Bureau of Consumer Financial Protection (CFPB) – Consumer Financial Services Watch

Webinar: CFPB Final Rule on Prepaid Accounts: The Rules and Their Short and Long Term Impacts

Oct 19 2016

Please join us for a webinar on the Consumer Financial Protection Bureau’s (“CFPB”) final rule (the “Rule”) on prepaid accounts.

The webinar will:
• Review the Final Rule in detail.
• Note industry responses to the Rule.
• Make projections regarding its short and long term impacts.

Panelists:
Linda C. Odom, Partner, K&L Gates
Judith E. Rinearson, Partner, K&L Gates
Jennifer L. Crowder, Counsel, K&L Gates
Eric A. Love, Law Clerk, K&L Gates
Ernest L. Simons, Associate, K&L Gates
Tyler Kirk, Associate, K&L Gates

To register, click here. Log-in instructions will be sent via email the day before the webinar. You must register to receive the log-in instructions.

Who Bears the Risk? Federal Court Holds That a Purchaser of Unsecured Consumer Loans Is the “True Lender,” Voiding Enforceability of the Loans

Sep 07 2016

By Irene C. Freidel and David D. Christensen

A California federal court has held that the purchaser of small-dollar consumer loans is the “true lender” and thus subject to state usury laws, even though a separate tribal entity funded and closed the loans in its own name. See Consumer Financial Protection Bureau v. CashCall, Inc*. The court’s holding, which adopts the arguments of the Consumer Financial Protection Bureau (“CFPB”) and renders the loans serviced by CashCall unenforceable, challenges the business model that many marketplace lending platforms use to offer alternative, unsecured loans to consumers. Generally speaking, partnerships between marketplace platforms and tribal entities, state-chartered (and federally insured) banks, or national banks are intended to protect the platforms from the substantial licensing and compliance burden of state lending and licensing laws, and also to permit loans that might otherwise exceed the borrower’s home state usury limit. The recent CashCall decision, however, is another reminder that state and federal regulators, as well as plaintiffs’ attorneys, may be able to pierce these partnerships where a court finds that the financial institution funding and closing the loan does not bear substantial risk on those loans.

CFPB Issues Notice of Proposed Rulemaking to Clarify “Know Before You Owe”; Some Welcome Guidance on TRID but Cure and Liability Issues Not Addressed

Aug 01 2016

By Jennifer J. Nagle and Hollee M. Watson

On July 29, 2016, the Consumer Financial Protection Bureau (“CFPB”) issued a much anticipated Notice of Proposed Rulemaking (“NPRM”) on the TILA-RESPA Integrated Disclosure rule (“TRID” or “Know Before You Owe”), which went into effect on October 3, 2015, and has posed significant implementation challenges. The CFPB previously announced that it would issue proposed rulemaking in an April 28, 2016 letter to mortgage industry trade groups, in which it acknowledged the “many operational challenges” presented by TRID and noted that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”

CFPB Director Richard Cordray expects that the “proposed updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process.” See Consumer Financial Protection Bureau Proposes Updates to “Know Before You Owe” Mortgage Disclosure Rule. While the NPRM does contain some helpful guidance, there are also some notable omissions that may disappoint industry participants.

CFPB’s Proposed Rule Would Put the Brakes on Pre-Dispute Arbitration Clauses in Consumer Financial Contracts

May 12 2016

By Andrew C. Glass, Robert W. Sparkes, III, Roger L. Smerage, Joshua Butera

Congress enacted the Federal Arbitration Act (“FAA”) in the 1920s to deter hostility toward arbitration. Despite numerous Supreme Court rulings over the decades upholding that goal, arbitration continues to face hostility. The Consumer Financial Protection Bureau (“CFPB”), for example, recently issued a proposed rule that would significantly expand the scope of the Dodd-Frank Act’s restrictions on arbitration agreements. The rule would severely restrict the use of pre-dispute arbitration clauses by providers of consumer products and services, primarily by prohibiting the use of class action waivers. And under the proposed rule, the CFPB would exercise close scrutiny over arbitration proceedings by requiring consumer financial services providers to report certain information about arbitrations to the CFPB.

To read the full alert, click here.

More To Know About “Know Before You Owe”: CFPB Acknowledges TRID Challenges and Announces July 2016 Notice of Proposed Rulemaking

May 10 2016

By Jennifer Janeira Nagle and Hollee Watson

The TILA-RESPA Integrated Disclosure rule (“TRID”) went into effect on October 3, 2015, and has posed significant implementation challenges industry-wide. Those challenges have been articulated to the Consumer Financial Protection Bureau (“CFPB”) by industry participants, trade groups, and congressional leaders alike. In response, the CFPB has issued guidance in the form of letters, webinars, educational videos, guides, and factsheets. Notwithstanding this informal guidance, and despite the CFPB’s assurances that its initial compliance examinations would be “diagnostic and corrective, not punitive,” see December 29, 2015 Letter from CFPB Director Richard Cordray to the Mortgage Bankers Association, the mortgage industry continues to experience uncertainty and risk in its efforts to implement TRID’s sweeping changes to TILA and RESPA. See January 29, 2016 Mortgage Industry Trade Group Letter to CFPB; March 11, 2016 Sen. Bob Corker Letter to CFPB.

In the wake of pressure for more formal guidance, the CFPB recently announced that it will issue a Notice of Proposed Rulemaking (“NPRM”) on TRID in late July. In an April 28, 2016 letter to mortgage industry trade groups, Director Richard Cordray acknowledged that “the implementation of the Know Before You Owe rule poses many operational challenges” and that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”

TRID/KBYO Rule: The CFPB Tries to Calm Lender Fears

Dec 30 2015

On December 29, 2015, CFPB Director Richard Cordray responded to MBA President and CEO David Stevens’ desperate plea for clarity to address what the MBA claimed is a significant rejection by large aggregators and investors of correspondent lending channel loans for minor or technical TRID errors. In its December 21, 2015 letter to Director Cordray, Mr. Stevens noted that these minor and technical errors include “issues with the alignment or shading of forms, rounding errors, time stamps with the wrong time zone, or check boxes that are improperly completed on the LE.” The MBA feared that without some clarity from the CFPB disruption and liquidity issues would overwhelm the mortgage markets.

Is the CFPB Coming After Marketplace Lenders?

Nov 24 2015

The CFPB recently released its fall 2015 Rulemaking Agenda, which suggests that the CFPB may be looking to exert its supervisory authority over certain marketplace lenders. If that is in fact the case, it would represent the agency’s first foray into this rapidly-developing credit marketplace.

The Rulemaking Agenda is released twice a year — in the spring and fall — and is where the CFPB identifies its rulemaking priorities for the short and long term. The fall Agenda contains a list of the various substantive rulemakings already underway at the CFPB — involving arbitration provisions, payday lending, prepaid accounts, overdrafts, debt collection, mortgage servicing, and the statutorily-required rule on women-owned, minority-owned, and small businesses data collection. These have all been publicly discussed by the CFPB before, and so they are no surprise. Read More

CFPB Revises Supervisory Appeals Process

Nov 12 2015

The CFPB recently revised its policy on Appeals of Supervisory Matters. Supervisory appeals are an avenue for supervised entities to obtain a second opinion from CFPB headquarters about examiners’ findings. However, the Bureau’s policy excludes the most significant matters — specifically, all aspects of enforcement — from this process.

In 1994, Congress required the federal prudential regulators to establish “an independent intra-agency appellate process” that is “available to review material supervisory determinations,” with “appropriate safeguards … for protecting the appellant from retaliation by agency examiners.”

Although the Bureau is not expressly subject to this congressional mandate, it established a similar appeals process in 2012. The Bureau’s policy allows entities to appeal less-than-satisfactory compliance ratings (a 3, 4, or 5) and adverse findings in a supervisory letter or examination report, but not the supervisory letter or examination report itself.

None of the regulators allow a supervised entity to use the appeals process to contest the decision to pursue an enforcement action. But in the case of the OCC, “[w]hile banks may not appeal a decision by [examiners] to pursue a formal enforcement-related action, banks may appeal conclusions in” an exam report that underlies a potential enforcement action.

D.C. District Court Decision Supports Principle of Allowing Companies to Challenge CFPB Information Requests without Fear of Public Disclosure of Investigation

Nov 05 2015

By: Ted Kornobis, Stephanie C. Robinson

Companies in receipt of a civil investigative demand (CID) from the Consumer Financial Protection Bureau (CFPB) are required to take a number of quick and important actions and make decisions that can have significant impact on the course and tenor of what will likely be a months- or years-long investigation. This can be a frustrating and high-pressure process, particularly given the limited practical options available under the CFPB’s rules for a CID recipient to effectively seek relief from what oftentimes can be broad and onerous requests. In particular, because of the CFPB’s policy to publicly identify any person or entity that files a petition to modify or set aside a CID, recipients of a CID generally forgo that route and instead are left to rely upon the reasonableness of the staff attorney and supervisor assigned to the matter. A recent decision in the U.S. District Court for the District of Columbia, however, may provide some measure of relief for CID recipients.

CFPB and DOJ Continue to Pursue Indirect Auto and Redlining Claims

Oct 08 2015

By: Melanie Brody, Christa Bieker

The Department of Justice (“DOJ” or the “Department”) and the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) are increasingly pursuing lenders suspected of discriminatory lending practices. Last week, the DOJ and the CFPB announced two settlements with lenders resolving alleged violations of the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act. These announcements come only days after the DOJ and the CFPB announced a consent order with Hudson City Savings Bank resolving allegations of racial redlining.

On September 28, the CFPB and the DOJ announced a consent order with Cincinnati-based Fifth Third Bank (“Fifth Third”) resolving allegations that Fifth Third’s indirect auto-lending pricing policies discriminated against African American and Hispanic borrowers. Although the CFPB does not have oversight over car dealers, the Bureau is able to investigate the auto loans that lenders like Fifth Third make through dealers. Coordinated investigations into Fifth Third’s indirect auto-lending business led the Bureau and the Department to conclude that African American and Hispanic borrowers paid approximately 35 or 36 basis points more, respectively, in dealer markups than similarly situated non-Hispanic white borrowers, which resulted in African American and Hispanic borrowers paying an average of $200 more for their car loans.

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