D.C. Circuit: Solicitor General and PHH Can Respond By December 22 to CFPB’s Petition for Rehearing En Banc

The D.C. Circuit has entered an order that provides the response of the United States to the Consumer Financial Protect Bureau's (CFPB) petition for rehearing en banc is due by December 22, 2016.  The order also provides that PHH can file its response by December 22.

In an order filed on November 23, 2016, the D.C. Circuit required PHH to file its response within 15 days. The order also invited the Solicitor General to file a response to the petition for rehearing en banc, expressing the views of the United States.

While the November order did not expressly set a date by which the Solicitor General had to file a response, the government apparently read the D.C. Circuit’s order as also setting a 15-day filing deadline for its response and filed an unopposed motion for leave to file its response by December 22. Although not expressly requested by PHH, the court’s order granting the Solicitor General’s motion gives PHH a similar extension.

- Barbara S. Mishkin


CFPB Enters Into Consent Orders With Reverse Mortgage Companies To Settle Alleged Advertising Violations

The Consumer Financial Protect Bureau (CFPB) announced that it entered into consent orders with three reverse mortgage companies to settle the CFPB’s allegations that the companies engaged in deceptive advertising in violation of the Mortgage Acts and Practices-Advertising Rule (Regulation N) and the Consumer Financial Protection Act. Each of the consent orders requires payment of a civil money penalty to the CFPB.

According to the CFPB’s consent order with American Advisors Group (AAG) (described in the consent order as the “largest reverse mortgage lender in the United States”), AAG’s advertisements (consisting of television advertisements and information kits that included a DVD and several brochures) misrepresented that a consumer with a reverse mortgage could not lose the home and could stay in the home for the rest of the consumer’s life. The advertisements also allegedly misrepresented that a consumer with a reverse mortgage would have no monthly payments and the mortgage would eliminate all of the consumer’s debts. The CFPB claimed that these statements were misrepresentations because a consumer with a reverse mortgage still has payments and can default and lose the  home by failing to comply with the loan terms such as requirements to pay property taxes or make homeowner’s insurance payments, and a reverse mortgage is a debt and therefore cannot be used to eliminate all of a consumer’s debt.

In addition to prohibiting AAG from making similar misrepresentations in future advertising and requiring AAG to implement a compliance plan that includes an advertising compliance policy, the consent order requires AAG to pay a civil penalty of $400,000.

According to the CFPB’s consent order with Reverse Mortgage Solutions (RMS), a reverse mortgage lender, RMS’s advertisements (which included television, radio, print, direct mail, and online advertisements) similarly misrepresented that a consumer with a reverse mortgage could not lose the home and could stay in the home for the rest of the consumer’s life, would have no monthly payments, and the mortgage would eliminate all of the consumer’s debts. The CFPB claimed that these statements were misrepresentations for the same reasons asserted in the AAG consent order.

The CFPB also alleged that the company misrepresented that a consumer’s heirs would inherit the home and that a consumer’s ability to obtain a reverse mortgage was time limited. The CFPB claimed that these statements were misrepresentations because, respectively, heirs can only retain ownership of the home after the consumer’s death by either repaying the reverse mortgage or paying 95 percent of the home’s assessed value, and there was in fact no relevant time limit on a consumer’s ability to obtain a reverse mortgage.

In addition to prohibiting RMS from making similar misrepresentations in future advertising and requiring RMS to implement a compliance plan that includes an advertising compliance policy, the consent order requires AAG to pay a civil money penalty of $325,000.

According to the CFPB’s consent order with Aegean Financial (AF), a reverse mortgage broker, AF’s advertisements (which included print, direct mail, radio, and online advertisements) similarly misrepresented that a consumer with a reverse mortgage could not lose the home and could stay in the home for the rest of the consumer’s life, and would have no monthly payments. The CFPB claimed that these statements were misrepresentations for the same reasons asserted in the AAG consent order.

The CFPB also alleged that AF misrepresented that a consumer who refinanced a reverse mortgage would not be subject to costs. According to the CFPB, this statement was a misrepresentation because a consumer who refinanced a reverse mortgage would incur costs such as credit report fees, flood certification fees, title insurance costs, appraisal costs, and other closing costs. The CFPB also claimed that the statement in AF’s Spanish-language advertisements that “if you are 62 years old or older and you own a house, we have good news for you; you qualify for a reverse mortgage from the United States Housing Department” was misleading. According to the CFPB, the statement was misleading because, while HUD provides insurance for the most popular type of reverse mortgage, a reverse mortgage is not a government benefit or loan from the government and the product is not endorsed or sponsored by the government. The CFPB also alleged that AF failed to keep records of its advertisements as required by Regulation N.

In addition to prohibiting AF from making similar misrepresentations or misleading statements in future advertising and requiring RMS to implement a compliance plan that includes an advertising compliance policy, the consent order requires AAG to pay a civil money penalty of $65,000.

In June 2015, the CFPB issued a report that discussed the results of a focus group study it conducted on reverse mortgage advertisements and a consumer advisory about such advertisements.

- Barbara S. Mishkin


OCC Proposes to Grant National Bank Charters to Financial Technology Companies

For the first time, the Office of Comptroller of Currency (OCC) will allow financial technology (fintech) companies to apply for national bank charters. The OCC has invited public comment on the concept with a deadline for submitting comments of January 15, 2017.

The proposal focuses on issues, requirements, and the OCC's regulatory expectations attendant to its acceptance and consideration of applications from fintech companies for a full commercial bank charter or a special purpose national bank charter. The OCC has the authority to grant special purpose national bank charters to fintech firms that provide fiduciary services or conduct at least one of three core banking activities—receiving deposits, paying checks, or lending money. The proposal does not propose bright-line rules for approval but rather defers to the OCC's current approach of approving or denying applications for a charter on a case-by-case basis.

In announcing the OCC's plans, Comptroller Thomas Curry emphasized the role played by the OCC’s newly established Office of Innovation and stated that national bank charters for fintech companies would serve the public interest, enhance the U.S. banking system, and provide a medium to openly vet risks associated with fintech companies through clear processes, criteria, and standards.

During a question-and-answer session following the announcement, Comptroller Curry identified capital management, sound risk management, cybersecurity, data recovery, and the treatment of personally identifiable information as key factors to be analyzed in assessing a fintech charter application. Moreover, financial inclusiveness was a theme throughout the discussion. Comptroller Curry indicated that the OCC would use its approval letter and the articles of association to bind fintech companies to ensuring OCC core values and the provision of services to underserved communities.

The charter process for fintech companies, especially early applicants, will not be easy. However, for online lenders that can obtain a fintech bank charter and that would otherwise be confronted by a multitude of state lending restrictions, the OCC proposal may have substantial appeal. An OCC-chartered fintech "bank" would have the ability to export a uniform interest rate nationwide from the state where it is located, possibly accept federally insured deposits (which should significantly reduce its cost of funds), avoid state licensing requirements, examinations, and other exercises of "visitorial authority," and disregard state laws that materially impair the exercise of their powers under federal law. This preemption of state law could well extend to usury limits that might apply to loan purchasers if the Madden decision were to be applied in an expansive manner. On the downside, such banks would be subject to more intense regulatory scrutiny, potentially steep capital requirements, and the need to comply with OCC "core values." They would not have the benefit of compliance expertise and assistance from existing banks familiar with regulatory expectations.

The OCC is seeking comment on the public policy benefits and risks of approving a bank charter for fintech companies; how the OCC should set capital and liquidity requirements for fintech bank charters; how charter applicants should demonstrate their "commitment to financial inclusion;" and whether the OCC should use its chartering authority to close "gaps" in the protections afforded small business borrowers, as well as to what extent financial inclusion, including adherence to OCC "core values" and the provision of services to underserved communities, should play a role in the chartering process.

On January 24, 2017, from 12 p.m. to 1 p.m. ET, Ballard Spahr will conduct a webinar on these developments. A link to register is available here.

- the Consumer Financial Services Group


CFPB Fall 2016 Rulemaking Agenda Published

The Consumer Financial Protect Bureau's (CFPB) Fall 2016 rulemaking agenda has been published as part of the Fall 2016 Unified Agenda of Federal Regulatory and Deregulatory Actions. The preamble indicates that the information in the agenda is current as of October 19, 2016. Accordingly, given the results of the presidential election, including its potential impact on the CFPB’s leadership, there is likely to be a post-election reevaluation by the CFPB of its agenda. The agenda sets the following timetables for key rulemaking initiatives:

Arbitration. The CFPB released its proposed arbitration rule in May 2016 and the comment period ended on August 22, 2016. The Fall 2016 agenda indicates that the CFPB “is reviewing and considering comments on the proposed rule” as it “considers development of a final rule for early 2017.” The agenda gives a February 2017 estimated date for a final rule. In recent days, we have heard speculation that the CFPB will issue a final rule before President-elect Donald Trump’s inauguration on January 20, 2017. As we discussed in a recent blog post, a final arbitration rule or other new final rules issued by the CFPB (and potentially any final rules issued since late May 2016) could be nullified by Congress under the Congressional Review Act (CRA). The CRA establishes a special set of procedures that allow Congress to pass a joint resolution disapproving a rule which cannot be filibustered in the Senate and can be passed by only a simple majority vote.

Payday, title, and deposit advance loans. The CFPB released its proposed rule on payday, title, and high-cost installment loans in June 2016 and the comment period ended on October 22, 2016. While there has also been speculation that the CFPB will attempt to finalize a rule by January 20, 2017, that possibility seems more remote given the unprecedented level of comments (approximately 1 million) received by the CFPB and the complexity of the proposed rule. The Fall 2016 agenda does not give an estimated date for a final rule.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection. In July 2016, it issued an outline of the proposals it is considering in anticipation of convening a SBREFA panel. It has been reported that the SBREFA panel for the CFPB’s debt collection rulemaking met with small entity representatives (SER) at the end of August 2016. Within 60 days from the date it is considered to have “convened,” the panel must submit a report to the CFPB on the input received from the SERs. However, the report will not become public until the CFPB issues its proposed rule.

The CFPB’s proposals only cover “debt collectors” subject to the FDCPA. They are not intended to apply to a first-party creditor collecting its own debts or to a servicer when collecting debts that were current when servicing began to the extent the creditor or servicer would not be a “debt collector” under the FDCPA. When it issued the proposals, the CFPB stated that it “expects to convene a second proceeding in the next several months” for creditors and others engaged in debt collection not covered by the proposals, noting that it believes a separate SBREFA process “is the most efficient way to proceed, particularly because it will allow participants to provide more focused and specific insights.”

In the Fall 2016 agenda, the CFPB states that it “expects to convene a separate SBREFA proceeding focusing on companies that collect their own debts in 2017.” The agenda gives a February 2017 estimated date for further prerule activities.

Overdrafts. The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services. In the Fall 2016 agenda, as it did in its Fall 2015 and Spring 2016 agendas, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.” Although the Spring 2016 agenda estimated an August 2016 date for further prerule activities, the new agenda moves that date to January 2017. As we have previously noted, the extended timeline may reflect that the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process electronic debits because most of the banks subject to its supervisory jurisdiction have already changed their processing order.

Larger participants. As it did in its Fall 2015 and Spring 2015 agendas, the CFPB states in the Fall 2016 agenda that it is considering “larger participant” rules “in markets for consumer installment loans and vehicle title loans for purposes of supervision.” It also repeats its previous statement that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.” (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”) While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a May 2017 date.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. Such data include the race, sex, and ethnicity of the principal owners of the business. While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a March 2017 date. The CFPB states in the Fall 2016 agenda that it “is focusing on outreach and research to develop its understanding of the players, products, and practices in business lending markets and of the potential ways to implement Section 1071. The CFPB then expects to begin developing proposed regulations concerning the data to be collected and determining the appropriate procedures and privacy protections needed for information-gathering and public disclosure under this section.”

Mortgage rules. In July 2016, the CFPB issued a proposed rule containing both substantive amendments and technical corrections to the final TILA-RESPA Integrated Disclosure rule. The comment period on the proposal ended on October 18, 2016, and the Fall 2016 agenda gives a March 2017 estimated date for issuance of a final rule. The Fall 2016 agenda gives a March 2017 estimated date for a proposed rule “to amend certain provisions of Regulation C to make technical corrections and to clarify certain requirements under Regulation C” and a proposed rule “to amend Regulation B to reconcile how creditors may collect information about the ethnicity and race of applicants to clarify how financial institutions and creditors subject to Regulation C and Regulation B may comply with both regulations.”

Student Loan Servicing and Consumer Reporting. As they were in the Fall 2015 and Spring 2016 agendas, both of these topics continue to be listed in the Fall 2016 agenda as “long-term action” items with no estimated dates for further action. The Office of Management and Budget defines “long-term action” items as “items under development but for which an agency does not expect to have a regulatory action within 12 months after publication of this edition of the Unified Agenda.”

- Barbara S. Mishkin


Did you know?

by Wendy Tran

Kentucky Amends Licensing and Registration Provisions

The Kentucky Department of Financial Institutions, Division of Non-Depository Institutions, has adopted provisions regarding licensing and registration of regulated mortgage entities and individuals with the Department. The amendment removes references to the registration of mortgage loan processors for consistency with Senate Bill 97, which amended KRS Chapter 286.8 to no longer require mortgage loan processor registration. In addition, the amendment requires mortgage loan originators to submit to a Federal Bureau of Investigation background records check annually upon renewal instead of once every three years upon renewal, as previously required. Unnecessary language as it relates to the submission of background records checks and credit reports, the character and fitness review of mortgage loan originators, and the use of uniform procedures for licensees and registrants has been removed.

These provisions are effective immediately.

12 State Agencies Adopting NMLS ESB in 2017

Currently, a total of 12 state agencies, representing 44 license types, plan to adopt the Electronic Surety Bond (ESB) functionality through NMLS starting on January 23, 2017. Washington and Wyoming, current ESB adoption states, will be adding an additional license type. More information on ESB is available here.


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