CFPB's Fall 2022 Regulatory Agenda: New Rules to Watch
On January 4, 2023, the CFPB’s Fall 2022 Regulatory Agenda was released by the White House’s Office of Management and Budget (as well as the larger release of the Unified Regulatory Agenda for all Federal agencies). The CFPB’s Spring 2022 Rulemaking Agenda (which I wrote about here) had very few rulemakings on it. This new Fall 2022 agenda has some updates to that previous agenda, but also some new and potentially significant rulemakings, including a proposed rule that would apparently require certain non-banks to register their standard form contracts with the CFPB (wow). The CFPB has not yet posted a blog post or press release about the agenda.
Taking a step back and looking at the big picture, it appears discrimination and equity remain a focus of the White House’s agenda. The White House’s announcement of the release of the Unified Regulatory Agenda notes that the Biden administration has taken steps to “advance equity,” and that it will, “continue to enact a whole-of-government approach to…build a more equitable economy that reduces barriers to opportunity, roots out discrimination, and delivers environmental justice to communities across the nation.” This priority is likely a driving force behind the CFPB’s Small Business Loan Data Collection proposed rule, which we’ve written about here, and is part of this current Fall agenda. The administration’s priority is likely also a force behind the CFPB’s supervision and enforcement focus on redlining in the mortgage industry, and the agency’s attempt to use UDAAP to reach discrimination outside of the fair lending laws, which we’ve written about here.
I will discuss the specific rulemakings on the agenda and provide some of my thoughts below.
1. Small Business Loan Data Collection Rulemaking
This rule would implement the Dodd-Frank Act Section 1071’s amendments to ECOA to require financial institutions to collect and report data on small business applications and lending, including the race, ethnicity, and sex of the principal owners of the business. The previous Spring 2022 agenda stated that a final rule was planned for March 2023. But this Fall 2022 agenda has moved that date up to January 2023.
For our clients making small business loans that will be subject to the rule, this will be an important final rule to review. There are many implications of this rule, including that the new HMDA-like dataset will be used by regulators and the public to support discrimination enforcement actions and lawsuits, including claims of redlining and pricing disparities. This means, among other things, small business lenders will have to review their marketing strategies and data before this rule is effective to reduce their risk of the collected data supporting a redlining claim.
2. CARD Act Rule
The CFPB issued in June 2022 an Advance Notice of Proposed Rulemaking (ANPR) to address the current rules under the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, which were originally issued by the Federal Reserve (the Fed), that impose limitations and provide certain safe harbors for penalty fees, including late fees, on credit card accounts. The CFPB is considering whether to amend the Fed’s rules. The agenda states that a proposed rule is expected in January 2023.
3. Interagency Rulemaking on Automated Valuation Models (AVMs)
This rule would implement Dodd-Frank Act section 1473(q), which amended the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) to require that AVMs meet four statutory quality control standards. The CFPB’s Small Business Regulatory Enforcement Fairness Act (SBREFA) outline also proposed a fifth quality control factor focused on fair lending. The Spring 2022 agenda stated that a proposed rule was planned for December 2022, but this Fall 2022 agenda pushes that date back to March 2023.
4. The PACE Ability to Repay Rule
This rule, which we’ve written about before here, would implement 2018’s Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) amendments to TILA that require the CFPB to prescribe specific ability-to-repay requirements for PACE financing. The agenda notes that an Advanced Notice of Proposed Rulemaking was issued back in 2019. The previous Spring 2022 agenda had stated that a proposed rule was expected in May 2023, but this Fall 2022 agenda moves that up to April 2023.
5. The Dodd-Frank Act Section 1033 Rulemaking to Require Consumer Access to Financial Records
This rule would implement the Dodd-Frank Act Section 1033’s requirement that the CFPB issue rules to require covered persons to provide consumers with access to their financial data. We discussed this rule on our firm’s June 24, 2021 webinar you can find here. The agenda notes that the CFPB issued a SBREFA outline for this rule in October 2022. The agenda states that a SBREFA report is expected in February 2023.
6. Overdraft Fees
The CFPB is “considering whether to propose amendments to Regulation Z” with respect to Regulation Z’s special rules that are used to determine whether overdraft fees are considered finance charges, which affects whether the overdraft service becomes credit under TILA and subject to its disclosure requirements. This is important because the CFPB could potentially subject all overdraft services to Regulation Z disclosures requirements. The entry in the agenda does not discuss changing the other rules that govern overdraft services.
This rulemaking may not come as a great shock after the CFPB published its Consumer Financial Protection Circular 2022-06, which stated that, “clearing an overdraft transaction is extending a loan that can create credit risk for the financial institution.” The Circular also lamented the overdraft fees that “can be as high as $36…regardless of the amount of credit risk, if any, that they take.” This Circular also discussed how the overdraft service had changed from “manual ad hoc decision-making by financial institution employees” when the Fed originally issued its special rules in Regulation Z in 1969, to a “system involving heavy reliance on automated programs to process transactions and to make overdraft decisions,” “higher overdraft fees,” and an expanded use of “debit cards.” This part of the Circular’s discussion (which ultimately warned of the UDAAP risks from imposing unanticipated overdraft fees) appears to describe the CFPB’s reasoning for a rulemaking revisiting Regulation Z’s overdraft special rules and subjecting them to TILA disclosure requirements.
It is also possible this rulemaking could become broader than merely revisiting the applicability of TILA, and could include certain UDAAP principles that have been raised by the CFPB and other regulators over the past few years. The rule could end up looking similar to the CFPB’s previous payday loan rule, or include the CFPB’s previous pronouncements regarding overdraft services. This is definitely a rulemaking for depository institutions that charge overdraft fees to watch.
7. NSF Fees
This is an interesting entry on the agenda, which potentially relates to the rulemaking on overdraft fees discussed above. The CFPB merely states that it is “considering new rules regarding NSF fees,” and the legal authority for such a rule is listed as “Not Yet Determined.” The CFPB’s entry describes NSF fees and how they relate to overdraft fees, and then states that, “until recently, NSF fees were a significant source of fee revenue from deposit accounts for depository institutions; lately some financial institutions have voluntarily stopped charging such fees.”
It is likely that, because there is no direct statutory mandate or authority for such a rulemaking, UDAAP will become the legal authority for this rulemaking. Perhaps the CFPB wants to use UDAAP to put the nail in the coffin for NSF fees, as it has been trying to do with overdraft fees. This rulemaking could also relate to the CFPB’s recent Request for Information on junk fees, which I wrote about here, in which the CFPB appeared to be targeting bank fees and mortgage fees. The agenda states that pre-rule activity is expected in November 2023, but the CFPB’s preamble to the Fall 2022 agenda states this pre-rule date is only a placeholder, which indicates that this date does not relate to any planned activity. Note that this rulemaking could potentially include a SBREFA process, depending on the CFPB’s anticipated scope for the rulemaking.
8. Fair Credit Reporting Act Rulemaking
This is another interesting entry on the agenda, because it simply says that the CFPB is “considering whether to amend Regulation V,” which is the rule that implements FCRA. The rule was largely inherited from the Federal Trade Commission, and the CFPB may be reviewing the rule generally to identify areas for improvements or updates, rather than focusing on one particular aspect. The agenda states that pre-rule activity is expected in November 2023, which date, as noted above, appears to be a placeholder. This could also potentially involve a SBREFA process. Also note that this rulemaking could impact furnishers of consumer report information, as well as the consumer reporting agencies. In addition, in light of the many new partnerships in the Fintech space that involve the sharing of consumer data, it will be important to keep an eye on this rulemaking to see how it may impact existing and future data sharing.
9. Non-Bank Registration of State and Local Enforcement Actions
The CFPB issued this proposed rule in December 2022, which would require non-bank companies to report to the CFPB any Federal, State, or local enforcement actions for publication in a public registry published by the CFPB. In addition, an executive of the company would have to attest annually to the company’s compliance with such enforcement actions. The CFPB issued this proposal under its supervisory authority and under the Dodd-Frank Act’s specific authority to prescribe rules “regarding registration requirements applicable to” non-banks and to “publicly disclose registration information to facilitate the ability of consumers to identify covered persons that are registered with the Bureau,” as well as to “ensure that such persons are entities and are able to perform their obligations to consumers.” 12 U.S.C. 5512, 5514.
This registry and the required attestation could potentially create significant liability to the CFPB for such companies and individuals if there is any disagreement regarding the company’s compliance with the order. In addition, there would likely be reputational risks from the CFPB’s public registry, because the public would otherwise have a far less chance of discovering any enforcement actions through other quieter agencies, and the public could potentially misunderstand the gravity of what could be relatively minor enforcement actions in light of the CFPB’s repeating of the information in a registry.
Note that I warned about the potential for such a rulemaking in my blog post on the Spring 2022 agenda (see here), in which I said, “I think there is a chance that Director Chopra will initiate a rulemaking to create a new requirement for certain non-depository institutions to register directly with the CFPB.” My partner Troy wrote about the proposal here, and noted that companies should definitely consider submitting a comment to this proposed rule. The comment period is 60 days after publication in the Federal Register, which has not happened yet. The agenda notes the proposal was issued in December 2022, but it does not provide an expected date for the final rule.
10. Non-Bank Registration of Terms and Conditions in Standard-Form Contracts
This is a very interesting entry. The CFPB is proposing to require certain non-bank entities, “to register with the Bureau and provide information about their use of certain terms and conditions in standard-form contracts. In particular, the Bureau is developing a proposal to collect information standard terms used in contracts that are not subject to negotiating or that are not prominently advertised in marketing.” The CFPB is apparently proposing this rule under the same authority it is relying on for its Enforcement Action Registry rulemaking described directly above. The agenda states that a proposed rule is expected in December 2022, but the CFPB has not issued this proposed rule yet.
The impetus for this proposal could have been consumer advocacy groups pressuring Director Chopra to look at arbitration clauses again, in spite of Congress disapproving of the CFPB’s 2017 arbitration rulemaking under the Congressional Review Act, which prevents the CFPB from issuing a rule in substantially the same form. In response to that pressure, Director Chopra is reported to have said that he is looking at conducting a contract clause review to look at clauses that are not negotiated or subject to competitive processes, and ways to promote fairness, transparency, and competition. The scope of this proposed rule, and what the CFPB actually plans to do with such contracts, isn’t yet clear, but any such requirement could potentially be a substantial compliance burden and legal issue for the industry.
This will certainly be a proposal to watch and comment on, considering the ubiquitous use of standard form contracts in the consumer financial services space. It is not clear from this agenda entry what the scope of the rulemaking will be, such as the types of institutions or contracts covered. But the proposal could certainly have a broad reach and a large burden.
11. Some Final Thoughts
The CFPB does not appear to have listed any long-term actions in its Fall 2022 agenda. But some of the rulemakings on the agenda, such as the Fair Credit Reporting Act and the NSF fee rulemakings, appear to be at very early stages. I think the biggest surprise is the proposal that would apparently require registration of non-bank standard form contracts. Depending on the scope and breadth of this rule, this could have a huge legal impact and compliance burden on the industry.
What is also interesting is what is not on the Fall 2022 agenda. The CFPB did not list a rulemaking to revisit the general Qualified Mortgage definition or the Seasoned QM rule, which is good news for the mortgage industry. In addition, the CFPB did not list a rulemaking that would appear to review or limit any closing costs imposed by the mortgage or title insurance industries, which was a concern after the CFPB’s Request for Information on junk fees criticized such fees.
That being said, some of these rulemakings could have significant implications for the consumer financial services industry, such as the Small Business Loan Data Collection rule. That rule could not only impose huge compliance burdens, but also significantly increase legal risk in the small business lending industry. And some of these rulemakings may push the envelope in terms of the CFPB’s statutory authority. It will be important to comment on these rulemakings.
It is also prudent for the industry to consider filing legal challenges to rulemakings. Such challenges could raise the 5th Circuit Court of Appeals opinion in Community Financial Services Association v. CFPB that the CFPB’s funding through the Fed and outside of appropriations violates the U.S. Constitution’s Appropriations Clause. In that case, the 5th Circuit invalidated the CFPB’s payday loan rule because it was paid for with unappropriated funds. The CFPB has asked the U.S. Supreme Court to hear the case this term. It will be important to keep an eye on that appeal, as well as to consider using the 5th Circuit opinion in the interim. And there are other potential legal bases for a challenge to CFPB rules, especially discretionary rules without statutory mandates, such as a lack of statutory authority or the Major Questions Doctrine, which is a judicial doctrine upheld by the U.S. Supreme Court’s decision in West Virginia v. EPA under which only Congress, and not administrative agencies, can decide questions of major economic and political significance.
If you have any questions or would like to discuss any of the issues discussed in this blog post, please email me at rich@garrishorn.com.
