The CFPB recently issued revised TILA/RESPA Integrated Disclosure (TRID) rule guides to reflect the adoption of an amendment to the rule to fix the so-called “black hole” issue.  As we reported previously, the amendment will permit the use of an initial or revised Closing Disclosure to reset tolerances without regard to the timing of when before consummation the creditor learns of a change that causes one or more fees to increase.  The amendment will apply to transactions in process as of June 1, 2018 regardless of when the loan application was received, but the amendment may not be applied retroactively.

The CFPB updated both versions of the Small Entity Compliance Guide and the Guide to Forms.  The reason there are two versions of each guide is to account for the TRID rule amendments adopted last summer that became effective on October 10, 2017, but have a mandatory compliance date of October 1, 2018.  While both versions of each guide now reflect the 2018 TRID rule amendment, one version of each guide does not reflect the 2017 amendments and one version of each guide reflects the 2017 amendments.

The CFPB’s Spring 2018 rulemaking agenda has been published by the Office of Information and Regulatory Affairs (OIRA) as part of its Spring 2018 Unified Agenda of Federal Regulatory and Deregulatory Actions.  (OIRA is part of the Office of Management and Budget.)  It represents the CFPB’s first rulemaking agenda that reflects the CFPB’s rulemaking plans under the Trump Administration and Mick Mulvaney’s leadership.  The agenda’s preamble indicates that the information in the agenda is current as of March 15, 2018 and identifies the regulatory matters that the Bureau “reasonably anticipates…having under consideration during the period from May 1, 2018, to April 30, 2019.”

The preamble notes that the CFPB “is under interim leadership” and lists the matters that, “in light of this status, Bureau leadership is prioritizing during coming months.”  Those matters are:

  • Meeting specific statutory responsibilities
  • Continuing selected rulemakings that were already underway
  • Reconsidering two regulations issued under the prior leadership

The CFPB previously announced its plans to reconsider its payday lending rule and HMDA/Regulation C rule.  The Spring 2018 agenda estimates the issuance of notices of proposed rulemakings (NPRM) for these two rules in, respectively, February 2019 and January 2019.

Most significantly, the Bureau states in the preamble that Mr. Mulvaney “has decided to classify as ‘inactive’ certain other rulemakings that had been listed in previous editions of the Bureau’s Unified Agenda in the expectation that final decisions whether and when to proceed with such projects will be made by the Bureau’s next permanent director.”  It also states that several items listed as potential long-term projects in the CFPB’s Fall 2017 rulemaking agenda have been designated “inactive.”  The Bureau indicates that the change in designation “is not intended to signal a substantive decision on the merits of the projects.”

The noteworthy items designated “inactive” are:

  • Overdrafts  (This was a “prerule stage” item in the Fall 2017 agenda.)
  • “Larger Participants”  (This was both a “proposed rule stage” and “long-term actions” item in the Fall 2017 agenda which stated (as did prior agendas) that the Bureau was considering “larger participant” rules “in markets for consumer installment loans and vehicle title loans for purposes of supervision” as well as possible other “larger participant” regulations based on market trends and developments.  It also stated that the Bureau was “considering whether rules to require registration of these or other non-depository lenders would facilitate supervision.”)
  • Student Loan Servicing  (This was a “long-term actions” item in the Fall 2017 agenda.)

In addition to reconsidering the payday lending and HMDA rules, the other key rulemaking initiatives listed on the Spring 2018 agenda are:

  • Debt Collection. The agenda states that the Bureau “is preparing a proposed rule focused on FDCPA collectors that may address such issues as communication practices and consumer disclosures.”  It estimates the issuance of a NPRM in March 2019.
  • Business Lending Data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data includes the race, sex, and ethnicity of the principal owners of the business.  In May 2017, the CFPB issued a RFI and a white paper on small business lending in conjunction with a field hearing on small business lending.  The RFI was intended to inform the CFPB’s rulemaking to implement Dodd-Frank Act section 1071.  The Spring 2018 agenda states that the information received in response to the RFI “will help the Bureau determine how to implement [Section 1071] efficiently while minimizing burdens on lenders.”  It estimates a March 2019 date for prerule activities.
  • Privacy Notices.  In July 2106, the CFPB issued a proposal to amend Regulation P, which implements the Gramm-Leach-Bliley Act (GLBA), to implement a GLBA amendment that provided financial institutions that meet certain conditions with an exemption from the GLBA requirement to deliver annual privacy notices to customers.  The Spring 2018 agenda indicates that the CFPB expects to issue a final rule in June 2018.

The key long-term actions items listed in the Spring 2018 agenda are:

  • Inherited Regulations.  These are the existing regulations that the CFPB inherited from other agencies through the transfer of authorities under the Dodd-Frank Act.  Previously listed on the Fall 2017 agenda as a “prerule stage” item, the Spring 2018 lists the CFPB’s review of the inherited regulations as a “long-term actions” item.  In the preamble, the CFPB indicates that it expects to focus its initial review on the subparts of Regulation Z  that implement TILA with respect to open-end credit and credit cards in particular.  By way of example, the CFPB states that it expects to consider adjusting rules concerning the database of credit card agreements it is required to maintain by the CARD Act “to reduce burden on issuers that submit credit card agreements to the Bureau and make the database more useful for consumers and the general public.”
  • Consumer reporting.  This was previously listed in the Fall 2017 agenda as a “long-term actions” item. The Spring 2018 agenda indicates that the Bureau will evaluate potential additional rules or amendments to existing regulations governing consumer reporting, with possible topics for consideration to include the accuracy of credit reports, including the processes for resolving consumer disputes, identity theft, or other issues.
  • Consumer Access to Financial Records.  This was also previously listed in the Fall 2017 agenda as a “long-term actions” item.  In November 2016, the CFPB issued a RFI about market practices related to consumer access to financial information.  The Spring 2018 agenda states that the Bureau will continue to monitor market developments and evaluate possible policy responses to issues identified, including potential rulemaking. Possible topics the Bureau might consider include specific acts or practices and consumer disclosures. In addition, the Bureau plans to consider “whether clarifications or adjustments are necessary with respect to existing regulatory structures that may be implicated by current and potential developments in this area.”
  • Regulation E Modernization.  This is another item that was previously listed in the Fall 2017 agenda as a “long-term actions” item.   The Spring 2018 agenda states that the Bureau “will evaluate possible updates to the regulation, including but not limited to how providers of new and innovative products and services comply with regulatory requirements” and that “potential topics for consideration might include disclosure provisions, error resolution provisions, or other issues.”

 

 

As we reported previously, the CFPB recently adopted a long-awaited amendment to the TILA/RESPA Integrated Disclosure (TRID) rule that fixes the so-called black hole issue.

The amendment was published in the May 2, 2018 Federal Register and will become effective on June 1, 2018.  The CFPB notes in the supplementary information to the amendment that “[o]nce the final rule becomes effective, the ability to reset tolerances prior to consummation for a given transaction will not be limited by when the application was received.”  Thus, as of June 1, 2018 the flexibility created by the amendment regarding the use of a Closing Disclosure to reset tolerances will be available for both loan applications that are in process at the time, as well as loan applications made on and after such date.  However, the CFPB also made clear that the amendment may not be applied retroactively.

The CFPB, which is now referring to itself as the “Bureau of Consumer Financial Protection,” published the long-awaited final rule to address the so-called “black hole” issue under the TILA/RESPA Integrated Disclosure (TRID) rule.  The CFPB also issued an Executive Summary of the final rule.  The final rule will become effective 30 days after publication in the Federal Register.

Under the TRID rule, a Loan Estimate is the disclosure primarily used to reset tolerances. Because the final revised Loan Estimate must be received by the consumer no later than four business days before consummation, the Commentary to the TRID rule includes a provision under which a creditor may use a Closing Disclosure to reset tolerances if “there are less than four business days between the time” a revised Loan Estimate would need to be provided and consummation.  Because of the four-business-day timing element, in various cases when a creditor learns of a change, the creditor is not able to use a Closing Disclosure to reset tolerances.  This situation is what the industry termed the “black hole.”  The industry repeatedly asked the CFPB to address the black hole issue.  As previously reported in our Mortgage Banking Update, when the CFPB finalized various amendments to the TRID rule last summer, it punted on a prior proposal to address the black hole issue and proposed another rule to address the issue.  The CFPB has now finalized the second proposal.

In the final rule the CFPB removes the four business day timing element, and makes clear that either an initial or a revised Closing Disclosure can be used to reset tolerances.  Consistent with the requirements for the Loan Estimate, when the TRID rule permits a creditor to use a Closing Disclosure to revise expenses, the creditor must provide the Closing Disclosure within three business days of receiving information sufficient to establish that a changed circumstance or other event triggering a change has occurred.

When proposing the amendment last summer, the CFPB requested comments on whether it should impose additional limits on the ability of a creditor to reset tolerances with a Closing Disclosure, such as allowing a reset of tolerances only in certain of the circumstances currently permitted by the TRID rule.  The CFPB decided not to impose additional limits.

A recent bill introduced in the US House of Representatives would require the CFPB to issue guidance on federal consumer financial laws, and also provide a framework for civil money penalties.  H.R. 5534 would create the Give Useful Information to Define Effective Compliance Act or GUIDE Compliance Act.  The bill was introduced by Representative Sean Duffy (R-WI) and is co-sponsored by Representative Ed Perlmutter (D-CO).

The Act would require the CFPB Director to “issue guidance that is necessary or appropriate to enable the Bureau to carry out Federal consumer financial law, including facilitating compliance with such law.”  For purposes of the Act, “guidance” is defined as “any written interpretive or legislative rule, interim final rule, bulletin, statement of policy, letter, examination manual, frequently asked question, or other document issued by the Bureau regarding compliance with a Federal consumer financial law that is exempt from notice and comment rulemaking requirements under section 553(b) of [the Administrative Procedure Act,] title 5, United States Code.”  The Act does not provide any parameters on specific laws or issues that the CFPB should address, or the nature of the guidance provided.  The Act would require that a proposed rule be published within one year of the date that the Act becomes law, with a final rule being published within 18 months of that date.  The Act also would provide that no person could be held liable for any act done or omitted in good faith in conformity with CFPB guidance.

At least some of the guidance that the Act would require would trigger the ability of Congress to consider the guidance under the Congressional Review Act (CRA).  We previously addressed the ability of Congress under the CRA to address not only federal agency actions structured as rules, but also guidance issued by such agencies that rises to the level of a rule within the purview of the CRA.

The Act also would require the CFPB to publish within 18 months of the date the Act becomes law a proposed rule establishing guidelines for determining the size of any civil money penalties issued by the CFPB “based on the severity of the actionable conduct in violation of a Federal consumer financial law and the level of culpability.”  The final rule would need, “to the fullest extent possible, align with any chart, matrix, rule, or guideline published by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, or the Board of Governors of the Federal Reserve System.”

The Act would address calls from various industry members that the CFPB issue authoritative guidance on rules, and provide a framework for the imposition of civil money penalties.  While the Act would require that the framework for civil money penalties conform with the framework of the federal banking agencies, as noted above there are no parameters set forth for any guidance on consumer financial laws that is issued by the CFPB.  To some this evokes the adage, be careful what you wish for, you may get.

We believe the CFPB’s recent RFI on the Bureau’s adopted regulations, which Acting Director Mulvaney discussed during his testimony before the House Financial Services and Senate Banking Committees, provides the prepaid industry an opportunity to persuade the Bureau to reconsider its prepaid rule that was issued in October 2016 and amended in January 2018.

As I stated during a panel discussion at the Network Branded Prepaid Card Association-American Banker Power of Prepaid Conference in Washington, DC earlier this week, this opportunity gives new life to industry officials who interpreted the Bureau’s decision to finalize the prepaid rule amendments without any significant changes to the amendments as proposed by former Director Cordray to mean that Acting Director Mulvaney would not reconsider any part of the prepaid rule.

We surmise that Acting Director Mulvaney’s finalization of the prepaid rule amendments was based on the mistaken belief that industry concerns were largely addressed by the amendments proposed in June 2017.  Because the most recent comment period was limited to the proposed amendments, we believe that Acting Director Mulvaney did not have an opportunity to consider other aspects of the prepaid rule that were not addressed by the amendments, such as the inclusion of certain digital wallets and onerous restrictions on overdraft and credit features.

Because the CFPB rulemaking resources will be prioritized and deployed in the near future, companies who want the CFPB to reconsider the prepaid rule (as it announced it plans to do with the payday and HMDA rules) should submit responses to the RFI well before the June 19, 2018 deadline.  We are working with clients and trade associations to submit responses to the various RFIs, including the RFI focusing on the adopted regulations.

The CFPB has issued a request for information that seeks comment on its adopted regulations and new rulemaking authorities.  Comments on the RFI must be received by June 19, 2018.

As used in the RFI, the “Adopted Regulations” generally include “all final rulemakings that the Bureau issued after providing notice and seeking public comment, including any accompanying Official Interpretations (commentary) issued by the Bureau.”  For purposes of the RFI, the Adopted Regulations include statutorily–mandated or discretionary rules issued by the CFPB pursuant to rulemaking authority transferred by Dodd-Frank from another agency to the CFPB as well as new CFPB rulemaking authorities created by Dodd-Frank.

The RFI’s Supplementary Information distinguishes the Adopted Regulations from the CFPB’s Inherited Regulations.  The Inherited Regulations are the regulations issued by other agencies pursuant to rulemaking authority transferred to the CFPB by Dodd-Frank.  Many of the Adopted Regulations amended the Inherited Regulations.

Although the CFPB’s 2015 HMDA rule and its 2017 small dollar loan rule are Adopted Regulations, the CFPB is not currently requesting feedback on those rules because it has previously announced that it intends to engage in further rulemaking to reconsider those rules. The CFPB also notes that although it had previously announced that it was conducting assessments of certain Adopted Regulations concerning remittance transfers, mortgage servicing, and ability to repay and qualified mortgages, respondents to the RFI are free to comment on those rules.  However, for purposes of the RFI, the CFPB will consider any comments previously received in connection with the assessments.

Subject to those qualifications, the CFPB seeks feedback on all aspects of the Adopted Regulations, including the following:

  • Aspects of the Adopted Regulations that should be tailored to institutions of particular types or sizes, create unintended consequences, overlap or conflict with other laws or regulations so as to make compliance difficult or particularly burdensome, are incompatible or misaligned with new technologies, or could be modified to provide consumers more protection from identity theft
  • Changes the CFPB could make to the Adopted Regulations to more effectively meet the statutory purposes and objectives set forth in the federal consumer financial laws and the CFPB’s goals for a particular regulation
  • Changes the CFPB could make to the Adopted Regulations that would advance the CFPB’s statutory purposes set forth in Section 1021 of Dodd-Frank
  • Pilots, field tests, demonstrations, or other activities the CFPB could launch to better quantify benefits and costs of potential revisions to the Adopted Regulations or to make compliance with the Adopted Regulations more efficient and effective
  • Areas where the CFPB has not fully exercised its rulemaking authority in connection with a specific Adopted Regulation or with regard to rulemaking authority created by Dodd-Frank and where rulemaking would be beneficial and align with the purposes and objectives of applicable federal consumer financial laws

The new RFI represents the eighth in a series of RFIs announced by Mr. Mulvaney.  The subjects of the CFPB’s first seven RFIs and their comment deadlines are as follows:

In its press release announcing the latest RFI, the CFPB stated that the next RFI in the series will be issued next week and will address the CFPB’s Inherited Regulations and inherited rulemaking authorities.

 

 

The CFPB has issued a request for information that seeks comment on its rulemaking processes.  Comments on the RFI must be received by June 7, 2018.

The RFI begins with a review of the statutory requirements that are relevant to the CFPB’s rulemaking processes.  The RFI discusses the Administrative Procedure Act notice-and-comment requirements, the Regulatory Flexibility Act requirements for rulemakings that will have a significant impact on a substantial number of small business entities (often referred to as the SBREFA process), federal law requirements for various impact analyses of proposed and final rules, and federal law requirements and MOU agreements for consultation with other federal agencies.

The CFPB states that while many elements of its rulemaking are required by law, a number of its rulemaking processes, and certain elements of how it implements required processes, are discretionary. The RFI is intended to obtain public input on the discretionary aspects of the CFPB’s rulemaking processes.

In the RFI, the CFPB seeks feedback on all discretionary aspects of its rulemaking processes, including the following:

  • Mechanisms used by the CFPB to gather information, data, and feedback from stakeholders such as RFIs
  • Convening a SBREFA panel, including the outline of the proposal under consideration, selection and interaction with small entity representatives, and the SBREFA panel report
  • Various issues relating to Notices of Proposed Rulemaking, such as the content of the NPRM itself, the CFPB’s practices with regard to issuing a NPRM, length of comment periods, processing and posting of comments, outreach and engagement during and after the comment period, and consideration of new data and other information issued by other agencies or third parties after a NPRM is released
  • Content of a notice issuing a final rule and the CFPB’s practices in advance of a final rule’s publication in the Federal Register, such as issuing a press release and having the Director present remarks at a public event or on a press call

The new RFI represents the seventh in a series of RFIs announced by Mr. Mulvaney.  The subjects of the CFPB’s first six RFIs and their comment deadlines are as follows:

In its press release announcing the latest RFI, the CFPB stated that the next RFI in the series will be issued next week and will address the CFPB’s adopted rules.

 

On January 26, 2018, the CFPB published a “Request for Information Regarding Bureau Civil Investigative Demands and Associated Processes” (“Request”) in the Federal Register. In the Request, the CFPB asks industry and attorneys who regularly practice before the Bureau to comment on its processes surrounding Civil Investigative Demands (“CID”) and investigational hearings. Comments are due by March 27, 2018 and can be submitted electronically, by email, by regular mail, or by hand-delivery. The Request indicates that all comments will be posted online without change.

The CFPB requested comments on several specific topics, but did not limit comments to them. The topics include:

  1. The process for issuing CIDs; the authority of CFPB personnel to issue them; how CIDs  can be made less burdensome; and the timeframes and processes for complying with or challenging them.
  2. The requirements for responding to CIDs, including certification requirements, and the CFPB’s document submission standards.
  3. Transparency with CID recipients as to the focus of the investigation and what information the CFPB needs to conduct its investigation.
  4. The process for dealing with the inadvertent production of privileged information and whether that process should more closely mirror the Federal Rules of Evidence.
  5. The process for conducting investigational hearings of business entities, including whether it should more closely mirror the Federal Rules of Civil Procedure and whether counsel should be able to offer objections at investigational hearings.

This Request is one of the CFPB’s first opportunities to receive official comments from industry on its enforcement process. While the CFPB has requested comments on its rules and processes before, some people in the industry felt their comments were ignored. With the recent change of leadership, we anticipate a CFPB that will be more receptive to the concerns of industry. We therefore view the Request as an important opportunity for the industry to argue for permanent changes to the CID process, and to make the CID process more efficient, less expensive, and fairer to the targets of investigations.

On January 25, the CFPB finalized certain changes to the original Final Prepaid Rule (the “Rule”) proposed last summer.  The amended Rule still contains onerous restrictions on credit features and complicated disclosure requirements, but the changes are generally positive for prepaid providers and incorporate feedback from industry representatives.  Importantly, due to concerns about implementation difficulties, the effective date of the Rule, which was originally October 1, 2017 and delayed to April 1, 2018, is now further delayed to April 1, 2019.

The changes reverse two controversial aspects of the original Rule, and make several other changes:

  • Error Resolution and Limitation of Liability. One of the original Rule’s most controversial mandates required error resolution and limited liability protections for unregistered accounts (e., accounts that have not concluded the verification process, accounts where the process is concluded but the consumer’s identity could not be verified, and accounts in programs for which there is no such verification process).  Acknowledging “financial institutions’ fear of fraud losses,” the CFPB changed the Rule to no longer require financial institutions to resolve errors or limit consumers’ liability for unregistered prepaid accounts until after a financial institution successfully completes its consumer identification and verification process.  Notably, the Rule differs from last year’s proposed changes by not requiring financial institutions to limit liability or resolve errors that occurred prior to verification on accounts that are later successfully verified.  If no verification process is available, financial institutions must disclose to consumers the absence of, or limitations on, such protections.
  • Digital Wallets. The amended Rule also narrows the definition of “business partner” under Regulation Z to clarify the Rule’s application to digital wallets and to alleviate burdens for digital wallet providers.  Under the amended Rule, business arrangements between prepaid account issuers and issuers of traditional credit cards are excluded from coverage under the Rule’s hybrid prepaid-credit card provisions as long as
  1. the prepaid card cannot access credit from the credit card account during a prepaid card transaction without written consent to link the two accounts,
  2. the acquisition or retention of either account is not conditioned on whether the consumer authorizes such a connection, and
  3. the parties do not vary certain terms and conditions based on whether the two accounts are linked.

Deviating from last year’s proposal, the Rule now permits digital wallet providers to run negative balances when a covered separate credit feature offered by a business partner is attached to the digital wallet as long as the following requirements are met:

  1. the digital wallet cannot access credit from the covered separate credit feature that is offered by its business partner;
  2. the digital wallet provider has a general policy and practice of declining transactions that will take the account negative (at least outside of the situations involving incidental credit); and
  3. the digital wallet provider generally does not charge credit-related fees.

These changes do not completely exclude digital wallets that can store funds, or person-to-person (“P2P”) payment products from the Rule, but it does ease compliance burdens on digital wallet providers that allow consumers to link their debit and credit cards and to store and access funds.

  • Loyalty, award, and promotional gift cards. The amended Rule clarifies that loyalty, award, or promotional gift cards that are not marketed to the general public are not covered by the Rule, regardless of whether they provide disclosures under the Gift Card Rule.
  • Unsolicited Issuance. Regulation E provides that a financial institution may only issue an access device for an account to a consumer on an unsolicited basis in accordance with certain requirements. The original Rule raised questions about how the unsolicited issuance rules applied where the consumer is given no other option but to receive the disbursement via a prepaid account, such as prison release cards, jury duty cards, and certain types of refund cards.  The amended Rule provides that, under such facts, the financial institution can comply with the unsolicited issuance rule by informing the consumer that there is no other way to access funds in the prepaid account if the consumer disposes of the access device.
  • Pre-Acquisition Disclosures. The CFPB finalized changes that provide additional flexibility regarding the pre-acquisition disclosures mandated by the Rule:
  1. If there are no alternative means for the consumer to receive funds from a prepaid account (other than a payroll card account or government benefit account), pre-acquisition disclosures may be provided at the time the consumer receives the prepaid account.
  2. The original Rule required financial institutions to provide a long form disclosure after a consumer acquires a prepaid account at a retail location. The amended Rule provides that financial institutions may deliver the long form disclosure after acquisition without E-Sign consent, as long as it is not provided inside the prepaid account packaging material, and the financial institution is not otherwise mailing or delivering to the consumer written account-related communications within 30 days of obtaining the consumer’s contact information. The amended Rule does not require a financial institution to provide the long form disclosure if it has not obtained the consumer’s contact information.
  3. Under the amended Rule, if a financial institution provides pre-acquisition disclosures in writing, and a consumer subsequently completes the acquisition process online or by telephone, the financial institution need not provide the disclosures again electronically or orally.
  4. Financial institutions disclosing additional fee types with three or more fee variations are now able to consolidate those variations into two categories and allow those two categories to be disclosed on the short form.
  5. The amended Rule clarifies that foreign language pre-acquisition disclosures for payroll card accounts and government benefit accounts are not required where the foreign language is offered by telephone only via a real-time language interpretation service provided by a third party.
  • Submission of Agreements. To reduce compliance burdens, the amended Rule makes several changes to the original Rule’s requirements requiring submission of prepaid account agreements to the CFPB:
  1. Issuers may delay submitting a change in the names of other relevant parties to a prepaid account agreement (such as employers for a payroll card agreement) until the earlier of: (a) the time the issuer submits an amended agreement or changes to other identifying information; or (b) May 1 of each year, for any updates to the list of names of other relevant parties that occurred between the issuer’s last submission of relevant party information for that agreement and April 1 of that year.
  2. Short form and long form disclosures may be provided as separate addenda to the agreement, rather than integrated into the agreement or provided as a single addendum.

With the announcement of these changes, the CFPB provided an Executive Summary of the amended Rule, and an unofficial redline of the changes.

The preamble to the amended Rule states that the CFPB will submit a report to Congress pursuant to the Congressional Review Act (“CRA”) containing the Rule and other required information, and also states that this is not a major rule under the CRA.  Because the Senate did not previously reject the Prepaid Final Rule under the CRA, and because the amended Rule contains a lot of concessions to industry participants, we think it’s unlikely there will be a significant push for the Rule’s rejection.