Consumer Compliance Outlook
News from Washington: Regulatory Updates
On July 10, 2013, the CFPB issued a final rule clarifying the mortgage regulations it issued in January 2013 under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). Among the changes and revisions, the CFPB:
- clarified how to determine a consumer’s debt-to-income ratio using Appendix Q
- explained that the CFPB’s RESPA rule does not preempt the field of servicing regulations issued by the states
- clarified the mandatory compliance date for the adjustable rate mortgage (ARM) servicing provisions in 12 C.F.R. §1026.20(c) and (d)
- clarified which mortgage loans should be considered in determining whether an entity qualifies as a “small servicer”
- clarified that the 2013 amendment to the escrow rules did not affect the eligibility of construction and bridge loans and reverse mortgages from the escrow, ability-to-repay, and prepayment penalty rules, and
- clarified the eligibility standards for the temporary qualified mortgage provision.
In January 2013, six federal regulatory agencies (Agencies) jointly issued a final rule to implement the appraisal requirements for higher-risk mortgages in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Agencies are now proposing three exemptions to the appraisal requirements of the January 2013 final rule. The Dodd-Frank Act defines a “higher-risk mortgage” as a higher-priced mortgage loan, namely, a consumer credit transaction secured by a consumer’s dwelling whose annual percentage rate exceeds the Freddie Mac average prime offer rate by 150 basis points for first-lien loans, 250 basis points for jumbo loans, and 350 basis points for subordinate-lien loans. Under the proposed exemptions, the appraisal requirements would not apply to loans of $25,000 or less, certain “streamlined” refinancings, and certain loans secured by manufactured housing. The comment period closed on September 9, 2013.
On June 26, 2013, the CFPB issued a final rule that establishes procedures to bring under its supervisory authority certain nonbanks whose activities it has reasonable cause to determine pose risks to consumers. Nonbanks subject to the rule are companies that offer or provide consumer financial products or services but do not have a bank, thrift, or credit union charter. The rule details the procedures the CFPB will follow to provide the nonbank with an opportunity to respond to a supervisory notification and creates a method for nonbanks to petition to terminate CFPB supervision after two years.
On June 24, 2013, the CFPB announced a proposal to amend certain aspects of some of the final mortgage rules issued in January 2013. The proposed changes would:
- outline procedures for obtaining follow-up information on loss-mitigation applications
- facilitate servicers’ offering of short-term forbearance plans
- revise an exemption from the requirement to maintain escrows on certain higher-priced mortgage loans for small creditors that operate predominantly in rural or underserved areas
- extend an exception to the ban on high-cost mortgages featuring balloon payments to apply it to small creditors that do not operate predominantly in rural or underserved counties, as long as the loans meet certain restrictions
- clarify the prohibition on financing credit insurance premiums in connection with certain mortgage transactions
- clarify the circumstances under which a loan originator’s or creditor’s administrative staff would be deemed to be acting as a loan originator
- clarify for retailers of manufactured homes and their employees what compensation must be counted toward certain thresholds for points and fees under the ability-to-repay and high-cost mortgage rules, and
- revise the effective dates of the loan originator rule and the ban on financing of credit insurance.
The comment period closed July 22, 2013.
On June 18, 2013, the Federal Reserve Board and the other federal bank and thrift regulatory agencies announced the release of the 2013 list of distressed or underserved communities where revitalization or stabilization activities will receive consideration as “community development” under the Community Reinvestment Act.
On June 12, 2013, the FDIC and the CFPB launched a new financial resource tool, Money Smart for Older Adults, to help older adults and their caregivers prevent, identify, and respond to elder financial exploitation; plan for a secure financial future; and make informed financial decisions. The instructor-led module offers practical information and is designed to be delivered to older adults and their caregivers by representatives of financial institutions, adult protective service agencies, senior advocacy organizations, law enforcement, and others that serve this population.
On May 29, 2013, the CFPB finalized amendments to the Ability-to-Repay (ATR) rule that it issued in January 2013. That rule will become effective on January 10, 2014. Among other things, the amendments create exemptions and modifications to the rule for small creditors, community development lenders, and housing stabilization programs. The amendments also revise the rule on how to calculate loan originator compensation for certain purposes. Specifically, the final rule:
- exempts from the ATR rule nonprofit lenders that help low- and moderate-income consumers obtain affordable housing, provided the nonprofit lenders make no more than 200 loans per year and lend only to low- and moderate-income consumers. Similarly, mortgage loans made by or through a housing finance agency, by certain homeownership stabilization programs, and by certain community development lenders will be exempted from the ATR rules.
- extends Qualified Mortgage status to certain loans made by small creditors that must have assets less than $2 billion and make (together with its affiliates) 500 or fewer first-lien loans per year that are subject to the rule. Loans retained by these lenders in their portfolio for at least three years would be eligible for Qualified Mortgage status even if the consumer’s debt-to-income ratio exceeds 43 percent.
- temporarily allows small creditors to make balloon loans that will meet the definition of a Qualified Mortgage, even though the areas they serve do not meet the definition of a rural or underserved area. The CFPB is reviewing the definition of rural and underserved areas, which some commenters suggested was too narrow, and will revisit this issue two years after completing its review.
- allows smaller creditors to charge a higher annual percentage rate for first-lien QMs while still receiving the stronger legal presumption of compliance with the ATR requirement. Smaller creditors will be permitted to charge 350 basis points over the average prime offer rate (APOR) instead of the 150 basis points over APOR that would otherwise apply. No change was made for the threshold for subordinate-lien loans.
- clarifies how to calculate loan origination compensation for purposes of the 3% limit on points and fees for Qualified Mortgages. Compensation paid by a mortgage broker or a lender to a loan originator employee will not be counted toward the points and fees threshold. However, compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination fees paid by a consumer to a creditor.
On April 30, 2013, the CFPB issued the final rule amending its foreign remittance transfer rule. The remittance rule applies to transfers sent by consumers in the United States to individuals and businesses in foreign countries. This rule will take effect on October 28, 2013. The CFPB made three changes to the final rule:
- makes it optional, in some circumstances, for a remittance transfer provider to disclose fees imposed by the recipient’s financial institution if that institution is not the provider’s agent.
- makes it optional for the remittance transfer provider to disclose foreign taxes collected by persons other than the remittance transfer provider. (If either of the above options is used, a disclaimer must be provided indicating that the recipient may receive less than the disclosed total because of fees and taxes collected by a person other than the provider.)
- requires remittance transfer providers to attempt to recover funds that are deposited into the wrong account because the sender provided an incorrect account number or routing number, if certain other conditions are satisfied. However, the providers would not be liable for funds that cannot be recovered in such cases.
On April 29, 2013, the CFPB amended the rules that implement the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). The CARD Act requires card issuers to evaluate a consumer’s ability to repay before opening a new credit card account or increasing the credit limit of an existing account. The rules that were previously issued to implement that requirement required creditors to determine whether the applicant has an independent source of income or assets from which they can make the required payments on the account. For applicants who are at least 21 years old, the CFPB’s revision to the rule allows card issuers to consider third-party income if the applicant has a reasonable expectation of access to it. For example, a card issuer evaluating the ability to repay of a stay-at-home husband or wife applying for a credit card could consider the income of the working spouse even if the spouse is not a joint applicant.