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CFPB and OCC to host innovation office hours
On July 2, the CFPB and the OCC announced that they will host joint, virtual “Innovation Office Hours” on July 29-30, as part of the American Consumer Financial Innovation Network (covered by InfoBytes here). The office hours will be one-on-one meetings, of up to one hour, with representatives from the OCC and the CFPB’s Innovation Offices to discuss things such as fintech, new products or services, and bank partnerships. Those interested need to request a virtual session by July 17, and should include details on what they would like to discuss at the meeting.
CFPB’s semi-annual report to Congress discusses Covid-19 response
On July 7, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from October 1, 2019, through March 31, 2020. The report, which is required by the Dodd-Frank Act, addresses, among other things, problems faced by consumers with regard to consumer financial products or services; significant rules and orders adopted by the Bureau; and various supervisory and enforcement actions taken by the Bureau. In her opening letter, Director Kathy Kraninger discusses the Bureau’s response to the Covid-19 pandemic, stating that the Bureau has participated in “countless joint statements, virtual co-appearances, and shared broadcasts to stakeholders with [their] prudential partners” and has “directly engage[d] consumers with the right information, at the right time.”
Among other things, the report highlights first time homebuyers and credit scores as areas in which consumers face significant problems, citing to the Bureau’s Market Snapshot on First-time Homebuyers and the quarterly consumer credit trends report on public records. In addition to highlighting the Bureau’s previous efforts during the reporting period, the report notes upcoming initiatives and plans, including (i) the Taskforce on Federal Consumer Financial Law’s public listening sessions in the fall; (ii) the cost-benefit analysis symposium in July; and (iii) further work on their Covid-19 pandemic responses.
CFPB announces e-disclosures and HMDA platform Tech Sprints
On June 29, the CFPB announced two Tech Sprints that will “bring together regulators, technologists, software providers, consumer groups, and financial institutions to develop technological solutions to shared compliance challenges.” As previously covered by InfoBytes, the CFPB announced, in September 2019, its intention to use Tech Sprints—which had been used by the U.K.’s Financial Conduct Authority seven times since 2016 and resulted in a pilot project on digital regulatory reporting—to encourage regulatory innovation and requested comments from stakeholders on the plan.
- E-Disclosures, October 5-9, 2020. This Tech Sprint will have participants “improve upon existing consumer disclosures” by “design[ing] innovative electronic methods for informing consumers about adverse credit actions, including from the use of algorithms.” The Bureau notes that many disclosure laws “were written in a paper-based age” and using digital technology for disclosures may “enable greater consumer engagement and understanding.”
- HMDA platform and submission, March 22-26, 2021. This Tech Sprint will encourage participants to “develop new tools to address compliance challenges and improve the filing process” on the HMDA platform (operated by the Bureau on behalf of the Federal Financial Institutions Examination Council). Additionally, participants “may work to further develop the HMDA Platform’s Application Programming Interfaces to increase efficiency and lower cost.”
Separately, the FDIC also announced the start of a prototyping competition intended “to help develop a new and innovative approach to financial reporting, particularly for community banks.” The competition will involve 20 technology firms from across the country that will propose solutions for the FDIC’s consideration to make financial reporting “seamless and less burdensome for banks.”
CFPB releases spring 2020 rulemaking agenda
On June 30, the CFPB released its spring 2020 rulemaking agenda. According to a Bureau announcement, the information details the regulatory matters that the Bureau “expect[s] to focus on” between May 1, 2020 and April 30, 2021. The announcement notes that the agenda was set before the Covid-19 pandemic struck and while the Bureau “continues to move forward with other regulatory work,” it will prioritize work related to supporting consumers and the financial sector during and after the Covid-19 pandemic.
In addition to the rulemaking activities already completed by the Bureau in May and June of this year, the agenda highlights other regulatory activities planned, including:
- Escrow Rulemaking. The Bureau intends to issue a proposed rule to implement Section 108 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, which directs the Bureau to exempt certain loans made by creditors with assets of $10 billion or less (and that meet other criteria) from the escrow requirements applicable to higher-priced mortgage loans.
- Small Business Rulemaking. The Bureau states that in September 2020, it will publicly release materials for an October panel (convening under the Small Business Regulatory Enforcement Fairness Act) with small entities likely to be directly affected by the Bureau’s rule to implement Section 1071 of Dodd-Frank.
- HMDA. The Bureau states that two rulemakings are planned, including (i) a proposed rule that follows up on a May 2019 advanced notice of proposed rulemaking which sought information on the costs and benefits of reporting certain data points under HMDA and coverage of certain business or commercial purpose loans (covered by InfoBytes here); and (ii) a proposed rule addressing the public disclosure of HMDA data.
- Debt Collection. The Bureau intends to release the final rule amending Regulation F to implement the Fair Debt Collection Practices Act in October 2020 (InfoBytes coverage of the May 2019 proposed rule here). Additionally, “at a later date” the Bureau intends to finalize the February supplemental proposal, which covers time-barred debt disclosures (covered by a Buckley Special Alert here).
- Qualified Mortgages (QM). The Bureau states it is considering issuing a proposed rule “later this year” that would create a new “seasoning” definition of a QM under Regulation Z, allowing for QM status after the borrower has made consistent timely payments for a defined period.
Additionally, in its announcement, the Bureau notes that it is (i) participating in an interagency rulemaking process on quality control standards for automated valuation models (AVMs) with regard to appraisals; and (ii) continuing to review and conduct the five-year lookback assessments under Section 1022(d) of Dodd-Frank.
Special Alert: Supreme Court preserves CFPB through severance
The U.S. Supreme Court on Monday issued its long-awaited opinion in Seila Law LLC v. Consumer Financial Protection Bureau, with a 5-4 split along ideological lines holding that the structure of the CFPB is unconstitutional. Specifically, the clause in the underlying statute that requires cause to remove the director of the CFPB violates the constitutional separation of powers. In a plurality opinion representing three of the justices in the majority, the court further held that the removal provision could — and should — be severed from the statute establishing the CFPB, rather than invalidating the entire statute. While various aspects of the decision could lead to further constitutional challenges, the reasoning of the opinion was based in large part on the preservation of a regulatory framework that is now almost a decade old.
Chief Justice Roberts issued an opinion holding the removal provision unconstitutional but finding that it could be severed from the remainder of the statute. The first portion of the opinion was joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh, and therefore is the opinion of the court. The severance analysis, however, was joined only by Justices Alito and Kavanaugh. Justice Thomas, in a separate opinion joined by Justice Gorsuch, concurred on the constitutional question but dissented on severance. Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, issued a third opinion dissenting from the court’s opinion on the constitutional question but concurring in the judgment that “if the agency’s removal provision is unconstitutional, it should be severed.” (Kagan Dissent, at 37). Justice Kagan’s opinion did not offer any further analysis of the severance issue, nor did she state that she concurred in Chief Justice Roberts’s opinion on that issue. Therefore, none of the three opinions commanded a majority of the court on the severance issue.
CFPB issues interpretive rule on determining underserved areas
On June 23, the CFPB issued an interpretive rule to provide guidance for creditors and others involved in mortgage origination on the CFPB’s process for determining which counties and areas are considered “underserved” for a given calendar year. This interpretive rule supersedes certain parts of the official commentary to Regulation Z that became obsolete when HMDA data points were replaced or otherwise modified by the 2015 HMDA Final Rule. Lenders use the CFPB’s annual list of rural counties and rural or underserved counties when determining qualified exemptions to certain TILA regulatory requirements, such as “the exemption from the requirement to establish an escrow account for a higher-priced mortgage loan and the ability to originate balloon-payment qualified mortgages,” and use the CFPB’s Rural or Underserved Areas Tool to assess whether a rural or underserved area qualifies for a safe harbor under TILA’s Regulation Z. Under the interpretive rule, the CFPB will determine whether an area is considered “underserved” by counting first-lien originations from HMDA data from the preceding calendar year. The interpretive rule also discusses certain “covered transaction” exclusions that will not be counted related to (i) construction methods and total units; (ii) open-end lines of credit and reverse mortgages; (iii) business or commercial purposes; and (iv) demographic information where both the applicant’s and co-applicant’s ethnicity, race, sex, and age are all reported as “not applicable.” The interpretive rule is effective upon publication in the Federal Register.
CFPB settles with contract for deed companies on credit reporting violations
On June 23, the CFPB announced a settlement with several contract for deed companies to resolve allegations that the defendants violated the FCRA and its implementing Regulation V, as well as the Consumer Financial Protection Act, by, among other things, misrepresenting to consumers the necessary steps to resolve consumer-reporting complaints. Specifically, the CFPB’s investigation revealed that the defendants allegedly told consumers who complained about errors on their consumer reports that they had to file a dispute with the consumer reporting agency, even though Regulation V requires furnishers to investigate written disputes and contact the applicable consumer reporting agency to resolve any errors. According to the CFPB, this was inaccurate as a matter of law and a deceptive practice. In addition, the CFPB claimed that one defendant failed to implement policies and procedures required by Regulation V to protect the accuracy and integrity of furnished consumer information.
Under the terms of the consent order, the defendants will collectively pay a total of $35,000 in civil money penalties and have agreed not to “misrepresent or assist others in misrepresenting, expressly or impliedly, how consumers can initiate disputes concerning their consumer reports.”
CFPB launches pilot advisory opinion program to provide regulatory clarity
On June 18, the CFPB launched a pilot advisory opinion program (AO program) to allow entities to submit requests to the Bureau for written guidance in cases of regulatory compliance uncertainty. The pilot AO program procedural rule went into effect June 22, and states that the AO program—established in response to external stakeholder feedback encouraging the Bureau to provide written guidance—will primarily focus on clarifying ambiguities in Bureau regulations, although AOs may also clarify statutory ambiguities. The Bureau notes, however, that it will not issue AOs on matters that require notice-and-comment rulemaking or that are better addressed through that process, and does not intend to issue an AO that will change a regulation or replace a regulation or statute with a “bright-light standard that eliminates all the required analysis.” During the pilot, requests will not be accepted from third parties, such as trade associations or law firms, on behalf of unnamed entities. According to the Bureau’s announcement, it will select topics based on the program’s priorities, and, if appropriate, may publicly “issue an [AO] based on its summary of the facts presented that would be applicable to other entities in situations with similar facts and circumstances.”
The pilot AO program will focus on the following four priorities: (i) providing consumers “with timely and understandable information to make responsible decisions”; (ii) identifying “outdated, unnecessary or unduly burdensome regulations in order to reduce regulatory burdens”; (iii) consistently enforcing federal consumer financial laws “in order to promote fair competition”; and (iv) “[e]nsuring markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”
In determining the appropriateness of an AO, the Bureau will consider several factors, including whether (i) prior Bureau examinations have identified the issue as one that may benefit from additional regulatory clarity; (ii) the issue is “of substantive importance or impact or one whose clarification would provide significant benefit”; and/or (iii) the issue concerns an ambiguity not previously addressed through an interpretive rule or other authoritative source. Additionally, issues currently under investigation or enforcement likely will not be considered appropriate for an AO.
A proposed procedural rule and information collection was also announced June 18, which requests comments on the proposed AO program. Comments must be received 60 days after publication in the Federal Register. The proposed AO program, following the conclusion of the pilot, will be fully implemented after the Bureau reviews the comments.
CFPB updates Remittance Transfer Small Entity Compliance Guide
On June 18, the CFPB updated its Remittance Transfer Small Entity Compliance Guide to reflect the final amendments to the Remittance Transfer Rule (Final Rule) issued by the Bureau in May (covered by InfoBytes here). Among other things, the Final Rule grants a permanent safe harbor from exact remittance cost disclosures to insured institutions that do fewer than 500 remittances annually in the current and prior calendar years. Additionally, the Final Rule adopts a new, permanent exception that permits insured institutions to estimate the exchange rate for a remittance transfer to a particular country if, among other things, the remittance payment is made in the local currency of the designated recipient’s country and the insured institution processing the transaction made 1,000 or fewer remittance payments to that country in the previous calendar year.
As previously covered by InfoBytes, the CFPB issued FAQs covering Covid-19 and the Final Rule, and the Bureau issued a policy statement, which established a temporary exception allowing institutions providing remittance transfers to estimate fees to consumers in light of the Covid-19 pandemic. For the period between July 1 to January 21, 2021, the Bureau will not cite supervisory violations or initiate enforcement actions against certain institutions for disclosing estimated fees and exchange rates.
Consumer advocacy groups claim CFPB taskforce is illegally chartered
On June 16, several consumer advocacy groups filed a lawsuit in the U.S. District Court for the District of Massachusetts against the CFPB claiming that the Bureau’s Taskforce on Federal Consumer Financial Law was “illegally chartered” and violates the Federal Advisory Committee Act (FACA). As previously covered by InfoBytes, the taskforce was established last year to examine the existing legal and regulatory environment facing consumers and financial services providers. As also covered by InfoBytes, the taskforce recently outlined its future plans, which include analyzing comments received from a March request for information, holding a public hearing, and participating in public listening sessions with the Bureau’s four advisory committees. The complaint argues, however, that the taskforce’s membership lacks balance, and that the appointed members who “uniformly represent industry views” have worked on behalf of several large financial institutions or work as industry consultants or lawyers. This composition, the consumer advocacy groups argue, undermines the purpose of the taskforce and is a violation of FACA and the Administrative Procedure Act. The complaint also states that while FACA requires advisory committee meetings to be open to the public and that records be disclosed, the taskforce has held closed-session meetings without providing public notice and has failed to make available any of the records related to these meetings or its other work.
The complaint seeks declaratory and injunctive relief and asks the court to (i) set aside the taskforce’s charter, all orders and decisions, and the appointments of the taskforce members; (ii) enjoin the taskforce from meeting, or otherwise conducting taskforce business; (iii) order the Bureau to immediately release all materials prepared for the taskforce; and (iv) enjoin the Bureau from relying upon taskforce recommendations or advice. The complaint also seeks costs and attorneys’ fees.