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On June 23, the Consumer Financial Protection Bureau issued an interim final rule (“IFR”) intended to make it easier for consumers to transition out of COVID-19-related financial hardship and easier for mortgage services to assist those consumers. The IFR will become effective on July 1, 2020.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides forbearance relief for consumers with federally-backed mortgage loans. Depending on the servicer, borrowers have several options under the CARES Act to repay the payments that are not made. For example, Fannie Mae and Freddie Mac are permitting certain borrowers to defer repayment of the amounts owed until the end of the mortgage loan.

Regulation X generally requires servicers to obtain a complete loss mitigation application before evaluating a mortgage borrower for a loss mitigation option, such as a loan modification or short sale. This week’s IFR clarifies that servicers do not violate Regulation X by offering loss mitigation options based on an evaluation of more limited information collected from the borrower, as long as the loss mitigation option meets certain criteria to qualify for an exception from the typical requirement to collect a complete application.

For example, the loss mitigation option must allow the borrower to delay paying principal and interest payments; servicers may not charge any fees to borrowers; and the borrower’s acceptance ends any preexisting delinquency. Moreover, once a borrower accepts an offer for an eligible program under the IFR, the servicer is not required to exercise reasonable diligence to obtain a complete application, nor does it need to provide the acknowledgment notice that is generally required under Regulation X.

Notably, servicers must still comply with Regulation X’s other requirements after a borrower accepts a loss mitigation offer. For example, if the borrower becomes delinquent again after accepting the offer, the servicer must satisfy Regulation X’s early intervention requirements. Similarly, if the servicer receives a new loss mitigation application from the borrower, the servicer must comply with Regulation X’s loss mitigation procedures, unless the servicer has previously complied in connection with a complete application submitted by the borrower and the borrower has been delinquent at all times since submitting that complete application. This is not likely and thus, servicers must comply with the requirements of 12 CFR 1024.41 for the first and later application.

On June 18, the Consumer Financial Protection Bureau launched a pilot advisory opinion (“AO”) program in an effort to address some uncertainty in its existing regulations and make that process more public.

The program will allow entities to seek direct guidance on uncertainties they have with regulatory requirements that the CFPB oversees. The Bureau will then select topics based on the AO program’s priorities and make the responses available to the public. The program will focus on four key priorities:

  1. Consumers are provided with timely and understandable information to make responsible decisions.
  2. Identify outdated, unnecessary, or unduly burdensome regulations in order to reduce regulatory burdens.
  3. Consistency in enforcement of Federal consumer financial law in order to promote fair competition.
  4. Ensuring markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

Issues that are the subject of an ongoing investigation or enforcement action (or the subject of an ongoing or planned rulemaking) will be the highest priority. According to the Bureau, other factors weighing on the decision to issue an AO include:

  • that the interpretive issue has been noted during prior CFPB examinations as one that might benefit from additional regulatory clarity;
  • that the issue is one of substantive importance or impact or one whose clarification would provide significant benefit; and/or
  • that the issue concerns an ambiguity that the CFPB has not previously addressed through an interpretive rule or other authoritative source.

The advisory opinions would be posted on the Bureau’s website and published in the Federal Register.

Overall, the program aims to build on the CFPB’s recent efforts in expanding its AO processes, as well as enhance the availability of the agency’s guidance to the public.

A copy of the CFPB’s announcement can be found here.

More information about the CFPB’s AO process can be found here.

The Consumer Financial Protection Bureau issued a statement on June 3 relaxing the requirements for some electronic disclosures given for requests by consumers made via telephone for credit card plans. The CFPB acknowledged that credit card issuers are receiving more calls and may have limited staffing due to the pandemic. Many institutions are asking for relief from certain written disclosures in accordance with Regulation Z.

The Electronic Signatures in Global and National Commerce Act (“E-Sign Act”) allows legally required written disclosures to be given electronically provided certain conditions are met. The E-Sign Act has a variety of different requirements, which include, but are not limited to the consumer’s affirmative consent to receive electronic disclosures, specific disclosures prior to sending the documents electronically, and the consumer’s consent in a manner that reasonably demonstrates the consumer can access the documents in the same manner in which the consent is provided. As noted in the CFPB’s statement, credit card issuers have stated that obtaining E-Sign consent over telephone proves difficult as calls may be dropped, the calls require more time with the limited staff available, lengthy call-wait times, or consent may require multiple calls.

Based on the aforementioned difficulties, the CFPB stated it will not cite a violation in an examination or bring an enforcement action for disclosures typically required to be in writing for open-end, non-home secured credit plans regulated by Regulation Z that occurred during the pandemic that did not comply with the E-Sign Act. More specifically, this leniency will include only account-opening disclosures and temporary rate or fee reduction disclosures discussed via telephone. However, the issuer must obtain consent to the electronic delivery of disclosures along with affirmation from the consumer that he or she has the ability to access and review these electronic disclosures. Further, the issuer must take reasonable steps to verify the consumers’ electronic contact information.

On June 16, 2020, the Consumer Financial Protection Bureau (“CFPB”) issued a seven-page FAQ memorandum addressing some of the most critical questions for compliance with the new consumer reporting requirements of the “CARES Act”. In sum, this Compliance Aid:

  • Addresses the specific credit reporting requirements of the CARES Act, including considerations for furnishers when reporting consumers as “current” on open accounts;
  • Clarifies that reporting a consumer is affected by a natural or declared disaster is not a substitute for complying with the CARES Act consumer reporting requirements. The CFPB explains that using these codes, without other changes to the reporting, does not constitute compliance with the CARES Act; and
  • Addresses the CFPB’s guidance that provides temporary and targeted flexibility in the event consumer reporting agencies (“CRAs”) or the furnisher experience challenges as a result of the pandemic in investigating consumer disputes within the statutory timeframes. The CFPB made clear that it expects CRAs and furnishers to make good faith efforts to investigate disputes as quickly as possible.

Background

On March 27, 2020, President Trump signed the CARES Act, which recognized the extraordinary circumstances caused by the global COVID-19 pandemic and the potential impact on the financial well-being of consumers, as well as the operations of consumer lenders and other supervised entities. The CFPB then issued a policy statement on April 1, 2020 to “highlight furnishers’ responsibilities under the CARES Act and inform consumer reporting agencies and furnishers of the Bureau’s flexible supervisory and enforcement approach during this pandemic regarding compliance with the Fair Credit Reporting Act (“FCRA”) and Regulation V.” While the statement was a “non-binding general statement of policy” and not intended to create new obligations beyond the FCRA and the CARES Act, it emphasized that the CFPB intended to consider the circumstances entities faced as a result of the pandemic when taking regulatory action.

That policy statement provided two examples of the CFPB’s “flexible” approach. First, in regard to payment accommodations provided by furnishers to consumers affected by COVID-19, the CFPB encouraged furnishers to work with borrowers and consumers to provide payment relief, noted the requirement to report consumers who were current before the accommodations and who adhere to those accommodations as current despite those accommodations, and stated that “it does not intend to cite in examinations or take enforcement actions against those who furnish information to consumer reporting agencies that accurately reflects the payment relief measures they are employing.”

Second, with respect to the 30-day timing of dispute investigations by CRAs and furnishers, the CFPB noted that it will consider the individual circumstances of each CRA or furnisher in determining compliance, particularly for smaller or less sophisticated lenders, thereby insinuating a less-than-strict approach to the 30-day reinvestigation deadline.

The CFPB’s policy statement was met with criticism, including from consumer advocates as well as state attorneys’ general, as we previously discussed here. The CFPB likely issued the FAQs in response to some of these criticisms and, more importantly, to provide clarity on its compliance and enforcement positions moving forward.

Highlights and Takeaways from the FAQs

The FAQs are presented as one of the CFPB’s “Compliance Aids” (the CFPB’s approach on these guidance documents can be found here). Below are the highlights of the FAQs:

  • FAQ 1: This summarizes the CFPB’s April 1, 2020 policy statement and makes clear that the CFPB “expects furnishers and consumer reporting agencies to make good faith efforts to investigate disputes as quickly as possible, and that absent impediments due to COVID-19, disputes should be resolved under FCRA requirements.”
  • FAQ 2: This deals with the CARES Act requirement that furnishers report as current certain accounts for consumers affected by the COVID-19 pandemic. The CFPB reiterated its individualized approach to enforcement of this requirement, but also made clear it will “not hesitate to take public enforcement action when appropriate against companies or individuals that violate the FCRA or any other law under its jurisdiction.” The agency emphasized in its response that credit reporting accuracy and dispute handling are focuses of the CFPB in its efforts to protect consumers during the COVID-19 pandemic.
  • FAQ 3: This concerns the FCRA’s 30-day reinvestigation requirement and the CFPB’s position on supervision/enforcement of that deadline during the pandemic. The CFPB made clear that, even in providing some flexibility, it will not give CRAs and furnishers “unlimited time”; they must act in “good faith” and conduct “reasonable investigations of consumer disputes” despite the pandemic challenges. The CFPB appeared to focus on smaller CRAs and furnishers that may face “unique challenges” during the pandemic as entities most likely to receive less stringent supervision and enforcement.
  • FAQ 4: This defines an “accommodation” under the CARES Act, which can include “agreements to defer one or more payments, make a partial payment, forbear any delinquent amounts, or modify a loan or contract.” The answer notes that an accommodation includes assistance that is granted voluntarily as well as an accommodation that is required under statute or regulation.
  • FAQ 5: This clarifies the two types of loans that require accommodations under the CARES Act: (1) Federally-backed mortgage loans whose borrower suffers a financial hardship because of the COVID-19 emergency; and (2) Federally-held student loans, which received an automatic suspension of principal and interest payments through September 30, 2020.
  • FAQ 6: This details the consumer reporting obligations of furnishers who provide an accommodation to a consumer.
    • First, if the credit obligation or account was current before the accommodation, and the consumer makes payments as required under the accommodation (or is not required to make payments under the accommodation) during the time period of the accommodation, the furnisher must continue to report the credit obligation or account as current.
    • Second, if the credit obligation or account was delinquent before the accommodation, then during the accommodation the furnisher cannot advance the delinquent status. The CFPB gives the example of an account where the consumer was 30 days past due at the time of the accommodation and notes that the furnisher must not report the account as 60 days past due during the accommodation. Furnishers also must report an account as current if the consumer makes payments to bring it current during the accommodation. For further detail on payment suspensions and furnishing information about Federally held student loans, the CFPB directed readers back to the language in the CARES Act.
  • FAQ 7: This reminds furnishers of their obligation to understand and review all data fields (e.g., payment status, scheduled monthly payments, amount past due) and update their credit reporting appropriately if an account is deemed current pursuant to the CARES Act. The CFPB emphasized that this was part of furnishers’ FCRA obligations related to the accuracy and integrity of the information they furnish.
  • FAQ 8: This makes clear that a furnisher is not in compliance with the CARES Act if it only uses a special comment code indicating that an account is impacted by a disaster or that the consumer’s account is in forbearance. The CFPB emphasized that the furnisher must also take the steps detailed in the above FAQs to ensure that the account is either being reported as current, if it was current prior to the accommodation, or not to advance the level of delinquency, for accounts that were delinquent before the accommodation.
  • FAQ 9: This addresses the reporting of multiple consumer accounts as in forbearance because of a COVID-19 accommodation. The CFPB counsels against placing all accounts for a particular individual in a forbearance status if forbearance has not been requested (or is not relevant to) a specific account.
  • FAQ 10: This concerns furnisher reporting after a CARES Act accommodation ends. The CFPB instructs furnishes to essentially disregard the time period during which the accommodation is pending from a delinquency perspective. If the consumer was current before the accommodation, the account must be placed in current status after the accommodation. And furnishers cannot consider the accommodation time period to advance the delinquency of a consumer.

Additional CARES Act and COVID-19 Resources

Troutman Sanders has previously posted updates on CARES Act compliance in the consumer financial services arena, including on its blog. Specific articles can be found here, here, here, and here.

Troutman Sanders and Pepper Hamilton have developed a dedicated COVID-19 Resource Center to guide clients through this unprecedented global health challenge. We regularly update this site with COVID-19 news and developments, recommendations from leading health organizations, and tools that businesses can use free of charge.

The CFPB offers additional resources to help industry comply with credit reporting requirements, as well as provide consumers with up-to-date information and resources to protect and manage their finances during this difficult time. Its COVID-19 resource page can be found here.

On May 21, the Consumer Financial Protection Bureau issued a report providing an analysis of the complaints it has received since the outbreak of the coronavirus (“COVID-19”) pandemic. Unsurprisingly, the number of complaints has increased dramatically.

The report shows that the CFPB received 36,700 consumer complaints in March and 42,400 in April, the two highest volumes in the Bureau’s history. Of these complaints, 4,500 referenced terms related to the crisis, including “COVID,” “coronavirus,” “pandemic,” and “CARES Act.” As a point of comparison, the CFPB received an average of 29,000 consumer complaints per month during 2019.

Although credit reporting and debt collection remain as the areas with the highest volume overall, complaints concerning mortgages and credit cards were the most likely to mention keywords related to COVID-19. Of the mortgage-related complaints, 22% referenced the pandemic and more than half of the consumers making such complaints indicated that they were struggling to make their monthly payments. Consumers making complaints concerning credit cards mentioned “the coronavirus” 19% of the time.

Consumers who reported their age as being at least 62 years old were more likely to raise COVID-19-related concerns. Nine percent of complaints submitted by older consumers were related to the pandemic as compared to six percent of the complaints submitted by the remainder of the population.

Common concerns raised by consumers included: (a) being unable to reach their creditors’ customer service representatives; (b) continued debt collection during the emergency; (c) that pursuing alternative payment options would result in negative credit reporting; and (d) having to make large, lump-sum payments to creditors at the completion of a forbearance period.

The increase in the number of complaints to the CFPB, as well as the nature of the issues raised, highlights the challenges faced by consumers and creditors alike as we continue to deal with the effects of the pandemic. It likely foreshadows a corresponding increase in consumer litigation. We will continue to monitor and report on the trends as the situation evolves.

On May 13, the Consumer Financial Protection Bureau released two new FAQ documents outlining responsibilities of certain financial firms during the coronavirus (“COVID-19”) pandemic, and a statement regarding billing error responsibilities of credit card issuers and other open-end non-home secured creditors.

The first new FAQ document is entitled, “The Bureau’s Payments and Deposits Rules FAQs related to the COVID-19 Pandemic,” and is available here. This document advises financial and depository institutions that they may change account terms due to the pandemic as long as they provide appropriate notice to consumers. Additionally, the CFPB reminds providers of checking, savings, or prepaid accounts that they can change account terms without advance notice provided that the change is clearly favorable to the consumer.

The CFPB’s second FAQ document, “Open-End (not Home-Secured) Rules FAQs related to the COVID-19 Pandemic,” is available here. These FAQs describe regulatory flexibilities for open-end non-home secured creditors, all aimed at assisting consumers who have been impacted by the pandemic. Generally, the advice is for creditors to “communicate proactively with consumers to provide helpful information and resources.”

The CFPB also released a “Statement on Supervisory and Enforcement Practices Regarding Regulation Z Billing Error Resolution Timeframes in Light of the COVID-19 Pandemic,” available here. The statement highlights responsibilities of open-end non-home secured creditors, including those subject to the Truth in Lending Act, and aims to “provide them with temporary and targeted relief to ensure that they are able to assist their consumers and accurately resolve their billing error claims.”

In its release of these new resources, the CFPB made a point of “encourag[ing] financial firms to continue to provide the kind of assistance to their communities that many have been providing, such as waiving fees, lowering minimum-balance requirements, and implementing changes in account terms that benefit consumers.”

For regular updates on the impact that COVID-19 is having on the financial services sector, visit the Troutman Sanders/Pepper Hamilton joint COVID-19 Resource Center, or the COVID-19 feed here on the CFS Law Monitor.

On May 14, the Consumer Financial Protection Bureau reached an $18 million settlement with mortgage lender Monster Loans (a/k/a Chou Team Realty LLC) and several individual, related entities to resolve allegations that they impermissibly and duplicitously obtained credit reports for their associated student loan debt-relief companies, which, in turn, used the consumer reports to deceptively market their services nationwide and then charged consumers illegal fees – all in violation of the of the Fair Credit Reporting Act, the Consumer Financial Protection Act of 2010 (“CFPA”), and the Telemarketing Sales Rule (“TSR”).

The CFPB commenced a civil action on January 9, 2020, claiming that Monster Loans and several individuals and related companies, including Lend Tech Loans (“Lend Tech”), Thomas Chou, and Sean Cowell, ran a scheme to obtain consumer reports on individuals with student loans by falsely representing that the information would be used to make firm offers of credit for mortgage loans. The CFPB expressly stated in its complaint that student debt relief marketing “is not a permissible purpose” under the FCRA.

The matter is pending in the United States District Court for the Central District of California and captioned: CFPB v. Chou Team Realty LLC, et al., No. 8:20-cv-00043. A copy of the complaint can be found here. The proposed settlement, if entered by the court, would impose an $18 million redress judgment against Monster Loans; ban Monster Loans, Chou, and Cowell from the debt-relief industry; and impose a total $450,001 civil money penalty against them.

Monster Loans allegedly obtained reports on approximately 7 million student loan debtors from December 2015 to May 2017. Then, through Lend Tech, Chou and Cowell obtained reports on over 12.5 million more debtors through at least January 2019. After obtaining the reports, Monsters Loans and Lend Tech would transfer them to a student debt-relief company called TDK Enterprises, which allegedly would then reach out to the student-loan debtors with mailings and telemarketing calls – some of which, the CFPB claimed, included misrepresentations about available relief and applicable services. The CFPB further alleged that, with Monster Loans’ assistance, the student loan debt-relief companies violated the CFPA and the TSR by making several deceptive representations about the companies’ services and violated the TSR by unlawfully collecting advance fees for debt relief services.

Chou and Cowell were alleged to be the leaders of the scheme. They were the officers of Monster Loans, investors in the student loan debt-relief companies, and allegedly helped create the sham entity Lend Tech. The CFPB claimed that they participated in the FCRA violations and received purported profits from the student loan debt-relief companies. In total, the named defendants were alleged to have collected over $15 million in illegal fees from the scheme.

The proposed settlement order will impose a judgment for redress of $18 million against Monster Loans. Full payment will be suspended subject to Monster Loans’ payment of $200,000 for consumer redress. The settlement also will require Chou and his company to disgorge $403,750 in profits for the purpose of providing redress and will impose a judgment for redress of $406,150 against Cowell and his company, which will be suspended. These suspended amounts account for certain of these defendants’ limited ability to pay more based on sworn financial statements. Monster Loans will pay a $1 civil penalty as part of the settlement, based on its documented inability to pay; Chou will pay a $350,000 penalty; and Cowell will pay a $100,000 penalty.

The CFPB’s claims against the other defendants and relief defendants in this action, including Lend Tech, remain unresolved and pending with the court.

Overview

Earlier this week, the Consumer Financial Protection Bureau issued an interpretive rule intended to “make it easier for consumers with urgent financial needs to obtain access to mortgage credit more quickly in the middle of the [coronavirus] COVID-19 pandemic.” The rule clarifies how the right of consumers to waive certain protections provided in the TILA-RESPA Integrated Disclosure rule (“TRID”) and Regulation Z may be handled during the ongoing crisis.

The interpretative rule is a favorable development for both creditors and distressed consumers. The latter could receive urgently needed mortgage proceeds nearly one week sooner. For creditors, however, it is important to appreciate that the rule is narrow in scope. Briefly, it should not be interpreted as negating the need for continued diligent adherence to the rules for waiting periods and loan rescissions contained in the TRID and Regulation Z.

Below, we first provide some background information on the affected rules, and then discuss specific elements of the interpretive rule along with their likely impact on mortgage originations.

  • Timing of three-day waiting period waivable if COVID-19 causes a bona fide personal emergency.

Under the TRID, creditors typically must issue a Closing Disclosure that identifies the final terms of the transaction to a consumer at least three days before closing. This period is designed to give consumers time to evaluate the final loan terms and property condition to ensure that all parties understand the nature of the transaction and want to move forward with closing. This mandatory waiting period presents a challenge for borrowers who are seeking to expeditiously close a mortgage transaction, especially those borrowers whose urgency is related to a personal emergency. For that reason, the TRID includes the possibility of a waiver for consumers who have a bona fide personal financial emergency and can document that emergency in writing. Lenders have been hesitant to rely on these waivers because only one example — a consumer in foreclosure proceedings — was provided by the CFPB in commentary to the initial rule.

The interpretive rule specifically identifies COVID-19 as an event that could cause a bona fide personal emergency meriting the use of a waiver of the three-day waiting period. Consumers seeking a waiver must still provide written documentation to the creditor that describes the emergency, modifies or waives the waiting period, and includes the signature of all consumers liable on the legal obligation. Creditors may be more willing to accept waivers and expedite closings now that the CFPB has issued this rule expressing the CFPB’s recognition that a COVID-19-related fallout could qualify as a bona fide personal emergency.

  • Rescission period also could be waived in the event of a COVID-19 personal emergency.

Predating COVID-19, a consumer facing a “bona fide personal financial crisis” could elect to waive his or her right to rescind a covered transaction within three days of closing. The interpretative rule clarifies that the COVID-19 pandemic qualifies as such a crisis. Creditors are not required to release any funds to consumers until the rescission period has passed, unless a consumer has formally waived the rescission period due to a bona fide personal financial emergency. In the official commentary to Regulation Z, the CFPB states that “the existence of the consumer’s waiver will not, of itself, automatically insulate the creditor from liability for failing to provide the right of rescission.” Given that commentary, and a lack of examples of events that qualify as bona fide personal emergencies, mortgage originators have been hesitant to honor rescission waivers even where personal emergencies may exist, given that there is significant risk associated with doing so. Here, the CFPB has clarified that a financial need that arises out of the COVID-19 pandemic could qualify as a bona fide personal emergency under Regulation Z. The interpretive rule provides much-needed clarity to creditors that are receiving waiver requests from consumers wanting to receive proceeds faster and could lead to creditors becoming more comfortable accepting and honoring rescission period waivers from consumers.

  • The interpretative rule does not relax the rules for obtaining waivers of the right to rescind.

Regulation Z requires lenders to provide two copies of the notice of the right to rescind to each consumer who has an ownership interest in the property. Regulation Z also contains rules governing the notice’s format, content, and timing. This notice must be a separate document and is required to include certain material disclosures. To this end, creditors must utilize the appropriate model form in appendix H of Regulation Z or provide a substantially similar notice. Notice of the right to rescind need not be given prior to consummation of the subject loan transaction, but the regulatory three-day rescission period will not begin to run until notice is given. If a creditor fails to comply with these requirements, the rescission period is automatically extended from three days to three years. If a creditor were to choose to forgo providing notice based on the mistaken belief that the COVID-19 pandemic excuses the need to comply, the borrower or any owner of the property subsequently could argue that the waiver that they had given was a nullity based on the lack of informed consent. In addition, the creditor also could be subject to an Unfair or Deceptive Acts or Practices claim from such persons asserting they had been misled into waiving their legal right to rescind without adequate disclosure.

  • Changed circumstance resulting in changed price permissible.

The interpretive rule also aims to relax the circumstances in which creditors can modify the good faith estimate of settlement service charges identified in a Loan Estimate. While the TRID limits circumstances for changing the costs of settlement services to “extraordinary events beyond the control of any interested party,” the interpretive rule clarifies that COVID-19 does qualify as an extraordinary event that could result in there being changes to the initial good faith estimate of settlement charges provided in the Loan Estimate. If creditors can document that fallout from the COVID-19 pandemic has had a direct impact on the cost of certain settlement service providers, then it may be permissible to increase those providers’ charges to consumers beyond the prices identified in the Loan Estimate. These changes still would need to be reflected in a modified Loan Estimate or the Closing Disclosure.

  • The interpretive rule is not a temporary suspension of the TRID.

While these changes should come as welcome relief for originators wrestling with how to respond to waiver requests, it is worth noting that the interpretive rule is narrow in scope. The CFPB is likely to scrutinize any attempts by settlement service providers to cut out these critical protections — waiting periods, rescission rights, and good faith estimates of the cost of settlement services — unless doing so is truly necessary for the consumer to respond to a personal emergency arising out of COVID-19. Creditors now have two examples of events that would qualify as personal emergencies for waiving the TRID’s three-day waiting period and have one example of an event that would qualify for purposes of the rescission rule. Creditors may want to proceed cautiously when considering whether to expand their lists of qualifying emergency events beyond those that are very similar in nature to those examples expressly identified by the CFPB.

Conclusion

The TRID and Regulation Z provide lenders with explicit requirements that must be followed to honor consumers’ waiver requests. While installing policies and procedures to process waiver requests may be fairly straightforward, the more difficult question for creditors to decide will be when to recognize that an event is an actual financial emergency that arises out of the COVID-19 pandemic. Creditors could choose to take consumers’ waiver statements at face value, but that approach is not without risk. If a consumer submits a waiver request, especially at the suggestion of a creditor, but is not truly experiencing a bona fide personal financial emergency, then years later that creditor may be faced with responding to regulatory inquiries or consumer lawsuits arising out of the consumer’s coerced waiver of important consumer rights.

This is a positive step forward for creditors that are receiving waiver requests from consumers who submit residential mortgage applications, but one to which creditors will need to be prudent about responding. If you need assistance with processing waiver requests or designing a program to consider these requests, please reach out to the authors of this article.

Earlier this month, twenty-one state attorneys general and the AGs for Washington, D.C. and Puerto Rico sent a letter to the Consumer Financial Protection Bureau (CFPB) urging the CFPB to withdraw its non-binding guidance issued on April 1, 2020 with respect to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The signatory AGs include some from the most populous states and some of the states hardest hit by the pandemic, including California, Illinois, Michigan, New Jersey, New York and Washington. Unhappy with the response they received from the CFPB on April 21, 2020, the AGs have now gone directly to the three major credit reporting agencies (CRAs) with a strong message that the AGs “are committed to protecting consumers in our states and will continue to enforce all federal and state requirements during this crisis.” Their message is clear: if you do not comply with the CARES Act, we will act.

CFPB’s April 1, 2020 Guidance

By way of a recap, the CFPB’s non-binding guidance relaxed certain requirements of the Fair Credit Reporting Act (FCRA) during COVID-19. The guidance signaled the CFPB’s intent to provide regulatory relief for businesses by not enforcing the FCRAs statutory investigation timeframe against furnishers or CRAs acting in good faith. The statement emphasized that a CRAs or furnisher’s investigative dispute period would be extended from 30 to 45 days if a consumer provided additional information relevant to an investigation. Additionally, the CFPB encouraged furnishers and CRAs to alleviate operation stress by not investigating “disputes submitted by credit repair organizations and disputes they reasonably determine to be frivolous or irrelevant.”

The guidance was also accompanied by an announcement that the CFPB would not strictly enforce the CARES Act requirements for reporting credit obligations as “current” where accommodations have been made.

State AGs Push Back

In response to the CFPB’s guidance, the state AGs sent a strongly worded letter to the CFPB on April 13, 2020 urging the CFPB to withdraw its guidance and resume vigorous oversight of CRAs and enforcement of the FCRA. In that letter, the AGs opposed the CFPB’s guidance suggesting the CFPB would not (1) enforce the CARES Act’s amendments to the FCRA requiring accounts to be reported as “current” and (2) take enforcement actions against CRAs for failing to investigate consumer disputes in timely manner. The state AGs cited a number of reasons in support of their position, including that the CFPB’s guidance could (1) discourage consumers from taking advantage of forbearance or other accommodations and (2) put consumers at risk for inaccurate reporting if dispute investigations are delayed.

The letter urged the CFPB that “now is not the time to let [CRAs] fall asleep at the switch. They must be vigilant and protect consumers’ credit. Especially during this crisis, we must hold them accountable when they fail to respond to, and correct, errors on consumers’ credit reports.”

CFPB’s April 21, 2020 Response

In a response to the state AG’s April 13, 2020 letter, the CFPB indicated that its guidance “instructed furnishers that in order to comply with the CARES Act amendments to the FCRA, a consumer is current on their loan if they have received any relief as a result of the pandemic.” With respect to CFPB enforcement and supervisory actions, the CFPB stated that “all CRAs remain responsible for conducting reasonable investigations of consumer disputes in a timely fashion.” The CFPB went on to state that its guidance “does not give CRAs an unlimited time beyond the statutory deadline to investigate disputes nor does it say the Bureau will not enforce FCRAs obligations to investigate.”

In short, the CFPB’s response indicated it would take an individualized approach to reviewing the timeliness of a particular CRA’s dispute investigations and would take into account any challenges smaller CRAs may face on the operational side as a result of COVID-19, but it fell short of withdrawing its guidance encouraging CRAs to not investigate “frivolous or irrelevant” disputes and emphasizing scenarios that extend a CRA’s investigation period.

State AGs Letter to the CRAs

In their April 28, 2020 letter, the state AGs warned the CRAs that they expected compliance with the CARES Act and would “actively monitor for and enforce such compliance.” The April 28, 2020 letter focuses on what the state AGs identified as the CFPB’s failure to assure that it will enforce investigation periods related to consumer disputes. Specifically, the AGs indicated they would monitor “furnishers to ensure that they do not improperly report negative credit information” and will monitor the CRAs “to ensure that the CRAs timely and meaningfully investigate disputes arising from improper reporting by furnishers.” Finally, the State AGs informed the CRAs that they expected “the CRAs to comply with all provisions of the FCRA, state law, and the requirements of agreements that the CRAs entered into with [the AG’s] offices, including the CRA’s obligations to conduct meaningful and timely investigations of consumer disputes of credit information.” The state AGs warned they would not hesitate to “hold CRAs accountable if they fail to meet these obligations.”

The state AGs’ message is clear to the CRAs: if the CFPB won’t enforce the FCRA, we will. For regular updates about the latest COVID-19 and CARES Act impacts on the financial services sector, be sure to visit the Pepper Hamilton/Troutman Sanders COVID-19 Resource Center.

The Consumer Financial Protection Bureau has released a video, available here, providing non-filers of federal tax returns with guidance to receive their economic impact payments, authorized by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the coronavirus (“COVID-19”) health crisis.

The video notes that most people who qualify for an economic impact payment will receive the payment automatically. However, some individuals must take additional action at www.irs.gov/eip in order to claim their economic impact payment, or to claim their additional payment for dependent children under age 17.

Those who must take additional action include:

  • Individuals whose income level in 2018 and 2019 did not require a tax return; or
  • Individuals who were not required to file a tax return, have dependent children under 17 years old, and receive
    • Social Security benefits (retirement, disability insurance, survivor benefits, or Supplemental Security Income),
    • Railroad Retirement and survivor benefits, or
    • Veterans Affairs benefits (disability, pension, or survivor).

The video goes on to advise consumers to be aware of scams, noting that “the [Internal Revenue Service] will never reach out to you to ask for your personal information.” Additionally, the CFPB reminds consumers that direct deposit is the fastest way to receive a disbursal from the IRS, but other methods including prepaid cards and paper checks also are available.

In addition to the video, the CFPB has released a blog post with answers to FAQs regarding economic impact payments, which is available here.