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CFPB issues fact sheet on TRID disclosures with assumption transactions
On May 1, the CFPB released a factsheet addressing when loan estimates and closing disclosures are required for assumption transactions under the TILA-RESPA Integrated Disclosure Rule (TRID Rule). The factsheet includes a flowchart and a narrative summary to demonstrate when the disclosures would be required. According to the factsheet, as a threshold matter, the new transaction must be within the TRID Rule’s scope of coverage (e.g., the transaction is a closed-end consumer credit transaction secured by real property or a cooperative unit and is not a reverse mortgage subject to § 1026.33). The creditor must then determine if the transaction is an “assumption” as defined in Regulation Z (under § 1026.20(b) an assumption “occurs when a creditor expressly agrees in writing to accept a new consumer as a primary obligor on an existing residential mortgage transaction.”) The factsheet includes three elements the transaction must meet in order to qualify as an assumption under Regulation Z: (i) the creditor must expressly accept the new consumer as a primary obligor; (ii) a written agreement must be executed, which includes the creditor’s express acceptance of the new customer; and (iii) it must be a “residential mortgage transaction” as to the new customer—specifically, the new customer must be financing the acquisition or initial construction of his or her principal dwelling. If the creditor determines the transaction is an assumption, based on the outlined factors, it must provide a loan estimate and closing disclosure required by the TRID Rule, unless the transaction is otherwise exempt from the requirements.
CFPB proposes permanent HMDA thresholds
On May 2, the CFPB issued a Notice of Proposed Rulemaking (NPRM), which would permanently raise coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under the HMDA rules. Specifically, the proposal would permanently raise the reporting threshold for closed-end mortgage loans from 25 loans in each of the two preceding calendar years to either 50 or 100 closed-end loans in each of the preceding two calendar years. As previously covered by InfoBytes, the CFPB temporarily increased the threshold for open-end lines of credit from 100 loans to 500 loans for calendar years 2018 and 2019. The current proposal would extend that temporary threshold to January 1, 2022, and then permanently lower the threshold to 200 open-end lines of credit after that date. Lastly, the proposal incorporates, with minor adjustments, the interpretive and procedural rule issued in August 2018 (2018 Rule), which implemented and clarified the HMDA amendments included in Section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously covered by InfoBytes here). The proposal includes additional interpretive information related to the partial exemptions in the 2018 Rule, including how the partial exemption rules apply after a merger or acquisition. The Bureau is proposing that these changes take effect January 1, 2020. Comments on the NPRM must be received within 30 days of publication in the Federal Register.
The Bureau also issued an Advance Notice of Proposed Rulemaking (ANPR) seeking information on the costs and benefits of reporting certain data points under HMDA. Additionally, the ANPR also seeks information about the requirement that institutions report certain commercial-purpose loans made to a non-natural person and secured by a multifamily dwelling. Comments on the ANPR must be received within 60 days of publication in the Federal Register.
CFPB fines student loan servicer $3.9 million for unfair practices
On May 1, the CFPB announced a $3.9 million settlement with a student loan servicing company. The settlement resolves allegations that the company engaged in unfair practices by failing to make adjustments to loans made under the Federal Family Education Loan Program to account for circumstances such as deferment, forbearance, or entrance into the Income-Based Repayment (IBR) program. According to the consent order, between 2005 and 2015, certain accounts requiring manual adjustments to principal loan balances based on program participation were allegedly placed in “queues” to process the adjustments, which took, in some cases, years to process. The servicer allegedly did not inform affected borrowers that it did not complete the processing of their principal balances associated with the deferment, forbearance, or IBR participation. The queues allegedly resulted in some borrowers paying off incorrect loan amounts and other borrowers experiencing delays in loan consolidation while waiting for the servicer to adjust principal balances. In addition to the $3.9 million civil money penalty, the consent order requires the servicer to make the proper adjustments to the principal balances of the affected accounts or pay restitution to borrowers who paid off loans with inaccurate loan balances. The servicer is also required to comply with certain compliance monitoring, reporting, and recordkeeping requirements.
Democratic senators concerned with CFPB retiring HMDA search tool
On April 29, nine Democratic Senators, led by Sherrod Brown (D-Ohio), wrote to the CFPB expressing “deep concern” regarding the Bureau’s plan to retire its tools for public exploration of HMDA data—HMDA Explorer Tool and the Public Data Platform API. In the letter, the Senators argue that retiring the tools with no plan for adequate replacements “threatens to undermine the statutory purposes of HMDA and does not live up the commitments to transparency and accountability” that Director Kraninger promised to uphold during her nomination hearing. The Senators cite to the Bureau’s decision to move the Office of Fair Lending and Equal Opportunity from the Supervision and Enforcement section to the Office of the Director and argue that “[r]reductions in available data and its accessibility, combined with weakened [fair lending] enforcement, is a disservice to the consumers the CFPB was created to protect.” The letter urges the CFPB to reverse course and requests that the Bureau provide a “detailed briefing” on the decision by May 10.
In the notice regarding the tools’ retirement, the Bureau states that the FFIEC “will publish a query tool for the 2018 data in the coming months.”
CFPB updates Prepaid Small Entity Compliance Guide
On April 26, the CFPB released version 3.1 of its Prepaid Small Entity Compliance Guide to incorporate previously issued submission instructions for issuers submitting account agreements pursuant to the prepaid account rule through the electronic submission system “Collect.” (See previous InfoBytes coverage here.)
CFPB issues RFI on Remittance Rule
On April 25, the CFPB issued a Request for Information (RFI) on two aspects of the Remittance Rule, which took effect in 2013, and requires financial companies handling international money transfers, or remittance transfers, to disclose to individuals transferring money information about the exact exchange rate, fees, and the amount expected to be delivered. The RFI seeks feedback on (i) whether to propose changing the number of remittance transfers a provider must make to be governed by the rule, as well as the possible introduction of a small financial institution exception; and (ii) a possible extension of a temporary exemption to the Rule set to expire July 21, 2020, that allows certain insured institutions to estimate exchange rates and certain fees they are required to disclose (the RFI states that the EFTA section 919 expressly limits the length of the temporary exemption and does not authorize the CFPB to extend the term beyond the July 21 expiration date unless Congress changes the law). The RFI also seeks feedback on the Rule’s scope of coverage, including whether the Bureau should change a safe harbor threshold that allows persons providing 100 or fewer remittance transfers in the previous and current calendar year to be outside of the Rule’s coverage. Additionally, the RFI includes a consideration of issues discussed in the Bureau’s assessment of the Rule, which examined if the Rule had been effective in achieving its goals. Comments on the RFI are due 60 days after publication in the Federal Register.
Separately, on April 24, the CFPB released a revised assessment report of its Remittance Rule to “correct an understatement of the dollar volume of remittance transfers by banks in the original report,” which increases the share of the remittance dollars transferred by banks. The Bureau notes that the correction does not affect the report’s conclusions. (See previous InfoBytes coverage of the October 2018 assessment report here.)
CFPB updates CID policy
On April 23, the CFPB announced updates to its policy on Civil Investigative Demands (CIDs). According to the Bureau, the new policy is consistent with comments received in response to a 2018 Request for Information, which solicited public feedback on “how best to achieve meaningful burden reduction or other improvement to the CID processes while continuing to achieve the Bureau’s statutory and regulatory objectives” (previously covered by InfoBytes here). Going forward, CIDs will (i) provide additional information on potentially applicable provisions of law that may have been violated; (ii) specify business activities subject to Bureau authority; and (iii) “[i]n investigations where determining the extent of the Bureau’s authority over the relevant activity is one of the significant purposes of the investigation, staff may specifically include that issue in the CID in the interests of further transparency.”
District Court enters first significant decision under CFPB’s ATR/QM Rule
On March 26, the U.S. District Court for the Southern District of Ohio, in what appears to be the first significant decision on claims brought against a mortgage lender under the CFPB’s Ability-to-Repay/Qualified Mortgage Rule, granted summary judgment in favor of the lender. The court rejected plaintiff’s claims that his bank improperly relied on income under his spousal support agreement, stating that “[t]he fact that Plaintiff and [his spouse] did not keep the separation agreement and instead opted to divorce – a series of events which reduced Plaintiff’s income by an order of magnitude – was not an event that was reasonably foreseeable to the Bank.” The court also noted that, “[a]lthough Plaintiff is now in his eighties, he is a repeat player in the field of real estate and mortgages, and a consumer of above-average sophistication.” While this decision does not break new legal ground, it does provide useful insights into how courts may respond to inherently fact-specific claims about the underwriting of individual loans.
Kraninger’s focus is preventing consumer harm, clarifying “abusive”
On April 17, Kathy Kraninger, Director of the CFPB, spoke before the Bipartisan Policy Center where she reiterated the Bureau’s focus on prevention of harm and announced a symposium that will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act. In her remarks, Kraninger touched on the four “tools” the Bureau has at its disposal to execute its mission: education, rulemaking, supervision, and enforcement.
- Education. The Bureau wants to help consumers protect their own interests and choose the right products and service to help themselves. Specifically, the Bureau is focusing on ensuring that American consumers learn to save to be able to absorb a financial shock.
- Rulemaking. The Bureau will comply with Congressional mandates to promulgate rules or address specific issues through rulemaking, but when the Bureau has discretion, it will focus on “preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices which undermine the ability of consumers to choose the products and services that are best for them.” In the coming weeks, the Bureau will release its proposed rules to implement the FDCPA, which will include (i) bright line limits on the number of calls consumers can receive from debt collectors on a weekly basis; (ii) clarity on how collectors may communicate through new technology such as, email and text messages; and (iii) requiring more information at the outset of collection to help consumers better identify debts and understand payment and dispute options. Kraninger stated, “the CFPB must acknowledge that the costs imposed on regulated entities absolutely affect access to, and the availability of, credit to consumers.”
- Supervision. This tool is the “heart of the agency,” according to Kraninger, as it helps to prevent violations of laws and regulations from happening in the first place. The Bureau will keep in mind that it is not the only regulator examining most entities and will focus on coordination and collaboration with the other regulators so as not to impose unmanageable burdens in examinations.
- Enforcement. The Bureau will continue to enforce against bad actors that do not comply with the law, as enforcement is “an essential tool that Congress gave the Bureau.” The Bureau will have a “purposeful enforcement regime” to foster compliance and help prevent consumer wrongs. Kraninger is “committed to ensuring that enforcement investigations proceed carefully and purposefully to ensure a fair and thorough evaluation of the facts and law… [and ensuring they] move as expeditiously as possible to resolve enforcement matters, whether through public action or a determination that a particular investigation should be closed.”
Kraninger also touched on how the Bureau plans to measure success going forward. Kraninger noted that in the past, the Bureau touted its outgoing statistics as a measurement, such as amount of consumer redress and number of complaints handled. However, according to Kraninger, if the Bureau succeeds in fostering a goal of prevention of harm, certain outputs like meritorious complaints would actually be lower. Therefore, the Bureau’s success should be based on how it uses all of its tools. Lastly, Kraninger announced a symposia series that would convene to discuss consumer protections in “today’s dynamic financial services marketplace.” The first will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act, specifically, to address issues with the “reasonableness” standard. There are no additional details on the date for the symposium but Kraninger noted that this would be the next step in exploring future rulemaking on the issue. The series will also have future events discussing behavioral law and economics, small business loan data collection, disparate impact and the Equal Credit Opportunity Act, cost-benefit analysis, and consumer authorized financial data sharing.
Additionally, on April 9, acting Deputy Director, Brian Johnson, spoke at the George Mason University Law & Economics Center's Ninth Annual Financial Services Symposium. In his prepared remarks, Johnson emphasized that regulatory rules should be “as simple as possible” when dealing with complex markets as they are easier for a greater portion of actors to understand and adapt to and also promote compliance, “which has the ancillary benefit of making it easier for consumers (not to mention regulators) to distinguish between good and bad actors.” Johnson argued that regulators should not try and dictate specific outcomes in rulemaking. Instead, Johnson stated that “financial regulators should recognize that complex market systems are not a means to accomplish their specific goals” and should “narrowly-tailor rules to address a discrete market failure.” Johnson also touched on the Bureau’s new Office of Innovation, noting that the Bureau’s proposed No Action Letter Program and Product Sandbox will offer firms “the opportunity to expand credit while still preserving important consumer protections,” while assisting the Bureau in learning about new technologies and potential consumer risks. As for the Bureau’s cost-benefit analysis, Johnson said that this activity will not be limited to future actions, but will also be used for “periodic retrospective analysis” because financial markets are “constantly changing, requiring constant reappraisal and verification of the rules that govern the system.”
Federal regulators discuss national bank’s remediation progress
On April 9, Senators Elizabeth Warren (D-Mass) and Sherrod Brown (D-Ohio) released responses to inquiries sent last month to the Federal Reserve Board, the OCC, and the CFPB, which expressed, among other things, concern about the level of response taken by a national bank regarding its auto-lending practices, as well as the bank’s remediation plans and compliance risk management efforts. In response, the regulators individually discussed the bank’s progress to satisfy its obligations under existing consent orders.
Federal Reserve Chairman Jerome Powell wrote that the asset cap imposed on the bank will remain in place until the bank has implemented—to the Board’s satisfaction—remedies to address risk management breakdowns. Powell noted that the bank and the Board are comprehensively addressing the progress.
OCC Comptroller Joseph Otting emphasized that the agency continues “to monitor the bank’s work to remediate deficiencies” identified in previously issued orders, and commented that while the OCC is disappointed with the bank’s current corporate governance and risk management programs, it “is fully engaged and prepared to bring [the bank’s] matters to resolution.”
CFPB Director Kathy Kraninger stated that “while the Bureau is working with [the bank] to ensure its compliance with the consent order, I am not satisfied with the [b]ank’s progress to date and have instructed staff to take all appropriate actions to ensure the [b]ank complies with the consent order and [f]ederal consumer financial law.”