News from Washington: Regulatory Updates
The Consumer Financial Protection Bureau (CFPB) seeks comment on its plan to assess the effectiveness of its 2013 mortgage servicing rule under the Real Estate Settlement Procedures Act (RESPA). 
The Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank Act) requires the CFPB to assess the effectiveness of each significant rule it has enacted no later than five years after the effective date of the rule. On May 11, 2017, the CFPB announced it is seeking public comment on its plan to assess the effectiveness of its RESPA servicing rule, which imposed requirements and prohibitions under RESPA on servicers of federally related mortgage loans for force-placed insurance, errors asserted by borrowers, borrowers’ requests for information, and early intervention for delinquent borrowers.
The assessment plan will focus on how well the rule has met the four purposes of the 2013 rule: 1) responding to borrow requests and complaints in a timely manner, 2) maintaining and providing accurate information, 3) helping borrowers avoid unwarranted or unnecessary costs and fees, and 4) facilitating review for foreclosure avoidance options. The CFPB seeks public comment on its assessment plan and other aspects of the servicing rule, including information about the benefits and costs of the rule and recommendations for modifying, expanding, or eliminating the rule. The comment period closes on July 10, 2017.
The CFPB seeks comment on its plan to assess the effectiveness of its remittance transfer rule.
On March 15, 2017, the CFPB announced that it is seeking public comment on the effectiveness of its foreign remittance transfer rule that created new consumer protections for remittance transfers sent by U.S. consumers to individuals and businesses in foreign countries. As discussed previously, the Dodd–Frank Act requires the CFPB to review its significant regulations five years after they became effective. The remittance transer rule, which became effective in October 2013, is codified in Regulation E (Electronic Fund Transfer Act). The CFPB seeks public comment on its plan to review the rule and various aspects of the rule, including its impact on transparency, efficiency, access to remittance services, and effect on market innovation. The CFPB is also soliciting suggestions for modifying, expanding, or eliminating the rule. The comment period closed on May 23, 2017.
The CFPB postpones the effective date of its rules for prepaid accounts.
On October 5, 2016, the CFPB issued final rules for prepaid accounts under Regulation E and Regulation Z (Truth in Lending Act). The rules, which create consumer protections for general-purpose reloadable cards, were scheduled to become effective on October 1, 2017, except the requirement for submitting copies of prepaid account agreements to the CFPB, which becomes effective on October 1, 2018. Other prepaid accounts, such as reloadable payroll cards and government benefit cards, were already subject to Regulation E.
On April 25, 2017, the CFPB issued a final rule to delay the October 1 effective date until April 1, 2018. The proposal would not affect the deadline for submitting agreements. The CFPB explained that industry participants expressed concerns that, without a delay in the effective date, they would be required to pull prepaid account access devices and packaging materials with noncompliant disclosures from the marketplace that were produced before October 1, 2017.
The Office of the Comptroller of the Currency (OCC) issues draft licensing manual supplement for evaluating charter applications from financial technology companies.
Last year, the OCC announced that it was considering offering a special purpose national bank (SPNB) charter for financial technology (fintech) firms. On March 15, 2017, the OCC followed up on this announcement with a draft licensing manual supplement for a SPNB charter, for which it seeks public comment. The manual provides details about the process for fintech firms to apply for the charter, the chartering standards, the business plan the applicant should provide, and the factors the OCC will consider in deciding whether to approve a SPNB charter. The comment period closed on April 14, 2017.
The Board of Governors of the Federal Reserve System (the Board) adjusts the civil money penalties (CMPs) it may impose to account for inflation.
On January 18, 2017, the Board announced that it had finalized a rule adjusting the maximum amount of each CMP within its jurisdiction to account for inflation, as required by law. In November 2015, a law was passed that requires all federal agencies to adjust their maximum CMP limits annually for inflation rather than every four years as previously required. The maximum CMP limits depend on several factors, including the severity and type of violation. Additionally, the law dictates the annual adjustment formula for federal agencies. The final rule increases the maximum CMP limits for 2017 by the amount required by law. The new CMP amounts, which can be found at 12 C.F.R. §263.65, apply as of January 15, 2017.
The CFPB issues a request for information (RFI) about the use of alternative data and modeling techniques in the credit process.
Lenders using automated credit systems typically rely on information from consumer credit bureaus and credit scores when making credit decisions. This can present a challenge for the estimated 26 million consumers who do not have a file with a major credit bureau and the additional 19 million consumers who do not have a credit score because their credit history is too thin or too stale to generate a reliable credit score.
On February 21, 2017, the CFPB published an RFI in the Federal Register seeking information about alternative credit modeling systems, which could help identify creditworthy applicants who are “credit invisible” when lenders use traditional credit approval systems. As an example, the CFPB cited alternative credit systems that analyze nontraditional consumer data to inform their credit decisions, such as bill payment, and checking account transactions. To help the CFPB assess the benefits and risks of using nontraditional data in consumer credit decisions, the RFI seeks information from the public on specific questions such as “What does available evidence suggest about the potential benefits for consumers of using alternative modeling techniques?” The comment period closed on May 19, 2017.
Agencies release annual CRA asset-size threshold adjustments for small and intermediate small institutions.
On December 29, 2016, the federal bank regulatory agencies announced the annual adjustment to the asset-size thresholds used under the CRA regulations to define small bank, small savings association, intermediate small bank, and intermediate small savings association. Financial institutions are evaluated under different CRA examination procedures based upon their asset-size classification. Institutions meeting the small and intermediate small institution asset-size thresholds are not subject to the reporting requirements that apply to large banks and savings associations. The annual adjustment to asset-size thresholds is based on the change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). As a result of the 0.84 percent increase in the CPI-W for the period ending in November 2016, the definitions of small and intermediate small institutions for CRA examinations changed as follows, effective January 18, 2017:
- 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 $1.226 billion.
- Intermediate small bank or intermediate small savings association means a small institution with assets of at least $307 million as of December 31 of both of the prior two calendar years and less than $1.226 billion as of December 31 of either of the prior two calendar years.
Agencies issue final rule to adjust the threshold for exempting small loans from special appraisal requirements and announce 2017 threshold.
In November 2016, the Board, the CFPB, and the OCC issued a final rule for the method they will use to make annual inflation adjustments to the threshold for exempting small loans from special appraisal requirements. The final rule also applies the calculation method to the exemption threshold for 2017. The threshold will remain at $25,500, based on the CPI-W in effect on June 1, 2016.
The Dodd–Frank Act amended the TILA to add special appraisal requirements for higher-priced mortgage loans, including a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan. The rules implementing these requirements contain an exemption for loans of $25,000 or less and provide that the exemption threshold will be adjusted annually to reflect increases in the CPI-W. Among other clarifications, the final rule details that, if the CPI-W does not increase in the year being reviewed, the agencies will not adjust the exemption threshold from the prior year.