On May 11, 2020, the Consumer Financial Protection Bureau (“CFPB”) announced that it will impose stricter reporting requirements on entities that process international money and remittance transfers for consumers. This final rule will take effect on July 21, 2020, replacing a temporary rule that has been in place since 2013. The new rule requires that international money transfer and remittance providers disclose the following information to consumers: exact exchange rates; the total value of transaction fees; and the amount of money expected to be received by the transfer or remittance recipient. For banks and credit unions that process large numbers of transfers, compliance costs and associated oversight policies will remain burdensome.

The new rule, however, augments the safe harbor protections afforded to certain banks and credit unions when reporting the costs of transfers and remittances to consumers. Under the temporary version of Regulation E, which was adopted in 2013, banks and credit unions that provide fewer than 500 remittances or transfers per year were permitted to estimate the costs of remittance transfers to consumers rather than providing exact transaction fees and exchange rates. Preceding the effective date of the temporary regulation, this safe harbor provision only applied to those banks and credit unions that processed fewer than 100 transfers per year. The final rule increases the transfer threshold to 500 transfers per year, making the temporary exemption permanent. In addition, the Bureau adopted a new, permanent exemption for insured institutions to “estimate the exchange rate for a remittance transfer to a particular country if, among other things, the designated recipient will receive funds in the country’s local currency and the insured institution made 1,000 or fewer remittance transfers in the prior calendar year” and the recipients received funds in the country’s local currency.

The past few weeks have seen increasing scrutiny of the lenders and borrowers participating in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), including by the Treasury Department, SBA Inspector General, U.S. Department of Justice, and Congress with the Special Inspector General for Pandemic Recovery surely soon to follow.

Against this backdrop, the Consumer Financial Protection Bureau (“CFPB”) has recently raised concerns related to fair lending for lenders participating in the PPP. On May 6, 2020, the CFPB issued guidance related to the timing for Equal Credit Opportunity Act (“ECOA”)-mandated adverse action notices under the PPP. On April 27, 2020, the CFPB published a statement in which the Bureau emphasized that lenders must comply with ECOA when extending small business credit, outlining key bases for discrimination claims under ECOA and encouraging women and minority-owned businesses who feel they have suffered lending discrimination to submit complaints to the CFPB through its complaint portal.

The CFPB’s recent focus on institutional fair lending compliance accords with that of federal banking regulators. For example, on April 27, 2020, the Office of the Comptroller of the Currency released “OCC Bulletin 2020-45,” which, among other things, encourages institutions to “prudently document their implementation and lending decisions” under the SBA’s PPP.

Given recent regulatory focus on fair lending compliance in connection with PPP lending, banks and other lenders should consider the following proactive risk mitigation steps.

Special populations need extra support during the COVID-19 pandemic. The CFPB is committed to providing real time, easily understood consumer education materials as well as clear guidelines for financial services companies. The Bureau stands ready to prosecute bad actors for UDAAP violations in the marketplace through enforcement and referrals of UDAAP violations. These were three themes offered by Director Kathleen Kraninger in public meeting remarks. And not to bury the lead, she noted the Bureau’s on-going monitoring of consumer impacts with the Department of Justice, Treasury, the FTC and state Attorneys’ General.

On Friday, May 1, 2020, the CFPB convened a joint session of its several Advisory Committees, including the Consumer Advisory Board, the Community Bank Advisory Council, the Credit Union Advisory Council and the Academic Research Council.  The meeting involved presentations from staff focused on (1) consumer complaint analysis and trends, (2) household and market impacts and (3) special populations concerns. Public questions and comments were entertained relating to each topic. The presentation materials contain useful initial analysis on consumer complaints trends arising during the COVID-19 pandemic. 

TRID Rescission Waiver Rule & ECOA Valuations FAQ

On April 29, 2020, the Consumer Financial Protection Bureau (CFPB) released additional information which Director Kathleen Kraninger said she hopes “will help consumers facing financial emergencies obtain access to mortgage credit faster.”  The new guidance impacts waiver of rights of rescission, good faith closing costs estimates, and ECOA valuations delivery timing requirements in connection with potential urgent consumer finance transactions.

“Temporary & Targeted Solutions.”

Mortgage lenders will need to be aware of this new interpretive rule and FAQ guidance and adjust their operations accordingly. Consumers who are accessing the COVID-19 resources center on the CFPB website likely will be aware of these potential ways to expedite transactions and will be expecting lenders to act accordingly.  Key bases for the new rules include COVID-19 pandemic related “bona fide personal financial emergency” or “changed circumstances.”  

TRID/ Reg Z Interpretive Rule – Modification or Waiver of Right of Rescission Timing

TILA RESPA Integrated Disclosure (TRID) rules protect borrowers by allowing them to receive information so they can “know before they owe.” Borrower exercise of three day rescission rights has been an issue of confusion and substantial litigation over the years. The new Rule may yield similar disputes in the future because of the evolving nature of the pandemic related financial hardship and the timing pressures involved. It also will be interesting to see how this temporary rule may influence either extension or sunset of current CARES Act foreclosure prohibitions.

The new Rule provides that “(1) if a consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency, (2) the consumer’s brief statement describing the emergency identifies a financial need that is due to the COVID-19 pandemic, and (3) the emergency necessitates consummating the credit transaction before the end of an applicable TRID Rule waiting period or must be met before the end of the Regulation Z Rescission Rules waiting period, then the consumer has a bona fide personal financial emergency that would permit the consumer to utilize the modification and waiver provisions…”

Today, the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB) announced a joint program to assist borrowers experiencing financial hardship in connection with the COVID-19 pandemic. The Borrower Protection Program (BPP) augments a number of prior actions taken by the regulators in connection with and relating to the CARES Act. 

According to the announcement, the BPP “enables CFPB and FHFA to share servicing information to protect borrowers during the coronavirus national emergency.” FHFA Director Mark Calabria added “Borrowers are entitled to accurate information about their forbearance options. This partnership with CFPB ensures FHFA can address misconceptions stemming from consumer complaints by working with Fannie and Freddie servicers.” This may be an early attempt to avoid confusion, consternation and often delay which impacted consumers as well as servicers seeking to understand what specific relief was available to which borrowers. Consumers and servicers alike will recall these challenges plagued the roll out of the TARP HAMP processes following the 2008 Financial Crisis, often exacerbated by media soundbites that did not communicate detail regarding program relief requirements. Even today’s press release reflects additional detail from FHFA: “The missed payments will have to be paid back by the borrower. The missed payments can be added to the normal monthly payments, paid back all at once, tacked on to the end of the loan, or the borrower can have the term of the loan extended.”

Analytical Tools and Complaint Information: The program itself will involve sharing of data between the two agencies: “CFPB will make complaint information and analytical tools available to FHFA via a secure electronic interface; and FHFA will make available to the Bureau information about forbearances, modifications and other loss mitigation initiatives undertaken by Fannie Mae and Freddie Mac (the Enterprises).” CFPB Director Kraninger has noted previously that she sees data analysis as a key focus of the Bureau.

In her testimony before the House Financial Services Committee in February 2020, Kraninger stated: “Complaints, along with other inputs, give us insight into people’s experiences in the marketplace that we analyze and use to improve our mission execution. The analysis helps us regulate consumer financial products and services under existing Federal consumer financial laws, enforce those laws judiciously, and educate and empower consumers to make informed financial decisions. The Bureau also publishes complaint data and reports on complaint trends annually in Consumer Response’s Annual Report to Congress.”

On January 24, 2020, the Consumer Financial Protection Bureau (CFPB) announced a new policy regarding the prohibition on abusive acts or practices. The CFPB has clarified how it will define, supervise and enforce “abusive” standards under Dodd Frank § 1031(a) and (d).  The Bureau’s announcement acknowledges that there has been uncertainty in this area. The Director intends the Policy Statement to help avoid adverse consequences which may “chill or overly deter covered persons from engaging in conduct that may be beneficial to consumers.” The Policy Statement is effective January 24, 2020 and will govern supervisory and enforcement conduct going forward. The full Policy Statement is available here.

Dodd Frank Abusiveness Standard

Section 1031(d) of Dodd Frank defines broad parameters for abusiveness. The practice may be determined to be abusive if it:

(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or

(2) takes unreasonable advantage of—

(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;

(B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

See 12 U.S.C. 5531(d).

Bureau’s Historical Prosecution of Abusiveness

The Policy Statement provides background on the Bureau’s enforcement activities specific to abusiveness. Since 2011, the Bureau “has brought 32 enforcement actions that included an abusiveness claim, including as recently as fall 2019.” However, more than 90% of the actions included both abusiveness and unfairness or deception claims. According to the Bureau, “only two enforcement actions contained just an abusiveness claim.” Demonstrating the challenge of amorphousness, the Bureau acknowledges “in many of those 30 actions, the abusiveness claim arose from the same course of conduct as the unfairness or deception claim.”

2019 Symposium – Differing Perspectives

Director Kraninger has been active in seeking input from various constituents since taking the helm. In  June 2019, the Bureau held its Symposium on Abusive Acts or Practices. “Eight academics and practitioners with expertise in UDAAP issues engaged in dialogue…” According to the Statement topics included the following:

• “the necessity of clarifying the abusiveness standard (and if so, whether rulemaking or another tool should be used),
• the degree of uncertainty posed by the statutory language, the particular aspects of the standard most in need of clarification,
• the practical consequences of this uncertainty on consumer financial markets, and how the Bureau should enforce the abusiveness standard.”

Enforcement, Innovation, Consumer Data and Unconstitutionality

Director Kraninger and the Consumer Financial Protection Bureau have been busy this month. Summer is over, and back to school it is.

In addition to convening a symposium and two Director speeches, the Bureau released ten plus statements this month spanning enforcement activity, no action letter policy, innovation, and consumer data enhancements. Not to be overlooked, the Director also announced her position that the Bureau’s structure is unconstitutional. In this relatively short article, we cannot dive deeply into the specifics of each new development, but we can offer some highlights to help keep you abreast of Bureau changes. Definitely, more to come.

Enforcement: Two actions. One stipulated judgment. The Bureau’s actions assert (a) violations of Consumer Financial Protection Act of 2010 and Reg O in connection with allegedly deceptive and abusive mortgage assistance services and (b) violations of the Fair Credit Reporting Act, Regulation V and the CFPA in connection with allegedly improper debt collection practices. The former included a proposed stipulated judgment, which if entered, would resolve the matter by imposing civil money penalty and other relief. See September 6 and September 25 case announcements here.

On December 11, 2018 Kathleen Kraninger, the new Director of the Bureau of Consumer Financial Protection, held a media conference. She introduced herself and answered media questions. Subsequent headlines have focused on among other things: (a) whether she would simply follow the recent course set by her predecessor Acting Director Mick Mulvaney, and (b) whether the Bureau’s recent name change would stick. Director Kraninger’s comments appeared to signal accountability, independence and curiosity. The impact on regulated institutions in 2019 and beyond remains to unfold. Here are some developments to watch in 2019.

Listening Tour 2019. Kraninger will be engaging in a listening tour to get to know the 1500 employees in the Bureau. For example, she plans to visit to San Francisco, Chicago, New York regional offices. She also indicated that she intends to connect with other regulators and constituencies including, state regulators, other related federal agencies, consumer advocates and regulated institutions.   She also indicated she will work to have a productive relationship with House Financial Services Committee and its incoming chair Maxine Waters. Earlier this month, Waters released a statement requesting Kraninger undertake specific initiatives “to put consumers first by rolling back the anti-consumer actions taken by her predecessor and allowing the Consumer Bureau to resume its work of protecting hardworking Americans from unfair, deceptive or abusive practices.”   New staffing alignments and other strategic changes may be borne form this listening tour.

Believes Regulated Industry Wants to Comply. In a nod to industry, Kraninger noted that institutions want to comply with consumer protection laws. The Bureau needs to give institutions clear rules in her view. However, she also signaled strong action for outliers, indicating that enforcement is a critical function and tool of the Bureau “fundamental to the agency’s mission.”  She also noted that “bad actors” should expect repercussions under her watch.

The holidays are a time for deals — rebates, discounts and special financing offers. Especially prevalent are automobile advertisements with images of big red bows atop shiny new cars and exhilarated families dashing out into the snow to unpack presents out of the back. Well, the regulators are watching those advertisements too. For the fourth time in a month, the CFPB is warning consumers, especially servicemembers, about the potential pitfalls of the car buying process and understanding exactly what they are buying and what they are financing. The FTC is joining in to help, with its own resources as well.

Add-On Products are an area of special concern and focus for the CFPB. The CFPB recommends that buyers “be prepared to say ‘No, thank you’ if [they’re] offered add-ons [they] don’t want or need.” But the CFPB also adds a warning that customers should be sure to review their contracts carefully to make sure the items declined are not included. Dealer sales practices vary on these types of products, and the CFPB appears to be suggesting not so subtly that buyer had better beware.

Value & Actual Costs/ Financing. Products and services the regulators highlight include: (a) guaranteed auto protection (GAP), (b) tire, dent, paint and fabric protection packages, (c) extended warranties, and (d) service contracts. These additional products and services can be valuable to consumers depending on how long they intend to keep the car, how they want to maintain it, and their own economic circumstances and budget cashflow. The CFPB and FTC focus signals that in marketing these products and services, institutions and their business partners must be direct and forthright about the product, its features, its limitations, and the price. High pressure sales tactics or aggressive marketing may result in customer complaints, regulatory inquiries, and litigation and reputation risk.

KISS. An acronym first utilized in military equipment design in the 1960’s, “Keep it Simple Stupid.” Litigators rely on KISS in formulating trial themes and presentations to juries. Simple messages resonate. In that vein, I offer three KISS takeaways from the Bureau of Consumer Financial Protection’s Supervisory Highlights, Issue 17, Summer 2018.

KISS #1: Details Matter. 

On two key levels: (a) your business compliance operations and consumer interactions, and (b) in the Bureau’s supervision and examination conclusions. Taking these in reverse order, the Bureau’s Introduction (p. 2) provides important guardrails:

[L]egal violations described in this and previous issues of Supervisory Highlights are based on the particular facts and circumstances reviewed by the Bureau as part of its examinations. A conclusion that a legal violation exists on the facts and circumstances described here may not lead to such a finding under different facts and circumstances.

This is critical to your supervision and examination preparedness and your interactions with the Bureau.  If the Bureau spots a concern, consider providing a fulsome explanation of the analysis that went into the policy formulation, how your organization believed it was operating in good faith under applicable laws and believed that the practice would not harm or mislead consumers, what steps your organization has done in monitoring and addressing any consumer concerns regarding the policy or practice. This may sound basic, but the Bureau’s statement matters and can be referenced. The Bureau should, in my view, consider such information in assessing whether any violation has occurred, whether any consumers actually were harmed and whether any remediation is necessary. Sometimes the conclusion may be that the practice presents a risk of potential confusion or harm and simply should be modified going forward. Present your best case; the Bureau appears to be open to considering all the facts and circumstances.