristics of an effective retail credit risk management framework”; (ii) “criteria examiners should consider when evaluating retail credit originations, account management, collections, and portfolio management activities and processes”; and (iii) “objectives of control functions commonly used in a retail lending business to measure performance, make decisions about risk, and assess the effectiveness of processes and personnel.”
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.
CFPB Proposes Amendment to Regulation C to Clarify HMDA Rule
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 Buckley Sandler’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.
Fed/CFPB OIG Releases Strategic Plan 2017-2020
On April 11, the Office of Inspector General (OIG) for the Fed and the CFPB published its Strategic Plan 2017–2020, providing an overview of the OIG’s organizational objectives for the next four years, as well as the indicators it will use to measure its performance as the “trusted oversight organization” of the Fed and the CFPB. According to a “Message From the Inspector General,” the Strategic Plan, is “the culmination of an extensive process that included a thorough functional assessment and organizational review of the OIG,” as well as an “extensive rebranding initiative.” The plan notes, among other things, that in order to “effectively engage all [its] stakeholders,” it is important that the OIG “successfully communicate [its] mission,” and “timely and effectively communicate [its] results.”
FDIC Releases Third Volume in its Affordable Mortgage Lending Guide
On April 6, the FDIC released the third volume of its Affordable Mortgage Lending Guide (Guide). The Guide is designed to help community bankers understand and compare various affordable mortgage-related programs, as well as their Community Reinvestment implications. This third installment of the Guide provides an overview of Federal Home Loan Bank programs designed to support single-family home purchases, such as down payment and closing cost assistance—many of which can be used in conjunction with other federal and state housing finance agency and government-sponsored enterprise programs. The Guide also provides alternatives for selling mortgages on the secondary market. As previously reported in InfoBytes, the first and second volumes in the series were published last year.