CFPB Report - October 9, 2015

Clinton Lays Out Financial Reform Plan
Ahead of the first Democratic Presidential Debate, this Tuesday, October 13, 2015, presidential candidate Secretary Hillary Clinton released a financial regulatory reform plan entitled: "Wall Street Should Work for Main Street." With her regulatory plan, Secretary Clinton aims to defend Dodd-Frank and reduce dangerous risks in the financial system, hold both individuals and corporations accountable for criminal wrongdoing, and protect investors and consumers.
 
Clinton said she would veto any legislation that weakens Dodd-Frank, stating: "Republicans in Congress have tried to hamstring the government's authority to regulate some of our largest and riskiest financial firms and have committed to defunding and defanging the Consumer Financial Protection Bureau, an agency dedicated solely to protecting everyday Americans from unfair and deceptive financial practices." Clinton said her plan would build on the track record she built as a Senator, where she called for addressing abuses in the subprime mortgage market, imposing stronger regulations on the "shadow banking" system, toughening regulation of risky derivatives, and cracking down on excessive executive compensation.
 
Specifically, Clinton would impose a "risk fee" on the liability of banks with more than $50 billion in assets; encourage the big banks to reorganize, downsize, or break apart; and strengthen the Volcker Rule by restricting firms from being able to invest their capital in hedge funds. Further, she would emphasize individual accountability when prosecuting corporate wrongdoing, ensure fines for corporate wrongdoing, and require detailed public disclosure of corporate settlement terms typically kept confidential. Moreover, Clinton heralded the work of the CFPB in protecting consumers from unfair and deceptive practices and stated more must be done to protect consumers from "shady" overdraft practices, debt collectors, and investment managers charging high fees and having conflicts of interest.
 
Clinton Urges Congress to Oppose CFPB Commission Bill
Last week, the House Financial Services Committee passed with bipartisan support, H.R. 1266, the Financial Product Safety Commission Act of 2015, which would create a five-member bipartisan commission at the Consumer Financial Protection Bureau (CFPB). In response, Secretary Clinton released a letter urging members of Congress to oppose the bill, stating: "If [H.R. 1266] passes, consumers' primary advocate in the U.S. government would have to fight with one hand tied behind its back. Perhaps that's exactly what Republicans and their corporate allies want. This legislation is just the latest salvo in the relentless Republican war to 'defund and defang' the CFPB. It puts the interests of powerful corporations and lobbyists ahead of the needs of consumers and families. It's wrong, and hope you'll join me in opposing it."
 
Inspector General Releases Report on CFPB Major Management Challenges
On Wednesday, September 30, 2015, the Office of the Inspector General (OIG) for the Federal Reserve Board and CFPB published the 2015 List of Major Management Challenges for the Bureau. The OIG noted the CFPB has made improvements to the exam process, but highlighted the following four management challenges, in order of significance: 

  1. Ensuring an effective information security program;
  2. Building and sustaining a high-performing and diverse workforce;
  3. Strengthening controls over management operations; and
  4. Maintaining a physical infrastructure.

Regarding information security, the OIG found the CFPB needs to improve its monitoring process, agency-wide configuration management plan, incident response and reporting systems, personnel security, vendor management, information transition from the U.S. Department of Treasury, and protection of personally identifiable information (PII).
 
Turning to workforce challenges, the OIG found the Bureau needs to strengthen workforce planning, develop an improved performance management system, implement a succession plan, and enhance diversity inclusion efforts.
 
Management control and operations challenges primarily focused on issues related to the Consumer Complaint Database. Specifically, the OIG found "security control deficiencies related to configuration management, access control, and audit logging and review in the Data Term Complaint Database" and concluded "the CFPB has not established separate management controls to ensure the accuracy of the data in the public-facing Consumer Complaint Database."
 
Finally, the OIG addressed challenges associated with the headquarters renovation project, including "managing and mitigating risks associated with schedule delays, unanticipated expenses, and cost overruns."
 
CBA Files Amicus in PHH RESPA Case
On Monday, October 5, 2015, CBA and other trades filed an amicus in the PHH Corporation's appeal of an earlier CFPB decision. Earlier this year, the CFPB affirmed a decision by an Administrative Law Judge (ALJ) to fine PHH for violations of the Real Estate Settlement Procedures Act (RESPA). However, CFPB Director Richard Cordray increased damages assessed by the ALJ by $103 million and created additional injunctive relief. On June 26, 2015, PHH filed a Motion for Stay Pending Judicial Review with the D.C. Circuit Court of Appeals seeking to stay the final action of the CFPB. On Monday, August 3, 2015, the Court granted PHH's motion, finding the company had "satisfied the stringent requirements for a stay pending appeal."
 
In the amicus brief, the trades argued the "Order contravenes the text, structure, and purpose of RESPA." The trades further argued that "abandoning or rejecting the statutory, regulatory, and policy materials on which the industry had relied for decades, the Order exceeded the Bureau's statutory authority and violated fundamental tenets of administrative law and fair notice."
 
House Passes Bipartisan TRID Bill
On Tuesday, October 6, 2015, by a vote of 303-191, the House passed a bipartisan bill to provide a hold harmless period until February 1, 2016 for businesses working in good faith to comply with the TILA/RESPA Integrated Disclosure (TRID) implementation, which went into effect on October 3, 2015. The bill, the Homebuyers Assistance Act, will help businesses continue to meet homebuyers' needs and avoid delays during the closing process as the industry adjusts their business procedures following the implementation date. The Administration has indicated it would oppose any attempt to delay enforcement of TRID.
 
CBA and 30 other trade groups sent a letter to all House Members expressing support for the legislation.
 
CFPB Issues SBREFA Outline, Discussion Guide on Arbitration
On Wednesday, October 7, 2015, in connection with a field hearing in Denver, the CFPB released an outline of proposals restricting the use of pre-dispute mandatory arbitration clauses in agreements related to consumer financial products and services. This includes credit cards, checking and deposit accounts, certain auto loans, small-dollar or payday loans, and private student loans. The outline, along with a discussion guide, will be used as the basis for a small business review panel convened to consider the potential impact of the proposals on small entities.
 
In accordance with its authority under section 1028(b) of the Dodd-Frank Act, the CFPB is proposing to ban the use of class action waivers in arbitration clauses found in covered consumer financial product and service agreements. 
 
However, the CFPB would still allow companies to mandate arbitration in individual cases and would permit discretionary class arbitrations, but on the condition that all arbitration claims and awards are reported to the Bureau. The CFPB is considering whether publishing this information would be in the public interest. 
 
At this time, the CFPB is contemplating an implementation period of at least 210 days after publishing the final rule; by law, the Bureau must provide at least 180 days after the effective date. Agreements entered into before the implementation deadline would not be subject to the final rule.
 
CFPB Publishes RESPA Compliance Bulletin
On Thursday, October 8, 2015, the CFPB published a bulletin addressing, "RESPA Compliance and Marketing Services Agreements" (MSAs). The bulletin offered a RESPA overview, discussed recent enforcement actions for RESPA violations, and noted the Bureau's heightened focus on such violation originating from the exchange of a "thing of value" for referral of real estate services. The CFPB indicated industry participants have already received over $75 million in RESPA settlements to date. Notably, the CFPB concluded "the Bureau's experience in this area gives rise to grave concerns about the use of MSAs in ways that evade the requirements of RESPA. In consequence, the Bureau reiterates a more careful consideration of legal and compliance risk arising from MSAs would be in order for mortgage industry participants generally."

Federal Reserve Approves City National Bank Acquisition
On Wednesday, October 7, 2015, the Federal Reserve Board approved Royal Bank of Canada's proposal to acquire City National Bank, originally published in the Federal Register on March 26, 2015. Notably, both banks did not have "outstanding" Community Reinvestment Act (CRA) ratings. 

DOJ Settles with Fifth Third on Mortgage Issue
On Tuesday, October 6, 2015, the U.S. Attorney for the Southern District of New York, U.S. Department of Housing and Urban Development (HUD), and the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), announced an $85 million settlement with Fifth Third Bank and its subsidiaries. The settlement resolved civil fraud claims arising from the bank's origination of residential mortgage loans insured by the U.S. Federal Housing Administration (FHA). Fifth Third made a voluntary disclosure of approximately 1,400 mortgage loans certified by the bank as eligible for FHA insurance later determined to be materially defective and thus ineligible for FHA insurance. As part of the settlement Fifth Third will pay approximately $85 million to cover federal losses on defaulted loans and for which HUD paid insurance claims, and indemnify HUD for all losses the agency may incur on loans that have not yet defaulted.

House Small Business Committee Examines EMV
On Wednesday, October 7, 2015, the House Small Business Committee held a hearing entitled: "The EMV Deadline and What it Means for Small Businesses." With the new EMV liability shift in place as of October 1, 2015, the Committee examined the benefits of EMV and the efforts of small businesses and financial service providers to transition to the new payment systems. The hearing featured testimonies from Stephanie Ericksen of Visa, Scott Everett Talbott of the Electronic Transactions Association, Paul Weston of TCM Bank, and Jan Roche of the State Department Federal Credit Union. The testimonies described EMV as an important step towards greater protection against counterfeit cards, but also noted the need to continually advance technology to protect the consumer. Additionally, Ms. Roche highlighted the importance of a passing legislation to create a uniform data security standard, such as CBA-supported H.R. 2205.
 
Several members of the committee inquired about small business awareness of the liability shift and rates of adoption of the chip-enabled terminals. Chairman Steve Chabot (R-OH) noted, "a recent survey by the National Federation of Independent Business found roughly half of small employers who accept electronic payments were 'somewhat familiar' with EMV chip cards and a full 23 percent didn't know anything about them at all." Ms. Ericksen cited Visa's awareness efforts, including a multi-city campaign. Further, she expects it will take approximately two or three years to reach about 60 percent compliance. Additionally, committee debate occurred on the security provided by PIN versus signature.