On October 16, the CFPB announced the findings of its annual student loan ombudsman report. Analyzing over 5,000 private student loan complaints that the CFPB received from October 1, 2013 through September 30, 2014, the report highlights the struggle private loan borrowers face in repaying their loans, noting that many are driven into default because practical repayment options are not available to them. The report outlines three main reasons why many private student loan borrowers default: (i) they are unaware of the loan modifications available to them; (ii) they do not have the same affordable options that federal student loan borrowers are entitled to by law; and (iii) the temporary forbearance options that some lenders offer often result in “burdensome enrollment fees and processing delays.” In connection with the report, the CFPB released a sample letter that consumers can edit and send to servicers to request lower monthly payments and information on available repayment plans, as well as a sample financial worksheet to assist borrowers to determine maximum funds available to pay their student loans.
On October 10, the CFPB issued a proposal to modify and make technical amendments to the TILA-RESPA Integrated Disclosure Rule, issued in November of 2013. Specifically, the CFPB proposes to (i) relax the timing requirements associated with the redisclosure of interest rate dependent charges and loan terms after consumers lock in a floating interest rate, such that creditors would have until the next business day after a consumer locks in a floating interest rate to provide a revised disclosure; and (ii) add language to the Loan Estimate form that creditors could use to inform a consumer that the consumer may receive a revised Loan Estimate for a construction loan that is expected to take more than 60 days to settle. In addition, the Bureau proposes non-substantive changes such as technical corrections and corrected or updated citations and cross-references in the regulatory text and commentary, minor word changes throughout the regulatory text and commentary, and an amendment to the 2013 Loan Originator Rule, to provide for placement of the NMSR ID on the integrated disclosures. The CFPB is accepting comments on the proposed changes through November 10, 2014. The CFPB noted its intention to finalize the proposed amendments quickly in order to provide the industry adequate time to implement any resulting changes by August 1, 2015, the effective date of the TILA-RESPA Integrated Disclosure Rule.
On October 23, the CFPB and the FTC will hold a roundtable to discuss the effects of debt collection and credit reporting in the Latino community. The event will focus on the customers with limited English proficiency, and is scheduled to take place from 9 a.m. to 5 p.m. in Long Beach, CA.
On October 10, the CFPB published for comment a proposal for a limited No-Action Letter policy, which appeared in the Federal Register on October 16. The proposed policy aims to “create a process to reduce the regulatory uncertainty that may exist for certain emerging products or services which stand to benefit consumers.” Specifically geared towards financial products and services for which existing statutes and regulations are vague, the proposed policy allows for a CFPB staff member to inform a company that “staff has no present intention to recommend initiation of an enforcement or supervisory action against the requester” by sending a No-Action Letter. The proposed policy requires that the financial product or service that is the subject of a No-Action Letter have substantial consumer benefit when issues of uncertainty regarding certain provisions of statutes implemented by the Bureau arise.
In what may be the first action of its kind, a consumer who received restitution under the CFPB consent order has filed a class action lawsuit based on the same alleged violations. While this litigation is still in its early stages, it serves as an important reminder that an institution’s exposure does not end when it reaches a public settlement with a regulator and may, in fact, increase.
Settlement of CFPB Action
As previously discussed in a BuckleySandler webinar, on July 24, 2013, the CFPB filed suit against Castle & Cooke Mortgage LLC, its President, and its Senior Vice President of Capital Markets, alleging that the defendants “developed and implemented a scheme by which the Company would pay quarterly bonuses to loan officers in amounts that varied based on the interest rates of the loans they originated” in violation of the Truth in Lending Act’s loan originator compensation rules.
On November 7, 2013, the defendants entered into a consent order with the CFPB, agreeing to pay $9.2 million for restitution and a $4 million civil penalty to resolve the allegations. Consistent with current CFPB practice, the consent order stated that “[r]edress provided by the Company shall not limit consumers’ rights in any way” – in other words, affected consumers are not required to sign releases in order to receive remediation. Read more…
BuckleySandler is pleased to announce the availability of “The New CFPB Mortgage Origination Rules Deskbook,” by partner Joseph Reilly. The CFPB Deskbook, published in partnership with the American Bankers Association, is an all-inclusive compilation of all the mortgage origination rules made by effective by the Consumer Financial Protection Bureau (CFPB) in January 2014, including:
- Ability-to-Repay and Qualified Mortgage requirements
- Points and Fees
- Loan Originator Compensation
- High-Cost Mortgages
- Qualified Mortgage Provisions for Federal Housing Administration and Veterans Affairs loans
- Summary of the TILA-RESPA disclosure integration taking effect in 2015
“Our goal was to consolidate the numerous sources of CFPB regulatory guidance into a clear, organized format,” said Reilly. “We wanted to provide comprehensive descriptions from not just the rule text and official commentary but also from CFPB webinars, compliance guides, preamble material from federal register releases and informal compliance discussions with CFPB staff. We hope this will be a ‘one-stop shop’ for origination compliance.”
Benjamin K. Olson, BuckleySandler partner and former Deputy Assistant Director in the CFPB’s Office of Regulations who was involved in the development of many of the rules covered by the CFPB Deskbook, describes it as “an invaluable resource with the potential to change the way regulations are understood.”
The CFPB Deskbook is available in PDF and hard copy formats. Requests for copies should be sent to CFPBDeskbook@buckleysandler.com.
Special Alert: Proposed Amendments to the TILA-RESPA Integrated Disclosure (“TRID”) Rule, Transcript of CFPB Webinar on the Loan Estimate Form, and Introducing BuckleySandler’s TRID Resource Center
BuckleySandler is pleased to announce our new TILA-RESPA Integrated Disclosure (“TRID”) Resource Center. The TRID Resource Center is a one-stop shop for TRID issues, providing access to BuckleySandler’s analysis of the TRID rule and the CFPB’s amendments, transcripts of CFPB webinars providing guidance on the rule, and other CFPB publications that will facilitate implementation of the rule. In particular, the TRID Resource Center will address the following recent developments:
- Proposed amendments. On October 10, 2014, the CFPB proposed amendments to the TRID rule that, if adopted, would: (1) allow creditors to provide a revised Loan Estimate on the business day after the date the interest rate is locked, instead of the current requirement to provide the revised Loan Estimate on the date the rate is locked; and (2) correct an oversight by creating room on the Loan Estimate form for the disclosure that must be provided on the initial Loan Estimate as a condition of issuing a revised estimate for construction loans where the creditor reasonably expects settlement to occur more than 60 days after the initial estimate is provided. The proposal would also make a number of additional amendments, clarifications, and corrections, including:
- Add the Loan Estimate and Closing Disclosure to the list of loan documents that must disclose the name and NMLSR ID number of the loan originator organization and individual loan originator under 12 C.F.R. § 1026.36(g);
- Provide additional guidance related to the disclosure of escrow accounts, such as when an escrow account is established but escrow payments are not required with a particular periodic payment or range of payments; and
- Clarify that, consistent with the requirement for the Loan Estimate, the addresses for all properties securing the loan must be provided on the Closing Disclosure, although an addendum may be used for this purpose.
Comments on the proposal are due by November 10, 2014. For your convenience, we have updated our summary of the TRID rule to identify the most significant proposed changes.
On October 7, the CFPB and the FDIC announced a Spanish-language version of Money Smart for Older Adults, a free financial resource tool intended to prevent the elder financial exploitation that is affecting millions of senior citizens each year. The English-language version, which “includes practical information that can be put to use right away,” was jointly developed by the two agencies last year. The Spanish-language participant/resource guide and power point slides can be downloaded for free at the FDIC’s website, or can be ordered as hard copies on the CFPB’s website.
On October 8, the CFPB held a forum on consumers’ access to checking accounts. The event featured remarks from Director Cordray, as well as presentations from federal and local government officials, consumer groups, and industry representatives. Director Cordray noted the following three main issues of concern regarding the checking account application process, specifically in connection with the reports generated by specialty consumer reporting agencies and sold to banks and credit unions for use in determining whether to approve or reject a consumer for a checking account: (i) the accuracy of the information in the reports; (ii) the consumer’s ability to access the reports and dispute any inaccurate information; and (iii) the use of the reports to exclude consumers from basic financial services. According to Cordray, while credit reporting agencies are required to report accurate information, the “institutions vary in their abilities to conduct the careful investigations needed to differentiate between accountholders who perpetrate fraud versus those who are victims of fraud.” The Bureau plans to explore alternative procedures for screening consumers, hopeful that better data might enable a financial institution to make more nuanced decisions in account screening rather than simply reaching a “yes or no” result.
On October 7, the GAO published a report to help policymakers assess proposals for changing the single-family housing finance system and consider ways to make it more effective and efficient. To this end, the report first describes the market developments since 2000 that have led to changes in the federal government’s role in single-family housing finance. Most notably, the GAO found that as the market share of nonprime mortgages grew before the 2007-2009 financial crisis, the share of new mortgage originations insured by federal entities (including Fannie Mae and Freddie Mac) fell dramatically before rising sharply again during and after the crisis. Second, the report analyzed whether and how these market developments created challenges for the housing finance system. The GAO concluded that mortgage markets since 2000 have challenged the housing finance system, revealing the following weaknesses: (i) misaligned incentives between originators and securitizers on the one hand, and borrowers and investors on the other, as the former did not share the risks of the latter; (ii) a lack of reliable information and transparency for borrowers because originators were not required to share certain information; (iii) excessive risk taking due to a loosening of underwriting standards prior to the financial crisis; and (iv) a lack of federal oversight (since addressed by Congress through the FHFA and CFPB). Finally, the report presents a nine-pronged evaluation framework for assessing potential changes to the housing finance system designed to help policymakers understand the strengths and weaknesses of competing goals and policies, to craft new proposals, and to understand the risks of transitioning to a new housing finance system.
On September 30, the CFPB announced a consent order with a Michigan-based title insurance company to address allegations that the company’s marketing services agreements (MSAs) with several real estate brokers violated the Real Estate Settlement Procedures Act’s (RESPA) prohibition against kickbacks in connection with real estate settlement services. According to the CFPB, the MSAs provided that the company would pay the real estate brokers for performing marketing services promoting the company. Specifically, although the MSAs provided for payment to the brokers based on the marketing services provided to the company, according to the CFPB the brokers were actually paid, in part, based on the number of referrals to the company they generated. Also, the CFPB asserted that the company entered the MSAs “as a quid pro quo for the referral of business.” In addition, the CFPB alleged that brokers that had entered into a MSA with the company referred a “statistically significant” higher amount of business than brokers who had not entered into a MSA. According to the terms of the consent order, the company must pay a $200,000 civil monetary penalty, immediately terminate any existing MSAs, and not enter into any MSAsthe future, providing a very broad and novel definition of MSAs that includes agreements with any person in a position to refer business providing for endorsements, joint advertising, access to counterparty and its employees, or marketing of the company’s services to others. However, the company may still purchase consumer-oriented advertising from companies that do not offer settlement services such as newspapers or television or radio stations, provided that the publisher does not endorse the company as part of the advertisement.
On September 30, the CFPB published a white paper claiming that manufactured-home owners typically pay higher interest rates for their loans than site-built borrowers. The white paper cites data in support showing that a greater share of manufactured-housing loans are classified as higher-priced mortgage loans or “high-cost” loans. The white paper further discusses the CFPB’s findings that: (i) manufactured homeowners are likely to be older, live in a rural area, and have a lower net worth than site-built borrowers; (ii) manufactured homes typically cost less than site-built homes; (iii) about three-fifths of manufactured-housing residents who own their home also own the land it is sited on; (iv) approximately 65 percent of borrowers who own their land and financed the purchase of their manufactured home between 2001 and 2010 did so using a chattel loan (rather than a manufactured-housing loan); and (v) manufactured-housing production contracted in the 2000s. The white paper does not propose any formal rule or guidance related to manufactured-housing. Rather, it indicates that the CFPB will continue to analyze facets of the manufactured-housing market to identify ways to fill in gaps in available data about that market. For example, the white paper states that the CFPB is considering adding a data field to the Home Mortgage Disclosure Act’s reporting requirements that would indicate whether a manufactured-housing loan is secured by real or personal property.
On September 26, President Obama signed into law H.R. 5062, which amends the Consumer Financial Protection Act of 2010 to specify that the CFPB is to coordinate its supervision of certain nondepositories with state agencies that license, supervise, or examine the offering of consumer financial products or services. The Act already requires the CFPB to coordinate its supervisory activities with prudential regulators and state bank regulatory authorities. The bill also amends the Act to provide that the sharing of information with such regulators, authorities, and agencies does not constitute a waiver of any privilege or confidentiality that may be asserted regarding such information (except with respect to the CFPB and such regulators, authorities, and agencies).
On September 24, the CFPB announced a consent order with a large national bank to address alleged unfair practices related to add-on identity theft protection products marketed by the bank and sold and administered by a third-party service provider to the bank’s customers from 2003–2012. Specifically, the CFPB alleged that customers were unfairly billed by the service provider for certain products that offered credit monitoring and credit report retrieval services without receiving the full benefit of the services. Customers who enrolled in these add-on identity theft products were required to provide sufficient written authorization and personal verification before the customers’ credit bureau reports could be accessed. However, according to the Bureau, in many instances time passed before a customer’s authorization was obtained or a customer’s authorization was never obtained. In other instances, the credit bureau could not match the customer’s identification information with its records. Although the bank’s vendor, rather than the bank itself, was directly responsible for selling and administering the products, the CFPB found that the bank’s compliance monitoring, service provider management, and quality assurance functions had failed to prevent, identify, and correct the unfair practices, resulting in substantial injury to more than 420,000 consumers. According to the CFPB’s order, this injury was not reasonably avoidable by consumers, and was not outweighed by any countervailing benefit to consumers or competition, and, therefore, the bank engaged in unfair practices. Read more…
On September 23, the CFPB issued a Final Rule that defines which nonbank covered persons are designated “larger participants” for purposes of the international money transfer market. In particular, this rule, which finalizes a January 2014 proposed rule, defines an entity as a larger participant if it has at least one million aggregate annual international money transfers. The final rule will be effective December 1, 2014. In addition, the Final Rule defines an international money transfer market to cover certain electronic transfers of funds sent by nonbanks that are international money transfer providers. These transfers must be requested by a sender in a State to be sent to a designated recipient in a foreign country. While the Final Rule’s definitions are modeled in part on the definitions of “remittance transfer” and related terms in the Electronic Fund Transfer Act (EFTA) and its implementing regulation, Regulation E, there are some substantive differences. For example, transfers of $15 or less can be ‘‘international money transfers’’ but not “remittance transfers.” The CFPB provides a procedure for a person to dispute whether it qualifies as a larger participant in the international money transfer market and also asserts that there are only approximately 10 potential larger participants that qualify as small businesses.