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CFPB guidance on automobile repossession warns on UDAAPs
On February 28, the CFPB released Bulletin 2022-4 regarding the repossession of vehicles and the potential for violations of Dodd-Frank’s prohibition on engaging in unfair, deceptive, or abusive acts or practices (collectively, “UDAAPs”) when repossessing vehicles. According to the Bulletin, “[t]he Bureau intends to hold loan holders and servicers accountable for UDAAPs related to the repossession of consumers’ vehicles.” To prevent UDAAPs, the Bureau noted that entities should, among other things: (i) review their policies and procedures regarding repossession and cancellation of repossession; (ii) ensure prompt communications between servicers and repossession service providers when a repossession is canceled and monitor compliance with cancellations; (iii) utilize monitoring of wrongful repossessions through routine oversight and audits of customer communications; and (iv) ensure corrective action programs are in place to address any violations and reimburse consumers for costs incurred as a result of unlawful repossessions. Additionally, the Bulletin suggests that entities should monitor service providers and any force-placed collateral protection insurance programs to verify that consumers are not charged for unnecessary force-placed insurance. According to the CFPB’s blog post released the same day, “the Bureau is closely watching the auto lending market. Auto loans are already the third largest consumer credit market in the United States at over $1.46 trillion outstanding, double the amount from ten years ago.”
CFPB scrutinizes student loan servicers’ PSLF compliance
On February 18, the CFPB released a compliance bulletin warning student loan servicers to make sure they provide complete and accurate information to eligible borrowers about Public Service Loan Forgiveness (PSLF) benefits. The Bureau indicated that it will be paying close attention to servicers’ compliance with Dodd-Frank’s prohibition on unfair, deceptive, or abusive acts or practices. Last October, the Department of Education changed its PSLF program to now provide qualifying borrowers with a time-limited PSLF waiver that allows all payments to count towards PSLF regardless of loan program or payment plan. The waiver covers payments made on loans under the Federal Family Education Loan Program or Perkins Loan Program. (Covered by InfoBytes here.) However, Bureau supervisory findings revealed unfair or deceptive practices taken by servicers that have prevented many borrowers from making progress towards forgiveness. The Bureau emphasized that it expects servicers to comply with federal consumer financial protection laws when administering the new PSLF waiver and providing assistance to borrowers. The Bureau “will pay particular attention” to whether (i) servicers of any federal loan type provide complete and accurate information about the PSLF waiver in communications related to PSLF or loan consolidation; (ii) servicers have adequate policies and procedures to recognize when borrowers express interest in PSLF or the PSLF waiver (or where borrowers’ files otherwise demonstrate their eligibility), in order to direct borrowers to appropriate resources; and (iii) servicers take measures “to promote the benefits of the PSLF Waiver to borrowers who express interest or whose files otherwise demonstrate their eligibility.” The Bureau advised servicers to consider enhancing their compliance management systems to ensure borrowers receive accurate and complete information about the PSLF waiver and that their enrollment is facilitated.
Agencies release stress-test scenarios
Recently, the FDIC, Fed, and OCC released the hypothetical economic scenarios for use in the upcoming stress tests for covered institutions. The FDIC released supervisory scenarios, which include baseline and severely adverse scenarios. According to the FDIC, “[t]he baseline scenario is in line with a survey of private sector economic forecasters” while the “severely adverse scenario” is a “hypothetical scenario designed to assess the strength and resilience of financial institutions.” Likewise, the Fed released the results of its supervisory Dodd-Frank bank stress tests conducted on 34 large banks, which collectively hold 70 percent of bank assets in the U.S. The two scenarios, baseline and severely adverse, include 28 variables, such as GDP, unemployment rate, stock market prices, and mortgage rate. In the 2022 stress test scenario, the U.S. unemployment rate rises nearly 6 points to a peak of 10 percent over two years. The large increase in the unemployment rate is accompanied by a 40 percent decrease in commercial real estate prices, broadening corporate bond spreads, and a collapse in asset prices, including increased market volatility. The OCC also released the agency’s scenarios for banks and savings associations currently subject to Dodd-Frank stress tests.
CBA urges CFPB to supervise nonbank small business lenders
On February 9, the Consumer Bankers Association (CBA) sent CFPB Director Rohit Chopra a letter regarding the supervision of nonbank small business lenders. The letter noted that the landscape for business lending has recently altered “substantially,” specifically with the alternative banking options offered by financial technology companies having “significant market share.” The letter considered small businesses to be “vulnerable” because the activities of fintechs engaged in small business lending are not supervised by the Bureau. The letter urged the Bureau to “evaluate all possible avenues for supervising these nonbank small business lenders, including adding nonbank small business lending to the larger participant rule.” The letter also pointed out that the “lack of supervisory authority over nonbank small business lenders” undermines the CFPB’s other regulatory efforts, such as identifying and addressing fair lending concerns through a final rule covering small business lending data collection pursuant to Section 1071 of Dodd-Frank. The CBA argued that the absence of authority over nonbank lenders “will negatively impact the accuracy and utility of any data the Bureau receives under a Section 1071 final rule.” The CBA also advised the Bureau to utilize its ability under 12 U.S.C. Section 5514 to increase its authority over larger participants in the small business lending market.
CFPB releases regulatory agenda
On January 31, the CFPB released its semiannual regulatory agenda in the Federal Register, as part of the Fall 2021 Unified Agenda of Federal Regulatory and Deregulatory Actions. According to the CFPB, it “reasonably anticipates having the regulatory matters identified below under consideration during the period from November 1, 2021 to October 31, 2022.” The next agenda will be published in Spring 2022, which will update the recently released agenda through Spring 2023. Among other things, the agenda noted that the Bureau made “significant progress” on the implementation of Section 1071 of the Dodd-Frank Act, which covers banks’ collection, reporting, and disclosure of information on credit applications made by women-owned, minority-owned, and small businesses. Other highlights of the agenda include the Bureau’s: (i) continued collaboration with other federal agencies on regulations for automated valuation models under the FIRREA amendments to Dodd-Frank; (ii) expectation to issue a final rule on the transition away from the LIBOR index, which aims to ensure that loans tied to LIBOR are transitioned “in an orderly, transparent, and fair manner”; (iii) assessment of a rule implementing HMDA; (iv) work on regulations for PACE financing and its “continu[ed] engagement with stakeholders and collect information” from a Advance Notice of Proposed Rulemaking, issued in March 2019 (covered by InfoBytes here); and (v) continued monitoring of consumer financial product markets and creation of working groups to focus on specific markets for potential future rulemakings.
SEC reopens comments on “pay versus performance” proposal
On January 27, the SEC reopened the comment period on a proposed rule to amend the current executive compensation disclosure rule and implement Dodd-Frank’s “pay versus performance” requirement. Item 402 of Regulation S-K requires companies to disclose the relationship between their financial performance and executive compensation. The proposal (originally published in 2015, and covered by InfoBytes here), was intended to give shareholders new metrics by requiring registrants to clearly disclose “the relationship between executive compensation actually paid and the financial performance of the registrant.” All reporting companies, except smaller companies, would be required to disclose the relevant compensation information for the last five fiscal years. Smaller reporting companies would only be required to disclose the information for the past three fiscal years, and foreign private issuers, registered investment companies, and emerging growth companies would be exempt from the relevant Dodd-Frank statutory requirement.
According to the SEC, the reopening of the comment period will allow interested persons to comment on the proposed rules in light of developments since the 2015 proposal was released. The SEC noted in its press release that, in reopening the comment period, the Commission is “considering whether additional performance metrics would better reflect Congress’s intention in the Dodd-Frank Act and would provide shareholders with information they need to evaluate a company’s executive compensation policies.” SEC Chair Gary Gensler signaled support for the proposed rule, noting that it would “strengthen the transparency and quality of executive compensation disclosure,” and would fulfill a Congressional mandate under Dodd-Frank. However, Commission Hester M. Peirce dissented, stating that while she agreed it is time to move forward on the “nearly twelve-year-old Dodd-Frank rulemaking mandate,” she disagreed with the approach and would have favored a re-opening release that asked the public “whether [the SEC] should permit companies greater flexibility to determine which financial performance measure is appropriate in this context and to determine how to calculate executive compensation actually paid.”
Agencies will not amend qualified residential mortgage definition
Recently, the OCC, Federal Reserve Board, FDIC, FHFA, SEC, and HUD issued an interagency notice stating that no changes will be made to the definition of “qualified residential mortgage” (QRM) under the Credit Risk Retention Regulations. The agencies also left unchanged a community-focused residential mortgage exemption from TILA’s ability-to-pay requirement, after determining that the exemption serves the public interest by making “safe, sustainable loans” available to low-to-moderate-income communities. An exemption for qualifying three-to-four-unit residential mortgage loans was also left unchanged after the agencies determined that the underlying properties “are a source of affordable housing” and, given the number of mortgages collateralized by three-to-four-unit properties, the exemption “does not appear to be spurring any significant speculative activity in the securitization market.”
As part of the Credit Risk Retention Regulations, which were established under Dodd-Frank, federal banking agencies are required to periodically review the QRM definition “to assess developments in the residential mortgage market, including the results of the statutorily required five-year review by the [CFPB] of the ability-to-repay rules and the QM definition.” During their review of the QRM definition, the agencies confirmed that the current QRM definition was “predictive of a lower risk of default” and “did not appear to be a material factor in credit conditions during the review period.”
CFPB publishes fall 2021 rulemaking agenda
On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.
Key rulemaking initiatives include:
- Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
- Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
- Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
- Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
- Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”
Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.
Agencies finalize TILA, CLA 2022 thresholds
On December 1, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of TILA (Regulation Z) and the Consumer Leasing Act (Regulation M) (available here and here), as required by the Dodd-Frank Act. The exemption threshold for 2021, based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, will increase from $58,300 to $61,000, except for private education loans and loans secured by real or personal property used or expected to be used as the principal dwelling of a consumer, which are subject to TILA regardless of the amount. The final rules takes effect January 1, 2022.
CFPB updates status on data collection rulemaking
On November 22, the CFPB filed its seventh status report in the U.S. District Court for the Northern District of California as required under a stipulated settlement reached in February 2020 with a group of plaintiffs, including the California Reinvestment Coalition, related to the collection of small business lending data. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses. The newest status report states that the Bureau has met its deadlines under the stipulated settlement, which included issuing its long-awaited proposed rule (NPRM) in September. As covered by a Buckley Special Alert, the NPRM would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. This information would be reported annually to the Bureau and published by the Bureau on its website. Comments on the NPRM are due January 6, 2022. Among other things, the Bureau notes in its status report that once the Section 1071 NPRM comment period concludes, it will meet and confer with plaintiffs to discuss an “appropriate deadline” for issuing the final rule, consistent with the stipulated settlement.
Find continuing Section 1071 coverage here.