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  • OCC Acting Comptroller Shares Thoughts on Opportunities to Reduce Regulatory Burdens

    Federal Issues

    On October 5, OCC Acting Comptroller of the Currency Keith Noreika spoke before the 2017 Midsize Bank Coalition of America Chief Risk Officer Meeting to discuss opportunities for regulatory reform.

    According to Noreika, one area of concern relates to the adverse effect arbitrary asset thresholds pose to the annual stress test requirements required under the Dodd-Frank Act because the burden “is not commensurate with the systemic risks presented by an institution.” Given the amount of diversity in the business models of banks who have around $10 billion in assets, “regulators need the ability and authority to tailor their supervision to the unique risks presented by individual banks.” Noreika suggested an approach that would give federal banking agencies the authority to tailor statutory stress testing requirements without an asset threshold, thus reducing the risk of banks growing beyond the threshold to offset increased costs or staying below the threshold to avoid unwelcome scrutiny.

    Noreika also urged for interagency harmonization of guidance and policies to avoid conflicting regulatory guidance when addressing cybersecurity issues.

    Additionally, Noreika addressed the CFPB’s arbitration rule as an example of the need to work “to ensure regulation is balanced and appropriate by speaking up when we see proposed rules that may adversely affect the business of banking, have systemic effects, or result in perverse unintended consequences.” Noreika stated that prior to the publication of the final arbitration rule, the OCC requested access to the data the CFPB used to develop and support the rule in order to conduct an independent review. However, it was not until after the rule was published that the CFPB made the data available. According to OCC findings, the rule will adversely impact consumers by increasing costs. Community banks, Noreika noted, will also bear the burden of increased legal costs from defending lawsuits.

    Finally, Noreika commented that banks continue to face challenges when trying to implement Bank Secrecy Act compliance programs and adapt to new requirements under TRID, HMDA, and the Military Lending Act.

    Federal Issues Agency Rule-Making & Guidance OCC Bank Compliance Dodd-Frank Stress Test Arbitration CFPB Privacy/Cyber Risk & Data Security

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  • CFPB Takes Action Against Debt Relief Companies for Allegedly Violating the TSR and Claiming to be Affiliated With the Federal Government

    Consumer Finance

    On October 12, the CFPB announced the filing of a complaint in the U.S. District Court for the District of Maryland against two companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. According to the complaint, the defendants allegedly engaged in abusive and deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by purportedly (i) charging advance fees for debt-relief services before altering the terms of the consumers’ debts or achieving promised results; (ii) misrepresenting the abilities of their debt-relief and credit-repair services; (iii) failing to disclose to consumer that if they stopped making payments on debts enrolled in the service they may be subject to collections or lawsuits from creditors that could increase the overall amount of money owed due to fees and interest; and (iv) misrepresenting an affiliation, endorsement, or sponsorship with the federal government by using direct mailers designed to look like an official government notice.

    Consumer Finance CFPB Debt Relief Enforcement CFPA Telemarketing Sales Rule UDAAP

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  • CFPB Publishes Updated TRID Small Entity Compliance Guide; ABA Submits Comments on CFPB’s Proposal to Fix TRID’s “Black Hole” Issue

    Lending

    On October 6, the CFPB released an updated version of its TILA-RESPA Integrated Disclosure Rule (Final Rule) small entity compliance guide. The updated guide reflects amendments issued July 7, previously discussed in a Buckley Sandler Special Alert, that the CFPB made to the Final Rule. The guide also provides a version log to outline incorporated changes.

    Separately, on October 10, the American Bankers Association (ABA) issued a comment letter regarding the CFPB’s proposal to address an aspect of the Final Rule concerning a “black hole” issue that prevents creditors from resetting tolerances using the Closing Disclosure except in very limited circumstances. (See previous InfoBytes coverage here.) The proposal was issued August 11, the same day the CFPB published the Final Rule. In its letter, the ABA requested additional clarification on certain areas of the proposal, but stated that it supports the removal of the “four-business-day limit for providing Closing Disclosures for purposes of resetting tolerances” because it “is an effective and very efficient approach to addressing the ‘black hole’ problem while preserving adequate consumer protections that will avoid bait-and-switch tactics or unjustified fee increases.” Furthermore, the ABA believes, “the use of [Closing Disclosures], whether initial or corrected, as a vehicle for correcting and ‘re-baselining’ fee disclosures, is a straightforward approach to returning regulatory order and compliance clarity on this provision.”

    Lending Agency Rule-Making & Guidance CFPB ABA TRID Compliance

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  • OCC Rescinds Guidance on Deposit Advance Products, Cites Overlap With CFPB Payday Rule

    Agency Rule-Making & Guidance

    On October 5, the OCC rescinded its 2013 Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products and accompanying Bulletin 2013-40, effective immediately. The rescission, announced so as to avoid “potentially inconsistent regulatory direction,” comes as a reaction to the CFPB’s final rule announced October 5 concerning payday loans, vehicle title loans, deposit advance products, and longer-term balloon loans. (See previous InfoBytes coverage here.) Acting Comptroller of the Currency, Keith A. Noreika, acknowledged that the changing regulatory and marketplace landscape has made it difficult for banks to serve the demand for short-term, small-dollar credit, and while the OCC may issue new guidance at a later date, it will continue to ensure that banks that choose to offer these types of products are compliant with the “basic principles of prudent underwriting and risk management as well as fair and inclusive treatment of customers.”

    Agency Rule-Making & Guidance OCC CFPB Payday Lending Consumer Finance

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  • California Bans Use of Arbitration Clauses in Fraudulently Created Financial Contracts

    State Issues

    On October 4, Governor Jerry Brown signed into law amendments to the state’s code of civil procedure that essentially eliminates the use of forced arbitration in cases of fraudulently created accounts. SB 33 prevents state or federally chartered depository institutions from enforcing arbitration agreements in existing consumer contracts to compel California customers to arbitrate disputes regarding other contracts created “fraudulently without the consumer’s consent or by unlawfully using the consumer’s personal identifying information.”

    The law comes at a time when, as previously discussed in InfoBytes, several financial industry groups issued a joint lawsuit challenging the Bureau’s arbitration rule, which prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. The amendments take effect January 1, 2018.

    State Issues State Legislation Arbitration Fraud CFPB

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  • CFPB Issues Final Rule Regarding Payday, Title, Deposit Advance, and Other Installment Loans

    Agency Rule-Making & Guidance

    On October 5, the CFPB published its final rule (Rule) addressing payday loans, vehicle title loans, deposit advance products, and longer-term balloon loans (collectively, “covered loans”). The CFPB previously announced the proposed rule in June 2016 (covered by a Buckley Sandler Special Alert). The final rule makes it an abusive and unfair practice for lenders to make a covered short-term loan or covered longer-term balloon loan without determining upfront that the borrower has the ability to repay (known as the “full-payment test”). The full-payment test varies depending on the covered loan, but in essence, requires the lender to reasonably determine that the borrower can meet basic living expenses and major financial obligations and still afford their highest monthly payment(s). The Rule puts a limitation of three on the number of loans that can be made in quick succession (within 30 days of each other).

    Lenders may avoid the requirement of a “full-payment test” with covered loans by offering small-dollar, short-term loans that allow the borrower to pay down the principal more gradually or are determined to pose less financial risk to the borrower. In addition, loans that meet the parameters of “payday alternative loans” authorized by the National Credit Union Administration are excluded, as are no-cost advances and wage advance programs that meet certain conditions, though the Rule does impose restrictions on using these exceptions based on the borrower’s loan history.

    In addition to requirements surrounding the borrower’s ability to repay, the CFPB also finalized rules regarding payment withdrawals and reporting requirements. The Rule prevents lenders from attempting to withdraw a payment from a borrower’s account after two consecutive withdrawal attempts have failed, unless the borrower has given specific authorization to do so. This restriction applies to covered loans as well as longer-term loans with account access and an APR above 36 percent. The Rule requires lenders to use Bureau-registered credit reporting systems to report and obtain information about loans made under the full-payment test or the principal payoff option.

    The provision regarding the registration information systems takes effect 60 days after publication in the Federal Register. The rest of the Rule takes effect 21 months after publication in the Federal Register.

    Buckley Sandler will follow up with a more detailed summary of the CFPB’s final rule.

    Agency Rule-Making & Guidance CFPB Payday Lending Consumer Finance NCUA Federal Register

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  • CFPB Issues Interim Final Rule Regarding Foreclosure Communications; Seeks Comment on Proposed Rule About Periodic Statements During Bankruptcy

    Agency Rule-Making & Guidance

    On October 4, the CFPB announced one change and one proposed change to the amendments to its mortgage servicing rules under Regulations X and Z. These amendments, which were previously covered by a Buckley Sandler Special Alert, are scheduled to take effect in two phases on October 19, 2017 and April 19, 2018.

    First, the CFPB amended the amendments to Regulation X’s provision regarding early intervention notices in order to address timing issues that result when a borrower has invoked his or her cease in communication rights under the FDCPA. Had the most recent amendment not been made, a mortgage servicer subject to a cease in communication request would have been required to provide a modified early intervention notice to the borrower every 180 days but not more than once during any 180-day period, leaving no margin for error and creating operational challenges if the 180th day fell on a weekend or holiday. Based on concerns from the mortgage industry the CFPB issued an interim final rule without advance public comment to give servicers a 10-day window to provide the modified notices at the end of the 180-day period. The interim final rule becomes effective on October 19, 2017, at the same time the broader amendments to the early intervention requirements take effect.

    Second, the CFPB proposed to update technical aspects of the upcoming periodic statement requirements for borrowers in bankruptcy. Specifically, the CFPB is seeking public comment on changes to the transition rules for borrowers who enter or leave bankruptcy, including replacing the single-billing-cycle exemption with a single-statement exemption for the next periodic statement the servicer would have to provide regardless of when in the billing cycle a triggering event occurs. The Bureau proposed that these amendments take effect on April 19, 2018, at the same time as the new periodic statement requirements for borrowers in bankruptcy. 

    The comment period on both the interview final rule and the proposed rule will close 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance CFPB Mortgages FDCPA Regulation Z Regulation X Mortgage Servicing Federal Register

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  • CFPB Publishes Updated Reference Material for HMDA

    Agency Rule-Making & Guidance

    On September 28, the CFPB released, on its website, updates to the reference material for the Home Mortgage Disclosure Act (HMDA). The Bureau updated the, (i) institutional coverage criteria; (ii) transactional coverage criteria; and (iii) key dates timeline.

    These updates are associated with the changes, previously reported in InfoBytes, that the CFPB made in the 2017 HMDA final rule.

    Agency Rule-Making & Guidance CFPB HMDA Consumer Finance Compliance Mortgages

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  • Financial Industry Groups Sue the CFPB Over Arbitration Rule

    Courts

    On September 29, the U.S. Chamber of Commerce (Chamber) and other financial industry groups joined together to file a lawsuit in a Texas District Court against the CFPB over the constitutionality and legality of the Bureau’s arbitration rule (rule). The complaint alleges four reasons why the rule is invalid and should be set aside:

    • the rule is a product of the unconstitutional structure of the CFPBas covered in a previous InfoBytes, a similar argument is being heard in the U.S. Court of Appeals for the D.C. Circuit in the case brought by PHH;
    • the CFPB failed to follow procedures in the Administrative Procedures Act (APA) in adopting the conclusions of a flawed arbitration study. Specifically, the complaint alleges that the study improperly limited public participation, applied flawed methodologies, misunderstood relevant data, and did not address key considerations;
    • the rule is a model of arbitrary and capricious agency action because it fails to take into account important aspects of the problem it is attempting to address and runs counter to the record before the Bureau; and
    • the rule is a violation of the Dodd Frank Act because it fails to advance the public interest or consumer welfare.

    Currently, the rule is also under scrutiny by Congress. As previously discussed in InfoBytes, the House passed a disapproval resolution, under the Congressional Review Act, to repeal the rule. A similar measure is set for discussion in the Senate.

    Buckley Sandler will follow up with a more detailed summary of the lawsuit.

    Courts CFPB Litigation Arbitration Consumer Finance

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  • CFPB Issues Consent Order for Steering to Real Estate Settlement Services Provider

    Consumer Finance

    On September 27, the CFPB issued a consent order against a real estate settlement services provider for allegedly steering consumers to a title insurer owned in part by three of its executives without disclosing its affiliated business interests, as required by RESPA. According to the consent order, the company received money “beyond the commission it would normally have been entitled to collect” due to an agreement or understanding that it would refer its business to the title insurer, but it did not make the disclosures of the affiliate relationships required by RESPA to over 7,000 consumers. The CFPB’s order requires the company to pay up to $1.25 million in redress to affected consumers and to implement policies and procedures to ensure proper disclosure of applicable referrals to consumers in the future.

    Consumer Finance CFPB Enforcement RESPA Mortgage Origination

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