Mortgage Banking Update
In this issue:
- To Call or Not to Call: the NPRM's Proposed Call Frequency and Time/Place Limitations
- FCC's Call Blocking Plans Could Create Problems for Collections
- Mortgage-Specific Provisions in the CFPB's Proposed Debt Collection Rules
- CFPB's Proposed Debt Collection Rules Published in Federal Register
- CA Reinvestment Coalition Sues CFPB for Delaying Section 1071 Implementation
- CFPB Publishes Spring 2019 Rulemaking Agenda
- CFPB Announces Deputy Director and Additions to Senior Leadership and Executive Teams
- CFPB's Top Enforcement Official Reported to Have Resigned
- Another CFPB Departure: Dan Smith Leaving to Join ABA
- OCC Report Highlights Risks Arising From Innovation and Nonbank Competition
- Did You Know?
- Looking Ahead
In this article, we attempt to dissect and explore the Consumer Financial Protection Bureau's proposed call frequency and time/place limitations in the recently-released debt collection NPRM.
Proposed Call Frequency Limitations
First, let's tackle the CFPB's proposed call frequency limitations. Section 1006.14(b)(2) prohibits attempting to call (note the use of the word "call," as opposed to "communicate with") a consumer about a debt more than seven times within seven consecutive days. Note that this portion of the proposed rule addresses only call attempts – successful communications will be discussed next.
The proposed call attempt limitation would apply on a per debt basis. This means that if a consumer has three separate debts, the proposed rule would permit up to a total of 21 call attempts—seven per debt—within a consecutive seven day period, according to the commentary to Section 1006.14(b). However, in the context of a consumer from whom a collector is attempting to collect multiple debts, accounting for call attempts per debt can become a bit muddled. The commentary suggests that if a collector intends to discuss (or would intend to discuss) multiple debts in the event that the consumer responds to a call attempt on any one account, the collector would need to count those attempts across all of the accounts that would or could be discussed by the collector. So, if a collector wishes to be able to place up to seven call attempts on each account, it will need to develop ways to demonstrate that its agents would not discuss any other debts in the event the consumer answered the call. From a practical perspective, perhaps that could be accomplished without too much fuss if a collectors assigns different debts to entirely different collection teams but, in reality, I suspect that if a consumer wants to discuss paying other debts during a call that was not placed on those accounts initially, a collector is likely to engage in that discussion and attempt to resolve as many debts as possible. As a result, the de facto impact of the proposed call attempt limits may end up functioning on a per consumer basis in some instances.
However, it is important to note that the proposed call attempt limitation changes significantly when student loans are involved. Rather than applying the call attempt limit on a per debt basis when attempting to collect a student debt, the Bureau proposes that the call attempt limit apply to all debts that were serviced under a single account number at the time they were placed with the collector. This means that if the student had three loans, but they all were serviced using the same account number, then the collector is limited to seven call attempts total on the combined group of accounts. This is an important distinction, and it is important that student lending participants take it into account to avoid potential violations.
It also bears noting that while the proposed call attempt limitation does include limited content messages (i.e., messages that the NPRM states would presumptively not constitute collection communications under the FDCPA – which we will cover in more detail in future blog posts), the proposed rule excludes from its counts any communication made by text or email, call attempts that do not actually connect to the dialed number (i.e., a busy signal or reached a disconnected line), and call attempts to a number that a collector subsequently learns does not actually belong to the consumer it was trying to reach.
Thereafter, once a collector successfully contacts the consumer, there is an additional, mandatory seven-day waiting period before the collector can resume any further call attempts. The date of the successful communication serves as the first day of the seven-day waiting period. The proposed rule states that a "successful contact" includes both actually speaking to the consumer and leaving a message (other than a limited content message) for the consumer. The Bureau further cautions that collectors should remain mindful that a location call or call attempt that does not immediately reach the consumer can become a successful contact if the end result is that contact is made with the consumer.
Finally, the Bureau remarks that calls placed in response to consumer requests for information or a return call are not subject to the call frequency limitations described above, as a consumer can consent to additional calls.
Our read of this NPRM provision suggests that the Bureau is working to transition collection efforts away from relying on outbound calls to consumers, and is instead encouraging consumer contact through other, less intrusive channels. The Bureau makes a number of statements expressing concern that consumer phones may ring repeatedly, day after day, and indicating that it wants to avoid that type of disturbance. However, a number of industry participants already have expressed concern that the Bureau's one-size-fits-all approach to limiting call attempts will not work well across all debt types and consumer profiles. Some industry groups already have announced plans to provide the Bureau with additional data to support industry claims that this approach will cause disproportionate impacts on certain areas of debt collection.
It also is curious that under the NPRM, ringless voicemails that result in a collections message being left for the consumer also are deemed to be successful communications that trigger the seven-day waiting period. This seems somewhat out of place, given the goals of this portion of the NPRM (which appear aimed at reducing intrusive telephone calls that ring a consumer's phone). In that regard, a ringless voicemail seems more akin to the types of communications that the Bureau proposes to exclude from the contact frequency limitations (i.e., email and text) because a consumer can retrieve and review a ringless voicemail at a time of the consumer's choosing, using their phone, without hearing an intrusive ring when the message is transmitted.
In sum, we anticipate that the Bureau's proposed contact frequency limitations will generate a great deal of additional commentary and, hopefully, discussion with the Bureau to determine if there is a more appropriate way to achieve the dual goals of protecting consumers from abuse and effectively assisting consumers in resolving their debts.
Proposed Time and Place Restrictions
Second, let's look at the NPRM's proposed time and place restrictions that are broadly applicable to all forms of communication – calls, messages, texts, and emails. For example, Section 1006.6(b) of the proposed rule prohibits collectors from contacting consumers at unusual or inconvenient times or places. The proposed rule then provides that attempting to contact a consumer at the consumer's work phone number or work email is presumptively inconvenient. (Future blog posts will explore the narrow circumstances when such numbers can be contacted.)
Similarly, attempting to contact the consumer before 8 a.m. or after 9 p.m. in the consumer's time zone also is presumptively inconvenient. If the consumer's time zone is unknown to the collector (perhaps because the consumer's cell phone and zip code are different), the NPRM would require the collector to only contact the consumer in a window that is simultaneously compliant in all potentially applicable time zones. Since consumers commonly retain their cell phone numbers as they move around the country, this could present challenges if it significantly decreases the windows within which collectors can contact consumers to assist those consumers to resolve their debts. A communication is deemed "sent" purposes of compliance with these time window requirements based on when the collector sends the communication to the consumer and not when it is actually received by the consumer.
In addition to these prohibitions, the proposed rule would further prohibit collectors from contacting consumers at other times or places that the collector "knows or should know" are inconvenient. The Bureau provides a number of examples in the NPRM's official commentary in an attempt to illustrate this standard and what language is "sufficient" to trigger the collector's knowledge that the contact is inconvenient.
For example, if a consumer states that he or she cannot talk "at this time of day," "during these hours," "during school hours," or "this is not a good time," at that point, the collector is deemed to know that further contacts at the location or during that window of time are inconvenient for the consumer, and therefore, prohibited. However, this standard could prove challenging because it turns on the collector's understanding of the consumer's statements during a communication and whether they "sufficiently" convey that the time or place is inconvenient. What does "during school hours" mean? How does the collector understand if that means the consumer is in school during the day, at night, only three times a week? What does "at this time of day" mean? Does it mean at the time the collector called until the top of the next hour? A three-hour window?
As we have seen in litigation involving the FDCPA, TCPA, and other similar statutes, attempting to interpret subjective consumer statements and directions in order to avoid potential liability under amorphous standards like "should know" is, at best, often challenging and inconsistent. For one, how do you calibrate everyone's interpretation of what the consumer said? What if the consumer hangs up and clarification is needed to understand what the consumer actually wanted? It is extremely difficult to implement concrete, clear training standards around these types of subjective, vague legal standards, and we anticipate comments on whether the "should know" standard is appropriate or if more definitive standards and guidelines are necessary. Indeed, offering more specific guidance could help consumers and collectors alike by allowing consumers to understand how to clearly convey their wishes while reducing potential (and costly) litigation risks for collectors.
Similarly, the proposed rule states that a collector should know that any previously identified inconvenient times or places made known to the creditor or a prior collector by the consumer are inconvenient and prohibited absent the collector receiving consent directly from the consumer to resume contacts at those previously identified inconvenient times or places. This imposes a substantial information transfer requirement as a debt is assigned or otherwise transferred throughout the collections process. As a result, increased demands for contractual representations and warranties to reduce potential risk seem likely to protect against potential errors in recording and/or transferring such data to the current collector.
Under the NPRM, consumers retain the ability to allow calls at times or places that are inconvenient with proper consent. However, the NPRM is clear that consent to receive calls at inconvenient times or places cannot be obtained by the collector in the same communication that led to the collector learning of the inconvenience.
The NPRM also suggests that collectors are barred from contacting a consumer at a work email or work telephone if the collector knows that the employer bars its employees from receiving such communications at work. As currently stated, this requirement seems to demand that collectors maintain an internal database of employers who prohibit such communications and then scrub all emails and phones numbers against that list (as well as review their entire collections file to ensure they know where the consumer works when such information was included in the file received by the collector, something the Bureau suggests would be appropriate to do). This seems to pose a daunting compliance task and may be superfluous in that the Bureau already states that contacts at work numbers and work emails are presumptively inconvenient. Or, perhaps the Bureau means exactly what it says here – that even if a consumer consents to being contacted at work, if the collector knows the consumer's employer does not allow its employees to receive such communications from other collection experiences or otherwise, the Bureau expects the collector to protect the consumer from violating the employer's prohibition. Clarification is needed on this point – do consumers have the right to consent to communications at work if that is their preference in order to resolve their debt or not?
Finally, it is not clear that Section 1006.6(c)'s statement that a consumer's cease and desist request or refusal to pay request must be submitted "in writing" is something that should be accepted at face value. On the one hand, through this statement, the Bureau likely is attempting to ensure that collectors are aware that written cease and desist requests can be delivered through available electronic channels (text and email), as well as by mail. But collectors will be hard pressed to justify disregarding a verbal request by phone for a cease and desist because not honoring such a request not only risks a violation of the FDCPA's various prohibitions against harassment and unfair treatment, but also risks TCPA and potential state law violations. Alternatively, perhaps this section supports the argument that a verbal statement that merely states "stop calling me" is not be sufficient to support an argument that the consumer requested a cease and desist, as opposed to simply a stop calling request specific to that number. This remains yet another of the many areas that are unclear and likely will fall to courts to resolve in future litigation.
We look forward to working with our clients and the collections industry to address these and many other areas in the coming months.
Plans announced on May 15 by the FCC to empower voice service providers to offer more aggressive call-blocking programs could create significant problems for creditors and debt collectors. In addition to allowing providers to block unwanted calls by default, the FCC plans to allow providers to offer opt-in blocking in which a consumer can elect to block calls from any numbers that are not on the consumer's own contact list. Such opt-in blocking could result in the blocking of legitimate communication attempts, such as collection calls from creditors or debt collectors.
The FCC's press release and fact sheet indicate that FCC Chairman Pai has circulated a declaratory ruling that would allow voice service providers to start offering default call-blocking programs. While many providers currently offer blocking programs, they do so only on an opt-in basis. The default programs can be "based on any reasonable analytics designed to identify unwanted calls and will have flexibility on how to dispose of those calls, such as sending straight to voicemail, alerting the consumer of a robocall, or blocking the call altogether." The FCC ruling would allow consumers to opt out of call blocking and would provide that call blocking should not interfere with emergency communications.
In addition to allowing default blocking, the declaratory ruling would allow providers to offer opt-in blocking tools based on consumers' contact lists or other "white list" options. According to the fact sheet, the ruling "makes clear that carriers can permit consumers to use their own contact lists as a 'white list,' blocking calls not included on that list. The white list could be updated automatically as consumers add and remove contacts from their smartphones."
According to the FCC's press release, the draft declaratory ruling is accompanied by a draft notice of proposed rulemaking that would provide a safe harbor for providers that implement network-wide blocking of calls that fail caller authentication under the "SHAKEN/STIR framework" once it is implemented. SHAKEN is an acronym for "Signature-based Handling of Asserted Information Using toKENS" and STIR is an acronym for the "Secure Telephone Identify Revisited" standards. Under the framework, "calls traveling through interconnected phone networks would have their caller ID 'signed' as legitimate by originating carriers and validated by other carriers before reaching consumers." In other words, "SHAKEN/STIR digitally validates the handoff of phone calls passing through the complex web of networks, allowing the phone company of the consumer receiving the call to verify that a call is from the person making it."
Last year, Chairman Pai called on the nation's largest voice service providers to adopt a robust call authentication system by the end of 2019 and indicated that he would consider regulatory intervention if necessary. On May 13, the FCC issued a public notice announcing that Chairman Pai will convene a summit focused on the industry's implementation of SHAKEN/STIR on July 11, 2019 in Washington, D.C. The notice states that the summit "will showcase the progress that major providers have made toward reaching [the goal of deploying the SHAKEN/STIR framework in 2019] and provide an opportunity to identify any challenges to implementation and how best to overcome them."
Continuing our coverage of the CFPB's proposed debt collection rules, this article will focus on a few provisions that pertain specifically to mortgage servicers.
In part, the proposal continues the CFPB's efforts to harmonize mortgage servicing regulation (which generally promotes communication with consumers) and debt collection regulation (which generally restricts communication with consumers). The CFPB structured its mortgage servicing rules in a way that is intended to enable servicers to make a host of required communications without running afoul of the federal Fair Debt Collection Practices Act (FDCPA). To accomplish this, the CFPB incorporated a variety of exceptions and alterations to the mortgage servicing rules to avoid FDCPA risk.
This has been an evolving process with the CFPB servicing rules, starting with the initial proposed rulemaking. Subsequently the CFPB issued Bulletin 2013-12, which clarified the interplay between the servicing rules and the FDCPA. Most recently, the CFPB issued the 2016 amendments to the mortgage servicing rules (effective at different times in 2017 and 2018), which narrowed certain of the FDCPA-related exceptions to the communication requirements.
Simultaneously with the 2016 servicing rule amendments, the CFPB issued an Interpretive Rule, creating a safe harbor from FDCPA liability for complying with certain of the servicing rules. In general terms, the Interpretive Rule stated that: (1) communicating with a confirmed successor-in-interest (CSII), in accordance with the rules, does not violate the FDCPA prohibition on third party collection communications; (2) certain early intervention communications with a delinquent borrower, despite an FDCPA cease communication request, does not violate that provision of the FDCPA; and (3) communicating with a consumer regarding loss mitigation, despite an FDCPA cease communication request, does not violate that provision of the FDCPA, if the dialogue was initiated by the consumer.
The mortgage-specific provisions of the proposed debt collections rules, in part, pick up where the Interpretive Rule left off.
Reinforcing the positions taken in the Interpretive Rule, the proposed debt collection rules include a CSII (as defined in the mortgage servicing rules) in the special definition of a "consumer" for purposes of Section 1006.6 (the general collection communication section; analogous to Section 805 of the FDCPA). In the Interpretive Rule, the CFPB took the position that the special definition of a "consumer," for purposes of Section 805 of the FDCPA, includes a CSII, as they are the type of individuals with whom a servicer needs to communicate about the mortgage loan. Accordingly, under the proposed debt collection rules, a CSII would be deemed a "consumer" for purposes of: (1) the prohibitions regarding unusual or inconvenient times or places; (2) the prohibitions regarding consumers represented by an attorney; (3) the prohibitions regarding a consumer's place of employment; (4) the prohibitions on communication with a consumer after a refusal to pay or cease communication notice; (5) communications with third parties; and (6) opt-out notices for electronic communications or attempts to communicate. In addition, this special definition of "consumer," which includes a CSII, applies to the prohibited communication media provisions in Section 1006.14(h).
The Official Staff Commentary to the proposed debt collection rules also notes and reinforces the position of the Interpretive Rule regarding written early intervention notices for mortgage servicers. It states that the CFPB has interpreted the written early intervention rule, required by 12 C.F.R. 1024.39(d)(3), to fall within the exemptions to the FDCPA cease communication provisions in Section 805(c)(2) and (3). We note that the proposed rules do not specifically call out the position from the Interpretive Rule regarding consumer-initiated loss mitigation communications. This is not necessarily surprising, however, as that interpretation is better supported by the FDCPA's plain language.
Finally, the proposed debt collection rules allow for alternate content in the validation notice, for loans subject to the mortgage periodic statement requirement in 12 CFR 1026.41. Validation notices issued for such mortgage loans can omit: (1) the itemization date; (2) the amount of debt on the itemization date; and (3) the itemization of the current amount of the debt in a tabular format, reflecting interest, fees, payments, and credits since the itemization date. This content can only be omitted, however, if the debt collector: (1) provides a copy of the most recent periodic statement provided to the consumer, in accordance with Regulation Z, along with the validation notice; and (2) refers to the periodic statement in the validation notice. Sample language for that reference is included in the Official Staff Commentary.
Apart from these omissions, all other validation notice content is still required, including the current amount of the debt. We note that interpreting the correct manner of disclosing or calculating the current amount of the debt for purposes of a validation notice has historically been problematic for mortgage obligations. Apparently to address this issue, the Official Staff Commentary to the proposed debt collection rules includes clarification regarding the "current amount of the debt" for mortgages. It states that for "residential mortgage debt subject to [the periodic statement requirements in] Regulation Z, 12 C.F.R. 1026.41, a debt collector may comply with the requirement to provide the current amount of the debt by providing the consumer the total balance of the outstanding mortgage, including principal, interest, fees, and other charges."
The CFPB's proposed debt collection rules were published in the May 21 Federal Register.
The publication of the proposal means that the 90-day comment period is now running. Comments must be filed no later than August 19, 2019.
The California Reinvestment Coalition has filed a lawsuit against the CFPB in a California federal district court seeking a declaration that the CFPB's failure to issue regulations implementing Section 1071 of the Dodd-Frank Act violates the Administrative Procedure Act and requiring the CFPB to promptly issue such regulations.
Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. Such data includes the race, sex, and ethnicity of the principal owners of the business. In April 2011, the CFPB issued guidance indicating that it would not enforce Section 1071 until it issued implementing regulations. In May 2017, the CFPB issued a RFI and a white paper on small business lending in conjunction with a field hearing on small business lending. The RFI was intended to inform the CFPB's Section 1071 rulemaking. While previously classified in the Bureau's semi-annual rulemaking agendas as a current rulemaking, the Bureau's Fall 2018 agenda reclassified the Section 1071 rulemaking as a long-term action item. In the Fall 2018 agenda's preamble, the CFPB attributed the rulemaking's new status to the Bureau's need to focus additional resources on various HMDA initiatives.
In its complaint, the CRC claims that the Bureau's current HMDA activities, unlike Section 1071 rulemaking, were not mandated by Congress and are "directed at discretionary amendments to the 2015 final [HMDA] rule." According to CRC, "CFPB has chosen to prioritize its discretionary policy preferences over an explicit congressional mandate that it has now failed to implement for more than eight years." CRC alleges that the CFPB's failure to implement Section 1071 harms CRC and the small businesses and communities it serves by inhibiting CRC's "ability to advocate, educate and issue reports about access to credit; to advise economic development organizations working with women-owned, minority-owned, and small businesses on getting loans; and to work with lenders to arrange investment in low-income communities and communities of color." CRC further alleges that the "small business lenders and community development financial institutions, and organizations that work directly to ensure equal access to capital" that are among CRC's members are directly harmed by the CFPB's failure to implement Section 1071 because they are "hindered in their efforts to provide and secure loans for members of the impacted communities." CRC claims that without the data mandated by Section 1071, such members "have to expend additional organizational resources–and in some respects are entirely unable–to identify particular needs and opportunities."
In seeking relief under the APA, CRC cites 5 U.S.C. section 706(1) and (2) which, respectively, allow a court to "compel agency action unlawfully withheld or unreasonably delayed" and "hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or "in excess of statutory jurisdiction, authority, or limitations." CRC claims that by failing to implement Section 1071, the CFPB has "unlawfully withheld and unreasonably delayed agency action." It also claims that by "countermand[ing] Congress's requirements by informing financial institutions not to [comply with the requirements of Section 1071 to make inquiries, compile, maintain and submit data]" and "set[ting] aside the explicit requirements that Congress directly imposed on financial institutions in Section 1071," the CFPB has "acted arbitrarily and capriciously, not in accordance with law, and in excess of statutory authority."
In claiming that CRC has countermanded the requirements of Section 1071 by informing financial institutions not to comply, CRC is implicitly claiming that such requirements are currently effective despite the absence of implementing regulations. That suggestion is inconsistent with the express language of Section 1071 which requires financial institutions to compile and maintain records of the information required to be obtained pursuant to Section 1071 "in accordance with regulations of the Bureau." It also ignores that elsewhere in Dodd-Frank, specifically in various mortgage-related provisions of Title XIV for which the Bureau was also directed to issue implementing regulations, Congress expressly provided that the requirements set forth in those provisions would become effective on a specified date if the Bureau had not issued implementing regulations with an earlier effective date. Congress did not include similar language in Section 1071 making the requirements set forth in Section 1071 effective before the effective date of implementing regulations.
Somewhat ironically, in the CFPB's Spring 2019 rulemaking agenda that was released today on the Bureau's website, the Section 1071 rulemaking has been restored to current rulemaking status, with January 2020 indicated as the date for pre-rule activity. In the agenda's preamble, the CFPB states that it "intends to recommence work later this year to develop rules to implement section 1071 of the Dodd-Frank Act." It also states that it "delayed rulemaking to implement this provision pending implementation of the Dodd-Frank Act amendments to HMDA and started work on the project after the HMDA rules were issued in 2015. The Bureau decided to pause work on section 1071 in 2018 in light of resource constraints and the priority accorded to various HMDA initiatives. The Bureau expects that it will be able to resume pre-rulemaking activities on the section 1071 project within this next year."
The CFPB has published its Spring 2019 rulemaking agenda as part of the Spring 2019 Unified Agenda of Federal Regulatory and Deregulatory Actions, which is coordinated by the Office of Management and Budget (OMB). It represents the CFPB's first rulemaking agenda under Director Kraninger's leadership. The agenda's preamble indicates that the information in the agenda is current as of March 6, 2019 and identifies the regulatory matters that the Bureau "reasonably anticipates having under consideration during the period from May 1, 2019 to April 30, 2020."
Perhaps most noteworthy is that there is no mention in the preamble or elsewhere of the Bureau's plans to engage in an ECOA rulemaking regarding disparate impact. The preamble to the Fall 2018 agenda stated that the future activity being considered by the Bureau included "reexamining the requirements of the Equal Credit Opportunity Act (ECOA) in light of recent Supreme Court case law and the Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations." The preamble referenced the CFPB's May 2018 statement that was issued following such Congressional disapproval in which the CFPB announced that it was reexamining the ECOA requirements.
Also particularly noteworthy is that the Bureau's rulemaking to implement Section 1071 of the Dodd- Frank Act is now listed as a current item. Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. Such data includes the race, sex, and ethnicity of the principal owners of the business. While previously classified in the Bureau's semi-annual rulemaking agendas as a current rulemaking, the Bureau's Fall 2018 agenda reclassified the Section 1071 rulemaking as a long-term action item. The Spring 2019 restores the Section 1071 rulemaking to current rulemaking status, with January 2020 indicated as the date for pre-rule activity.
In the agenda's preamble, the CFPB states that it "intends to recommence work later this year to develop rules to implement section 1071 of the Dodd-Frank Act." It also states that it "delayed rulemaking to implement this provision pending implementation of the Dodd-Frank Act amendments to HMDA and started work on the project after the HMDA rules were issued in 2015. The Bureau decided to pause work on section 1071 in 2018 in light of resource constraints and the priority accorded to various HMDA initiatives. The Bureau expects that it will be able to resume pre-rulemaking activities on the section 1071 project within this next year." (The California Reinvestment Coalition has filed a lawsuit against the CFPB in a California federal district court seeking a declaration that the CFPB's failure to issue regulations implementing Section 1071 violates the Administrative Procedure Act and requiring the CFPB to promptly issue such regulations. See above item for additional information)
Among the current rulemakings listed in the agenda are the CFPB's proposals to rescind the ability to repay provisions of its final payday/auto title/high-rate installment loan rule (Payday Rule) and to delay the Payday Rule's August 19 compliance date. Regarding those proposals, the CFPB states only that it "expects to issue a final rule concerning the compliance date in summer 2019 and a final determination on reconsideration thereafter." (It should be noted that pursuant to a memorandum issued by OMB in April 2019, as of May 11, CFPB final rules became subject to a new review process conducted by the Office of Information and Regulatory Affairs, a part of OMB.)
- PACE financing. In March 2019, the CFPB issued an advance notice of proposed rulemaking to solicit information on Property Assessed Clean Energy (PACE) financing.
- HMDA. In May 2019, the CFPB issued both a proposed HMDA rule and an advance notice of proposed HMDA rulemaking. The issues covered by the proposed rule include the volume threshold that triggers reporting of closed-end mortgage loans. The ANPR deals with the data points for HMDA reporting. In January 2019, the CFPB issued final policy guidance regarding the application-level HMDA data that will be made available to the public. It estimates that it will issue an NPRM in December 2019 regarding public disclosure of HMDA data.
- TILA/Mortgage escrows. The CFPB expects to engage in prerule activity in November 2019 regarding the creation of an exemption from the escrow requirements for certain "higher-priced mortgage loans" for certain creditors with assets of $10 billion or less and meeting other criteria.
- Remittance transfers. In May 2019, the CFPB issued a notice and request for comments seeking information to inform its consideration of possible changes to its rule on remittance transfers.
- Regulation CC (Expedited Funds Availability Act). In December 2018, the CFPB (jointly with the Federal Reserve Board with which the CFPB shares EFA Act rulemaking authority pursuant to Dodd-Frank) reopened the comment period on a 2011 Fed proposal to revise certain portions of Reg. CC dealing with funds availability.) In addition, the CFPB and Fed expect to jointly issue a final rule by June 2019 to implement the statutory requirement to adjust for inflation dollar amounts in the EFA Act.
The long-term actions items listed in the Spring 2019 agenda include consideration of "whether rulemaking or other activities may be helpful to further clarify the meaning of abusive acts or practices under section 1031 of the Dodd-Frank Act." Other items included on the CFPB's list of long-term actions include:
- Inherited Regulations. These are the existing regulations that the CFPB inherited from other agencies through the transfer of authorities under the Dodd-Frank Act. The CFPB indicates that it expects to focus its initial review on the subparts of Regulation Z that implement TILA with respect to open-end credit and credit cards in particular. By way of example, the CFPB states that it expects to consider adjusting rules concerning the database of credit card agreements it is required to maintain by the CARD Act "to reduce burden on issuers that submit credit card agreements to the Bureau and make the database more useful for consumers and the general public." The CFPB states it may launch additional projects after reviewing the responses it received to its RFIs on the inherited regulations and rules issued by the CFPB.
- Consumer reporting. The Bureau will evaluate potential additional rules or amendments to existing regulations governing consumer reporting, with possible topics for consideration to include the accuracy of credit reports, including the processes for resolving consumer disputes, identity theft, or other issues.
- Consumer Access to Financial Records. In November 2016, the CFPB issued a RFI about market practices related to consumer access to financial information. The Bureau will continue to monitor market developments and evaluate possible policy responses to issues identified, including potential rulemaking. Possible topics the Bureau might consider include specific acts or practices and consumer disclosures. In addition, the Bureau plans to consider "whether clarifications or adjustments are necessary with respect to existing regulatory structures that may be implicated by current and potential developments in this area."
- Regulation E Modernization. The Bureau "will evaluate possible updates to the regulation, including but not limited to how providers of new and innovative products and services comply with regulatory requirements" and that "potential topics for consideration might include disclosure provisions, error resolution provisions, or other issues."
All of the above long-term items were also listed in the Bureau's Fall 2018 rulemaking agenda. In the preamble to the new agenda, the CFPB states that its leadership "is considering further prioritization and planning of the Bureau's rulemaking activities, both with regard to substantive projects and modifications to the processes that the Bureau uses to develop and review new regulations." Among the sources on which the Bureau is drawing for this effort are "ideas gathered by an internal task force on burden reduction, suggestions submitted during the 2018 Call for Evidence initiative, and feedback the Bureau has received during its current listening tour." It states that while this evaluation is underway, except with respect to the Section 1071 rulemaking, it has decided not to revise its current list of long-term items. (An item that is no longer mentioned in the CFPB'S agenda is "larger participant" rules. The CFPB designated that item as "inactive" when it issued its Spring 2018 rulemaking agenda.)
Finally, the Bureau notes in the preamble to the Spring 2019 agenda that "it is working on various initiatives to address issues in markets for consumer financial products and services that are not reflected in this notice because the Unified Agenda is limited to rulemaking activities."
CFPB Director Kraninger has announced that Brian Johnson will serve as the Bureau's Deputy Director. Mr. Johnson first joined the Bureau in December 2017 as Senior Advisor to the Director and was named Principal Policy Director in April 2018 by former Acting Director Mulvaney. Mr. Johnson has served as Acting Deputy Director since he was appointed to that position by Mr. Mulvaney in July 2018. Before joining the CFPB, Mr. Johnson served as a House Financial Services Committee staff member.
The Bureau also announced additions to its senior leadership and executive teams. The leadership positions are:
- Kate Fulton will serve as the Chief Operating Officer. Ms. Fulton first joined the Bureau in 2013 serving as Senior Counsel in the Legal Division and later in the Office of Supervision, Enforcement and Fair Lending. In 2016, she was named Deputy Chief of Staff and Senior Counsel. For the last year, she also served as the Acting Chief Operating Officer. Prior to joining the Bureau, Ms. Fulton served as Attorney Advisor at the U.S. Customs and Border Protection.
- Yasaman Sutton will serve as Senior Advisor and Counselor to the Director. Ms. Sutton previously served in the Executive Branch where she provided advice and representation on legal matters affecting the Office of Management and Budget, the White House, the Department of Defense, and the Department of Justice.
The executive positions are:
- Melissa Brand will serve as the Director of the Office of Civil Rights. Ms. Brand previously spent almost 10 years at the U.S. Equal Employment Opportunity Commission. She has been the Bureau's Equal Employment Opportunity (EEO) Complaints Program Manager since 2016.
- Jim Rice will serve as the Assistant Director of the Office of Servicemember Affairs. Mr. Rice has more than three decades of military service, including as the Chief of the Health Services Division for the Chairman of the Joint Chiefs of Staff.
According to American Banker, Kristen Donoghue, who has served as the CFPB's Assistant Director of Enforcement since November 2017, has resigned.
American Banker also reports that Cara Petersen, the CFPB's Principal Deputy Enforcement Director, has been named Acting Director of Enforcement, and that Jeffrey Ehrlich, the CFPB's Deputy Enforcement Director, will become Principal Deputy Enforcement Director. (Jeff spoke on Monday at the second presentation of PLI's 24th Annual Consumer Financial Services Institute in Chicago. The event was co-chaired by Alan Kaplinsky, who leads our Consumer Financial Services Group.)
Dan Smith, who serves as Assistant Director for the CFPB's Office of Financial Institutions and Business Liaison, will be leaving the Bureau in June. The American Bankers Association has announced that Mr. Smith has been named senior vice president and executive director of its Card Policy Council.
The announcement regarding Mr. Smith follows reports earlier this week that another CFPB official, Kristen Donoghue, has resigned. Ms. Donoghue has served as the CFPB's Assistant Director of Enforcement since November 2017.
The OCC's Semiannual Risk Perspective report focuses on key issues that pose threats to bank safety and soundness and legal compliance. Among such issues discussed in the Spring 2019 report, which generally reflects bank data as of December 31, 2018, are risks arising from financial innovation and new technologies.
One of the most significant issues discussed in the report involves artificial intelligence and alternative data, with the OCC highlighting the potential fair lending risks arising from these innovations. It stresses the need for bank management to understand and monitor underwriting and pricing models to identify potential disparate impact and other fair lending issues. The OCC observes that new technologies for evaluating and determining creditworthiness, such as machine learning, can add complexity while limiting transparency. It also advises bank management that they should be prepared to explain and defend underwriting and modeling decisions.
Other important observations made by the OCC in the report include the following:
- While innovation can enhance a bank's ability to compete, changing business models or offering new products and services can elevate strategic risk when pursued without appropriate corporate governance and risk management. Banks that do not assess business relevancy and impacts from technological advancement or innovation, or are slow adapters to industry change, may be exposed to increased strategic risk.
- A significant number of fintech and other nonbank companies provide products and services traditionally offered only by banks such as payment processing, retail loans, and small business banking, and have the ability to provide accelerated payment availability and loan approval. As a result, borrowers are increasingly turning to fintech lenders for unsecured personal loans, with fintech lenders going from the lowest to the top originators of unsecured personal loans in just over three years. While competition from fintech companies is increasing in other areas such as mortgage and small business lending, fintech companies have not yet gained a similar level of market share outside of unsecured loans.
- Most of the increase in retail loan risk taking has occurred outside of the federal banking system, particularly increased subprime lending by nonbanks. Banks should understand whether they have indirect risk exposure to this activity through other forms such as lending to non-depository financial institutions or bank partnerships with nonbanks.
- By taking a wait and see approach to innovation, banks add to their risk. This is because the speed of change, combined with the lengthy process to evaluate and implement new technologies, can result in the loss of customers or market share. Banks should focus on their core competencies and identify compatible opportunities and technologies that increase efficiency and reach customers effectively. Smaller banks seeking innovative solutions may find their business models adaptable to collaboration with a nonbank to strengthen bank operations and customer acquisition.
- When collaborating with a nonbank to offer innovative products and services, the nonbank's practices should be subject to initial and ongoing due diligence and appropriate oversight.
- Bank management should properly manage the risks arising from relying on third-party service providers for critical functions such as payments, transaction processing, or maintaining sensitive information, or to supplement and support compliance operations.
- The OCC has linked many consumer compliance risk management concerns to weaknesses in change management processes, such as a failure to involve the compliance function when evaluating changes in, or additions to, products or services.
- Internet, mobile banking, fintech, and other asset and wealth management providers have increased their offers of low-risk, higher-yield products that directly compete with bank deposits. To maintain customer satisfaction, less sophisticated banks may need to invest in technology that matches the online and mobile banking capability offered by other institutions.
The OCC recently announced its plans to open its own "sandbox" through a Proposed Innovation Pilot Program designed to promote its innovation initiatives, add value through proactive supervision, and continue its objective to lead Fintech innovation expansion. The comment period for the proposal is open until June 14, 2019.
Minnesota Revises Licensing Requirements Effective August 1, 2019
Minnesota has revised its Residential Mortgage Originator and Servicer Licensing Act to provide an exemption from residential mortgage originator licensure requirements for a "manufactured home dealer" and "manufactured home salesperson" under certain conditions, and has revised its SAFE Act to provide an exemption from residential mortgage loan originator licensing requirements for employees of such persons. To qualify, such person/employee must
- perform only clerical or support duties in connection with assisting a consumer in filling out a residential mortgage application and not in any way offer or negotiate loan terms or hold themselves out as a "housing counselor;"
- not directly or indirectly receive compensation from any individual or company for assisting consumers, in excess of customary salary or commission from the employer in connection with the sales transaction; and
- disclose to the borrower in writing (on a form prescribed by the commissioner and developed in consultation with the Manufactured and Modular Home Association to be published on the department's website): if a corporate affiliation exists with a lender, and if so, that the lender cannot guarantee the lowest or best terms available, the consumer has the right to choose their lender and the name of at least one unaffiliated lender.
For purposes of the foregoing:
- A "manufactured home dealer" means a "dealer or retailer" or a "limited dealer or limited retailer" as defined in Chapter 327B.01 of the Minnesota Statutes governing manufactured home sales;
- A "manufactured home salesperson" means a "salesperson" as defined in Chapter 327B.01; and
- A "housing counselor" is an individual who provides assistance and guidance about residential mortgage loan terms, including rates, fees, or other costs.
A Ballard Spahr webinar
June 4, 2019
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