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  • Trending: A Principles-Based Approach To US Financial Regs
    March 24, 2015
    Manley Williams & Nadav Ariel

    While the United States has traditionally utilized rules-based policies, there has been a recent trend toward integrating principles-based policies and behavioral economics in regulating consumer financial products. For a framework of applying behavioral economics- and principles-based regulations, U.S. regulators, such as the Consumer Financial Protection Bureau, need look no further than across the pond.

    Early adopters of principles-based and behavioral economics-guided policies have been the Financial Conduct Authority, which regulates financial products in the United Kingdom, and its jurisdictional predecessor, the Financial Services Authority. Indeed, the FSA’s enforcement actions in the U.K. credit card add-on industry foreshadowed similar actions in the U.S. by the CFPB. The FCA’s recent regulatory proposals governing aftermarket automotive financial products, combined with the CFPB’s recent investigatory focus on similar products, suggest that the U.K. experience may be instrumental in anticipating developments here.

    Originally printed in Law360; reprinted with permission. 

  • The CFPB's Proposed HMDA Rule: "Getting It Right" in Light of Major Changes to HDMA
    March 16, 2015
    Warren W. Traiger & Purvi Sanjay Patel

    The Consumer Financial Protection Bureau’s (the “Bureau” or the “CFPB”) proposed rule to amend Regulation C (the “HMDA Proposal”) to implement changes to the Home Mortgage Disclosure Act (“HMDA”) will drastically expand the amount of mortgage loan application data that lending institutions will be required to report to financial regulators and, potentially, to the public. The Bureau is acting pursuant to its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which transferred rulemaking responsibility for HMDA from the Federal Reserve Board (“FRB”) to the CFPB.

    The proposed rule will double the number of data fields required to be reported under HMDA from 36 to 72 and is certain to result in heightened fair lending scrutiny for mortgage lenders. Moreover, the HMDA Proposal suggests that much of the data will become publicly available, raising significant concerns about the reputational risk that could result when that data suggest discrimination to the media or advocacy organizations. 

    Click here to read more at http://www.rscrpubs.com

  • New Day For RESPA: The UDAAPification Of Section 8
    March 11, 2015
    Valerie L. Hletko & Caroline M. Stapleton

    The Real Estate Settlement Procedures Act has gone the "UDAAPified" way of debt collection — this time, through enforcement rather than guidance.

    In July 2013, Consumer Financial Protection Bureau Bulletin 2013-07 announced that the principles underlying the Fair Debt Collection Practices Act broadly apply under Sections 1031 and 1036 of the Dodd-Frank Act, which prohibit unfair, deceptive, or abusive acts or practices (UDAAPs). The FDCPA prohibits a “debt collector” from engaging in any conduct, “the natural consequence of which is to harass, oppress or abuse any person in connection with the collection of debt,” to “use any false, deceptive or misleading representation or means in connection with the collection of any debt,” or to “use any unfair or unconscionable means to collect or attempt to collect any debt.”

    The FDCPA generally applies to third-party debt collectors, including collection agencies, debt purchasers and attorneys who engage in debt collection. It does not apply to companies collecting on their own behalf. CFPB Bulletin 2013-07 acknowledges that the FDCPA “does not include some persons who collect consumer debt,” but warns that “all covered persons and service providers must refrain from committing UDAAPs” in the collection of debt.

    On Feb. 10, 2015, the CFPB announced a consent order against NewDay Financial LLC, a mortgage lender offering mortgage loans guaranteed by the Veterans Benefits Administration. (In re NewDay Financial Inc., 2015-CFPB-0004 (Feb. 10, 2015)). The order is based on an allegedly deceptive advertising relationship with an unidentified third-party veterans’ organization.

    Originally published in Law360; reprinted with permission. 

  • Debt Collection in the Post Dodd-Frank Enforcement Era
    February 25, 2015
    Kirk Jensen, John Redding, Sasha Leonhardt & Jessica Pollet

    Kirk Jensen, John Redding, Sasha Leonhardt, and Jessica Pollet authored "Debt Collection in the Post Dodd-Frank Enforcement Era," which appeared in the January/February issue of The Journal of Taxation and Regulation of Financial Institutions.

    Since the passage of the Dodd-Frank Act, government agencies have increasingly focused on entities operating in the debt-collection space. Where government agencies have identified practices they believe constitute unfair, deceptive, or abusive acts and practices or other violations of law in the collection of consumer debts, enforcement actions generally have ensued. The authors identify key takeaways for debt collectors from recent government actions and provide possible options regarding continued regulatory compliance. 

    Click here to read the article at www.civicresearchinstitute.com (subscription required.)

  • Succession Planning Part 2: Communicating with Family Members After the Death of a Customer
    February 24, 2015
    Richard E. Gottlieb & Andrew W. Grant

    Your bank customer has died. Her husband, who is well known to the bank, calls to discuss his deceased wife’s account and seeks to “add” his name to the account so he can access some of the funds for funeral expenses. You would like to help, but there are some obvious problems. For one, this is not a joint account. For another, you have privacy obligations, and your customer never authorized the bank to discuss the account with anyone else, not even her husband. And perhaps of greatest importance, you have no way to know whether other persons have any entitlement to the funds, or (for that matter) whether the husband has any rights to the funds in that account after his wife has died.

    Under these circumstances, may you speak with the husband about the account? May you add the husband’s name to the account? Try as we might to help our customers and their families during situations like this, the law is not always as pristine as one might assume, and the answers frequently depend on the underlying facts and governing law.

    Originally printed in Illinois Banker. Reprinted with permission. 

Knowledge + Insights

  • Special Alert: CFPB Releases Outline of Proposed Rule for Payday, Vehicle Title, and Similar Loans
    March 27, 2015

    On March 26, the CFPB announced that it is considering proposing a rule to “end payday debt traps” and released several related documents, including a fact sheet and an outline of the proposal that will be presented to a panel of small businesses pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA).  The proposal sets forth ability to repay requirements for “short-term” and “longer-term” loans, and then provides alternative options for lenders to provide both types of loans in lieu of complying with the general ability to repay requirements.

    Under the SBREFA process, the CFPB first seeks input from a panel of small businesses that likely will be subject to the forthcoming rule.  A report regarding the input of those reviewers is then created and considered by the CFPB before issuing its proposed rule.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to the lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: USDA-RHS Proposes Its Own QM Rule
    March 16, 2015

    On March 5, 2015, the USDA-RHS released a proposed rule to amend the regulations for the Single Family Housing Guaranteed Loan Program (SFHGLP) to provide that a loan guaranteed by USDA-RHS is a QM if it meets certain requirements set forth by the CFPB. In addition, USDA-RHS proposed to add the definition of “Qualified Mortgage” to its regulations. The proposal follows the adoption of separate QM definitions for FHA and VA loans last year. 
    The proposed rule also seeks to: (i) expand USDA-RHS’ lender indemnification authority for loss claims in certain instances, such as fraud , misrepresentation, and noncompliance with loan origination requirements, (ii) add a new special loan servicing option, (iii) revise the interest rate reduction requirement for refinances, and (iv) add a streamlined-assist refinance option. Comments to the proposed rule must be received on or before May 4, 2015.
    Questions regarding the proposed rule may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert Update: OCC Revises Guidance Regarding Consumer Protection Requirements to Overdraft Lines and Protection Services
    March 11, 2015

    On March 6, 2015, the OCC issued its revised “Deposit-Related Credit” booklet (“DRC booklet”) of the Comptroller’s Handbook, which replaced the “Deposit-Related Consumer Credit” booklet issued on February 11, 2015 (previously covered in this Special Alert).  While the new booklet covers the same products – check credit (overdraft lines of credit, cash reserves, and special drafts), overdraft protection services, and deposit advances – the OCC made significant amendments to scale back the provisions of the prior version.  Specifically, the new DRC booklet no longer contains supervisory principles that could be read to require that banks provide substantive consumer protections that are not currently required by the applicable consumer protection regulations.   For example, the DRC booklet no longer requires that banks:

    • Only enroll customers into an overdraft protection service if they have affirmatively requested that product;
    • Ensure the ability to repay for all applicants enrolled in an overdraft protection service; and
    • Ensure that any fees charged in connection with an overdraft protection service are reasonably related to the program’s costs and associated risks.

    In making these changes, the OCC requires supervisors to assess DRC products more in line with existing consumer protection laws.  The OCC states as much in OCC Bulletin 2015-17, which announced the DRC booklet.  There, the OCC acknowledges that the DRC booklet “is intended as a summary restatement of existing laws, regulations, and policies [and] ... [n]othing in this booklet should be interpreted as changing existing OCC policy.”

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: OCC Guidance Applies Consumer Protection Requirements to Overdraft Lines and Protection Services
    February 16, 2015

    UPDATE: On February 20, the OCC announced that it would be removing the “Deposited-Related Consumer Credit” booklet, originally issued on February 11, from its website. The OCC’s February 11 booklet seemingly required banks to change overdraft protection services, however the agency has since stated that the booklet was not intended to establish new policy. According to the OCC’s website, the agency will “[revise] the booklet to clarify and restate the existing law, rules, and policy.” When the OCC releases its amended version of the booklet, we will update the February 16 Special Alert to reflect the agency’s modifications.

    On February 11, 2015, the OCC issued the “Deposit-Related Consumer Credit” booklet of the Comptroller’s Handbook, which replaced the “Check Credit” booklet. The booklet provides updated guidance and examination procedures that the OCC will use to assess a bank’s deposit-related consumer credit (DRCC) products, which include check credit (overdraft lines of credit, cash reserves, and special drafts), overdraft protection services, and deposit advances. In many respects, it tracks the CFPB’s proposed prepaid rule, which would apply the Truth-in-Lending Act and Regulation Z to a broad range of credit features associated with prepaid products.

    The OCC sets forth certain supervisory principles that apply to all DRCC products, which appear to meld consumer protection and safety and soundness concerns. These principles require that banks provide substantive consumer protections in connection with certain DRCC products that are not currently required by the applicable consumer protection regulations. Specifically, the supervisory principles include the following:

    • Opt-In and Regulation E: Banks should not automatically enroll any customer in DRCC products, and should only enroll customers who affirmatively have so requested. In contrast, the opt-in requirement applies, under Regulation E, only to overdraft services in connection with ATM and one-time debit card transactions.
    • Ability to Repay and Regulation Z: Banks should ensure ability to repay for all applicants enrolled in DRCC products, meaning that the associated underwriting practices should analyze the applicant’s income or assets and debt obligations. In contrast, under Regulation Z, this ability-to-pay requirement applies to credit card accounts, not DRCC products like overdraft lines of credit accessed by a debit card or account number or overdraft protection services. If the final CFPB prepaid rules are substantially similar to the proposed rules, then certain credit features associated with prepaid cards will also require compliance with the ability-to-pay rule.
    • Fee Limits: Banks must ensure that any fees charged in connection with DRCC products are reasonably related to the program’s costs and associated risks. In contrast, under Regulation Z, the requirement that penalty fees represent a reasonable proportion of the total costs incurred as a result of the violation applies to credit cards, not DRCC products.

    The OCC also expects banks to monitor the volume of revenue that DRCC products generate, and to evaluate whether the bank unduly relies on fees generated by a DRCC product. Bank management should also guard against “an over reliance on fee income from any single product.”

    In addition, the OCC expects banks to monitor customer behavior and any outlier usage of DRCC products to avoid what the guidance frames as operational, compliance, reputational, and credit risk. For example, the OCC posits that repeated extensions of credit may constitute “loan flipping” and subject the bank to credit risk. Additional supervisory principles address disclosures, program availability and eligibility, consumer usage, credit terms and repayment methods, and credit reporting.

    The OCC’s risk management expectations may also have tangible effects on a bank’s current operating practices, including higher capital requirements insofar as DRCC portfolios may have subprime credit characteristics. In this regard, the OCC’s requirement that banks report DRCC products in regulatory reports as loans may also have practical effects on banks.

    It is worth noting that, two years ago, the OCC published proposed guidance relating to deposit advance products in the Federal Register, which allowed for public comment and time to prepare for any new compliance and supervisory expectations. The OCC published final guidance in the Federal Register in November 2013 (previously covered here) and OCC Bulletin 2013-40. This time, the OCC has dispensed with the opportunity for public comment and appears to require immediate compliance, notwithstanding that many of the expectations outlined with respect to certain DRCC products are radically new—including for overdraft protection services, as to which the OCC previously stated that “[b]anks generally do not underwrite overdraft protection services on an individual basis when enrolling the consumer.”

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: CFPB States Supervisory Obligations Trump Nondisclosure Agreements
    January 29, 2015

    On January 27, the CFPB issued Compliance Bulletin 2015-01 to remind supervised financial institutions of their obligations concerning the disclosure of confidential supervisory information (CSI) to the CFPB and to third parties. Specifically, the Bulletin addresses the interaction between a financial institution’s obligations with respect to the CFPB and its contractual obligations under nondisclosure agreements (NDAs) with a third party that restrict the sharing of information. Such NDAs typically (i) restrict sharing protected information with any third party (which would include a supervisory agency) other than in connection with a subpoena or similar legal requirement and (ii) require the institution to advise the third party before it shares information as required by law (which again would include sharing protected information with a supervisory agency).

    Supervised financial institutions and other persons, with limited exceptions outlined in the Bulletin, are generally prohibited from disclosing CSI to third parties. According to the Bulletin, a supervised financial institution should not rely on the provisions of an NDA to justify disclosing CSI in a manner not otherwise permitted, either through a valid exception or prior written approval from the CFPB. The Bulletin appears to take the position that the fact that information has been shared with the CFPB is itself CSI.

    The Bulletin also warns supervised financial institutions that an NDA between an institution and a third party does not alter or limit the CFPB’s supervisory authority, and that the failure based on an NDA to provide CSI or other information required by the CFPB to conduct its supervisory activities is a violation of law for which the CFPB will pursue all available remedies.

    In that supervised institutions such as banks and bank holding companies have been subject to the same issue for many years, this bulletin may be aimed at non-banks that are new to being subject to federal financial supervision.  

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

    • Jeffrey P. Naimon, (202) 349-8030
    • Jonice Gray Tucker, (202) 349-8005
    • Andrea K. Mitchell, (202) 349-8028
    • Valerie L. Hletko, (202) 349-8054
    • Michelle L. Rogers, (202) 349-8013
    • Benjamin K. Olson, (202) 349-7924
    • John P. Kromer, (202) 349-8040
    • Joseph M. Kolar, (202) 349-8020
    • Jeremiah S. Buckley, (202) 349-8010