CFPB Report October 24, 2014

CFPB Proposes a Language Access Plan

On Thursday, October 23, 2014, the CFPB announced a proposed Language Access Plan, which seeks to expand the availability of financial information to those members of the public who have difficulty with the English language. According to the U.S. Census Bureau, about 24 million people in the United States say they don't speak English "very well." The Language Access Plan is part of the Bureau's commitment to provide services and information in languages other than English. The CFPB believes providing more information to the public in their native language will help avoid "confusion, mistakes, and even fraud."


The Bureau seeks public comment on the plan, including how it can better explain consumer protections, provide access to its complaint system, communicate during supervision and enforcement actions, distribute consumer guides and tools, use online communities and social media, and engage through community organizations. The comment period will remain open through January 6, 2015.


Sen. Crapo Requests CFPB Review its Existing Regulations

Ranking Member of the Senate Banking Committee Mike Crapo (R-ID), sent a letter to CFPB Director Richard Cordray on Wednesday, October 22, 2014, requesting the Bureau conduct a meaningful review of its existing regulations. Sen. Crapo notes federal banking regulators are subject to the Financial Services Regulatory Relief Act of 2006, the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), and Executive Orders calling for a reduction in unnecessary regulatory burden.


"It is imperative for federal financial regulators to review existing regulations to ensure they are still appropriate and as minimally burdensome as possible while maintaining statutory and regulatory objectives," the letter read.


Sen. Crapo requested a response on three questions to ensure: 1) regulations transferred under the Wall Street Reform and Consumer Act of 2010, are no longer "outdated, unnecessary or unduly burdensome," as defined by EGRPRA; 2) a retrospective review of regulations as set forth in EO 13579; and, 3) commitment to retrospective review of regulations in the same fashion as prudential banking regulators as required by EGRPRA. The letternotes that, "This also aids Congress in preparation for any legislative reforms that are necessary."


CFPB Announces Adjustments to Mortgage Rules

On Wednesday, October 22, 2014, the CFPB announced final adjustments to certain aspects of mortgage rules which took effect January 1, 2014. The final rule, which was effective on publication, makes the following amendments:


Points and Fees: A loan will still meet the Qualified Mortgage ("QM") requirements even though a lender discovers after the loan has closed it has exceeded the three percent cap if the lender refunds the excess to the consumer with interest. Further instructive details include: 

  • The creditor must maintain and follow specified procedures for reviewing points and fees and refunding customers.
  • Secondary market participants may take advantage of this amendment.
  • The provision expires on January 10, 2021.
  • In contrast from the proposed rule, the refund period is longer (210 days, as opposed to 120 days) and certain limitations are imposed on the ability to refund.

Smaller Servicers: An alternative definition of a small servicer applicable to certain 501(c)(3) nonprofit organizations was added so servicing activities can be consolidated while maintaining an exemption from some of the servicing rules.


Nonprofit Ability-to-Repay Exemption: Under the QM rule, certain 501(c)(3) nonprofit organizations are exempt if they make less than 200 mortgage loans and lend to low and moderate income consumers. The amendments broadened the exemption to include "soft seconds," such as Habitat for Humanity, even though they exceed the 200 mortgage loan limit.


CFPB Finalizes Privacy Notice Rule

On Monday, October 20, 2014, the CFPB finalized its rule concerning annual privacy notices. The new rule, proposed in May, allows companies that limit their consumer data-sharing and meet other requirements to post annual privacy notices online rather than delivering them individually.


"Consumers need clear and accessible information about how their personal information is being used in the marketplace, but some of these requirements were redundant," said Director Cordray in a media statement. "Posting privacy notices online will make it easier for consumers to access these important policies, while also making it cheaper for financial institutions to provide disclosures."


Under the CFPB's new rule, which is nearly unchanged from the proposal, financial institutions will be able to post privacy notices online instead of distributing an annual paper copy, if they satisfy certain conditions such as not sharing data in ways which would trigger consumers' opt-out rights. The new rule applies to both banks and those nonbanks within the CFPB's jurisdiction under the Gramm-Leach-Bliley Act.


Under the new rule, if an institution qualifies for and wants to rely on the online disclosure method, it will have to inform consumers annually about the availability of the disclosures. The new rule allows institutions to include a notice on a regular consumer communication, such as a monthly billing statement for a credit card, letting consumers know the annual privacy notice is available online and in paper by request at a provided telephone number. If an institution chooses not to use the new disclosure method, it will need to continue to deliver annual privacy notices to its customers using other delivery methods.

QRM Rule Approved

Regulators have approved the Final Risk Retention Rule, also known as the Qualified Residential Mortgage (QRM) Rule. The rule, implementing Section 941 of the Dodd Frank Act, was introduced at anFDIC meeting on Tuesday, October 21, 2014. The rule requires securitizers of asset-backed securities to retain a minimum of five percent of the credit risk of assets, with an exception for loans meeting the QRM requirements.


As anticipated, the definition of QRM mirrors the definition of Qualified Mortgage (QM) as defined by the CFPB under the Truth in Lending Act (TILA). The statute expressly requires the definition of QRM "be no broader than the definition of 'qualified mortgage.'" When the FDIC considered the rule, FDIC Board of Directors member Jeremiah Norton expressed concern the FDIC was "subdelegating" its rulemaking authority; Norton was the only FDIC Director to vote against the rule. The rule also requires regulators to review the definition of QRM five years after the rule takes effect and every four years after. The rule may also be reviewed as necessary; this flexibility will permit changes to keep the QRM definition consistent with QM.


"Finalization of the Rule should go a long way towards providing clarity to the market and facilitating access to credit on sustainable terms," said FDIC Chairman Martin Gruenberg in his remarks during the meeting.


After being considered by the FDIC, the rule was subsequently approved by the OCC, Federal Reserve, Federal Housing Finance Agency, Securities and Exchange Commission, and the U.S. Department of Housing and Urban Development.

Regulators Propose Rule for Implementing Flood Insurance Escrow Requirements

On Tuesday, October 21, 2014, the FDIC released a joint notice of proposed rulemaking to amend its regulations regarding loans in areas having special flood hazards to implement certain provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). Specifically, the proposal would establish requirements with respect to the escrow of flood insurance payments, consistent with the changes set forth in HFIAA, and also would incorporate an exemption in HFIAA for certain detached structures from the mandatory flood insurance purchase requirement. The OCC, Federal Reserve, FDIC, Farm Credit Administration, and National Credit Union Administration plan to address other provisions of Biggert-Waters over which the Agencies have jurisdiction which have not been affected by HFIAA in a separate rulemaking. Comments must be received on or before 60 days after publication in the federal register.

Chairmen Send Letters to Fed, OCC on 'Operation Choke Point'

On Thursday October 16, 2014, Chairman of the House Committee on Oversight and Government Reform Darrell Issa (R-CA) and Chairman of the Subcommittee on Economic Growth, Job Creation & Regulatory Reform Jim Jordan (R-OH) sent letters to the Fed and OCC requesting additional information about their involvement in Operation Choke Point.


"In the course of its investigation of Operation Choke Point, the Committee has learned that federal regulators are pressuring banks to terminate relationships with legal yet disfavored industries, without regard to the legitimacy or risk profile of individual companies. For example, one letter from a Regional Director of the Federal Deposit Insurance Corporation effectively ordered a target bank to terminate all relationships with payday lenders," the letters read.


After discussing the utility of payday loans for consumers and the various risks posed to financial institutions the excerpt from the FDIC letter ends with, "Consequently, we have generally found that activities related to payday lending are unacceptable for an insured depository institution." The Oversight Committee requested identical documentation from the Fed and OCC including correspondence with the Civil Division of the Department, and documents relating to any financial institution's relationship with firearms or ammunition businesses, short-term lenders, money services businesses, tobacco-related businesses, and pawn shops.