Alston & Bird Consumer Finance Blog

Consumer Financial Protection Bureau (CFPB)

“RESPA Section 8 – the CFPB and President Should Act Now to Restore the Rule of Law”

By

The Heritage Foundation recently published “RESPA Section 8 – the CFPB and President Should Act Now to Restore the Rule of Law” by Alston & Bird’s Brian Johnson.  While no substitute for reading the full article, below is a brief summary and key takeaways of the article, as discussed on the Heritage Foundation’s website:

 Summary

For decades, companies providing real estate settlement services relied on well-established rules and guidance from the U.S. Department of Housing and Urban Development to establish business arrangements in accordance with the Real Estate Settlement Procedures Act (RESPA). But when Congress created the Consumer Financial Protection Bureau (CFPB) and made it responsible for RESPA, the new agency used enforcement actions rather than rules to announce new RESPA legal standards and then hold companies retroactively liable for violating them. This was just one manifestation of the “regulation by enforcement” doctrine espoused by the CFPB’s first Director, Richard Cordray.

In its 2016 PHH Corp. v. CFPB decision, the DC Circuit Court of Appeals thoroughly repudiated the CFPB’s approach, finding that the agency flouted RESPA and violated due process. However, nearly four years later, much work remains to be done in order to repair the damage inflicted by the CFPB. The CFPB Director and the President can each take concrete actions now to restore the rule of law at the CFPB.

Key Takeaways
  • The CFPB’s aggressive departure from settled law and long-standing agency guidance in RESPA enforcement actions violated due process and upended the rule of law
  • The DC Circuit Court of Appeals repudiated the CFPB misinterpretation of RESPA, but more must be done to restore the rule of law at the CFPB
  • The CFPB Director and the President can take concrete steps to repair the damage done, such as issuing interpretative rules to clarify the legitimate meaning of RESPA Section 8 and terminating guidance and supervisory or enforcement actions premised upon its prior misinterpretation of law

 

 

CFPB Issues CARES Act Consumer Reporting FAQs

By

A&B ABstract

On June 16th, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued a Compliance Aid titled “Consumer Reporting FAQs Related to the CARES Act and COVID-19 Pandemic.” This Compliance Aid clarifies the Bureau’s April 1, 2020 Statement that providing furnishers flexibility in handling disputes during the pandemic is not unlimited, putting consumer reporting agencies and furnishers on notice that the Bureau is enforcing the Fair Credit Reporting Act (“FCRA”), as amended by the CARES Act, and its implementing Regulation V.  The Compliance Aid also addresses questions on reporting CARES Act accommodations.

CFPB Focusing on Credit Reporting Accuracy and Dispute Handling

In its April 1, 2020 statement, the Bureau indicated that while furnishers are expected to comply with the CARES Act, the Bureau “does not intend to cite in examinations or take enforcement actions against those who furnish information to [CRAs] that accurately reflects the payment relief measures they are employing” and will not take enforcement or supervisory actions against furnishers and CRAs for failing to timely investigate consumer disputes. On June 16th the Bureau clarified that it is enforcing FCRA and that while it previously provided some flexibility the April 1st Statement “did not state that the Bureau would give furnishers or CRAs an unlimited time beyond the statutory deadlines to investigate disputes before the Bureau would take supervisory or enforcement action.”  The Bureau warns that it will take public enforcement action against companies or individuals that fail to comply with FCRA, but will consider the unique circumstances that entities face as a result of the COVID-19 pandemic and entities’ good faith efforts to timely investigate disputes.

CARES Act Amendment to FCRA

Section 4021 of the CARES Act amends FCRA by adding a new section providing a special instruction for reporting consumer credit information to credit reporting agencies during the COVID-19 pandemic.  Specifically, if a creditor or other furnisher offers an “accommodation” to a consumer affected by the COVID-19 pandemic in connection with a credit obligation or account, and the consumer satisfies the conditions of such accommodation, the furnisher must:

  • report the credit obligation or account as “current;” or
  • if the credit obligation or account was delinquent before the accommodation maintain the delinquent status during the effective period of the accommodation, or, if the consumer brings the account current during such period, then to report the account as current.

Stated differently by the CFPB, “during the accommodation, the furnisher cannot advance the delinquent status.” The CFPB provides the following example:

If the credit obligation or account was current before the accommodation, during the accommodation the furnisher must continue to report the credit obligation or account as current.

If the credit obligation or account was delinquent before the accommodation, during the accommodation the furnisher cannot advance the delinquent status. For example, if at the time of the accommodation the furnisher was reporting the consumer as 30 days past due, during the accommodation the furnisher may not report the account as 60 days past due. If during the accommodation the consumer brings the credit obligation or account current, the furnisher must report the credit obligation or account as current. This could occur, for example, if the accommodation itself brings the credit obligation or account current (such as a loan modification that resolves amounts past due so the borrower is no longer considered delinquent) or if the consumer makes past due payments that bring the credit obligation or account current.

An “accommodation,” as defined in this section, includes relief granted to impacted consumers such as an agreement to defer a payment, make a partial payment, grant forbearance, modify a loan or contract, or any other assistance or relief granted to a consumer affected by COVID-19. The reporting requirements do not apply to charged-off accounts.  This section applies from January 31, 2020 through the later of 120 days after: (i) enactment of this section, or (ii) termination of the national emergency declaration.

Questions on Reporting Accommodations under FCRA

There has been much confusion in how the CARES Act requirements translate into Metro 2 reporting requirements.  The CFPB offers the following guidance:

  • When furnishers are reporting an account to the CRAs, furnishers are expected to understand all the CRA’s data fields, to ensure that the information reported accurately reflects a consumer’s status as current or delinquent. Specifically, the Bureau provides “information a furnisher provides about an account’s payment status, scheduled monthly payment, and the amount past due may all need to be updated to accurately reflect that a consumer’s account is current consistent with the CARES Act.”
  • With respect to the use of special comment codes, the CFPB provides that “Furnishing a special comment code indicating that a consumer with an account is impacted by a disaster or that the consumer’s account is in forbearance does not provide consumer reporting agencies with this CARES Act-required information.  Left unaddressed is whether servicers are permitted to report special comment codes and other fields as required by CDIA/Metro2.
  • With respect to reporting the status of an account after an accommodation ends, the Bureau provides two instructions.  First, the Bureau states “[a]ssuming payments were not required or the consumer met any payment requirements of the accommodation, a furnisher cannot report a consumer that was reported as current pursuant to the CARES Act as delinquent based on the time period covered by the accommodation after the accommodation end.” Second, “a furnisher also cannot advance the delinquency of a consumer that was maintained pursuant to the CARES Act based on the time period covered by the accommodation after the accommodation ends.”

Questions remain on how to address a consumer’s delinquency after an accommodation ends if the delinquency hasn’t been resolved through loss mitigation or otherwise.  Also unaddressed is whether furnishers are permitted to report (i) a “special comment code” for natural disaster or forbearance or (ii) the “terms frequency” field (each of which can indicate an account is in forbearance or deferment, even while the “account status code” field is marked “current”), without violating the CARES Act requirement to report borrowers in forbearance as “current.”

Takeaway

CFPB has put furnishers on notice that the Bureau will begin to enforce the CARES Act credit reporting requirements.  Companies should pay attention to credit reporting complaint trends in the coming months.  Companies should also document good faith efforts to comply and respond to disputes as soon as possible.  Last, with the CFPB’s revised Responsible Business Conduct Policy, companies may consider getting in front of any issues while the environment is still favorable. Once forbearance ends and foreclosures resume, and given where we are in the election cycle, the situation could turn political this Fall and the enforcement posture could change.

CFPB Seeks Public Comment on the Advisory Opinion Program

By

A&B Abstract:

On June 18, 2020, the Consumer Financial Protection Bureau (“Bureau”) announced the launch of a pilot advisory opinion program (“Pilot Program”) to publicly address regulatory uncertainty in the Bureau’s existing regulations.  The Bureau also announced that the public can now comment on the proposed advisory opinion program, which the Bureau intends to implement at the conclusion of the Pilot Program. As we previously covered, on March 6, 2020, the Bureau announced the creation of the advisory opinion program.

Pilot Advisory Opinion Program

According to the Bureau, “[t]he primary purpose of the [Pilot Program] is to provide a mechanism through which the Bureau may more effectively carry out its statutory purposes and objective by better enabling compliance in the face of regulatory uncertainty.”

The Bureau issued a Procedural Rule detailing the parameters of the Pilot Program. The Bureau expects that the Pilot Program will focus on four key priorities: (1) providing consumers with timely and understandable information to make responsible decisions; (2) identifying outdated, unnecessary, or unduly burdensome regulation to reduce regulatory burden; (3) creating consistency in enforcement of federal consumer financial law to promote fair competition; and (4) ensuring markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

Submission and Content of Requests

The Pilot Program is limited to covered persons or service providers that are subject to the Bureau’s supervisory authority under sections 1024, 1025, or 1026(e) of the Dodd-Frank Act or are subject to the Bureau’s enforcement authority under subtitle E of the Dodd-Frank Act.

Such persons may submit requests to the Bureau via email, and requests must identify the requestor. For purposes of the Pilot Program, the Bureau will not accept requests from third parties, such as trade associations or law firms, on behalf of unnamed entities. This differs from the proposed advisory opinion program, under which “[o]utside counsel or a trade association, for example, could submit a request for AOs on behalf of one or more client or members, and those entities would not need to be named.”

If a requestor wants to have any information remain confidential, the Bureau encourages the requestor to identify any such information to the extent it is included in a submission.  The Bureau will treat information as confidential in accordance with its Disclosure of Records and Information Rule.

A person submitting a request under the Pilot Program need not include many of the items required under the proposed advisory opinion program. For example, the Pilot Program does not require a requestor to provide a proposed interpretation, identify potential uncertainty or ambiguity that the interpretation would address, or to explain why the requested interpretation is an appropriate resolution of the ambiguity or uncertainty.

Characteristics of Advisory Opinions

Advisory opinions will be interpretative rules under the Administrative Procedures Act that will respond to specific requests for clarity on an interpretive question. As such, the Bureau’s advisory opinions will provide further clarity regarding the Bureau’s statutes and regulations, but the Bureau will not impose new requirements or provide changes to the law that would require a notice and comment process. The Bureau will publish advisory opinions in the Federal Register and on consumerfinance.gov. Each advisory opinion will be applicable to the requestor and to similarly situated parties to the extent that their situations conform to the Bureau’s summary of material facts in the advisory opinion.

Factors in Bureau Selection of Topics for Advisory Opinions

When selecting topics for advisory opinions, the Bureau will prioritize open questions within its purview that can legally be addressed through an interpretive rule. When selecting topics for an advisory opinion the Bureau intends to evaluate potential topics for: (i) alignment with the Bureau’s statutory objectives; (ii) the size of the benefit offered to consumer by resolution of the interpretive issue; (iii) the known impact on the actions of other regulations; and/or (iv) the impact on the Bureau’s resources.

Factors Supporting Advisory Opinion Issuance

Initial factors that weigh into the appropriateness of issuing an advisory opinion include whether: (i) the interpretive issue has been noted during prior Bureau examinations as one that would benefit from additional regulatory clarity; (ii) the issue is of substantive importance or impact or is one whose clarification would provide significant benefit; and/or (iii) the issue concerns an ambiguity that the Bureau has not previously addressed through an interpretive rule or other administrative source.

Factors Opposing Advisory Opinion Issuance

Factors weighing against issuing an advisory opinion include that: (i) the issue is the subject of an ongoing investigation or enforcement action; (ii) the issue is the subject of an ongoing or planned rulemaking; (iii) the issue is better suited for the notice-and-comment process; (iv) the issue could be addressed by a Compliance Aid; and/or (v) there is clear Bureau or court precedent that is already available to the public on the issue.

For example, the Bureau does not intend to issue an advisory opinion that would change a regulation. Similarly, where a regulation or statute establishes a general standard that can be only applied through a factual analysis, the Bureau does not intend to replace it with a bright-line standard that eliminates required analysis. The Bureau anticipates that highly fact-specific interpretations, such as requests for advisory opinions for UDAAP interpretations, may present challenges.  However, according to the Bureau, “there may be times when the Bureau is able to offer advisory opinions that provide additional clarity on the meaning of such standards.”

Takeaway

This is a measured step forward in developing the Advisory Opinion program that the Bureau first announced on March 6, 2020. The Bureau is seeking public comment on its proposed procedural rule for a period of 60 days from publication in the Federal Register, and in addition will gain practical knowledge of how to process requests for advisory opinions through its pilot program.

If finalized, this program holds real promise as a demand-driven mechanism for resolving areas of regulatory uncertainty through the issuance of public, agency-level interpretive rules that can be relied upon in good faith as definitive statements of the Bureau’s view of what a law or regulation means. Over time, greater regulatory certainty afforded by successive Bureau advisory opinions can be positive for financial institutions and consumers alike.

Alston & Bird Hosts Calabria, Kraninger to Discuss COVID-19 Challenges

By

A&B ABstract: On June 15, Alston & Bird partners Nanci Weissgold and Brian Johnson hosted Dr. Mark A. Calabria, Director of the Federal Housing Finance Agency, and Kathy Kraninger, Director of the Consumer Financial Protection Bureau, to discuss federal regulatory responses to the COVID-19 pandemic and how they affect consumer lending and mortgage servicing.

The discussion was the inaugural event in Alston & Bird’s Financial Services Regulatory Speaker Series.

Pandemic Response

Directors Kraninger and Calabria first addressed their respective agencies’ efforts (individually and jointly) to respond to the effects of the pandemic.

Focusing on efforts relating to the GSEs, Dr. Calabria discussed the foreclosure moratorium (which he stated will soon be extended past June 30), and the focus on borrowers who are truly suffering a hardship.  He further indicated that approximately a quarter of borrowers in forbearance are continuing to make payments, which lead to the agency’s announcement in May that such borrowers will be treated as current for purposes of eligibility for refinancings or new purchases.

Director Kraninger expressed pride in the CFPB’s broad-based response to the crisis, and specifically mentioned efforts to educate consumers on their rights and expectations for relief, adjusting supervisory and enforcement processes to be more responsive to current needs and circumstances, and engaging all of the CFPB’s stakeholders in regulatory work (including the production of guidance relating to mortgages and consumer loans).

Market Prognosis

Asked for his assessment of the overall health of the residential mortgage market, Dr. Calabria compared current circumstances favorably to the 2008 financial crisis.  He specifically referenced the low number of GSE loans for which borrowers are underwater, indicating that borrowers with equity are less likely to walk away.  However, he anticipated that it will not be until the fourth quarter of the year that the true “wild card” – the number of loans in forbearance that will go into delinquency and foreclosure – will be known.

Coordinated Action

Director Kraninger stressed the importance of federal regulators acting in concert, and continuing conversations with the states to send a “clear signal across the regulatory landscape” of expectations for regulated institutions to accommodate their customers.  She stressed that the CFPB is using the examination process to conduct priority assessments as an opportunity to engage institutions, understanding how forbearance programs work and how they are engaging consumers.  Regulated institutions, she said, should expect the process to be iterative, rather than only a matter of identifying violations.

CARES Act and the Mortgage Servicing Rules

With respect to the interplay of the CARES Act and the Mortgage Servicing Rules, Director Kraninger addressed specific concerns regarding payment deferral.  Specifically, as to whether servicers are required to collect a complete loss mitigation application before approving a borrower for a payment deferral, she indicated that the CFPB is actively working with the FHFA on how best to provide options to consumers, and that the agencies expect to provide clarification on how the Mortgage Servicing Rules apply to CARES Act deferrals in the near term.  In the longer term, Director Kraninger suggested that the CFPB is considering new provisions  of the Rules applicable to national disasters (e.g., the COVID-19 pandemic, or severe weather).

Takeaways

Closing the discussion, Directors Calabria and Kraninger discussed overall perceptions of their agencies’ responses to the pandemic. Director Kraninger reiterated that the CFPB is committed to making clear its expectations for regulated entities.  By comparison to the financial crisis, the CFPB is focused on getting ahead of issues (e.g., with the credit reporting industry).

Dr. Calabria said that the greatest misunderstanding about the CARES Act relates to the scope of and eligibility for forbearance.  Borrowers are eligible for “up to” a year of forbearance – a ceiling, not a floor.  Additionally, to obtain an initial forbearance and the optional extension, a borrower must have suffered (and continue to suffer) economic hardship relating to the pandemic.  Thus, he indicated, initial estimates about the number of loans that would be in forbearance were too high.  Further, the number of borrowers with significant equity in their homes makes it more likely for the impact of the pandemic to be a liquidity event, not a solvency event.

Alston & Bird thanks Directors Calabria and Kraninger for sharing their insights with the hundreds of listeners in attendance. Stay tuned for more events in the series.

Alston & Bird Financial Services Regulatory Speaker Webinar Series

By

On June 15, from 1 to 2 p.m., Alston & Bird will host the inaugural event in its Financial Services Regulatory Speaker Webinar Series.  The event will feature a discussion with Dr. Mark A. Calabria, Director of the Federal Housing Finance Agency and Kathy Kraninger, Director of the Consumer Financial Protection Bureau, discussing federal regulatory responses to the COVID-19 pandemic and how they affect consumer lending and mortgage servicing. Login information will be provided to participants before the program.

To register, click here.

Questions? Contact Megan Belliveau at megan.belliveau@alston.com or 202.239.3134.