Consumer Compliance Outlook
News from Washington: Regulatory Updates
On August 17, 2012, the Consumer Financial Protection Bureau (CFPB) proposed rules to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The CFPB expects to make the rules final by January 2013. The Dodd-Frank Act restricts points and fees for consumer mortgages in which the loan originator’s compensation is paid by the creditor. For these mortgages, the Dodd-Frank Act prohibits payment of upfront points. The CFPB is seeking public comment on a proposal that would require lenders to make a no-point, no-fee loan option available but would also allow consumers to accept loans with points and fees if that is what the consumer prefers. The CFPB is also asking for comments on a proposal that seeks to ensure that there is an appropriate interest-rate reduction when consumers elect to pay upfront points or fees. The proposal also affects loan originators’ qualifications and compensation and restricts arbitration clauses and financing of credit insurance. The comment period ended on October 16, 2012, and the CFPB expects to issue final rules in January 2013.
On August 15, 2012, the CFPB released a proposed rule that would require creditors to provide home loan applicants with free copies of written appraisals and other home valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. The proposed rule would also require creditors to inform applicants in writing within three business days of application of their right to receive a free copy of the appraisals and valuations. Creditors would then be required to provide the reports to the applicants as promptly as possible but in no case later than three days before closing, regardless of whether credit is extended or denied or the application is incomplete or withdrawn. Under the proposed rule, creditors could still charge a fee associated with conducting the appraisals and valuations. The proposed rule would amend Regulation B and implement an amendment to the Equal Credit Opportunity Act enacted as part of the Dodd-Frank Act. The comment period ended on October 15, 2012. The CFPB plans to issue a final rule in January 2013.
On August 15, 2012, the Federal Reserve Board (Board), the CFPB, the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency (OCC) issued a proposed rule to establish new appraisal requirements for higher-risk mortgage loans. A loan is high risk if its annual percentage rate exceeds the specified threshold. For such loans, the proposed rule would require creditors to use a licensed or certified appraiser who prepares a written report based on a physical inspection of the interior of the property. The proposed rule would also require creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report. Creditors would have to obtain a second appraisal at no cost to the consumer for a high-risk home purchase loan if the seller acquired the property for a lower price during the past six months. This requirement would address fraudulent property flipping by seeking to ensure that the value of the property being used as collateral for the loan legitimately increased. The comment period ended on October 15, 2012.
On August 14, 2012, the Federal Financial Institutions Examination Council (FFIEC), the Board, the FDIC, and the OCC announced the availability of data on small business, small farm, and community development lending reported by commercial banks and savings associations, pursuant to the Community Reinvestment Act (CRA). Disclosure statements on the reported 2011 CRA data are available in electronic form for each reporting commercial bank and savings association. Aggregate disclosure statements of small business and small farm lending for all of the metropolitan statistical areas and nonmetropolitan counties in the United States and its territories are also available.
On August 10, 2012, the CFPB issued rulemaking notices under Regulations Z and X to implement provisions of the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) that impose new requirements for mortgage servicers. The proposed rules would require monthly mortgage statements and written notices before interest rate adjustments and would impose requirements for using force-placed insurance, responding to consumer inquiries, correcting servicing errors, and providing timely payoff information.
In addition to implementing the Dodd-Frank Act’s requirements, the CFPB also proposed to use its rulemaking authority to require mortgage servicers to intervene early with troubled and delinquent borrowers. The proposed rule would regulate how servicers respond to consumers that request assistance by seeking foreclosure alternatives. The CFPB’s rules would not require servicers to offer loss mitigation options but would mandate procedures and time frames for servicers that do. The rules would not prohibit servicers from using “dual tracking” to continue the foreclosure process while pursuing loss mitigation options. The proposal also includes rules on information management and the duties of a servicer’s employees, to ensure that consumers are able to contact personnel who can access the relevant records and provide assistance.
On July 27, 2012, the Board approved a final rule that amends the provisions in Regulation II (Debit Card Interchange Fees and Routing) that permit a debit card issuer subject to the interchange fee standards to receive a fraud-prevention adjustment. Under the final rule, an issuer will be eligible for an adjustment of no more than 1 cent per transaction if it develops and implements policies and procedures that are reasonably designed to take effective steps to reduce the occurrence and costs of fraudulent debit card transactions. The final rule simplifies the fraud-prevention aspects required to be included in an issuer’s fraud-prevention policies and procedures. The final rule requires an issuer to review its fraud-prevention policies and procedures and their implementation at least annually and to update its policies and procedures as necessary in light of their effectiveness, cost-effectiveness, changes in the types of fraud, and available methods of fraud prevention. An issuer that meets these standards and wishes to receive the adjustment must annually notify the payment card networks in which it participates of its eligibility to receive the adjustment. The final rule also prohibits an issuer from receiving or charging a fraud-prevention adjustment if the issuer is substantially noncompliant with the Board’s fraud-prevention standards and describes steps an issuer must take once it becomes substantially noncompliant to become eligible to receive the fraud-prevention adjustment in the future. The amendments were effective October 1, 2012.