The CFPB has published a notice in the Federal Register announcing that a meeting of its Consumer Advisory Board will be held in Tampa, Florida on November 2, 2017.

The notice states that the Board will discuss “Know Before You Owe: Reverse Mortgages, financial well-being, trends and themes, and payday, vehicle title, and certain high-cost installment loans.”  Presumably, the loan discussion will focus on the CFPB’s final payday loan rule.

We note that the announcement of the event posted on the CFPB’s website indicates that Director Cordray will participate in the meeting.

In August 2017, we reported that the CFPB had given the mortgage industry a first look at the Internet-based platform it is developing for industry members to use to submit data under the Home Mortgage Disclosure Act (HMDA).

The CFPB recently provided an update on the status of the HMDA portal.  The CFPB advised that it is demonstrating to the industry the platform’s functionality and user experience through webinars, industry conferences, and in-person user testing sessions.  The CFPB noted that a video version of its demonstration of the platform will be made available soon and that the platform will be made available to the industry in the Fall of 2017.  The industry must submit 2017 HMDA data to the CFPB through the portal by March 1, 2018.

 

 

 

The CFPB recently posted on its website updated versions of guidance in connection with the revisions to the Home Mortgage Disclosure Act (HMDA) rules that become effective on January 1, 2018, and also posted a new guidance item.

The CFPB updated the chart entitled Collection and Reporting of HMDA Information about Ethnicity and Race, and updated the Filing instructions guide for information collected in and after 2018.

In August 2017, the CFPB issued various technical changes to the revised HMDA rule.  The revised materials incorporate changes made in the August amendments.

The CFPB also added a new chart entitled Reportable HMDA Data: A Regulatory and Reporting Overview Reference Chart.  The new chart is a reference tool for data points required to be collected and reported under the revised HMDA rule, as amended by the August 2017 amendments

 

 

The federal banking agencies have issued guidance to financial institutions on the key data fields under the revised Home Mortgage Disclosure Act (HMDA) rules that will be used to test and validate the accuracy and reliability of the HMDA data.

In October 2015, the CFPB adopted significant changes to the HMDA rules that significantly expanded the amount of information that must be collected and reported.  The changes are effective January 1, 2018.

The guidance issued by the federal banking agencies lists 110 data fields under the revised HMDA rules, and identifies 37 of such fields as Designated Key HMDA Data Fields.  Among the new reporting data fields that the agencies identify as key fields are the applicant’s age and credit score, the origination charges, discount points, lender credits, interest rate, debt-to-income ratio, combined loan-to-value ratio, and the automated underwriting system result.

Despite the identification of certain data fields as key fields for examination purposes, examiners nevertheless may determine that additional HMDA data fields need to be examined.

 

Since last summer, Acting U.S. Comptroller of the Currency Keith A. Noreika and CFPB Director Richard Cordray have exchanged polar-opposite views on whether the CFPB’s final arbitration rule should be repealed.  Both are seeking to persuade Senators who may still be undecided as the deadline for Congressional Review Act action draws closer.

The debate began in July, when, as we reported, Acting Comptroller Noreika and Director Cordray exchanged a series of letters in which Mr. Noreika raised OCC concerns about the arbitration rule’s impact on the safety and soundness of the U.S. banking system.  Then, in late September, as we also reported, the OCC issued a report that contradicted key conclusions of the CFPB that supposedly supported the rule.  The CFPB did not find any statistically significant evidence of increases in the cost of consumer credit associated with banning arbitration clauses in credit card contracts.  However, the OCC, reviewing the same data, found “a strong probability of a significant increase in the cost of credit cards as a result of eliminating mandatory arbitration clauses.”  In particular, it found that there could be as high as a three-and-a-half percent annual percentage rate increase for consumers who would be affected by the rule, which translates to a 25 percent increase in credit costs.  In addition, the OCC stated that additional research would be required “to explore the potential effect on consumer payments, their ability to pay the higher cost and the potential for an increase in delinquencies, or changes in the availability of certain financial products intended to meet the financial needs of consumers.”

The Noreika-Cordray dispute has now escalated in the last few days.  In a recent op-ed in The Hill, Acting Comptroller Noreika argued forcefully and persuasively that the Senate should vacate the final arbitration rule because the CFPB has failed to provide data that support the rule and also “failed to disclose the costs to consumers that will likely result from the rule’s implementation.  Consumers deserve better, and so do small and regional banks.”  On the same day, Cordray  fired back, releasing a letter he had written to Senator Sherrod Brown that was highly critical of the OCC’s report and also argued that the rule does not threaten the safety and soundness of banks.  Attached to the letter was a 7-page memo from the CFPB’s Office of Research concluding that the OCC report rested on “incorrect statistical inference and a failure to correctly consider the full body of evidence.”   Yesterday, Director Cordray followed up with his own op-ed in The Hill calling the OCC’s data analysis “embarrassing” and characterizing Acting Comptroller Noreika’s safety and soundness concerns as “farfetched.”   Referring to a federal court lawsuit recently filed by industry groups to overturn the rule, Director Cordray concludes his article by stating, “The fight thus will now be decided in the courts and need not be decided in the Senate.”

If this were a prize fight (in Philadelphia we like the Rocky analogy), the championship belt should go to Acting Comptroller Noreika.  We are not professional statisticians, but to us it is just plain common sense that when 53,000 companies are expected to incur between $2.6 and $5.2 billion dollars in addition costs to handle 6,042 additional class actions spawned by the elimination of arbitration in the next five years and every five years thereafter — as the CFPB’s data clearly shows, consumers will pay more.  That simple truth is obscured by the CFPB’s research report, which tries to justify its attacks on the OCC by referring to “noisy” data and “p values.”

And that is what the Senate needs to keep in mind as the deadline for the CRA vote approaches: consumers will pay more unless the CFPB arbitration rule is repealed.  Contrary to Director Cordray’s remarks, the Senate vote is critical because tens of thousands of American businesses need clear and definitive guidance now on whether they need to prepare to be crushed by billions of dollars in defense costs that will go almost entirely to pay the fees of class action lawyers — while the average putative class member recovers an average of $32 if they are “lucky” enough to be in the 13% of class actions that returns anything to consumers.  Acting Comptroller Noreika delivered the knockout punch when he concluded in his op-ed: “Instead of mandating only one way to resolve disputes, consumers and banks should continue to have the option to resolve contractual differences in the same manner they do today … Consumers know for themselves what their best options are, and their regulators need to know that too.”

Last week, the CFPB filed a lawsuit in Maryland federal court against two commonly-owned debt relief companies, their affiliated payment processor, and three individual principals  for alleged violations of the Telemarketing Sales Rule and the Consumer Financial Protection Act.

According to the CFPB’s complaint, the defendants’ alleged unlawful conduct included the following:

  • Violating the TSR and CFPA by falsely telling consumers that the companies’ debt relief services were approved by the FTC and that the companies were authorized to “review, consult, and prepare consumer protection documents” on the consumer’s behalf.  In addition, the companies used direct mailers displaying a seal that “shared several similarities with the Great Seal of the United States,” thereby creating a false net impression that they were affiliated with the federal government.
  • Violating the TSR by charging advance fees before performing any work or in excess of the amount permitted by TSR and by failing to make required disclosures.
  • Violating the TSR and CFPA by deceptively marketing the companies’ debt relief programs, such as by falsely claiming that the programs would eliminate debt that the companies deemed invalid and increase consumers’ credit scores.

The debt relief industry is currently under seige, facing a barrage of enforcement actions by the CFPB as well as FTC and state AG enforcement actions.

 

Last Friday, as expected, the FTC announced the launch of a coordinated federal-state law enforcement initiative targeting deceptive student loan debt relief companies.  According to the FTC, 11 states and the District of Columbia are participating in the initiative, which is being called “Operation Game of Loans.”  The participating states are Colorado, Florida, Illinois, Kansas, Maryland, North Carolina, North Dakota, Oregon, Pennsylvania, Texas, and Washington,

The initiative includes seven FTC actions, including an action filed by the FTC earlier this month in Florida federal court, and 29 actions by state AGs.

In a recent blog post, we estimated that, as a practical matter, November 16 was the last day on which the Senate could pass a resolution of disapproval under the Congressional Review Act to override the CFPB arbitration rule.  For the reasons explained below, we now think November 13 is a better estimate.

Under the CRA, to be eligible for the “fast track” procedures for Senate consideration that preclude a filibuster and allow the Senate to pass a resolution of disapproval resolution with a simple majority vote, the Senate must act on the resolution during a period of 60 Senate “session days” which begins on the date the rule is received by Congress or published in the Federal Register, whichever is later.  Since the Senate received the CFPB’s report on the arbitration rule on July 13 and the rule was published in the Federal Register on July 19, the 60 Senate “session days” for purposes of the CRA clock began on July 19, 2017.  Including this past Friday (October 13), there have been 40 Senate “session days” since July 19.

Our November 16 estimate was based on two assumptions.  First, we assumed that the Senate would be in regular session Monday through Thursday during the weeks it is not scheduled to be in recess.  Second, we assumed that the Senate would be in pro forma session on each Tuesday and Friday of a recess week.

Since publishing our blog post, we discovered that the Senate’s calendar has not been consistent with our first assumption.  During the first week of October, when the Senate was not scheduled to be in recess, it was in regular session Monday through Friday.  The Senate’s next scheduled recess is November 10-12.  Thus, if we now assume that the Senate will continue to be in regular session every weekday until November 10, the 60th session day for purposes of the CRA clock would be Monday, November 13.

As promised previously, here are further details on the lawsuit filed by industry groups against the CFPB to overturn the final arbitration rule.  The complaint largely mirrors our heavy criticism of the rule.  (For example, see here, here and here.)

The complaint asserts four principal arguments:

  1. The rule is the product of  “the unconstitutional structure that Congress gave the CFPB” in the Dodd-Frank Act, which gives the Director “an extraordinary degree of authority that is virtually unique in the federal system, and insulates the Director from control by either the President or Congress.”  (A similar argument is presently pending before the D.C. Circuit Court of Appeals in PHH v. CFPB).
  2. The rule violates the Administrative Procedure Act (“APA”) because “the CFPB failed to observe procedures required by law when it adopted the conclusions of a deeply flawed study that improperly limited public participation, applied defective methodologies, misapprehended the relevant data, and failed to address key considerations.”  In directing the CFPB to study the use of arbitration in consumer financial contracts and base any regulation of arbitration on the results of that study, Congress necessarily required the CFPB to conduct a fair, unbiased, and thorough study that that would produce reliable and accurate results.  Instead, the CFPB  “misstated or disregarded key data, reaching palpably invalid conclusions that understate the demonstrated effectiveness of arbitration and overstate the value of class-action litigation.”
  3. The rule also violates the APA because “it runs counter to the record before the [CFPB]” and is “the very model of arbitrary and capricious agency action.”   In particular, the CFPB “failed to address key considerations—among them, whether effectively eliminating arbitration in contracts subject to the CFPB’s jurisdiction would injure consumers.”  Moreover, the rule “is premised on conclusions that run counter to the administrative record before the [CFPB], which establishes that arbitration is effective in providing relief to consumers and that class-action litigation generally is not.
  4. The rule violates the Dodd-Frank Act because “it fails to advance either the public interest or consumer welfare: it precludes the use of a dispute resolution mechanism that generally benefits consumers (i.e., arbitration) in favor of one that typically does not (i.e., class-action litigation).”  The rule “effectively precludes use of an arbitration mechanism that provides the only realistic method by which consumers may obtain relief for the types of individualized claims that they typically regard as most important.  And it does so in the interest of encouraging class-action litigation, a procedure that provides substantial rewards to class-action lawyers but almost never produces meaningful relief for individual consumers.”

The complaint alleges that the CFPB reached a “preordained conclusion” to ban class action waivers which “ignored the data before it that demonstrated both the benefits of arbitration to consumers and the failure of class-action lawsuits to provide consumers with meaningful benefits.”  In addition, the CFPB failed to address “key policy questions,” including whether a rule mandating the availability of class-action litigation would lead to the complete abandonment of arbitration,” and made no serious effort “to weigh the comparative costs and benefits of implementing a regime that substitutes costly class-action litigation for efficient arbitration.”  The “inevitable practical consequence” of the rule, plaintiffs allege, is that businesses will abandon arbitration altogether” since they will face “the certainty of high litigation costs associated with class-action suits and therefore will not go to the expense of creating an alternative arbitration mechanism—for which business shoulders the lion’s share of the costs.”

The complaint seeks entry of a judgment vacating the arbitration rule and entry of orders staying the rule’s implementation pending the conclusion of judicial review and enjoining the CFPB and Director Cordray from enforcing the rule.  If the rule goes into effect, plaintiffs aver, “it will inflict immediate, irreparable injury” because “[p]roviders of consumer financial products and services will incur significant legal and compliance costs in adapting their businesses to the new rule,” and “the vast majority of these costs will be wasted, and not recoverable, if the [r]ule ultimately is deemed to be contrary to law.”  Moreover, “so long as the effects of the [r]ule are being felt, providers of such services will both be denied the benefits of arbitration and exposed to expensive class-action litigation.”

We will be following this litigation very closely and will provide updates on important developments.  We are also continuing to monitor whether the Senate will vote on the pending resolution to overturn the arbitration rule under the Congressional Review Act.

The Consumer Financial Protection Bureau has issued a second version of the Home Mortgage Disclosure Act (Regulation C) Small Entity Compliance Guide.  The updated version incorporates various changes to the HMDA rule that were issued in August 2017 and published in the September 13, 2017 Federal Register, which we reported on previously.  One of the main changes incorporated in the revised Guide is the temporary increase in the threshold to report home equity lines of credit (HELOCs) from 100 to 500 transactions in each of the two proceeding calendar years.  Based on the temporary increase, financial institutions originating 100 or more HELOCs but fewer than 500 in 2018 or 2019 would not be required to begin collecting and reporting HELOC data until January 1, 2020.  However, the CFPB may take further action to amend the threshold.