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A group of 21 states and the District of Columbia submitted a comment letter opposing the Consumer Financial Protection Bureau’s effort to revise and boost its Policy on No-Action Letters (“NAL Policy”) and the creation of a CFPB Product Sandbox.  The NAL Policy and Product Sandbox will allow companies to provide innovative financial services and products under a relaxed regulatory regime.  In a February 11 letter, the states express concern that relaxed regulation could lead to consumer harm and are asking the CFPB to reevaluate its proposed policies given the significant risks to consumers and the entire U.S. financial system.

As an initial matter, the participating states doubt whether the CFPB can take such action without the formal rulemaking procedures required by the Administrative Procedure Act because the proposals create substantive CFPB policy.  Under the revised policy, the immunity granted to companies ties the states’ hands because “approvals or exemptions granted by the CFPB … confer on the recipient immunity” from both federal and state authority.  However, even if the CFPB does have the authority to take the action without formal rulemaking, the states point out that there are other issues that are of importance.

A company could apply to the CFPB for a no-action letter that would give the company an official assurance by a duly authorized CFPB official that the CFPB will not pursue enforcement measures against the company.  The purpose is to foster technological innovation, but it is effectively a “get-out-of-jail-free card” for a company trying new products and services.  The revised NAL Policy would also speed up the time in which the CFPB would grant or deny an application for a no-action letter to 60 days.

The Product Sandbox would grant companies similar relief under the NAL Policy, but would also provide two forms of additional exemption relief:  “1. Approvals by order under three statutory safe harbor provisions (approval relief); and 2. Exemptions by order from statutory provisions under statutory exemption-by-order provisions (statutory exemptions), or from regulatory provisions that do not mirror statutory provisions under rulemaking authority or other general authority (regulatory exemptions).”  The Product Sandbox also fosters technological innovation by allowing companies to test new disclosures for financial services and products.

Given the effects of the 2008 financial crisis, the states oppose the revised policy because the potential benefits are outweighed by the risks.  The states point out various issues that undermine the potential effectiveness of the proposed policy, focusing primarily on the potential for consumer harm and the lack of understanding of emerging technology.  For example, marketplace lenders may “rely on machine-learning or other types of artificial intelligence to make underwriting decisions,” but the “lenders may be unable to determine why a particular decision was made.”  The states claim that until technology and its implications for consumers are better understood, it is ill-advised to give companies such broad relief from enforcement actions.  The states assert that the CFPB’s commitment to fostering technological advances should not be used in a way that jeopardizes consumer protection.

 

On January 29, the Consumer Financial Protection Bureau released a snapshot report of consumer complaints to provide a high-level overview of the trends in complaints it has received over the past 24 months.  The report is split into two sections – a summary of the volume of all consumer complaints received by the CFPB per state and consumer financial product type, and a highlight of mortgage-related complaints. 

The CFPB’s snapshot reveals it received 7 percent fewer consumer complaints in 2018 than in 2017.  Between November 2016 and October 2018, New Jersey ranked 7th nationwide for most consumer complaints per 100,000 residents, while New York State ranked 13th.  Ultimately, New York experienced a 5 percent decrease in the volume of consumer complaints in 2018, while New Jersey complaints decreased by 9 percent.  One of the most significant trends the CFPB observed is a 15 percent decrease in total mortgage-related complaints across the country. 

New Jersey remains a hotbed for mortgage–related complaints, ranking 3rd among the states as measured per 100,000 residents, while New York also finished near the top at 10th.  Although New Jersey witnessed a 17 percent decrease in mortgage-related complaints, New York experienced an even more substantial 39% reduction.  

Overall, based on consumer narratives, the CFPB reported that 42 percent of mortgage-related complaints across the country arise from issues related to servicing, specifically, consumers reporting trouble during the payment process.  These complaints range from issues regarding misapplication of payments to alleged failure of servicers to issue periodic statements.

On January 25, Consumer Financial Protection Bureau Director Kathleen L. Kraninger announced senior leadership changes within the Bureau, appointing five new members to the CFPB leadership team.  Kraninger, a recent appointee by President Donald Trump, previously served in the White House Office of Management and Budget in the Trump Administration.  The following individuals will join her among CFPB leadership:

  • Andrew Duke joins the CFPB as Policy Associate Director for External Affairs.  Duke’s background involves twenty years of experience on Capitol Hill, where he served three Republican members of congress – Robin Hayes (R-N.C.). Phil Roe (R-Tenn.), and, most recently, former Chairman of the House Financial Services Committee, Jeb Hensarling (R-Tex.).
  • Laura Fiene was elevated to the position of West Regional Director.  Prior to joining the CFPB in 2011, she served as a Financial Administrator and Programmer at the Office of Thrift Supervision in San Francisco.
  • Marisol Garibay assumed the role as Acting Chief Communications Officer.  She previously served as a senior advisor and an acting communications director in the Office of Management and Budget.
  • Delicia Reynolds Hand was appointed Deputy Associate Director for External Affairs.  She has been with the CFPB since 2012.  Prior to joining the CFPB, Hand served as the Legislative Director of the National Association of Consumer Advocates and spent nearly three years as Senior Counsel to Congressman John Sarbanes (D-Md.).
  • Lora McCray was appointed the Director for the Office of Minority and Women Inclusion.  She joined the CFPB from the Federal Reserve Bank of Boston where she worked as the Assistant Vice President of Diversity and Inclusion.

On January 25, the Consumer Financial Protection Bureau posted a list of four frequently asked questions, or “FAQs,” clarifying some aspects of the TILA-RESPA Integrated Disclosure Rule (“TRID Rule”). 

The TRID Rule, which applies to many consumer mortgage loans, consolidated the various disclosure forms that were required under the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”) into two forms: (1) a Loan Estimate that must be given to a borrower by the third business day after the lender receives an application; and (2) a Closing Disclosure that must be given at least three business days before consummation.  

The first three FAQs seek to clarify a lender’s obligations if there is a change to the disclosed loan terms after the Closing Disclosure has already been given to the consumer.  They explain that unless the change falls into three specific categories, the lender can provide a corrected Closing Disclosure at or before the scheduled closing without having to push the closing out an additional three business days.  However, if the change (i) results in the APR becoming inaccurate, (ii) results in inaccuracies in the loan product information required by the TRID Rule, or (iii) adds a prepayment penalty to the loan, the corrected Closing Disclosure must be given at least three business days before consummation.  Thus, these FAQs confirm that material changes to the loan terms after a Closing Disclosure has already been given may require a closing to be rescheduled in order to comply with the TRID Rule’s three–business–day requirement. 

The fourth FAQ confirms that a lender who uses the CFPB’s most current model forms and properly completes them with accurate content will be deemed in compliance with the regulatory requirements.  This “safe harbor” applies even if the model forms have not yet been updated by the CFPB to reflect recent rules and regulations.  

Despite this attempt to resolve some of the gray areas in the regulations, mortgage lenders still should exercise caution before relying on these FAQs.  As the FAQs expressly note, they are not a substitute for reviewing the applicable laws and regulations, nor do they have the weight of a law or an officially promulgated agency interpretation.  Lenders should always consult legal counsel if they have any questions or concerns about the extent of their obligations under the TRID Rule or any other federal regulations.  

 

The Supreme Court has denied the petition for certiorari filed by State National Bank of Big Spring (“the Bank”) and two non-profit organizations challenging Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the Consumer Financial Protection Bureau.  The Petitioners argued that the CFPB violates the Constitution’s separation of powers clause for multiple reasons, including that is “an independent agency that exercises expansive executive authority over private citizens but is led by a single Director that the President cannot remove from office for policy reasons,” it is exempted from Congressional oversight, and it has no internal checks and balances.  Several foundations filed amicus curiae briefs echoing these arguments.  The Court’s order denying certiorari states that Justice Brett Kavanaugh, who heard the case on appeal to the Court of Appeals for the D.C. Circuit, “took no part in the consideration or decision of this petition.”

The appeal arises from a case brought by petitioners and eleven U.S. states against the CFPB, the Department of Treasury, and others in the U.S. District Court for the District of Columbia.  The district court initially dismissed the complaint due to lack of standing, concluding that the petitioners “had not suffered injury in fact from any actions of the Bureau or its Director.”  State Nat’l Bank v. Lew, et al., 958 F.Supp.2d 127, 147-165 (D.C. Cir. 2013).  The circuit court remanded the case back to the district after determining that the Bank had standing to challenge the constitutionality of the CFPB’s structure because it is regulated by it.  State Nat’l Bank v. Lew, at al., 795 F.3d 48 (D.C. Cir. 2015).

On remand, the district court deferred ruling on cross-motions for summary judgment pending the decision by the D.C. Circuit Court in PHH Corp. v. CFPB, 881 F.3d 75 (2018).  In PHH, the circuit court upheld the constitutionality of the CFPB, reasoning that the Supreme Court had previously “sustained the constitutionality of the independent Federal Trade Commission, a consumer-protection financial regulator with powers analogous to those of the CFPB” and “[i]n doing so, the Supreme Court approved the very means of independence Congress used here: protection of agency leadership from at-will removal by the President.” Id., 881 F.3d at 77.  After the en banc circuit court decision in PHH was entered, the parties stipulated to a judgment by the district court against the petitioners, and the D.C. Circuit Court summarily affirmed on the parties’ joint request.

In its response to the petition for certiorari, the Department of Justice, on behalf of the United States, argued in part that this case “would be a poor vehicle for considering the constitutionality of the Bureau’s structure because it is unlikely that the question would be considered by the full Court,” given Justice Kavanaugh’s participation in the case while he was a judge on the D.C. Circuit.  The DOJ further argued that because two of the petitioners are not banks and are not regulated by the CFPB, a significant jurisdictional question would need to be resolved before the Court could reach the merits of the case.

Troutman Sanders will continue to monitor and report on developments involving the CFPB.

Earlier this month, the apparent next chair of the U.S. House Committee on Financial Services, along with almost two dozen other Democrats, urged the Consumer Financial Protection Bureau’s new director to proactively supervise firms for compliance with servicemember lending rules. 

In a letter to CPFB Director Kathleen Kraninger, Rep. Maxine Waters (D-Calif.) and twenty-two of her colleagues on the Committee stated that legal authorities and a bipartisan group of lawmakers agree that there is “no question” that the CFPB has the authority and obligation to supervise lenders for violating the Military Lending Act, or “MLA.”  The letter, as a result, requested that Kraninger formally commit to “resuming a consistent supervisory role over consumer protection laws, including the MLA, for the most robust and efficient protection of servicemembers and their families.”  It further warned that members of the military continue to be targets for “unscrupulous actors” and cited statistics showing that the agency handled 47% more servicemember complaints in 2017 than it did in 2016.

Over the summer, The New York Times reported that former CFPB acting director Mick Mulvaney planned to halt the agency’s use of supervisory examinations to check for lenders’ compliance with the MLA.  The MLA places a 36% interest rate cap on loans to military borrowers, bans mandatory arbitration clauses, and restricts other lender practices and loan terms.  Under that new planned policy, the agency would not proactively search for MLA violations on a routine basis, although it would accept and pursue cases against lenders upon receiving complaints.  This move resulted from a determination that the CFPB lacked explicit statutory authority to incorporate MLA compliance checks into its examinations.

The letter from House Democrats rides on the coattails of servicemember groups, consumer advocates, and others who swiftly opposed the change, arguing that dropping the compliance checks could expose active-duty troops and their families to harm from predatory lenders and, in the process, jeopardize military readiness.  Even the U.S. Department of Defense stated that the CFPB failed to consult with it about this change in policy.

As the likely next chair of the House Financial Services Committee, Waters underscored, through her criticism of Mulvaney and his policies, the pledges she has made to prioritize consumer protection during her new term in office.  In a statement, Waters asserted, “Of particular importance is ensuring that the [CFPB] is not dismantled by Trump’s appointees.  This critical agency must be allowed to resume its work of protecting consumers from unfair, deceptive or abusive practices without interference from the Trump Administration.” 

Troutman Sanders will continue to monitor CFPB developments under House Democrats’ leadership in 2019.

 

In December, Judge Robert D. Mariani denied Navient’s motion to dismiss a lawsuit filed by the Commonwealth of Pennsylvania, ruling that the suit is not pre-empted by a similar case filed against the company by the Consumer Financial Protection Bureau.  In the suit, the Commonwealth seeks to hold Navient liable for student loan collection activity that allegedly harmed borrowers both in Pennsylvania and nationwide.

Specifically, the Commonwealth alleges that Navient committed a variety of abusive practices in violation of the Consumer Financial Protection Act (“CFPA”) and Pennsylvania’s unfair trade practices and consumer protection law (“CPL”).  The Commonwealth’s case is similar to a parallel action pending in the same court involving the CFPB.  The motion to dismiss claimed that the Commonwealth’s complaint is “essentially cut and pasted from the CFPB’s long ago filed complaint.” But the judge, in denying the motion, rejected Navient’s argument that the Commonwealth’s action is merely a “copycat” of the CFPB suit that “unnecessarily burden[s] the courts and parties, and would risk generating inconsistent rulings across the country.”

“While Navient’s arguments are creative, they do not convince the Court that the CFPA prohibits concurrent state enforcement actions,” wrote Judge Mariani.  “Following Navient’s position would require the Court to accept an amalgam of tenuous postulates regarding several provisions of the CFPA and a strained reading of the plain text of the statute.”  Because concurrent enforcement actions are barred in other areas of the CFPA, but not in the section relevant to this particular case, “applying the canon of statutory interpretation [holding that where Congress includes language in one section but omits it in another, it is presumed Congress acts intentionally] is particularly appropriate.”  The Court also ruled that other federal statutes – the Truth in Lending Act and Higher Education Act – do not pre-empt the Commonwealth’s claims.

The opinion marks the latest development in a years-long battle among the federal government, states, and student loan companies over whether and how states can regulate the firms, which are also contractors of the Department of Education.  Navient, a Delaware-based student loan management company and formerly a part of Sallie Mae, is facing similar suits in other states, including Illinois, California, Mississippi, and Washington.  Navient’s motion to dismiss the Illinois Attorney General’s suit (based on the same preemption argument) was denied in July.

In early 2018, Secretary of Education Betsy DeVos issued a memo backing student loan servicers.  In the memo, the Department maintains that state rules and regulations aimed at greater consumer protection undermine the federal government’s goal of a single streamlined federal loan program.  State attorneys general have accused the Department of Education of rolling back protections for borrowers for some time now—a coalition of thirty attorneys general recently formed in opposition to portions of the Higher Education Act reauthorization, also known as the PROSPER Act.  States likely will continue to pursue similar claims against Navient in light of the recent rulings against preemption in this context.

Recently, the Consumer Financial Protection Bureau issued revised versions of the small entity compliance guides for the Loan Originator Rule and the Home Ownership and Equity Protection Act (“HOEPA”) Rule.  

Revisions to the Loan Originator Rule Compliance Guide 

The CFPB revised the compliance guide for the Loan Originator Rule in three notable respects. First, the revised guide includes a process for contacting the CFPB with informal inquiries about the rule. Second, the revised guide puts into effect the TILA/RESPA Disclosure rule. Third, and pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was adopted earlier this year, the revised guide includes an exemption from certain rules applicable to loan originators for retailers of manufactured and modular homes and their employees. 

Revisions to the HOEPA Rule Compliance Guide 

The CFPB made two notable revisions to the compliance guide for the HOEPA Rule. First, the revised guide broadens the exemption from the concept of a loan originator. This broader exemption should be taken into account when considering the requirement to include loan originator compensation in points and fees for purposes of the points and fees threshold under the rule. Second, the revised guide includes a process for contacting the CFPB with informal inquiries about the rule.  

The revised compliance guides can be found here.

 

The states of most complaint, you ask?  – California, Florida, Texas, New York, and Georgia.

In October, the Consumer Financial Protection Bureau released its Complaint Snapshot, which supplements the Consumer Response Annual Report and provides an overview of trends in consumer complaints received by the Bureau.

The Snapshot revealed that the CFPB has received 1.5 million complaints since January 1, 2015.  Of those complaints, the most come from consumers in California, Florida, Texas, New York, and Georgia.  Conversely, the CFPB received the fewest number of complaints from consumers in Wyoming.

In general, U.S. consumers complain more to the CFPB about credit or consumer reporting (i.e., that there is incorrect information on the report) and debt collection (i.e., that there are attempts to collect on debt allegedly not owed) than any other issues.  The top complaints in the top states are as follows:

State Top Complaint
Georgia Credit or consumer reporting
Florida Credit or consumer reporting
Texas Debt collection
California Credit or consumer reporting
New York Credit or consumer reporting

The report also highlights the financial products that result in the largest number of complaints to the CFPB.  They include student loans, money transfers or services, virtual currency, prepaid cards, payday loans, and credit repair.

Click here to download the full report.

We will continue to monitor and report on developments in this area of consumer financial services and compliance.

On October 17, the Office of Information and Regulatory Affairs released the CFPB’s fall 2018 rulemaking agenda.  In the preamble to the agenda, the CFPB notes that the agenda lists the regulatory matters that the agency “reasonably anticipates having under consideration during the period from October 1, 2018 to September 30, 2019.”

Implementing Statutory Directives.  According to the CFPB, much of its rulemaking agenda focuses on implementing statutory directives.  Those statutory directives include:

  • The directive by the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) that the CFPB engage in rulemaking to (1) exempt certain creditors with assets of $10 billion or less from certain mortgage escrow requirements under the Dodd-Frank Act, and (2) develop standards for assessing consumers’ ability to repay Property Assessed Clean Energy (“PACE”) financing; and
  • The Dodd-Frank Act’s directive that the CFPB, prior to any public disclosure, modify or require modification of loan-level data submitted by financial institutions under the Home Mortgage Disclosure Act (“HMDA”) so as to protect consumer privacy interests.

Continuation of Other Rulemakings.  In addition, the CFPB notes that it “is continuing certain other rulemakings described in its Spring 2018 Agenda.”  Those continuing rulemaking efforts include:

  • Anticipated rulemaking to reconsider the 2017 Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule; 
  • Anticipated rulemaking to reconsider its 2015 HMDA rule, for instance, by potentially revisiting such issues as the institutional and transactional coverage tests and the rule’s discretionary data points; and 
  • Anticipated rulemaking to address how to apply the 40-year-old Fair Debt Collection Practices Act (“FDCPA”) to modern collection practices.

Further Planning.  The CFPB also notes that it “has a number of workstreams underway that could affect planning and prioritization of rulemaking activity, as well as the way in which it conducts rulemakings and related processes.”  Those workstreams include:

  • Ongoing efforts to reexamine rules that the Bureau issued to implement Dodd-Frank Act requirements concerning international remittance transfers, the assessment of consumers’ ability to repay mortgage loans, and mortgage servicing;
  • Ongoing efforts to reexamine rules implementing a Dodd-Frank Act mandate to consolidate various mortgage origination disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act;
  • Ongoing efforts to reexamine the requirements of the Equal Credit Opportunity Act (“ECOA”) concerning the disparate impact doctrine, in light of recent Supreme Court case law and Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations; and
  • Ongoing efforts directed at determining whether rulemaking or other activities may be helpful to further clarify the meaning of “abusiveness” under section 1031 of the Dodd-Frank Act.