Mortgage Banking Update
In This Issue:
- CFPB Issues Fall 2019 Semi-Annual Report to Congress
- The CFPB’s New Policy Statement on the Dodd-Frank Abusiveness Standard: Has Anything Changed?
- Comprehensive CREDIT Act Moves to Senate After Passing in House
- CFPB Announces Proposed Consent Order With Companies Alleged to Have Collected Loans Void Under State Law
- David Silberman Resigns From CFPB
- California AG Issues Modifications to Proposed CCPA Regulations
- 2020 HMDA Guide Issued
- SCOTUS Enters Order Dividing and Enlarging Time for Oral Argument in Seila Law
- CFPB Winter 2020 Supervisory Highlights Looks at Debt Collection, Mortgage Servicing, Payday Lending, Student Loan Servicing
- This Week’s Podcast: Sales of Charged-Off Debts: Key Issues and Practical Pointers for Sellers and Buyers to Consider
- OCC and FDIC Extend Comment Period for Proposed Amendments to CRA Rules
- Did You Know?
- Looking Ahead
The CFPB has issued its Fall 2019 Semi-Annual Report to Congress covering the period April 1, 2019, through September 30, 2019.
The report represents the CFPB’s third semi-annual report under Director Kraninger’s leadership and continues the practice of the prior two reports of not providing aggregate numbers for how much consumers obtained in consumer relief and how much was assessed in civil money penalties in supervisory and enforcement actions during the period covered by the report.
The new report indicates that the Bureau had 1,430 employees as of September 30, 2019, representing a decrease of 22 employees from the number of employees as of September 30, 2018 (which was 1,452 employees). As compared with the number of employees as of September 30, 2017 (which was 1,645 employees), the number of employees as of September 30, 2019, represents a reduction of 215 employees (13 percent decrease) over the two-year period.
In addition to discussing ongoing or past developments that we have covered in previous blog posts, the report includes the following noteworthy information:
- The Bureau’s Fair Lending Supervision program initiated 16 supervisory events during the period covered by the report, six more than the number of such events initiated during the period covered by the prior semi-annual report. As compared with that period, it also issued more matters requiring attention or memoranda of understanding. In addition, the Bureau provided supervisory recommendations “relating to supervisory concerns related to weak or nonexistent fair lending policies and procedures, risk assessments, fair lending testing, and/or fair lending training.”
- During the period covered by the report, the Bureau filed one fair lending public enforcement action and referred one ECOA matter to the DOJ. (In the prior annual report, the CFPB indicated that it did not initiate any fair lending public enforcement actions and did not refer any ECOA matters to the DOJ.)
The report provides no new information about the timing of a final debt collection rule or a final rule that removes the ability-to-repay provisions of the CFPB’s final payday loan rule. With regard to the payday loan rule, the report lists the rule as a final rule “for the upcoming period as reflected in the Bureau’s Fall 2019 Unified Agenda.” In the agenda, the Bureau estimated that it would issue a final rule in April 2020.
Director Kraninger is scheduled to testify tomorrow before the House Financial Services Committee regarding the new semi-annual report. We assume the Senate Banking Committee will hold a hearing on the semi-annual report at a later date.
After reviewing how the CFPB has used its abusiveness authority, we look at why such authority has created industry concern, consider implications of the CFPB’s decision to forego rulemaking, discuss the policy statement’s three parts and likely practical impact on the CFPB’s behavior and industry’s assessment of risk, and examine continuing industry concerns about the Bureau’s unfairness and deceptiveness authority.
Click here to listen to the podcast.
On January 29, 2020, the House passed H.R. 3621, the Comprehensive Credit Reporting Enhancement, Disclosure, Innovation, and Transparency Act of 2020 (Comprehensive CREDIT Act). Sponsored by Rep. Ayanna Pressley (D-MA), it passed by a mostly party-line vote of 221-189, with all but two Democrats supporting it. The legislation is a package of several Democrat-sponsored bills that target consumer reporting and, if passed into law, would affect all aspects of the industry. For example, the Act includes provisions:
- Providing consumers a new right to appeal the results of initial reviews about the accuracy or completeness of disputed items on a report, and requiring consumer reporting agencies and furnishers to implement specific appeal processes;
- Requiring removal of adverse information related to “predatory” mortgage lending;
- Banning the use of credit scores for employment purposes (except where a consumer report is otherwise required as part of a Federal or state law or for national security clearance);
- Providing private student loan borrowers similar opportunities to improve their credit as those available to federal student loan borrowers;
- Shortening the time credit information can remain on a consumer report (from 10 years to seven years for bankruptcies and from seven years to four years for other adverse information);
- Banning or delaying the reporting of certain medical debts;
- Directing the Consumer Financial Protection Bureau to provide oversight and to set standards for validating the accuracy and predictive value of credit scoring models;
- Requiring a study on how the use of non-traditional data impacts the availability and affordability of credit for consumers with limited or no traditional credit histories; and
- Directing the nationwide consumer reporting agencies to provide consumers free copies of their credit scores when the consumers obtain their free annual consumer reports.
The House approved the Act over sharp criticism from organizations such as the U.S. Chamber of Commerce. It now awaits consideration by the Senate, which will likely ignore the legislation as long as Republicans remain in control. With the 2020 election looming, however, a change in the Presidency and control of the Senate could also mean passage of the Act or something similar to it—and, with it, significant changes for the consumer reporting industry. Furnishers and CRAs alike should consider this legislation a preview of what could occur if Democrats control the White House and both houses of Congress in November.
The CFPB announced that it has entered into a proposed consent order with Think Finance and six subsidiaries (collectively, the Think Entities) to settle the Bureau’s lawsuit filed in November 2017 that alleged the Think Entities engaged in unfair, deceptive, and abusive acts or practices in connection with their collection of loans that were void under state law because the loans’ interest rates exceeded state law limits or the lenders who made the loans had not obtained required state licenses. The loans in question were made by companies owned by Native American tribes. The relevant states are Arizona, Arkansas, Colorado, Connecticut, Illinois, Indiana, Kentucky, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, and South Dakota (Subject States).
After the lawsuit was filed, the Think Entities filed for Chapter 11 bankruptcy relief. The consent order prohibits the Think Entities and the reorganized Think Entities (Enjoined Parties) from providing services to a lender that constitute “extending credit to, servicing credit extended to, or collecting on credit extended to” a consumer who resides in a Subject State where the loan made by the lender would violate the Subject State’s usury law or the lender is not properly licensed in the Subject State. It also prohibits the Enjoined Parties from providing services directly to a lender, or to a third party for the lender’s use, in connection with the lender’s activities “in extending credit to, servicing credit extended to, or collecting on credit extended to” a consumer who resides in a Subject State where the loan made by the lender would violate the Subject State’s usury law or the lender is not properly licensed in the Subject State and the Enjoined Party knows, or is reckless in not knowing, that the lender is making such a loan. These prohibitions do not apply to loans “originated or issued” by federally- or state-chartered depository institutions or another entity if federal law preempts the application of state law to the loan.
The consent order’s monetary provisions, which are part of the Think Entities’ bankruptcy plan, requires each of the Think Entities to pay a $1 civil money penalty (or a total of $7). The Bureau’s press release states that the proposed consent order is part of “the global resolution of the Think Finance Entities’ bankruptcy proceeding … which includes settlements with the Pennsylvania Attorney General’s Office and private litigants in a nationwide consumer class action. Consumer redress will be disbursed from a fund created as part of the global resolution, which is anticipated to have over $39 million for distribution to consumers and may increase over time as a result of ongoing, related litigation and settlements.”
Since the Bureau’s lawsuit against the Think Entities was filed under former Director Cordray’s leadership, the settlement does not provide insight regarding Director Kraninger’s views on tribal lending or the Bureau’s enforcement of state usury laws.
David Silberman, who has served as the CFPB’s Associate Director for Research, Markets, and Regulations since 2011, announced that he has left the agency to become a part-time senior advisor to both the Center for Responsible Lending and the Financial Solutions Lab of the Financial Health Network and a member of FinRegLab’s group of advisors. He will also teach a course on consumer finance regulation at Georgetown’s McCourt School of Public Policy and at Harvard Law School in the next academic year.
Mr. Silberman also served as CFPB Acting Deputy Director after former Director Cordray appointed him to that position following the resignation in 2015 of former Deputy Director Steven Antonakes.
On February 7, 2020, the California Attorney General’s (AG) Office released modifications to the proposed regulations to the California Consumer Privacy Act (CCPA). The modifications incorporate amendments to the CCPA signed into law after the AG’s Office issued the proposed regulations in October 2019. The modifications also reflect public comments made during the initial comment period, which concluded in December 2019. Overall, the modifications provide helpful clarifications that should lessen compliance burdens for a number of industries. Of note, the modified proposed regulations:
- Limit Definition of Personal Information. The modified proposed regulations clarify that “personal information” does not include information that a business collected but cannot reasonably link to a consumer. For example, “if a business collects the IP addresses of visitors to its website but does not link the IP address to any particular consumer or household and could not reasonably link the IP address with a particular consumer or household” then the IP address would not be “personal information.” This is a particularly important limitation for businesses that don’t have a direct relationship with California consumers but rather only collect personal information via the website.
- Define Reasonable Accessibility. As initially proposed, the regulations included a new requirement that privacy policies and online notices be reasonably accessible, without offering any definition of the standards. The modified proposed regulations state that reasonable accessibility means compliance with generally recognized industry standards, such as the Web Content Accessibility Guidelines, v2.1–the prevailing standard used for ensuring compliance with the Americans with Disability Act (ADA) website accessibility requirements.
- Requiring Just–in–Time Notice for Unexpected Data Collection: The modified proposed regulations state, “When a business collects personal information from a consumer’s mobile device for a purpose that the consumer would not reasonably expect, it shall provide a just-in-time notice containing a summary of the categories of personal information being collected and a link to the full notice at collection. For example, if the business offers a flashlight application and the application collects geolocation information, the business shall provide a just-in-time notice, such as through a pop-up window when the consumer opens the application, which contains the information required by this subsection.” This requirement aligns with Federal Trade Commission (FTC) guidelines and the 2020 Network Advertising Initiative (NAI) Code of Conduct.
- Removal of Webform Requirement. The modifications remove a requirement set forth in the regulations as initially proposed that would have required businesses to provide two or more methods for consumers to submit consumer access requests, one of which was an interactive webform. The modified proposed regulations permit businesses to meet this requirement by providing a toll-free number and a designated email address.
- Limiting Search Obligations in Response to Right to Know Requests. The modified proposed regulations clarify that a business is not required to search for personal information in response to a right to know request where the business: does not maintain the personal information in a searchable or reasonably accessible form; the business maintains the personal information for legal or compliance purposes; the business does not sell or use the personal information for a commercial purpose; and the business describes to the consumer the categories of records that may contain personal information that the business did not search. This limitation partly addresses the question of whether (and when) right to know requests include access to data held in hard to search, unstructured systems.
- Opt–Out Buttons. The modified proposed regulations include examples of compliant opt-out buttons.
There are other changes to the initial proposal that have the effect of limiting some of the other compliance burdens for businesses. As expected, however, the modified proposed regulations do not provide additional clarity regarding the meaning of “sale/sell/selling” or define what “reasonable data security” means.
The AG’s Office accepted public comments on the modified proposed regulations until February 24, 2020. The regulations are expected to be finalized in April or May 2020.
- Kim Phan
The Federal Financial Institutions Examination Council (FFIEC) recently issued the 2020 edition of the Guide to HMDA Reporting: Getting It Right! (2020 Guide).
As previously reported, in October 2019 the CFPB issued a Home Mortgage Disclosure Act (HMDA) final rule that:
- Continued until January 1, 2022, the temporary volume threshold that triggers reporting of open-end, dwelling-secured lines of credit of at least 500 originated lines of credit in each of the prior two calendar years.
- Incorporates into Regulation C the interpretative and procedural rule previously issued by the CFPB to implement the partial exemption from HMDA reporting for smaller volume bank and credit union lenders adopted in the Economic Recovery, Regulatory Relief, and Consumer Protection Act (Growth Act).
The 2020 Guide reflects these changes. The CFPB still needs to finalize the permanent threshold for reporting open-end, dwelling-secured lines of credit, as well as the threshold for reporting closed-end mortgage loans. According to the CFPB’s fall rulemaking agenda, final action on both thresholds is expected in March 2020.
The U.S. Supreme Court entered an order last Friday that divides and enlarges the time for oral argument in Seila Law, which is scheduled for March 3.
Seila Law filed a motion asking the Supreme Court to increase the total time for oral argument from 60 to 70 minutes and the House of Representatives, which filed an amicus brief in support of the Ninth Circuit’s judgment, filed a motion asking to participate in the oral argument.
The Supreme Court’s order increases the total time for oral argument from 60 to 70 minutes and divides the time as follows: “20 minutes for the petitioner, 20 minutes for the Solicitor General, 20 minutes for the Court-appointed amicus curiae, and 10 minutes for the United States House of Representatives.”
Seila Law and the DOJ also filed briefs replying to Mr. Clement’s brief. In his brief, Mr. Clement argued as an initial matter that the Court should conclude that the dispute over the Bureau’s constitutionality does not satisfy Article III jurisdiction requirements because Seila Law has not suffered an injury that is traceable to the constitutionality question. He also argued that the dispute does not satisfy prudential considerations of ripeness. Mr. Clement argued in the alternative that if the Supreme Court does reach the constitutionality question, it should hold that the Dodd-Frank Act’s “for cause” removal provision is constitutional.
In addition to renewing their arguments that the Bureau’s structure is unconstitutional, both Seila Law and the DOJ argue that the constitutionality question is properly before the Supreme Court and urge the Court to decide the question.
The CFPB has released the Winter 2020 edition of its Supervisory Highlights. The report discusses the Bureau’s examinations in the areas of debt collection, mortgage servicing, payday lending, and student loan servicing that were completed between April 2019 and August 2019.
Key findings include the following:
Debt collection. One or more debt collectors were found to have violated the FDCPA requirements to 1. disclose in communications subsequent to the initial written communication that the communication is from a debt collector, and 2. send a written validation notice within five days of the initial communication.
Mortgage servicing. One or more servicers were found to have violated the Regulation X loss mitigation notice requirements to 1. notify borrowers in writing that a loss mitigation application is either complete or incomplete within five days of receiving the application; 2. provide a written notice stating the servicer’s determination of available loss mitigation options within 30 days of receiving a complete loss mitigation application; and 3. provide a written notice containing specified information when the servicer offers the borrower a short-term loss mitigation option based on an evaluation of an incomplete loss mitigation application. With regard to the third violation, such violations took place when servicers automatically granted short-term payment forbearances based on phone conversations with borrowers in a disaster area who had experienced home damage or incurred a loss of income from the disaster. The Bureau considered these phone conversations to be loss mitigation applications under Regulation X. Because the violations were caused in part by the servicers’ efforts to handle a surge in applications due to natural disasters, CFPB examiners did not issue any matters requiring attention for the violations and servicers developed plans to enhance staffing capacity to respond to future disaster-related increases in loss mitigation applications.
Payday lending. CFPB examiners found:
- One or more lenders engaged in unfair practices in violation of the Dodd-Frank UDAAP prohibition when the lenders failed to apply payments processed by the lenders to the borrowers’ loan balances, continued to assess interest as if the consumer had not made a payment, and incorrectly treated the borrowers as delinquent. The lenders lacked systems to confirm that payments were applied to borrowers’ loan balances and borrowers who viewed their accounts online were provided incorrect information that did not reflect unapplied payments, resulting in borrowers paying more than they owed.
- One or more lenders engaged in unfair practices in violation of the Dodd-Frank UDAAP prohibition by charging borrowers a fee as a condition of paying or settling a delinquent loan which was not authorized by the loan contract and which the loan contract stated would be paid by the lenders. During the payment or settlement process, the fee was either incorrectly described as a court cost (which the contract would have required the borrower to pay) or not disclosed at all. In addition to changing their compliance management systems, the lenders refunded the fee to borrowers.
- One or more lenders disclosed inaccurate APRs in violation of Regulation Z as a result of reliance on employees to calculate APRs when the lenders’ loan origination systems were unavailable.
- One or more lenders disclosed an inaccurate APR and finance charge in violation of Regulation Z as a result of not including in the APR and finance charge calculation a loan renewal fee charged to borrowers who were refinancing delinquent loans. The fee was deemed to constitute both a change in terms because it was not stated in the outstanding loan agreement and a finance charge associated with the new loan that required new Regulation Z disclosures because the lenders conditioned the new loans on payment of the fee. The fee was refunded to consumers.
- One or more lenders violated the Regulation Z requirement to retain evidence of compliance for two years.
- One or more lenders were found to have violated the Regulation B adverse action notice requirement by sending notices that stated one or more incorrect principal reasons for taking adverse action. Such violations were attributed to coding system errors.
Student loan servicing. CFPB examiners found that one or more servicers engaged in unfair practices in violation of the Dodd-Frank UDAAP prohibition in connection with monthly payment calculations. Servicers were found to have stated monthly payment amounts in periodic statements that exceeded those authorized by the consumers’ promissory notes, where either the servicers automatically debited incorrect amounts or borrowers not enrolled in auto debit made an inflated payment or were charged a late fee for failing to make the inflated payment by the due date. These inaccurate calculations were the result of data mapping errors that occurred during the transfer of private loans between servicing systems. Servicers have conducted reviews to identify and remediate affected consumers and implemented new processes to mitigate data mapping errors.
In this podcast, we look at key issues and provide practical pointers that sellers and buyers of charged-off debts should consider, including 1. seller due diligence to prepare for a sale, such as identifying and creating relevant policies and procedures and reviewing documentation for debts to be sold, 2. important contractual issues for buyers and sellers when negotiating sales agreements, such as debt repurchase rights, resales and assignments, buyer responsibility for its providers’ activities, and seller post-sale obligations regarding buyer information requests, and 3. seller monitoring of such requests.
Click here to listen to the podcast.
The OCC and FDIC announced yesterday that they have extended the 60-day comment period for their joint proposal to revise their regulations implementing the Community Reinvestment Act that was published in the Federal Register on January 8, 2020. As extended by 30 days, the comment period ends on April 8, 2020.
The California Reinvestment Coalition, which opposes the proposal, issued a statement responding to the agencies’ announcement in which it called the extension “a big win.” The Coalition claimed that the extension “is a direct result of intense pressure from our members, allies and community groups nationally, as well as Congressional representatives, who recognized that more time is needed to review a proposal that will have profound impacts on communities of color.”
NMLS State Examination System is Launching Nationwide
The Conference of State Bank Supervisors (CSBS) recently announced at the NMLS Annual Conference & Training in San Francisco that the new State Examination System (SES) is set to launch nationwide. SES is the first nationwide system that allows state agencies to manage the examination process on a single platform. Through SES, state regulators will be able to connect with companies during the examination process in order to promote greater transparency and collaboration.
According to the State Regulatory Registry, LLC’s (SRR) Annual Report on NMLS operations, nearly 40 state agencies have committed to adopting SES as of the end of December 2019. SRR is a non-profit subsidiary of the CSBS that operates NMLS on behalf of state financial services regulatory agencies.
Chicago, IL | April 5-7, 2020
Re-Engineering Non-Bank Supervision with RegTech
Speaker: John Levonick
Becoming Agile: Why the Compliance Officer Role Needs to Change
Speaker: Amanda E. Phillips
Tempe, AZ | April 23-24, 2020
Social Media – Staying Compliant while Staying Connected
New York, NY | May 3-6, 2020
Speaker: Daniel JT McKenna
Speaker: Richard J. Andreano, Jr.
Speaker: Reid F. Herlihy
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