On May 16, the CFPB issued a final rule clarifying its January 2013 final rule on escrow account requirements for first-lien higher-priced mortgage loans (HPMLs). The January 2013 rule expands existing escrow requirements for such loans and creates a new exemption for small creditors that operate predominantly in rural or underserved areas. The clarifying rule adopts the rule clarifications as proposed. The clarifying rule explains how a county’s rural and underserved status may be determined based on currently applicable Urban Influence Codes established by the Department of Agriculture, or based on HMDA data, and provides illustrations to facilitate compliance. With the clarifying rule, the CFPB posted on its website a final list of rural and underserved counties, for use with mortgages closed from June 1, 2013 through December 31, 2013. The list is identical to the preliminary list posted in March. Finally, the clarifying rule (i) notes that the final escrow rule inadvertently removed existing language that provided certain protections related to a consumer’s ability to repay and prepayment penalties for HPMLs, and (ii) establishes a temporary provision to ensure the removed protections remain in effect until the expanded HPML protections take effect on January 10, 2014.

On May 15, the CFPB announced a YouTube playlist, which includes seven videos that provide information about the mortgage rules the CFPB published earlier this year. The CFPB stated that the purpose of the videos is to provide an overview of the rules in a plain language format for use by a broad array of industry constituents, but cautioned that the videos are not a substitute for the rules themselves. Also on May 15, the CFPB announced a Spanish language website, with mobile capability, that provides access to CFPB resources, including information about how to submit a consumer complaint and answers to consumers’ frequently asked questions.

On May 16, the U.S. Court of Appeals for the Third Circuit held that an appointment to the National Labor Relations Board (NLRB) made by President Obama in March 2010 during a purported Senate recess was unconstitutional and vacated orders of the NLRB as constituted with the improperly appointed member. NLRB v. New Vista Nursing & Rehab., No. 11-3440, 2013 WL 2099742 (3rd Cir. May 16, 2013). The NLRB member appointment at issue in this case precedes the appointments at issue in Noel Canning, which appointments were made during the same pro forma Senate session in which President Obama appointed CFPB Director Richard Cordray. The D.C. Circuit’s opinion invalidating those appointments currently is on appeal to the Supreme Court. Here, as explained in the majority opinion and as in Noel Canning, the central question is the meaning of “the Recess of the Senate.” The court concluded that “the Recess of the Senate” in the Recess Appointments Clause refers to only intersession breaks, held that the NLRB panel lacked the requisite number of members to exercise its authority because one panel member was invalidly appointed during an intrasession break, and vacated the Board‘s orders. In a dissenting opinion, one judge argued that the majority holding undoes an appointments process that has successfully operated for over 220 years, and the court instead should have held that “the Recess” refers to both intrasession and intersession recesses because the Senate can be unavailable to provide advice and consent during both. The Third Circuit did not address whether the President may only fill vacancies that arise or begin during such intersession recesses, as opposed to vacancies that happen to exist during such recesses.

On May 14, the FTC released a letter it sent to the CFPB’s assistant directors for fair lending and supervision examinations describing activities related to the FTC’s administration and enforcement of the regulations implementing ECOA, EFTA, TILA, and the Consumer Leasing Act. The annual letter reviews the FTC’s post-Dodd-Frank Act responsibilities with regard to these regulations and reports on enforcement actions taken with regard to each. For example, with regard to TILA, the letter reviews FTC enforcement actions involving non-mortgage credit advertisements, mortgage lending advertisements, and forensic audit scams, and describes the FTC’s rulemaking and policy work related to the CFPB’s mortgage rules and in the area of mobile payments.

On May 6, the U.S. Court of Appeals for the Second Circuit agreed with the CFPB in holding that a single-story unit in a multi-story condominium is a “lot,” as that term is used in the Interstate Land Sales Full Disclosure Act.  Berlin v. Renaissance Rental Partners, No. 12-2213, slip op. (2d Cir. May 6, 2013).  The CFPB and HUD, the predecessor regulator under the ILSFDA, had previously issued regulations stating that a property could only qualify as a “lot” if it involved the “exclusive use of … land.”  The Second Circuit determined that the definition of the term “land” was ambiguous and deferred to the agencies’ interpretation, which equated “land” with “realty.” The case is notable primarily because the dissenting opinion reflects an increasingly unfriendly attitude in the courts towards so-called Auer deference. That deference generally requires courts to defer to any plausible interpretation from an agency of its own regulations.  In a 15-page dissent in Berlin, Chief Judge Dennis Jacobs questioned the utility of that deference doctrine in this case, arguing that the agency’s reading was “unnatural” and should not be given effect.  Chief Judge Jacobs also disagreed with the majority’s emphasis on the fact that the HUD/CFPB position was consistent.  Indeed, Chief Judge Jacobs felt that the CFPB’s “gravity-defying” “misunderstanding” was “not improved by consistency,” particularly given that the agencies’ interpretations rested on guidelines that were “semi-literate.”  Interestingly, Chief Judge Jacobs twice cited to Justice Scalia’s recent dissent in Decker v. Northwest Environmental Defense Center, which questions the continuing basis for Auer.  (A previous InfoByte discussed the opinions in Decker.)  Because Auer may prove relevant in many administrative law cases—including those involving banking and financial regulators—this unfriendly attitude may prove significant for participants throughout the financial industry.

On May 7, the U.S. Attorney for the Southern District of New York announced mail and wire fraud charges against a debt settlement firm, its owner, and three of its employees. The government alleges the defendants lied to prospective customers about (i) fees associated with the company’s debt relief products, (ii) the company’s purported affiliation with the federal government and leading credit bureaus, and (iii) the results achieved for its customers. On the same day, the CFPB filed a civil complaint against the same debt relief provider and one other company in which the CFPB alleges the firms violated the FTC’s Telemarketing Sales Rule and the Dodd-Frank Act by charging consumers illegal advance fees for debt-settlement services. The CFPB is seeking to halt the operations, collect civil penalties, and obtain customer redress.

On May 7, the CFPB proposed to temporarily delay the effective date of one aspect of its loan originator compensation rule. Under the final rule, effective June 1, 2013, creditors would be prohibited from financing premiums or fees for certain credit insurance products offered in connection with certain mortgage loan transactions. The CFPB proposes to temporarily delay the relevant provision so that the Bureau can clarify its application to transactions other than those in which a lump-sum premium is added to the loan amount at closing. The CFPB plans to publish a new proposal to seek further notice and comment about whether, and under what circumstances, premiums for certain credit insurance products can be charged on a periodic basis in connection with a covered consumer credit transaction

On May 8, the CFPB issued a report regarding student loan affordability and related policy issues. The report summarizes and analyzes public responses to the CFPB’s request for information and discusses policy options for addressing these issues.  In particular, the paper explores policy options for restructuring student loans, including, for example, allowing distressed private loan borrowers to convert their obligations into federal student loans, which would allow them to accesses certain income-based repayment and other benefits available to federal loan borrowers, and options for a public-private loan restructuring program. The paper also identifies multiple policy options for jumpstarting the refinance market, including creating a “centralized source on private student loans[, which] could create the conditions and data standards for the emergence of an auction-like marketplace for refinance activity.” The paper states that compliance with existing laws on origination, servicing, and collection of student loans is also critical. On the same day the report was issued, the CFPB held a field hearing at which CFPB Director Richard Cordray, other CFPB officials, and industry and consumer groups discussed many of the issues presented by the CFPB information request and report, including the effects  of student debt burdens on individuals and the broader economy, and potential debt relief policy options.

On April 26, the Consumer Financial Protection Bureau (CFPB or the Bureau) issued a final rule, effective immediately, that sets forth procedures for the administration of the Consumer Financial Civil Penalty Fund (Civil Penalty Fund or Fund). Under Dodd-Frank, all civil penalties obtained by the CFPB are deposited into the Civil Penalty Fund, which may be used to compensate victims and, to the extent any funds remain, to fund consumer education and financial literacy programs. The final rule identifies categories of victims who may receive payments from the Civil Penalty Fund and articulates the Bureau’s interpretation of the types of payments that may be appropriate for these victims. It also establishes procedures for allocating funds for such payments to victims and for consumer education and financial literacy programs. The CFPB simultaneously issued a proposed rule, seeking comment on possible revisions to the final rule. The CFPB is accepting comments on the proposed rule through July 8, 2013.

Pursuant to the final rule, victims are eligible for compensation from the Fund if a final order in a Bureau enforcement action imposed a civil penalty for the particular violation that harmed the victim. A final order is defined as a consent order or settlement issued by a court or by the Bureau, or an appealable order issued by a court or by the Bureau as to which the time for filing an appeal has expired and no appeals are pending. The Bureau’s proposed rule, however, states that it is considering whether it should revise the final rule to allow payments to victims of any “type” of activity for which civil penalties have been imposed, even if no enforcement action has imposed penalties for the “particular” activity that harmed the victims. Read more…

On April 30, the CFPB issued a revised final rule to amend regulations applicable to consumer remittance transfers of over fifteen dollars originating in the United States and sent internationally. Generally, the rule requires remittance transfer providers to (i) provide written pre-payment disclosures of the exchange rates and fees associated with a transfer of funds, as well as the amount of funds the recipient will receive, and (ii) investigate consumer disputes and remedy errors. The revised rule makes optional the original requirement to disclose (i) recipient institution fees for transfers to an account, except where the recipient institution is acting as an agent of the provider and (ii) taxes imposed by a person other than the remittance transfer provider. Instead, the revised rule requires providers to include a disclaimer on disclosures that the recipient may receive less than the disclosed total value due to these two categories of fees and taxes. The revised rule exempts from certain error resolution requirements two additional errors: (i) providing an incorrect account number or (ii) providing an incorrect recipient institution identifier. For the exception to apply, a remittance transfer provider must (i) notify the sender prior to the transfer that the transfer amount could be lost, (ii) implement reasonable measures to verify the accuracy of a recipient institution identifier, and (iii) make reasonable efforts to retrieve misdirected funds. In addition, the revised rule provides institutions more time to comply with the new remittance transfer standards. The final regulations, as revised by this rule, take effect on October 28, 2013.

On May 2, the CFPB published three additional guides to assist companies seeking to comply with its HOEPA rule, ECOA valuations rule, and TILA high-priced mortgage appraisal rule. As with other prior guides it has released, the CFPB cautions that the guides are not a substitute for the rules and the Official Interpretations, and that the guides do not consider other federal or state laws that may apply to the origination of mortgage loans. BuckleySandler also has prepared detailed analyses of these and other CFPB mortgage rules.

On April 29, the CFPB amended Regulation Z to make it easier for spouses or partners who do not work outside of the home to qualify for credit cards. Regulation Z generally requires that credit card issuers consider an applicant’s independent ability to pay regardless of age. A Federal Reserve Board rule adopted to implement the Credit CARD Act, which took effect on October 1, 2011, required card issuers to consider only an individual card applicant’s independent income or assets. The rule received criticism from members of Congress and other stakeholders who argued the rule limited access to credit for stay-at-home spouses and partners. The CFPB’s revised rule allows credit card issuers to consider third-party income for a consumer who is 21 or older, if the applicant has a reasonable expectation of access to such income. The CFPB rule does not change the independent ability to pay requirement for individuals under 21 years old. The rule is effective as of May 3, 2013 and compliance with the rule is required by November 4, 2013.  Card issuers may, at their option, comply with the rule prior to that date.

On May 1, the CFPB’s Office of Servicemember Affairs published its Semi-Annual Complaint Report, which states that the volume of complaints from servicemembers, veterans, and their families has steadily increased since the CFPB first started accepting complaints in July 2011. The report provides limited summary information about the complaints, noting that mortgage complaints predominate, followed by credit card and credit reporting complaints. In a related blog post, the CFPB states that it has received more than 5,000 servicemember complaints to date, and calls again for additional questions or complaints from the entire military community.

On May 1, the FTC and the CFPB announced a roundtable to “examine the flow of consumer data throughout the debt collection process” and discuss (i) the amount of documentation and other information currently available to different types of collectors and at different points in the debt collection process, (ii) the information needed to verify and substantiate debts, (iii) the costs and benefits of providing consumers with additional disclosures about their debts and debt-related rights, and (iv) information issues relating to pleading and judgment in debt collection litigation. The event will be held on June 6, 2013 in Washington, DC and is open to the public.