News from Washington: Regulatory Updates
The Consumer Financial Protection Bureau (Bureau) Announces Its Enforcement and Supervision Policy for Abusive Acts or Practices. 
On January 24, 2020, the Bureau published a policy statement to clarify its supervisory and enforcement policy for abusive acts or practices. The Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank Act) authorized the Bureau to take action against unfair, deceptive, or abusive acts or practices against consumers by covered entities in connection with a consumer financial product or service. The Bureau issued the statement because it had concluded the industry was uncertain how the Bureau would apply the abusive standard.
The statement clarified that the Bureau generally will apply three principles in supervising and enforcing the abusive standard:
- The Bureau intends to cite conduct in supervision or challenge conduct in enforcement as abusive if, among other standards, the harm to consumers outweighs its benefits to consumers;
- The Bureau will avoid challenging conduct as abusive if the same facts are challenged as unfair or deceptive. If conduct is challenged as abusive, the Bureau intends to plead the abusive claims in a manner that demonstrates the connection between the facts of the case and the legal standard for abusiveness. The Bureau intends to apply the same approach to citing conduct as abusive in supervision. Similarly, in future editions of the Bureau’s Supervisory Highlights publication, the Bureau intends to provide more clarity as to the specific factual basis for determining abusiveness in the supervision process; and
- The Bureau does not intend to seek certain types of monetary relief for abusiveness violations if the covered person made a good faith effort to comply with the abusiveness standard.
The statement was effective on January 24, 2020, and is available on the Bureau’s website.
The Bureau proposed to amend the remittance transfer rule to expand the exemption threshold from 100 to 500 transfers and to create two new permanent exceptions for certain providers to use estimates.
On December 6, 2019, the Bureau issued a notice of proposed rulemaking for Regulation E to amend the remittance transfer rule, 12 C.F.R. Part 1005, subpart B. First, the Bureau proposes to increase the threshold for remittance transfer providers exempt from the rule’s requirements from 100 transfers in the prior calendar year to 500 transfers. Second, the Bureau proposes a new permanent exception for insured institutions to estimate the exchange rate for transfers to a particular country if the insured institution made 1,000 or fewer remittance transfers in the previous year to that country in the country’s local currency and the institution is not able to determine the exact exchange rate. Third, the Bureau proposes a new permanent exception for insured institutions to estimate covered third-party fees associated with a transfer to a designated recipient institution if the insured institution has made 500 or fewer remittance transfers in the previous year to that recipient institution and the sending institution is not able to determine the amount of the third-party fees. The Bureau intends these changes to mitigate the effects of the expiration on July 21, 2020, of a temporary exception that allowed insured institutions to use estimates for certain disclosures.
The Bureau seeks comment on its proposal to assess the effectiveness of the TILA-RESPA integrated disclosure (TRID) rule.
Under Section 1022(d) of the Dodd–Frank Act, the Bureau is required to assess the effectiveness of its significant rules five years after their effective date. On November 22, 2019, the Bureau published a notice in the Federal Register seeking public comment pursuant to Section 1022(d) of the effectiveness of the TRID final rule. The request sought comment on the rule, including these topics:
- the benefits and costs of the TRID rule for consumers, creditors, or other stakeholders;
- information about the effects of the rule on transparency, efficiency, access, and innovation in the mortgage market;
- information about the rule’s effectiveness in meeting the objectives of the Dodd–Frank Act;
- comments on aspects of the TRID rule that are confusing or where more guidance was needed to implement the rule;
- recommendations for modifying, expanding, or eliminating the TRID rule.
The comment period closed on January 21, 2020.
The Bureau issues a report on mortgage servicers.
On November 21, 2019, the Bureau’s Office of Research issued a report detailing its findings about mortgage servicers. The report categorized servicers into three categories:
- Small servicers: 5,000 or fewer loans. Small servicers are exempt from certain provisions of the RESPA and TILA servicing rules;
- Midsize servicers: between 5,000 and 30,000 loans;
- Large servicers: more than 30,000 loans.
The report included the following findings:
- 74 percent of borrowers with mortgages at small servicers said an important factor in choosing their lender was either that they had an established banking relationship or that the lender had a local office or branch nearby. By contrast, only 44 percent of borrowers with mortgages at large servicers cited the importance of having a local office or branch nearby.
- 23 percent of small servicers’ mortgages are secured by homes in nonmetro or rural counties, while nationwide, 11 percent of mortgages are in nonmetro or completely rural counties. In a number of rural counties in the United States, small servicers service the majority of loans, especially in certain Midwestern states.
- Small servicer loans are less likely to have been originated by a government-backed loan or by government-sponsored enterprises, compared with mortgages serviced by larger servicers.
The report is available at the Bureau’s website.
The Bureau issues an interpretive rule clarifying Regulation Z loan originator screening and training requirements for individuals with temporary authority under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) to originate residential mortgage loans.
On November 19, 2019, the Bureau issued an interpretive rule to clarify that a mortgage loan originator organization is not required to apply Regulation Z’s screening and training qualification requirements to loan originators with temporary authority under the SAFE Act to originate mortgages in the state. This applies to loan originators who are previously state licensed or federally registered, employed by a state-licensed mortgage company, have applied for a new state loan originator license, and have met other criteria in the SAFE Act. These originators may act as a mortgage loan originator, while the relevant state authority completes its processes for granting or denying a state loan originator license.
The SAFE Act requires that states screen and train state-licensed mortgage loan originators; it does not prescribe such requirements to federally registered originators. However, TILA and Regulation Z also include loan originator qualification requirements. Specifically, if an originator is not required to be state licensed and is not state licensed, a loan originator organization must complete certain screening and provide certain training before permitting the individual to act as a loan originator in a consumer credit transaction secured by a dwelling. After reviewing the applicable legal requirements, the Bureau determined Regulation Z screening and training requirements do not apply to individual loan originator employees with SAFE Act temporary authority. The interpretive rule was effective on November 24, 2019.
Agencies Announce Threshold for Smaller Loan Exemption from Appraisal Requirements for Higher-Priced Mortgage Loans.
On October 30, 2019, the Board, the Bureau, and the Office of the Comptroller of the Currency announced that the threshold exempting loans from special appraisal requirements for higher- priced mortgage loans increased from $26,700 in 2019, to $27,200 in 2020, based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Special appraisal requirements for higher-priced mortgage loans include a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan.
The Federal Reserve Board and the Bureau Announce Dollar Thresholds in Regulations Z and M for Exempt Consumer Credit and Lease Transactions.
On October 30, 2019, the Board and the Bureau announced the dollar thresholds that will apply under Regulation Z (Truth in Lending Act (TILA)) and Regulation M (Consumer Leasing Act or CLA) to determine exempt consumer credit and lease transactions in 2020. The annual adjustment is based on the annual percentage increase in the CPI-W. If the CPI-W average has not increased, the Board and the Bureau maintain the exemption threshold from the prior year. Transactions at or below the thresholds are subject to the protections of the regulations.
Based on the annual percentage increase in the CPI-W as of June 1, 2019, the protections of the TILA and the CLA will generally apply to consumer credit and lease transactions of $58,300 or less in 2020. Note, however, that private education loans and loans secured by real property (such as mortgages) are subject to the TILA regardless of the loan amount.