CFPB: Schedule of Rulemaking Initiatives

We have compiled the following schedule for the salient rulemaking initiatives of the CFPB regarding mortgage compliance.

The calendar covers August 2012 through June 2013.

I hope you will find it useful.*

IN THIS ARTICLE

August 2012

September 2012
December 2012

January 2013

April 2013

June 2013

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August 2012

• Appraisals: proposed rule regarding appraisal changes required by Dodd-Frank's Truth-in-Lending and FIRREA amendments.
• Mortgage originator standards: proposed rule on mortgage originator standards.
• Mortgage servicing: proposed rule on mortgage servicing requirements.
• Copies of appraisals: proposed rule on copies of appraisals and other valuations to be furnished by creditors under Regulation B.
• Remittance transfers: final additional rule on remittance transfers.

September 2012

• Supervision of larger depository institutions and affiliates: proposed rules to clarify coordination between the CFPB and prudential regulators.

December 2012

• Second in a series of definitions of "larger participants": final rule to include debt collectors.
• Mandatory escrows/disclosures: final rule regarding mandatory escrow accounts and escrow account disclosures.
• Confidential treatment: final rule on confidential treatment of privileged information.

January 2013

• Registration of nonbank covered persons: advanced notice of proposed rulemaking on registration of certain nonbank covered persons.

 
On or by January 21, 2013
 

• Final rules regarding appraisals (Truth-in-Lending and FIRREA).
  
• Final rules on high-cost mortgages.
  
• Final rule on mortgage originator standards.
  
• Final rules on mortgage servicing.
  
• Final rule on copies of appraisals or other valuations to be furnished by creditors under Regulation B.
  
• Final ability-to-repay (ATR) rule. 

 
After January 21, 2013
 

• RESPA/TILA disclosure integration: final rule.

April 2013

• HMDA: initiation of implementation planning for Home Mortgage Disclosure Act changes - additional data collection.

June 2013

• AMTPA: proposed broader Alternative Mortgage Transaction Parity Act (AMTPA) rule.
• Regulation B lending data: initiation of implementation planning for collection of additional women- or minority-owned and small business lending data under Regulation B.

Library

CFPB Library – Lenders Compliance Group

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 *Jonathan Foxx is the President & Managing Director of Lenders Compliance Group

CFPB's "Notice of Reasonable Cause"

On May 25, 2012, the Consumer Financial Protection Bureau (Bureau) issued a Proposed Rule (Rule) which, if adopted, would govern the process by which a "nonbank covered person" may become subject to the supervisory authority of the Bureau.

Under the proposed process, the Bureau would provide a nonbank covered person a notice (Notice or Notice of Reasonable Cause) stating that the Bureau may have reasonable cause to determine that such covered person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.

The Proposal establishes mechanisms to provide the nonbank covered person a reasonable opportunity to respond to the Notice.
 

According to the Bureau, the proposed procedures would provide a recipient of a Notice (respondent) with a more robust process than required by Section 1024(a)(1)(C) in Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

For example, as set forth now by Dodd-Frank, to satisfy the statutory requirement that the Bureau provide a reasonable opportunity to respond, the Bureau does not need to offer respondents an opportunity to participate in a supplemental oral response. The Rule, however, if adopted, would provide such an opportunity to respondents.

IN THIS ARTICLE

Responding to the Notice

Informal Conferences

Proceedings

Consent of Respondent

Determination of Supervisory Authority

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Responding to the Notice

The Rule would require that a Notice include a description of the basis for the assertion that the Bureau may have "reasonable cause" to determine that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.

The Notice is intended to afford a respondent the opportunity to evaluate the assertions set forth therein and to formulate an appropriate response.

The Rule would provide a respondent with two opportunities to respond to a Notice: first, in writing, and then, if requested by a respondent, through a supplemental oral response generally to be conducted by telephone.

Under the Rule, a respondent would be required to include with the written response records, documents, or other items supporting the arguments set forth in the response that a respondent wants the Bureau's Assistant Director for Nonbank Supervision (Assistant Director) and the Bureau's Director (Director) to consider.

A supplemental oral response, if requested, would provide a respondent with the opportunity to present arguments to the Bureau's Assistant Director or her or his designee.

Informal Conferences

Under the Rule, a Notice of Reasonable Cause would not constitute a notice of charges for any alleged violation of Federal consumer financial law or other law. The proceedings would be informal and would not constitute an adjudicatory proceeding under section.

In the informal process, no discovery would be permitted, a supplemental oral response would not constitute a hearing on the record, and no witnesses would be permitted to be called as part of a supplemental oral response.

Proceedings

1) The Bureau's Deputy Assistant Director for Nonbank Supervision (Deputy) would commence a proceeding by issuing a Notice.

2) The response (both written and oral, if any) would then be considered by the Bureau's Assistant Director, who would provide to the Bureau's Director a recommended determination.

3) The Director would make the final determination in any proceeding by adopting without revision, modifying, or rejecting the Assistant Director's recommended determination.

4) The result would be either an order subjecting a respondent to the Bureau's supervisory authority, or a notice stating that a respondent is not subject, as a result of the proceeding, to the Bureau's supervisory authority.

Consent of Respondent

Under the Proposed Rule there would be two ways in which a respondent could consent to the Bureau's supervisory authority:

Expedited Method: respondent may execute the consent agreement form attached to the Notice that is served on the respondent and file it with the Assistant Director in lieu of a response.

Voluntary Consent: at any time during a proceeding, a respondent may voluntarily consent to the Bureau's supervisory authority under such terms as the parties may agree.

Determination of Supervisory Authority

If a determination by the Director results in an order bringing a respondent within the Bureau's supervisory authority, the respondent would be permitted, after two (2) years (and no more than annually thereafter), to petition the Director for the termination of such an order.

However, under the Rule, where a respondent voluntarily consents to the Bureau's supervisory authority for a specified period of time, the respondent would not be permitted to petition for the termination of supervision during the period specified in the consent agreement.

A petition for termination of an order provides a method for a respondent to inform the Bureau of actions taken and progress made to reduce the risks to consumers after the issuance of the order.

Please take note: nothing in the rule affects the relief the Bureau may seek in any civil action or administrative adjudication.

Library

Consumer Financial Protection Bureau

Procedural Rules To Establish Supervisory Authority
Over Certain Nonbank Covered Persons
Based on Risk Determination

Proposed Rule

Federal Register
Friday, May 25, 2012

CFPB Offers A View Of Profit Sharing

The CFPB recently announced that it will update the TILA loan originator compensation rule (Rule) in July of 2012. The updated rule may cause some new concerns regarding the implementation of the current Rule or it just may actually provide some sorely needed repairs for issues, strange and otherwise, that have dogged the Rule from the very start.

One issue in particular has been fomenting all along: the FRB's interpretation of the Rule (and the interpretation informally adopted by the FDIC) regarding contributions made to retirement plans on behalf of loan originator employees. The FRB deemed such contributions to be compensation and subject to the restriction that compensation cannot be based on the terms and conditions of the loan transaction. This is because the FRB asserted that profits were considered a proxy for loan terms and conditions.

Recently, the CFPB has weighed into this matter by declaring that employers should be permitted to contribute to "Qualified Plans" out of a profit pool derived from loan originations.

So let's discuss what this all means and if this issue is really resolved! *

IN THIS ARTICLE

Profit Sharing Debacle
Contortions
Bulletin 2012-02
Interpreting the Bulletin
"Heads-Up" Regulating

Profit Sharing Debacle

Contributions to a profit sharing plan pose a significant challenge to mortgage brokers or bankers whose sole source of profitability is from the origination of loans. If the broker only brokers loans, then the income received was already subject to the restriction that it could not be based on the terms and conditions of the credit extended.

Thus, the profit sharing contribution also would not be based on the terms and conditions.

If, on the other hand, a mortgage banker funds the loans with its own money and makes a profit from a true secondary market transaction that is allowed to be dependent on the terms and conditions of the credit extended, it will be much harder to make a profit sharing contribution and effectively assert that the payment is not dependent on the terms and conditions of the credit extended.

For those entities, there might be a need to revise the 401(k) plan to make it a nondiscretionary plan so that such profits play no part in determining whether a contribution is made or the amount of the contribution.

There has been considerable debate on how or whether profit sharing plan contributions may accept compensation. If the contribution is tied to profits, and profits are tied to the origination of loans, a portion of which might be determined by the terms or conditions of the transaction originated, then the FRB asserted that no contribution could be made. This becomes particularly problematic because Employee Retirement Income Security Act (ERISA) rules generally do not allow for contributions to be made for some employees but not for other employees. Thus, this would have the effect of eliminating contributions for all employees.

So here is the debacle: In order for a lender to make the contributions for loan originators without running afoul of the Rule, it is the lender's responsibility to show that the contribution was not based on the terms and conditions of the credits extended.

Contortions

I will list just some of the contortions that loan originators have had to deal with thus far, depending on the profit sharing plan:

Plans with matching contributions: There would be no difficulty in showing the amount of the contribution was independent of the terms and conditions of the credit transaction because the amount of the contribution is based on the amount contributed by the employee.

Non-discretionary plans: Where the contributions must be made in a fixed amount irrespective of "profits," there would be a valid case that the amount of the contribution is not based on the terms and conditions of credit extended.

Discretionary non-elective or matching contributions: That are not tied directly to specific profit targets, is a more complicated issue, but could be supported by the point that all employees, mortgage originators or not, receive the same amount. In other words, no originator received compensation tied to the loan terms and conditions because others were compensated equally irrespective of loan terms and conditions.

Discretionary plan tied to specific profit targets: Would likely need to exclude the income from loan originations to avoid a challenge that the payment was based on the terms and conditions.

And, of course, any plan that sets the amount of the contribution based entirely on the income an originator generated would definitely violate the regulation. 

Bulletin 2012-02

Since the CFPB issued its April 2, 2012 CFPB Bulletin 2012-02  (Bulletin) that dealt, in part, with profit sharing, various media outlets and industry associations have applauded it for "clarifying" that the Rule does not ban loan originators from participating in employee stock ownership plans (ESOPs) or 401(k) plans - so-called "Qualified Plans."

One prominent law firm provides the Bulletin's exact text, which states that "employers of loan originators may make contributions to employees' qualified profit sharing, 401(k), and stock ownership plans (qualified plans) out of a profit pool derived from loan originations."

Another highly-respected law firm issued a notice, stating the CFPB "has confirmed that Regulation Z (which implements the Truth in Lending Act) does not prohibit mortgage loan originators from participating in qualified profit-sharing 401(k) or employee stock ownership plans (Qualified Plans)."

The plain reading of the Bulletin's text seems to provide a somewhat more nuanced view!

CFPB: Defining "Larger Participant"

On July 8, 2011, we notified you that the Consumer Financial Protection Bureau (CFPB or Bureau) had issued a request for comments regarding the requirement to implement a program to supervise certain nondepository covered persons for compliance with Federal consumer financial laws. In that newsletter, we offered a synopsis and access to the comment portal.

On February 17, 2012, the Bureau published a Proposed Rule that would establish the "larger participant" rule for nonbank entities in two markets: consumer debt collection and consumer reporting.

The CFPB is required to issue an initial ''larger participant'' rule not later than July 21, 2012, which will be one year after the designated transfer date to the CFPB of the enumerated laws pursuant to Dodd-Frank.

The CFPB now seeks public comments as to how best to define "larger participants" in the markets for consumer debt collection and consumer reporting.

Comments must be received on or before April 17, 2012.

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IN THIS ARTICLE

Overview
Defining "Nonbanks"
Supervision Mandates
Thresholds
Dates and Timeframes
Submit Comments
Library

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Overview

The CFPB is responsible for the supervision of very large banks, thrifts and credit unions, their affiliates and certain nonbank "covered persons." To establish its scope of coverage, the CFPB must propose a rule to define "larger participants" in the markets for consumer debt collection and consumer reporting.

The proposal would place debt collectors and consumer reporting agencies that qualify as larger market participants within the Bureau's nonbank supervision program, marking the first time these activities would face federal supervision.

Consumer reporting agencies (CRAs) with over $7 million in annual receipts would be subject to CFPB supervision.

The CFPB has until July 21, 2012 to finalize an initial rule defining larger market participants that could come under CFPB supervision. The bureau is seeking public input as to which markets to include in the initial rule and which data sources the bureau might use to determine larger participants in nonbank markets.

Defining "Nonbanks"

Nonbanks are:

(a) any entity that engages in offering or providing a consumer financial product or service; and

(b) any affiliate of an entity described in (a) if such affiliate acts as a service provider to such entity.

Excluded from the definition of nonbanks are insured depository institutions or credit unions, or, in the case of such entities with assets of more than $10 billion, their affiliates.

Supervision Mandates

The Bureau is authorized to supervise nonbank entities by requiring the submission of reports and conducting examinations to:

(1) assess compliance with Federal consumer financial law;

(2) obtain information about activities and compliance systems or procedures; and

(3) detect and assess risks to consumers and to the consumer financial markets.

Thresholds

The CFPB has previously sought to evaluate criteria that allow it to administer the Program efficiently by readily identifying larger participants based on "objective available data." Dodd-Frank provides that, for purposes of computing the activity levels of a market participant, the activities of the participant "shall be aggregated" with the activities of nondepository "affiliated companies."

Examples of potential criteria (one or in combination with others):
annual number of transactions in the market;
annual value of transactions (i.e., total loan volume);
annual receipts or revenue;
geographic coverage (i.e., number of states where engaged in business);
asset size; and
outstanding loan balances.

The thresholds - not necessarily mutually exclusive - that may be used could be based on an absolute approach (i.e., an entity with certain annual loan volume) or based on a relative approach (i.e., every market participant having an annual loan volume of a certain amount relative to other participants).