The CFPB has filed its first status report with the California federal district court as required by the Stipulated Settlement Agreement in the lawsuit filed against the Bureau in May 2019 alleging wrongful delay in adopting regulations to implement Section 1071 of the Dodd-Frank Act.

Section 1071 amended the ECOA to require financial institutions to collect and report 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.  The Stipulated Settlement Agreement, which the court approved in February 2020, established a timetable for the Bureau to engage in Section 1071 rulemaking and required the Bureau to provide status reports to the plaintiffs and the court every 90 days until a Section 1071 final rule is issued.

The first two deadlines in the Stipulated Settlement Agreement relate to the SBREFA process.  The Agreement provides that the Bureau will release a SBREFA outline of proposals under consideration and alternatives considered by September 15, 2020, and will convene a SBREFA panel by October 15, 2020, or as soon as practicable thereafter if panel members are not available to convene.

The Bureau provided the following information in the status report:

  • Bureau staff have started drafting sections of the SBREFA outline and have begun preliminary internal work on selecting the small entity representatives who will consult with the SBREFA panel.
  • The Bureau’s announcement in March 2020 that due to COVID-19 it was postponing a survey of lenders to obtain estimates of the one-time costs they would incur to prepare and collect data required by Section 1071 may mean survey results will not be available for inclusion in the SBREFA outline.  The Bureau believes that, if necessary, it can conduct the SBREFA process without these results.
  • While the Bureau believes it is on track to meet the September 15 and October 15 SBREFA deadlines, the pandemic may “introduce uncertainty with respect to the Bureau’s future ability to meet these deadlines.”  In addition, the Bureau must coordinate the SBREFA process with the SBA and the OMB, which both have important responsibilities in responding to the pandemic, including oversight and administration of the PPP program.  The pandemic could also affect the Bureau’s ability to recruit small entity representatives to participate in the SBREFA process.
  • As required by the Stipulated Settlement Agreement, the Bureau will notify the plaintiffs if it believes an extension of the SBREFA deadlines is warranted.



In a recent decision, a California federal district court ruled that a debt collector’s use of email to send the initial communication containing the validation notice without first obtaining the plaintiff’s consent to receive the notice electronically under the E-SIGN Act did not violate the FDCPA.

The FDCPA requires a debt collector to provide the validation notice in the initial communication or within five days thereafter.  In Greene v. TrueAccord Corp., the court agreed with the debt collector that although the FDCPA requires the validation notice to be provided in writing when it is sent after the initial communication, the FDCPA does not prescribe how a validation notice can be provided when it is part of the initial communication.  The court observed that “if there are no express restrictions as to how an initial communication can be made—and an oral initial communication is explicitly recognized—then it is a reasonable argument that an initial communication can also be made electronically.”  As support for this argument, the court referred to the CFPB’s proposed debt collection rule that would allow a debt collector to satisfy the FDCPA validation notice requirement by providing it by email or text as part of the initial communication.  According to the court, it was “reasonable and persuasive” for the CFPB to conclude that E-SIGN consent is not required to send the validation notice by email as part of the initial communication because the debt collector is not required to provide the notice in writing when it is provided with the initial communication.

The district court distinguished the Seventh Circuit’s decision in Lavallee v. Med-1 Solutions, LLC., which held that emails sent by a debt collector to the plaintiff containing hyperlinks to a server on which the plaintiff could access and download the validation notices did not satisfy the FDCPA validation notice requirement.  In Lavallee, the Seventh Circuit ruled that, under the specific circumstances of that case only, the contested emails were not “communications” under the FDCPA because they did not “at least imply the existence of a debt” and did not “contain” the validation notice.  In Greene, however, the district court observed that the Seventh Circuit had not held that the use of email to send the validation notice as part of the initial communication is not permitted by the FDCPA.

The district court also concluded that the plaintiff had no standing to argue that the validation notice was not effectively conveyed to her because the email subject line stated “This needs your attention.”  According to the court, even if the subject line did not convey that the purpose of the email was to collect a debt (which the court seemed to imply might have been the case), the plaintiff had opened and read the email, thereby mooting the issue.  The district court further noted that the CFPB’s proposal requires a debt collector that sends the validation notice electronically to identify the purpose of the communication by including the name of the creditor and one additional piece of information about the debt other than the amount in the email subject line or the first line of the text message.  In the court’s view, this requirement “ensures that the consumer’s attention is focused on the email or text as many recipients of emails make decisions to read, ignore, or delete emails on the basis of the subject line and recipients of text messages look only at the first line.”

The plaintiff also argued that the debt collector’s use of the term “send” instead of “mailed” in the body of the validation notice violated the FDCPA.  The FDCPA provides that the validation notice must include a statement describing when a debt collector must obtain verification of the debt and indicating that “a copy of such verification . . . will be mailed to the consumer by the debt collector.”  The debt collector’s validation notice informed the plaintiff when it would obtain verification of the debt and that it would then “send [the plaintiff] a copy of such verification.”

After noting that there is no requirement for a validation notice to track verbatim the FDCPA’s language, the court, applying the “least sophisticated debtor” standard, found the plaintiff’s argument that the debt collector’s use of the word “send” instead of “mailed” was likely to deceive or mislead not to be plausible.  In the court’s view, even the least sophisticated debtor would understand from the use of the word “send” that a copy of the verification could be physically or electronically mailed.

Finally, the plaintiff claimed that the debt collector violated the FDCPA by sending seven emails seeking payment during the 30-day validation period.  In rejecting the plaintiff’s argument that such emails overshadowed the initial communication containing the validation notice, the court noted that the FDCPA does expressly limit the number of times a debt collector can communicate with a consumer during the validation period.  While also noting that the number and timing of communications to a consumer could be a relevant factor in whether those communications overshadow the validation notice, the court did not find it plausible that even the least sophisticated debtor could be misled by the debt collector’s emails.  It concluded that seven communications was not excessive, the emails did not contain language requiring a payment, or suggesting that a payment should be made, prior to the expiration of the 30-day validation period, and there was no real expression of urgency in the emails which all contained a prominent disclosure stating that, because of the debt’s age, the creditor would not sue the plaintiff for the debt or report it to a credit reporting agency.



To the dismay of consumers, banks, creditors, and debt collectors alike, there currently is uncertainty as to whether CARES Act stimulus payments to individuals and Paycheck Protection Program loan proceeds can be garnished by private creditors.  Ballard Spahr attorneys John Culhane and Lori Sommerfield have published an article, “Garnishment Must Be Clarified in Pandemic Relief Laws,” that discusses the relevant federal and state law considerations.  Click here to read the article.



We look at why compliance with the compensation provisions remains a high risk area for the mortgage industry.  Discussion topics include how the Bureau identifies violations, litigation and enforcement liability, secondary market considerations, the Bureau’s increasing enforcement activity, and the areas likely to be revisited by the Bureau in proposed revisions to the compensation provisions.

Click here to listen to the podcast.

The FDIC has extended by 30 days the comment period on its proposed rule setting forth the conditions it would impose and the commitments it would require to approve a deposit insurance application from an industrial bank or industrial loan company (collectively, ILC) whose parent company is not subject to consolidated supervision by the Federal Reserve Board (FRB).  For the reasons discussed in our prior blog post, the proposal represents a significant development for fintech companies and other commercial companies seeking to establish ILCs.

The FDIC’s action extends the comment deadline from June 1, 2020 to July 1, 2020.



As previously reported, in April 2020 the CFPB released a final rule to increase the threshold to report closed-end mortgage loans under the Home Mortgage Disclosure Act (HMDA) from 25 to 100 originated loans in each of the prior two years, and to increase the permanent threshold to report dwelling-secured open-end lines of credit under HMDA from 100 to 200 originated lines in each of the prior two years. The final rule was published in the May 12, 2020 Federal Register.

The CFPB recently issued an updated version of the HMDA Small Entity Compliance Guide to reflect the changes in the thresholds. While the CFPB is required by law to issue guides to help small entities comply with new regulations, the HMDA Small Entity Compliance Guide also is a resource for larger entities.

The OCC has announced that Comptroller of the Currency Joseph Otting will step down on May 29, 2020 and Brian Brooks will become Acting Comptroller.

Brian currently serves as the OCC’s Chief Operating Officer and First Deputy Comptroller.  Before joining the OCC, Brian had a distinguished career in private legal practice and working in-house in the financial services industry.  Having known Brian for many years, I believe his wide-ranging experience makes him extremely well-qualified to serve in the important role of Acting Comptroller.


In the aftermath of a statement from the CFPB and the four federal banking agencies encouraging small-dollar lending in response to the COVID-19 pandemic and guidance from the four federal banking agencies on “Interagency Lending Principles for Offering Responsible Small-Dollar Loans,” the CFPB has issued a “No-Action Letter (NAL) Template” for small-dollar loan products (SDT) offered by insured depository institutions or credit unions subject to the Bureau’s supervisory and enforcement jurisdiction (i.e., entities with more than $10 billion in total assets) and affiliates of such entities that are themselves insured depository institutions or credit unions.  The SDT was issued in response to an application from the Bank Policy Institute, which described itself in the application as “a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers.”

In its revised NAL Policy issued in September 2019, the Bureau included a procedure allowing a third party such as a trade association to apply for a “template” NAL.  Entities can use a template to apply for an NAL under substantially the same terms as those contemplated in the template, and each application under a template is subject to review by the Bureau on an individual basis.

The SDT contemplates that institutions will design their own versions of a small-dollar loan product that includes the “guardrails” set forth in the SDT.  Under the SDT, an NAL applicant would have to certify that its small-dollar loan product:

  • Is offered and provided only to consumers who hold deposit accounts at the institution
  • Does not exceed $2500
  • Is structured as either:
    • An installment loan with a repayment term that is more than 45 days and less than one year and with payments amortized on a straight-line basis across more than one payment.
    • An open-end line of credit linked to the customer’s deposit account (but not accessible by credit card), with a repayment term for each draw of more than 45 days and less than one year, and with payments for each draw amortized on a straight-line basis across more than one payment.  However, a structure with a repayment term of 45 days or less and a single payment is permitted where a draw is no more than 10 percent of the maximum dollar amount established for the product.
  • No required payment is more than twice as large as any other required payment.
  • No rollovers are permitted, a borrower cannot receive a new loan or draw to repay an outstanding balance associated with a prior loan or draw, and a borrower with an existing loan or draw cannot receive a new loan or draw until the existing loan or draw is fully repaid
  • “Cash flow” underwriting is used based on the consumer’s transaction activity in his or her accounts with the institution
  • No late payment fees or prepayment penalties are charged
  • Funds are disbursed into the consumer’s deposit account with the institution within 3 to 5 business days after approval
  • Meets all applicable federal and state requirements for disclosures and marketing materials
  • Is serviced by the institution and not a third party

In addition to certifying that its product satisfies the “guardrails,” an institution applying for an NAL under the SDT must provide specific information about its individual version of the small-dollar loan product that is the subject of the application.  The specific product information that an NAL applicant would need to provide includes:

  • The anticipated APR range, with a description of how the range is calculated (including any fees and costs included in the calculation) and a description of how the APR range, combined with other terms and conditions, “would improve the options available for consumers within the market for small-dollar credit products.” (Based on the Bank Policy institute’s application, this would appear to refer to how the institution’s APR range compares to those on payday loans offered by non-bank lenders.)
  • Fees other than those included in the APR, with a description of how such fees, combined with other terms and conditions, “would improve the options available for consumers within the market for small-dollar credit products.”
  • A description of how the institution intends to mitigate reborrowing risk
  • A description of underwriting criteria, including the extent to which underwriting is streamlined related to other identified underwriting processes
  • A description of marketing plans
  • A description of the application process, including the extent to which the process is streamlined related to other application processes
  • A description of any information the institution intends to provide to credit reporting agencies

The SDT also lists elements that would be included in an NAL issued by the Bureau in response to an application based on the SDT.  One such element is a statement that unless or until the NAL is terminated by the Bureau, the Bureau will not make supervisory findings or bring a supervisory enforcement action against the institution under its UDAAP authority predicated on the institution’s offering or providing the described aspects of the institution’s product set forth in its NAL application.




The OCC has issued a final rule revising its regulation implementing the Community Reinvestment Act (CRA).  The final rule applies to national banks and federal savings associations.

Although the OCC’s proposed revisions were issued jointly with the FDIC, the FDIC did not join in the final rule.  FDIC Chairman Jelena McWilliams issued a statement in which she indicated that although the FDIC continues to support CRA reform, “the agency is not prepared to finalize the CRA proposal at this time.”  The Fed has not yet issued a separate proposal.  Accordingly, Fed-member state banks supervised by the Fed and non-member state banks and savings associations supervised by the FDIC will be subject to different CRA compliance frameworks than national banks and federal savings associations supervised by the OCC.

The final rule is effective October 1, 2020 but sets mandatory compliance dates based on the applicable performance standards.  Banks subject to the general performance standards and banks subject to the wholesale and limited purpose bank performance standards must comply with the new CRA framework by January 1, 2023.  Banks subject to the small and intermediate bank performance standards must comply with the new CRA framework by January 1, 2024.  During the period between October 1, 2020 and the 2023 or 2024 compliance dates, the provisions of the current CRA regulation will remain in effect but the OCC may permit a bank to voluntarily comply, in whole or in part, with the new framework as an alternative compliance option.

While the final rule substantially tracks the OCC’s proposal, it does make some significant changes to the proposal that include:

Qualifying activities.  The final rule removes credit cards and overdraft products from the “consumer loans” for which banks can receive CRA credit.  It increases the loan size threshold for small loans to businesses and farms to loans of up to $1.6 million and increases the business and farm revenue thresholds to gross annual revenues of up to $1.6 million (with both thresholds to be adjusted for inflation every five years).  The “affordable housing” activities that receive CRA credit under the final rule do not include activities that finance or support middle-income rental housing in high-cost areas and the “essential infrastructure” activities that receive CRA credit under the final rule are limited to those that partially or primarily serve low- and moderate-income (LMI) individuals or families or LMI areas or other identified areas of need.  The final rule also adds a definition of “CRA desert” (underserved areas) and provides multipliers to increase the amount of CRA credit a bank receives for qualifying activities in these areas.  It also limits the qualifying activities that receive CRA credit to those conducted directly by a bank and does not provide credit for activities undertaken by bank affiliates as proposed.  For qualifying retail loans, the final rule quantifies originations sold at any time within 365 days at 100 percent of the origination value (in contrast to the proposal’s quantification of loans sold within 90 days of origination at 25 percent).

Qualifying activities list.  The final rule is accompanied by an illustrative list of qualifying activities.  It provides that the OCC will review the list every five years rather than every three years as proposed but will update the list annually to reflect requests from banks for confirmation that an activity qualifies for CRA credit.  The final rule shortens the approval process for such requests from six months to 60 days with the option of a 30-day extension.

Delineation of assessment areas.  The final rule adopts the proposal’s requirement that a bank that receives more than 50 percent of its retail domestic deposits from outside of its facility-based assessment areas must delineate separate deposit-based assessment areas where it receives 5 percent or more of its retail domestic deposits.  Unlike the proposal which would have required a bank to delineate such areas at the smallest geographic area where it receives 5 percent or more of its retail domestic deposits, the final rule gives a bank the option of delineating its deposit-based assessment areas at a larger area that includes such smaller areas, up to an entire state.  The final rules allows a bank to change its assessment area designations once a year.

Measuring CRA performance.  The final rule:

  • Raises the asset threshold for “small banks”  and “intermediate banks” that continue to be evaluated under the current small and intermediate bank performance standards (unless they opt into the new general performance standards) to, respectively, $600 million and $2.5 billion.
  • Instead of evaluating wholesale and limited purpose banks under the general performance standards or a strategic plan as proposed, evaluates such banks under the current performance standards applicable to them.
  • Provides that in applying the retail lending distribution tests, whether a product line qualifies as a “major retail lending product line” will be based on a bank’s originations in the two years preceding the beginning of the evaluation period rather than on originations during the evaluation period as proposed.  The final rule also (1) clarifies that when determining which product lines qualify as a “major retail product line,” each of the three consumer lending product lines (considered in the tests) will be treated as a separate product line for purposes of reaching the 15 percent threshold, and (2) provides that a bank will be required to have at most two major retail product lines and if more than two product lines comprise more than 15 percent of a bank’s retail lending, the two largest retail product lines will be considered a “major retail product line.”
  • While only counting home mortgages to LMI individuals for purpose of a bank’s CRA evaluation measure, applies a geographic distribution test to a bank’s home mortgage loan product line even though it will result in positive consideration to loans provided to middle- or high-income borrowers in LMI areas.
  • Unlike the proposal, does not contain benchmarks for the CRA evaluation measure, a specific community development lending and investment minimum, or thresholds for the retail lending distribution tests.  In the Supplementary Information accompanying the final rule, the OCC indicates that these items were not included in the final rule because “the data that the OCC gathered in response [to its RFI to gather additional data] was too limited to reliably calibrate these measures for all banks subject to the general performance standards.”  The OCC states that it will “shortly” issue another Notice of Proposed Rulemaking “that will explain the process the agency will engage in to calibrate more precisely the requirements for each of three components of the objective evaluation framework” and will set specific measures once it considers comments and analyzes additional data.
  • For banks that use the strategic plan option for their CRA evaluations, shortens the time frame for approval of a plan from the proposed nine months to 90 days with a potential 30-day extension.

Data collection, recordkeeping, and reporting.  The final rule requires banks to report the results of their retail lending distribution tests and their presumptive ratings at the end of the evaluation period instead of annually as proposed.  The final rule does not specify the length of an evaluation period but the OCC indicates in the Supplementary Information that it expects that, in general, evaluation periods will be between three and five years in length.

We will share our reactions to the final rule in subsequent blog posts.

There is no question that a COVID-related recession will bring about a wave of regulatory enforcement activity and consumer litigation. But what areas will the regulators and plaintiffs’ counsel focus on, and how can the industry stay out of the crosshairs? On June 2, the Practicing Law Institute is hosting a free one-hour briefing that will help answer these questions. I will be a speaker on the program, along with former CFPB Director Richard Cordray, Shennan Kavanagh from the Massachusetts Attorney General’s Office, and prominent consumer class-action lawyer John Roddy. Alan Kaplinsky will moderate our discussion.

The program is accredited for both CLE and CPE credit, and you can find out more and register free of charge here, on PLI’s web site. Please join us for what is sure to be a vigorous and informative discussion.