CFPB Report December 6, 2013

December 6, 2013

CFPB Releases Final Nonbank Student Loan Servicing Rule

On Tuesday, December 3, 2013, the CFPB released its final larger participant rule for nonbank student loan servicers. CBA commented on the proposed rule when it was issued in March, supporting of the Bureau’s approach to supervising nonbanks and the rule’s inclusion of federal student loans. The Bureau oversees student loan servicing for banks over $10 billion. The rule will expand the CFPB’s supervision authority to approximately seven of the largest student loan servicers, now considered larger participants. Notably, the Bureau’s press release and fact sheet cite more than 85 percent of all outstanding student loans are through federal loan programs.

“Student loan borrowers should be able to rest assured that when they make a payment toward their loans, the company that takes their money is playing by the rules,” said CFPB Director Richard Cordray. “This rule brings new oversight to those large student loan servicers that touch tens of millions of borrowers.”

CFPB Releases Independent Audit

On Thursday, December 5, 2013, the CFPB released the independent audit of selected operations and budget for fiscal year 2013, conducted by KPMG LLP. In accordance with the Dodd-Frank Act, the CFPB orders this audit on an annual basis to provide objective analyses, to improve program performance and operations, reduce costs, facilitate decision-making, and contribute to public accountability.

For this audit, KPMG reviewed the following:

  • The CFPB intra-agency and inter-agency coordination process for the CFPB student loan initiatives relative to leading practices;
  • The CFPB contracting officer’s representative function in relation to CFPB policies and the Federal Acquisition Regulation (FAR);
  • The CFPB budget process relative to the CFPB policies and procedures established over budget formulation, execution, and monitoring; and
  • The corrective actions taken to resolve the findings included in CFPB’s 2012 Independent Audit of Operations and Budget, completed by ASR Analytics in November 2012.

CBA will review this further and update members on specific items of interest. 

CFPB Hosts Webinar to Promote New eRegulations Tool

On Wednesday, November 4, 2013, the CFPB hosted a webinar offering a review of the agency’seRegulations tool. The CFPB previously acknowledged navigational challenges with its database, including users frequently who were lost or unable to find materials. In October, the Bureau responded with its first effort to simplify the system, focusing exclusively on Regulation E. The CFPB introduced the tool by rule to make regulations under the agency’s authority more assessable, creating enhanced compliance abilities and ease of use. 

The eRegulations tool makes the text of the rules easier to read and access by hyperlinking to relevant items within the text. The system features a date tool, allowing users to search a version of a particular rule in place during a specific time. eRegulations also provides access to redlined edits when posting new versions of rules, better enabling users to identify changes. The CFPB plans to add a targeted feedback feature, accepting comments on certain sections of proposed rules. 

While the CFPB hopes to focus its next efforts on integrating the tool for Regulation Z, it is soliciting feedback on the initial changes before allocating additional resources to the project. The CFPB will conduct a survey on the tool, but encourages users to email comments or suggestions.

Federal Reserve Board Submits Reply Brief in Interchange Litigation

On Wednesday, December 4, 2013, the Federal Reserve (Fed) filed its reply brief in the Durbin debit interchange litigation, which is a challenge by the merchants of certain provisions of the Fed’s current interchange rule. Specifically, the Fed argued it had correctly implemented the requirement in the Dodd-Frank Act for determining when interchange fees are “reasonable and proportional” to issuer costs. The Fed also argued it had properly implemented the “network exclusivity” requirements imposed by the Dodd-Frank Act. Oral arguments for this case are set to begin on January 17, 2014.

Federal Reserve Board Release Guidance on Service Providers

On Thursday, December 5, 2013, the Fed released guidance describing factors financial institutions should consider when choosing a service provider and how service providers should be overseen. The Fed warns mismanagement of service provider relationships by banks could expose financial institutions to reputational risks, financial losses, or regulatory actions, according to the guidance. Furthermore, the guidance states the use of service providers does not relieve a financial institution's board of directors or senior managers of responsibility for activities performed by service providers. Financial institutions are responsible for ensuring all activities conducted by service providers comply with applicable laws and regulations, and are consistent with safe and sound banking practices. 

According to the guidance, a service provider is defined as any organization or entity, such as a consultant, which enters into a contractual relationship with a financial institution to provide business functions or activities, such as accounting, auditing, loan review, compliance, and risk management.

House Passes Patent Bill

On Thursday, December 5, 2013, the House of Representatives passed H.R. 3309, the “Innovation Act,” by a 325-91 vote. The Act requires certain discloses by the plaintiff when filing litigation against an entity, and improves aspects of the Leahy-Smith America Invents Act (AIA). Passage of the Innovation Act is a positive, initial step towards frivolous patent litigation reform. 

In a letter, CBA and other trades encouraged Judiciary Chairman Bob Goodlatte (R-VA) to swiftly pass of the Act to offer prompt relief to banks managing frivolous lawsuits on patent issues. CBA will continue to monitor and engage in the progress of this issue as it moves to the Senate.

House Small Business Subcommittee Assesses State of Lending Environment

On Thursday, December 5, 2013, the House Small Business Subcommittee on Economic Growth, Tax and Capital Access held a hearing entitled: “Where Are We Now? Examining the Post-Recession Small Business Lending Environment,” which looked at factors and trends affecting small business lending. Witnesses included representatives from the Federal Reserve, Dun and Bradstreet, Lending Club, South Carolina Bankers Association, and the National Association of Federal Credit Unions. In his opening statement, Subcommittee Chairman Tom Rice (R-S.C.), discussed two major factors for low numbers in small business loan originations, including low consumer demand still, and increased regulatory scrutiny of financial institutions.

CBA Issues Comments on Biggert-Waters Proposal

On December 6, 2013, CBA and the American Bankers Association filed a joint comment letter in response to the Biggert-Waters proposed rule issued by the OCC, FDIC and the Federal Reserve, which would impose escrow requirements for flood insurance, as well as changes regarding private and force-placed flood insurance. In the letter, CBA raised several concerns with the proposed escrow requirement, particularly since current systems do not provide capability for escrow of flood insurance for home equity loans. CBA also requested further clarity with regard to the provisions on force-placed insurance and an improved “safe harbor” for the acceptance of private insurance policies, as well as a realistic implementation period to comply with required changes. 

House Financial Services Subcommittee Reviews Flood Insurance Issues

On Tuesday, November 19, 2013, the House Financial Services Subcommittee on Housing and Insurance held a hearing entitled: “Implementation of Biggert-Waters Flood Insurance Act of 2012: Protecting Taxpayers and Homeowners.” Witnesses included representatives from FEMA, the National Wildlife Federation, Greater New Orleans, Inc., National Association of Realtors, National Association of Home Builders, Association of State Floodplain Managers, and the American Action Forum. The hearing addressed challenges and possible solutions to balancing affordable flood insurance premiums with an actuarially sound National Flood Insurance Program (NFIP). In his opening statement, Subcommittee Chairman Randy Neugebauer (R-TX) said, “One of the reasons that government is not good at pricing risk is because sometimes, instead of pricing it actuarially or based on a risk model, it's priced politically.” The full Committee Ranking Member, Maxine Waters (D-CA), highlighted a bill she recently sponsored with bipartisan support which would delay provisions of the Biggert-Waters Act and give FEMA additional resources to complete its mandated affordability study.