Posts tagged ‘CFPB’

Get Ready For A Bigger Tax Collection Role

The White House is planning on financial institutions to play an important role in helping to pay for the $1.9 trillion spending plan the President will unveil tonight. 

As explained by the Wall Street Journal, the Biden Administration is proposing increasing the IRS’s budget with the hope of taking in more tax revenue.  An important part of the plan is to expand the reporting obligations of financial institutions.  As explained in this fact sheet released by the White House.  “It would require financial institutions to report information on account flows so that earnings from investments and business activity are subject to reporting more like wages already are.”

Because I’m such a helpful fella, I provided this link to the IRS website just in case you are a little rusty about how backup withholding works.  Call me wacky, but if this plan goes through, it’s going to increase the incentives some people have to be less than truthful about their income. 

Of course this is just a proposal, but if history is any guide, a President’s initial budget proposals are among the most impactful and Congress will have to come up with ways of paying for all of this increased spending. 

Assembly To Hold Hearing On Remote Notarization

One of the initiatives being advocated for by the Association is to make remote notarization – the ability of notaries to certify documents in a virtual environment – a permanent part of New York State law.  An important step towards that goal will take place a week from Friday with the announcement that the Assembly Government Operations, Banks, Consumer Affairs and Protections and the Judiciary Committees will be holding a joint virtual hearing on the subject.  We will be following up with additional information in the coming days.

This Can’t Be Good…

According to a statement released by the CFPB yesterday, mortgage servicer Mr. Cooper made unauthorized withdrawals resulting in hundreds of thousands of consumer bank accounts being debited for multiples of their mortgage payments.  In a terse statement, the CFPB said it is taking immediate action to “understand and resolve the situation”.  This sounds like it is going to get worse before it gets better.  Brace yourself for the reactionary guidance that will undoubtedly be issued by financial regulators in the coming days.

On that note, enjoy your day.

April 28, 2021 at 9:35 am Leave a comment

Three Things You Need To Know To Start Your Credit Union Day

Good news!  I just heard that Ted Lasso is coming back for another season starting July 23rd.  Nothing at all to do with your credit union day but I’m passing this on as a public service to those of you with Apple+ who want to watch an above average show that’s almost family friendly. 

House Passes SAFE Act, Again.

Yesterday the House Of Representatives passed legislation, supported by CUNA and NYCUA, permitting financial institutions to legally provide banking services to cannabis businesses as a matter of federal law in states such as New York where the sale and possession of marijuana is legal.  Similar legislation was passed last year only to die in the Senate.  It would appear that with 50 Democrats in the senate odds for Senate passage this time around have improved but this is by no means a sure thing.  The legislation may get caught up in a larger debate about criminal justice reform… stay tuned.

It’s a Watershed Moment For CDFIs

 That is the gist of this American Banker article which points out that recent months have seen a dramatic increase in funding for CDFIs.  Once again your credit union should at least take a look at whether or not it qualifies for a CDFI designation and if it does it should consider the costs and benefits of getting and maintaining this designation.

CFPB Issues Emergency Rule To Block COVID Related Evictions

Yesterday the CFPB issued an interim regulation mandating that debt collectors provide tenants information about the CDC’s eviction moratorium which bans tenants from being evicted while COVID emergency orders remain in effect.  The CFPB is taking this step out of concern that “…consumers are not aware of their protections under the CDC Order’s eviction moratorium and that FDCPA-covered debt collectors may be engaging in eviction-related conduct that violates the FDCPA.” 

I’m sure a few of my Compliance hotshots are squirming right now because they know that the Fair Debt Collection Practices Act and its accompanying Regulation F does not apply to employees of creditors provided that they are collecting on a loan they originated or that was not delinquent at the time it was purchased (15 USCA § 1692a).  But I think you are well advised to track developments in this area particularly if your credit union provides credit to commercial landlords. 

Enjoy your day folks.

April 21, 2021 at 9:47 am Leave a comment

CFPB Proposes Nationwide Foreclosure Moratorium

In one of the most aggressive claims of regulatory authority in decades, the CFPB proposed regulations yesterday that would sharply limit the ability to begin foreclosure actions until the end of the year. 

To make sure borrowers aren’t rushed into foreclosure when a potentially unprecedented number of borrowers exit forbearance at around the same time this fall, the proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021.”

To accomplish this goal regulations would create a new temporary COVID-19 pre-foreclosure emergency review period that wouldn’t expire until the end of the year.  The regulation would be coupled with enhanced loss mitigation options.  For example, current regulation already requires servicers to attempt to make live contact with delinquent borrowers.  The proposed rule would amend these regulations to mandate that borrowers be told about COVID-19 loss mitigation options.  The new time period for evaluating loss mitigation options would effectively prohibit foreclosures. 

Where does the CFPB have the authority to impose this de facto moratorium? It points out in the legal authority section of the regulations preamble that § 1032 of the Dodd-Frank Act mandates that the Bureau “shall consider available evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services.” 12 U.S.C. 5532(c).  It argues that researchers have pointed to a link between financial stress and poor decision making that a longer pre-foreclosure period would help address. 

For those of us in New York, the regulations wouldn’t be all that different than statutory requirements which our elected representatives voted on and chose to put in place.  In contrast, I have half-jokingly referred to the CFPB Director as the benign dictator of consumer protection law.  If this regulation is allowed to take effect, I won’t be joking anymore.  No elected representative voting to create the CFPB thought they were giving an unelected bureaucrat overseeing an independent agency the right to preempt state property law in the absence of explicit Congressional authority. 

To be clear, I am proud of working for an industry that by and large does everything it can to avoid foreclosures.  But, for those of you in support of the Bureau’s action remember, that there will someday be a Director in charge appointed by a president with whom you disagree.  Do you want him or her to be able to exercise this much power?

April 6, 2021 at 10:04 am Leave a comment

Are You Ready for the COVID Regulatory Wave?

Recent announcements by the CFPB underscore that the next COVID regulatory wave is coming.  In addition to familiarizing yourself with the most recent guidance, now is the time to double check all your files and make sure you can explain to your examiner why you took the steps you took during this very unique time in banking history. 

The trigger for this somewhat paranoid opening paragraph is recent announcements by the CFPB.  On March 31st the Bureau announced that it was rescinding a previous guidance which relaxed various regulatory expectations and requirements during the pandemic.  In effectively announcing that it was putting the gloves back on, the Bureau explained in the accompanying press release that “Providing regulatory flexibility to companies should not come at the expense of consumers.” 

The funny thing about this comment is that the Bureau prides itself on being a fair, objective, data driven regulator.  I’m curious what evidence it has to suggest even indirectly that this regulatory flexibility has come at the expense of consumers? I would suggest that a relaxation of regulatory mandates provides a mechanism for small to medium size financial institutions to put their resources towards helping members on a case by case basis rather than checking off regulatory boxes.  But then again, I don’t have the resources to do that kind of analysis. 

Then yesterday, the Bureau issued this strongly worded admonishment warning mortgage servicers against being unprepared for an anticipated wave of troubled mortgages as forbearances come to an end.    In states like New York which already have imposed rigorous forbearance requirements, this warning comes across as somewhat duplicative, but you should still take the time to read it.  Again, I can’t help escape the feeling that financial institutions are being assumed guilty until proven innocent. 

Is there any way to prepare for the regulatory wave?  Document-document-document what you have done and why you have done it.  In addition, double check to make sure your policies and procedures are up to date; after all, between the GSEs, federal legislation, state legislation, the CFPB and state level regulators, there has been no shortage of regulatory mandates with which you must demonstrate familiarity even as you try to help out your member.      

While the vast majority of credit unions aren’t large enough to be directly subject to its supervisory oversight, as the ultimate interpreter of virtually every significant federal consumer protection law, the Bureau sets the tone for examiners throughout the country, particularly in states like New York which have developed state level consumer bureaus. 

What has me ticked-off this morning is that the Bureau has proclaimed that this avalanche of regulations is more important to enforce than allowing institutions to continue to work through the pandemic in good faith. 

Maybe the Bureau hasn’t read the news in the last couple of days, but the virus is still spreading.    

April 2, 2021 at 9:40 am Leave a comment

There’s a New Old Sheriff in Town

In its latest step to underscore just how aggressively it intends to regulate consumer banking and products, the CFPB issued a statement rescinding an order issued by the CFPB in the waning days of the Trump administration which critics argued limited its ability to sue companies for abusive practices.  Normally, there is nothing noteworthy about an agency’s new leadership rescinding regulations put in place by an agency led by a different party, but the CFPB’s action impacts how it is going to use one of its biggest weapons in its regulatory arsenal. 

12 USCA § 5536 gives the CFPB its key civil enforcement powers.  Under the Dodd-Frank Act, it is unlawful for entities subject to CFPB’s jurisdiction

  • to offer or provide to a consumer any financial product or service not in conformity with Federal consumer financial law, or otherwise commit any act or omission in violation of a Federal consumer financial law; or
  • to engage in any unfair, deceptive, or abusive act or practice;

State laws had long given attorneys generals, and in states like New York, private parties the right to sue financial service providers for engaging in Unfair and Deceptive Acts and Practices (UDAP).  In addition, the Federal Trade Commission has had the right to exercise similar powers for decades.  This traditional language wasn’t enough for Congress.  So when it drafted subdivision B, it added abusive to the list of potential wrongs. 

As readers of this blog know, every word matters and in extending the traditional UDAP powers to include abusive conduct, many a lawyer, and the occasional law professor were perplexed.  In fact, several lawsuits challenge the new standard as so vague that it did not give people adequate notice of what constituted illegal conduct.  The Bureau has beaten back these challenges [CFPB v. All Am. Check Cashing, Inc., No. 16-cv-356, 2018 WL 9812125, at *3 (S.D. Miss. Mar. 21, 2018)].  Since 2011 it has brought 32 enforcement actions that have had an abusiveness and unfairness claim but only two of those were predicated solely on abusiveness.

With these statistics in mind, reasonable people asked if an abusiveness standard could really be distinguished from an act which is deceptive and unfair? After all, in testimony before Congress Director Richard Cordray explained “[W]e have determined that [the definition of ‘abusive’] is going to have to be a fact and circumstances issue; it is not something we are likely to be able to define in the abstract. Probably not useful to try to define a term like that in the abstract.”  While I admire the director’s honesty, this is hardly the type of statement that companies investing millions of dollars in complying with a new set of highly nuanced regulations wants to hear. 

Which brings us to the reason for today’s blog.  As one of her last acts, Director Kathy Kraninger issued a policy statement explaining that the bureau had to do a better job of explaining when conduct was abusive.  The statement explained that it would also not penalize good faith attempts to comply with the standard and most importantly would not use abusiveness as the sole criteria for a civil action. 

In repealing this statement, the bureau announced yet again that like Reggie Hammond in the classic movie 48 Hours, there’s a new sheriff in town.  He’s not going to unilaterally take any of his enforcement powers off the table. 

“In particular, the policy of declining to seek certain types of monetary relief for abusive acts or 10 85 FR at 6735-36. 11 12 U.S.C. 5511(b)(2). 5 practices—specifically civil money penalties and disgorgement—is contrary to the Bureau’s current priority of achieving general deterrence through penalties and other monetary remedies and of compensating victims for harm caused by violations of the Federal consumer financial laws through the Bureau’s Civil Penalty Fund. Likewise, adhering to a policy that disfavors citing or alleging conduct as abusive when that conduct is also unfair or deceptive is contrary” to Congressional intent. 

Suffice it to say, regulation by enforcement is back with a vengeance.  Make sure you pay attention to the Bureau’s enforcement actions and the legal rationale underpinning their decisions. 

March 17, 2021 at 10:29 am Leave a comment

Sole Proprietors Gain Meaningful Access to PPP Loans

Even as the clock keeps ticking closer to a March 31 deadline the SBA released new regulations yesterday making it easier for sole proprietors, persons convicted of nonfinancial crimes and persons with delinquent student loans to qualify for assistance.  The expanded eligibility only applies to individuals who have not previously obtained a PPP or Second Draw Loan.   Let’s hope that these well- intended but significant changes can be quickly and accurately integrated into lending platforms and that loans can get out the door without an accompanying surge of scams and waste. Better yet, let’s hope that Congress extends the deadline so that everyone can take a deep breath and administer the program properly.

IRS Form 1040 schedule C is the form used by sole proprietors. Previously, PPP rules defined payroll costs for individuals who file an IRS Form 1040, Schedule-C as payroll costs (if any employees exist) plus net profits, which is net earnings from self-employment.  The problem is that many of these entities are the smallest of small businesses with few if any employees and many are struggling to generate net income.  Furthermore many of these are minority and woman owned businesses that the Biden administration is targeting for relief. Under these new rules the term “income” as used in the definition of payroll costs for sole proprietors and independent contractors is expanded to encompass either borrower’s net income or a borrower’s gross income.

Depending on the size of the loan being requested, it may take longer for borrowers to get through the process.  A borrower applying for a typical PPP loan certifies the accuracy of his application and the SBA reserves the right to scrutinize applications in the future.  To guard against potential abuse under this expanded eligibility if a sole proprietor reports $150,000 or more on gross income when making a PPP application the SBA borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith, and the borrower may be subject to a review by SBA of its certification.

CFPB issues QM Patch Extension

 Yesterday the CFPB issued the regulations that have been anticipated for a while under which mortgages eligible for sale to Fannie Mae or Freddie Mac will continue to qualify as Qualified Mortgages under the CFPB’s TRID regulations.  This designation gives them added protection against borrowers contesting foreclosure actions.  The CFPB is also going ahead with new regulations permitting loans to qualify as QM loans provided their interest rates are comparable to similar mortgages.  For those of you who underwrite to secondary market standards, I have not seen any word from the GSE’s as to whether or not these new type of QM loans will be automatically eligible for purchase once I do, I will let you know.

March 4, 2021 at 9:44 am Leave a comment

What Will the Next Nine Months Bring To Your CU?

Will the next six months bring about a rise in delinquencies as government support begins to wane or will your credit unions be in store for a boom in lending activity as consumers break out of the plastic bubbles otherwise referred to as their houses and break out the credit cards, splurge on big ticket items and generally feel better about their economic prospects? Even as NCUA understandably makes examining your credit union’s ALLL policies it’s top priority for 2021, there is mounting evidence that the more optimistic scenario is the one most likely to unfold. 

Most importantly, credit unions have been telling me for a long time that the problem isn’t deposits, it’s getting members to spend some of that money.  How right they are.  Worldwide consumers have squirreled away an extra $2.9 Trillion in savings with the Unites States alone accounting for half of the total.  In fact, according to Bloomberg if consumers decide to spend all that extra savings, the economy would grow at a 9.6% rate this year.  While such speculation is crazy talk, the increased savings are in addition to the checks that many of your members will be receiving, assuming Congress passes another economic relief package within the next couple of weeks.

In another sign that things are going to end up better than anyone would have predicted a year ago, many states are not suffering the decline in tax revenue they anticipated.  In fact, the New York Times ran this front page story yesterday reporting that by some measures many states will end up with almost as much revenue this year as they took in last year.  Some states have even benefitted from the crisis with Idaho seeing an increase in population and tax revenue.  So much for my Own Private Idaho. 

To be sure, there are also signs that for many the economic recovery is not strong enough.  On Monday, the CFPB released a report detailing the millions of Americans dependent on forbearance programs to stay in their homes and Janet Yellen has been quick to point out that the economy is still down ten million jobs.  Still, my guess is that the biggest concern that your credit union will face in the coming year will be interest rate risk as examiners turn their attention from the adequacy of the reserves to the possibility that inflation will once again start appearing on the horizon.

Legislature to Scale Back Governor’s Powers

The Legislature has agreed to pass legislation to curb the Governor’s power to issue Executive orders which he has used to run the state since the COVID crisis started last March.  According to the Times union the new restrictions “will prohibit the governor from unilaterally issuing new executive orders related to the pandemic without legislative review. He will retain the ability to tweak or renew existing orders relating to slowing the spread of COVID-19, including the state’s mask mandate or business restrictions”

We will have to examine just how this will affect Executive Orders that have impacted CU operations.  For example, as readers know, the Governor has established the criteria for vaccine shot eligibility and he has authorized the use of remote notarization. In addition, even though the Legislature has passed mortgage forbearance legislation-Section 9X of the Banking Law-these protections expire with the end of the EO’s.  We will keep you posted.

March 3, 2021 at 9:32 am Leave a comment

CFPB Puts Brakes on Mortgage Reform

Late last year, the CFPB passed a series of regulations making dramatic changes to the definition of qualified mortgages (QM) under TRID. Now, to the surprise of no one, the new leadership of the CFPB is holding off on these final regulations. This can get kind of confusing, so pay attention.

The regulations to which I am referring were finalized by the CFPB on December 10th of last year. One of the regulations created a new category of qualified mortgages, under which mortgages held in a lender’s portfolio for 36 months, which also met certain other criteria, would qualify as qualified mortgages. This distinction provides lenders with increased protections in the event the legality of the loan is challenged in a foreclosure. In finalizing the regulation, the CFPB had decided that regulations would not retroactively apply for this expanded QM definition, but also decided that the regulation would take effect March 1, 2021. In a statement yesterday, the CFPB indicated that it is going to let this regulation take effect, but that it is considering a new round of rulemaking that would amend this regulation. 

A second key development involves everyone’s favorite friend, the QM patch. The patch is that “temporary” provision, under which mortgages eligible for sale to the GSEs are classified as qualified mortgages. Also on December 10th of last year, the CFPB finalized amendments to this regulation which would replace the QM patch with a new QM definition classifying mortgages as qualified provided the interest rate terms of the loan are comparable to similar mortgages.

Currently, credit unions must be in compliance with this second regulation by July 1, 2021. In its statement yesterday, the CFPB indicated that it would also be considering making amendments to this regulation and most likely delaying the mandatory compliance deadline. 

February 24, 2021 at 9:49 am Leave a comment

A Few Quick Thoughts to Start Your Credit Union Day

CitiBank Settles CARD Act Violation 

My takeaway from the Tampa Bay Buccaneers destruction of the Kansas City Chiefs is that, for all of life’s complexities, we should never lose sight of the basics. With that as my big thought of the day, I want to bring your attention to a recent settlement reached between CitiBank and a group of states for violating the lookback provisions of the CARD Act. As you erstwhile veterans of compliance may recall, the CARD Act was the first major piece of legislation passed by Congress as it scrambled to punish banks as the effects of the mortgage meltdown were coming into focus.

Under the CARD Act, if a creditor increases the annual percentage rate applicable to a credit card account based on factors including the credit risk of the card holder, among others, the creditor should review whether such factors have changed at least every six months (15 U.S.C. section 1665c). In 2018, the CFPB reached a settlement with the bank for misapplying its lookback factors. The announcement of the state settlement resolves similar claims brought against the bank by attorneys general, but the bank refused to concede that it had violated state-level consumer protection laws. My takeaway? Given the complexities of Regulation Z, periodically reviewing your lookback procedures is something that should be on your to-do list if it isn’t already.

Is New York the Center of the Political Universe?

No. But it promises to be one of the most highly contested battlegrounds for 2022 as Republicans and Democrats fight for control of the House of Representatives. Yesterday, Democrat Anthony Brindisi conceded defeat, bringing an end to one of the closest congressional races in the state’s history. Incumbent Brindisi was defeated by Claudia Tenney, who previously lost the seat to Brindisi during the 2018 cycle. Tenney is a good friend to many of our credit unions, and she is certainly aware of the key issues having previously served on the House Financial Services Committee. Taking a look at the big picture, with Democrats in charge of both the Assembly and the State Senate, the House of Representatives within striking distance for Republicans, and New York consistently having multiple competitive congressional elections, get ready to see an awful lot of campaign ads in the run-up to 2022.

February 9, 2021 at 9:56 am Leave a comment

Three Things to Ponder As You Start Your Credit Union Week

Good morning, folks. Here are some things to keep in mind as you start what promises to be an extremely eventful truncated week. 

Meet the New Boss

With the Supreme Court ruling that the director of the CFPB serves at the pleasure of the President of the United States, President-elect Biden has announced his pick to head the Bureau. Even with the Supreme Court ruling, no one in government has as much power to shape the regulations of the consumer financial sector than will Rohit Chopra.

Judging by the press reports I read over the weekend, there are few regulators who will have as much running room at the start of the Biden presidency as the CFPB. The conventional wisdom is that the CFPB was made “toothless” (New York Times) under the parting director Kathy Kraninger. While this is not true, perception is reality, and the list of top priorities is already emerging. Get ready to work on proposals dealing with overdrafts, student loan disclosures, mortgage forbearances and payday loans. All this will be in addition to a much more aggressive use of regulation through enforcement action. 

NCUA and CFPB Enter Into A MOU

David Baumann of the Credit Union Times reported Friday that the CFPB and the NCUA had agreed upon a Memorandum of Understanding. According to the NCUA, the purpose of this agreement is “to improve coordination between the agencies related to the consumer protection supervision of credit unions over $10 billion dollars in assets.” But we won’t know for sure, at least for a while, as the NCUA is making the CUTimes file a FOIA request to learn the contents of the memo.

Under the Dodd-Frank Act, the Bureau has direct supervision over institutions with $10 billion or more in assets. An institution is subject to this supervision once it reports four consecutive quarters of $10 billion or more in assets. If I was at or near this threshold, I sure as heck would want to know what was in the MOU. After all, institutions have a right to know what’s expected of them; what regulators are overseeing them, and precisely with whom their supervisory information is being shared.

It’s Budget Day at the Capitol!

For New York Legislative geeks, today is like Christmas morning. You finally get to know what surprises are under the Budget tree, and there’s sure to be a few lumps of coal. Many of the big picture items are already being debated, such as online gambling and marijuana banking. And of course, the great wild card in all of this is the extent to which Congress will be able to ease New York’s fiscal woes. Goody gumdrops. 

Merry Christmas, Happy New Year, and enjoy your day.

January 19, 2021 at 9:43 am 1 comment

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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