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H.J. Res. 31, the appropriations bill signed into law by President Trump on February 15 that ended the partial government shutdown and provides funding for fiscal year 2019 through September 30, 2019, includes a provision dealing with CFPB funding requests.

Pursuant to Section 1017(a)(1) of the Dodd-Frank Act, subject to the Act’s funding cap, the Fed is required to transfer to the CFPB on a quarterly basis “the amount determined by the [CFPB] Director to be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law, taking into account such other sums made available to the Bureau from the preceding year (or quarter of such year.)”  During former Director Cordray’s tenure, numerous bills were introduced by Republican lawmakers that sought to make the CFPB subject to the regular appropriations process.  The CFPB’s insulation from that process has been one of the grounds used to challenge the Bureau’s constitutionality.

Section 746 of H.J. Res. 31 provides that during FY 2109, when the CFPB Director requests a funds transfer from the Fed, the CFPB “shall notify the Committees on Appropriations of the House of Representatives and the Senate, the Committee on Financial Services of the House of Representatives, and the Committee on Banking, Housing, and Urban Affairs of the Senate of such request.”  Such notification must also be posted on the CFPB’s website.

In addition, the Conference Report includes the following statement:

Given the need for transparency and accountability in the Federal budgeting process, the CFPB is directed to provide an informal, nonpublic full briefing at least annually before the relevant Appropriations subcommittee on the CFPB’s finances and expenditures.

 

 

The CFPB recently issued its Fall 2018 Semi-Annual Report to Congress covering the period April 1, 2018 through September 30, 2018.

The report represents the CFPB’s first semi-annual report under the leadership of Director Kathy Kraninger.  At 43 pages, the new report is only two pages longer than the last semi-annual report issued under the leadership of former Acting Director Mick Mulvaney and continues what appeared to be the goal under Mr. Mulvaney’s leadership of issuing semi-annual reports that were substantially shorter than those issued under the leadership of former Director Cordray.  Also like the semi-annual reports issued under Mr. Mulvaney’s leadership, and also in contrast to those issued under Mr. Cordray’s leadership, the new report does not contain any aggregate numbers for how much consumers obtained in consumer relief and how much was assessed in civil money penalties in supervisory and enforcement actions during the period covered by the report.

The new report indicates that the Bureau had 1,510 employees as of September 30, 2018, representing a decrease of 161 employees from the number of employees as of March 31, 2018 (which was 1,671 employees).

In addition to discussing ongoing or past developments that we have covered in previous blog posts, the report includes the following noteworthy information:

  • During the period October 1, 2017 through September 30, 2018 the Bureau received approximately 329,000 complaints.  The prior semi-annual report indicated that the number of complaints received during the period April 1, 2017 through March 31, 2018 was approximately 326,200.  This suggests there has been no spike in the number of complaints since former Director Cordray left the Bureau at the end of November 2017.
  • It appears that any pending federal court actions were filed under Mr. Cordray’s leadership, with no new enforcement actions having been filed by the Bureau in federal court since Mr. Cordray’s departure.
  • During the period covered by the report, the CFPB initiated a “higher number of fair lending supervisory events,” and issued a greater number of matters requiring attention or memoranda of understanding than in the prior period.  The Bureau also found that entities satisfied (i.e. resolved) a lower number of MRAs or MOU items from past supervisory events than in the prior period.
  • Over the past year (presumably from October 1, 2017 through September 30, 2018), the Bureau did not initiate any fair lending public enforcement actions and did not refer any matters to the DOJ with regard to discrimination.

 

 

“Disclosure Sandbox.”  In September 2018, the Bureau proposed significant revisions to its “Policy to Encourage Trial Disclosure Programs” which sets forth the Bureau’s standards and procedures for exempting individual companies, on a case-by-case basis, from applicable federal disclosure requirements to allow those companies to test trial disclosures.

Last week, the CFPB added the following update to its blog post about the proposal:

The original headline [which referred to “companies”] suggested that the proposed Disclosure Sandbox would be open only to “fintech companies.”  In fact, as the body of the post indicates, any covered entity, regardless of its categorization as“FinTech, “bank,” “credit union” or otherwise, could apply to test a trial disclosure with the Sandbox.

Among the issues raised by the proposal that we noted was whether waivers would only be granted in connection with financial products or services that involve technological or other innovations and will not be granted in connection with conventional products or services.  While the CFPB’s update indicates that non-fintech companies would be eligible for a waiver, it continues to be uncertain whether waivers would be granted in connection with conventional products or services.

NAL Policy and New “Product Sandbox.”  In December 2018, the CFPB issued proposed revisions to its 2016 final policy on issuing “no-action” letters (NAL), together with a proposal to create a new “product sandbox.”  The comment period on the proposals ended earlier this week.  As might be expected, like its “disclosure sandbox” proposal, the CFPB’s proposed revisions to the NAL policy and proposal to create a new “product sandbox” has drawn criticism from consumer and public interest groups.

Among the arguments made in a comment letter from 77 “consumer, civil rights, legal services, labor and community groups” are claims that the proposals could violate the Administrative Procedure Act, exceed the Bureau’s authority, and would expose consumers to risk of harm.  The objections to the proposals set forth in another comment letter filed by 9 consumer and public interest groups that include the Center for Responsible Lending and the National Consumer Law Center also include claims that the creation of a “product sandbox” exceeds the CFPB’s authority and the proposals violate rulemaking requirements.  In addition, the letter includes suggestions for how the proposals might be modified.

 

 

 

The CFPB recently issued A Regulatory and Reporting Overview Reference Chart for HMDA Data Collected in 2019. As previously reported, the Economic Growth, Regulatory Relief, and Consumer Protection Act created an exemption from the reporting of the new HMDA data categories for smaller mortgage loan volume depository institutions and credit unions. The 2019 Chart is updated from the 2018 version to include guidance on how to address data categories that do not have to be reported under the exemption. The 2019 Chart also provides how a lender that elects not to report a Universal Loan Identifier for an application or loan under the exemption would report a Non-Universal Loan Identifier for the application or loan.

Unrelated to the exemption, the 2019 Chart also includes additional guidance on the reporting of the Credit Scoring Model and the reporting of the Automated Underwriting System result.

The Fifth Circuit has calendared oral argument in the All American Check Cashing case for March 12, 2019.  The case is one of the three cases currently pending in the circuit courts that involve a challenge to the CFPB’s constitutionality.

The other two cases are RD Legal Funding which is pending in the Second Circuit and Seila Law which is pending in the Ninth Circuit.  While briefing in the Second Circuit in RD Legal Funding will not begin until next month, the Ninth Circuit has already held oral argument in Seila Law (on January 9).  (At the oral argument, the Bureau defended its constitutionality.)  As a result, the March 12 oral argument date in All American Check Cashing creates the strong possibility that two more circuit court decisions ruling on the CFPB’s constitutionality could be issued this year.

One factor that will determine how quickly the issue could get to the U.S. Supreme Court is whether en banc review is sought from the panel decisions in either or both of these cases.  It seems virtually certain that the Supreme Court would grant a petition for certiorari in one of these cases if the circuit court’s decision creates a conflict with the D.C. Circuit’s en banc PHH decision that held the CFPB’s structure is constitutional.  However, even in the absence of a circuit conflict, there is a strong likelihood that the Supreme Court would agree to hear one of the cases given the significance of the constitutionality issue.

With regard to en banc review in All American Check Cashing, in August 2018, All American Check Cashing filed a petition asking the Fifth Circuit for an initial en banc hearing in its interlocutory appeal.  Although the Fifth Circuit’s Clerk’s Office confirmed to us last Friday that the petition has not yet been ruled on, the case docket indicates that oral argument is to be held in the Fifth Circuit’s en banc courtroom.  It is unclear whether the designation of what is presumably a larger courtroom as the venue for the oral argument reflects an anticipated high level of interest in the argument or the possibility that an initial en banc hearing might still be granted.

 

 

The U.S. Supreme Court has denied the petition for certiorari filed by State National Bank of Big Spring (SNB) which, together with two D.C. area non-profit organizations that also joined in the petition, had brought one of the first lawsuits challenging the CFPB’s constitutionality.

Despite agreeing with the petitioners that the CFPB’s structure is unconstitutional, the DOJ urged the court to deny the petition, calling the case “a poor vehicle to consider the question [of the CFPB’s constitutionality] for multiple reasons.”  Among such reasons was the DOJ’s claim that if the Supreme Court were to grant the petition, the case would likely not be considered by the full Court because of Justice Kavanaugh’s previous participation in the case while a D.C. Circuit judge.  (The order denying the petition for certiorari states that “Justice Kavanaugh took no part in the consideration or decision of this petition.”)

Another reason given by the DOJ was that other cases are pending in the courts of appeal that raise a similar constitutional challenge and “one or more of those cases may not present the same obstacles that could impede the full Court from considering the merits of this important issue.”  Those cases are the All American Check Cashing case pending in the Fifth Circuit, the RD Legal Funding case pending in the Second Circuit, and the Seila Law case pending in the Ninth Circuit.  Oral argument was held last week in the Seila Law case and is tentatively calendared for the week of March 11, 2019 in the All American Check Cashing case.  Briefing is scheduled to begin next month in the RD Legal Funding case.

 

 

 

As previously reported, in September 2017 the CFPB proposed policy guidance regarding what application-level Home Mortgage Disclosure Act (HMDA) data would be disclosed to the public based on the significant expansion to the HMDA data reporting items that the CFPB adopted in October 2015. Calendar year 2018 was the first year that reporting institutions collected data under the expanded requirements, and that data must be reported to the government by March 1, 2019. Not long after Kathy Kraninger became the new CFPB Director, the CFPB announced the final policy guidance regarding the application-level HMDA data that will be made available to the public. Unfortunately, by adopting final guidance that is very similar to the proposed guidance, the CFPB is emphasizing public disclosure over consumer privacy concerns.

HMDA requires the modification of data released to the public “for the purpose of protecting the privacy interests of mortgage applicants”. Under the prior HMDA requirements, the application or loan number, the date the application was received and the date the institution took final action on the application were removed from the application-level data that was released to the public. However, even under the prior HMDA requirements, there were concerns that by combining the publicly available HMDA data with other data sources, the identity of each applicant can be determined. With the significant expansion of the HMDA data items, as well as the overall increase in data on consumers that is available in the marketplace, the privacy concerns are even greater. For example, the revised HMDA data items include, among other items, the applicant’s age, income (which is currently reported), credit score, and debt-to-income ratio; the automated underwriting results; the property address; loan cost information; and, for denied applications, the principal denial reasons.

When the CFPB adopted the October 2015 revisions it deferred making a decision on which elements of the expanded HMDA data would be reported on an application-level basis. However, the CFPB indicated that it would use a balancing test to decide what information to disclose publicly, and would allow public input on the information that it proposed to disclose. At that time the CFPB advised that
“[c]‍‍‍onsidering the public disclosure of HMDA data as a whole, applicant and borrower privacy interests arise under the balancing test only where the disclosure of HMDA data may both substantially facilitate the identification of an applicant or borrower in the data and disclose information about the applicant or borrower that is not otherwise public and may be harmful or sensitive.” The CFPB echoed the balancing test approach in adopting the final guidance. However, the approach is off balance, as it sides too much on the side of public disclosure, ignoring valid consumer privacy concerns.

Under the final policy guidance, the CFPB will make all of the HMDA data available to the public on an application-level basis, except as follows:

  • The following information would not be disclosed to the public (the non-disclosure of the first three items is consistent with prior public disclosure practices):
    • The universal loan identifier.
    • The date the application was received or the date shown on the application form (whichever was reported).
    • The date of the action taken on the application.
    • The property address.
    • The credit score(s) relied on.
    • The NMLS identifier for the mortgage loan originator.
    • The automated underwriting system result.
    • The free form text fields for the following (the standard fields reported would be disclosed):
      • The applicant’s race and ethnicity.
      • The name and version of the credit scoring model.
      • The principal reason(s) for denial.
      • The automated underwriting system name.
  • The CFPB will disclose in a modified format the loan amount, age of the applicant, the applicant’s debt-to-income ratio, the property value, the total individual dwelling units in the property, and for a multi-family dwelling the individual dwelling units that are income-restricted.
    • For the loan amount, the CFPB will disclose:
      • The midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000. (Under prior requirements the loan amount was reported to the nearest $1,000, and the reported amount was disclosed to the public.)
      • Whether the reported loan amount exceeds the Fannie Mae and Freddie Mac conforming loan limit.
    • For the age of the applicant, the CFPB will disclose:
      • Ages of applicants in the following ranges: Under 25, 25 to 34, 35 to 44, 45 to 54, 55 to 64, 65 to 74, and over 74.
      • Whether the reported age is 62 or over. For purposes of the Equal Credit Opportunity Act, a person is considered elderly if they are age 62 or over.
    • For the debt-to-income ratio, the CFPB will disclose:
      • The reported debt-to-income ratio for reported values of 36% to less than 50%, and other debt-to-income ratios in the following ranges: under 20%, 20% to less than 30%, 30% to less than 36%, 50% to less than 60% and 60% or higher. As proposed, the reported debt-to-income level would have been disclosed for reported values of 40% to less than 50%.
    • For the property value, the CFPB will disclose the midpoint for the $10,000 interval into which the reported value falls, such as $115,000 for amounts of $110,000 to less than $120,000.
    • For the total individual dwelling units in the property, the CFPB will disclose:
      • The reported number of units for reported values below 5, and other unit numbers in the following ranges: 5 to 24, 25 to 49, 50 to 99, 100 to 149 and over 149. The CFPB had proposed to disclose the actual number of units reported.
    • For the individual dwelling units in a multifamily property that are income-restricted, the CFPB will disclose the reported value as a percentage, rounded to the nearest whole number, of the value reported for the total individual dwelling units. The CFPB had proposed to disclose the actual number of units reported.

Although the loan amount will now be reported in the applicable $10,000 interval and not to the nearest $1,000, the concern is that the totality of the information that is publicly available will make it easier than it is today to determine the identity of the applicant. Thus, based on the final policy guidance, there is a risk that a significant amount of information that consumers view as being confidential will become publicly available. The CFPB essentially dismissed most privacy concerns raised by parties commenting on the proposed policy guidance.

While the final policy guidance favors public disclosure over consumer privacy concerns, the final policy guidance may have a limited life. As previously reported, the CFPB has indicated that it plans to reopen HMDA rulemaking to reconsider various aspects of the revised HMDA rule, including the discretionary data points that were added by the CFPB. We noted previously that the CFPB’s Fall Rulemaking Agenda has a target of May 2019 for the issuance of a notice of proposed rulemaking. Potentially, the CFPB may eliminate entirely, or modify, one or more data categories that are included in the information disclosed publicly. The CFPB states as follows in the supplementary information to the final policy guidance: “The Bureau intends to commence a rulemaking in the spring of 2019 that will enable it to identify more definitively modifications to the data that the Bureau determines to be appropriate under the balancing test and incorporate these modifications into a legislative rule. The rulemaking will reconsider the determinations reflected in this final policy guidance based upon the Bureau’s experience administering the final policy guidance in 2019 and on a new rulemaking record, including data concerning the privacy risks posed by the disclosure of the HMDA data and the benefits of such disclosure in light of HMDA’s purposes.” Thus, in addition to reconsidering the HMDA rule itself, the CFPB already plans to reconsider the approach to public disclosure taken in the final policy guidance.

The adoption of policy guidance that favors public disclosure over consumer privacy appears contrary to the approach of former Acting Director Mulvaney. Perhaps the action reflects that Director Kraninger will take a different approach. Or perhaps Director Kraninger simply decided to initially punt on the issue. The guidance needed to be adopted in view the impending March 1 filing deadline for HMDA data. But as noted above, the CFPB intends to revisit both the HMDA rule itself and the policy guidance. Perhaps Director Kraninger will reassess the approach during the upcoming rulemaking.

Note that while the approach to the public disclosure of HMDA data is adopted in the form of public guidance and not a formal rule, the CFPB advises in the supplementary information to the guidance that pursuant to the Congressional Review Act it will file the guidance with Congress. As we previously reported, the Government Accountability Office determined that the CFPB bulletin on “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act” was a rule subject to the Congressional Review Act, and subsequently under the Act Congress passed, and President Trump signed, legislation disapproving the bulletin. Presumably, this result influenced the decision of the CFPB to file the policy guidance with Congress under the Act.

According to an American Banker report, CFPB Director Kathy Kraninger recently sent an email to CFPB staff that provides a window into what her approach to running the CFPB will be.

The report quotes Ms. Kraninger as having said in the email that the CFPB must do its work “with an open mind and without presumptions of guilt, and to always carefully weigh the costs and benefits to consumers of our enforcement activities and regulatory rulemakings.”  She is also reported to have said that on her watch as Director, “the CFPB will vigorously enforce the law,” and that she wants the Bureau “to respect the rights of all we serve and interact with, to safeguard their personal information, and to be transparent in its operations.”  In addition, Ms. Kraninger is reported to have stressed the need for the CFPB to make sure that “the marketplace is innovating in ways that enhance both choice and the needs of the consumers.’

In our view, the email is a welcome signal that Ms. Kraninger does not intend to cast industry as the villain but instead intends to be fair-minded in her leadership of the CFPB and continue former Acting Director Mulvaney’s efforts to promote innovation.

 

 

As previously reported, late in 2018 the CFPB announced the availability of a beta version of a Home Mortgage Disclosure Act (HMDA) data platform for companies to test the filing of 2018 data. The CFPB has now announced that the beta testing period is closed and the HMDA data platform is open for the filing of 2018 data. The HMDA data platform can be accessed here.

All test data that companies uploaded during the beta testing period has been removed from the data platform. However, all user accounts created during the 2018 beta testing period, and also for the filing of 2017 data, will be maintained for the 2018 filing period. The reporting deadline for 2018 HMDA data is March 1, 2019.

CFPB Director Kathy Kraninger has sent an email to CFPB employees informing them of her decision to halt “all ongoing efforts to make changes to existing products and materials related to the name correction initiative.”  That initiative was initiated by former Acting Director Mulvaney.  Under his leadership, the Bureau began using “Bureau of Consumer Financial Protection” as its name, together with the acronym “BCFP,”  instead of, respectively, “Consumer Financial Protection Bureau” and “CFPB.”

Ms. Kraninger identified the name change as an “early priority” because of implementation decisions that must be made.  In initiating the name change and commissioning a seal reflecting the change, Mr. Mulvaney had pointed to the Dodd-Frank Act’s use of “Bureau of Consumer Financial Protection” to refer to the agency.  Ms. Kraninger stated that the new seal and “the statutory name we were given in Dodd-Frank” would be used for “statutorily required reports, legal filings, and other items specific to the Office of the Director.”  However, for all other materials, the Bureau will continue to use the name “Consumer Financial Protection Bureau”  and “the existing CFPB logo.”

Ms. Kraninger indicated that she made her decision “after being fully briefed on the costs, operational challenges and the effect on stakeholders.”  Her decision closely follows Senator Elizabeth Warren’s sending of a letter to the Inspector General for the Fed and CFPB asking for an investigation into Mr. Mulvaney’s decision to change the Bureau’s name.  In her letter, Senator Warren cited reports and an internal Bureau analysis indicating that the name change would cost the CFPB between $9 million and $19 million and would cost entities subject to CFPB supervision approximately $300 million to update internal databases, regulatory filings, and disclosure forms with the new name.

We applaud Director Kraninger for quickly addressing this issue and addressing it in a practical manner.