On December 3, FinCEN and the Federal Reserve Board issued a final rule to amend the definitions of “funds transfer” and “transmittal of funds” under regulations implementing the Bank Secrecy Act. The agencies finalized the rule as proposed. The changes are intended to maintain the scope of the definitions following recent related amendments to the Electronic Fund Transfer Act, so as to avoid certain currently covered transactions being excluded from BSA requirements. The changes take effect January 3, 2014.
On November 27, the Federal Reserve Board requested comments on proposed changes to its procedures for posting debit and credit entries to institutions’ Federal Reserve accounts for ACH debit and commercial check transactions. In a policy statement, the Board seeks comments on a proposal to change the posting time of ACH debit transactions processed by the Federal Reserve Banks’ FedACH service overnight to 8:30 a.m. ET from 11:00 a.m. ET to align with the posting of ACH credit transactions. For commercial check transactions, the Board seeks to move the posting time for receiving most credits for deposits and debits for presentments to 8:30 a.m. ET, and to set two other posting times at 1:00 p.m. ET and 5:30 p.m. ET. The Board is also proposing to establish a set of principles that would be applied to any new posting rules for the Reserve Banks’ same-day ACH service. In a related proposed rule, the Board offered for comment companion amendments to Regulation J to permit Reserve Banks to obtain settlement from paying banks by as early as 8:30 a.m. ET for checks that the Reserve Banks present, and to permit the Reserve Banks to require paying banks that receive presentment of checks from the Reserve Banks to make the proceeds of settlement for those checks available to the Reserve Banks as soon as 30 minutes after receiving the checks. Comments on both the policy statement and the proposed rule are due 60 days after the documents are published in the Federal Register.
FHFA Holds Conforming Loan Limits Steady, Announces Overhauled Mortgage Insurance Master Policy Requirements
On November 26, FHFA announced that 2014 maximum conforming loan limits will remain at $417,000, unchanged from 2013. On December 2, FHFA announced that Fannie Mae and Freddie Mac soon will provide guidance to lenders and servicers regarding specific effective dates for new requirements under the entities’ aligned, overhauled mortgage insurance master policies, which guidance will include changes related to loss mitigation, claims, assurance of coverage, and information sharing. FHFA, Fannie Mae, and Freddie Mac anticipate that the master policies will go into effect in 2014, pending review and approval by state insurance regulators.
On November 27, HUD issued Mortgagee Letter 2013-42, granting an extension of time to Title I and II lenders and mortgagees with a December 31, 2013 fiscal year end to submit required materials and fees for annual recertification. The letter notes that FHA-approved lenders and mortgagees with a fiscal year end of December 31, 2013 or later must use the Lender Electronic Assessment Portal (LEAP) to complete the annual certification process. Given that LEAP recertification functionality will not be deployed until after March 31, 2014, lenders and mortgagees with a fiscal year end of December 31, 2013 will be unable to access LEAP within the required timeframe, and instead will have until 30 days after the deployment of LEAP functionality to complete their annual certification.
On November 25, Freddie Mac issued Bulletin 2013-24, which revises numerous short sale and deed-in-lieu of foreclosure (DIL) requirements. The bulletin updates, among other things, eligibility requirements for exceptions to borrower documentation for short sales and DILs by (i) permitting a borrower whose mortgage debt has been discharged in a Chapter 7 bankruptcy to be eligible for an exception to documentation, regardless of FICO score; and (ii) removing mortgages that were originated as investment properties from eligibility for an exception to documentation. The bulletin also requires servicers to: (i) submit a short sale or DIL recommendation to Freddie Mac for approval when the borrower’s cash reserves exceed $50,000; and (ii) delay, or ensure that foreclosure counsel delays, the next legal action in the foreclosure process when such servicers receive a first complete borrower response package (BRP) more than 37 days prior to a scheduled foreclosure sale date, and the evaluation results in an offer to proceed with a short sale or DIL. Further, the bulletin states that servicers no longer are required to conduct an expedited review when a completed BRP with a short sale purchase offer is received greater than 37 days prior to a scheduled foreclosure sale date. Finally, the bulletin updates trial period plan requirements to provide that if a borrower accepts an original trial period plan offer after receiving an appeal decision, and the borrower remains eligible for the original offer, servicers must reissue the original offer with a new trial period plan due date.
On December 4, Fannie Mae issued Servicing Guide Announcement SVC-2013-24, which: (i) updates the modification terms for the “Cap and Extend Modification for Disaster Relief” to require servicers to set the interest rate to a fixed rate; and (ii) establishes the steps servicers must follow to determine borrowers’ modified payment terms. Fannie Mae encourages servicers to implement the new requirements immediately, but will not require them to do so until February 1, 2014. The announcement likewise requires, with immediate effect, that servicers update Form 582 (Lender Record Information) promptly after any change in previously-submitted information occurs. Finally, the announcement adds to the Servicing Guide glossary a definition for “seriously delinquent mortgage loan.”
On November 26, the DOJ announced that Weatherford International—a multinational oil services company—and certain of its subsidiaries agreed to pay approximately $250 million in fines and penalties to resolve FCPA, sanctions, and export control violations. The DOJ alleged in a criminal information that the company knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations. The alleged compliance failures allowed employees of certain of the company’s subsidiaries in Africa and the Middle East to engage in prohibited conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations’ Oil for Food Program. The company entered into a deferred prosecution agreement, pursuant to which it must pay an approximately $87 million penalty, retain an independent corporate compliance monitor for at least 18 months, and continue to implement an enhanced FCPA compliance program and internal controls. Read more…
On December 2, the FTC announced a series of seminars to be held in 2014 dedicated to the privacy implications of: (i) mobile device tracking—tracking consumers in retail and other businesses using signals from their mobile devices; (ii) alternative scoring products—using predictive scoring to determine consumers’ access to products and offers; and (iii) consumer-generated and controlled health data—information provided by consumers to non-HIPAA covered websites, health applications, and devices. The first two topics will be examined in forums held in Washington, DC on February 19, 2014 and March 19, 2014, respectively. Details for the third event have not been finalized.
On December 3, the CFPB Ombudsman’s Office submitted its second annual report to the Director of the CFPB. The report contains an update on the systemic recommendations made last year and new recommendations stemming from the Ombudsman’s review of (i) how the CFPB shares information, (ii) caller experience with the CFPB contact center, and (iii) the supervisory examination process. The Ombudsman’s recommendations relate primarily to further standardizing and clarifying what a financial entity may expect throughout the examination lifecycle and to ensuring industry and consumer access to CFPB information in a consistent and timely manner. According to the Ombudsman, the Bureau was receptive to all suggestions and feedback. Read more…
On December 2, the CFPB announced a field hearing on arbitration to be held in Dallas, Texas on Thursday, December 12. The event, which is open to members of the public who RSVP, will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups and industry representatives.
The CFPB has made policy announcements in connection with field hearings in the past and may release findings related to the arbitration study it commenced in early 2012. The CFPB expanded its arbitration review this year with a proposal to survey credit card holders and by exercising its authority under Dodd-Frank Act Section 1022 to order some companies to provide template consumer credit agreements.
Under Section 1028 of the Dodd-Frank Act, any exercise of rulemaking authority regarding arbitration agreements must be based on a finding—consistent with the study conducted—that the regulation is “in the public interest and for the protection of consumers.” While the CFPB may not yet be prepared to conduct a rulemaking on the use of such agreements, it is expected to begin releasing at least some results of its ongoing study.
On December 3, the CFPB released its fall 2013 rulemaking agenda, part of the broader government Unified Agenda initially published last week. The CFPB’s latest agenda pushes back the timelines on several key initiatives, but offers relatively few new initiatives. One notable exception is that the CFPB included planned activities related to a potential rule on overdraft products, which will build off of the CFPB’s overdraft white paper released earlier this year.
The CFPB agenda also indicates that the Bureau plans additional activities related to the mortgage rules issued earlier this year and updated throughout the year. For example, the agenda states the CFPB will consider additional guidance that would facilitate the development of automated underwriting systems for purposes of calculating debt-to-income ratios in connection with qualified mortgage determinations. Also, as expected, the CFPB plans to conduct further analysis to consider possible amendments to the definitions of “rural” and “underserved” for purposes of certain exemptions from the mortgage rules.
With regard to timelines, for example, “prerule activities” related to the eventual HMDA rule have again been delayed, with no public action expected before February 2014. Similarly, a proposed rule related to GPR prepaid cards now is expected no sooner than May 2014. The CFPB also promised to return to its prior efforts to streamline and modernize regulations that it inherited from other agencies, including the Gramm-Leach-Bliley Act’s annual privacy notice requirements.
On November 26, the CFPB sent a letter to student loan servicers offering them an opportunity to submit information about the options they make available to borrowers seeking to make extra payments on their private student loans. Last month, the CFPB recommended servicing policy changes and published a consumer advisory containing customizable, sample text that borrowers can electronically submit their servicers to indicate that they wish to allocate payments in excess of the amount due to their highest-rate loan in order to reduce their total interest paid. The Bureau states that it has since received inconsistent feedback from industry participants about the usefulness of this approach.
In response, the CFPB is now seeking additional information for use in responding to consumer inquiries and developing additional consumer education materials. The CFPB asks servicers to provide information about (i) the allocation of lump sum payments by the Department of Defense and other third parties on behalf of servicemembers or others seeking to direct lump-sum payments to specific loans; (ii) the percentage of borrower payments made through online bill pay systems and direct debit, and servicer practices related to borrower instructions provided with such payments; (iii) servicers’ ability to accommodate standing instructions for future excess payments; and (iv) the methods by which servicers communicate with borrowers about directing prepayments.
The CFPB plans to make the information its gathers public, but will not identify any particular servicer. Servicers that intend to voluntarily provide information in response to the Bureau’s requests are instructed to do so by December 17, 2013.
On November 20, 2013, the CFPB finalized its long-awaited rule combining the mortgage disclosures consumers receive under the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”). For more than 30 years, the TILA and RESPA mortgage disclosures had been administered separately by, respectively, the Federal Reserve Board (“FRB”) and the U.S. Department of Housing and Urban Development (“HUD”). In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) transferred authority over TILA and RESPA to the Bureau and directed the Bureau to create “rules and model disclosures that combine the disclosures required under [TILA] and sections 4 and 5 of [RESPA], into a single, integrated disclosure for mortgage loan transactions covered by those laws.” Congress did not, however, amend TILA and RESPA provisions governing timing, responsibility, and liability for the disclosures, leaving it to the Bureau to resolve the inconsistencies. The final rule generally applies to covered transactions for which the creditor or mortgage broker receives an application on or after August 1, 2015.
Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- Joseph J. Reilly, (202) 349-7965
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
- Benjamin K. Olson, (202) 349-7924
- Jonathan W. Cannon, (310) 424-3903
- Brandy A. Hood, (202) 461-2911
On November 22, the CFPB released findings of a study the Bureau conducted on the impact of certain deposit regulations on the day-to-day operations of banking institutions, focusing on compliance costs related to checking accounts, traditional savings accounts, debit cards, and overdraft programs. The study collected information from seven banks about activities related to compliance with regulations implementing the Truth in Savings Act, the Electronic Fund Transfer Act, the financial privacy requirements of the Gramm-Leach-Bliley Act, and the Fair Credit Reporting Act (Regulations DD, E, P, and V, respectively), as well as FCRA’s adverse action requirements, which are not implemented by regulation. According to the Bureau, compliance costs were concentrated in the Operations, Information Technology, Human Resources, Compliance, and Retail functions, and banks incurred the most substantial costs complying with rules related to authorization rights, error resolution requirements, disclosure mandates, and advertising standards.
The report identifies the compliance-related activities that entailed the highest costs across business functions and suggests that “authorization rights” (i.e., opt-ins and opt-outs) and error-resolution requirements are the most costly to administer. The report also discusses the potential for the study—which the Bureau characterizes as representing “some of the most rigorous information currently available” on compliance costs—to advance research on the cost of compliance, influence the ultimate understanding of regulatory impacts on consumers and markets, and inform the CFPB’s ongoing efforts to avoid unnecessary compliance costs. The Bureau states that estimating the operational effects of consumer financial services regulation alone has “limited value to policymaking” and is mainly helpful in determining the impact of a specific regulation on product pricing and availability or market structure and competition. The Bureau concluded that research on the effects of regulations will remain an ongoing priority, but it will nevertheless continue to address problems observed in the marketplace — “mindful that, whatever the costs of regulation, the costs of not regulating adequately can be even larger.”
The full report, Understanding the Effects of Certain Deposit Regulations on Financial Institutions’ Operations: Findings on Relative Costs for Systems, Personnel, and Processes at Seven Institutions, is available here.
On November 21, CFPB Director Richard Cordray delivered remarks at The Clearing House Annual Conference, including a review of the CFPB’s efforts to resolve concerns raised by the mortgage market through adoption of new mortgage rules and the objective of evenhanded oversight that is not dependent on charter choice or regulator. Mr. Cordray placed particular emphasis on the CFPB’s ability and efforts to “level the playing field” through its nonbank supervision program.
Notably, Director Cordray raised questions about recent efforts by other regulators and law enforcement authorities to investigate and take action against nonbank entities, like online payday lenders, by focusing on how these nonbanks get paid through bank payment systems. Cordray cautioned that, “[t]he focus of these . . . actions may create burdens that fall disproportionately on individual banks that are participants in the payment systems” and that the referenced approach “may not be the most efficient or effective approach.” Rather, Director Cordray suggested that further attention should be given to “how [payment] systems are designed and how they function for all of the institutions that participate in them.” The Director also expressed interest in working with the Clearing House to improve the CFPB’s understanding of using enhanced computer analytics and communications to identify patterns in payment systems, which he stated would better enable the CFPB to “identify and enforce the law against illegitimate firms that are otherwise able to reduce their own costs by hitching a free ride on the payments system,” as well as to consider necessary changes in law or practice.