United States: The CFBP 2015 Forecast: Continued Cloudiness, Thunderstorms Likely

This will be a busy year at the Consumer Financial Protection Bureau (CFPB), and that certainly means it will be a busy year for financial institutions as well.

In addition to exercising its supervisory and enforcement authorities, the CFPB is poised to issue a number of proposed rules and finalize several other rules it proposed in 2014. Furthermore, the gargantuan TILA-RESPA integrated disclosure rule will become effective in 2015, posing the most significant operational challenges to mortgage originators since the Truth in Lending Act was enacted. All in all, 2015 will be a hectic time. The following lists the most significant rulemakings and other activities the CFPB will be working on in 2015.

ANTICIPATED PROPOSED RULES

Debt Collection Practices. In November 2013, the CFPB issued an advance notice of proposed rulemaking (ANPR) seeking information about debt collection practices. The CFPB asked more than 150 questions in the ANPR, many with multiple parts. The questions focused on a wide array of issues and several asked about the activities of so-called first-party "original" debt collectors. If the proposed rule is anything like the ANPR, it will be massive and broad-ranging. We anticipate the CFPB will issue a proposed rule in the Spring or Summer of 2015. It is virtually certain that the proposed rule will cover original creditors as first-party debt collectors, as well as those who buy debts from creditors and others. Take a deep breath. You may not want to exhale.

Short-Term Small Dollar Lending. Not to be outdone by the looming debt collection proposal, the CFPB also is scheduled to issue a proposed rule (or more accurately multiple proposed rules) dealing with short-term credit products. Specifically, we expect the CFPB will issue the long-awaited, and, for some institutions, the long-feared, proposal dealing with payday loans. While the payday loan proposal may affect only a limited number of financial institutions, other short-term credit proposals are likely to sweep far more broadly. Spring of 2015 appears to be the most likely issuance date for a proposed payday lending rule.

The other short-term credit proposal we are awaiting will address overdrafts offered in connection with deposit accounts. In July 2014, the CFPB issued a short report on overdrafts, with Director Cordray stating that "consumers who opt in to overdraft coverage put themselves at serious risk when they use their debit card." It seems as though the writing is on the wall. And, we fear the approach taken by the CFPB in its proposed rule dealing with prepaid cards that offer overdrafts maybe a sign of things to come. For depository institutions, now may be the winter of our discontent; do not expect a glorious summer. This proposal will presumably be issued in 2015, but perhaps not until early Summer.

And, if that isn't enough, there may be a proposal on deposit advance products. The CFPB has been relatively quiet about these products, no doubt due to the guidance issued in late 2013 by the OCC and FDIC, which seemed to have all but eliminated such products.

ANTICIPATED FINAL RULES

HMDA/Regulation C. In August 2013, the CFPB issued proposed changes to Regulation C to implement statutory amendments made to the Home Mortgage Disclosure Act (HMDA), plus many other provisions not in the amended statute. The proposed rule would greatly expand the types of loans covered by Regulation C as well as the types of data collected, and, for larger HMDA reporters, would require "earlier" reporting of data to the CFPB or other applicable federal agencies. The CFPB has to address challenging consumer privacy issues posed by the collection of such massive amounts of data. Thus, some sort of privacy "proposal" will be issued by the CFPB to address these issues. The CFPB faces challenging issues in finalizing this rule, which is why the Bureau may not issue a final rule until late in 2015.

Prepaid Cards. Just in time for the holidays, in December 2014, the CFPB published massive proposed changes to Regulation E and Regulation Z addressing prepaid accounts. Far from simply addressing disclosures for prepaid cards, the proposal has a bit of everything for everyone: coverage under Regulation Z credit card rules of any prepaid card that offers overdrafts, and proposed coverage of tax refund cards and student financial aid cards, as well as certain digital wallets. The comment period closes on March 23, 2015, and then "the fun really begins." Given the sheer heft of the proposal and the number of comments that the CFPB is receiving, it is hard to say whether the CFPB will be able to issue a final rule before the end of 2015. But no doubt some at the CFPB will push hard to finalize the rule by year-end.

Mortgage Rule Revisions. The CFPB issued two proposed rules in late 2014 to amend Regulation Z and Regulation X. One rule was proposed in October 2014, and the other was proposed in December 2014. The former addresses provisions in the TILA-RESPA Integrated Disclosure (TRID) Rule and other rather esoteric issues. The latter is an extensive, highly technical proposal covering many detailed aspects of the CFPB's Regulation Z/Regulation X servicing rules effective in January of 2014. Issues addressed include clarifications sought by the industry and correction of obvious deficiencies recognized by the agency. There is in this proposal, however, no substantive retreat from rigorous consumer protection, particularly with respect to default servicing. The CFPB adopted final rules under the TRID proposal earlier this week. Other than one aspect of the proposal, the CFPB adopted the rules as proposed in October.1 We do not expect the comprehensive mortgage servicing rules to be finalized until late in 2015.

Auto Finance Larger Participant Rule. In October 2014, the CFPB issued a proposed rule to define who would qualify as a "larger participant" for purposes of the provision of automobile financing. This rule, when finalized, will determine the nonbank entities that provide automobile financing over which the CFPB has supervisory authority. We anticipate a final rule in 2015, perhaps by Spring.

RULES ISSUED PREVIOUSLY THAT BECOME EFFECTIVE IN 2015

On December 31, 2013, the CFPB adopted final changes to Regulation Z and Regulation X, implementing integrated mortgage disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z). The final rule will become effective August 1, 2015, so plan your summer vacations accordingly. The final rule is the result of a multi-year rulemaking effort by the CFPB, dubbed "Know Before You Owe," and involved consumer testing of disclosures as well as quantitative study of the proposed disclosures. Time will tell how the approach will work. One thing is likely: the CFPB will not revisit the fundamental building blocks of the rule for a long time. So mortgage lenders and settlement service providers can settle in and get comfortable.

SUPERVISION PRIORITIES

As required by the Dodd-Frank Act, the CFPB generally chooses which institutions to examine based on a risk-weighted priority for each Institution Product Line (IPL) (e.g., "Bank of MoFo" – Mortgage Origination). However, examination scheduling is subject to certain constraints. For example, at smaller institutions in which policies and procedures, compliance, and governance may be shared across lines of business, the CFPB may decide that the most efficient use of its resources is to examine the entire institution rather than a single IPL. Certain smaller institutions also have been used as training opportunities for new examiners before they move on to larger and more complex institutions. Furthermore, aside from any fancy risk-weighted prioritization, the Bureau likely wants to have some supervisory interaction with even the smallest depository institutions under its jurisdiction (i.e., those with more than $10 billion in assets) at least every two to three years.

Accordingly, every year the CFPB has to make decisions about where it will use its supervisory resources. Despite its guaranteed funding from the Federal Reserve's coffers, the Bureau only has so many examiners and each examiner can only participate in so many exams over the course of the year. That means the CFPB has to decide which IPLs it will examine among its continuously supervised institutions,2 "smaller" banks and credit unions (to the extent one thinks $10 billion in consumer assets is small), and non-depository financial services companies. That said, even if your institution is not scheduled for an examination, that doesn't mean you won't get a "visit" from the CFPB (see Enforcement Priorities below).

Reading the CFPB tea leaves - it may be a bitter brew for some - our sense is that the Bureau's focus in 2015 likely will continue to be on compliance with the new mortgage origination and servicing rules that went into effect in January of 2014. It appears that the CFPB started focusing on such issues in the second half of 2014, mostly to allow sufficient transactional data to accrue for testing purposes. Thus, a number of larger institutions have not yet been examined for compliance with the new mortgage origination and servicing rules. Given the significance of those rules, such exams will almost certainly be a priority for the Bureau in 2015.

Further within mortgage origination and servicing, we also expect the CFPB to continue to focus on fair lending (ECOA and HMDA) and unfair, deceptive or abusive acts or practices (UDAAP). In light of the loan originator compensation rule (within Section 36 of Regulation Z), we think the Bureau's fair lending analysis will emphasize underwriting issues, rather than pricing, within the origination space. For example, we understand that the CFPB has been conducting targeted redlining inquiries of mortgage lenders. Thus, for 2015, mortgage lenders would be wise to consider whether their compliance management systems effectively monitor for such risks. And, of course, HMDA compliance will, as it has been since the CFPB commenced examining mortgage originators, be a concern of the agency as it underpins fair lending mortgage exam work. As it pertains to UDAAP, we expect that the CFPB will wield that authority to fill perceived gaps in its rules, particularly in the servicing business. For example, the supplemental rules the Bureau proposed for mortgage servicing in December 2014 likely will not become effective until late 2015 at the earliest.

In addition to those lines of business, with a few exceptions we think the Bureau's supervisory priorities will likely closely track its rulemaking initiatives. Thus, large diversified financial institutions should be preparing for CFPB examinations covering deposits/overdrafts, debt collection, indirect auto financing,3 and credit cards. Not surprisingly, we see the Bureau looking closely at overdraft programs and compliance with Regulations E, DD and perhaps B, as well as UDAAP issues such as posting order, holds and fee disclosures. Regarding debt collection, our strong sense is that the Bureau will be conducting both first-party and third-party exams. UDAAP and FCRA/Regulation V compliance will certainly be a focus in both types of exams, with FDCPA compliance prominent for the third-party collectors, and the specter of fair lending arising for first-party collectors.

We further see indirect automobile lending continuing to be a focus for CFPB examinations, particularly in the second half of the year once the larger participant rule has been finalized. Unless you've been hiding somewhere for the last couple of years – not that we would blame you – you know that the CFPB has been using its fair lending authority under the ECOA to assert that by allowing automobile dealers to "markup" interest rates, lenders in effect are discriminating in funding loans to certain minority car buyers. It is well known, through public securities filings, that for well over a year the CFPB has been conducting numerous fair lending exams and investigations against both bank and non-bank auto financing operations. Pretty clearly, the CFPB is not backing off its position that so-called proxy analysis may lead to proof of disparate impacts on minority car buyers. Moreover, our strong sense is that the CFPB is not done with the automobile financing business and may, for example, start turning its attention in 2015 to so-called "add-on products," such as gap insurance, vehicle service contracts, and, yes, even the ubiquitous rustproofing and undercoating. We expect the Bureau to wield both its fair lending and UDAAP authorities in such reviews.

Further into the fair lending and UDAAP world, with a healthy dose of TILA/CARD Act and Regulation Z added for good measure, we also expect a number of credit card exams in 2015. Our understanding is that the Bureau has dipped its toe in that water over the past year or so, and we think it's likely that they are ready to jump in full force. So bring your proxy analysis and line up your statisticians and economists, because in our experience a credit card fair lending exam will be a whole new ballgame for many institutions.

Finally, we would be remiss if we didn't mention other businesses that may attract supervisory attention in 2015. Based on the trajectory of the CFPB's examination priorities, these businesses include credit reporting agencies, remittance transfer companies, and student loan servicers. The CFPB is likely to pick a handful of such companies or institutions to examine in order to continue to build its knowledge base about those businesses. The CFPB heavily relies on its consumer complaints database in its risk-weighting process, and based on the agency's recent consumer complaint reporting, these businesses may want to ready themselves for a CFPB visit.

ENFORCEMENT PRIORITIES

As CFPB Supervision has brought more examiners on board and provided them with the necessary training, it appears that a regular pipeline of referrals from Supervision to Enforcement now exists. So while Congress and the President continue to debate the Keystone XL Pipeline, the CFPB "Supervision to Enforcement Pipeline" is up and running. Accordingly, we expect that Enforcement will be looking into similar IPLs and issues as those reviewed in Supervision.

But that's not to say that CFPB Enforcement doesn't set its own agenda, too. In fact, we expect that Enforcement's investigation portfolio likely will contain more non-depository institutions than Supervision's list of targets. Moreover, given the limitations of the Bureau's supervisory authority, in which it has to promulgate a "larger participant" rule in order to supervise a consumer financial product/institution that isn't specifically enumerated in the Dodd-Frank Act, we think it likely that Enforcement will continue to bring groundbreaking actions that press the boundaries of the agency's authority, such as the complaint it recently filed against a cellular provider alleging that certain billing practices were improper. While we don't know precisely what the next such case will be, the CFPB has publically indicated its interest in the mobile payments space, and it wouldn't surprise us to see them garner headlines in that area with an enforcement action.

OTHER MATTERS

In December 2013, the CFPB issued preliminary results of a study of arbitration agreements/provisions. We anticipate issuance of a final study in early 2015; don't expect the CFPB to warmly embrace arbitration agreements. Upon issuance of the study, the CFPB has the authority to propose rules addressing arbitration provisions. Such proposed rules must be consistent with the CFPB's study. How funny is that? Not very.

CONCLUSION

From the perspective of keeping up with new developments and responding to CFPB actions, 2015 will, like 2014, prove to be a very busy time for the financial services industry. Institutions, both depository and non-depository, will continue to have to adjust to a high-velocity stream of new rules, guidance, blogs, examination procedures, consent orders and public statements, as well as anticipate where the Bureau's next rulemaking or enforcement action is going to come down. And, on top of the always expanding supervisory regime and ever enigmatic enforcement process, it's hard to know where to start.

Footnotes

1. With respect to the proposal to allow creditors to redisclose the Loan Estimate one business day after the interest rate is locked, the CFPB is extending the timing requirement to three business days after the rate is locked.

2. Continuously supervised institutions are generally, but not always, the largest banks under the Bureau's jurisdiction. They typically are subject to at least one, and frequently multiple, examinations during any given 12-month period.

3. For the first few months of the year, until its larger participant proposed rule is made final, the Bureau will likely interact with non-bank indirect auto lenders through enforcement investigations.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Joe Rodriguez
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions