On April 20, the CFPB finalized a proposed rule to delay the effective date of the final rule governing Prepaid Accounts (Prepaid Account Final Rule) by six months, from October 1, 2017 to April 1, 2018 (Effective Date Final Rule).  According to the CFPB, the delay was adopted “to facilitate compliance with the Prepaid Account Final Rule, and to allow an opportunity for the Bureau to assess whether any additional adjustments to the Rule are appropriate.”

The preamble to the Effective Date Final Rule previews that the CFPB will propose rules for “at least two issues that have been identified as areas where the Prepaid Accounts Final Rule may be posing particular complexities for implementation,” and at that time, a further delay may be proposed as well.  The two issues relate to: (1) the linking of credit cards to digital wallets that are capable of storing funds; and (2) error resolution and limitations on liability for unregistered prepaid accounts.

Over the past few months, the Prepaid Account Final Rule has faced attacks from industry representatives, such as the American Bankers Association, and from Congress under the Congressional Review Act – Representatives Tom Graves (R-Ga) and Roger Williams (R-Tx) introduced House Joint Resolution 62 and House Joint Resolution 73, respectively, and Senator David Perdue (R-Ga) introduced Senate Joint Resolution 19.  The Senate Joint Resolution was recently brought out of Committee and to the floor for consideration by way of a discharge petition filed by Senate Banking Chairman Mike Crapo.  The Prepaid Account Final Rule has also been defended by attorney generals from 17 states and the District of Columbia.

We will continue to monitor the status of the Prepaid Account Final Rule in relation to the substantive changes previewed by the CFPB and the progress of the congressional joint resolutions.

On April 7, 2017, the Rutgers Institute for Professional Education and Rutgers University Law Review will sponsor an all-day symposium entitled: “Resolving the Arbitration Dispute in Today’s Legal Landscape.” One of the four panels will be devoted to the CFPB’s arbitration rulemaking.

All four speakers on the CFPB panel are law professors.  Of those law professors, to my knowledge, only Professor Jeff Sovern of St. John’s University School of Law and Professor Myriam Gilles of Benjamin N. Cardozo School of Law have been involved in the CFPB rulemaking.  Professors Sovern and Gilles both support the CFPB’s proposed rule which would bar the use of class action waivers in arbitration provisions in consumer financial services contracts.  Based on the articles they have written, it appears at least one of the other panelists is a proponent of class actions who would not support the CFPB’s proposed rule.

Most significantly, there is no panelist who drafts or defends arbitration provisions for the consumer financial services industry.  There is also no one from the CFPB or the staff of a Congressional committee that will consider the important issue of whether Congress will use the Congressional Review Act to override any CFPB final arbitration rule.

On March 24, the CFPB announced a proposal to amend Regulation B requirements related to the collection of consumer ethnicity and race information, in order to resolve the differences between Regulation B and revised Regulation C.  These proposed rule amendments are effective on January 1, 2018, the same effective date as the 2015 Home Mortgage Disclosure Act (HMDA) Final Rule.

First, the proposal would give persons who collect and retain race and ethnicity information in compliance with Regulation B the option of permitting applicants to self-identify using the disaggregated race and ethnicity categories required by the 2015 HMDA Final Rule.  Aligning these rules would allow HMDA-reporting entities to comply with Regulation B without further action, while entities that do not report under HMDA but record and retain race and ethnicity data under Regulation B could either use existing aggregated categories or the new disaggregated race and ethnicity categories.

Second, the proposed amendment would remove the outdated 2004 Uniform Residential Loan Application (URLA) as a model form, and provide a new, one-page data collection model form, which is substantially similar to section X of the 2004 URLA.  Eventually, non-HMDA reporting entities will be free to use the 2016 URLA prepared by Freddie Mac and Fannie Mae to collect race and ethnicity information, as previously discussed in the CFPB’s September 2016 Approval Notice.  Fannie Mae and Freddie Mac have not implemented the 2016 URLA yet, and have not indicated a precise start date, and so the CFPB proposes that the 2004 URLA be removed on the cutover date the enterprises designate for use of the 2016 URLA or on January 1, 2022, whichever comes first.  Note that a Demographic Information Addendum, which is identical in form to section 7 of the 2016 URLA, and which is as a replacement for section X (Information for Government Monitoring Purposes) in the current URLA, dated 7/05 (revised 6/09), has been available for use since January 1, 2017.

Third, the proposed rule would allow creditors to collect ethnicity, race and sex information from mortgage applicants in certain cases where the creditor is not required to report under HMDA and Regulation C, including creditors that submit HMDA data even though not required to do so, and creditors that submitted HMDA data in any of the preceding five calendar years.  This change would primarily benefit institutions that may be required to report under HMDA and Regulation C in some years and not others, or may be uncertain about their reporting status. The CFPB believes that “allowing voluntary collection will reduce the burden of compliance with Regulation C on some entities and provide certainty regarding Regulation B compliance over time.”

Note that the CFPB is not proposing a mandatory requirement for Regulation B-only creditors to permit applicants to self-identify using disaggregated race and ethnicity categories.  The CFPB believes that permitting (rather than requiring) the use of disaggregated ethnicity and race categories avoids placing costs and heightened compliance burdens on Regulation B-only creditors.  Nevertheless, the CFPB believes that “many that are not subject to revised Regulation C are nevertheless likely to adopt the 2016 URLA at some point because of business considerations unrelated to Regulations B and C.”

The CFPB is seeking comments on these proposed amendments for 30 days after its publication in the Federal Register.

The CFPB has proposed to delay the effective date of the final rule governing Prepaid Accounts from October 1, 2017 to April 1, 2018. The CFPB’s action is a direct response to ongoing dialogue between companies in the prepaid industry and the CFPB staff. The CFPB proposal to delay the effective date has a twenty-one (21) day comment period from publication of the proposal in the Federal Register.

The Prepaid Account Rule covers a broad range of products – from reloadable cards offered through retail locations to digital-only accounts. One of the specific industry concerns cited by the CFPB in their proposal is challenges with the “pull and replace” of non-compliant packaging of card product in retail locations. The CFPB also noted that industry participants have “raised concerns about what they describe as unanticipated complexities arising from the interaction of certain aspects of the rule with certain business models and practices.”

The Prepaid Account Rule is also facing numerous challenges from Congress. We wrote last month that Senator David Perdue (R-Ga) had introduced a joint resolution that could lead to nullification of the rule. In addition, Representatives Tom Graves (R-Ga) and Roger Williams (R-Tx) have introduced House Joint Resolution 62 and House Joint Resolution 73, respectively, disapproving of the final rule.

We have previously written about the Congressional Review Act (“CRA”), a law that establishes a procedure by which Congress can nullify a covered rule adopted by a federal agency.  According to a memorandum prepared by the Congressional Research Service (“CRS”), the CRA “was largely intended to assert control over agency rulemaking by establishing a special set of expedited or ‘fast track’ legislative procedures for this purpose, primarily in the Senate.”

Before a covered rule can take effect, the CRA requires the federal agency promulgating the covered rule to submit, to each House of Congress and to the Comptroller General, a report that includes a copy of the rule, a general statement relating to the rule, and the proposed effective date of the rule.  The CRA affords Congress an opportunity to review the rule and to submit and act upon a joint resolution disapproving it.  While a joint resolution of disapproval must be approved by both Houses of Congress, it cannot be filibustered in the Senate and can be passed with only a simple majority.   A joint resolution of disapproval that is passed by both Houses of Congress is then sent to the President for executive approval or veto.

The CRA been used only once to nullify a covered rule adopted by a federal agency.  Specifically, the controversial ergonomics rule adopted by the Occupational Safety and Health Administration toward the end of the Clinton Administration was successfully nullified pursuant to the CRA when the subsequent inauguration of a Republican President resulted in the same political party controlling both Houses of Congress and the Presidency.   While this political scenario rarely occurs, it was replicated by the election of President Trump and the retention of Republican control of the Senate and the House of the Representatives.  As a result, a number of joint resolutions of disapproval have been introduced in the new Congress with respect to various “midnight rules” that are eligible for congressional review.

We have noted previously that the prepaid card rule adopted by the CFPB in October  2016 remains potentially subject to congressional nullification.  Pursuant to the CRA, the Government Accountability Office issued its report concerning the prepaid account rule to the Chairmen and Ranking Members of the relevant House and Senate Committees on December 13, 2016.

On February 1, 2017, Senator David Perdue (R-Ga) initiated the nullification process with respect to the rule by introducing a joint resolution, S. J. Res. 19, providing “[t]hat Congress disapproves the rule submitted by the Bureau of Consumer Financial Protection relating to prepaid accounts under the Electronic Funds Transfer Act (15 U.S.C. 1693 et seq.) and the Truth in Lending Act (15 U.S.C. 1601 et seq.) (81 Fed. Reg. 83934 (November 22, 2016)), and such rule have no force or effect.”  The joint resolution has been referred to the Senate Committee on Banking, Housing and Urban Affairs.

We will continue to monitor the joint resolution of disapproval.  If the joint resolution of disapproval ultimately is enacted, the CRA would prohibit the Bureau from reissuing the rule “in substantially the same form” or issuing a “new rule that is substantially the same” as the disapproved rule “unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”

The CFPB issued its final rule amending the mortgage servicing rules under Regulations X and Z.  The proposal for these amendments was issued in November 2014.  The amended provisions cover a wide range of topics, including the following:

  • Tailored periodic statements and early intervention notices for borrowers in bankruptcy;
  • Additional procedures for communicating with, and confirming, a wide variety of potential successors in interest;
  • Application of loss mitigation procedures and foreclosure protections more than once over the life of the loan;
  • An additional notice required upon completion of a loss mitigation application;
  • Clarification of how certain requirements apply in the context of a servicing transfer; and
  • Relief from the periodic statement requirement for certain charged-off loans.

Most of the provisions will go into effect 12 months after publication in the Federal Register.  However, the amended provisions relating to successors in interest and periodic statements for borrowers in bankruptcy will take effect 18 months after publication.

Also of note, the CFPB issued an accompanying interpretive rule concerning the interaction of the Fair Debt Collection Practices Act (FDCPA) and the servicing rules.  Characterized as an advisory opinion for purposes of the FDCPA, the interpretive rule aims to provide a safe harbor from FDCPA liability for compliance with the following requirements under Regulation X:

  • The requirement to communicate with a potential successor in interest regarding an existing loan (i.e., communicating with a third party regarding a debt);
  • The requirement to send early intervention notices despite a borrower’s cease communication request pursuant to the FDCPA; and
  • The requirement to respond to borrower-initiated communications regarding loss mitigation, despite a borrower’s cease communication request pursuant to the FDCPA.

The Ballard Spahr Mortgage Banking Group continues to review this voluminous offering from the CFPB (just over 900 pages), and will have further comments in the near future.  In addition, a webinar covering this final rule and other recent servicing developments is scheduled for Tuesday, September 13th.

On July 28, the CFPB held a field hearing about debt collection in Sacramento, California coinciding with the release of an outline of the proposals it is considering in connection with its debt collection rulemaking. Together with its release of the outline, the CFPB issued a report, “Study of Third-Party Debt Collection Operations.” In the outline, the CFPB stated that it conducted the study “to obtain a better sense of current collector practices and procedures, so that the Bureau will be able to make informed decisions about the potential costs associated with various rulemaking policy options.”

The study, which was conducted from July to September 2015, gathered data through responses to a written survey from and telephone interviews with firms that would be considered “debt collectors” under the FDPCA (collection agencies, debt buyers, and collection law firms) and telephone interviews with debt collection industry vendors.

The study concluded that, industry wide, “most debt collection firms are small” and that 75% of collection firms employ fewer than 20 people each. However, the most heavily represented group of survey respondents—over 30% of the total respondents—were firms with between 100 and 500 employees. The study admits that “larger firms are overrepresented among survey respondents” with debt collection firms with more than 500 employees representing less than 3 percent of all debt collection firms based on 2012 U.S. Census Data but comprising roughly 19 percent of survey respondents.

Nevertheless, the study revealed that industry practices are relatively uniform in many areas. The great majority of firms—75%—reported having clients that audit the collector’s compliance with federal and state law. Also, the majority of respondents indicated that they always or often receive from clients most of the data fields surveyed by the CFPB, including the consumer’s full name, last known address, phone number, social security number, date of birth, chain of title, debt balance at charge-off, breakdown of post-charge-off fees and interest, account agreement documentation, and billing statements. The survey also asked respondents to categorize consumer disputes as one of four types. Responses indicated that the least prevalent dispute involved a collector contacting the wrong consumer.

The survey responses regarding collection management systems—software platforms handling account-level information—suggest that the industry is relatively standardized with most collection firms using software provided by a few vendors. Furthermore, nearly all respondents reported sending validation notices within 24 to 48 hours of when a debt is placed with them for collection. Only two respondents reported sending validation notices after making contact with the consumer.

The study also surveyed collector communications practices, particularly call frequency. The study concluded that larger respondents generally call no more than two to three times per week. Smaller respondents were unlikely to call more than one to two times per week and generally do not speak to a consumer more than one time per week. Importantly, the CFPB admitted that the survey was qualitative and did “not produce estimates that are necessarily representative of the debt collection industry as a whole.” Of the sample selected, the CFPB ultimately received only 58 responses. Additionally, the CFPB was forthright that the study was skewed towards those debt collection firms and vendors most comfortable speaking to the Bureau.

The CFPB issued a proposed rulemaking last week to amend various provisions of the mortgage servicing rules under Regulation X and Regulation Z. Comments are due 90 days from the date of publication in the Federal Register. Ballard Spahr’s Mortgage Banking Group will continue to analyze the proposal and work with our clients and industry groups on its impact.

The proposal runs nearly 500 pages and includes several notable proposals, including an exemption from the periodic statement requirement for charged-off loans, expanded requirements for borrowers in bankruptcy, and additional loss mitigation protections. Continue Reading CFPB Proposes Additional Servicing Rule Amendments

On November 18, 2014, the CFPB staff and Federal Reserve Board co-hosted a webinar that addressed questions about the Final TILA-RESPA Integrated Disclosure Rule that will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015.  The webinar focused on the Closing Disclosure and addressed specific questions regarding the content of the Closing Disclosure.

The webinar is the fourth in a series to address implementation of the new rule.  Topics covered in the past include an overview of the final rule, frequently asked questions, and the loan estimate form.  Many of the issues covered were in response to questions received by the CFPB from mortgage industry stakeholders and technology vendors who need additional information in order to facilitate the development of compliance and quality control procedures and software.

During the webinar the CFPB staff provided a high-level walk through of the Closing Disclosure Form and addressed several issues, including the following:

•     For transactions with a seller, the staff advised that the sales price should be disclosed at the top of page 1, and that for transactions without a seller, such as a refinance, a creditor should disclose the appraised value and label it “appraised prop value” (assuming there is an appraisal).  In addition, the CFPB staff referred to comment § 1026.38(a)(3)(vii)-1 and said that in cases where the creditor has not yet obtained an appraisal, the rule provides some degree of flexibility and allows creditors to disclose an estimated value as long as it is labeled “estimated prop value.”

•    The staff also said that although the categories identified on page two of the Closing Disclosure are the same as those on the Loan Estimate, the Closing Disclosure allows greater flexibility for revisions to the spacing.  For example, the number of rows can be reduced or added by the creditor for each category based on need.  According to the CFPB staff, if the rows provided are not sufficient to disclose all the items, page two may be broken into two pages – page 2(a) and page 2(b), with loan costs listed on 2(a) and other costs on 2(b).  The CFPB staff noted that Form H-25(h) in Appendix H is an example of how to divide page two into separate pages.  The staff referred to the CFPB’s TILA/RESPA Integrated Disclosure—Guide to the Loan Estimate and Closing Disclosure form  that is available on its regulatory implementation website, along with sample forms, for additional guidance.

•     The staff advised that charges disclosed in one category of the Loan Costs section in the Loan Estimate may need to be disclosed in a different category of the section in the Closing Disclosure.  For example, if title charges were disclosed in the Services You Can Shop For category of the Loan Costs section in the Loan Estimate and the borrower selected the title company identified by the creditor on the written list of providers, the title charges would have to be disclosed in the Services Borrower Did Not Shop For category of the Loan Costs section the Closing Disclosure (because the borrower would not have actually shopped for a provider under the rule).

•     The staff said that under “Other Costs” on page two of the Closing Disclosure, general lender credits not associated with any particular item must be listed at the bottom of the page as a negative number.  The lender credit must be listed along with a narrative description if any refund is being provided by the creditor pursuant to the good faith analysis of charges.  Notably, the CFPB staff said that lender credits associated with specific closing costs must be disclosed as paid by others and have an “L” for lender designation.

•     The CFPB staff pointed out that the Loan Estimate contains less detail with regard to transfer taxes than the Closing Disclosure.  The main difference between the two forms in this respect is that transfer taxes are itemized on the Closing Disclosure as opposed to aggregated into a single sum on the Loan Estimate.  The itemization is for each tax and for each government entity because multiple taxes may be assessed by each government entity.

In addition to giving a detailed walkthrough of the Closing Disclosure Form, the CFPB staff used the webinar as an opportunity answer a variety of questions posed by the industry.  We have prepared below an unofficial summary of the questions addressed by the CFPB staff. Continue Reading CFPB gives guidance and answers FAQ on the new Closing Disclosure

A September 29, 2014 Report of the Joint Federal Reserve/CFPB Office of the Inspector General (OIG) concluded that the CFPB’s rulemaking process generally complies with the requirements of Section 1100G of the Dodd-Frank legislation and offered only minor criticisms identifying potential improvements. Section 1100G amended the Regulatory Flexibility Act to require the Bureau to (A) assess the impact of any proposed rule on the cost of credit for small business entities through regulatory flexibility analyses and (B) to convene panels to seek direct input from small business entities prior to issuing certain rules.

The CFPB’s Division of Research, Markets, and Regulations (RMR) created two internal guidance documents that outline the agency’s process to comply with these requirements. OIG reviewed both documents, along with some randomly selected rulemaking proceedings, to assess overall compliance with Section 1100G.

The report makes three recommendations predicated principally on the following findings:

  • RMR’s interim policies and procedures have been in use for approximately two years without being updated or finalized
  • Those interim policies and procedures afforded teams significant discretion in their 1100G rulemaking approach to regulatory analysis, which contributed to a variance in documentation and inconsistent knowledge transfer practices
  • RMR takes an inconsistent approach with respect to storing supporting documentation related to 1100G rulemakings.

The three recommendations offered by the report are for the Bureau to:

  1. Finalize RMR’s interim policies and procedures;
  2. Establish a standard approach to manage electronic documents that facilitates retrieval of Section 1100G rulemaking supporting documentation; and
  3. Ensure that the standard approach complies with CFPB’s Policy for Records Management, in addition to other applicable provisions, such as the Federal Records Act, including National Archives and Records Administration regulations.