News from Washington: Regulatory Updates
Consumer Financial Protection Bureau (CFPB) Issues Its Fall 2014 Supervisory Highlights Report. 
On October 28, 2014, the CFPB published the latest issue of its Supervisory Highlights, which features supervisory observations that the CFPB gleaned from examining banks and nonbanks. Highlights include:
- Regulation E. Among several issues cited, one or more institutions received an oral notification from a consumer about an error related to an electronic fund transfer but would not commence an investigation of the error until a written dispute form was received from the consumer, in violation of Regulation E. The CFPB also found that one or more institutions denied a consumer’s claim for unauthorized PIN transactions on a stolen card because the consumer could not explain how the PIN was compromised. A consumer’s negligence cannot be used as the basis for imposing greater liability than is permissible under the regulation.
- Student Loan Servicing. The CFPB found several issues with one or more servicers, including:
- Unfair payment allocations to maximize late fees
- Misrepresentations on billing statements about minimum payments
- Illegal late-fee charges
- Failure to provide accurate tax information
- Misrepresentations about discharging student loans in bankruptcy
- Unfair debt collection calls made to consumers at inconvenient times (in at least one case, on a repeated basis)
- Mortgage Servicing. In the first half of 2014, the CFPB began targeted reviews examining for compliance with the new servicing rules. While examiners found that some servicers had implemented policies and procedures reasonably designed to meet the objectives in the rule, other servicers had not. Further, the CFPB found several issues with one or more servicers, including:
- Failure to have policies and procedures relating to the oversight of service providers
- Unfair delays in converting trial loan modifications to permanent loan modifications, and associated negative consequences
- Deceptive practices regarding the terms of loan modifications
- Fair Credit Reporting Act (FCRA). One or more consumer reporting agencies were not properly providing notices about their reinvestigations of consumers’ disputes in certain circumstances, as required by Section 611(a)(6) of the FCRA. Further, at least one specialty consumer reporting agency was inconsistently handling disputes received by telephone.
- Debt Collection. One or more debt collectors were imposing convenience fees for making a payment on a debit or credit card in states in which the practice is prohibited, and at least one collector was routinely threatening litigation it did not intend to pursue, in violation of the Fair Debt Collection Practices Act. The CFPB also identified unfair practices with respect to debt sales and found at least one instance where faulty training materials resulted in prohibited disclosures to third parties.
The report also summarizes recent public enforcement actions as well as supervision program and other developments. The fall 2014 Supervisory Highlights report is available at http://files.consumerfinance.gov/f/201410_cfpb_supervisory-highlights_fall-2014.pdf. 
CFPB Provides a Limited Cure Procedure for Qualified Mortgages (QM) That Exceeds the 3 Percent Points and Fees Limit.
On November 3, 2014, the CFPB issued a final rule to allow lenders, under certain conditions, to cure excess amounts over the QM points and fees limit to maintain a loan’s QM status after consummation. Under the CFPB’s ability-to-repay and QM rule, mortgages that meet the standards of a QM are presumed to satisfy the ability-to-repay requirement (i.e., that at the time of consummation, the consumer has a reasonable ability to repay the loan). The QM standard requires, among other criteria, that points and fees charged to the consumer generally do not exceed 3 percent of the total loan amount.
Both creditors and secondary market participants expressed concern about originating and purchasing loans that appear to satisfy the QM 3 percent points and fees limit at consummation but, in fact, may not qualify because a fee was inadvertently omitted that would cause the total points and fees charged to exceed the threshold. To address this concern, the final rule provides a limited cure procedure that would allow a creditor or assignee to refund to the borrower any amount exceeding the 3 percent points and fees limit within 210 days of consummation if the creditor originated the loan as a QM and maintained specific policies and procedures for review of loans after consummation. Under the final rule, the CFPB also requires that creditors or assignees pay interest on any excess amount refunded and specifies occurrences that eliminate the ability for a creditor or assignee to cure points and fees overages, such as when a consumer institutes legal action in connection with the loan. This limited points and fees cure provision is effective for transactions consummated on or after November 3, 2014, and sunsets after January 10, 2021.
CFPB Issues Final Rule Allowing Financial Institutions to Post Annual Disclosure of Privacy Policies Online, If Certain Conditions Are Met.
On October 28, 2014, the CFPB issued a final rule creating an alternative delivery method for the privacy policy disclosure requirements in Regulation P. The Gramm-Leach-Bliley Act (GLBA) and Regulation P generally require financial institutions to send annual notices to their customers about their privacy policies. Typically, these notices have been mailed to consumers. Under the final rule, companies may now post their privacy policy online, instead of mailing it, if: 1) no opt-out rights are triggered by the financial institution’s information-sharing practices under the GLBA or the FCRA, and opt-out notices required by the FCRA have previously been provided, if applicable, or the annual privacy notice is not the only notice provided to satisfy those requirements; 2) the information included in the privacy notice has not changed since the customer received the previous notice; and 3) the financial institution uses the model form provided in Regulation P as its annual privacy notice.
To use this alternative delivery method, a financial institution must continuously post the annual privacy notice in a clear and conspicuous manner, without requiring a login or similar steps or agreement to any conditions to access the notice. A financial institution must also mail annual notices to customers who request them by telephone within 10 days of the request. A financial institution must inform consumers at least once a year that the policy is available online, that the institution will mail the notice to consumers upon request, and that the notice has not changed. A financial institution may provide this information in a regular communication with the consumer, such as a monthly billing statement.
Agencies Seek Comment on Proposed Changes to Their Community Reinvestment Act (CRA) Interagency Questions and Answers.
On September 10, 2014, the Federal Reserve Board (Board), Federal Deposit Insurance Corporation (FDIC), and the Office of Comptroller of the Currency (OCC) requested comment on proposed revisions to the “Interagency Questions and Answers Regarding Community Reinvestment.” The questions and answers provide additional guidance to financial institutions and the public on the agencies’ regulations that implement the CRA. The proposed new and revised questions and answers:
- address alternative systems for delivering retail banking services;
- add examples of innovative or flexible lending practices;
- address community development-related issues, including guidance on economic development, examples of community development loans and activities that are considered to revitalize or stabilize an underserved nonmetropolitan middle-income geography, and an explanation of how community development services are evaluated; and
- offer guidance on how examiners evaluate the responsiveness and innovativeness of an institution’s loans, qualified investments, and community development services.
The comment period closed on November 10, 2014.
Agencies Issue Guidance on Unfair or Deceptive Credit Practices.
On August 22, 2014, the Board, CFPB, FDIC, National Credit Union Administration (NCUA), and OCC issued Interagency guidance that addresses certain unfair or deceptive credit practices that had been prohibited by the “credit practices rules” of the Board, NCUA, and former Office of Thrift Supervision but were nullified by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The guidance clarifies that the repeal of the credit practices rules applicable to banks, savings associations, and federal credit unions is not a determination that the prohibited practices contained in those rules are permissible. Rather, the practices described in the former credit practices rules could potentially violate the prohibition against unfair or deceptive practices under the Federal Trade Commission Act and the Dodd-Frank Act, even in the absence of a specific regulation governing the conduct. The Board also clarified in CA Letter 14-5 that its 2004 guidance “Unfair or Deceptive Acts or Practices by State-Chartered Banks,” which was transmitted with CA Letter 04-2, remains in effect. Concurrent with the publication of the Interagency guidance, the Board proposed to repeal its Regulation AA, 12 C.F.R. part 227, which contained the credit practices rules applicable to banks.