The CFPB s Priorities in Rulemaking, Supervision, and Enforcement

Transcription

1 The CFPB s Priorities in Rulemaking, Supervision, and Enforcement July 21, 2016 Scott M. Pearson Ballard Spahr LLP pearsons@ballardspahr.com John D. Socknat Ballard Spahr LLP socknatj@ballardspahr.com Copyright 2016 Ballard Spahr LLP. All rights reserved.

2 Your Presenters Scott M. Pearson John D. Socknat 2

3 CFPB Rulemaking Regarding Arbitration Proposed Rule announced on May 5, 2016 Would bar arbitration clauses with class action waivers - Arbitration clauses OK without class action waivers - However, there would be requirements (express statements about non-applicability to putative class actions until class certification denied) Companies using arbitration clauses would have to file claims and awards with CFPB so it can continue to study fairness of the process - CFPB is considering publishing the claims and awards on its website Compliance Date is 211 days after publication of Final Rule in Federal Register 3

4 Arbitration Coverage Coverage is broad, using ECOA definition of credit Effect is to broaden coverage, e.g.: - persons who act as creditor by regularly participat[ing] in a credit decision (e.g., indirect auto finance companies) - persons who offer credit with fewer than four installments and no finance charge (e.g., retailers) Excludes broker-dealers; federal government and its affiliates; state, local and tribal governments and their affiliates (to the extent providing service within jurisdiction); small providers (25 or fewer customers per year); and sellers of nonfinancial goods or services who sell current accounts 4

5 Arbitration Rule Scope Rule applies to agreements entered into after Compliance Date. Entered into defined broadly (possibly beyond statutory authority): - Provide a new product or service post-cd that is governed by a pre-cd arbitration agreement - Become party to an agreement governing the product post-cd, when the arbitration agreement was formed pre-cd (e.g. buy portfolio of pre-rule loans) Exceptions - Post-CD credit card charges - Post-CD contract amendments of pre-cd agreement requiring arbitration, unless a new product or service is being offered 5

6 Arbitration Next Steps Future Steps - 90-day comment period - Not likely to take effect until mid-2017 or later Potential Legal and Political Challenges - Constitutionality unlawful delegation of authority from Congress to CFPB? PHH case (D.C. Cir.) challenging constitutionality of CFPB s single director structure - Inconsistency of Rule with findings of Study? Rule confirms that arbitration is faster, cheaper, and far more beneficial to consumers than class action litigation - Inconsistency of Rule with statutory authority - Congressional action 6

7 Credit Reporting Recent Trends Regulatory shift to focus on furnishers. Expectation that furnishers take affirmative actions to validate accuracy, as well as corrective actions when there is any reasonable cause to believe that furnisher information may be inaccurate. Expanded view of duty to investigate - Trade lines - Identity theft - Inquiries 7

8 Credit Reporting More to Come The CFPB envisions a consumer reporting system where furnishers provide and consumer reporting companies maintain and distribute data that are accurate and inclusive of more consumers. Over 75 percent of consumer reporting complaints that the CFPB receives relate to consumer reporting accuracy. The CFPB will continue to examine and investigate consumer reporting companies and furnishers of consumer information, focusing on accuracy and dispute resolution processes, and we will hold those institutions accountable for remedying any deficiencies. The CFPB may consider rulemaking around furnisher and consumer reporting accuracy, dispute resolution, and related issues. The CFPB will explore how alternative data is or can be used in the consumer reporting system to improve access to financial services. 8

9 Debt Collection Debt collection issues remain a constant refrain for the CFPB (and other regulators) Debt collection remains the most-complained-about subject for the CFPB and other regulators Collections-related consent orders continue to be issued in a steady stream related to creditors collecting their own debts, debt collectors, debt buyers, and collection law firms Rulemaking still underway but appears to be delayed (SBREFA process may begin soon, but proposed rules are not imminent) 9

10 Some Major Collections Issues The documentation obsession and substantiation of debts Content of communications threats or promises Contact frequency DNC and C&D requests, especially related to place-of-employment calls Third party disclosure issues in skip tracing efforts Legal collections robo-signing and meaningful attorney involvement issues Debt sales: chain of title and media availability 10

11 Auto Finance The State of Play Larger participant rule finalized in 2015; nonbank auto finance exams are beginning Early exams appear to be typical compliance management systemfocused exams but some are focused (e.g., servicing/collections) The dealer finance charge disparate impact issue is still playing out with CFPB and DOJ consent orders continue to appear 11

12 Auto Finance Tomorrow s Issues Fair lending issues arising from judgmental underwriting (including overrides and tier bumping) Sale of ancillary products In subprime auto finance, ability to repay (also implicated in DOJ FIRREA investigations) Advertising and marketing Leasing issues, especially end-of-term and early-term practices will likely come to the agency s attention through examinations of manufacturer captives Collections and credit reporting 12

13 Fair Lending: Is It Still a Priority? Limited English Proficiency consumers (non-english language support) Potential ECOA implications of alternative scoring products Use of big data for advertising/marketing or scoring/fraud prevention Racial/ethnic/age/gender targeting by online lead generators The potential for a digital redlining case for online-originated credit products 13

14 Mortgages Four Main Points CFPB will work to ensure that the new Home Mortgage Disclosure Act (HMDA) rule is successfully implemented. CFPB s supervisory and enforcement programs will work to ensure equal and fair (non-discriminatory) access to mortgage credit. CFPB will place particular focus on implementation of its servicing rules, protecting delinquent borrowers still suffering from the aftermath of the crisis or other economic setbacks, and ensuring that servicers are equipped to handle any future delinquencies fairly. CFPB will continue to work with institutions to support implementation of the mortgage rules and will begin to assess the effectiveness of significant rules. 14

15 Mortgages HMDA/Access to Credit HMDA final rule released in October 2015, with implementation from January 2017 to January 2020, and mainly centered on January 1, New applicant demographic data for applications received on or after 1/1/ Other expanded categories for applications with final action on or after 1/1/2018. Unfinished business: - New submission tool on CFPB website for HMDA data starting in CFPB to make HMDA reports and modified LARs available to public on webiste. Information to be removed from publically available data still under consideration. Access to credit differs from traditional approach to underwriting and pricing fair lending analyses. - Previously used in redlining context, but CFPB appears to be assessing different approaches. 15

16 Mortgages Servicing November 2014 proposal to amend the Regulation X (RESPA) and Regulation Z (TILA) servicing rules that became effective January Among the concepts in the proposal: - Add periodic statement exemption for charged-off loans, and remove exemption for borrowers in bankruptcy. - Remove exemption from the early intervention requirements for borrowers in bankruptcy. - Expand situations in which a successor in interest must be treated as a borrower. - Expand loss mitigation requirements to a borrower who became current after an initial loss mitigation effort, and then subsequently becomes delinquent again. - Add notice requirement upon receipt of complete loss mitigation application. April 2016: CFPB reopens proposal for comment on consumer testing results of modified periodic statement for consumers in bankruptcy. - May 26 comment deadline. Final rule this summer. June 2016 CFPB Supervisory Highlights Mortgage Servicing Special Edition 16

17 Mortgages Mortgage Rule Implementation December 2015 a CFPB Deputy Assistant Director indicates that examinations will focus on four main areas in 2016: - Loan originator compensation plans. - Ability to repay rule. - Marketing service agreements. - TILA/RESPA Integrated Disclosure (TRID) rule. Reacting to significant pressure from industry, in April 2016 CFPB announces it will reopen TRID rulemaking and targets July for a proposal. 17

18 Open-Use Credit = Subprime Protected Class focus on products disproportionately used by low and moderate-income borrowers, and by women and minorities - Payday loans - Auto-title loans - Certain installment loans. See Bureau s payday outline discussing longerterm loans with terms exceeding 45 days that have: all-in APRs exceeding 36%; and either a security interest in the consumer s motor vehicle or authority to collect payments by accessing the consumer s bank account or paycheck. - Overdraft (viewed as high-priced, short-term credit) Targeted Conduct ability to repay and access to accounts 18

19 Two New Rules Larger-market-participant rule for installment lending - Proposed rule released June 2, Focused on Payday, Vehicle Title, and Certain High-Cost Installment Loans - Capture marketplace lending by extending beyond originators to non-banks that have lending platforms and/or purchase loans? - Rule s objective is to allow the Bureau to supervise a more comprehensive range of lending markets. Overdraft rule - Transaction sequencing - Disclosures and opt-in process - Directly regulate amounts of the fees? 19

20 Small Business Lending CFPB has limited jurisdiction over small business lending, but clearly has interest in the market - Treasury says greater regulation and oversight of small business lenders is needed CFPB believes that significant discrimination against women and minorities continues to exist - Unclear if this is overt, disparate treatment, disparate impact, or all three CFPB expects to inquire about the nature of the market, business and community needs, and enforcement of fair lending and other laws - Pre-rule activities targeted for September 2016 in Fall Rulemaking Agenda 20

21 What Next? The consumer response team will become the consumer and small business response team as the complaint portal expands - No date yet for the expansion of the complaint portal CFPB will also ramp up its review of small business lenders for compliance with ECOA and other fair lending laws - CA DBO has asked for Zip Code data on financing and marketing CFPB will finish building its small business lending team, conclude its market research, and issue a proposed rule on data collection - Grady Hedgespeth is Asst. Dir. of new Office of Small Business Lending Markets 21

22 Student Lending and Servicing CFPB keeps sounding the trumpets and banging the drums to herald an impending crisis of epic proportions - Total debt in excess of $1.23 trillion, mostly federal loans (FRBNY 2015Q4) - Nearly 8 million borrowers in default and 3 million+ having difficulties paying CFPB claims to see consistent signs of material consumer harm from servicing examinations, investigations, and complaint data - Fall 2015 Supervisory Highlights noted payment processing issues - Most recent consent orders dealt with statement errors and tax reporting - Last Ombudsman s Report criticized barriers to alternative repayment plans - Last Report on Servicemember Complaints described problems dealing with lenders and servicers, which included problems resulting from limited alternative payment options and problems with certifications for income-driven repayment 22

23 What Next? Likely uptick in attention devoted by CFPB to marketing, origination, and servicing of federal and private student loans - Attention to marketing and origination seems overdue Increasing scrutiny of servicer compensation of employees and vendors, particularly with regard to compensation around loss mitigation - Student Loan Servicing Report urges a realignment of incentives Enforcement focus on the delivery of borrower benefits, elimination of non-payment defaults, and availability of loss mitigation alternatives - Action Guide for servicemembers plus RFI for the new CFPB Payback Playbook Rulemaking within this two-year time frame seems unlikely but the threat is nonetheless being held out by the CFPB - Best practices from other rules plus borrower defense to repayment? 23