Consumer Compliance Outlook
News from Washington: Regulatory Updates
On October 22, 2013, the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (Board), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) (agencies) issued a statement to address industry questions about fair lending risks associated with offering only qualified mortgages (QMs). The CFPB’s Ability-to-Repay rule (ATR) implements provisions of the Dodd-Frank Act that require creditors to make a reasonable, good-faith determination that a consumer has the ability to repay a mortgage loan before extending credit to the consumer. Lenders are presumed to have complied with the ATR rule if they originate QMs, which must satisfy requirements that prohibit or limit risky features that harmed consumers in the recent mortgage crisis. Creditors asked for clarification whether the disparate impact doctrine of the Equal Credit Opportunity Act and its implementing regulation, Regulation B, allows them to originate only QMs. In response, the agencies stated that they do not anticipate that a creditor’s decision to offer only QMs would, absent other factors, elevate a supervised institution’s fair lending risk.
The agencies noted the decisions that creditors will make about product offerings in response to the ATR rule are similar to decisions creditors have made for other significant regulatory changes affecting particular types of loans. The statement counsels that creditors should continue to evaluate fair lending risk as they would for other types of product selections, including carefully monitoring policies and practices and implementing effective compliance management systems. The agencies issuing the statement with supervisory authority for the Fair Housing Act (FHA) believe that the same principles apply in determining compliance with the FHA and its implementing regulation.
On October 11, 2013, the Board, the Farm Credit Administration, the FDIC, the NCUA, and the OCC (agencies) issued a rulemaking proposal to implement the provisions of the BWA concerning escrow requirements for flood insurance, forced-placed insurance, private flood insurance, and civil money penalties (CMPs). First, the proposal would require regulated lending institutions to escrow premiums and fees for flood insurance for loans secured by residential improved real estate or a mobile home. Consistent with the timing requirements set forth in the BWA, this requirement would not only apply to loans made on or after July 6, 2014, but also to loans that are outstanding on that date. The proposal allows for an exemption from this escrow requirement for regulated lending institutions with total assets of less than $1 billion and that, as of July 6, 2012, were not otherwise required under federal or state law to escrow premiums and did not have a policy of requiring escrow accounts. Second, the proposal would require regulated lending institutions to accept a private flood insurance policy, as defined in the BWA. The agencies solicited comments on whether they should use their rulemaking authority to allow lenders to accept a private policy that does not meet the statutory definition. Third, the agencies proposed revised notice forms. Fourth, the agencies clarified that a lender can begin charging a borrower for forced-placed insurance and related fees beginning on the date on which the borrower’s insurance lapsed. The agencies also clarified that a lender must refund forced-placed premiums when a borrower produces proof of overlapping existing insurance. Finally, the agencies clarified that the changes for forced-placed insurance and CMPs — removing the limit on the total amount of CMPs and raising the penalties per violation — became effective when the BWA was signed into law on July 6, 2012, while the escrow and private insurance provisions will not become effective until the agencies issue a final rule.
On December 23, 2013, the Board issued Consumer Affairs letters CA 13-24 and 13-25, concerning the revised interagency examination procedures the Federal Financial Institutions Examination Council (FFIEC) recently approved for Regulations X and Z, respectively. The revised procedures reflect the CFPB’s new mortgage regulations under Regulations X and Z taking effect in January 2014. The revisions under Regulation Z reflect the new rules regarding ATR and QM standards, loan originator compensation and qualification, servicing, and loans subject to the Home Ownership and Equity Protection Act of 1994. The revisions under Regulation X reflect the new rules regarding mortgage servicing and homeownership counseling requirements. The interagency appraisal rules for higher-priced mortgage loans that took effect on January 18, 2014, are also reflected in the procedures.
On October 15, 2013, the CFPB issued a bulletin that provides servicing guidance concerning:
- servicers’ policies and procedures for communicating with a successor in interest of a deceased borrower
- communication with borrowers under the early intervention rule, and
- servicers’ obligation to provide notices to borrowers who have made a “cease communication” request under the Fair Debt Collection Practices Act (FDCPA).
The CFPB also issued an interim final rule to make changes to certain aspects of the mortgage regulations under Regulations X and Z that become effective in January 2014. The amendments clarify the disclosures that creditors must provide before counseling for high-cost mortgages can begin. The amendments also clarify compliance requirements for the servicing of a loan when a consumer is a debtor in a bankruptcy case or makes a “cease communications” request. The amendments took effect on January 10, 2014.
On September 13, 2013, the CFPB issued final amendments and clarifications to its January 2013 mortgage rules, which included: rules requiring lenders to make a good-faith determination that borrowers have the ability to repay their loans, mortgage servicing rules for homeowners facing foreclosure, rules addressing loan originator compensation, and rules requiring escrow accounts for higher-priced mortgages. The CFPB made several amendments to these rules to clarify interpretive issues and facilitate compliance. The CFPB explained that modifications were designed to:
- clarify which mortgage servicer activities are prohibited in the first 120 days of delinquency
- outline procedures for obtaining follow-up information on loss-mitigation applications
- facilitate servicers’ offering of short-term forbearance plans
- clarify best practices for informing borrowers about the address for sending error resolution documents
- facilitate lending in rural or underserved areas while the CFPB reexamines the definition of “rural or underserved” during the next two years
- clarify the financing of credit insurance premiums
- clarify the definition of a loan originator
- clarify the points and fees thresholds and loan originator compensation rules for manufactured housing employees
- revise effective dates of certain loan originator compensation rule provisions.
On September 4, 2013, the CFPB issued a notice to companies that furnish information to consumer reporting agencies. The notice stressed that furnishers are required under the Fair Credit Reporting Act (FCRA) to investigate consumer disputes forwarded by the consumer reporting agencies and are responsible for reviewing all relevant information provided with the disputes, including documents submitted by consumers.
Consumers may file a dispute with a consumer reporting agency about credit report items. The agency ordinarily must inform the furnisher that the consumer has filed a dispute and forward all relevant information to the furnisher. Once the furnisher receives the information, it must review it, conduct an investigation, and respond to the consumer reporting company. An electronic system, known as e-OSCAR, is used by the three largest nationwide consumer reporting companies — Equifax Information Services LLC, TransUnion LLC, and Experian Information Solutions, Inc. — to send information relating to consumer disputes to furnishers. The CFPB had previously noted that the e-OSCAR system did not provide a means for credit reporting companies to forward to furnishers any documents submitted by consumers. Since then, the e-OSCAR system has been upgraded so that the three companies can now send furnishers any relevant dispute documents mailed in by consumers.
The CFPB’s announcement addresses furnishers’ obligations to review all relevant dispute information provided by the consumer reporting companies. The CFPB expects each furnisher to investigate each dispute, provide the investigation results, and correct inaccurate information. The CFPB stated that it will take appropriate supervisory and enforcement actions to address violations of the FCRA or other consumer financial laws and seek appropriate corrective measures, possibly including restitution to harmed consumers. The CFPB also stated that it will continue to review furnishers’ compliance with these requirements.
On August 22, 2013, the Board, the FDIC, and the OCC announced the availability of data on small business, small farm, and community development lending reported by certain commercial banks and savings associations, pursuant to the Community Reinvestment Act (CRA). Disclosure statements on the reported 2012 CRA data are available in electronic form for each reporting commercial bank and savings association. The FFIEC also has prepared 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.