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Buckley Sandler Files Amicus Brief on Behalf of Industry Groups in Tenth Circuit TILA Case
On May 3, BuckleySandler filed an amicus brief on behalf of three industry trade groups in a Tenth Circuit case addressing the right to rescind a mortgage under the Truth in Lending Act. The CFPB previously filed an amicus brief in Rosenfield v. HSBC Bank, No. 10-1442 (10th Cir.), in which it argued that borrowers who do not receive certain TILA-required disclosures should be permitted to rescind so long as they notify their lenders within three years—even if they did not file suit within TILA’s three-year repose period. The industry amicus brief, filed on behalf of the American Bankers Association, Consumer Bankers Association, and Consumer Mortgage Coalition, urges the Tenth Circuit to hold that TILA’s statute of repose requires that any right of rescission expire three years after origination even if the consumer previously notified the lender. The industry amicus brief argues that holding otherwise contravenes the purpose of TILA's statute of repose and creates unnecessary uncertainty that will negatively affect the industry and consumers alike.
Lawmakers Request CFPB Budget Details
On May 2, Republican members of the House Financial Services Committee sent a letter to CPFB Director Cordray following up on their initial request and the CFPB’s response, seeking additional details regarding the CFPB’s budget and plans. Although Congress does not appropriate funds to the CFPB, the members argue that the CFPB still must provide the committee with detailed budget information. The CFPB, according to the letter, cannot act as other non-appropriated federal banking regulators because the CFPB budget impacts the national debt while the others do not. In an attempt to exercise some oversight over CFPB spending, the members seek (i) a financial operating plan for the agency; (ii) a detailed fiscal year 2013 budget justification, (iii) performance measures, (iv) a commitment to notify Congress prior to seeking funds from the Federal Reserve Board, (v) information about the CFPB headquarters design and renovation, and (vi) the process for determining employment needs.
CFPB Announces Director of Diversity Office, Outlines Planned Activities
On April 30, the CFPB announced that Stuart Ishimaru will lead its Office of Minority and Women Inclusion. A former Equal Employment Opportunity Commissioner, Mr. Ishimaru will lead an office that plans to (i) develop standards for assessing the diversity policies and practices of CFPB-regulated entities, (ii) provide advice on the impact of CFPB policies and regulations on minority and women-owned businesses, (iii) coordinate with the Director to create and implement solutions to civil rights violations, and (iv) develop and implement standards of equal employment for the CFPB. In announcing Mr. Ishimarus hiring, Director Cordray stated that the financial industry has not traditionally reflected all of its customers and the new office will work with banks and nonbanks to develop systems that encourage diversity.
FDIC Issues Statement Regarding Applicability of CFPB Mortgage Compensation Rules
On April 17, the FDIC issued Financial Institution Letter 2012-02 to apply the recent CFPB guidance on compensation for mortgage originators to FDIC-regulated institutions. The statement directs covered institutions to ensure that their policies and practices are consistent with the compensation rules as interpreted by the CFPB.
CFPB Begins Study of Arbitration Clauses, Extends Comment Period for Overdraft Inquiry
On April 24, the CFPB released a request for information to inform its study of the use and impact of arbitration clauses in consumer financial services agreements. Through June 23, 2012, the CFPB is seeking information from the public regarding (i) the prevalence of use of these arbitration clauses, (ii) what claims consumers bring in arbitration against financial services companies, (iii) whether claims are brought by financial services companies against consumers in arbitration, and (iv) how consumers and companies are affected by actual arbitrations and outside of actual arbitrations. The study is required by the Dodd-Frank Act and must be completed before the CFPB can begin exercising its Dodd-Frank authority to conduct rulemakings regarding arbitration agreements. Therefore, at this time the CFPB is not seeking comments on whether and how the use of such agreements should be regulated.
The CFPB also this week extended through June 29, 2012, the comment period for its inquiry into overdraft programs and their costs, benefits, and risks to consumers.
CFPB Clarifies Transitional Licensing for Mortgage Loan Originators
On April 19, the CFPB issued Bulletin 2012-05 to clarify issues related to the transitional licensing of mortgage loan originators under the SAFE Act and Regulation H. According to the Bulletin, (i) states are allowed to provide a transitional license to an individual with a valid license from another state, but (ii) states are prohibited from providing a transitional license for a registered loan originator who leaves a federally regulated financial institution to act as a loan originator while pursuing a state license.
CFPB Files Briefs in Three TILA Actions
On April 13, the CFPB filed amicus briefs in TILA cases pending in the Third, Fourth, and Eighth Circuits. As it did previously in a brief filed in the Tenth Circuit, the CPFB argued that borrowers who do not receive the material disclosures required by TILA are not required to file suit within the three-year rescission period. Rather, the CFPB argues that a borrower can rescind the transaction as long as they provide notice to the lender of the cancellation within three years of consummation.
CFPB Puts Consumer Lenders on Notice Regarding Discriminatory Practices
The CFPB today put consumer lenders on notice that it “will use all available legal avenues, including disparate impact, to pursue lenders whose practices discriminate against consumers.” The CFPB intends to employ disparate impact when examining auto lenders, credit card issuers , student lenders, mortgage lenders, and other providers of consumer credit, allowing the CFPB to claim an institution has engaged in discriminatory lending based on the effects and not the intent of the lending practices. In remarks to the National Community Reinvestment Coalition today, CFPB Director Richard Cordray stated that “[t]he consequences of ‘disparate impact’ discrimination are very real and they affect consumers just as significantly as other forms of discrimination.” To help consumers identify and avoid credit discrimination, the CFPB also compiled and released new lending discrimination “tips and warning signs.”
Concurrent with the announcement, the CFPB published Bulletin 2012-04 to specifically reaffirm its commitment to applying disparate impact when conducting supervision and examination under the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. In support of this application, the CFPB cites what it refers to as the “consensus approach” outlined by a 1994 interagency Policy Statement on Discrimination in Lending, which notes court findings that discriminatory lending in violation of ECOA can be established through (i) overt evidence of discrimination, (ii) evidence of disparate treatment, and (iii) evidence of disparate impact. The CFPB also argues that the ECOA legislative history, as characterized in the original Regulation B adopted by the Federal Reserve Board, supports application of the disparate impact doctrine.
CFPB Previews Mortgage Servicing Rules
On April 9, the CFPB previewed its upcoming mortgage servicing rules, which likely will be proposed this summer and finalized in January 2013. The key aspects of the proposal relate broadly to (i) monthly mortgage statements, (ii) ARM adjustment disclosures, (iii) force-placed insurance, (iv) payment crediting, (v) error resolution and borrower inquiries, and (vi) borrower outreach and borrower information. The majority of the details were provided in an outline prepared for a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel, which will consider the potential impact of the planned rules on small businesses. The outline includes model forms related to periodic statements, ARM reset notices, and force-placed insurance notices, which the CFPB has been testing in recent months. The CFPB release also included questions directed to the small entity representatives in order to assist the SBREFA panel in understanding the potential economic impacts of the particular proposals under consideration by the CFPB. Generally, the servicing proposals incorporate statutory changes imposed by the Dodd-Frank Act, which would go into effect in January 2013 unless final rules are issued on or before that date. The concepts in the proposal that do not address specific Dodd-Frank requirements are consistent with servicing requirements imposed by recent mortgage servicing consent orders and/or recent requirements for servicing delinquent loans owned by or serviced on behalf of Fannie Mae or Freddie Mac (see, e.g., Federal Reserve Board Consent Orders and Fannie Mae Ann. SVC 2011-08R).
CFPB Issues Bulletin Regarding Supervision of Vendors
On April 13, the CFPB issued Bulletin 2012-3, which states the CFPB's expectation that supervised banks and nonbanks have an effective process for managing the risks of service provider relationships. In a press release announcing the Bulletin, the CFPB promised to “take a close look at service providers’ interactions with consumers” and “hold all appropriate companies accountable when legal violations occur.” According to the Bulletin, the CFPB expects supervised institutions to (i) conduct thorough due diligence to verify that a service provider understands and is capable of complying with the law, (ii) request and review a service provider’s policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities, (iii) include in the contract with a service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities; (iv) establish internal controls and on-going monitoring to determine whether a service provider is complying with the law, and (v) take prompt action to address fully any problems identified through the monitoring process.