CFPB

The CFPB’s Proposed No Action Letter and Product Sandbox Policy: It’s Playtime!

The Consumer Financial Protection Bureau (CFPB or Bureau) on December 13, 2018 published a proposal to revise its No-Action Letters Policy issued in 2016 (2016 Policy), and also propose a new “Product Sandbox” (Proposal).  As you may know, many federal regulatory agencies, including the CFPB, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, have a procedure to provide a no-action letter in response to a request from a person, in which the agency indicates it will not take a supervisory or enforcement action against the person based on a particular set of facts.  The Bureau said in the Proposal that the 2016 Policy’s application process and regulatory relief were insufficient, indicated by the fact that only one no-action letter has been issued under the policy.  The Bureau’s goal with the Proposal is to make the 2016 Policy more useful to the public.  

As I describe below, I believe the Bureau’s proposed changes to its no-action letter policy would ease the process of obtaining a no-action letter, and broaden the situations to which such a letter would be an option.  In addition, I believe the proposed “Product Sandbox” could be very useful to the industry, both existing companies and new FinTech entrants to the marketplace, in the creation of new products and services that do not fit squarely in the existing federal consumer financial protection laws.  The comment deadline is February 11, 2019. 

1.  No-Action Letter Proposal

A.  Streamlined Application Process

The Bureau’s Proposal would revise the 2016 Policy to streamline the application process and expand the regulatory relief available.  To that end, the Proposal would remove some of the required elements of an application and indicate the Bureau’s intention to grant or deny an application within 60 days of notifying the applicant that the application is complete.  The 2016 Policy provided no time frame for a response from the Bureau.

In addition, the Proposal would remove the general expectations under the 2016 Policy of a data-sharing commitment and a time limitation for the NAL.  Specifically, the 2016 Policy provides that NALs will specify the time period limitation of the NAL and places an emphasis on the sharing of data about the product in question with the Bureau, requiring discussion of this topic in the application and consideration of this issue by the Bureau.  But the Proposal states that the “default assumption” would be that NALs have no time limit.  The Proposal would also state that the data-sharing expectations would be eliminated, because it was “unduly burdensome” and inconsistent with the no-action letter policies of other federal agencies.

Further, the Proposal would remove the complex set of 10 factors that the Bureau evaluates under the 2016 Policy.  Instead, the Proposal would provide that the Bureau will more simply evaluate the “quality and persuasiveness of the application” with an emphasis on the consumer benefits, consumer risks and how the applicant intends to mitigate them, and the particular legal uncertainty cited in the application.

B.  Greater Assurance of Regulatory Relief

The Proposal would also revise the 2016 Policy to increase the assurance of regulatory relief provided by a NAL.  Under the 2016 Policy, NALs are issued by Bureau staff and only provide a statement that staff will not recommend an enforcement or supervisory action.  The Proposal would provide that NALs are issued by Bureau officials, rather than the Bureau’s staff.  The NAL would still only provide a statement that the Bureau in its discretion will not seek a supervisory or enforcement action, rather than provide a regulatory safe harbor.  But the provision of such a letter by Bureau officials rather than staff would arguably make NALs more binding on the Bureau and perhaps give them greater weight with other regulatory agencies. 

In addition, in an apparent effort to provide even greater assurances to recipients of NALs, the Proposal would also remove several disclaimers that are included in NALs under the 2016 Policy, which serve to limit the certainty and assurance of a NAL issued under that policy.  Specifically, these disclaimers under the 2016 Policy are that: (1) the letter does not constitute “a determination by the Bureau or its staff,” an interpretation, or a waiver or safe harbor for any applicable law; (2) the letter is not an “official expression of the Bureau’s views;” (3) any explanatory discussion in the letter should not be interpreted as an interpretation, waiver, or safe harbor, and is not binding on the Bureau; (4) the staff is not necessarily in agreement with any analysis, interpretation of data, or any other matter in the request; and (5) the NAL is, “not intended to be honored or deferred to in any way by any court or any other government agency or person.”

Finally, the Bureau also stated in the Proposal its intention to coordinate with other federal and state regulatory agencies on the provision of “no-action” relief.  The Proposal would require an application to the Bureau to state whether coordination with other regulators is requested and to identify those regulators.  The Bureau also stated it is interested into entering into agreements with state regulators that provide “no-action” relief, which would provide another means of applying for and obtaining an NAL from the Bureau. 

C.  Broader Scope

The Proposal also appears to be intended to expand the reach of the 2016 Policy to a greater swath of the industry and regulatory uncertainties.  The 2016 Policy contains the statement that, “No-Action Letters are not intended for either well-established products or purely hypothetical products that are not close to being able to be offered.”  In addition, the 2016 Policy requires applications to show how the new product would be “likely to provide substantial benefit to consumers differently from the present marketplace.”  These statements indicate that the 2016 Policy is very much focused on new products.  But the Proposal would eliminate these statements from the policy, which appears intended to allow NALs with respect to well-established products that are presently in the marketplace, and even hypothetical products.

Further, the Proposal’s preamble notes that the Bureau will not disfavor NALs based on UDAAP, whereas the 2016 Policy contained a warning against seeking a NAL for UDAAP issues.  Specifically, the 2016 Policy states that, “UDAAP-focused NALs will be particularly uncommon,” because of the greater level of analysis required under UDAAP and resource issues.  The Proposal would revise the policy to specify that UDAAP is one of the laws that a NAL would cover. 

In addition, the Proposal would eliminate the 2016 Policy’s requirement that an application for a NAL show a “substantial regulatory uncertainty hindering the development of the product,” and how the application of the particular laws is “substantially uncertain.”  Instead, the Proposal would only require that an applicant identify the “potential uncertainty, ambiguity, or barrier” the NAL would address.  This change would extend the availability of NALs to more general compliance uncertainties.

Finally, the Proposal would also allow for applications from trade associations, service providers, and other third parties, in addition to the actual company offering the product or service in question.  The Proposal expressly states that a trade association can apply on behalf of its members. 

2.  Product Sandbox Proposal

The Bureau’s Proposal would add an entirely new program titled a “Product Sandbox,” which is designed to give even greater regulatory relief than the proposed NAL policy.  The Product Sandbox would, in addition to the “no-action” relief provided by a NAL, provide a time-limited compliance safe harbor or exemption from certain statutory and regulatory provisions.  This would provide greater legal protection than a NAL’s discretionary protection against Bureau supervisory or enforcement actions, because it would make the recipient immune from legal actions by other regulatory agencies and private litigants.  This proposal directly addresses one of the main criticisms of the 2016 Policy, which is that it does not provide sufficient legal protection against enforcement actions or lawsuits by entities and individuals other than the Bureau.

A.  Regulatory Relief

The Bureau’s Product Sandbox would make available three different forms of regulatory relief that could be applied to the product or service accepted into the sandbox:  

1.  Safe Harbor.  A statement of Bureau approvals under three possible statutes: (i) 15 U.S.C. § 1640(f) (TILA); (ii) 15 U.S.C. § 1691e(e) (ECOA); or (iii) 15 U.S.C. § 1693m(d) (EFTA).  This approval would provide a “safe harbor” of compliance under the applicable statutes and make the recipient “immune from enforcement actions by any Federal or State authorities, as well as from lawsuits brought by private parties.”  Note that the safe harbor would only be available under these statutes.

2.  Exemption.  A Bureau order providing an exemption from certain statutory provisions that provide for such authority, and their implementing regulations, or based on the Bureau’s general regulatory authority.  The Proposal provides as examples of the statutory provisions: (i) 15 U.S.C. § 1691c-2(g)(2) (ECOA); (ii) 15 U.S.C. § 1639(p)(2) (HOEPA); and (iii) 12 U.S.C. § 1831t(d) (FDIA).  The Proposal provides as an example of the general regulatory authority the Bureau’s authority under 15 U.S.C. § 5512(b)(1), under which the Bureau can “prescribe rules and issue orders and guidance as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” 

Like the approval described above, this relief would also make the recipient “immune from enforcement actions by any Federal or State authorities, as well as from lawsuits brought by private parties,” with respect to the applicable relevant statutory or regulatory provisions. 

3.  No Action Relief.  No action relief is essentially the same as that provided by a NAL issued under the proposed policy.  Like a NAL, this relief would not be time-limited, as would the safe harbor and exemption described above.

In addition, the Proposal indicates the Bureau’s intention to coordinate with other regulatory agencies, including entering into agreements with state sandboxes, which would provide for an alternative means of admission into the Bureau’s sandbox.  

B.  The “Catch” – Time Limitation, Data-Sharing Requirement, and Compensation

The Product Sandbox would have the important advantage of providing greater legal protection, but the protection would be time-limited.  This time period would generally be two years.  The Proposal states that the Bureau “expects that two years would be appropriate in most cases.”  But the Proposal would provide for a process to obtain extensions of this initial time-period.  The Proposal states that the Bureau intends to grant extensions, “where there is evidence of consumer benefit and an absence of consumer harm.” 

In addition, the Product Sandbox would require the sharing of data with the Bureau, unlike the NAL process.  An application must state a description of data it will share with the Bureau, which should be about the impact of the product or service on consumers, along with a proposed schedule for sharing this data with the Bureau.  Further, the Product Sandbox would require participants to report the effects of the product or service in question on “complaint patterns, default rates, or similar metrics” to enable the Bureau to determine if it is causing “material, tangible harm to consumers.” 

Finally, and significantly, the approval into the sandbox would require a commitment by the recipient to compensate consumers for, “material, quantifiable, economic harm” caused by the recipient’s product or service offered under the Product Sandbox.  The Proposal would require an application to indicate the “amount of resources available to provide restitution for material, quantifiable, economic harm to consumers.”

C.  Application Process

The Bureau’s Proposal, similar to the NAL policy, would allow for applications from the companies that offer the product or service, as well as from trade associations, service providers, and other third parties.  The Proposal expressly states that a trade association can apply on behalf of its members. 

The application requirements would be more extensive than for the proposed NAL, because the applicant would need to address the data-sharing requirement, the time limitation, and the type of relief sought.  In addition, the Bureau’s Proposal indicates an intent to coordinate with state regulators regarding the Product Sandbox and thus, the application must indicate if the applicant requests coordination with other regulators and identification of those regulators. 

The Proposal states that the Bureau intends to grant or deny an application within 60 days of notifying the applicant that the Bureau has deemed the application to be complete.  The Bureau would, similar to the NAL process, evaluate an application based on its “quality and persuasiveness,” with an emphasis on the consumer benefits, consumer risks and how the applicant intends to mitigate and compensate for them, and the particular laws and uncertainty cited in the application.

3.  Conclusion and Considerations

A.  NAL Proposal

The Proposal would greatly enhance the benefits of a NAL and expand the applicability of the policy.  It appears the Proposal would allow companies with existing products that face general compliance uncertainties to obtain NALs, unlike the current policy, which only applies to new products and “substantial” uncertainties.  There are many areas of federal consumer finance regulation that lack clarity and this NAL process could be very useful to reduce regulatory uncertainty.  The Proposal would also enhance the regulatory relief of a NAL, in part by providing that NALs would be issued by Bureau officials, rather than by staff as under the current policy.  

B.  Product Sandbox

The Proposal’s Product Sandbox could prove to be even more useful to companies, both existing companies and new FinTech entrants to the marketplace, that are developing new products and services, because of the greater legal protection afforded by the program.  Although it would have a limited time duration and require data-sharing with the Bureau, the benefits of being able to test a product in the marketplace with essentially no legal risk under certain consumer financial protection laws could greatly benefit a company in many ways, for example, in finding customers or business partners. 

C.  Issues to Consider

There are some issues to consider regarding these proposed policies and whether they may be beneficial to your organization.  For example, the extent to which a company’s participation and information provided to the Bureau may be made public.  This issue is discussed in the Proposal with respect to both the NAL and Product Sandbox policies.  Applicants can request confidential treatment of certain information, but companies should consider whether and how much information would become public before deciding to participate.  A related issue is the extent to which participation in these programs would enhance or diminish their competitive advantage in the marketplace.  This may depend on how much information may become public. 

Issues specifically with respect to the Product Sandbox include whether the cost of the resources needed to complete and submit an application, as well as to set-up and maintain the required data-sharing with the Bureau, would outweigh the benefits of the program.  In addition, the required agreement to compensate consumers in the event of harm could be problematic. 

Finally, without coordination with state or other federal regulatory agencies, the regulatory relief under the Bureau’s Proposal would be limited to federal consumer finance laws.  For this reason, these two programs may not be a panacea for all compliance concerns.  There are other FinTech programs that may be beneficial in filling in some of the gaps or provide sufficient protection without participation in the Bureau’s proposed programs, such as the Office of the Comptroller of the Currency’s new FinTech charter, which makes national bank charters available to FinTech companies.

As noted above, the comment deadline for the Bureau’s Proposal is February 11, 2019.You can find these proposed policies at: https://www.consumerfinance.gov/about-us/innovation/.Please let us know if you would like assistance with submitting a comment letter, or discuss submitting an application under these programs.

CFPB Issues ATR/QM and Mortgage Servicing Rule Dodd-Frank Assessments

Today the CFPB issued its assessments of the Ability to Repay and Qualified Mortgage (ATR/QM) Rule and the Mortgage Servicing Rule (these are also sometimes referred to as the “lookbacks”). The assessments are required under section 1022(d) of the Dodd-Frank Act, which mandates that the CFPB publish an assessment of its significant rules within five years of the effective date of the rule. These assessments are important because they contain the Bureau’s analysis of significant issues under the rules, such as the temporary GSE QM “patch” under the ATR/QM rule, which will sunset on the earlier of the end of the GSEs’ conservatorship or receivership or January 10, 2021.

Stay tuned for a post on our analysis of these assessments. You can find these assessments at: https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-publishes-assessments-ability-repay-and-mortgage-servicing-rules/.

Please contact us if you would like to discuss these assessments, the ATR/QM rule, or the Mortgage Servicing rule.

CFPB (not BCFP): Newly Confirmed and Appointed Director Kraninger Decides to Stop Mulvaney’s Name Change

Director Kraninger has reportedly announced to staff in an email this week that as of December 17, 2018, she has stopped the change to the CFPB’s name and acronym that former Acting Director Mick Mulvaney had started in early 2018.  This was one of the immediate decisions facing Director Kraninger, and she made it quickly, after only having been confirmed on December 6. 

As you may recall, soon after becoming Acting Director, Mulvaney announced that the CFPB would cease using the name “Consumer Financial Protection Bureau” and the acronym “CFPB,” and instead only the name “Bureau of Consumer Financial Protection” and the acronym “BCFP” (though he took to calling it the “Bureau”).  Mulvaney cited as the reason for the name change that the Dodd-Frank Act refers to the Bureau as the “Bureau of Consumer Financial Protection,” and reportedly even said that the “Consumer Financial Protection Bureau” does not exist. 

However, I believe his stated legal basis for the name change is questionable, as the Dodd-Frank Act also refers to the Bureau as the “Consumer Financial Protection Bureau.”  For example, section 336 of the Dodd-Frank Act (codified in 12 U.S.C. § 1812(a)(1)(B)) gives the “Director of the Consumer Financial Protection Bureau” a seat on the Board of the Federal Deposit Insurance Corporation (FDIC).  In addition, section 1100G of the Dodd-Frank Act (codified at 5 U.S.C. § 609(d)) places obligations on the “Consumer Financial Protection Bureau of the Federal Reserve System” to conduct small business review panels for proposed rulemakings under the Small Business Regulatory Enforcement Fairness Act of 1996.  Mulvaney did not resign his seat on the FDIC Board, or state that the CFPB is no longer obligated to conduct small business review panels because the “Consumer Financial Protection Bureau” does not exist.  For these reasons, the basis for the name change always seemed suspect to me.

In addition, although Mulvaney stated at the time of the name change that it would not cost anything, it was recently reported that the name change could cost the industry $300 million, and cost the Bureau between $9 million and $19 million.  These costs are for the industry and the Bureau to revise required disclosures, websites, and materials.  For example, the Closing Disclosure under the TRID rule refers to the “Consumer Financial Protection Bureau,” which would have needed to be changed, as well as disclosures under other rules.

Director Kraninger reportedly called this a “near-term decision” right after her confirmation, and this appears to have been the case.  She noted in her announcement to staff regarding her decision that the CFPB will continue to use the legal name “Bureau of Consumer Financial Protection” and the official seal in legal filings and some other materials, but in public facing documents the agency will use the name “Consumer Financial Protection Bureau” and the acronym “CFPB.”  I believe this decision is the right one.  As you may have noticed, the CFPB has always used the “Bureau of Consumer Financial Protection” in its Federal Register filings and some other documents, and although this decision may cause additional legal filings to use this name, for the public this approach will not be all that different from the agency’s past practice prior to the name change.

So, say goodbye to BCFP, and hello again to CFPB. 

 

The CFPB’s Fall 2018 Rulemaking Agenda – A Busy Schedule for the Next Year

The Bureau of Consumer Financial Protection (the “Bureau” or “CFPB”) recently announced its Fall 2018 Rulemaking Agenda (“Fall 2018 Agenda” or “Agenda”) in a blog post on its website on October 17, 2018.  The Agenda indicates several new and significant rulemakings.  In addition, the Bureau announced that it will continue work on some previously announced rulemakings, including rules that reconsider rules issued by the Bureau’s previous leadership.  These rulemakings include both discretionary rules, as well as rules that implement new regulatory reform legislation.  It appears that the Bureau’s current interim leadership is looking at an active rulemaking schedule for 2019, despite there being an outstanding nomination for the permanent Director position. 

In this post, I walk you through the Agenda, briefly describe some of the background of each initiative, and provide you with some of my thoughts.  

I.  Implementing S.2155 (the Economic Growth, Regulatory Relief, and Consumer Protection Act)

A.  The Bureau’s Plan to Implement S.2155

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act” or “S.2155”) was signed into law on May 24, 2018.  The Act contained amendments and new provisions for many of the statutes that the Bureau governs.  The intent of the Act was to provide regulatory relief for the industry. Some of the amendments require or will benefit from regulatory amendments by the Bureau.  The Bureau has indicated in its agenda that it will work on rulemakings to implement several provisions of the recently enacted S.2155.  But it also appears that the Bureau may not issue new rulemakings to implement some of the Act’s amendments. 

The Bureau noted in its blog post announcing the Agenda that it has already implemented two of the Act’s amendments.  First, in September 2018, the CFPB published a rule modifying the model forms under the Fair Credit Reporting Act (“FCRA”) to implement the new consumer notice of rights added by the Act in new FCRA section 605A(i)(5), which reflects the new security freeze requirements and timeframe for initial fraud alerts.  Second, also in September 2018, the CFPB published a procedural and interpretive rule to implement the Act’s exemption for certain depository institutions from certain new data points that were added to the Home Mortgage Disclosure Act (“HMDA”) by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). I wrote a post on this statutory amendment to HMDA here.

The Bureau added two new rulemakings to implement the Act: (1) a rule to exempt certain creditors with assets of $10 billion or less from the escrow requirements for higher-priced loans, which exemption was added to the Truth in Lending Act  (“TILA”) under section 108 of the Act; and (2) a rule to implement the statutory mandate for the Bureau to issue rules implementing TILA’s Ability to Repay requirements with respect to Property Assessed Clean Energy loans (“PACE” loans) under section 307 of the Act.  The Bureau scheduled prerule activities for the escrow rulemaking for June 2019 and an Advance Notice of Proposed Rulemaking (“ANPR”) or Request for Information (“RFI”) for the PACE loan rulemaking for February 2019.

For the other provisions of S.2155, the Bureau stated in its blog post that some provisions of the Act do not require a rule to take effect, and provided as examples, sections 101, 104, 106, 107, 109(a), 301, and 601 of the Act.  But the Bureau also stated that it is considering whether notice and comment rulemaking may be helpful to implement or clarify these provisions of the Act.

B.  What about the new Portfolio QM?

Of note is that section 101 of the Act added the new “portfolio Qualified Mortgage” for depository institutions under $10 billion in assets that was added to TILA’s Ability to Repay requirements.  This new Qualified Mortgage has a number of criteria: (1) the loan must be retained in portfolio, with exceptions for certain transfers; (2) not have interest only or negative amortization features; (3) comply with the standard Qualified Mortgage limits on prepayment penalties; (4) comply with the 3% limit on points and fees; and significantly, (5) the institution must “consider[] and document[] the debt, income, and financial resources of the consumer.”  The Act expressly provides that this last “consideration and documentation” requirement does not mean compliance with Appendix Q and must be “construed to permit multiple methods of documentation.”

Note that this last criterion does not state that the income needs to be “verified,” as does the standard Qualified Mortgage definition, or the general ability to repay requirement.  But also note that this new standard is vague with respect to the definition of “consider and document” and the “multiple methods of documentation” that must be construed to be permitted.  In addition, the “verification” requirements under the CFPB’s rules implementing TILA’s ability to repay requirements were not changed by this legislation, and were, in part, based off of a statutory requirement to “verify” income, which could indicate that Congress intended this new statutory requirement to be something different from the CFPB’s regulatory verification requirements. 

In light of the uncertainty about the statutory “consideration and documentation” standard for the new Portfolio QM, a rulemaking interpreting this new portfolio Qualified Mortgage standard could be very helpful to the industry.

The CFPB also noted in its blog post that it was working on non-rulemaking activities to implement certain provisions of the Act.  This includes an initiative to implement section 109 of the Act, which states that the Bureau should provide “clearer, authoritative guidance” on certain issues relating to the TILA-RESPA Integrated Disclosure (“TRID”) rule, including assumptions and construction-to-permanent lending.

II.  HMDA Changes on the Horizon

A.  Reconsideration of HMDA Scope and Data Points

The Bureau stated that it will continue working on a rulemaking to reconsider the Bureau’s 2015 rule implementing the Dodd-Frank Act’s changes to HMDA (the 2015 HMDA rule).  The Bureau had previously announced this rulemaking in December 2017 in a statement on its website.  With the release of its Fall 2018 Agenda, the CFPB re-confirmed that the rulemaking would “potentially revisit[] such issues as the institutional and transactional coverage tests and the rule's discretionary data points.”  In addition, the CFPB stated that it would incorporate its previous procedural and interpretive rule to implement S.2155, noted above, in this rulemaking.   

The CFPB also stated that it will follow up on its August 2017 rule that temporarily increased the open-end threshold to 500 or more open-end lines of credit for two years (so that institutions below that threshold would not need to begin collecting data under the new rule before January 1, 2020. The CFPB’s Agenda states that it will consider these issues in conjunction with each other and has a proposed rule scheduled for March 2019.  

B.  Modification of Public Data for Privacy Reasons

In addition, the Bureau added a new rulemaking to its agenda to address whether any HMDA data points should be modified for public release.  The Dodd-Frank Act, in addition to amending HMDA to require a greatly expanded set of data about the applicant, property, and loan transaction, directed the CFPB to address by rulemaking the modification of publicly released HMDA data for privacy reasons.  Specifically, the Dodd-Frank Act stated that the CFPB “shall develop regulations that… modify or require modification of itemized information…that is or will be available to the public” for privacy reasons.

In its 2015 HMDA rule, the CFPB did not modify or require the modification of data that was publicly released.  Instead, the CFPB only provided that it would use a “balancing test” to address the issue of modifying publicly released data for privacy reasons.  Specifically, the Bureau confirmed in its 2015 HMDA rule that it would use a “balancing test to determine whether and how HMDA data should be modified prior to its disclosure to the public in order to protect applicant and borrower privacy while also fulfilling the disclosure purposes of the statute.”  The Bureau stated in the preamble to the 2015 HMDA rule that it would provide, “a process for the public to provide input on the application of the balancing test to determine the HMDA data to be publicly disclosed.”

In 2017, the CFPB published for comment a proposed policy on how it would apply this balancing test.  The Bureau has not yet finalized the proposed policy, but the Bureau stated in its blog post for the Fall 2018 agenda that, in response to public comments to the proposed policy urging a more formal process, it will be conducting a new rulemaking to implement the Dodd-Frank Act’s statutory mandate to develop a rule requiring the modification of public data for privacy reasons.  The Agenda has scheduled the issuance of the proposed rule for May 2019.  In addition, the Bureau stated in its Agenda that it plans to finalize in late 2018 the policy guidance with respect to the HMDA data collected in 2018.

III.  Dodd-Frank Act Section 1071 - Small, Minority, and Women Owned Business Data

The Bureau’s Fall 2018 Agenda has moved its rulemaking to implement the Dodd-Frank Act section 1071’s new business loan data collection requirement to an unscheduled “long-term action.”  Section 1071 of the Dodd-Frank Act added section 1691c–2 to the Equal Credit Opportunity Act (“ECOA”), which required the CFPB to issue rules creating a data collection and reporting requirement for small, women-owned, and minority-owned business loans, similar to HMDA. 

The Bureau appears to have been working on this rulemaking up until recently.  The CFPB issued an RFI for this rule in May 2017, for which the comment period closed in September 2017.  And the Bureau’s Spring 2018 rulemaking agenda scheduled prerule activities for the rule for March 2019.  However, the Bureau stated in its blog post that it was moving the rule to a long-term action, “in light of the need to focus additional resources on various HMDA initiatives discussed elsewhere in this agenda.” 

It is important to note that, although the Bureau has delayed work on this business loan data rule, the Bureau has publicly stated that it is examining its supervised institutions’ business lending for fair lending under its authority to enforce compliance with ECOA.  The Bureau’s latest Supervisory Highlights report, which it issued on September 6, 2018 and later published in the Federal Register, described how ECOA applies to business-purpose credit and acknowledges that the CFPB began conducting examinations of institutions’ small business lending in 2016 and 2017 for compliance with ECOA.  The CFPB stated that these examinations focused on the risks of an ECOA violation in underwriting, pricing, and redlining.  The CFPB stated that it, “anticipates an ongoing dialogue with supervised institutions and other stakeholders as [it] moves forward with supervision work in small business lending.”  For this reason, although the Dodd-Frank Act section 1071 rulemaking has been delayed, the industry should expect the Bureau to continue addressing fair lending issues in business lending through examinations.

IV. Payday Loan Rule Reconsideration 

The CFPB also stated that it would continue work on its previously announced rulemaking to reconsider the previous Bureau leadership’s 2017 Payday Loan rule, which it had issued in November 2017.  The CFPB stated in its blog post that it will, “address reconsideration of the rule on the merits as well as address changes to its compliance date.”  The Bureau’s 2017 Payday Loan rule requires compliance beginning in August 2019, which makes the timing of this rulemaking of critical importance to the industry, as it could affect whether lenders of payday loans and certain longer term loans subject to the rule need to implement the rule by August.   

The CFPB’s Agenda has scheduled the proposed rule for January 2019.  This should leave enough time to finalize a delay of the rule’s compliance date before August 2019.  But considering the January proposal will need at least a 30-day comment period, and that the Bureau will need time to analyze comments and draft the final rule, the final rule delaying the compliance date could be issued too close for comfort to the August compliance date.  This close timing and uncertainty about what the final rule will look like (e.g., how far the compliance date will be delayed, whether there will be an optional compliance period) could affect industry’s implementation plans.  

Adding to the confusion regarding the 2017 Payday Loan rule’s compliance date, this month, in a lawsuit by two trade associations challenging the rule, the U.S. District Court for the Western District of Texas issued a stay of the rule’s August 2019 compliance date, pending further order of the court.  It is uncertain when this stay will be lifted, or whether the court will give enough notice in such an order to allow industry time to implement the provisions.  In light of these developments, it is uncertain how and when the Payday Loan rule will become mandatory for the industry, and the industry should consider these issues in developing implementation plans.

In addition, it is also uncertain which aspects of the Payday Loan rule the Bureau will propose to amend in its forthcoming proposed rule.  In a statement issued on October 26, 2018, after issuance of its Fall 2018 agenda, the Bureau stated that it is “currently planning” to reconsider “the ability-to-repay provisions and not the payments provisions.”  The Bureau stated that this is because, “the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions.”  But the Bureau also stated that it “will make final decisions regarding the scope of the proposal closer to the issuance of the proposed rules.”  This statement leaves uncertain whether the Bureau’s delay of the compliance date will also only affect the ability-to-repay provisions, or whether it will also affect the payment provisions it currently plans to leave untouched.

V.  Other Significant New and Continued Rulemakings

A.  Debt Collection Rulemaking

The Bureau stated that it is continuing work on a rulemaking under the Fair Debt Collection Practices Act (“FDCPA”).  The Bureau had previously issued an ANPR for an FDCPA rule in 2013.  In addition, the Bureau convened a small business review panel to obtain input from small businesses on a potential rulemaking under FDCPA in August 2016, as required under the Small Business Regulatory Enforcement Fairness Act.  The Bureau stated that this rule will address communication and disclosure practices under the FDCPA.  The CFPB’s Agenda has scheduled a proposed rule for March 2019. 

It is interesting to note that when the Bureau had previously convened the small business review panel for its FDCPA rulemaking, it stated that its rulemaking only addressed third-party debt collectors, and that the Bureau would “address consumer protection issues involving first-party debt collectors and creditors on a separate track.”  Although the Bureau did not expressly address the issue in its blog post, it appears from the Bureau’s Agenda that this rulemaking is a continuation of work on the third-party debt collection rulemaking, and will not be the beginning of a “separate track” on first-party debt collectors.  The Bureau’s continuation of work on this rulemaking is consistent with the current Acting Director’s public statements regarding his focus on the debt collection industry.

B.  Abusive Prong under UDAAP

In addition, the CFPB announced two significant new rulemaking initiatives.  The first of these is a consideration of whether the Bureau should issue a rule to define the “abusive” prong of the Dodd-Frank Act’s prohibition against unfair, deceptive, or abusive acts or practices (“UDAAP”). Specifically, the Bureau stated in its blog post that it is considering if such a rule would be “helpful to further clarify the meaning of ‘abusiveness’.”

The industry should not expect a rulemaking on this issue any time soon.  The “abusiveness” rule is on the Bureau’s agenda as a “long-term action,” meaning there is no specific schedule for any actions on this rulemaking. 

C.  Disparate Impact under ECOA

In addition, the Bureau stated in its blog post that it is considering whether to reexamine the requirements of the disparate impact doctrine under ECOA, as it had announced it would in May 2018.  The Bureau stated this was because of two reasons: (1) “recent Supreme Court case law;” and (2) “the Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations.”  It appears that the reference to recent Supreme Court case law is to the recent U.S. Supreme Court case Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which opined on the disparate impact doctrine under the Fair Housing Act, a statute that prohibits discrimination in housing, including residential mortgage lending.  In Inclusive Communities, the Supreme Court incorporated a requirement into the Fair Housing Act that a party must show a “robust causality” to prove discrimination using a disparate impact theory under the Fair Housing Act.  The CFPB has authority to enforce ECOA, which also prohibits discrimination in lending, but authority over the Fair Housing Act was not transferred to the CFPB under the Dodd-Frank Act. 

The reference to the Congressional disapproval of the Bureau’s guidance on indirect auto-lending is referring to the 2018 disapproval by Congress under the Congressional Review Act (“CRA”) of the CFPB’s bulletin regarding fair lending in indirect auto-lending.  In response to a request from Republicans in Congress, the Government Accountability Office issued a decision in December 2017 that the CFPB’s bulletin regarding fair lending in indirect auto-lending, which was considered non-binding guidance, was covered by the CRA and must be submitted for review by Congress, as do rules that go through the notice and comment process under the Administrative Procedures Act.  As a result of this decision, in May 2018, the Congress used its authority under the CRA to invalidate the Bureau’s auto-lending bulletin.  It is important to note that this action under the CRA also prohibits the CFPB from reissuing the same rule or issuing a new rule that is “substantially the same,” unless the rule is “specifically authorized” by a new law.   

In light of the above, the industry can expect that any rule by the current Bureau leadership addressing the disparate impact doctrine under ECOA would differ substantially from the previous Bureau leadership’s view of disparate impact espoused in the bulletin.  If undertaken by the Bureau, the industry could see a rule that places limitations on the use of disparate impact, similar to the Inclusive Communities case.

Although this rulemaking would be a significant development for the industry, the industry should not expect any formal action on this rulemaking in the near future.  Neither the Bureau’s agenda, nor its previous May 2019 statement, provide a timeframe for such a rulemaking.

D. Potential Process Changes

The Bureau also noted that it is considering whether to make certain process changes related to its rulemaking function, in response to comments received to the Bureau’s Call for Evidence. This was a series of RFIs seeking public comment on the Bureau’s activities. One of these RFIs sought public comment on the Bureau’s rulemaking process, and others related to the Bureau’s inherited and new rules. I have written about this Call for Evidence here, and the Bureau’s website for the Call for Evidence is here.

VI.  TRID’s Five-Year Look-Back 

The Bureau stated in its blog post that it “expects to begin work in 2019 on its assessment of the TILA-RESPA Integrated Disclosure Rule.”  This “assessment” of the TRID rule is required under section 1022(d) of the Dodd-Frank Act.  Section 1022(d) requires that the Bureau “conduct an assessment of each significant rule or order adopted by the Bureau,” which must address, “the effectiveness of the rule or order in meeting the purposes and objectives of this title and the specific goals stated by the Bureau.”  The Dodd-Frank Act requires a report on this assessment to be published not later than five years after the effective date of the rule. For the TRID rule, this deadline is October 3, 2020.

The CFPB is required to seek public comment on recommendations for modifying, expanding, or eliminating the newly adopted the rule before issuing the report. The industry can expect the Bureau to issue an RFI seeking such comments on the TRID rule in 2019.  This will likely signal that the Bureau has started working on this assessment. In expectation of this RFI and in light of the substantial impacts and breadth of the TRID rule, the legal issues concerning compliance with the rule, and the various forms and large quantity of industry data that may be helpful to the Bureau’s assessment, it would be prudent for the industry to begin thinking about how it might respond to this RFI. 

VII.  Conclusion

The Bureau’s current interim leadership has planned an active rulemaking agenda.  The Bureau’s Fall 2018 Agenda has scheduled rulemaking activity for almost every month in the next half year. There are rulemaking activities scheduled for January 2019 (Payday Loan reconsideration proposed rule), February 2019 (ANPR or RFI for PACE loans), March 2019 (HMDA reconsideration and FDCPA proposed rules), and May 2019 (HMDA public data/privacy proposed rule), and June 2019 (prerule activities for the exemption from higher-priced loan escrow requirements).  In addition, the Bureau plans to issue a finalized policy on the balancing test for the modification of public data under HMDA for privacy purposes in late 2018, and is considering whether other rulemakings would be beneficial to implement S.2155. 

On top of these rulemaking activities, the Bureau has indicated that it will begin its Dodd-Frank Act assessment of the TRID rule in 2019.  This will most likely involve the issuance of an RFI in 2019 to seek public comment as required by the Dodd-Frank Act.  The Bureau will also engage in long-term rulemaking initiatives, including a rule to define the abusiveness prong of the Bureau’s UDAAP authority and a rule addressing use of the disparate impact theory under ECOA.  And while the Bureau moved its rulemaking under Dodd-Frank Act section 1071 to long-term status as well, this does not indicate it is ceasing work on this rule.

Given this busy rulemaking schedule, it is apparent that the Bureau’s current interim leadership is moving ahead on its policy objectives.  The industry should be prepared to respond to the Bureau’s proposals and other issuances in 2019.  But considering there is an outstanding nomination for the permanent Director position, the industry should also be prepared for possible changes in the Bureau’s rulemaking agenda should a new permanent Director be confirmed in 2019. And although it is a remote possibility considering it will be a divided Congress, there is the potential for legislative changes to the agency or the consumer statutes under the new Congress.

The Bureau’s blog post is available at https://www.consumerfinance.gov/about-us/blog/fall-2018-rulemaking-agenda/.  It will be published in the Federal Register on Nov. 16, 2018. Please let us know if you would like to discuss any of the issues in this post.