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The Consumer Financial Protection Bureau issued a final Home Mortgage Disclosure Act (“HMDA”) rule amending Regulation C to adjust institutional and transactional coverage thresholds for closed-end mortgage loans and open-end lines of credit. The final rule permanently raised the threshold to report closed-end mortgage loans from 25 to 100 originated loans in the previous two years and increased the permanent threshold to report dwelling-secured open-end lines of credit from 100 to 200 originated lines in each of the last two years.

The closed-end loan threshold is effective July 1, 2020, and the permanent open-end lines of credit threshold is effective January 1, 2022. A temporary threshold of 500 originated open-end lines of credit in each of the prior two years is in effect through 2021. In May 2019, the CFPB proposed to increase the closed-end loan threshold from 25 to 50 originated loans and the permanent open-end line of credit threshold from 100 to 200 lines in each of the preceding two years. The CFPB further proposed to extend the 500 originated lines temporary threshold through 2021. After the comment period expired, in October 2019, the CFPB issued a final rule extending the temporary 500 originated lines threshold for reporting open-end lines of credit through 2021.

The mid-year implementation of a higher reporting threshold for closed-end loans will have the impact of HMDA reporting institutions becoming non-reporting institutions as of July 1, 2020. For example, if an institution originated 25 or more closed-end loans in the last two years, then as of January 1, 2020, the institution would have to report HMDA data for 2020. If that same institution originated fewer than 100 closed-end loans as of July 2020 in the prior two years, it would be considered a “newly excluded institution” and not a HMDA reporting institution.

The CFPB has provided guidance to institutions on how the mid-year implementation impacts a newly excluded institution’s reporting obligations under HMDA:

  • On July 1, 2020, newly excluded institutions may stop collecting data for HMDA purposes. However, under the Equal Credit Opportunity Act and Regulation B, separate data collection requirements remain for mortgage loans concerning a consumer’s principal residence.
  • A newly excluded institution must record closed-end mortgage loan data for the first quarter of 2020 on its loan application registers within 30 days after the end of the first quarter. However, newly excluded institutions need not record second-quarter data.
  • A newly excluded institution does not have to report any HMDA data for 2020 but may opt to report. However, should the institution choose to report, it must report for the entire year.

In announcing the final rule, the CFPB stated it anticipates it will reduce the regulatory burden on smaller institutions to focus on responding to consumers. We will continue to monitor and report on the CFPB’s HMDA rulemaking and guidelines.

On April 15, the Consumer Financial Protection Bureau and the Federal Housing Finance Agency (“FHFA”) announced a joint initiative known as the Borrower Protection Program (“Program”), through which the CFPB and FHFA will share servicing information during the coronavirus (“COVID-19”) national emergency.

The CFPB currently processes consumer complaints and receives responses from companies through its consumer complaint system. The CFPB takes the information gathered through this system into account in supervisory and enforcement work. As part of the new Program, the CFPB is making borrower complaint information and analytical tools available to the FHFA. 

The FHFA regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Banks system, which collectively provide more than $6.3 trillion in funding for the United States mortgage market. In response to the COVID-19 national emergency, Fannie Mae and Freddie Mac are permitting borrowers with a financial hardship due to the pandemic to enter into a forbearance, pause, or reduction of their monthly mortgage. The missed payments can be added to the normal monthly payments, paid back all at once, tacked on to the end of the loan, or the borrower can have the term of the loan extended. Mortgage servicers are responsible for working with borrowers to set up repayment plans that work for both parties. Under the new Program, the FHFA is making available to the CFPB information about forbearances, modifications, and other loss mitigation initiatives undertaken by Fannie Mae and Freddie Mac in response to the pandemic.

According to CFPB Director Kathleen Kraninger, “[t]hrough the partnership being announced today, the Bureau will share our insights with FHFA and ensure we get their data on how mortgage servicers are working with their customers during this critical time and going forward.” According to FHFA Director Mark Calabria, “[t]his partnership with CFPB ensures FHFA can address misconceptions stemming from consumer complaints by working with Fannie and Freddie servicers.”

In addition to navigating the challenges of implementing COVID-19-inspired legislation in the face of unprecedented borrower demand for relief, servicers should be mindful of this new coordinated monitoring effort by two key federal regulators.

 

Earlier this year, the Consumer Financial Protection Bureau created a Taskforce on Federal Consumer Financial Law to “examine the existing legal and regulatory environment facing consumers and financial services providers and report to [the Bureau] its recommendations for ways to improve and strengthen consumer financial laws and regulations.” To assist the Taskforce, the Bureau recently issued a request for information, asking the public to submit comments on several topics by June 1, 2020. The Bureau’s request presents a unique opportunity for interested parties to shape recommendations that could lead to a wholesale overhaul of key, federal consumer finance laws.

In its request, the Bureau asks a series of questions about the market for consumer financial products and services, with a particular emphasis on certain markets such as automobile financing, credit cards, consumer reporting, debt collection and settlement, electronic payments, and mortgage origination and servicing. The Bureau groups its questions into a few categories that it hopes will shed some light on how well financial markets are functioning for consumers. Those categories include questions related to:

  • Expanding access to financial resources and exploring potential obstacles to financial inclusion;
  • Current and future topics regarding protection and use of consumer data;
  • Regulations that the Bureau writes and enforces;
  • Costs and benefits of overlapping federal and state supervision and enforcement responsibility with respect to financial institutions; and
  • Performance of consumer protection.

In its request for information, the Bureau notes that every statutory and regulatory change creates costs for consumers and industries as they adjust to new rules. Thus, the Taskforce is most interested in learning about changes that would provide the most marginal benefits when compared to the marginal costs.

On April 13, the Consumer Financial Protection Bureau announced a new interpretive rule that makes it possible for consumers to receive certain pandemic-relief payments through newly-issued prepaid accounts rather than paper checks. According to CFPB Director Kathleen Kraninger, the interpretive rule is designed to “ensure that consumers can receive these payments in a fast, secure, and efficient manner.”

The new interpretive rule is available here, and the CFPB’s accompanying announcement is available on its website, here.

Under the Electronic Fund Transfer Act and its implementing regulation, Regulation E, government agencies may not require consumers to establish accounts for receipt of electronic fund transfers as a condition of receiving a government benefit. This is known as the “compulsory use provision.”

However, the CFPB’s newly promulgated interpretive rule concludes that, if certain conditions are met, certain pandemic-relief payments are not “government benefits” subject to the compulsory use prohibition. Because these payments are not subject to the compulsory use prohibition, government agencies will be allowed to disburse them through newly-issued prepaid accounts.

Specifically exempted from the definition of “government benefits” under the new interpretive rule are:

payments from federal, state, or local governments if those payments: (1) are made to provide assistance to consumers in response to the coronavirus (“COVID-19”) pandemic or its economic impacts; (2) are not part of an already-established government benefit program; (3) are made on a one-time or otherwise limited basis; and (4) are distributed without a general requirement that consumers apply to the agency to receive funds.

The interpretive rule comes at a time when many Americans are waiting to receive an Economic Impact Payment from the Internal Revenue Service. Under the Coronavirus Aid, Relief, and Economic Security Act, many Americans are entitled to a one-time Economic Impact Payment of about $1,200, which the IRS began disbursing on April 11. However, receipt of the Economic Impact Payments is expected to take longer for individuals and families who have not previously provided the IRS with direct deposit information and will need to receive their payments through another means, like paper checks. The CFPB believes that the new interpretive rule clears the way for the IRS to get money to these consumers as soon as possible.

In announcing this new interpretive rule, the CFPB acknowledged that payments disbursed through new, prepaid accounts “may be faster, more secure, more convenient, and less expensive—for both the government agency and the consumer—than making disbursements through other methods such as paper check.”

On April 1, the Consumer Financial Protection Bureau issued a consent order against Cottonwood Financial, Ltd., a short-term, small dollar lender located in Texas. After reviewing the lender’s installment lending, payday lending, title lending, marketing, collections, and furnishing practices, the CFPB identified a number of violations, including those under the Fair Credit Reporting Act, 15 U.S.C. § 1681; Truth in Lending Act, 15 U.S.C. §§ 1601-1666j; Regulation V, 12 C.F.R. pt. 1022; and Regulation Z, 12 C.F.R. pt. 1026.

Specifically, the CFPB found that the lender engaged in unfair collection practices when it placed telephone calls to obtain payment to borrowers’ employers and other third parties listed as references on the borrowers’ applications. “In some instances, [the lender] called consumers’ workplaces multiple times a day, even after being told that the consumers were not allowed to receive calls at work and that future calls could endanger employment.”

Additionally, the CFPB found that the lender placed deceptive telemarketing calls and deceptive television marketing advertisements. The lender advertised that consumers could receive up to a 50% discount off of the finance charges associated with the loan. However, the lender failed to explain that the discount was applied to only the first payment due, that the discount would be paid as a rebate, and that the discount would be provided only if the first payment was received in full on or before the due date.

Finally, the lender provided no guidance to its employees regarding how to answer consumers’ questions about the loan’s interest rates and other costs of the loan. The failure to state the loan’s annual percentage rate when orally responding to consumers’ questions violated Regulation Z.

The consent order requires the lender to provide $286,675.64 in redress to more than 1,200 borrowers to whom the lender falsely promised 50% off all fees and to pay a civil money penalty of $1,100,000 to the CFPB’s Civil Penalty Fund.

On April 1, the Consumer Financial Protection Bureau issued “a non-binding general” policy statement regarding the Fair Credit Reporting Act (“FCRA”) and Regulation V in light of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The policy statement primarily emphasizes the need for furnishers to follow the requirements of the CARES Act to report as current certain loans subject to payment accommodations due to the coronavirus (“COVID-19”) pandemic. The policy statement further outlines the CFPB’s intent to provide regulatory relief by not enforcing the FCRA’s statutory investigation timeframe against furnishers or consumer reporting agencies acting in good faith.

Meeting CARES Act’s New FCRA Requirements

While the policy statement emphasizes prior guidance instructing financial institutions to help consumers and further encourages companies to continue acting as furnishers, the CFPB’s latest policy statement focuses primarily on reminding furnishers of their new obligations under the CARES Act. Specifically, it reminds furnishers that the FCRA now requires them to “report as current certain credit obligations” subject to COVID-19 payment accommodation plans. It further states that the CFPB “expects furnishers to comply with the CARES Act and will work with furnishers as needed to help them do so.”

Regulatory Relief from FCRA Investigation Timeframe Requirements

In the second portion of the policy statement, the CFPB acknowledges that the pandemic presents some consumer reporting agencies and furnishers with operational challenges which may interfere with their ability to investigate disputes. Accordingly, the CFPB “will consider a consumer reporting agency’s or furnisher’s individual circumstances” when conducting an examination for compliance with the FCRA. To the degree it finds that the consumer reporting agency or furnisher is “making good faith efforts to investigate disputes as quickly as possible,” it “does not intend to cite in an examination or bring an enforcement action” for a failure to meet the FCRA statutory timeframe. For instance, the CFPB will not take any adverse enforcement or examination-related actions against a furnisher or a consumer reporting agency that does not meet the 30-day investigation requirement under the FCRA if it makes a good faith effort to investigate disputes as quickly as possible and its operations are affected by the COVID-19 pandemic. Moreover, if a consumer provides additional information that is relevant to the investigation of his or her dispute, and provides that information within 30 days of raising a dispute, furnishers and consumer reporting agencies will be allowed to investigate the dispute within 45 days of the dispute’s report date instead of 30 days.

In addition to the above, the CFPB appears to encourage furnishers and consumer reporting agencies to alleviate some operational stress by not “investigat[ing] disputes submitted by credit repair organizations and disputes they reasonably determine to be frivolous or irrelevant,” as permitted by applicable statutory and regulatory provisions. As a further means to encourage this behavior, the CFPB states that it “will consider the significant current constraints on furnisher and consumer reporting agency time, information, and other resources in assessing if such a determination is reasonable.”

While the policy statement should be of some assistance to furnishers and consumer reporting agencies, they must not forget that the FCRA provides state regulators with the ability to enforce its provisions, and that it does not in any way change the ability of consumers to bring private litigation for alleged violations of either the FCRA or Section § 1692e(8) of the Fair Debt Collection Practices Act. However, the CFPB has provided guiding language that courts and state regulators should give deference to when evaluating the conduct of covered entities under the unique pressures caused by COVID-19. Just as the CFPB will “consider the significant current constraints on furnisher and consumer reporting agency time, information, and other resources in assessing if” a company made “good faith efforts,” so to must state regulators, the consumer/plaintiff’s bar and the courts. Thus, it is incumbent on every company to document its process in achieving the good faith efforts we all are making to adjust to the changes imposed on us by COVID-19. Any company experiencing practical complications in complying with the FCRA in light of the pandemic are encouraged to seek advice from counsel.

On March 31, the Consumer Financial Protection Bureau (“the Bureau”) published an online guide (available here) for consumers seeking financial relief options for mortgage and rent payments in light of the unfolding coronavirus (“COVID-19”) pandemic, with a particular focus on the new federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The guide offers a consumer-friendly explanation of the relevant provisions, focusing on: (1) what major mortgage relief options are available, (2) who qualifies, (3) how to obtain relief, and (4) what to do upon receiving relief.

Under the CARES Act, relief is available only to consumers whose mortgages are federally owned or otherwise backed by a designated federal agency, and the site provides several links for consumers to research whether a mortgage is owned or back by one of these agencies.

The guide also explains the key categories of relief available to mortgage borrowers, which include foreclosure and forbearance relief. First, there is a blanket moratorium on beginning a judicial or non-judicial foreclosure, or finalizing a foreclosure judgment or sale, during the 60-day period beginning on March 18. Second, for borrowers who experience financial hardship due to the COVID-19 pandemic, they have a right to request a forbearance for up to 180 days, plus the right to request one extension for another up to 180 days. During the forbearance period, there will be no additional fees, penalties, or additional interest (beyond scheduled amounts) added to the account. There is a requirement to submit documentation to qualify other than to claim a pandemic-related financial hardship.

For borrowers who are granted relief, the Bureau provides recommendations for account monitoring, including keeping written documentation to document the relief process, monitoring monthly mortgage statements for granted relief, and monitoring credit reports for changes in reporting arising out of granted relief.

For consumers renting from an owner with a federally owned or backed mortgage, the CARES Act provides for a similar suspension or moratorium on evictions. The moratorium lasts for 120 days beginning on March 27, during which time the landlord cannot evict tenants for nonpayment of rent. After the 120-day period is up, the landlord cannot require the tenant to vacate without providing a 30-day notice to vacate.

The Bureau’s guide also reminds consumers to consider relief from other pre-existing and supplemental forms of assistance programs, such as state and local government resources, housing counselors approved by the United States Department of Housing and Urban Development, reputable credit counseling organizations, and attorneys.

An investor alert this week from the Financial Industry Regulatory Authority, Inc. begins with the ominous warning, from “regulators, law enforcement agencies, and consumer organizations around the globe, the message is clear: fraudulent schemes related to the coronavirus (‘COVID-19’) pandemic have arrived.”

A recent investor alert from the Securities and Exchange Commission’s Office of Investor Education and Advocacy also warns of Internet promotions, including on social media, claiming that the products or services of publicly-traded companies can prevent, detect, or cure COVID-19, and that the stock of these companies will dramatically increase in value as a result. The alert cautions that these promotions often take the form of so-called “research reports” and make predictions of a specific “target price,” and urges investors to be wary of these promotions and aware of the substantial potential for fraud at this time.

Similarly, the Consumer Financial Protection Bureau is offering all consumers up-to-date information and resources to protect and manage their finances at: Protecting your finances during the Coronavirus Pandemic.

FINRA, in particular, is recommending that investors in securities take the following steps to best ensure that their investments are legitimate:

  • Ask and Check: research and verify information prior to making an investment decision;
  • Be Skeptical: use caution with companies that make exaggerated claims to cure COVID-19 or other illnesses;
  • Read SEC Filings: check the SEC’s Electronic Data Gathering, Analysis, and Retrieval database to confirm whether a public company files with the agency to make sure that the company’s promotional information aligns with the reports submitted to EDGAR;
  • Question Companies That Are New to the Cure Market: be skeptical of companies that change their names or business focus to tout disease-prevention products; and
  • The Scam Meter: use FINRA’s “Scam Meter” to see if a potential investment is a scam.

Financial advisors and broker-dealers should heed these same warnings.

Troutman Sanders, which effective July 1, 2020, will combine with Pepper Hamilton to become Troutman Pepper Hamilton Sanders LLP (“Troutman Pepper”), regularly represents financial services institutions and their associated persons, including brokers, financial advisors, and other registered representatives in FINRA arbitrations, securities industry disputes, and regulatory matters involving customer, employment, and intra-industry claims.

In response to the global coronavirus (“COVID-19”) pandemic, the Consumer Financial Protection Bureau announced that it has postponed certain data collections from the financial services industry related to CFPB rules. This extension of flexibility to the financial services industry is intended to facilitate companies focusing their resources on consumers during this time.

CFPB Director Kathleen Kraninger noted that “[a]s consumers seek temporary relief from lenders, the pandemic is impacting the operations of financial companies that are eager to help their customers during this unprecedented time.” Temporarily suspending reporting requirements is designed to help facilitate that customer focus.

To that end, the CFPB will not require quarterly information reporting by certain mortgage lenders as normally required under the Home Mortgage Disclosure Act (“HMDA”) and Regulation C. Despite the postponed reporting, the CFPB noted that companies “should continue collecting and recording HMDA data in anticipation of making annual submissions.”

Likewise, the CFPB also has postponed reporting certain information relating to credit card and prepaid accounts under the Truth in Lending Act, Regulation E, and Regulation Z. This includes submission of the following reports:

  • Annual submissions concerning agreements between credit card issuers and institutions of higher education;
  • Quarterly submissions of consumer credit card agreements;
  • Collection of certain credit card price and availability information; and
  • Submission of prepaid account agreements and related information.

Note that the submission of these reports has only been postponed, not suspended. Accordingly, the CFPB will provide guidance at a later date regarding how and when to report the postponed submissions.

To the extent that reports are required by law, the CFPB has indicated that it does not intend to cite an examination or initiate an enforcement action for failure to submit such information when required by law.

Finally, the CFPB has indicated that it is cognizant of the “operational challenges confronted by institutions due to the pandemic,” and accordingly will work with financial services institutions to “minimize disruption and burden.” The CFPB stated that, when conducting examinations and other supervisory activities, it would “consider the circumstances that entities may face as a result of the COVID-19 pandemic and will be sensitive to good-faith efforts demonstrably designed to assist consumers.”

On March 24, the Consumer Financial Protection Bureau released a list of resources to assist consumers in taking steps to protect their finances during the coronavirus (“COVID-19”) pandemic. The resources can be found here.

Specifically, the resources provided by the CFPB address the following issues:

  • Protect yourself financially from the impact of COVID-19;
  • Make informed financial decisions with up-to-date information and resources;
  • Protect your credit during the pandemic;
  • Tips to help ease the impact of COVID-19 on debt; and
  • Tips for financial caregivers during the pandemic.

The CFPB addressed the above topics by releasing blogs which provide tips to consumers on how to deal with each issue during the COVID-19 pandemic. For example, consumers can refer to the CFPB’s blogs in order to obtain practical information on how to handle issues such as contacting a debt collector, what to do if you cannot pay your bills, and how to submit a complaint if you are having trouble with a financial product or service.

In her statement addressing the above resources, Director of the CFPB Kathleen L. Kraninger noted, “During this difficult time, the Bureau is doing everything it can to facilitate the work of responsible financial companies supporting their customers and borrowers. We want consumers facing hardships to be are aware of this posture and encourage them to discuss their specific circumstances with their lenders. As a backstop, the CFPB stands ready to help consumers resolve issues with their financial services providers through our consumer complaint system.”

Kraninger concluded by stating, “We also want consumers to know the various steps that they can take to help themselves or a loved one, both in the short and long term. Our resources address situations ranging from consumers having difficulty paying their bills or meeting other financial obligations to consumers experiencing a loss of income to avoiding scams.”