News from Washington: Regulatory Updates
Consumer Financial Protection Bureau (CFPB) Proposes to Supervise Larger, Nonbank Participants in the Market for Foreign Remittance Transfers. 
Section 1024 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) generally authorizes the CFPB to exercise supervisory authority over nonbank providers of consumer financial products and services. For certain enumerated types of consumer financial products and services, the CFPB has supervisory authority for nonbanks of all sizes; however, in other cases, the CFPB must first conduct a rulemaking defining a “larger participant” in the particular market. On January 23, 2014, the CFPB issued a rulemaking proposal to exercise examination authority over larger participants in the consumer foreign remittance transfer market. Under the proposal, a nonbank, foreign remittance transfer provider qualifies as a larger participant if it conducts at least 1 million aggregate annual international money transfers. The proposed definition would apply to approximately 25 international money transfer providers. The comment period closed on April 1, 2014.
CFPB Releases New Mortgage Rule Resources for Consumers.
On January 7, 2014, the CFPB released additional mortgage resources for consumers as part of its campaign to inform the public about new mortgage regulations. The resources include sample letters that consumers can use for problems with their mortgage servicer, mortgage tips, answers to common mortgage questions, and a fact sheet on the new mortgage regulations.
CFPB Announces Increase in Higher-Priced Mortgage Loans Escrow Account Asset-Size Threshold.
On December 30, 2013, the CFPB issued a final rule adjusting the asset-size threshold for certain creditors to qualify for an exemption from the escrow requirement under Regulation Z for higher-priced mortgage loans (HPMLs). Creditors originating first-lien HPMLs are generally required to establish an escrow of at least five years’ duration; however, certain creditors that operate predominantly in rural and underserved areas and that meet the volume and asset-size thresholds are exempt from the escrow requirement. The CFPB established the initial asset-size threshold at $2 billion in its 2013 final escrow rule. The threshold is adjusted for inflation based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI) for each 12-month period ending in November. For 2014, the inflation adjustment increases the threshold for creditors with assets of $2.028 billion or less as of December 31, 2013. Creditors at or below this threshold that also meet the certain other requirements of Regulation Z are exempt from the escrow requirement for HPMLs.
CFPB Announces Increase in Home Mortgage Disclosure Act Asset-Size Exemption Threshold.
On December 30, 2013, the CFPB issued a final rule adjusting the asset-size exemption threshold for banks, savings associations, and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The HMDA requires that the CFPB adjust this threshold yearly by the annual percentage increase in the CPI. The final rule increases the threshold for the asset-size exemption for banks, savings associations, and credit unions to $43 million. Institutions with assets of $43 million or less as of December 31, 2013, are exempt from collecting HMDA data in 2014. An institution’s exemption from collecting data in 2014 does not affect its responsibility to report the data it was required to collect in 2013. The rule was effective January 1, 2014, and applies to data collection in 2014.
Financial Regulators Take Enforcement Action Against Three American Express Companies.
On December 23, 2013, the CFPB, in coordination with the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), announced consent orders with three American Express companies (American Express Centurion Bank; American Express Bank, FSB; and American Express Travel Related Services Company, Inc.) concerning unfair and deceptive marketing practices for credit cards. The agencies alleged that American Express engaged in illegal credit card practices, including unfair billing tactics and deceptive marketing with regard to credit card “add-on” products, such as payment protection and credit monitoring. The consent orders require the three companies to end the practices and pay combined restitution of $59.5 million to more than 335,000 consumers. The three companies must also pay a total of $16.2 million in civil money penalties to the CFPB, the OCC, and the FDIC.
Banking Agencies Release Annual Community Reinvestment Act (CRA) Asset-Size Threshold Adjustments for Institutions.
On December 19, 2013, the federal bank regulatory agencies announced the annual adjustment to the asset-size thresholds used to define small bank, small savings association, intermediate small bank, and intermediate small savings association under the CRA regulations as follows:
- “Small bank” or “small savings association” means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.202 billion.
- “Intermediate small bank” or “intermediate small savings association” means a small institution with assets of at least $300 million as of December 31 of both of the prior two calendar years, and less than $1.202 billion as of December 31 of either of the prior two calendar years.
The changes were effective January 1, 2014.
Financial Regulators Issue Final Guidance on Social Media.
On December 11, 2013, the Federal Financial Institutions Examination Council released final guidance discussing the application of consumer protection and compliance laws, regulations, and policies to activities conducted via social media by banks, savings associations, and credit unions, as well as nonbank entities supervised by the CFPB. The guidance notes that social media can affect an institution’s risk profile, including increased risks to consumers, compliance and legal risk, operational risk, and reputation risk. The guidance discusses considerations that may be helpful for financial institutions conducting risk assessments. The guidance, which was effective upon issuance, does not impose any new requirements on financial institutions but is intended to help financial institutions understand the potential risks associated with the use of social media and regulators’ expectations for managing those risks.
The Federal Housing Administration (FHA) Updates Lending Standards for Manually Processed Applications.
On December 11, 2013, the FHA published revised guidelines that identify when lenders are required to manually underwrite mortgage loan applications for FHA-insured mortgages. To underwrite an FHA loan electronically, a mortgagee must process the loan request through an automated underwriting system that communicates with the FHA system that scores applications based on credit scores and other factors. The FHA scoring system provides two risk classifications: Accept or Refer. If the application is classified as Refer, the lender must manually underwrite the loan. The December 2013 update makes changes to the manual underwriting guidelines, which include creating reserve requirements for all manually underwritten borrowers, establishing maximum qualifying debt-to-income ratios based on credit score and compensating factors, and providing a revised list of acceptable compensating factors with objective documentation requirements for assessing these factors.
CFPB to Oversee Nonbank Student Loan Servicers.
On December 3, 2013, the CFPB issued a final rule to supervise certain nonbank student loan servicers for the first time. The final rule applies to “larger participants,” who are defined as nonbanks whose student loan servicing volume exceeds 1 million accounts. Larger participants are subject to the CFPB’s supervision and examination authority. The rule took effect March 1, 2014.
CFPB Issues Final Rule to Integrate Mortgage Disclosure Forms.
On November 20, 2013, the CFPB issued the final integrated mortgage rule. When consumers apply for a residential mortgage loan subject to the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA), they must receive within three business days of application an early TILA disclosure statement disclosing the cost of credit and a Good Faith Estimate (GFE) form under the RESPA disclosing estimated settlement costs. At consummation, consumers must receive the final TILA disclosure statement and the HUD-1 form. The Dodd-Frank Act directed the CFPB to consolidate these disclosures to help facilitate borrowers’ understanding of their mortgage loan and reduce information overload. Under the final rule, a new Loan Estimate form replaces the early TILA disclosure statement and the RESPA GFE, while the Closing Disclosure form replaces the TILA final disclosure statement and the HUD-1. The new rule is effective August 1, 2015.