October 26th 2016

Source: Compliance Bulletin and Policy Guidance; 2016-02, Service Providers

The Bureau is reissuing its guidance on service providers, formerly titled CFPB Bulletin 2012-03, Service Providers to clarify that the depth and formality of the risk management program for service providers may vary depending upon the service being performed—its size, scope, complexity, importance and potential for consumer harm—and the performance of the service provider in carrying out its activities in compliance with Federal consumer financial laws and regulations. This amendment is needed to clarify that supervised entities have flexibility and to allow appropriate risk management.

October 25th 2016

Source: CFPB's Cordray Puts Servicers on Notice Ahead of New Rules

The Consumer Financial Protection Bureau will require underperforming servicers to document the technology and process changes used to implement the agency's recently released servicing regulations.

Noting the investments some mortgage servicers are making to improve operations, CFPB Director Richard Cordray said technology deficiencies and inadequate processes that were exposed during the foreclosure crisis are still rampant at many organizations.

"In certain circumstances, we will require specific and credible plans on how their information technology systems will be upgraded," Cordray said during a speech Tuesday at the Mortgage Bankers Association's Annual Convention in Boston.

Cordray did not provide specifics about what criteria the bureau would use to determine which servicers will received added scrutiny. However, he said the CFPB considers the procedures servicers have in place to respond to complaints a "basic component of a compliance management system," and he cautioned servicers to take that responsibility seriously.

The CFPB in August issued a final rule for mortgage servicers that provides greater protections to struggling borrowers, surviving family members and borrowers in bankruptcy.

Cordray took a more conciliatory tone when addressing lenders' implementation of the "Know Before You Owe" disclosure rules, also known as TRID, which took effect a year ago, citing an overall reduction in the number of loans experiencing disclosure-related issues. He said the new forms have provided "more convenience and insight for consumers."

"Our initial examinations show, as we expected, that lenders have in fact been making good faith efforts to follow the rules and consumers are receiving accurate and timely disclosures," Cordray said.

October 5th 2016

Source: CFPB Finalizes Strong Federal Protections for Prepaid Account Consumers

The Consumer Financial Protection Bureau (CFPB) today finalized strong federal consumer protections for prepaid account users. The new rule requires financial institutions to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, and give consumers free and easy access to account information. The Bureau also finalized new “Know Before You Owe” disclosures for prepaid accounts to give consumers clear, upfront information about fees and other key details. Finally, prepaid companies must now generally offer protections similar to those for credit cards if consumers are allowed to use credit on their accounts to pay for transactions that they lack the money to cover.

“Many consumers rely on prepaid cards to make purchases and access funds, but until now they were not guaranteed strong consumer protections under federal law,” said CFPB Director Richard Cordray. “This rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone. And it backs up those protections with important new disclosures to let consumers know before they owe.”

Prepaid accounts are among the fastest growing consumer financial products in the United States, usually purchased at retail outlets or online. The amount consumers put on “general purpose reloadable” prepaid cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012. The total dollar value loaded onto these prepaid cards is expected to nearly double to $112 billion by 2018. Prepaid accounts may be loaded with funds by a consumer or by a third party, such as an employer. Consumers generally can use these accounts to make payments, store funds, withdraw cash at ATMs, receive direct deposits, or send money to others.

The new rule applies specific federal consumer protections to broad swaths of the prepaid market for the first time. It covers traditional prepaid cards, including general purpose reloadable cards. It also applies to mobile wallets, person-to-person payment products, and other electronic prepaid accounts that can store funds. Other prepaid accounts covered by the new rule include: payroll cards; student financial aid disbursement cards; tax refund cards; and certain federal, state, and local government benefit cards such as those used to distribute unemployment insurance and child support.

August 4th 2016

Source: CFPB publishes 900-page final rule on mortgage servicing

The Consumer Financial Protection Bureau finalized new regulations Thursday that it says will ensure homeowners and struggling borrowers are treated fairly by mortgage servicers.

The final mortgage servicing rule will require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan, clarifies borrower protections when the servicing of a loan is transferred and provides loan information to borrowers in bankruptcy.

“The Consumer Bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon,” said CFPB Director Richard Cordray.

“These updates to the rule will give greater protections to mortgage borrowers, particularly surviving family members and other successors in interest, who often are especially vulnerable,” Cordray said.

The changes also work to ensure family members and others who inherit or receive property generally have the same protections under the CFPB’s mortgage servicing rules as the original borrower.

Mortgage servicers are responsible for collecting payments from the mortgage borrower and forwarding those payments to the owner of the loan. They typically handle customer service, collections, loan modifications, and foreclosures. The CFPB established regulations for these servicers in January of 2014.

Now, the CFPB has established new regulations for servicers. Here is a summary from the CFPB:

Requiring servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan:

Under the CFPB’s existing rules, a mortgage servicer must give borrowers certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosure, only once during the life of the loan. Today’s final rule will require that servicers give those protections again for borrowers who have brought their loans current at any time since submitting the prior complete loss mitigation application.

This change will be particularly helpful for borrowers who obtain a permanent loan modification and later suffer an unrelated hardship, such as the loss of a job or the death of a family member, that could otherwise cause them to face foreclosure, the CFPB stated.

Expanding consumer protections to surviving family members and other homeowners:

If a borrower dies, existing CFPB rules require that servicers have policies and procedures in place to promptly identify and communicate with family members, heirs, or other parties, known as successors in interest, who have a legal interest in the home. Today’s final rule establishes a broad definition of successor in interest that generally includes persons who receive property upon the death of a relative or joint tenant; as a result of a divorce or legal separation; through certain trusts; or from a spouse or parent.

The final rule ensures that those confirmed as successors in interest will generally receive the same protections under the CFPB’s mortgage servicing rules as the original borrower.

Providing more information to borrowers in bankruptcy:

Under the CFPB’s existing mortgage rules, servicers do not have to provide periodic statements or early intervention loss mitigation information to borrowers in bankruptcy. Today’s final rule generally requires, subject to certain exemptions, that servicers provide those borrowers periodic statements with specific information tailored for bankruptcy, as well as a modified written early intervention notice to let those borrowers know about loss mitigation options.

Servicers also currently do not have to provide early intervention loss mitigation information to borrowers who have told the servicer to stop contacting them under the Fair Debt Collection Practices Act. Today’s final rule generally requires servicers to provide modified written early intervention notices to let those borrowers also know about loss mitigation options.

Requiring servicers to notify borrowers when loss mitigation applications are complete:

Whether a borrower is entitled to key foreclosure protections depends in part on the date a borrower completes a loss mitigation application. If consumers do not know the status of their application, they cannot know the status of those foreclosure protections. Today’s final rule requires servicers to notify borrowers promptly and in writing that the application is complete, so that borrowers know the status of the application and have more information about their protections.

Protecting struggling borrowers during servicing transfers:

When mortgages are transferred from one servicer to another, borrowers who had applied to the prior servicer for loss mitigation may not know where they stand with the new servicer. Today’s final rule clarifies that generally the new servicer must comply with the loss mitigation requirements within the same timeframes that applied to the transferor servicer, but provides limited extensions to these timeframes under certain circumstances.

If a borrower submits an application shortly before transfer, the new servicer must send an acknowledgment notice within 10 business days of the transfer date. If the borrower’s application was complete prior to transfer, the new servicer must evaluate it within 30 days of the transfer date. If the new servicer needs more information to evaluate the application, the borrower would retain some foreclosure protections in the meantime. If the borrower submits an appeal, the new servicer has 30 days to make a determination on the appeal.

Clarifying servicers’ obligations to avoid dual-tracking and prevent wrongful foreclosures:

The CFPB’s existing rules prohibit servicers from taking certain actions in foreclosure once they receive a complete loss mitigation application from a borrower more than 37 days prior to a scheduled sale. However, in some cases, borrowers are not receiving this protection, and servicers’ foreclosure counsel may not be taking adequate steps to delay foreclosure proceedings or sales.

The CFPB’s new rule clarifies that, if a servicer has already made the first foreclosure notice or filing and receives a timely complete application, servicers and their foreclosure counsel must not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, even if a third party conducts the sale proceedings, unless the borrower’s loss mitigation application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement.

The clarifications will aid servicers in complying with, and assist courts in applying, the dual-tracking prohibitions in foreclosure proceedings to prevent wrongful foreclosures.

Clarifying when a borrower becomes delinquent:

Several of the consumer protections under the CFPB’s existing rules depend upon how long a consumer has been delinquent on a mortgage. Today’s final rule clarifies that delinquency, for purposes of the servicing rules, begins on the date a borrower’s periodic payment becomes due and unpaid. When a borrower misses a periodic payment but later makes it up, if the servicer applies that payment to the oldest outstanding periodic payment, the date the borrower’s delinquency began advances.

The final rule also allows servicers the discretion, under certain circumstances, to consider a borrower as having made a timely payment even if the borrower’s payment falls short of a full periodic payment. 

The industry is already pointing out flaws in the new rules for what it calls “unintended consequences.”

“NAFCU will thoroughly analyze this 900-page final rule on mortgage servicing for its full impact on credit unions,” said Alexander Monterrubio, National Association of Federal Credit Unions Director of Regulatory Affairs “At first glance, there appear to be a number of provisions that will substantially impact credit unions.”

“For example, the projected implementation dates for some portions of this rule are likely to coincide with credit unions’ ongoing compliance preparations under CFPB’s revised Home Mortgage Disclosure Act rule,” Monterrubio said. “The HMDA rule changes alone will excessively tax the resources of many credit unions.”

“We will continue advocate for the bureau to reach back and correct the unintended consequences that have resulted from its rulemakings,” he said.

This final rule also makes some changes to the CFPB’s mortgage servicing rules including providing more flexibility for servicers to comply with certain force-placed insurance and periodic statement disclosure requirements.

The changes also clarify several requirements regarding early intervention, loss mitigation, information requests, and prompt crediting of payments, as well as the small servicer exemption. The changes exempt servicers from providing periodic statements under certain circumstances when the servicer has charged off the mortgage.

The CFPB is also issuing an interpretive rule under the Fair Debt Collection Practices Act relating to servicers’ compliance with certain mortgage servicing provisions amended by the final rule.

Most of these changes will go into effect a year after publication in the Federal Register. Those relating to the successors in interest and to periodic statements for borrowers in bankruptcy, however, will take effect 18 months after publication in the Federal Register.

The Home Affordable Modification Program and Home Affordable Refinance Program, which are solutions after the housing crisis to keep struggling homeowners in their houses, are set to end at the start of 2017, but the CFPB continues to remind struggling homeowners that there are still other options.

February 19th 2016

Editorial Excerpt from: How CFPB's Auto Enforcement Actions Are Disrupting the Industry

The Consumer Financial Protection Bureau's use of enforcement actions to try and make broad changes to the auto lending market is fragmenting the industry further and potentially limiting a consumer's ability to negotiate for a lower interest rate.

The agency has so far cited a handful of indirect auto lenders for unintentional discrimination under the controversial legal theory of disparate impact. It has forced Toyota Motor Credit Corp., American Honda Finance Corp. and Fifth Third Bank to pay restitution and limit the extent to which a partnering auto dealer can raise interest rates on loans as a means of compensation. But there are key differences in each of these agreements that are making it harder for the CFPB to make systemwide changes.

"This is what happens when using rulemaking though enforcement actions. There are disparities and loopholes which allow for incongruity of the law," said Isaac Boltansky, a policy analyst at Compass Point Research & Trading. "The problem with managing a market through enforcement actions and not broader rulemaking is that you have a disparate regulatory impact predicated off of a disparate market impact. There's definitely a degree of irony to it."

One of the biggest differences can be seen between the Honda agreement, which was signed in the summer of last year, and Toyota's, which came just two weeks ago.

Both agreements look similar at first blush. Under the terms, both lenders are restricted from allowing partnering dealerships to mark up the wholesale interest rate — the "buy rate" — by 1.25 percentage points for loans of five years or less or 1 percentage point for longer loans. That is roughly half the level it was before the agreements were put in place.

But Honda almost immediately found a way to go around the restriction. It raised the overall buy rate so that it could pay partnering dealerships a larger flat fee, according to several sources familiar with Honda's pricing. As a result, the baseline price for an auto loan with Honda is higher than it was previously, and consumers cannot negotiate for as low a rate.

Though several knowledgeable sources, including the CFPB, confirmed that Honda raised its buy rate following the settlement, a company spokesperson denied it.

"No, Honda did not raise its 'buy rate' with dealers after the settlement was announced," the spokesman wrote in an email. "Similar to other lenders, American Honda Finance Corporation's buy rates are constantly changing based on the costs of funds and market forces, so it's not possible to discuss the rate at any particular time. American Honda Finance Corporation customers are continuing to receive rates that are extremely competitive, and are not paying higher rates today as a result of the settlement."

But Toyota's deal is "substantially" different, a spokesman for that company said. It did not increase the buy rate to compensate for the lower cap, which means it effectively eats the cost of the CFPB's order. On the other hand, however, it has to operate under the order for a shorter time period. While Honda's $24 million settlement lasts for five years, Toyota's order expires in three years at the latest, with an option to end a year earlier if certain conditions are met. Toyota also received a longer time to implement the requirements, 180 days instead of 120.

Toyota "has flexibility to work with dealers and customers and can reduce the contract rate in any increment to satisfy the needs of the customer. When this occurs, we can pay participation when we reduce the buy rate," said Justin Leach, a company spokesman.

As for the lower cap on dealer compensation, Toyota emphasized that it would not increase the underlying interest rate, but said it was introducing a flat fee to compensate dealers for the difference.

Toyota "isn't increasing buy rates for the purpose of covering a new component of dealer compensation because we want to remain competitive and continue to best meet the needs of consumers and dealers," Leach said. "While we respectfully disagree with the agencies' methodologies to determine whether industry lending practices have been discriminatory, we share the agencies' commitment to ensuring that consumers can count on competitive and fair auto financing options. The actions we're taking under this agreement are intended to further that commitment."

The CFPB is crediting Toyota with taking a more positive approach.

"Along with limiting dealer markup, each lender is implementing a new program to fairly compensate dealers by developing a flat fee that fits within their unique business model and does not increase fair-lending risk," a spokesperson for the agency said. "Honda chose to increase its buy rate to fund the flat fee; Toyota has committed not to increase its buy rate to fund the flat fee, which is a particularly consumer-friendly approach. The exact mechanism of how the flat fee is structured and paid to dealers is proprietary to each lender."

But auto lending industry representatives said it's a problem that two of the biggest players in the market are effectively operating under different guidelines.

"Not only does the CFPB's latest sue-and-settle scheme only further confuse the regulatory landscape, it calls into question whether the CFPB is operating outside the limits that were imposed on its authority by Congress, which is sure to prompt additional congressional oversight," said Jared Allen, a spokesman at the National Automobile Dealers Association. "We already know that this campaign to eliminate auto loan discounts is costing consumers money, harming the very people the agency is trying to help by making credit less affordable across the board, and proving to be an unreliable and ineffective approach to addressing fair credit risk in auto lending."

To be sure, enforcement actions and settlement agreements are typically crafted to fit each company's circumstance and negotiating power, so it's common to have differences in each order.

But observers said what matters here is the CFPB's intent. According to private agency documents, the agency is hoping to use its enforcement powers to make industrywide changes,an effort first noted publicly by American Banker.

If that is intent in the cases of Toyota and Honda, the differences between the two orders make it harder for other companies to comply by example.

"The CFPB has different types and amounts of leverage over each specific company so the resulting enforcement actions will naturally be structured with small differences to reflect those operational realities," Boltansky said. "The biggest problem for the bureau is the realization that this method may not ultimately prove successful in altering the whole market."

Still, consumer groups have applauded the CFPB for its efforts in reducing the maximum interest rate that dealerships can charge, arguing it reduces the chances that minorities will be discriminated against. Yet they also acknowledge that it's difficult for the CFPB to move the needle in pricing models overall through enforcement actions because the market is so fragmented. For example, Toyota Motor Credit, which is the largest captive auto lender and fifth-largest auto lender, has only 5.2% of auto loan originations in the country, according to its consent order.

"If there were one huge auto lender that controlled a quarter or half of the market, the CFPB would be able to move that one [through enforcement] and then it would be easier for everybody else to fall in line," said Delvin Davis, a senior researcher for auto lending at the Center for Responsible Lending. "But even the biggest indirect auto lenders have only 5% to 6% of the market, so there's no certainty of where that tipping point is."

January 25th 2016

Editorial Excerpt from: CFPB's Auto Finance Push Hurts Consumers

The CFPB announced its use of disparate impact methodology in March 2013. Now even a neutral policy that affects protected borrowers adversely can result in penalties for a lender — regardless of the lender's intent. The methodology is flawed, and the agency has acknowledged as much by saying that disparate impact could overestimate discrimination. Even so, the CFPB says it prefers this method to the alternative where bias might be underestimated. This parental-esque concern, however, fails to take into account the reputational harm to lenders that results from the CFPB basing damages on overestimated figures.

The agency's determination of whether borrowers are minorities by looking only at surnames, geographic location, or a combination of both, is misguided as well as being somewhat offensive. Moreover, it blatantly ignores business factors recognized by the Justice Department in other contexts as legitimate, including but not limited to credit scores; characteristics of vehicles; timing, location and structure of the deal; and whether the car is new or used. Use of these valid factors by the CFPB would undoubtedly show that fewer consumers are being harmed than is alleged.

A 2014 white paper in which the CFPB offers some details on its disparate impact methodology lacks sufficient detail in indicating how lenders should structure their compliance management systems to avoid being cited for discrimination. The result is a widespread, costly duplication of efforts since every lender must come up with its own methods to prevent and remedy potential disparities.

The agency's targeting of the auto finance industry is reportedly in response to allegations that dealers pump up interest rates, make too many risky subprime loans and discriminate by adding different markups to these loans. It is simply unrealistic for the CFPB to believe it can change dealers' entire market pricing theory through regulation of the lenders who serve them. Most lenders already have a 2.5 percent cap on dealers' price discretion, adopted as a result of settlements in the mid-2000s.

The CFPB's focus on dealer markups likely will raise financing costs. If markups were eliminated, as the agency suggests, dealers would try to replace that revenue, and the inescapable outcome is that consumers will continue to be the source of any new revenue. No doubt the increased cost of the aforementioned compliance programs will be passed on to consumers too. The CFPB estimates the labor costs of a compliance exam to be $28,000. Industry trade groups, however, estimate the cost at $75,000 to $100,000. In addition, the guidance recommending lenders adopt a flat-fee compensation model for dealers would hurt competition and undoubtedly boost car prices.

Frankly, the agency's actions assume ignorance on the part of consumers that is presumptuous and offensive. If the goal of the CFPB is indeed protection of consumers, it has failed miserably.

December 4th 2015

House of Representatives Votes to Repeal CFPB’s Auto Lending Guidance


On Nov. 18, 2015, the House of Representatives voted to pass H.R. 1737, the Reforming CFPB Auto Financing Guidance Act, which would nullify CFPB Bulletin 2013-02, entitled “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.” The bill passed in the House with bipartisan support 332-96.

CFPB Bulletin 2013-02 provides fair-lending guidance to the indirect auto lending industry. The Bulletin has been viewed by many as an effort to indirectly regulate auto dealers even though the Dodd-Frank Act expressly prohibits the CFPB from exercising rulemaking, supervisory, enforcement, or any other authority with respect to such dealers.  Following the CFPB’s issuance of the Bulletin, members of Congress and industry participants attempted to obtain the data and methodology that the CFPB used in developing its guidance. In response, the CFPB released a white paper providing some details on the disparate impact methodology it employs in enforcing ECOA. Unlike mortgage lenders, auto lenders do not collect data about the race and gender of loan applicants. As a result, the CFPB evaluate ECOA compliance using “proxy” data based on certain assumptions it makes about whether a particular borrower is a minority. These assumptions are based on surnames, geographic location, or a combination of both. Many believe that the CFPB’s method overestimates disparities in loan pricing. Members of Congress and industry observers claimed that the CFPB’s white paper failed to provide sufficient information to show how the CFPB’s method is applied in ECOA enforcement.

The House bill was introduced in April 2014 by Reps. Frank Guinta (R-N.H.) and Ed Perlmutter (D-Colo.). It would require the CFPB to: (1) impose a public notice and comment period prior to the issuance of any final guidance by the CFPB; (2) publish all studies and data it used in reaching its guidance; and (3) conduct a study on the costs and impacts of the guidance to consumers and women-owned, minority-owned, and small businesses. The bill currently has 166 co-sponsors, including 65 democrats.

On the heels of its vote to nullify the Bulletin, the Financial Services Committee of the House issued a report on Nov. 25, 2015, entitled “Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending.” The Report criticizes the CFPB for knowingly using unsound methodology to challenge auto lending practices based on allegations of discrimination. Among other things, the Report calls into question the CFPB’s reliance on “disparate impact” analysis to take enforcement action against auto lenders. The Report also accuses the CFPB of pursuing “its radical enforcement strategy using ‘unfair, abusive, and deceptive,’ tactics. The Report specifically criticized the CFPB for targeting one particular lender that was undergoing a restructuring because it knew the company would settle quickly to avoid difficulty in obtaining government approval of its transaction. In that proceeding, the company agreed to pay $80 million to minority borrowers and $18 million in penalties based on the CFPB’s and the DOJ’s allegations that more than 235,000 borrowers paid higher rates for auto loans because of discriminatory pricing.

Representative Jeb Hensarling, chairman of the Financial Services Committee, issued a statement in connection with the release of the Report, further criticizing the CFPB for “irresponsibly branding companies with the stigma of racial discrimination based on nothing more than junk science that even CFPB senior officials acknowledged is gravely flawed.  Why?  To cudgel those companies into enormous monetary settlements without ever having to go to court.  If it sounds like a shake down, that’s because it is.”

The CFPB maintains that its actions against auto lenders help ensure that discrimination does not increase the cost of auto loans for consumers. Prior to the House vote, the Leadership Conference of Human and Civil Rights, which supports the CFPB’s efforts, submitted a letter to members of the House, emphasizing that the CFPB was the first and only regulator to address this type of discrimination and citing estimates from the Center for Responsible Lending indicating that dealer mark ups cost consumers billions of dollars over the lives of their loans.

October 1st 2015

Lawmakers Give CFPB's Cordray Earful Over Auto Lending Crackdown

 Lawmakers from both political parties on Tuesday sharply criticized the Consumer Financial Protection Bureau's attempt to restrict or eliminate auto dealers' ability to mark up a loan by citing their partnering lenders, arguing it would result in higher prices for consumers.

At a hearing, House Financial Services Committee members keyed off of stories in American Banker that referenced internal agency documents in which officials acknowledged sometimes overestimating the amount of bias at lenders and detailed efforts to target the dealer markup.

They argued the agency is unfairly pursuing auto lenders and dealers, even though dealers are exempt from the CFPB's jurisdiction, and raised questions about its disparate impact methodology, in which lenders are cited for unintentional discrimination if statistics show minorities receive higher rates at the dealership. Rep. David Scott, D-Ga., noted that the CFPB does not even know which auto lending borrowers are minorities (since laws prohibit such disclosures in auto loans), but instead must rely on an agency-created proxy that includes factors such as surnames and geography to essentially make an educated guess.

"This business with the auto dealers is a bad thing," Scott said. "It was downright insulting to African-Americans because you just assumed our last name was Johnson, or Williams or Robinson or maybe even Scott. Well let me tell you, there are a lot of white people with the same names."

Scott said the CFPB's actions were harming minority auto dealers.

"You directed an extraordinary and deceitful approach that harms some of the very people that you are trying to help," he said. "You've got hundreds of auto dealers that are African-American. But when you put out this blanket indictment, you hurt them. Then you went to the lenders, you pressured them to cut out their ability to discount their loans. The one little measure they got in there in which they can make a profit."

September 28th 2015

CFPB Hits Fifth Third Over Dealer Markup

Fifth Third Bank must pay a total of more than $21 million to settle separate claims by the federal government that the bank's indirect auto-loan business discriminated against African-Americans and that the bank deceptively signed up customers for a credit card add-on product.

The auto lending enforcement actions, issued by the Consumer Financial Protection Bureau and Department of Justice, allege that Fifth Third gave auto dealers too much leeway to use their discretion to boost interest rates — known as "dealer markups" — for reasons other than credit quality.

The CFPB, which along with the DOJ took a similar action against American Honda Finance Corp., said the discretion Fifth Third allowed effectively led to discrimination. The order requires Fifth Third to "substantially reduce or eliminate entirely dealer discretion," pay $18 million in damages to consumers who were harmed and retain a settlement administrator to distribute the funds.

"Fifth Third's illegal discriminatory pricing and compensation structure meant thousands of minority borrowers from January 2010 through September 2015 were charged, on average, over $200 more for their auto loans," the CFPB said in a press release.

CFPB's Outside Expert on Disparate Impact Also Advises Banks

Dr. Bernard Siskin may know more than any other outsider about how the Consumer Financial Protection Bureau cites big banks and other lenders for unintentional discrimination -- and he has turned that unique knowledge to his advantage.

Public records show the agency has paid Siskin's statistical analysis firm, Philadelphia-based BLDS LLC, more than $1 million since 2012 to consult on the CFPB's disparate impact methodology and appear as an outside expert witness on enforcement matters dealing with fair-lending cases. Yet at the same time, Siskin has also been hired by the biggest banks in the country to defend them against unintentional discrimination charges, including those brought by the CFPB in citing auto lenders for bias.

"I'm a consultant to the CFPB. I do a lot of their consulting work. I have a blanket contract for the enforcement group, as well as I represent, on the other side, most of the major banks in America. I represent Chase, Citi, Bank of America and others," Siskin testified on a separate case related to voter IDs in Pennsylvania in 2013.

Serving both sides at the same time is allowed, according to sources familiar with government contracting. But it has created problems for the agency.

In at least one major case against a large lender, CFPB officials delayed other investigations after finding out that Siskin was arguing against the methodology that his firm helped the agency use to cite lenders, according to internal documents reviewed by American Banker. The lender, meanwhile, made sure to point out that its expert witness, Siskin, was "well known to the agency," according to internal documents.

Siskin declined repeated requests for comment for this story. Sam Gilford, a CFPB spokesman, said Siskin's work in helping the CFPB and big banks is not unusual and does not indicate a potential conflict of interest.

"As a general matter: Working for a particular company within an industry does not disqualify an expert from providing his or her services to a federal agency for purposes of an action involving a different company," Gilford said. "Experts typically do not recommend a single approach, but instead offer advice on a variety of options that they view as reasonable."

But former regulators said that when agencies do hire an outside expert witness, they usually require the witness to refrain from working with banks while under contract.

"It's not unusual for the Justice Department to hire outside experts on cases, but it is unusual for that expert to play both sides of the fence," said Michael J. Bresnick, a former top DOJ official who now chairs the financial services investigations and enforcement practice at the law firm Venable. "And working for a government agency would not preclude that expert from representing the company in an unrelated matter, but it would get troublesome when that expert starts punching holes in the agency's method."

August 31st 2015

Excerpt From: Crackdown on Racial Bias Could Boost Drivers’ Costs for Auto Loans

A federal regulator’s campaign to fight bias against minorities is changing the way many car loans are priced, a move that is increasing costs for some consumers.

"The results highlight the sometimes unpredictable consequences of attempts to regulate lending practices. The CFPB’s recent focus on auto loans 'will invariably lead to many consumers paying more for auto financing,' said Jared Allen, a spokesman for the National Automobile Dealers Association, an industry group."
June 19th 2015

BB&T's auto-finance division will stop dealers from marking up the price on sales contracts, and instead will offer a flat-fee compensation program.

Starting July 1, dealers that work with the $189 billion-asset BB&T will no longer be allowed to mark up retail installment sales contracts. BB&T Dealer Financial Services, the unit of the Winston-Salem, N.C., company that originates auto loans, is making the change to benefit consumers, the company said in a news release.

"We are committed to the fair and equal treatment of all consumers," said Derek Lane, manager of BB&T Dealer Financial Services.

Regulators have recently raised warnings about therise of subprime auto lending, and the Consumer Financial Protection Bureau has attempted to be more aggressive in its enforcement of consumer laws for nonbank auto lenders.

One former CFPB official, Leonard Chanin, this week told American Banker that the CFPB has not been successful in "changing the way the market functions regarding dealer markups."

February 25th 2015

Commentary By Ramesh Ponnuru

Car dealers sometimes make discounts, at their discretion, on loans they help to arrange with financial companies. That's a pretty fundamental aspect of how they do business. Yet the federal government is trying to put a stop to it.

The Consumer Financial Protection Bureau, an independent agency established by the Dodd-Frank financial-regulation law in 2010, says that letting the dealers exercise discretion opens the door to discrimination based on race and sex (whether or not that discrimination is intentional). So it's leaning on lenders to eliminate or at least limit that discretion and come up with "a different mechanism" for compensating dealers.

The CFPB's position runs into three difficulties that invalidate its approach to this issue -- and suggest how prone to abuse this new agency may become.

First, evidence of widespread harm in this intensely competitive market is thin. Auto lenders aren't allowed to gather data on customers' race. So the bureau has resorted to the dubious proxies of surnames and geography to assign races to customers, and then to assess discrimination. It has dragged its feet about revealing its methods, which are open to serious question. A study by Charles River Associates, a consulting company, found that differences in the way customers are treated "can be largely explained by objective factors other than race and ethnicity. In addition, the use of race and ethnicity proxies creates significant measurement errors, overestimates minority population counts, and results in overstated disparities."

The agency's legal authority is also shaky. The Dodd-Frank law included an amendment specifically exempting car dealers from the CFPB's jurisdiction. The agency thinks it can get around that limitation by regulating dealers at one remove -- that is, by using regulation of financial companies to change their behavior. Whether that narrow reading of the law is a plausible one will be up to the courts if the CFPB keeps up its effort.

And finally, there's an alternative way to reduce the risk of discrimination. The National Automobile Dealers Association, a trade group that opposes the CFPB's action, is promoting a programmodeled on a consent agreement the Justice Department entered into with two car dealers to resolve accusations of unintentional discrimination. Dealers would develop policies for offering discounts and keep records of why they were offered. That seems like an approach worth trying before ham-handedly forcing changes to car dealers' business model.

Representatives Marlin Stutzman and Ed Perlmutter introduced a bill in the last Congress to stop the CFPB from regulating the car dealers. It drew 149 co-sponsors, including many liberal Democrats who cannot be said to be soft on discrimination. The bill is expected to be re-introduced this year.

When Dodd-Frank was being debated in Congress, critics warned that the CFPB would have little accountability and would therefore be inclined to overreach. On this issue, the agency seems determined to prove that fear right.

February 17th 2015

The commenting period for the proposed amendments to the Consumer Financial Protection Bureau (CFPB)'s TILA/RESPA rules is open until March 16, according to the Federal Register website.

The proposed amendments were first published in the Federal Register on December 15. CFBP's mortgage rules were first proposed in 2013 and went into effect in January 2014; the proposed amendments to the rules are under the Real Estate Settlement Procedures Act (Regulation X, or REPSA) and the Truth in Lending Act (Regulation Z, or TILA).

"These proposed amendments focus primarily on clarifying, revising, or amending provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X's servicing provisions; and periodic statement requirements under Regulation Z's servicing provisions," the rule states on the Federal Register site. "The proposed amendments also address proper compliance regarding certain servicing requirements when a consumer is a potential or confirmed successor in interest, is in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act."

Noteworthy proposed amendments include:

  • For the purpose of RESPA, expanding the definition of "borrower" to include successors in interest, which are defined as members "of any of the categories of successors in interest who acquired an ownership interest in the property securing a mortgage loan in a transfer protected by the Garn-St Germain Act."
  • Loosening the requirement that servicers provide both the name of the trust and appropriate contact information for the trustee, which can be burdensome, particularly when the trustee is Fannie Mae or Freddie Mac. The amendment would require the servicers to request only the loan's owner or assignee by providing the name and contact information for Fannie Mae and Freddie Mac if one of the GSEs is the trustee, investor, or guarantor of the loan, and the servicer would not be required to provide the name of the trust. However, the servicer would still be required to give the name or number of the trust pool should the borrower specifically request that information, regardless of whether one of the GSEs is involved in the loan.
  • Requiring lenders to offer loss mitigation options to borrowers more than once over the lifetime of a loan, should a borrower become current on his or her loan after a delinquency. Currently, lenders are required to offer loss mitigation to a borrower only once over the life of a loan regardless of the borrower's payment history.
December 15th 2014

The Bureau of Consumer Financial Protection (Bureau) is proposing amendments to certain mortgage servicing rules issued in 2013. These proposed amendments focus primarily on clarifying, revising, or amending provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X's servicing provisions; and periodic statement requirements under Regulation Z's servicing provisions. The proposed amendments also address proper compliance regarding certain servicing requirements when a consumer is a potential or confirmed successor in interest, is in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act. The proposed rule makes technical corrections to several provisions of Regulations X and Z. The Bureau requests public comment on these changes.

May 13th 2014

The Consumer Financial Protection Bureau is continuing its efforts to make it easier to comply with the requirements of the Truth in Lending Act.

In March, the CFPB issued its TILA-RESPA compliance guide which was designed to help smaller lenders and other mortgage companies understand and comply with the new mortgage disclosure rules designed to make it easier for consumers to understand loan documentation.

Now, the CFPB is launching eRegulations, an “intuitive, easy-to-navigate electronic format of Truth in Lending regulations.” The CFPB said that it expects eRegulations to make it easier to implement and use the recently adopted mortgage rules.

According to the CFPB, eRegulations makes the TILA regulations “easy to read and navigate.” The website features clear typography and a “persistent table of contents” to ensure fast access to any section of the regulation.

Specifically, eRegulations highlights TILA’s “Regulation Z” which protects people when they use consumer credit. Regulation Z defines consumer credit as: mortgage loans, home equity lines of credit, reverse mortgages, open-end credit, certain student loans and installment loans.

The eRegulations website also features a regulation timeline which shows recent revisions of the regulation organized by the effective date of the revision. Users can also compare any two versions of the regulation, word for word, by selecting a date in the menu.

The website also features inline official interpretations and highlighted defined terms.

Click here to visit eRegulations from the CFPB

February 20th 2014

Describing his message as a “tough one,” CFPB Deputy Director Steven Antonakes told attendees yesterday at the Mortgage Bankers Association’s National Mortgage Servicing Conference that “continued sloppiness” by servicers “is difficult to comprehend and not acceptable.”  While acknowledging the CFPB’s past statements that it would not immediately expect perfect compliance with the new mortgage servicing rules and instead would be looking at whether companies were making a good faith effort to comply, Mr. Antonakes’ remarks indicate that the CFPB will be taking a very narrow view of what constitutes a “good faith effort.”  

Telling mortgage servicers that a “good faith effort does not mean servicers have the freedom to harm consumers,” Mr. Antonakes stated that he wanted to “very clearly lay out [the CFPB's] expectations.”  He indicated that “in these very early days, technical issues should simply be identified and corrected” and that the CFPB expects servicers to “conduct outreach to ensure that all customers in default know their options” and “assess loss mitigation applications with care.”  He stated that the CFPB will be paying “exceptionally close attention” to servicing transfers, looking to see if all information and documents are transferred as required.  He further stated that failures to honor existing permanent or trial modifications “will not be tolerated” and that force-placed insurance should only be used as “a last resort” and not “as a profit center.”   

As we continue to work with clients on implementing the new mortgage servicing rules and conducting assessments/gap analyses of their compliance management systems, we are proactively navigating the issues highlighted by Mr. Antonakes.  It seems clear from the tenor of his remarks that any delay by servicers in achieving full compliance with the new mortgage servicing rules will carry significant risks.  Now that the CFPB has delivered its warning, we suggest that our industry friends make full compliance an immediate priority.

Additional Information: February 2014
CFPB sends warning to mortgage servicers

December 5th 2013

New Consumer Financial Protection Bureau (CFPB) regulations to rein in the mortgage market are simple to understand and easy to follow, according to the agency's chief.

CFPB Director Richard Cordray defended the regulations at a Consumer Federation of America event on Thursday, and promised that the bureau would be “vigilant“ in enforcing the “back to basics” regulations for mortgage lenders and servicers, according to prepared remarks.

On Jan. 10, the bureau’s new mortgage rules go into effect, requiring lenders to affirm that their borrowers are able to pay back the mortgages they take out.

“These are bedrock concepts backed by our new common-sense rules,” Cordray said.

Financial institutions and lawmakers on both sides of the aisle have worried that the regulations are too onerous, especially for small banks and credit unions. The regulations' requirements could force some institutions to cut back their mortgage lending, they warn.

The CFPB has also issued regulations for mortgage servicers who collect payments and work with borrowers to pay off their loans.

On the same day the mortgage lending rules go into effect in January, servicers will also have restrictions about when they credit mortgage payments they receive, and force them to investigate any errors reported on consumers’ bills. Other rules affect the way mortgage lenders have to help distressed and delinquent borrowers.

“Our new rules will help every borrower, whether or not they struggle to make their payments, by bringing greater transparency to the market,” Cordray said.

Those, too, have become the subject of criticism from mortgage lenders that say they could make it harder to hand out housing loans.

On Thursday, Cordray fired back against those concerns.

“They amount to little more than taking the time to work directly with your customers to address their circumstances,” he said. “In short, our rule means simply that mortgage servicers must now do their jobs.”

Additional Information: December 2013
Consumer bureau defends ‘back to basics’ rules

November 26th 2013

For more than 30 years, Federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage.  The law also has generally required two different forms at or shortly before closing on the loan.  Two different Federal agencies developed these forms separately, under two Federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information on these forms is overlapping and the language is inconsistent.  Not surprisingly, consumers often find the forms confusing.  It is also not surprising that lenders and settlement agents find the forms burdensome to provide and explain.
Additional Information: November 26th 2013
RESPA-TILA Final Rule Nov 2013

November 12th 2013

Consumer Financial Protection Bureau Director Richard Cordray acknowledged concerns Tuesday about how the agency is regulating indirect auto lenders, vowing to be more transparent about its oversight.

The agency has been under fire since a March bulletin, which was not subject to public comment, that said the agency would hold auto lenders responsible for any discrimination made by partner dealers, whether it was intentional or not. Cordray said the agency was holding a field hearing Thursday on the issue designed to engage directly with auto lenders.

Additional Information: November 12th 2013
Cordray Vows "Openness" with Auto Lenders

September 2013

The Consumer Financial Protection Bureau (CFPB or Bureau) presents this Semi-Annual Report to the President, Congress, and the American people, in fulfillment of its statutory responsibility and commitment to accountability and transparency. This report provides an update on the Bureau’s mission, activities, accomplishments, and publications since the last Semi-Annual Report, and provides additional information required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or Dodd-Frank Act).

The Dodd-Frank Act created the Bureau as the nation’s first federal agency with a mission of focusing solely on consumer financial protection and making consumer financial markets work for American consumers, responsible businesses, and the economy as a whole. In the wake of the recent financial crisis, the President and Congress recognized the need to address widespread failures in consumer protection and the rapid growth in irresponsible lending practices that preceded the crisis. To remedy these failures, the Dodd-Frank Act consolidated most Federal consumer financial protection authority in the Bureau.2 The Dodd-Frank Act charged the Bureau with, among other things:

  • Ensuring that consumers have timely and understandable information to make responsible decisions about financial transactions;

CFPB Announcement: September 2013
CFPB Semi-Annual Report

September 13th 2013

The Consumer Financial Protection Bureau late last week finalized amendments and clarifications to its January mortgage rules.

CFPB Director Richard Cordray said the amendments will help industry comply and to better protect consumers, answering questions that have been identified during the implementation process.

“Our mortgage rules were designed to eliminate irresponsible practices and foster a thriving, more sustainable marketplace,” Cordray said. “Today’s rule amends and clarifies parts of our mortgage rules to ensure a smoother implementation process, which is helpful to both businesses and consumers.”

**Note** - No changes were made to force placed insurance.

CFPB Announcement: September 13th 2013
CFPB Issues 'Final' Amendments to Mortgage Rules

July 8th 2013

The CFPB released the first version of the 2013 Dodd-Frank Mortgage Rules Readiness Guide. The guide is made for use by financial institutions of all sizes to evaluate their preparedness to be compliant and to maintain compliance with the upcoming mortgage rule changes. According to the CFPB, the guide serves three purposes:

  • Assists regulated entities in achieving compliance with the mortgage rules. 
  • Highlights key issue areas that may be closely examined during a review. 
  • Focuses the industry and examiners on key elements of a compliance management system that may warrant review, modification, or other enhancement.
June 21st 2013

Republican lawmakers are calling on the Consumer Financial Protection Bureau to explain its rationale behind new fair lending guidelines for auto lenders.

The House Republicans, including 27 members of the Financial Services Committee, sent a letter dated Thursday to the bureau expressing concern about the intent and methodology of the guidelines. In March, the CFPB told indirect auto lenders to improve oversight of dealers they work with, warning them of reported interest rate disparities in car loans given to minority borrowers.

CFPB Announcement: June 21st 2013
GOP Seeks Data on What Prompted CFPB Auto Guidance

May 16th 2013

The CFPB issued a final rule clarifying and making technical amendments to the 2013 Escrows Final Rule issued by the Bureau this past January. This is the first final rule in connection with the CFPB's planned issuances to clarify and provide additional guidance about the mortgage rules issued in January. It is based on a proposed rule issued in April.

This final rule has two primary purposes:

Maintaining Consumer Protections
The 2013 Escrows Final Rule amends an existing rule that provides protections regarding assessments of consumers’ ability to repay and prepayment penalties on certain “higher-priced” mortgage loans. The Dodd-Frank Act and certain of the other new mortgage rules issued in January expand and strengthen the requirements concerning ability to repay and prepayment penalties. However, the 2013 Escrows Final Rule as adopted in January can be read to cut off the old protections before the new expanded protections take effect. This would create a six-month period when those consumer protections would not apply. This final rule establishes a temporary provision to ensure existing protections remain in place for higher-priced mortgage loans until the expanded provisions take effect in January 2014.

“Rural” and “Underserved” Definitions
The CFPB is also clarifying how to determine whether or not a county is considered “rural” or “underserved” for purposes of applying an exemption in the 2013 Escrows Final Rule and special provisions adopted in three other Dodd-Frank Act mortgage rules issued in January. The CFPB also provides illustrations of how to do the determinations to facilitate compliance. The determinations are made based on currently applicable Urban Influence Codes or UICs, which are established by the USDA’s Economic Research Service (for “rural”), or based on HMDA data (for “underserved”). The CFPB used the changes to compile the final 2013 rural or underserved counties list (which applies with respect to the exemption in the 2013 Escrows Final Rule posted on their website to mortgages closed from June 1, 2013 through December 31, 2013.)

During the rulemaking process for these clarifications, the Bureau received many comments suggesting major changes to the rural and underserved definitions and related provisions. These comments were outside the scope of the narrow technical changes the rule was proposing. However, the Bureau plans to finalize very soon the proposed rule the Bureau issued concurrently with the Ability to Repay/QM Rule in January, and it will address questions of further flexibility for small institutions.

April 4th 2013

The Consumer Financial Protection Bureau (CFPB) announced four enforcement actions to end what the Bureau believes to be improper kickbacks paid by mortgage insurers to mortgage lenders in exchange for business. The CFPB filed complaints and proposed consent orders against four national mortgage insurance companies in order to stop these practices, which have been prevalent for more than 10 years. The proposed orders require the four mortgage insurers to pay more than $15 million in penalties to the CFPB.

“Illegal kickbacks distort markets and can inflate the financial burden of homeownership for consumers,” said CFPB Director Richard Cordray. “We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade. The orders announced today put an end to these types of arrangements and require these insurers to pay more than $15 million in penalties for violating the law.”

The CFPB alleges that four mortgage insurance companies violated federal consumer financial law by engaging in widespread kickback arrangements with lenders across the country. The CFPB believes the mortgage insurers named in today’s enforcement actions provided kickbacks to mortgage lenders by purchasing captive reinsurance that was essentially worthless but was designed to make a profit for the lenders.

The four companies named in today’s actions are Genworth Mortgage Insurance Corporation, United Guaranty Corporation, Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation. In exchange for kickbacks, these mortgage insurers received lucrative business referrals from lenders. These types of kickbacks were a common practice in the years leading up to the financial crisis. These four companies were key players during that time.

March 21st 2013

At the CBA Live conference last week in Phoenix, CFPB Assistant Director for Fair Lending & Equal Opportunity Patrice Ficklin announced that the CFPB will be using ECOA to regulate dealer mark-up.

January 17th 2013

Consumer finance agency finalizes rules to protect mortgage borrowers from runarounds, fees - The government’s consumer lending watchdog finalized new rules Thursday aimed at protecting homeowners from shoddy service and unexpected fees charged by companies that collect their monthly mortgage payments.

Mortgage servicing companies will be required to provide clear monthly billing statements, warn borrowers before interest rate hikes and actively help them avoid foreclosure, the Consumer Financial Protection Bureau said. The rules also require companies to credit people’s payments promptly, swiftly correct errors and keep better internal records.
August 10th 2012

CFPB released TILA and RESPA Mortgage Servicing Proposals that were put out for public comment.  The complete proposals highlighted for force-placed insurance are listed below. 

The TILA Proposal did not address force-placed insurance in detail, however, the RESPA proposal detailed the requirements.  We have included the borrower notification form letters that CFPB is proposing.  These letters are listed below. 

RESPA Highlights
1. Fees - related to service actually performed
a. Bureau finds commissions "problematic"
b. Bona-fide & reasonable
2. Exemptions
a. Flood Insurance
3. Escrow
a. Homeowner policy renewal for delinquent borrowers
i. Must be renewed by servicer
ii. Not subject to force-placed ins
4. Notification
a. 45 day cycle - 3 letters
b. Good faith estimate
c. Grace periods

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