Yesterday, the Consumer Financial Protection Bureau (CFPB) announced that it has finalized amendments modifying the ability-to-repay rule so as to "facilitate access to credit" for small creditors, community development lenders and housing stabilization programs, according to a press release from the bureau. Developed to help prevent another mortgage crisis, the ability-to-repay rule created the "Qualified Mortgages" (QMs) standard, featuring requirements designed to "protect consumers from taking on loans they do not have the financial means to pay back" (see our January 10, 2013, blog post for more information). Under the finalized amendments:

• Nonprofit and community-based lenders that work "to help low- and moderate-income consumers obtain affordable housing" and make no more than 200 loans per year are exempted from the ability-to-repay rule, as are mortgage loans made through certain homeownership stabilization and foreclosure prevention programs.
• Small creditors that make 500 or fewer first-lien mortgages annually and have less than $2 billion in assets are provided a two-year transition period during which they can make some balloon loans that will still meet the definition of QMs. These creditors are also allowed to "charge a higher annual percentage rate for certain first-lien Qualified Mortgages while maintaining a safe harbor for the Ability-to-Repay requirements."
• The points and fees threshold — established to ensure that QMs aren't compromised by excessive compensation paid to loan originators — no longer applies to compensation paid by a mortgage broker to a loan originator employee or by a lender to a loan originator employee. Compensation paid by a creditor to a mortgage broker, as well as "any origination charges paid by a consumer to a creditor," must still be included in the points and fees.

The ability-to-repay rule, complete with these amendments, will go into effect on January 10, 2014. For more, read the full press release.

According to a report recently released by the Consumer Financial Protection Bureau (CFPB), older Americans are at risk of being deceived by the more than 50 different designations that financial advisers use "to indicate that they have advanced training or expertise in the financial needs of older consumers." The report, titled "Senior Designations for Financial Advisers: Reducing Consumer Confusion and Risks," found that the requirements, examinations and oversight can differ significantly for similar sounding designations. Lacking "comprehensive supervision and enforcement," these credentials are used to defraud older Americans, whose retirement savings, inheritance and accumulated home equity can make them "attractive targets for the marketing of various financial products," the release said. For more, read the full press release.

The Consumer Financial Protection Bureau (CFPB) announced a plan today that it will implement during 2013 to help ensure that the mortgage industry is in compliance with new consumer protections that are set to go into effect in January 2014, according to a press release from the bureau. To ensure that the Ability-to-Pay rule, as well as new rules for mortgage servicing, appraisals, escrow accounts, high-cost mortgages, and compensation and qualifications for loan originators are “understood, applied, and carried out evenly and effectively,” the CFPB will take the following actions:

• Coordinate with other federal government regulators to help promote “a consistent regulatory experience for industry”
• Publish plain-language, easy-to-understand written and video guides this spring that will be especially useful for “smaller businesses with limited staff for compliance”
• Beginning in the spring, publish updates to official interpretations that will answer questions and provide guidance on how to comply with the rules with priority given to the issues that are important to the largest number of providers or consumers and those that “critically affect mortgage companies’ implementation decisions”
• Publish readiness guides in the summer that will feature checklists and suggested implementation plans, and later this year publish more in-depth implementation procedures that can be used for “self-assessments and internal reviews”
• Pursue a broad-reaching consumer education program as the implementation date approaches

For more, read the full press release.

Since the U.S. Court of Appeals for the D.C. Circuit ruled last week that three recess appointments made by President Obama were invalid, companies subject to oversight by the Consumer Financial Protection Bureau (CFPB) are questioning whether the fact that CFPB Director Richard Cordray’s appointment was made on the same day will be a potential game changer, The National Law Journal reports (see our January 25, 2013, blog post for more information). The Dodd-Frank Act of 2010 prohibits the CFPB from using any powers that it didn’t inherit from seven other agencies if it doesn’t have a director, which means the agency cannot supervise non-banks if it doesn’t have a director, the article said. While some of these companies may decide to balk at the bureau’s compliance demands should Cordray’s appointment be deemed invalid, some lawyers are advising against this, insisting that the bureau is not going anywhere and treating inspectors poorly while potential legal issues play out will not help these companies in the long run, the article said. For more, read the full story (subscription required).

The Consumer Financial Protection Bureau (CFPB) has been busy. In the past eight days, it has issued the much anticipated qualified mortgage standards, amended the high-cost mortgage and homeownership counsel amendments (HOEPA), and, most recently, issued a rule regarding appraisals for higher priced (subprime) mortgage loans (HPMLs) on January 18, 2013. 

This rule implements amendments to the Truth in Lending Act (TILA) enacted in Dodd-Frank. The rule permits a lender to extend an HPML only if the following conditions are met:

• The lender obtains a written appraisal;
• The appraisal is performed by a licensed or certified appraiser; and
• The appraiser physically inspects the property from the inside.

What’s more, the rule requires lenders to notify the borrower at the application stage about the appraisal, that the applicant will receive a copy of the appraisal, the applicant will pay for the appraisal, and that the applicant may have a separate appraisal conducted at her expense.

Importantly, mortgages provided under the new qualified mortgage rule are exempt from this new rule as are reverse mortgages, some construction loans, short-term bridge loans, loans for manufactured homes, and transactions secured by a mobile home, boat or trailer. The rule is effective January 18, 2014. A link to the entire appraisal rule is here. 

The Consumer Financial Protection Bureau (CFPB) issued final rules yesterday for high-cost mortgages that ban balloon payments, which are large, lump sum payments usually due at the end of a loan, with some exceptions. The rules also ban and limit certain fees and practices, including a ban on fees for modifying loans; capping late fees at four percent of the payment that is past due; prohibiting closing costs from being rolled into the loan amount; and restricting fees for payoff statements, according to a press release from the bureau. The rules also ban the practice of “encouraging a consumer to default on an existing loan to be refinanced by a high-cost mortgage.” The rules require consumers to receive housing counseling before taking out a high-cost mortgage and require lenders to provide a list of homeownership counseling organizations to consumers “shortly after they apply for a mortgage.” Creditors are now also required to extend the duration of an escrow account on high-cost mortgage loans from the current one year minimum to a minimum of five years. For more, read the full press release.

The Consumer Financial Protection Bureau (CFPB) adopted the ability-to-repay rule today, which requires lenders to “ensure prospective buyers have the ability to repay their mortgage” in an effort to protect consumers from what the bureau calls “irresponsible mortgage lending,” a press release from the CFPB said. The rule requires lenders to verify consumers’ financial information, including their employment status, income and assets, current debt obligations, credit history and mortgage payment information, the release said. The new rule also says that lenders must verify that a borrower has “sufficient assets or income” to repay a loan and that teaser rates can no longer be used to determine a borrower’s ability to repay “both the principal interest and the interest over the long term.”

The bureau also defined criteria for qualified mortgages — they cannot have excessive upfront points and fees or “toxic loan features,” such as interest-only payments, terms exceeding 30 years or negative-amortization payments, the release said. Qualified mortgages will also cap the debt-to-income ratio at 43 percent or less to ensure that consumers can afford the loan.

For more, read the full press release and fact sheet, as well as prepared remarks that CFPB Director Richard Cordray presented during the ability-to-pay rule field hearing.

Arguments for two amendments to S.B. 333, which allows officers going from depository to non-depository institutions to get a temporary license while they pass both a state and federal test for a non-deposition license, were heard last week and accepted without opposition, reporting the bill out unanimously, according to The Hannah Report and Gongwer. The first amendment prevents a “legal vacuum” and maintains the “current status quo,” ensuring statutory law on a kind of international funds transfers known as remittance transfers, the Gongwer article said. The second amendment would enable Ohio to regulate derivative transactions so that Ohio banks are on “equal footing with national banks and banks chartered by other states, which, due to changes in their laws, are able to continue to engage in risk-mitigating transactions,” the Gongwer article said.

The Consumer Financial Protection Bureau (CFPB) recently announced the launch of Project Catalyst, an initiative that seeks to “encourage consumer-friendly innovation and entrepreneurship in markets for consumer financial products and services,” according to a press release from the bureau. Project Catalyst will enable the CFPB to better engage with those companies at the forefront of innovation and to better understand new and emerging products and trends in the marketplace. The bureau has already partnered with three companies — BillGuard, Plastyc and Simple — with the intention of analyzing their data to gain insight about “consumer behaviors and trends” that will ultimately shape policy decisions, the release said. For more, read the press release.

Many in the financial services industry were watching the presidential election results closely. This is particularly true of the companies within the financial services industry under the regulatory and enforcement purview of the Consumer Financial Protection Bureau (CFPB).  

Presidential candidate Mitt Romney had explained on the campaign trail that he would work diligently to repeal Dodd-Frank and disband the CFPB. He and others believe that the regulatory and enforcement powers of the CFPB are unchecked and have inundated the industry with unnecessary new rules and regulations. 

The House Committee on Financial Services recently announced that regulators have written 224 of the 400 new rules promulgated as a result of Dodd-Frank — these rules consume 7,365 pages. 

But despite the opposition to Dodd-Frank and the CFPB, President Barack Obama’s re-election means that both are here to stay. Indeed, President Obama has made consumer protection a focus in his first administration and all signs suggest that will continue. What’s more, with the election of Elizabeth Warren to the United States Senate, she will no doubt continue to champion causes aimed at consumer protection.

Recently, Director Cordray presented the five-year strategic plan for the CFPB. Now, it appears that the plan is even more relevant than it was just a few weeks ago.

Today, Comptroller of the Currency Thomas J. Curry spoke at the American Bankers Association’s national convention in San Diego, California, about regulatory issues facing federal savings associations and national banks, according to a press release from the OCC. Curry addressed the various concerns these institutions have regarding implementation of the Dodd-Frank Act, with particular attention paid to how smaller community banks can achieve compliance. For more, read the press release and Curry’s prepared remarks.

Yesterday, the Office of the Comptroller of the Currency (OCC) announced the publication of its final rule regarding company-run stress testing, which is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The rule applies to all financial institutions with total consolidated assets greater than $10 billion that are “regulated by a primary federal financial regulatory agency,” according to a press release from the OCC. The rule requires institutions with average total consolidated assets of $50 billion or more to begin conducting annual stress tests this year, but delays implementation for institutions that have between $10 and $50 billion in total consolidated assets until October 2013, the release said. For more, read the press release and the final rule.

On September 30, 2012, Anthony Sharett will be a panelist for the Litigation Forum Session titled "Enforcement" at the Mortgage Bankers Association's Regulatory and Compliance Conference. The session focuses on the array of enforcement actions brought by state and federal regulators and strategies for addressing them. Joining Anthony on the panel will be Paul Hancock, an attorney with K&L Gates, and David Souders, an attorney with Weiner Brodsky Sidman Kider PC.

The three day conference is in Washington, D.C. More information can be found here.

The Consumer Financial Protection Bureau’s new remittance rule, which creates consumer protections for certain electronic transfers to other countries, will go into effect on February 7, 2013. The bureau is hosting a webinar on Tuesday, October 16, 2012, to help the financial industry understand and comply with the rule. In addition, they are releasing a small business guide and a list of “countries and other areas to which a particular exception to the rule’s disclosure requirements applies,” according to a press release from the bureau. For more, read the press release.

The Office of the Comptroller of the Currency (OCC) has advised the chief executive officers of all national banks, federal savings associations, federal branches and agencies, department and division heads, and all examining personnel to review “the Federal Deposit Insurance Corporation’s (FDIC) final rule and guidance issued July 24, 2012, on investments in corporate debt securities,” according to a press release from the OCC. Federal savings associations must be in compliance with the FDIC’s final rule by January 1, 2013. The release also reminds these institutions that by January 1, 2013, they must be in compliance with the “OCC’s final rules and guidance regarding investments in other securities,” which was published on June 26, 2012. For more, read the OCC’s press release and read the FDIC’s final rule.

Using financial records from the Consumer Financial Protection Bureau (CFPB) obtained under the Freedom of Information Act, Judicial Watch — a “conservative foundation aimed at fighting government corruption” — rebuked the bureau’s allocation of $465,000 for sign language translation services, its use of $4,500 to enroll six employees in a banking law fundamentals class, and the salaries of several of its employees, CNNMoney reports. The CFPB contends that the sign language services are required for ADA compliance and that any unused funds will be returned at the end of the year; that the banking law fundamentals class is considered a qualifying program for the continuing education requirements of the bureau’s enforcement attorneys; and that the Dodd-Frank Act sets the director’s salary and requires the salaries and benefits for employees of the bureau to be “comparable to the Federal Reserve Board and other federal financial regulators,” the article said. For more, read the full story.

Six federal financial regulatory agencies — the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration and the Office of the Comptroller of the Currency — issued a proposed rule yesterday that would establish new appraisal requirements for “higher-risk mortgage loans,” according to a joint press release from the agencies.

Under the Dodd-Frank Act, mortgage loans are deemed higher-risk if “they are secured by a consumer's home and have interest rates above a certain threshold.” The proposed rule would require creditors to “use a licensed or certified appraiser” to prepare “a written report based on a physical inspection” of the property and to “disclose to applicants information about the purpose of the appraisal,” the release said. Additionally, to address fraudulent property flipping, creditors would be required to “obtain an additional appraisal at no cost to the consumer for a home-purchase higher-risk mortgage loan if the seller acquired the property for a lower price during the past six months,” the release said.

For more information, including the Federal Register notice as well as information on submitting comments about the proposal, read the press release.

The Consumer Financial Protection Bureau (CFPB) announced today two sets of proposed rules intended to enhance consumer protections with regard to the process for “evaluating consumers for alternatives to foreclosure” and to “lessen potential burdens on small servicers,” according to a press release from the bureau. The proposed rules are in response to complaints of mortgage servicers losing applications and paperwork, and making it exceptionally difficult to correct errors when they do arise, the release said.

The first set of proposed rules aims to help consumers avoid costly surprises by providing them with “clear and timely information about their mortgages,” the release said. Those rules include: clear monthly mortgage statements; warnings before interest rates adjust; options for avoiding costly “force-placed” insurance; and early information and options for avoiding foreclosure. The second set of rules would dictate “requirements for handling consumer accounts, correcting errors, and evaluating borrowers for options to avoid foreclosure,” the release said. Those rules include: payments promptly credited; maintenance of accurate and accessible documents and information; errors corrected quickly; direct and ongoing access to servicer personnel to assist delinquent borrowers; and evaluation of borrowers for options to avoid foreclosure.

For more information on the proposed rules, read the press release.

In its semi-annual report released this week, the Consumer Financial Protection Bureau (CFPB) showcased several of the activities in which it has been engaged since the start of 2012. According to a press release from the bureau, highlighted activities, accomplishments and achievements include:

• Consumer Engagement: The CFPB regularly requests input from consumers to help guide its policies for regulation and enforcement. The bureau also “helps resolve consumer disputes with lenders by taking complaints through its website and by telephone, mail, fax, and by referral from other agencies.”
• Financial Education: The CFPB has designed a number of tools and resources, including a public database of complaints the bureau has received about financial products, to help consumers “make responsible financial decisions.”
• Regulation: The bureau has taken a number of steps to reform the mortgage market, including writing rules that help consumers make informed decisions, simplifying mortgage disclosure forms, and bringing “greater transparency and accountability to mortgage servicing.”
• Research: The CFPB has been conducting “in-depth studies on consumer financial products, such as reverse mortgages and private student loans,” and has issued numerous Requests for Information to gather input from consumers and industry participants on a range of pertinent issues.
• Supervision: The bureau has been expanding its supervisory authority beyond larger banks and credit unions to include certain nonbank entities that have “never before been federally supervised.” This includes residential mortgage companies, payday lenders and private education lenders.
• Enforcement: A recent CFPB investigation led to enforcement action against Capital One, including $140 million that will be returned to customers who were “wronged by the company.”

For more, read our review of the semi-annual report.

This month, the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education released a report detailing the risky practices and loose underwriting in the private student loan market that has resulted in more borrowers and more debt, according to a press release from the bureau. Between 2001 and 2008, the private student loan market grew from less than $5 billion to over $20 billion as many lenders bypassed school financial aid offices and marketed loans directly to students, making money by “originating and then selling private student loans with less regard for borrowers’ creditworthiness,” the release said. The report features a list of recommendations for reforming the private student loan market. For more information, read the press release.

This week, the Consumer Financial Protection Bureau (CFPB) announced its first public enforcement action, charging Capital One Bank with employing deceptive marketing tactics to promote add-on credit card services such as payment protection and credit monitoring, according to a press release from the bureau. The action requires Capital One to “refund approximately $140 million to two million customers and pay an additional $25 million penalty,” the release said. For more information, read the press release.

On June 28, the Consumer Financial Protection Bureau (CFPB) implemented a new rule to classify protections for privileged information submitted to the Bureau by the regulated financial institutions it oversees.

According to a press release on the CFPB’s website, the new rule “provides supervised entities further assurances that providing privileged information to the Bureau will not adversely affect the confidentiality of such information.” The rule also clarifies that the CFPB’s “transfer of privileged information to another Federal or State agency does not result in a waiver of any applicable privilege.”

For more, read here:

In a report released today, the Consumer Financial Protection Bureau (CFPB) found that few American consumers completely understand the reverse mortgage market, including the fact that property taxes and insurance must still be paid even with a reverse mortgage, according to a press release from the bureau. Additionally, the study found that consumers are getting reverse mortgages at younger ages and that 70 percent of borrowers take the proceeds as a lump sum payment, the release said. The bureau is seeking public input regarding reverse mortgages. For more, read the press release and the full report.

The State National Bank of Big Spring, a community bank in Texas, filed a lawsuit alleging that certain provisions of the Dodd-Frank Act are unconstitutional, particularly the creation of the Consumer Financial Protection Bureau (CFPB), American Banker reports. As the first known community bank to file a lawsuit against the CFPB, State National executives say that the bureau can “essentially determine who gets a home loan…credit card…and a loan for college” with a board that has “unlimited regulatory power” and a director who is “not accountable to Congress, the President or the Courts,” the article said. For more, read the full story.

In an effort to increase the efficiency and transparency of the credit card market, the Consumer Financial Protection Bureau (CFPB) will make available to the public the “individual-level consumer complaint data” it receives, according to a press release from the bureau. Although no personally-identifiable information will be available on the database, the bureau hopes to add similar data on other products, including “mortgages, student and other consumer loans, and other bank products (such as checking and savings accounts),” once the database progresses from its beta stage, the release said. 

The Consumer Protection Financial Bureau (CFPB) issued a notice and request for information on the use of pre-dispute arbitration agreements for any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services. Comments regarding the scope, methods and data sources for conducting the study must be submitted on or before June 23, 2012. 

The Consumer Financial Protection Bureau (CFPB) recently announced a public inquiry to learn more about the financial exploitation of older Americans and best practices for financial management, according to a press release from the bureau. A recent industry study indicates a 12 percent increase in the amount of money scammed from elders from 2008 to 2010, the release said. 

The Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau recently signed an agreement to coordinate supervision of banks and credit unions with more than $10 billion in assets, American Banker reports. The agreement is intended to “minimize unnecessary regulatory burden, avoid duplicative efforts and reduce the risk of conflicting directives among supervisors,” the article said. For more, read the full story.

The Consumer Financial Protection Bureau (CFPB) proposed a rule yesterday that would "set up procedures to supervise nonbanks that may have engaged in activities that pose risks to consumers," according to a press release from the bureau. The proposed rule would establish procedures for the bureau to notify the nonbank that it is being considered for supervision as well as procedures for the bank to respond and even file a petition to "terminate supervision authority after two years," the release said.

The Consumer Financial Protection Bureau (CFPB) is requesting public comment on how it should study mandatory arbitration clauses, according to a press release from the bureau. As part of the Dodd-Frank Act, the CFPB is required to study and regulate pre-dispute arbitration clauses in consumer financial markets, the release said. The bureau is requesting public comment regarding the following:

• The prevalence of arbitration clauses in consumer financial products and services;
• What claims consumers bring in arbitration against financial services companies;
• If claims are brought by financial services companies against consumers in arbitration;
• How consumers and companies are affected by actual arbitrations; and
• How consumers and companies are affected by arbitration clauses outside of actual arbitrations.

A group of state attorneys general, led by Ohio's Mike DeWine, are working to address consumer complaints regarding credit-reporting agencies and may even file lawsuits under the Fair Credit Reporting Act, The Columbus Dispatch reports. Consumers who go through their state attorneys general to report credit issues are more likely to have their problems resolved than if they faced off against the credit-reporting agencies alone, the article said. For more, read the full story.

The Consumer Financial Protection Bureau (CFPB) recently released a bulletin outlining the responsibility of supervised financial institutions to effectively manage risks associated with third-party service provider relationships. The Bureau will closely monitor “service providers’ interactions with consumers,” and will “hold all appropriate companies accountable when legal violations occur,” a press release from the Bureau said. Banks and nonbanks supervised by the CFPB are advised to conduct thorough due diligence “to ensure that business arrangements with service providers do not present unwarranted risks to consumers,” the press release said.

The CFPB will hold an industry discussion in Cleveland, Ohio on April 27 featuring Director Richard Cordray and Deputy Director Raj Date as speakers.  Other key speakers will be Peggy Twohig, Assistant Director of Nonbank Supervision and Steve Antonakes, Assistant Director of Large Bank Supervision.  This event will be closed to the press.

The Consumer Financial Protection Bureau recently announced proposed rules that would help homeowners manage issues with mortgage servicers, which collect payments on behalf of loan holders, a press release from the Bureau said. Such rules would require "principal, interest, fees, escrow and due dates" to be clearly explained on monthly mortgage statements and would also require warnings and explanations regarding certain adjustable rate mortgages before they change. Information on options for struggling borrowers will be offered more rapidly, as will options for avoiding "forced-placed" insurance, the release said. Additional proposals would require payments to be credited to consumer accounts "the day payment is received"; errors to be more quickly addressed and corrected; and ongoing direct access to service staff members available to homeowners.

The Consumer Financial Protection Bureau (CFPB) requested Monday that consumers, industry stakeholders, and other interested parties provide feedback on the draft prototype of the new monthly mortgage statement that it has developed as required in The Dodd-Frank Wall Street Reform and Consumer Protection Act.
 
The statement, which is designed to "make it easier for homeowners to understand their loans and avoid unnecessary costs and fees," will include the following information:

• The principal loan amount
• The current interest rate
• The date on which the interest rate may next reset
• A description of any late payment penalty fees
• Information about housing counselors
• A telephone number and email address that may be used to contact the mortgage servicer

For more, read the full CFPB press release here or view the draft mortgage statement here.

In the next six months, the Consumer Financial Protection Bureau (CFPB) plans to issue a series of rules, orders, and other initiatives that are expected to broadly impact financial institutions and lenders. Among other lender related actions, the Bureau expects to issue final rules that will assist lenders in determining which borrowers have the ability to repay loans. The CFPB also plans to announce initial rules related to supervision and the definition of “larger participants," which is critical in determining which nonbanks outside of the residential mortgage, private education lending, and payday lending markets will fall under the scope of the CFPB supervision program. The Bureau will also announce final regulations establishing procedures for investigations, which may signal the start of enforcement actions in 2012. Read the full article here. 

Today, the CFPB released its semi-annual report highlighting the bureau's accomplishments in its first six months.  This report coincides with Director Cordray's testimony before the Senate Committee on Banking, Housing, and Urban Affairs scheduled for January 31, 2012.   We will provide our commentary on the report in days to come.

In a speech to Congress on January 24, CFPB Director Richard Cordray explained that “gross imbalances in consumer financial markets, most notably in the mortgage market, were a significant cause of the recent financial crisis.” As we announced in our January 13 blog post, the bureau released its Mortgage Origination Examination Procedures (Procedures). These Procedures act as a field guide for examiners tasked with assessing mortgage brokers and bankers’ compliance with the new CFPB procedures and federal consumer laws.

The bureau explains that examination objectives are to assess the entities’ compliance systems in place, identify acts that increase risk of violations of federal consumer laws, fact-find, and determine if lenders have violated federal consumer laws or are guilty of an unfair, deceptive, or abuse act or practice (UDAAP) as outlined in the Dodd-Frank Act.

While the bureau will examine lenders providing traditional and conventional loans, there is no doubt that CFPB lenders have been tasked to pay heavy attention to lenders’ policies and procedures that provide “subprime” and “non-traditional loans.” The bureau defines subprime loans as those with higher interest rates and charge fees to compensate the lender for lending to borrowers with impaired credit. Non-traditional loans tend to be interest-only loans and pay option ARMs.

Once examiners determine that a lender offers subprime and non-traditional loans, the Procedures provide that examiners will determine if advertising and promotional materials provide clear and understandable information about the risks associated with those products. Likewise, examiners will want to see that lenders provide information enabling borrows to determine if the product meets the borrowers’ needs.

What’s more, if the lender originates high-cost mortgages whereby the APR will exceed 8 percentage points for first mortgages or 10 percent for second mortgages and/or high mortgage points are applied, examiners will determine whether the lender routinely provides certain TILA disclosures to borrowers.

Another area of focus for CFPB examiners will be underwriting guidelines of mortgage bankers. If the mortgage banker originates non-traditional high-cost loans, examiners will assess if the lender has complied with Regulation Z requirements, including obtaining required documentation of income and assets from the borrower. Also, examiners will determine if underwriting standards take adjusted payments into account in considering the borrower’s ability to repay the loan when the payment amount is expected to change. Mortgage bankers that obtain little documentation in conjunction with originating a non-traditional or subprime loan can expect extreme scrutiny.

Finally, examiners will have unfettered access to lenders’ internal and external documents and policies including, organizational charts, loan applications, internal notes, disclosures, underwriting guidelines, computer programs, compensation policies, audit and compliance reports, and advertisements. Hence, mortgage brokers and bankers should understand the potential examination risk involved when originating subprime and non-traditional mortgages.

In late 2011, the CFPB rolled out its “Know Before You Owe” concept that provides the public with an opportunity to review and comment on real estate closing disclosure forms.  Real estate closing disclosure forms comprise of the Truth in Lending Act form and the RESPA HUD-1 Settlement Statement.  These forms are intended to help a homebuyer understand the key terms, conditions, and costs of the loan.

The bureau explains that consumers find real estate closing disclosure forms to be too complicated and cumbersome to understand.  After testing two template disclosure forms titled “Mimosa” and “Sassafras,” the bureau received comments about those forms.  With “Sassafras” winning out as being more consumer friendly, pleasing to the eye and better organized, the bureau recently posted two new template disclosure forms titled “ Butternut” and “Hemlock.”

Final template disclosure forms are due out in February 2012. 

On January 24, the Office of the Comptroller of the Currency (OCC) announced that it is seeking comment on a proposed Dodd-Frank rule requiring banks and thrifts with greater than $10 billion in assets (covered institutions) to conduct an annual "stress test."  The purpose of a stress test is to assess the institution’s capital adequacy and to "aid in identifying downside risks."  The rule would also require institutions to submit a report to the Federal Reserve Board with findings from the stress test.

The public comment period closes March 26, 2012. 

On January 23, the Consumer Federal Protection Bureau (CFPB) and the Federal Trade Commission (FTC) signed a Memorandum of Understanding (MOU) to coordinate their consumer protection activities and to avoid duplicating law enforcement and regulatory actions at the federal level.

The Dodd-Frank Act requires the CFPB and the FTC to collaborate to ensure consistent regulatory treatment of consumer financial products and services. Jon Leibowitz, Chairman of the FTC, believes that “this agreement ensures that businesses will not be double-teamed by the two agencies.” Some of the coordinating efforts by the CFPB and the FTC outlined in the MOU include the following:

• Regular meetings to coordinate upcoming law enforcement, rulemaking, and other activities;
• Informing the other agency, absent exigent circumstances, prior to initiating an investigation or bringing an enforcement action. This notice will prevent duplicative or conflicting enforcement efforts and undue burdens on industry;
• Consulting on rulemaking and guidance initiatives to promote consistency and reflect the experience and expertise of both agencies;
• Cooperation on consumer education efforts to promote consistency of messages and maximum use of resources; and
• Sharing consumer complaints among the agencies.

The MOU lasts for three years.

For those who send money internationally, the CFPB issued new rules governing remittance transfers.   Among other requirements, the new disclosures will require companies providing international transfers to disclose the exchange rate, fees, and the amount of money to be delivered to the recipient in the foreign country.  Transmitting companies must also provide a receipt or proof of payment and tell the customer the date that the money will arrive to the recipient.

Companies now must investigate any reported problem with a transfer, and at times, a customer can be refunded or transfer without charge if money fails to arrive when promised.   These rules are effective January 2013.  These new rules will impact companies such as Western Union and MoneyGram who will now have to comply with the new requirements.  But the new rules likewise apply to banks, savings and loans companies and credit unions. 

Quoting Dr. Martin Luther King, Jr., in prepared remarks, CFPB Director Richard Cordray explained his vision for payday lending reform while at the same time telling the audience that he understands the need for payday loan products.  This field hearing occurred in Birmingham, Alabama on January 19th. 

Director Cordray provided a definition for payday loans and explained that lenders collect at least $7 billion annually in fees.  He said that now that the CFPB has the authority to examine non-bank lenders, “the Bureau will be giving payday lenders much more attention.”  He also mentioned that the CFPB will scrutinize bank products that provide short-term "advance" loans to customers.

Importantly, Director Cordray announced the unveiling of the Short-Term, Small Dollar Examination Procedures, a field guide for payday lending examiners to use nationwide.  We will be providing an analysis of the field guide in days to come.   

In what promises to be a watershed moment in the first days of Director Cordray’s leadership of the CFPB, the debate over the regulation of the payday loan industry will begin in Birmingham, Alabama on January 19th.   The CFPB will hold its first “field meeting” at Birmingham Convention Center.  The event was first scheduled to be held at the Birmingham Civil Rights Institute.  But due to the overwhelming response, it was moved to the larger location.

In addition to Director Cordray’s comments, the field hearing will include testimony from consumer groups, civil rights groups, industry representatives and members of the public.  It was no accident that the CFPB chose Alabama for its first hearing as it explains that Alabama is “a state with one of the highest number of payday lenders per capita in the country.”  Alabama does regulate payday loans and caps the loan amount to $500 and caps the interest rate that can be charged on the loan.  Check back soon as we will provide a recap of the field meeting discussion.

The CFPB is accepting comments from the public regarding the produces and services currently offered by to or used by students and their families for financing post-secondary education.  The deadline for submitting comments to the CFPB is January 17, 2012.  Comments can be provided here. 

Under the Dodd-Frank Act, the CFPB will regulate companies that offer “private education loans” offered by schools or financial institutions to finance higher education.  This new regulatory authority does not, however, apply to Title IV federal loans.

Certainly, the CFPB is looking to tighten the existing disclosures provided by private education lenders regarding the terms of these loans.  Likewise, the CFPB is seeking comment regarding whether students are adequately informed of their rights as borrowers on private education loans and it is interested in alternative repayment plans that have proven to be effective in preventing loan default.

The CFPB has announced the publication of the mortgage origination examination procedures.  These guidelines are a "field guide" for examiners reviewing mortgage originators in both the bank and nonbank industries. 

These examination guidelines will apply to both lenders and brokers and nonbank entities such as payday lenders. In sum, the supervision activities will include document gathering, data analysis, onsite examination and ongoing monitoring.

After Director Cordray’s appointment, the CFPB reminded the public what its approach will be for nonbank examination.  For certain nonbanks including mortgage companies, payday lenders, and private education lenders, CFPB supervision is effective immediately. 

The CFPB is careful to note that its goal is to “prevent harm to consumers and promote the development of markets for consumer financial products and services that are fair, transparent, and competitive.”

To accomplish these goals, the CFPB will employ a combination of any of the following tools as outlined in the recent CFPB Blog post: requiring nonbanks to file certain reports, reviewing the documents that nonbanks utilize to offer products and services to customers, reviewing nonbank compliance systems and policies, and reviewing the correspondence between nonbanks and customers. 

The CFPB explained that “in general,” it will notify a nonbank in advance of an examination.  Thus, that leaves the door open to “surprise” CFPB examinations.  That should sufficiently concern nonbanks that will be examined by the CFPB.

Expect the CFPB to coordinate with the Ohio Department of Commerce for nonbank examinations. 

Before the second session of the 112th Congress begins on January 3, a progressive advocacy group is hoping for a last-minute gift — the recess appointment of former Ohio Attorney General Richard Cordray to the Consumer Financial Protection Bureau (CFPB).  According to an article in The Columbus Dispatch, People for the American Way Executive Vice President Marge Baker said the new CFPB will not be "able to do significant portions of its work" if President Barack Obama does not override the Senate Republicans' December 8 filibuster that blocked Cordray's nomination. 

Created to protect consumers from lending and mortgage practices related to the financial crisis, several of the monitoring duties and newly created powers established under Dodd-Frank Act cannot be enforced without a director, as reported in our Dec 9 post. 

Read the full article. 

ALI-ABA is offering an a comprehensive one-day course on the Consumer Financial Protection Bureau (CFPB) and Dodd-Frank titled "The Consumer Financial Protection Bureau: A New Regulatory Word for Banks, Thrifts, Mortgage Lenders, Credit Card Companies, and Consumer Financial Service Companies."  The course will be offered in New York City on January 20, 2012 and will examine the regulatory powers of the CFPB, review the structuring of the bureau's operating divisions, and discuss CFPB interaction with other federal and state agencies charged with regulating the consumer financial marketplace. Representatives of the CFPB, other government agencies and private practitioners will be panelists and presenters. Click here for the online brochure.