Alston & Bird Consumer Finance Blog

Consumer Financial Protection Bureau (CFPB)

Regulatory Agencies Issue Mortgage Servicing Guidance and FAQs for the CARES Act

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Our Financial Services & Products Group answers some questions mortgage servicers might have about how federal and state agencies will be flexible with enforcement under the CARES Act.

  • What is the “covered period” for purposes of Section 4022?
  • Can a servicer require a borrower to provide a written attestation?
  • Should servicers report the status of loans on forbearance?
  • What is being done to address mortgage servicer liquidity concerns?

Alston & Bird has formed a multidisciplinary task force to advise clients on the business and legal implications of the coronavirus (COVID-19).

Federal Administrative Agencies Issue COVID-19 Guidance

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A&B ABstract:  On March 26, the Consumer Financial Protection Bureau (“CFPB”) issued three separate policy statements in response to the COVID-19 pandemic.  These announcements recognize the operational and resource challenges companies are facing as a result of the pandemic, and provide some regulatory flexibility.  Separately, the CFPB and four prudential banking regulators issued a statement encouraging the responsible financing of small-dollar loans to individuals and businesses.  These statements follow a joint statement issued by the CFPB with the Federal Reserve Board (“FRB”), Federal Deposit Insurance Corporation (“FDIC”), and Office of the Comptroller of the Currency (“OCC”) (collectively, the “Agencies”) giving CRA credit for activities in response to COVID-19.

Agencies:

On March 26, the Agencies issued a Joint Statement specifically encouraging financial institutions to offer responsible small-dollar loans to both consumers and small businesses in response to COVID-19. The Agencies recognized the important role that responsibly offered small-dollar loans can play in helping customers meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income short-falls during periods of economic stress or disaster recoveries.

The Agencies indicated that loans can be offered through a variety of loan structures, including open-end lines of credit, closed-end installment loans, or structured single payment loans, provided they are offered in a manner that is consistent with safe and sound practices, provides fair treatment of consumers, and complies with applicable statutes and regulations, including consumer protection laws.

CFPB:

On March 26, CFPB issued three separate policy statements intending to provide needed flexibility to enable financial companies to work with customers in need as they respond to the COVID-19 pandemic. The CFPB also postponed two data collections associated with its 1071 (small business data collection) and Property Assessed Clean Energy (PACE) rulemakings.

First Policy Statement

The first Policy Statement suspended until further notice the requirement to report quarterly HMDA data. Financial institutions normally required to make such quarterly reports are those that reported for the preceding calendar year at least 60,000 covered loans and applications (excluding purchased loans). Institutions may voluntarily continue making quarterly HMDA data submissions, and should continue to collect and record HMDA data in anticipation of making annual data submissions.

Second Policy Statement

The second Policy Statement suspended until further notice the submission of the following information relating to credit card and prepaid accounts:

  • annual submission of certain information concerning agreements between credit card issuers and institutions of higher education;
  • quarterly submission of consumer credit card agreements;
  • collection of certain credit card price and availability information from a sample of credit card issuers; and
  • submission of prepaid account agreements and related information.

Institutions may voluntarily continue to make such submissions, and should maintain records sufficient to allow them to make such delayed submissions pursuant to future CFPB guidance.

Third Policy Statement

The third Policy Statement sought to encourage financial institutions undertaking prudent efforts in good faith to work constructively with borrowers and other customers to meet their financial needs. To that end, the CFPB committed to: (1) take into account current and resource challenges affecting financial institutions when scheduling supervisory and enforcement activity; and (2) consider the circumstances that financial institutions face as a result of COVID-19 when conducting exams or other supervisory activities and in determining whether to take enforcement action.

Takeaway:

The Agencies’ measured guidance is welcomed by the industry.  In particular, the CFPB’s commitment to work with affected financial institutions in scheduling examinations and other supervisory activities provides needed flexibility, allowing institutions to best address the immediate and resource-intensive needs of its customers during these challenging times.  Companies should be mindful to document their efforts as inevitable issues will arise when all the dust settles.

 

CFPB Announces New Initiatives to Prevent Consumer Harm

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A&B ABstract

On March 6, 2020, the Consumer Financial Protection Bureau (CFPB) announced three new initiatives aimed at preventing consumer harm.  The CFPB will be: (1) implementing an advisory opinion program; (2) amending and reissuing its responsible business conduct bulletin; and (3) engaging with Congress to advance proposed whistleblower legislation.

Advisory Opinion Program

According to the CFPB, the advisory program will allow parties to submit compliance questions online.  After reviewing the questions, the CFPB will publish responding advisory opinions in the Federal Register and on the CFPB website with an interpretation of the CFPB’s existing rules.  This process aligns with processes followed by many other agencies and will provide transparency to the CFPB’s interpretive guidance.

The CFPB will issue procedures for how submissions will be prioritized and addressed, which should allow parties seeking advisory opinions to better tailor their requests.  The goals of the CFPB appear to be to increase transparency on the CFPB’s part and to provide regulatory certainty to all regulated entities and other stakeholders.

To this end, CFPB Director Kathy Kraninger stated that the “[a]dvisory opinions will ensure that companies know what compliance entails and what constitutes a violation.”

Responsible Business Conduct Bulletin

CFPB originally published a Responsible Business Conduct Bulletin in June 2013.  The CFPB’s amended and reissued bulletin aims at strengthening the original bulletin and clarifying the CFPB’s approach to responsible business conduct.  In the CFPB’s view, responsible business conduct “can improve the Bureau’s ability to promptly detect violations, increase the effectiveness of its supervisory and enforcement work, enable the Bureau to better focus its finite resources, and help more consumers get redress.”

The bulletin identifies four categories of responsible conduct for entities—(1) self-assessing; (2) self-reporting; (3) remediation; and (4) cooperation—that the CFPB will favorably consider in addressing violations in supervisory and enforcement matters.

“Responsible conduct is in the public interest. Entities that build a culture of compliance and engage in responsible conduct support consumer protection and the Bureau’s efforts to both prevent harm to consumers and enforce the law against bad actors,” Director Kraninger said.

Whistleblower Legislation

The CFPB’s proposed whistleblower legislation would amend Title X of the Dodd-Frank Act and provide authority to establish a whistleblower award program.  In essence, the program would incentivize whistleblowers to contact the CFPB by providing a whistleblower that provides voluntary information leading to a successful enforcement action with an award based on a percentage of the monetary sanction collected.

The CFPB believes the incentive created for employees to report wrongdoing will assist in advancing enforcement cases, especially as it relates to fair lending violations. “We [] want to incentivize whistleblowers to contact us if they believe their employer is not complying with the law,” said Director Kraninger.

Key Takeaways

Consumer financial products and services providers should be aware of these developments and how they could potentially affect their business.  A properly implemented advisory opinion program should lead to greater clarity into the CFPB’s interpretation of its rules and more regulatory certainty regarding what is or is not a violation.  Such entities should engage in and document responsible business conduct to better secure leniency from the CFPB in the supervisory and enforcement context.  The development of a whistleblower program could lead to increased enforcement activity and impact the content of civil investigative demands based on such tips.

CFPB Deputy Director Brian Johnson to Join Alston & Bird as Partner in Washington, D.C.

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Alston & Bird is expanding its consumer financial services and public policy capabilities with the addition of Brian Johnson, deputy director of the U.S. Consumer Financial Protection Bureau (CFPB), who will join the firm in March as partner in Washington, D.C.

“Brian’s impressive combination of experience and leadership in government regulation and oversight in the financial services industry is second to none,” said Chris Frieden, Alston & Bird partner and co-chair of the firm’s Financial Services & Products Group. “He will be a strong voice and advocate for our clients on legal and policy issues at the most senior levels in the CFPB and across Washington.”

Johnson has served as the CFPB’s deputy director since May 2019. As second-in-command of the agency and principal advisor to CFPB Director Kathy Kraninger, he has been responsible for all policy development and strategic planning and execution of the CFPB’s examination, enforcement, rulemaking, and research activities. He has served as the director’s representative in high-level and sensitive matters involving Congress; the Departments of the Treasury, Housing and Urban Development, and Education; federal regulatory agencies such as the Federal Housing Finance Agency, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation; as well as state organizations, including the Conference of State Bank Supervisors and National Association of Attorneys General.

Johnson is also credentialed in the FinTech regulatory space. He developed and led the implementation of the CFPB’s Office of Innovation, which launched in 2018 as a regulatory framework designed to reduce potential barriers to innovation as the financial services industry develops new products and services related to cryptocurrencies, blockchain technologies and microlending, and loans by individuals.

“The CFPB’s legal and regulatory framework, which is mirrored by numerous state regulators and attorneys general, continues to be a significant challenge for many in the industry,” said Nanci Weissgold, Alston & Bird partner and co-leader of the firm’s Consumer Financial Services Team. “Brian brings an insider’s view of the CFPB and its relationships with the executive branch and Congress that will serve our clients well on matters ranging from regulatory and compliance issues and examinations to enforcement and related litigation.”

Johnson first joined the CFPB in December 2017 as senior advisor to then-Acting Director Mick Mulvaney and was named policy director in April 2018. He became acting deputy director and principal advisor to the agency’s current director in July 2018.

Earlier in his career, Johnson served on the House Financial Services Committee, where he spent more than five years in various positions, including senior counsel, chief financial institutions counsel, and policy director. While on the committee, he led the policy and legislative work for the Financial Institutions and Consumer Credit Subcommittee on issues related to consumer protection and credit, mortgage origination, credit reporting, banking, and data security.

Before joining Congress, Johnson served on the staff of former Ohio Attorney General Mike DeWine, now governor, and the White House Domestic Policy Council.

Johnson also clerked for the Hon. Terrence O’Donnell, former justice of the Supreme Court of Ohio.

“Brian’s experience both at the CFPB and in Congress will be a boost to our clients as they pilot the consumer finance regulatory and enforcement cross-currents at both the federal and state levels,” said Dennis Garris, partner in charge of Alston & Bird’s Washington, D.C. office. “Brian’s addition will complement our other recent arrivals, adding to our deep and dynamic bench of attorneys whose insights and knowledge serve our clients’ most important business needs in Washington and nationally.”

Johnson is the most recent addition to Alston & Bird’s Washington, D.C. office. He follows Jason Levine, who arrived from Vinson & Elkins in January as litigation partner; Kathleen Benway, a former Federal Trade Commission official who joined in December from Wilkinson Barker Knauer as government investigations partner; Richard Slowinski, who arrived from Baker McKenzie as tax partner in October; and Jane Lucas, who joined in September from the White House as public policy and health care counsel.

 

CFPB Issues Winter 2020 Supervisory Highlights

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A&B ABstract:

The Winter 2020 Supervisory Highlights identifies the CFPB’s findings from recent examinations, noting violations that resulted in compliance management system weakness.

CFPB Issues New Edition of Supervisory Highlights:

The Winter 2020 edition of the Consumer Financial Protection Bureau (“CFPB”) Supervisory Highlights details recent examination findings relating to debt collection, mortgage servicing, and student loan servicing, among other topics.

Debt Collection

 With respect to debt collection, the CFPB focused on:

  • Failure to disclose in communications subsequent to the initial written communication that the communication is from a debt collector, in violation of Section 807(11) of the FDCPA; and
  • Failure to send a written validation notice within five days after the initial communication with the consumer, in violation of Section 809(a) of the FDCPA.

As a result of these deficiencies, the CFPB reported that servicers revised their policies and procedures, and monitoring and training programs.

Mortgage Servicing and Loss Mitigation

With a focus on compliance with the loss mitigation provisions of Regulation X, the CFPB’s first finding was that servicers failed to notify borrowers in writing of the servicer’s determination that the loss mitigation application is complete or incomplete within five business days of receiving a loss mitigation application.  Second, the CFPB found that servicers failed to provide borrowers with a written notice of available loss mitigation options within 30 days of receiving the complete loss mitigation application.

Finally, the CFPB cited servicers’ failure to comply with Regulation X’s requirements, including providing a written notice to borrowers, for offering a short term loss mitigation option to a borrower based on an evaluation of an incomplete loss mitigation application. In this instance, the servicers granted short-term forbearance if the borrower in a disaster area experienced home damage or loss of income from the disaster. The borrowers received such accommodation after speaking with the servicer over the phone and responding to certain questions.

In response to that finding, the CFPB reminded servicers that an application for loss mitigation can be oral or written.   Because the servicer’s efforts to respond to a natural disaster were the partial cause of violations, the CFPB only required the servicer to develop plans to ensure staffing capacity in response to any future disaster-related increases in loss mitigation applications. The CFPB also reminded servicers of its September 2018 Statement on Supervisory Practices Regarding Financial Institutions and Consumers Affected by a Major Disaster or Emergency, which provides flexibility for servicers to assist borrowers during a major disaster or emergency but does not lift the Regulation X requirements.

Payday Lending

With a focus on Regulation Z, Regulation B, and unfair acts or practices, the CFPB found that lenders engaged in unfair acts or practices when they: (1) processed borrowers’ payments, but did not apply such payments to borrowers’ loan balances in lenders’ systems; (2) lacked systems to detect unapplied payments; and (3) incorrectly treated borrowers accounts as delinquent. The CFPB found that the injury was not reasonable avoidable by the borrowers because lenders conveyed incorrect information to them about their accounts and failed to follow up on borrower’s complaints. Furthermore, because the cost to lenders to implement appropriate accounting controls to reconcile payments would have been reasonable, countervailing benefits did not outweigh the injury.

Additionally, the CFPB found that a payday lender engaged in unfair acts or practices by assessing consumers a fee as a condition of paying or settling a delinquent loan when the underlying loan contract required the lender to pay that particular fee. The lender mischaracterized the fee as a court cost (which would have been paid by the borrower) or did not disclose it. According to the CFPB, a lack of monitoring and/or auditing of the lender’s collection practices caused the error. In response to this finding, the lender refunded the fee to affected consumers and made changes to its compliance management system.

Other Payday Lending Observations

Further, the CFPB found that payday lenders:

  • Violated Regulation Z by relying on employees to manually calculate APRs when the lender’s loan origination system was unavailable. The CFPB found that errors made in calculating the term of the loan, which resulted in misstated APRs, were caused by weaknesses in employee training.
  • Violated Regulation Z by charging a loan renewal fee to consumers who were refinancing delinquent loans and omitted such fee from the finance charge, resulting in inaccurate disclosure of the APR and finance charge. The CFPB found that a lack of detailed policies and procedures and training contributed to the Regulation Z violations. In response, the lender refunded the fee to the consumer explaining the reason for the refund and strengthened its policy and procedures and training program.
  • Violated record retention requirements of Regulation Z by failing to maintain evidence of compliance for two years. The CFPB found that the violation resulted in part from a lack of training and detailed policies and procedures on record retention.
  • Violated Regulation B by providing consumers with an adverse action notice that incorrectly stated the principal reason for taking an adverse action as a result of a coding error. In response, the lenders sent corrected adverse action notices to consumers and made changes to the system that generate the notices.

Student Loan Servicing

With a focus on unfair practices, the CFPB found that servicers engaged in an unfair act or practice caused by a data mapping errors during the transfer of private loans between servicing systems that resulted in inaccurate calculations of monthly payment amounts. As a result, borrowers may have made payments based on the inaccurate amounts, incurred late fees on such inaccurate amounts, or had inaccurate amounts debited from their account. In response to the examination findings, the CFPB required servicers to remediate affected consumers and implement new processes to eliminate data mapping errors.

 Takeaways

Highlighting debt collection, mortgage servicing, payday lending and student loan servicing, the Supervisory Observations in the Winter 2020 Supervisory Highlights showcase the importance of adequate policies and procedures, training, monitoring and auditing and system controls to avoid consumer harm and violation of consumer financial laws.  Although they cut across multiple industries, the CFPB’s findings highlight common themes – such as entities’ liability for violations that result from system errors or the assessment of unauthorized fees, and the need for careful monitoring in connection with servicing transfers.