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CFPB Director Testifies Before House Committee, Promises CARD Act Ability to Repay Rule
On September 20, CFPB Director Richard Cordray appeared before the House Financial Services Committee in connection with the CFPB’s Semiannual Report issued July 30, 2012. During the House hearing the Director faced questions on topics covered during prior committee hearings, including (i) the status and potential impact of the CFPB’s qualified mortgage/ability to repay (QM) rule, (ii) whether that rule will provide a safe harbor or a rebuttable presumption, (iii) whether the CFPB will commit to a definition of “abusive” practices, and (iv) whether the CFPB will raise the threshold for banks exempt from compliance with new CFPB remittance rules. Mr. Cordray reiterated that the QM rule will be finalized before the end of 2012, and that while the final regulations are still under consideration, the CFPB intends to provide bright line standards to help limit litigation risk. He continued to avoid offering a definition or description of abusive practices and did not express a willingness to revisit the remittance standards. Mr. Cordray also revealed that the CFPB has determined that it cannot resolve through the issuance of guidance a problem with the application of the Federal Reserve Board’s credit card ability to repay rule that is restricting access to credit for stay-at-home spouses. Mr. Cordray committed to releasing a proposed rule to remedy the problem prior to Congress’ return following the November elections.
CFPB Readies for Launch of Short-Form Credit Card Agreement Pilot Program
On September 18, the CFPB published a Notice and Request for Comment on information it plans to collect with regard to a pilot program designed to test a short-form credit card agreement. The CFPB announced last year its plan to partner with Pentagon Federal Credit Union to test its prototype agreement. The recently-published notice indicates that Pentagon Federal Credit Union will begin sending the short-form agreement to new cardholders in the fourth quarter of 2012 and the first quarter of 2013, and that the CFPB plans to conduct qualitative research through surveys of new cardholders. Parties interested in commenting on the CFPB’s proposed research have through October 18, 2012 to do so.
Student Lender Agrees to Settle TCPA Collection Litigation
On September 17, the U.S. District Court for the District of Washington approved a settlement entered into between a student lender and a class of borrowers who alleged that the lender violated the Telephone Consumer Protection Act (TCPA) by employing an automated dialing system to place collection calls to borrowers’ cell phones. The lender and its affiliated companies agreed to pay $24 million to resolve the case and avoid the costs of further proceedings, but the lender continues to vigorously deny the allegations. According to counsel for the class, the settlement, which the parties have been negotiating since 2010, is the largest settlement to date under the TCPA.
CFPB Announces Advisory Board Members
On September 12, the CFPB announced the members of three new advisory panels: (i) the Consumer Advisory Board, (ii) the Community Bank Advisory Council, and (iii) the Credit Union Advisory Council. The Consumer Advisory Board is comprised of twenty-five experts from outside of government. Pursuant to the Dodd-Frank Act, it is required to meet at least twice each year and to provide the CFPB with advice "in the exercise of its functions under the Federal consumer financial laws" and "information on emerging practices in the consumer financial products or services industry, including regional trends." The first Consumer Advisory Board meetings will be held on September 27 and 28, 2012. The community bank and credit union councils will advise the CFPB with regard to the impact of its regulations on their respective groups. Additional information about these and other CFPB advisory boards and councils is available on the CFPB's website.
Federal Regulators Host Webinar on SCRA Compliance
On September 10, federal banking regulators, the CFPB, and the FHFA conducted a webinar on federal servicemember financial protections, recent changes to the Servicemembers' Civil Relief Act (SCRA), and recent changes to Fannie Mae and Freddie Mac short sale procedures for servicemembers and loan modification options for servicemembers. The event featured compliance and enforcement updates from the CFPB, the DOJ, and the OCC. Ann Thompson from the CFPB Office of Nonbank Supervision described recent joint agency guidance regarding servicemembers with Permanent Change of Station (PCS) Orders as an extension of the CFPB's mortgage servicing exam procedures. Ms. Thompson explained that the CFPB will look at bank and nonbank servicers' policies and procedures to determine their adequacy for handling servicemembers with PCS orders. If there are deficiencies, the CFPB may take supervisory or enforcement actions to support implementation of the guidance. Eric Halperin from the DOJ's fair lending unit provided an update on enforcement activity and described a recent SCRA enforcement action against a national bank that covered all aspects of SCRA, not just foreclosure protections, as the model for the DOJ moving forward. Finally, Kimberly Hebb from the OCC offered some considerations for institutions seeking to comply with SCRA. She explained that the SCRA compliance process need not stand alone. For example, with regard to the law's rate reduction requirements, compliance steps could be incorporated into existing processes for error resolution. Ms. Hebb also stressed documentation and record keeping, pointing out that while the law does not include a specific record retention requirement, examiners will want to see the full scope of compliance processes documented for use in determining compliance.
State Law Update: Oregon Updates Check Cashing Regulations, Adopts Rules Allowing Bank Interest Rate Swaps
Recently, the Oregon Department of Consumer and Business Services published final rules to update certain rules applicable to check cashing businesses. The adopted regulations simplify reporting requirements and reduce the data that licensees must include in annual reports. In the same publication, the Department adopted temporary rules granting Oregon commercial banks authority to engage in interest rate swap transactions as intermediary with and on behalf of the bank's customers, provided the bank receives prior written approval from the Director of the Department of Consumer and Business Services and other specified conditions are satisfied.
CFPB Releases Examination Procedures for Consumer Reporting Agencies
On September 5, the CFPB released procedures to guide its staff in examining “larger participant” consumer reporting agencies (CRAs). In July, the CFPB adopted a rule that will allow it to supervise CRAs with more than $7 million in annual receipts from consumer reporting activities starting September 30, 2012. The procedures outline how examiners should assess a CRA’s compliance with federal requirements, primarily under the Fair Credit Reporting Act, relating to (i) using and providing accurate consumer information, (ii) handling consumer disputes, (iii) providing disclosures to consumers, and (iv) preventing fraud and identity theft. While the procedures focus on issues specific to consumer reporting, they include a module that directs examiners to consider whether a CRA offers any other consumer financial product or service that creates other risks to consumers, particularly with regard to Gramm-Leach-Bliley privacy requirements and potential unfair, deceptive, or abusive acts or practices (UDAAP violations).
Idaho and Pennsylvania Transition Certain Non-Mortgage Businesses to NMLS
Beginning September 1, 2012, Idaho and Pennsylvania transitioned to NMLS the state licensing process for certain non-mortgage consumer financial service providers. In Idaho, all money transmitters now have the option of using the NMLS to obtain or renew their licenses. In Pennsylvania, all debt management services, money transmitter, and accelerated mortgage payment providers can begin to use the NMLS for all licensing-related transactions as of September 1, 2012. Effective November 1, 2012, all new applications must be processed through NMLS, and all current license holders must submit a transition request by December 31, 2012.
OCC Names New Enforcement and Compliance Director
On September 5, the OCC announced the promotion of Ellen M. Warwick to Director for Enforcement and Compliance, responsible for conducting investigations, recommending administrative actions, and litigating enforcement actions. Ms. Warwick previously served as Assistant Director for Enforcement and Compliance and as Assistant Director for Litigation, among other positions with the OCC. She also has been a litigation attorney in private practice, a trial attorney with the DOJ, and a prosecutor in the Essex District Attorney’s Office of Massachusetts.
State Law Update: Illinois Amends Collection Agency Law
On August 24, Illinois amended the Collection Agency Act to add certain definitions and new requirements for debt buyers. House Bill 5016 adds new definitions for (i) charge-off balance, (ii) charge-off date, (iii) current balance, and (iv) debt buyer. The bill subjects debt buyers to the Collection Agency Act generally, including statute of limitations requirements for collection actions, but exempts debt buyers from certain requirements when pursuing a debt it owns. For example, debt buyers need not maintain a trust account or surety bond. The changes take effect on January 1, 2013.