Consumer Compliance Outlook: Third Issue 2020

News from Washington: Regulatory Updates

The Consumer Finance Protection Bureau (Bureau) issues a rulemaking proposal to implement a provision in the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCPA) that created a new exemption from the escrow requirement for higher-priced mortgage loans (HPMLs)External Link

On July 22, 2020, the Bureau issued a notice of proposed rulemaking in the Federal Register to implement Section 108 of the EGRRCPA (codified at 15 U.S.C. §1639d(c)(2)), which creates an additional exemption for community banks from the requirement to establish escrow accounts for HPMLs. The proposal would amend Regulation Z, which implements the Truth in Lending Act. Specifically, the proposed exemption applies to insured depository institutions or insured credit unions meeting the following requirements:

The proposed exemption is in addition to the existing HPML exemption under §1026.35(b)(2)(iii) for institutions with less than $2 billion in assets, that originate no more than 2,000 first-lien, nonportfolio loans, and meet certain other requirements. The comment period closed on September 21, 2020.

The Bureau issues an interpretive rule providing guidance on how it determines which counties and areas are underservedExternal Link

On June 26, 2020, the Bureau published an interpretive rule in the Federal Register, effective immediately, providing updated guidance to creditors and other stakeholders involved in the mortgage origination process to clarify how it will use Home Mortgage Disclosure Act (HMDA) data in determining which counties and areas are “underserved” in a given calendar year. The Bureau annually issues a list of rural and underserved counties and areas, which is relevant to the application of various Regulation Z provisions. For example, creditors use the list to identify whether they qualify for the exemption to the requirement to establish an escrow account for higher-priced mortgage loans and whether they are eligible to originate balloon-payment qualified mortgages and balloon-payment high-cost mortgages. Under Regulation Z, an area is underserved in a given calendar year if, based on HMDA data from the previous year, it is a county in which no more than two creditors extended covered transactions secured by first liens on properties in the county five or more times. The Bureau’s interpretation supersedes the methodology included in the commentary to Regulation Z, which became partially obsolete when certain HMDA data points were modified or eliminated by the Bureau’s 2015 amendments to Regulation C, which implements HMDA. The interpretive rule describes the HMDA data that it will instead use to identify underserved counties and areas.

The Bureau publishes its Spring 2020 Agenda outlining its regulatory focus for the period between May 1, 2020, and April 30, 2021External Link

On June 30, 2020, the Bureau published its Spring 2020 Agenda listing regulatory matters on which it expects to focus between May 1, 2020, and April 30, 2021. The agenda is part of the Spring 2020 Unified Agenda of Federal Regulatory and Deregulatory Actions, the planning process for which began months before the COVID-19 pandemic emergency. The agenda outlines proposed or final rules the Bureau issued prior to its publication date, including:

The agenda also outlines regulatory activities planned for the remainder of 2020 through spring 2021, including:

The Bureau proposes to amend Regulation Z to address the phaseout of the London Interbank Offered Rate (LIBOR) as a benchmark for variable-rate instrumentsExternal Link

On June 18, 2020, the Bureau issued a proposed rule in the Federal Register to amend Regulation Z to address the phaseout of LIBOR as an index for variable-rate consumer credit products. The proposed rule amends certain open- and closed-end provisions of Regulation Z to provide examples of replacement indices for LIBOR indices that meet certain standards. The proposed rule also changes certain requirements for index changes for certain open-end provisions, requires certain change-in-terms notices, and addresses how credit card rate reevaluation requirements apply. The comment period closed on August 4, 2020. Additionally, the Bureau issued a set of Frequently Asked Questions (FAQs) to address other LIBOR transition topics and regulatory questions arising under the existing rule.

The Bureau issues an interim final rule amending Regulation X to temporarily permit mortgage servicers to offer certain loss mitigation options based on the evaluation of an incomplete loss mitigation applicationExternal Link

On June 30, 2020, the Bureau published an interim final rule in the Federal Register amending Regulation X. Currently, Regulation X generally requires a servicer to obtain a complete loss mitigation application before evaluating a borrower for loss mitigation options. An exception applies for certain short-term loss mitigation options; see 12 C.F.R. §1024.41(c)(2)(iii). In response to the COVID-19 emergency, the interim final rule creates an additional temporary exception to allow servicers to offer certain loss mitigation options without a complete loss mitigation application to borrowers facing financial hardship because of the COVID-19 emergency. Under the interim final rule, a loss mitigation option may be provided based on an incomplete application if it satisfies three requirements:

The interim final rule also provides that, if an option is accepted, the servicer is not required to continue the reasonable diligence efforts otherwise required under 12 C.F.R. §1024.41(b)(1) or send an acknowledgment notice otherwise required under §1024.41(b)(2). The interim final rule became effective on July 1, 2020. The comment period closed on August 14, 2020.

The Bureau issues a compliance aid to address questions arising under the Equal Credit Opportunity Act (ECOA) for creditors participating in the Small Business Administration’s Paycheck Protection Program (PPP)External Link

On May 6, 2020, the Bureau issued a compliance aid in the form of FAQs to clarify ECOA questions for lenders processing PPP loan applications. The PPP provides incentives for small businesses to retain employees on their payroll and is part of the relief package Congress created in the Coronavirus Aid, Relief, and Economic Security (CARES) Act to address the unprecedented economic disruption resulting from the COVID-19 pandemic. Creditors participating in the PPP have raised novel questions about complying with ECOA’s requirements for notifying credit applicants about the status of their application.

The full FAQs, which address some of the novel questions, are available on the Bureau’s website.

Please note that as of August 8, 2020, the SBA was no longer accepting new loan applications for the PPP.