Forecast: Abundance of Potential New Rulemaking From the CFPB

by Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

After making headlines with its controversial arbitration rule, the embattled Consumer Financial Protection Bureau (CFPB or Bureau) released its rulemaking agenda for the rest of the year, putting financial services companies on notice about forthcoming rules on payday, title, high-cost installment loans and debt collection.

What happened

2017 is shaping up to be a busy year for the CFPB. In addition to a significant uptick in enforcement activity, the CFPB’s promulgation of its arbitration rule prohibiting class action waivers in July is already the subject of repeal efforts. And the Bureau’s long-anticipated amendments to the TILA/RESPA Integrated Disclosure rule (TRID) were published in the Federal Register on Aug. 11, meaning that the rules become effective Oct. 10, 2017 (and a mandatory compliance date of Oct. 1, 2018). And the Bureau has signaled its plans to release additional rules in the coming months.

Released on July 20 by the Office of Management and Budget, the Spring 2017 Rulemaking agenda provides some new details about the CFPB’s plans in the following areas:

  • Debt collection. The CFPB notes this is the “single largest source of complaints to the federal government of any industry,” and expressed concern that consumers have limited ability to protect themselves from debt collectors because they cannot “vote with their feet” and choose which entity to work with. The CFPB—allegedly based on the results of a consumer survey, the response to an outline of proposals to regulate the industry in July 2016 and feedback from a panel convened under the Small Business Regulatory Enforcement Fairness Act—intends to issue a proposed rule later this year “concerning debt collectors’ communications practices and consumer disclosures.” The rule will attempt to “clarify” the application of the 40-year-old Fair Debt Collection Practices Act (FDCPA) to modern forms of communication such as text messages, the Bureau noted, and will be only the beginning of regulation for the debt collection industry. “We intend to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts,” the CFPB explained in a blog post about its rulemaking agenda.
  • Mortgage rules/data collection. In addition to TRID changes, the CFPB indicates that it is working to implement new rules concerning the Home Mortgage Disclosure Act (HMDA), a law that generates mortgage data used to monitor the market for fair lending and a range of other purposes. (It is a favorite of the plaintiffs’ bar, for example.) The CFPB notes that it is completing two rulemakings to “clarify” HMDA rules, and that these changes largely will take effect in 2018. On the subject of data collection, the Bureau confirms that it is implementing rules invoking provisions of the Equal Credit Opportunity Act concerning data collection and reporting. For example, it recently released a proposal to increase the threshold for reporting open-end lines of credit for 2018 and 2019 to allow time for the CFPB to evaluate whether a change in the permanent threshold is warranted.
  • Payday, auto title and similar lending products. Last year, the Bureau released a Notice of Proposed Rulemaking that would cover two categories: loans with a term of 45 days or less and loans with a term of more than 45 days for which the lender charges a total, all-in annual percentage rate that exceeds 36 percent, including add-on charges, and either collects payment by accessing the consumer’s deposit account or paycheck, or secures the loan by holding title to the consumer’s vehicle as collateral. All lenders—including banks, credit unions and nonbanks—would be subject to the proposed requirements for any loan covered by the proposal. “In particular, we are concerned that product structure, lack of underwriting, and certain other lender practices are interfering with consumer decision making with regard to such products and trapping large numbers of consumers in extended cycles of debt that they do not expect,” the Bureau said. Currently, the CFPB is “carefully considering” the more than one million comments received on the proposal “with respect to how best to address those concerns in a manner consistent with our objective under the Dodd-Frank Act.” No date was provided for a final rule in the agenda, but speculation has the rules being released before the end of the year.
  • Larger participants. Pursuant to Section 1024 of the Dodd-Frank Act, the CFPB is authorized to supervise “larger participants” of markets for various consumer financial products and services as defined by Bureau rule. While the agency has set the threshold for larger participants in specific markets in prior rulemakings, an effort is underway to develop a proposed rule defining nonbank “larger participants” in the market for personal loans, including consumer installment loans and vehicle title loans. Expected in September, the rule “will ensure meaningful supervision of non-bank financial services providers in order to create a more level playing field for depository and non-depository institutions,” the Bureau wrote. “We are also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to use by both consumer advocate and industry groups.”
  • Small business lending. Earlier this year, the CFPB held a public hearing on the issue of fair lending to small businesses, followed by a white paper and a request for information seeking feedback on credit products offered in this market, the types of data collected and used by lenders, the potential complexity and cost of small-business data collection, and potential privacy issues. “The information received will help us determine how to implement the rule efficiently while minimizing burdens on lenders,” the Bureau wrote. This rulemaking is an effort to implement Section 1071 of the Dodd-Frank Act, the CFPB said, which amended the Equal Credit Opportunity Act to require financial institutions to compile, maintain and report information concerning credit applications made by women-owned, minority-owned and small businesses. “This rulemaking could provide critical information about how these businesses—which are critical engines for economic growth—access credit,” the Bureau added. The agenda indicates “pre-rule activities” will continue through June 2017.
  • Overdraft protection. Arguing that there are consumer protection concerns with regard to these programs, the CFPB also is “engaged in policy analysis” and research to support rulemaking regarding overdraft programs on checking accounts. Under current regulations, consumers may opt in to permit their financial institutions to charge fees for overdrafts that occur at ATMs and in point-of-sale debit transactions, but the CFPB suggests that banks are “aggressively steering consumers to opt in.” To support the rulemaking, the CFPB is conducting consumer testing of revised opt-in forms and considering whether other regulatory changes may be warranted to enhance consumer decision making.
  • Other potential rules of interest. In addition to the above proposed rules, the updated CFPB list identifies as initiatives in a pre-rule stage (1) business lending data (Regulation B), (2) overdraft services, (3) submission of credit card agreements under the Truth in Lending Act (Regulation Z) and (4) review of so-called inherited regulations. The last item is of particular concern because the CFPB may use the cover of modernization and streamlining to foist tougher regulation on the industry.

To read the Spring 2017 Rulemaking Agenda, click here.

Why it matters

With rumors swirling that CFPB director Rich Cordray will jump ship for a run at the Ohio governorship, and the possibility that President Trump would then nominate a pro-industry replacement, watch for the CFPB to continue to expedite rules for the remainder of 2017. The CFPB’s Rulemaking Agenda has a little something of concern to everyone, from larger institutions to smaller, minority-owned businesses to debt collectors and payday lenders. We will continue to monitor the progress of the various rulemakings from the Bureau, which could be impacted by a potential change in leadership or pushback with regard to the arbitration rule.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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