News from Washington: Regulatory Updates
Consumer Financial Protection Bureau (CFPB) issues report on loans to servicemembers and their families. 
On December 29, 2014, the CFPB issued a report discussing ways in which some creditors are circumventing the Military Lending Act (MLA), 10 U.S.C. §987 , which provides consumer protections for certain loan products to servicemembers and their families. The MLA and its implementing regulations, 32 C.F.R. Part 232 , cover three types of loans: (1) closed-end payday loans with a term of 91 days or fewer and in an amount of $2,000 or less; (2) closed-end auto title loans with a term of 181 days or fewer; and (3) closed-end tax refund anticipation loans. The report noted that “lenders can avoid the [MLA’s] limitations when they offer open-end lines of credit, contract for an initial duration of greater than 91 days for payday loans or 181 days for auto title loans, or finance an initial amount of more than $2,000 for payday loans.” The report concludes that “this issue is of substantial concern to the [CFPB] and we will continue to use the tools available to us to address the consumer financial challenges affecting the military community.” The CFPB’s report is available at http://tinyurl.com/CFPB-service-report . On a related note, the Department of Defense issued a rulemaking proposal to expand the scope of the MLA’s coverage, which is discussed below.
The Department of Defense (DOD) proposes to expand the MLA’s coverage to prevent circumvention.
On September 29, 2014, the DOD issued a rulemaking proposal, 79 Fed. Reg. 58602, that addresses “a wider range of credit products that currently fall outside the scope of the regulation implementing the MLA, streamline[s] the information that a creditor would be required to provide to a covered borrower, and provide[s] a more straightforward mechanism for a creditor to assess whether a consumer applicant is a covered borrower.” The MLA currently only applies to (1) closed-end payday loans with a term of 91 days or fewer and in an amount of $2,000 or less; (2) closed-end auto title loans with a term of 181 days or fewer; and (3) closed-end tax refund anticipation loans. The proposal would align the regulation’s definition of “consumer credit,” 32 C.F.R. §232.3(f) , with the broader definition of consumer credit in Regulation Z; namely, credit primarily for personal, family, or household purposes and subject to a finance charge; or payable by a written agreement in more than four installments. Certain credit transactions would be exempt: (1) credit secured by the borrower’s dwelling; (2) credit to finance the purchase of a motor vehicle secured by the vehicle; (3) credit to finance the purchase of personal property secured by the property; and (4) credit exempt from Regulation Z (except for 12 C.F.R. §1026.29) . The comment period closed on November 28, 2014.
Agencies release annual CRA asset-size threshold adjustments for small and intermediate small institutions.
On December 19, 2014, the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) 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 Community Reinvestment Act (CRA) regulations. Financial institutions are evaluated under different CRA evaluation procedures based upon their asset-size classification. Financial institutions meeting the small and intermediate small asset-size threshold are not subject to the reporting requirements for large banks and savings associations. Annual adjustments are required by the CRA rules, and the adjustments to these asset-size thresholds are based on the change in the average of the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million. The asset-size threshold adjustments were effective on January 1, 2015.
The annual adjustments for CRA evaluations for the period ending in November 2014 were made based on a 1.60 percent increase in the CPI index. As a result of the increase, the new CRA definition is as follows:
- A 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 $1.221 billion.
- An intermediate small bank or intermediate small savings association means a small institution with assets of at least $305 million as of December 31 of both of the prior two calendar years and less than $1.221 billion as of December 31 of either of the prior two calendar years.
CFPB proposes expanded foreclosure protections.
On November 20, 2014, the CFPB proposed several amendments to the Mortgage Servicing Rules under Regulation X, which implements the Real Estate Settlement Procedures Act, and Regulation Z, which implements the Truth in Lending Act. The proposal would:
- require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan;
- expand consumer protections to a deceased borrower’s surviving family members or persons who inherit a property from a borrower;
- require servicers to notify borrowers when loss mitigation applications are complete;
- require a transferee servicer to comply with loss mitigation requirements within the same time frames that applied to the transferor servicer;
- clarify servicers’ obligations to avoid dual-tracking and prevent wrongful foreclosures;
- clarify that a borrower becomes delinquent, for purposes of the servicing rules, the day the borrower fails to make a periodic payment;
- require servicers to provide periodic statements to borrowers in bankruptcy; and
- clarify a servicer’s obligation to provide early intervention notices about loss mitigation options to borrowers who have told the servicer to stop contacting them under the Fair Debt Collection Practices Act.
The proposal would make additional changes including providing flexibility for servicers to comply with certain force-placed insurance and periodic statement disclosure requirements. The changes would also clarify several early intervention, loss mitigation, information request, and prompt crediting of payments requirements, as well as the small servicer exemption. The proposal would exempt servicers from providing periodic statements under certain circumstances when the servicer has charged off the mortgage. The comment period closed on March 16, 2015.
CFPB proposes protections for prepaid products.
On November 13, 2014, the CFPB proposed new federal consumer protections for general purpose reloadable prepaid cards as well as mobile and other electronic prepaid accounts that can store funds. Covered products include payroll cards; certain federal, state, and local government benefit cards; student financial aid disbursement cards; tax refund cards; and peer-to-peer payment products. The protections would be similar to those provided for debit and ATM cards under the Electronic Fund Transfer Act and Regulation E, including free access to account information. The proposal would require issuers of prepaid cards to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, and adhere to credit card protections if a credit is offered in connection with a prepaid account. Card issuers would be required to include a new Know Before You Owe prepaid disclosure that provides consumers with information about the costs and risks of prepaid products.
Agencies request comment on proposed flood insurance rule.
On October 24, 2014, the Board, OCC, FDIC, National Credit Union Administration, and Farm Credit Administration announced a rulemaking proposal to amend their flood insurance regulations. The proposed rule would implement provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) relating to escrowing flood insurance payments and exemptions of certain detached structures from the mandatory flood insurance purchase requirement. The HFIAA amends the escrow provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. The proposed rule would require regulated institutions to escrow premiums and fees for flood insurance for loans secured by residential improved real estate or mobile homes that are made, increased, extended, or renewed on or after January 1, 2016, unless the regulated lending institution or a loan qualifies for a statutory exception. The proposed rule provides borrowers who have existing residential loans outstanding on January 1, 2016, with the option to escrow flood insurance premiums and fees. The proposal includes new and revised sample notice forms and clauses concerning the escrow requirement and the option to escrow. The proposal would eliminate the requirement to purchase flood insurance for a structure that is a part of a residential property located in a special flood hazard area if that structure is detached from the primary residential structure and does not also serve as a residence; however, lenders have the option to require flood insurance on the detached structures to protect the collateral securing the mortgage. The comment period closed on December 29, 2014.