Consumer Compliance Outlook: Second Quarter 2012

News from Washington: Regulatory Updates

Board of Governors of the Federal Reserve System (Board) releases policy statement on rental of residential real estate.External Site

On April 5, 2012, the Board released a policy statement reiterating that banking organizations may rent residential properties acquired in foreclosure as part of an orderly disposition strategy. The foreclosed properties (also known as other real estate owned, or OREO) may be rented within statutory and regulatory limits, such as within legal holding-period limits, without demonstrating continuous active marketing of the property for sale, provided that suitable policies and procedures are followed. The policy statement also clarifies to the extent that OREO rental properties meet the definition of community development under the Community Reinvestment Act (CRA) regulations, the banking organization would receive favorable CRA consideration. The policy statement applies to banking organizations for which the Federal Reserve is the primary federal supervisor, including state member banks, bank holding companies, nonbank subsidiaries of bank holding companies, savings and loan holding companies, nonthrift subsidiaries of savings and loan holding companies, and U.S. branches and agencies of foreign banking organizations.

Consumer Financial Protection Bureau (CFPB) proposes rule for the protection of privileged information.External Site

On March 12, 2012, the CFPB announced a proposed rule that would specify protections for privileged information submitted to the CFPB by financial institutions it regulates. The rule will allow the CFPB to facilitate the flow of information between the CFPB and its supervised entities and is intended to assure supervised entities that providing privileged information to the CFPB will not adversely affect the confidentiality of such information. The rule clarifies that the CFPB's transfer of privileged information to another federal or state agency does not result in a waiver of any applicable privilege. The CFPB also advised institutions it supervises that submission of privileged information to the CFPB does not waive any applicable privilege with respect to third parties.

CFPB is now taking complaints about private student loans.External Site

On March 5, 2012, the CFPB announced that it is accepting complaints from borrowers who are having difficulties with private student loans. The CFPB will assist borrowers who are experiencing problems with taking out a private student loan, repaying a private student loan, managing student loans that have gone into default, and dealing with student loans that have been referred to a debt collector. Prior to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), there was no federal supervisory program over nonbanks issuing student loans. That authority now belongs to the CFPB under the Dodd-Frank Act. Among its reforms, the law created a private student loan ombudsman to assist borrowers and review complaints. The CFPB anticipates receiving complaints about difficulties making full payment, confusing advertising or marketing terms, billing disputes, deferment, forbearance issues, debt collection, and credit reporting problems. The CFPB expects financial institutions to respond to complaints within 15 days with the steps they have taken or plan to take and expects complaints to be closed in 60 days.

CFPB is accepting complaints on checking accounts.External Site

On March 1, 2012, the CFPB began accepting consumer complaints about bank accounts, including checking accounts, savings accounts, CDs, and related services. The CFPB anticipates receiving complaints pertaining to opening, closing, and managing accounts; making deposits and withdrawals; using a debit or ATM card; making or receiving payments; and sending money to others, as well as problems related to low account funds.

Board releases action plans addressing residential mortgage servicing and foreclosure issues.External Site

On February 27, 2012, the Board released action plans for nine supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing. The action plans were required by formal enforcement actions issued by the Board in 2011. The enforcement actions direct mortgage loan servicers regulated by the Board to submit acceptable plans that describe how the institutions will strengthen communications with borrowers by providing each borrower with the name of a primary point of contact at the servicer; establish limits on foreclosures where loan modifications have been approved; establish robust third-party vendor controls; and strengthen compliance programs.

The Board's enforcement actions also require the parent holding companies of the mortgage servicers to submit acceptable plans that describe how the companies will improve oversight of servicing and foreclosure processing conducted by bank and nonbank subsidiaries. The enforcement actions further require the mortgage servicing subsidiaries to provide appropriate remediation to borrowers who suffered financial injury resulting from errors by the servicers. The Board's actions follow reviews in which examiners found unsafe and unsound processes and practices in residential mortgage loan servicing and foreclosure processing at a number of supervised institutions. The Board will closely follow the implementation of the action plans to ensure that the financial institutions correct deficiencies and evaluate any harm that was done to homeowners in the foreclosure process in 2009 and 2010.

CFPB launches inquiry into overdraft practices.External Site

On February 22, 2012, the CFPB launched an inquiry into checking account overdraft programs to determine how these practices affect consumers. The CFPB is also seeking public input on a prototype “penalty fee box” disclosure for checking account statements that would highlight the amount overdrawn and total overdraft fees charged. For point-of-sale debit card and ATM transactions, Board regulations that became effective in 2010 prohibit a bank from charging the overdraft fee unless the consumer has opted in. Banks can charge an overdraft fee without a consumer opt-in for checks, online bill payment, and recurring debits. The average overdraft fee ranged from $30 to $35 in 2011 and has increased by 17 percent over the past five years, according to various industry sources. A study by the Federal Deposit Insurance Corporation published in 2008 found that consumers who overdrew 20 or more times per year paid an average of $1,610 in overdraft fees annually. The CFPB includes data requests sent to a number of banks and a request for public comment. The inquiry focuses on transaction re-ordering that increases consumer costs, missing or confusing information, misleading marketing materials, and disproportionate impact on low-income and young consumers.

CFPB proposes rule to supervise larger participants in consumer debt collection and consumer reporting markets.External Site

On February 16, 2012, the CFPB announced a proposed rule to include debt collectors and consumer reporting agencies under its nonbank supervision program. The Dodd-Frank Act authorizes the CFPB to supervise nonbanks in the specific markets of residential mortgage origination, payday lending, and private education lending and also to supervise “larger participants” in other markets for financial services. The Dodd-Frank Act directs the CFPB to conduct a rulemaking to define “larger participants.” Under the proposed rule, debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision. The CFPB estimates that the proposed rule would cover approximately 175 debt collection firms representing 4 percent of debt collection firms that account for 63 percent of annual receipts from the debt collection market. Consumer reporting agencies with more than $7 million in annual receipts from consumer reporting activities would be subject to supervision. Based on available data, this would include approximately 7 percent of consumer reporting agencies that account for about 94 percent of the annual receipts of consumer reporting agencies. The comment period closed on April 17, 2012.

CFPB seeks input on draft monthly mortgage statement.External Site

On February 13, 2012, the CFPB published a draft monthly mortgage statement designed to make it easier for homeowners to understand their loans and avoid unnecessary costs and fees. The Dodd-Frank Act requires most mortgage borrowers to receive periodic statements containing specified information and requires the creditor, the assignee, or the mortgage servicer to provide the statements. The statement must include information about the principal loan amount, the current interest rate, the date on which the interest rate may next reset, a description of any late payment and penalty fees, information about housing counselors, and a telephone number and e-mail address that may be used to contact the mortgage servicer. The CFPB also posted the prototype online to solicit general feedback from consumers, industry stakeholders, and other interested parties. Later this year, the public will have an opportunity to provide comments on a version of the draft model form.

CFPB releases mortgage origination examination procedures.External Site

On January 11, 2012, the CFPB announced a key initial step in implementing its nonbank supervision program by providing examination procedures for mortgage originations. The procedures are a field guide for CFPB examiners reviewing mortgage originators in both the bank and nonbank sectors of the industry. The product-specific procedures are an extension of the CFPB's general supervisory and examination manual. The procedures outline the CFPB's supervisory approach to ensure that mortgage originators, lenders, and brokers comply with federal consumer financial laws. The procedures describe the types of information that examiners will gather to evaluate mortgage originators' policies and procedures, assess whether originators comply with applicable laws, identify risks to consumers throughout the mortgage origination process, and track key mortgage originator activities, from initial advertisements and marketing practices to closing practices.