CFPB Report August 16, 2013

August 16, 2013

Federal Reserve Ordered to Produce Debit Interchange Plan

On Wednesday, August 14, 2013, U.S. District Court Judge Richard Leon held a hearing to discuss moving forward in the matter of NACS v. Board of Governors of the Federal Reserve System. As previously reported, on July 31, 2013, Judge Leon struck down the Board's current rules on interchange fees for debit card transactions, in place since late 2011. In that opinion, Judge Leon ruled that the Board had overstepped its discretionary authority to set a 21-cent cap on debit card transactions by including costs that should have been excluded under the statutory language and legislative history of the Durbin Amendment. 

At the hearing, Judge Leon focused on how the Court should move forward, when the stay of the current rule should be lifted and how quickly an interim final rule can be implemented. Attorneys for the merchants argued that:

  • For at least now, the stay should not be lifted as the current rule is better than no rule.
  • The Board should move to issue an interim final rule and begin the process of proposing a final rule as quickly as possible to “rectify the situation.”
  • The Board had one year to implement its original rule under the provisions of Dodd-Frank, where the Board had to start from scratch. Here the Board is not starting from zero (Judge Leon only invalidated certain portions of the rule) and implementing a new final rule should be much quicker. The Board should be able to issue an interim final rule “for cause,” propose a final rule by the end of August, allow for a 30-day comment period and have a new final rule by October.

Attorneys for the Board argued they are considering many options, but were not prepared to address a position on an interim final rule. The Board also has yet to make a decision on whether it will appeal the Court’s ruling. Judge Leon urged the Board now is the time to decide how it will proceed with an interim final rule, stating the Court is not going to “sit and wait” for the Board to make a decision on whether it will appeal. Judge Leon expressed he was surprised the Board had not yet decided on a possible appeal or had internal conversations about how to proceed in the interim. 

Overall, the tone of the hearing was hostile toward the Board and its timeline on the final rule decision. Leon stated, “They can come back from Nantucket, come back from wherever they are on vacation; they can come into the board room and make a decision.” As such, Leon ordered the Board to appear before the Court next Wednesday, August 21, 2013, at 2 p.m. (ET), to give a position on its authority to issue an interim final rule and the time needed to implement it. Leon threatened to lift the stay if the Board was not prepared to move forward at next week’s hearing. He also requested the parties provide a briefing on how the funds collected under the current rule can be recouped and distributed. Leon argued that these funds were collected improperly and should be returned. 

The attorney for the Amici to the case, including CBA, argued that the Court had no legal authority to order a recoupment of funds collected under the current rule and, furthermore, the merchants had not asked for monetary damages in their original complaint. A briefing on fund recoupment is scheduled for September 16, 2013. 

CBA will continue to monitor this and provide updates to membership as this develops.

CFPB Announces Revisions to QM Small Entity Compliance Guide

On Wednesday, August 14, 2013, the CFPB announced updates to the Small Entity Compliance Guide for the Qualified Mortgage rules. The updates incorporate the clarifications and amendments to the rules that were issued on May 29, 2013 and July 10, 2013. A number of these updates involve certain provisions that apply to small lenders.

CFPB Updates Exam Procedures

On Thursday, August 15, 2013, the CFPB issued a second update to its exam procedures to reflect the new mortgage rules that were issued this past January. Specifically, the update covers QM, high-cost mortgages, appraisals for higher-priced mortgages, and changes to the escrow rules. The updates amend specific sections of the exam procedures for both the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). 

“We are committed to transparency around our examination process,” said CFPB Director Richard Cordray. “So we have worked hard to provide industry with advance notice of what we will be expecting. That, in turn, will improve compliance and benefit consumers. ”

A copy of the RESPA exam procedures released today may be found here. 

A copy of the TILA exam procedures released today may be found here.

Senator Crapo (R-ID) holds Press Conference on CFPB Data Collection

On Monday, August 12, 2013, Senator Crapo (R-ID), the Ranking Member of the Senate Banking Committee, held a press conference entitled “CFPB Consumer Privacy Issues.” At the Idaho Statehouse, Ranking Member Crapo reiterated concerns he has previously voiced in the press and before the Senate Banking Committee. He still is seeking answers on what consumer data is being collected, how much data is being collected, how the information is being used, and how the data is being collected. At Ranking Member Crapo’s request, the U.S. Government Accountability Office has agreed to conduct an investigation into the consumer data collection by the CFPB. 

Idaho Attorney General, Lawrence Wasden, Judicial Watch President, Tom Fitton, and John Zarian of Parsons Behle & Latimer, issued statements echoing some of the Ranking Member’s concerns.

Changes to CFPB Staff

This week, two additional CFPB staff changes were reported, continuing a pattern of departures from the Bureau in the last several months. Neil Peretz, formerly an Enforcement Attorney instrumental in the formation of the CFPB’s Office of Enforcement, has left the Bureau to serve as General Counsel for BillFloat, a private firm that focuses on cash flow credit services for consumers. Peretz joined the CFPB in July of 2011. Sendhil Mullainathan, who first joined the CFPB in May of 2011 as Assistant Director for Research, has also left the CFPB. While his future plans have yet to be announced, he will likely focus attention on his continued service as a research associate to the National Bureau of Economic Research.