The Federal Financial Institutions Examination Council (FFIEC) has just issued an updated version of The Guide to HMDA Reporting: Getting It Right!

The Guide reflects the extensive changes to the Home Mortgage Disclosure Act rules that were adopted in October 2015 and became effective January 1, 2018.  Until now, the most recent version of the Guide was the April 2013 edition.

As previously reported, in December 2017 the CFPB announced that it intends to engage in a rulemaking to reconsider various aspects of the revised HMDA rules, such as the institutions that are subject to the rules, including the related transactional coverage tests, and the discretionary data points that were added to the statutory data points by the CFPB.  Any HMDA rule changes may require revisions to the Guide.

A bipartisan group of 16 state attorneys general has filed an amicus brief in support of a petition for certiorari asking the U.S. Supreme Court to review a Ninth Circuit decision upholding the district court’s approval of a class action cy pres settlement.  The petition was filed by objectors to the settlement.

Cy pres typically refers to the distribution of residual funds to one or more nonprofit organizations where the settlement proceeds are not completely distributed to class members.  However, the $8.5 million settlement reviewed by the Ninth Circuit (which resolved privacy claims against Google) was a “cy pres-only arrangement” in which no funds were paid to the 129 million class members.  Instead, in addition to the $3.2 million paid to attorneys, the named plaintiffs, and the settlement administrator, $5.3 million was paid to several universities, a law school, a foundation, and a public interest research group.  In their amicus brief, the AGs argue that Supreme Court guidance is necessary to resolve a circuit split on the allowable uses of cy pres settlement arrangements and the analysis courts should use in weighing when (if ever) such arrangements should be judicially approved.

The use of cy pres arrangements in DOJ settlements was the subject of recent remarks by Associate U.S. Attorney General Rachel Brand.  Ms. Brand noted that the DOJ has included cy pres clauses in some settlements under which Treasury funds were paid to third parties instead of being returned to taxpayers.  As “one of the worst examples,” she described a case in which the DOJ had settled claims against the government by creating a $680 million fund to pay individual claimants.  Under the settlement’s cy pres clause, about 90% of the $300 million that remained after all individual claims were paid was to be distributed to nonprofit groups identified by a trust controlled by the plaintiffs’ attorneys.  Ms. Brand indicated that this “means that hundreds of millions of dollars of the taxpayer’s money will be spent in ways never appropriated by Congress, with virtually no oversight.”

Ms. Brand suggested that cy pres arrangements are now barred by the memorandum issued in June 2017 by Attorney General Jeff Sessions that prohibits DOJ attorneys in cases involving the federal government from entering into settlement agreements on behalf of the United States that require payments or loans to any non-governmental person or entity that is not a party to the dispute.  The DOJ and CFPB have frequently included such provisions in consent orders settling fair lending claims.

In her remarks, Ms. Brand also indicated that the DOJ intends to take a more vigorous approach to the review of proposed class action settlements under the Class Action Fairness Act (CAFA).  CAFA provides that notice of such settlements must be served on the DOJ at least 90 days before a final approval hearing.  The DOJ can then weigh in with the court if it concludes that a proposed settlement is not fair or reasonable.

According to Ms. Brand, the DOJ’s failure to be more proactive in its review of proposed settlements “wasn’t for a lack of worthy cases” but was instead caused by “an almost comical story of government bureaucracy” that often resulted in CAFA notices not being reviewed by a DOJ lawyer “until after the fairness hearing or even after the settlement had been finalized.”  Ms. Brand told audience members that the DOJ has “begun to fix that process” and that they should “[b]e on the lookout in the coming days for the first example [of DOJ review].”

The District of Columbia Department of Insurance, Securities, and Banking (DISB) has released for comment a revised “Student Loan Borrower’s Bill of Rights.”  The District of Columbia Student Loan Ombudsman Establishment and Servicing Regulation Act of 2016 (Servicing Act), which became effective February 18, 2017, directed the DISB to draft the Bill of Rights.  (In September 2017, pursuant to the Servicing Act, the DISB began licensing student loan servicers operating in D.C.)

As originally released in October 2017, the Bill of Rights contained five articles.  We commented that instead of tracking the student loan servicing principles articulated by other regulators, the Bill of Rights seemed to borrow copiously from principles for the origination, servicing, and collection of small business loans adopted by the Responsible Business Lending Coalition, a network of for-profit and non-profit lenders, brokers and small business advocates.  In the revised Bill of Rights, which contains 17 articles, the DISB now appears to be proposing student loan servicing principles that more closely resemble those articulated by other regulators.

The revised Bill of Rights contains numerous requirements that were not in the original version.  For example, the revised version contains requirements concerning payment allocation and partial payments (Article IV), monthly billing statements (Articles V and VI), annual tax statements (Article VII), schedule of fees (Article IX), reporting to credit bureaus (Article XI), access to default diversion services (Article XII), and refinancing disclosures (Article XIII).  However, the DISB does not identify the source of those rights, which are not separately set forth in the Servicing Act.

The National Council of Higher Education Resources (NCHER), a national trade association representing higher education finance organizations, has sent a letter to the DISB commenting on the revised Bill of Rights.  As a general matter, NCHER expresses its view that the principles should not create enforceable obligations and highlights the enormous compliance burden that would be created for servicers if the DISB were to attempt to require federal and private student loan servicers to follow separate servicing routines for D.C. residents.  We agree, and find it particularly troubling that the DISB appears to be seeking to create obligations that may not only be inconsistent with the terms of the underlying loans but also preempted by federal law.  

With respect to specific provisions of the revised Bill of Rights, NCHER’s comments include the following:

  • Article IV provides that a borrower “has the right to have his or her payments applied to outstanding loan balance(s) timely, appropriately, and fairly” and that the servicer’s application process “shall result in partial payments being applied in the best interest” of the borrower.  NCHER questions what it means to apply payments “appropriately,” “fairly,” and “in the best interest” of the borrower and states that servicers currently post their payment allocation procedures but “should not be held to a vague standard that could be interpreted to create fiduciary responsibilities.”
  • Articles V and VI provide that a borrower has a right to “a monthly billing statement” and quarterly periodic statements containing certain information.  NCHER questions whether these articles establish separate servicing requirements for D.C. residents and comments that if so, they “would be overly burdensome to require that monthly payments be sent to borrowers in an in-school deferment.”
  • Article IX provides that a borrower has a right to have the servicer’s current schedule of fees that could be charged to the borrower.  NCHER comments that this article “seems to be based on an inaccurate understanding of roles of the various players in the student loan industry.”  It notes that as a general matter, “loan fees such as late fees and NSF fees are charged by lenders, not servicers, and are disclosed as part of the lender’s Truth-in-Lending Act requirements.”  NCHER also comments that if the article purports to cover expedited payment or convenience fees, “it should be understood that these optional payment services are selected by the borrower.”
  • Article XII provides that a borrower has the right to access “default diversion services” from the servicer that notifies the borrower when he or she is at risk of default and requires the servicer to assist the borrower with avoiding a default.  NCHER raises numerous questions about this article, including what timeframe the DISB contemplates using when measuring whether a servicer has appropriately notified a borrower that he or she is at risk of default and what “default diversion services” are contemplated by the DISB.
  • Article XIII provides that to the extent a servicer or an agent of a servicer provides any financing to a borrower, including a loan modification or refinancing, the borrower has a right  to receive financing that complies with certain principles.  Such principles include that the financing “is in the best interest” of the borrower.  NCHER comments that this article also “misconstrues the role of servicers since they do not make loans or extent credit” and that the reference to financing that “is in the best interest” of the borrower “sets up a fiduciary or suitability standard where compliance may be impossible.”

 

Earlier this week New York Attorney General Eric Schneiderman sent a letter to select state legislators adding his backing to the creation of a licensing regime in New York for student loan servicing, similar to what has been emerging in state legislatures across the country over the past two years.

The letter provides express support for Governor Cuomo’s 2019 Executive Budget Proposal, which calls for, among other things, establishment of a Student Loan Ombudsman at the Department of Financial Services. As described in an outline summarizing the proposal:

The Governor will advance a comprehensive plan to further reduce student debt that includes creating a Student Loan Ombudsman at the Department of Financial Services; requiring all colleges annually provide students with estimated amounts incurred for student loans; enacting sweeping protections for students including ensuring that no student loan servicers or debt consultants can mislead a borrower or engage in any predatory act or practice, misapply payments, provide credit reporting agencies with inaccurate information, or any other practices that may harm the borrower; and prohibiting the suspension of professional licenses of individuals behind or in default on their student loans.

Draft legislation in line with this proposal appears in Senate Bill S7508 and Assembly Bill A9508. Last year, Assembly Bill A8862 was introduced (establishing “the student loan borrower bill of rights to protect borrowers and ensure that student loan servicers act more as loan counselors than debt collectors”) and is currently in committee in the New York State Senate.

As we’ve previously noted, California, Connecticut, the District of Columbia, and Illinois have already enacted similar laws, and we have been closely tracking pending legislation in other states, including Ohio, Missouri, New Jersey, Virginia, and Washington. This is a trend that shows no signs of abating, and adoption in New York could serve as an additional catalyst as more states take up the issue.

On February 14, 2018, the United States House of Representatives passed the TRID Improvement Act of 2017, H.R. 3978, by a vote of 245 to 171.  The bill would amend the manner in which title insurance premiums are disclosed under the TILA/RESPA Integrated Disclosure (TRID) rule.

Under title insurance price structures in many states, when a consumer purchases both an owner’s title insurance policy and lender’s title insurance policy at the same time, a discount is offered on the price of the lender’s title insurance policy.  Nevertheless, when the consumer will purchase both an owner’s title insurance policy and lender’s title insurance policy, the TRID rule requires that the amounts disclosed for the owner’s title insurance policy premium and lender’s title insurance policy premium be determined as follows:

Lender’s Title Insurance Premium:  The premium for the lender’s policy based on the full premium rate (i.e., without regard to any discount offered by the title insurer).

Owner’s Title Insurance Premium:  The result of adding the full owner’s title insurance premium and discounted premium for the lender’s policy, and subtracting the premium for the lender’s policy based on the full premium rate.

Industry members have objected to the required disclosure approach because it deviates from the manner in which the actual premium amounts are charged.

The bill would amend language in the Real Estate Settlement Procedures Act (RESPA) to require the itemization of “all actual charges” and not just the itemization of “all charges.”  The bill also would amend RESPA to require that ‘‘Charges for any title insurance premium disclosed on [the TRID rule] forms shall be equal to the amount charged for each individual title insurance policy, subject to any discounts as required by State regulation or the title company rate filings.’’. Thus, the bill would not permit the current approach to the disclosure of title insurance premiums under the TRID rule, and would require that the amounts disclosed for title insurance reflect the actual premium charges, including any discounts.

Forty-three Democrats joined Republications in passing the bill.

By a vote of 245-171, the House passed H.R. 3299, the “Madden fix” bill (whose official title is the “Protecting Consumers’ Access to Credit Act of 2017.”)  In Madden, the Second Circuit ruled that a nonbank that purchases loans from a national bank could not charge the same rate of interest on the loan that Section 85 of the National Bank Act allows the national bank to charge.

The bill would add the following language to Section 85 of the National Bank Act: “A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary.”

The bill would add the same language (with the word “section” changed to “subsection” when appropriate) to the provisions in the Home Owners’ Loan Act, the Federal Credit Union Act, and the Federal Deposit Insurance Act that provide rate exportation authority to, respectively, federal and state savings associations, federal credit unions, and state-chartered banks.  (A Senate bill with identical language was introduced in July 2017 by Democratic Senator Mark Warner.)

The House passed the bill despite strong Democratic opposition, with only 16 Democrats voting for the bill and 170 voting against.  As a result, the bill is expected to face an uphill battle in the Senate even though it can be passed with only 60 votes.

While adoption of a “Madden fix” would eliminate the uncertainties created by the Second Circuit’s Madden decision, it would not address a second source of uncertainty for some loans that are made by banks with substantial marketing and servicing assistance from nonbank third parties and then sold shortly after origination. These loans have been challenged by regulators and others on the theory that the nonbank marketing and servicing agent is the “true lender,” and therefore the loan is subject to state licensing and usury laws.  In November 2017, a bipartisan group of five House members introduced a bill (H.R. 4439) that is intended to address the “true lender” issue.

 

 

The CFPB has issued a request for information that seeks comment on its supervision program.  Comments on the RFI must be received by May 21, 2018.  (Unlike the CFPB’s three prior RFIs described below which have 60-day comment periods, the new RFI has a 90-day comment period.)

The new RFI represents the fourth in a series of RFIs announced by Mick Mulvaney, President Trump’s designee as Acting Director.  In the new RFI, the CFPB seeks comment on all aspects of its supervision program but lists the following 12 topics that represent “a preliminary attempt by the Bureau to identify elements of the Bureau processes related to its Supervision Program that may be deserving of more immediate focus.”

These topics are:

  • Timing, frequency, and scope of supervisory process
  • Timing, method or process used by the CFPB to collect information and documents from a supervised entity before it begins an examination
  • Type and volume of information and documents requested in examination information requests
  • Effectiveness and accessibility of the CFPB Supervision and Examination Manual
  • Efficiency and effectiveness of onsite examination work
  • Effectiveness of Supervision’s communications when potential violations are identified, including the usefulness and content of a potential action and request for response (PARR) letter
  • Clarity, organization, and quality of communications that report the results of supervisory activities
  • Clarity of matters requiring attention (MRA) and the reasonableness of timing requirements to satisfy MRAs
  • Process for appealing supervisory findings
  • Use of third parties by supervised entities to conduct assessments specified in MRAs or assess the sufficiency of completion of an MRA
  • Usefulness of the CFPB’s Supervisory Highlights to share findings and promote transparency
  • Manner and extent to which the CFPB can and should coordinate its supervisory activity with federal and state supervisory agencies

The CFPB’s first RFI, which has a March 27, 2018 comment deadline, seeks comment on the CFPB’s processes surrounding civil investigative demands and investigational hearings.  The second RFI, which has a comment deadline of April 6, 2018, seeks comment on how the CFPB can improve its administrative adjudication processes.  The third RFI, which has a comment deadline of April 13, 2018, seeks comment on how the CFPB can improve its enforcement processes.

In its press release announcing the fourth RFI, the CFPB stated that the next RFI in the series will be issued next week and will address the CFPB’s external engagement processes.  The press release also stated that the CFPB anticipates issuing RFIs on the following topics in the coming weeks:

  • Complaint Reporting
  • Rulemaking Processes
  • Bureau Rules Not Under §1022(d) Assessment (§1022(d) requires the CFPB to conduct an assessment of  a significant rule no later than five years after the rule’s effective date.)
  • Inherited Rules (Rules for which Dodd-Frank transferred authority from another federal agency to the CFPB)
  • Guidance and Implementation Support
  • Consumer Education
  • Consumer Inquiries

The CFPB’s newly-released strategic plan for fiscal years 2018-2022 reflects the restrained approach to the CFPB’s exercise of its authority previously outlined by Mick Mulvaney, President Trump’s designee as CFPB Acting Director.

In his message introducing the strategic plan, Mr. Mulvaney stated:

If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further.  Indeed, this should be an ironclad promise for any federal agency; pushing the envelope in pursuit of other objectives ignores the will of the American people…[and] also risks trampling upon the liberties of our citizens, or interfering with the sovereignty or autonomy of the states or Indian tribes.  I have resolved that this will not happen at the Bureau.”

Perhaps a visible indicator of Mr. Mulvaney’s restrained approach is the length of the final strategic plan as contrasted with the CFPB’s draft strategic plan issued for comment in October 2017.  While the draft plan was 34 pages long, the final plan consists of 15 pages.

More significantly, the differences between Mr. Mulvaney’s views on how the CFPB should exercise its authorities and the views of former CFPB Director Cordray are reflected in the final plan’s description of the CFPB’s goals, objectives, and strategies.  Both plans list the five purposes for which the CFPB is authorized to exercise its authorities as set forth in Section 1021 of Dodd-Frank.  However, unlike Mr. Cordray’s draft plan which described the CFPB’s goals and objectives more expansively than the purposes listed in Section 1021, Mr. Mulvaney’s final plan closely tracks the five purposes in two of the plan’s three strategic goals and five of its strategic objectives.

Other differences include:

  • Emphasis on reducing regulatory burden.  To attain the CFPB’s first goal of “ensur[ing] that all consumers have access to markets for consumer financial products and services,” one of the CFPB’s primary objectives is to “regularly identify and address outdated, unnecessary, or unduly burdensome regulations in order to reduce unwarranted regulatory burdens.”  While the identification of such regulations was included the draft plan’s list of how Dodd-Frank authorizes the CFPB to exercise its authorities, it was not one of the draft plan’s objectives.
  • Emphasis on increased transparency in rulemaking and cost-benefit analysis. Another of the CFPB’s primary objectives for attaining its first goal is to “ensure that markets for consumer financial services and products operate transparently and efficiently.”  Among the CFPB’s strategies for achieving that objective is to “pursue an efficient, transparent, and inclusive approach to developing or revising regulations” and “carefully evaluate the potential benefits and costs of contemplated regulations.”  The draft plan called for “an efficient and evidence-based approach to developing new regulations and evaluating and revising existing regulations.”  While the draft plan noted by way of background that the CFPB assesses the costs and benefits of potential or existing regulations, it did not include conducting cost-benefit analyses among the CFPB’s strategies for achieving its objectives.
  • In what might be read as veiled criticism of the CFPB’s approach under former Director Cordray, the CFPB’s objectives and strategies in the final plan for attaining its third goal of “fostering operational excellence” include “safeguard[ing] the Bureau’s information and systems” and “align[ing] resources to mission and promote budget discipline.”  In addition, in describing how the CFPB will achieve its mission and vision, the plan states that the CFPB will act “with humility and moderation.”

The CFPB’s strategic plan is required by the Government Performance and Results Act of 1993 (GPRA) and the GPRA Modernization Act of 2010.  These laws require every federal agency to issue a new strategic plan by the first Monday in February following the year in which the term of the President commences.  Accordingly, since President Trump’s term began in January 2017, the CFPB was required to issue its new strategic plan by February 5, 2018.  In a blog post yesterday, Professor Jeff Sovern suggested that, in light of his “temporary” status, it is “weird” that Mr. Mulvaney has created a strategic plan.  As Acting Director, Mr. Mulvaney was fulfilling the CFPB’s statutory duty by issuing a final new strategic plan.

Professor Sovern also suggested that it was improper for Mr. Mulvaney to replace former Director Cordray’s strategic plan.  (Presumably, the plan that Professor Sovern thinks Mr. Mulvaney improperly replaced is Mr. Corday’s draft plan rather than his FY 2013-2017 plan.)  An OMB circular that provides guidance to federal agencies on strategic planning states that a strategic plan should reflect “Administration priorities or other emerging factors.”  Thus, it is entirely appropriate for the strategic plan issued by Mr. Mulvaney to reflect the priorities of the Trump Administration rather than those of the Obama Administration (as were reflected in Mr. Cordray’s plan).

Finally, it should be noted that Mr. Mulvaney’s plan provides no specifics about existing or potential future regulations or enforcement or supervisory initiatives.

 

 

On February 8, 2018 the United States House of Representatives passed The Mortgage Choice Act, H.R. 1153, to revise the definition of “points and fees” for purposes of the Regulation Z ability to repay/qualified mortgage requirements and high-cost mortgage loan requirements.  Although a voice vote was held on February 7, Chairman of the House Financial Services Committee Jeb Hensarling demanded a roll call vote.  The roll call vote was 280 to 131.

The Act would amend the definition of “points and fees” for purposes of the requirements to exclude charges for title examinations, title insurance or similar purposes regardless of whether the title company is affiliated with the creditor.  Currently for such charges to be excluded from points and fees the title company must not be an affiliate of the creditor.  The Act also would make a conforming change to exclude escrowed amounts for insurance from points and fees.  Currently escrowed amounts for taxes are excluded from points and fees.

As we reported previously, last year the House passed the Financial CHOICE Act.  The Act included the same amendments to the “points and fees” definition, but was never enacted into law.  Prior bills including the same amendments have suffered the same fate.

The focus now shifts to the Senate.  Because the Mortgage Choice Act would amend Dodd-Frank provisions, that can pose difficulty for Senate passage.  With 52 Democrats joining with Republicans to pass the Act, this may indicate that the Act has a greater chance of success than Financial CHOICE Act.  No Democrats voted for the Financial CHOICE Act, and that Act included more sweeping Dodd-Frank changes than the narrow changes included in the Mortgage Choice Act.

Identical bills have been introduced in the New York Assembly (A08938) and Senate (S07294) that would direct the New York Department of Financial Services (DFS) to issue a report on online lending by July 1, 2018.

The bills are intended to amend legislation signed into law by New York Governor Cuomo on December 29, 2017 (S6593A) that created a seven-person task force to study online lending and issue a report by April 15, 2018 containing specified information.  The task-force members are to consist of three individuals appointed by the Governor, two members appointed by the Temporary President of the Senate, and two members appointed by the Speaker of the Senate.

The bills would eliminate the task force and provide that the report is to be prepared by the DFS “in consultation with stakeholders, including online lenders, consumers and small businesses.”  The information in the DFS report must include the following:

  • An analysis of online lenders presently operating in New York, including “the common means and methods of their operations, and business,” lending practices of the online lending industry, including disclosure practices, interest rates and costs charged, the primary differences between online lending products and services and those offered by traditional lending institutions, the risks and benefits of products offered by online lenders, and the forms of credit that would be available to borrowers in the absence of online lending opportunities;
  • The types and availability of credit products for individuals and businesses;
  • An analysis of  available data regarding complaints, actions and investigations related to online lenders; and
  • A survey of existing state and federal laws and regulations that apply to online lending and the impact of such laws and regulations on consumers and access to online lenders.