News from Washington: Regulatory Updates
Consumer Financial Protection Bureau (CFPB) Begins Accepting Complaints About Virtual Currencies and Issues an Advisory to Consumers. 
On August 11, 2014, the CFPB issued a consumer advisory to explain virtual currencies to consumers and to warn about the risks of using them. A virtual currency is a digitally stored value used as a medium of exchange. The risks to consumers from using virtual currencies include unclear or high transaction costs, volatile exchange rates, computer security risks, and fraudulent schemes. The advisory also notes that consumer protections that apply under federal law for bank accounts and payment cards do not apply to virtual currencies. For example, if a consumer has an unauthorized transaction for virtual currency, the consumer generally has no recourse under federal law. Similarly, when a depository institution fails, the account holder is generally protected through the applicable federal insurance fund. But virtual currencies are not covered by the fund. Finally, the CFPB announced that consumers who encounter a problem with a virtual currency product or service can submit a complaint to the CFPB.
CFPB Issues Study on Overdraft Fees.
On July 31, 2014, the CFPB issued a research report on checking account overdraft fees. The report analyzes average checking account fees, distribution of overdraft frequency, overdrafts by transaction type, and negative balance data. Here are the key findings:
- Overdraft and nonsufficient funds (NSF) fees constitute the majority of the total checking account fees that consumers incur. For consumers opting in for overdraft coverage, overdraft and NSF fees account for about 75 percent of their total checking account fees and average more than $250 per year.
- A small fraction of customers pay most overdraft fees: 8 percent of customers incur nearly 75 percent of all overdraft fees.
- The propensity to overdraft generally declines with account holder age, with 10.7 percent of the 18–25 age group having more than 10 overdrafts per year, but only 2.8 percent of the 62 and older age group are in this category.
- The number of overdraft transactions and fees varies substantially with opt-in status. Opted-in accounts are three times as likely to have more than 10 overdrafts per year as accounts that are not opted in. Opted-in accounts have seven times as many overdrafts that result in fees as accounts that are not opted in.
- Transactions leading to overdrafts are often small. For debit card transactions, the median amount that leads to an overdraft fee is $24; for all transactions, the median amount that leads to an overdraft fee is $50.
- Most consumers who overdraft return their accounts to a positive balance quickly, with more than half becoming positive within three days and 76 percent within one week.
CFPB Issues Proposal to Add New Home Mortgage Disclosure Act (HMDA) Data Collection Fields to Regulation C.
On July 24, 2014, the CFPB issued a rulemaking proposal under Regulation C to implement Section 1094 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Section 1094 directed the CFPB to add certain new HMDA data fields and provided the CFPB with the discretion to add additional data fields. According to the proposal, the new fields fall into four categories:
- Information about applicants, borrowers, and the underwriting process, such as age, credit score, debt-to-income ratio, reasons for denial if the application was denied, the application channel, and automated underwriting system results
- Information about the property securing the loan, such as construction method, property value, lien priority, the number of individual dwelling units in the property, and additional information about manufactured and multifamily housing
- Information about the features of the loan, such as additional pricing information, loan term, interest rate, introductory rate period, nonamortizing features, and the type of loan
- Certain unique identifiers, such as a universal loan identifier, property address, loan originator identifier, and a legal entity identifier for the financial institution
The proposal would also exempt institutions that originate fewer than 25 “covered loans,” as defined in the proposal. The comment period closes on October 29, 2014.
CFPB Begins Accepting Consumer Complaints on Prepaid Cards and Additional Nonbank Products.
On July 21, 2014, the CFPB announced that it would begin accepting consumer complaints for prepaid cards, pawn and title loans, and debt settlement and credit repair services, including issues with excessive or unexpected fees, marketing practices, and disclosures. The CFPB asks companies to respond to complaints within 15 days and describe the steps they have taken or plan to take to address the complaint. The CFPB also expects companies to close complaints within 60 days, except for unusually complicated cases. Consumers can track the status of their complaints through the CFPB website.
Federal Reserve Board (Board) Issues Final Rules to Repeal Its Regulations DD and P and Amend Regulation V.
On May 29, 2014, the Board repealed its Regulation DD (Truth in Savings) and Regulation P (Privacy of Consumer Financial Information). The Dodd-Frank Act transferred rulemaking authority for these regulations from the Board to the CFPB. Because the CFPB has issued interim regulations substantially identical to the Board’s, the Board is repealing its version of these regulations. The rulemaking also amends the Identity Theft Red Flags rule in subpart J of the Board’s Regulation V, 12 C.F.R. Part 222, which did not transfer to the CFPB. The final rule implements legislation that amended the Fair Credit Reporting Act to clarify that the provisions apply only to creditors that regularly extend credit or obtain consumer reports.
CFPB Proposes Rule to Streamline Regulation P Privacy Notices.
On May 6, 2014, the CFPB proposed a rule that would allow companies that limit their consumer data sharing and meet other requirements to post their annual privacy notices online rather than mailing them individually. Under the Gramm-Leach-Bliley Act, financial institutions currently send annual privacy notices to customers, and the notices must describe whether and how the financial institutions share consumers’ nonpublic personal information. Consumers must be notified of their right to opt out of the sharing and must be informed of how to do so if institutions share this information with an unaffiliated third party. Institutions whose privacy policies have not changed since the prior year have questioned the need to send annual notices to customers who already have received a copy of the privacy policy. The proposal would allow institutions to post privacy notices online instead of distributing an annual paper notice, assuming certain conditions are satisfied. Among other things, institutions would need to inform consumers annually about the availability of disclosures, but they could do so by including an insert in regular consumer communication, such as a monthly billing statement for a credit card, letting consumers know that the annual privacy notice is available online and in paper by request at a toll-free telephone number. Institutions that choose to rely on this new method of delivering privacy notices would be required to use the model disclosure form developed by the federal regulatory agencies in 2009.
CFPB Proposes Minor Changes to the Ability to Repay/Qualified Mortgage (ATR/QM) Rule.
On April 30, 2014, the CFPB proposed amending its ATR/QM rule, 12 C.F.R. §1026.43, issued under the Dodd-Frank Act. This rule requires creditors to make a reasonable, good faith determination of a consumer’s ability to repay most closed-end loans secured by a dwelling. Creditors offering QMs receive a presumption of compliance with the ATR requirement. QM status generally requires, among other things, that the points and fees a creditor charges the borrower cannot exceed 3 percent of the loan principal. One concern for creditors is that if they originate a loan believed to be a QM, but it turns out after consummation that points and fees exceeded 3 percent because a fee or charge was inadvertently omitted, the loan would not receive QM status. The proposal lays out limited circumstances in which the excess fee or charge may be refunded within 120 days of the loan’s consummation, and the loan would still meet the requirements of a QM.
The proposed amendments also respond to concerns about origination and servicing issues for nonprofit housing providers. The proposal would 1) provide an alternative definition of a nonprofit small servicer that would be eligible for the small servicer exemption and 2) amend the nonprofit ATR exemption to permit certain nonprofits to offer “soft seconds.” The CFPB is also seeking input on the impact on larger lenders that do not meet the definition of small creditor and may address these issues in future rulemakings. The comment period closed in July 2014.