Consumer Financial Protection Bureau Reporter

CFPB Finalizes Ability-to-Repay Amendments
The Consumer Financial Protection Bureau has finalized amendments to its January 2013 ability-to-repay (ATR) rule that create exemptions and modifications to the ATR rule for small creditors, community development lenders, and housing stabilization programs The ATR rule requires lenders to ensure that prospective borrowers can repay their mortgages and sets up a presumption that they issue qualified mortgages—loans meeting certain requirements including prohibitions or limitations on risky features, such as teaser rates; and debt-to-income ratios of less than or equal to 43 percent. The story appeared in Report 91, June 3, 2013.

Credit Insurance Premiums Rule Delayed
The Consumer Financial Protection Bureau has issued a final rule delaying the effective date of a provision in its loan originator compensation requirements rule, issued in January 2013, that prohibited creditors from financing certain credit insurance premiums in connection with certain mortgage loans. The credit insurance premiums provision would have taken effect on June 1, but on May 10, 2013, the CFPB issued a proposal to suspend the June 1 effective date while it sought comment on clarifications to how the Dodd-Frank Act prohibition applies to credit insurance products with certain periodic payment features. Under the final rule, the prohibition will now take effect on Jan. 10, 2014, along with other regulations implementing other Dodd-Frank Act mortgage provisions, such as the bureau’s ability to repay and qualified mortgage rule. The CFPB also will seek comment on the appropriate effective date when it issues the proposed credit insurance clarifications for public comment. The story appeared in Report 91, June 3, 2013.

CFPB Establishes Civil Penalty Fund for Compensating Victims
The Consumer Financial Protection Bureau has adopted a final rule establishing the bureau’s Consumer Financial Civil Penalty Fund. The rule is intended to provide transparency to the process for allocating funds to victims harmed by a person or company fined in an enforcement action brought by the CFPB. In conjunction with the final rule, the CFPB issued a proposed rule seeking comments on possible revisions, adjustments, or refinements. Specifically, the bureau is considering whether it should make payments to a broader category of victims. The bureau also seeks comment on how it might identify the types of activities for which civil penalties were imposed. The two rules were accompanied by a set of Frequently Asked questions. The final rule is reported at ¶300-156, the proposed rule is at ¶300-157, and the FAQs are at ¶1535.

CARD Act Rule Provides Access to Credit for Stay-at-Home Spouses, Partners
The Consumer Financial Protection Bureau has amended the Credit Card Accountability Responsibility and Disclosure Act (Reg. Z—Truth in Lending (12 CFR 1026.51)) to provide access to credit cards for spouses and partners that do not work outside the home. The revisions allow credit card issuers to consider income that a stay-at-home applicant, who is 21 or older, shares with a spouse or partner when evaluating the applicant for a new account or increased credit limit. For credit card applicants who are 21 or older, card issuers may consider third-party income if the applicant has a "reasonable expectation of access" to it. The final rule is at ¶300-158.

CFPB Clarifies Regulation Z Escrow Provisions
In the first of what the Consumer Financial Protection Bureau calls a series of issuances to clarify and provide additional guidance about its mortgage rules, the bureau is revising the escrow rule it finalized in January 2013 amending Reg. Z—Truth in Lending (12 CFR 1026). The amendments clarify the determination method for the “rural” and “underserved” designations and keep in place certain existing protections for higher-priced mortgage loans until other similar provisions take effect in January 2014. The rule is at ¶300-161.

Remittance Rule Amended to Aid Compliance
The Consumer Financial Protection Bureau has released a final rule amending its remittance rule which is codified at Subpart B to Reg. E—Electronic Fund Transfers (12 CFR 1005). The remittance rule implements Section 1073 of the Dodd-Frank Act which created a new comprehensive consumer protection regime for remittance transfers sent by consumers in the United States to individuals and businesses in foreign countries. The final rule is intended to preserve the consumer protections provided under the remittance rule while facilitating industry’s compliance with the rule. Specifically, the final rule addresses the disclosure of fees and taxes and revises the error resolution provisions currently found in the remittance rule. The rule is at ¶300-159.

CFPB Proposes Mortgage Rule Clarifications
As part of the Consumer Financial Protection Bureau’s initiative to assist institutions in implementing its mortgage rules, it has proposed amendments to clarify its final rules on qualified mortgages and mortgage servicing. The amendments would clarify or correct provisions on:

• the relation to state law of state provisions in Reg. X—Real Estate Settlement Procedures Act (12 CFR 1024);
• the small servicer exemption from certain servicing rules;
• the use of government-sponsored enterprise and federal agency purchase, guarantee, or insurance eligibility for determining qualified mortgage status; and
• the determination of debt and income for purposes of originating qualified mortgages.

The CFPB proposal is at ¶300-155, and a post from the CFPB’s blog is at ¶200-218.

Guidance on TILA Escrow Rule Issued
The Consumer Financial Protection Bureau has issued guidance on escrow requirements under Reg. Z—Truth in Lending (12 CFR 1026). On Jan. 10, 2013, the bureau adopted a final TILA escrow rule intended to expand consumer protections for consumers receiving higher-priced mortgage loans. The rule becomes effective on June 1, 2013. The small entity compliance guidance discusses the TILA escrow rule and highlights issues that mall creditors and their business partners may find useful when implementing the rule. The guidance is at ¶24-012.

CFPB Guides on HOEPA, ECOA, and TILA Appraisals
The Consumer Financial Protection Bureau has published three Small Entity Compliance Guides. The guidance targets the 2013 Homeownship and Equity Protection Act rule, Equal Credit Opportunity Act Valuations rule, and Truth in Lending Act Higher-Priced Mortgage Lending Appraisal rule. In its announcement, the CFPB said that its goal in producing the guidance is to provide an overview of the rules in a plain language format. Frequently Asked Questions, a format included in the guides, helps to further clarify the rules. The HOEPA guide is at ¶24-013; the ECOA Valuations guide is at ¶9531; and the TILA Higher-Priced Mortgage Loan Appraisals Guide is at ¶24-014.

Federal Banking Law Reporter

FHFA Proposes Alternatives to Credit Ratings
To implement Dodd-Frank Act provisions requiring removal of requirements based on nationally recognized statistical rating organizations, the Federal Housing Finance Agency is proposing to replace them with requirements for Federal Home Loan Banks to apply internal analytic standards and criteria to determine the credit quality of a security or obligation. The required analyses would be subject to FHFA oversight and review through the examination and supervisory process. The FHFA's notice is at ¶152-439.

Fed Guides on Use of Census Data
Updated data from the 2010 census means that fair lending examinations may require the use of data from two different census counts, according to the Federal Reserve Board. Some examinations will require examiners to refer to data from both censuses, the Fed said. According to the Fed, fair lending examinations that consider loan data from 2010 and 2011 should use the 2000 census data, while examinations that consider loan data for 2012 and after should use the 2010 data. If an examination covers loan data that spans both 2011 and 2012, it will be necessary for data from both censuses to be considered, the Fed said. CA 13-8 is at ¶64-568.

OCC Clarifies Application of Market Risk Capital Rule
Regulatory changes and information received after the federal prudential regulators adopted their market risk capital rules in 2012 have prompted the Office of the Comptroller of the Currency to clarify two aspects of how national banks are to apply the rule’s requirements. The OCC Bulletin addresses the rule’s application to exposures to highly rated sovereign debt and to securitizations. The market risk capital rules, which were adopted jointly by the OCC, Federal Reserve Board, and Federal Deposit Insurance Corp., are to be used by financial institutions with significant exposures to market risk when they are calculating their related risk-based capital requirements. The rules generally implement the requirements of the Basel III Capital Accords. The OCC clarifications apply directly only to institutions regulated by the OCC. OCC 2013-13 is at ¶47-500B.

GSE Compensation Practices Subject to New FHFA Rules
The Federal Housing Finance Agency has published an interim final and a proposed rule regarding the compensation practices of government-sponsored enterprises Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, and the FHLBanks’ fiscal agent, the Office of Finance. The interim final rule establishes requirements and processes with respect to compensation provided to executive officers by the GSEs and the Office of Finance. These compensation requirements will implement provisions of the Federal Housing Enterprises Financial Safety and Soundness Act that authorize the FHFA director to prohibit and withhold compensation of executive officers at the GSEs. The executive compensation regulation explicitly states that the FHFA director "may not prescribe or set a specific level or range of compensation." The FHFA notices are at ¶152-422 and ¶152-423.

Fed Sets Standards for Loan Servicer Pre-Foreclosure Analysis
The Federal Reserve Board has established what amounts to a 13-point checklist that mortgage loan servicers are to use in dealing with loans that have imminent scheduled foreclosure sales—sales set within 60 days. The standards have their roots in the requirements that were imposed on the servicers that are subject to the mortgage loan servicing and processing consent decrees issued by the Fed and the Office of the Comptroller of the Currency in 2012, but they have been modified to apply to all state member banks, bank holding companies, savings and loan holding companies, and U.S. branches and agencies of foreign banks that service mortgage loans, either directly or through subsidiaries. SR 13-9/CA 13-6 is at ¶63-820R.

Consumer Credit Guide

Due to Conflict of Interest, FCRA Class-Action Settlement for $45 Million Not Approved
The U.S. Court of Appeals for the Ninth Circuit refused to approve a $45 million settlement of a class action brought by consumers against three national consumer reporting agencies for alleged violations of the federal Fair Credit Reporting Act and California law because, due to a conflict of interest, the class representatives and class counsel did not adequately represent the absent class members. The Ninth Circuit determined that particular incentive awards contained in the settlement agreement created a conflict of interest between the class representatives and the class; the conflict was heightened by class counsel’s continuing to represent the settling class representatives and the class at large “after the two groups developed divergent interests." In ruling that the federal trial court abused its discretion by approving the settlement, the Ninth Circuit asserted that courts must be vigilant in guarding against conflicts of interest in class-action settlements because of the unique due process concerns for absent class members. The federal appellate court noted that, since the settlement agreement was negotiated prior to any formal class certification, "such agreements must withstand an even higher level of scrutiny." Radcliffe v. Experian Information Solutions, Inc. (9thCir) at ¶52,490.

Arbitration Compelled in Student Borrowers’ Class Action Against Lender, Servicer
In a proposed class action by student borrowers who sought injunctive relief against a lender and a loan servicer in connection with their private education loans, the U.S. Court of Appeals for the Ninth Circuit determined that, under the Federal Arbitration Act (FAA) and California law, the borrowers were required to arbitrate their dispute. In reaching its decision, the Ninth Circuit ruled that the applicable arbitration clause, contained in the borrowers’ promissory notes, was neither substantively nor procedurally unconscionable. The Ninth Circuit also addressed the issue of whether the borrowers’ class action could survive under the "public injunction" exception to the FAA. The Ninth Circuit determined that the borrowers did not meet the "public injunction" exception because the judicial forum did not have any significant institutional advantage over the arbitration forum; moreover, the proposed class was small, and there was no prospective benefit to the public at large from the relief sought. Kilgore v. Keybank, National Association (9thCir) at ¶52,488.

Venue for Post-Judgment Proceedings Not Covered by FDCPA
The U.S. Court of Appeals for the First Circuit ruled that a debt collector’s efforts to enforce a judgment against a consumer were not covered by the federal Fair Debt Collection Practices Act’s venue requirements. In reaching its decision, the First Circuit affirmed the dismissal of the consumer’s FDCPA suit against the debt-collecting law firm. The First Circuit determined that there is a difference between an initial collection suit and a post-judgment enforcement proceeding. Accordingly, the First Circuit noted that under Massachusetts law the post-judgment proceeding was not one against the consumer; rather, it was a proceeding against the employer that owed wages to the consumer. In the court’s view, since the FDCPA applied only to suits against consumers, it did not cover the post-judgment proceeding. Smith v. Solomon & Solomon (1stCir) at ¶52,491.

State Law Update

Indiana: Recently enacted legislation makes numerous changes to Indiana Code sections governing consumer credit and financial institutions concerning: first lien mortgage lenders; persons regulated under the Uniform Consumer Credit Code, including payday lenders; debt management companies; pawnbrokers; money transmitters; rental purchase agreements; and funeral trusts. The law begins at Indiana ¶5002.

Maryland: Consumer protections for rental-purchase transactions will require a lessor to deliver a summary of costs chart to a consumer before the consummation of an agreement. A lessor also must disclose the cost of lease services in the rental purchase agreement along with other, specified disclosures currently required under the Maryland Rental-Purchase Agreement Act. The law begins at Maryland ¶6561.

Minnesota: Legislation aimed at closing a loophole in the regulation of auto title lenders establishes uniform requirements regardless of the lender’s underlying charter. The law is at Minnesota ¶6760B.

Oklahoma: Amendments to the Oklahoma Uniform Consumer Credit Code incorporate federal consumer credit protections, including credit card restrictions enacted by the federal Credit Card Accountability Responsibility and Disclosure Act of 2009 and private education lender restrictions. The law begins at Oklahoma ¶5011.

Vermont: An omnibus financial regulation measure amends various statutes under the jurisdiction of the Department of Financial Regulation. The legislation: revises licensing requirements for licensed lenders; expands the DFR’s use of electronic licensing; enacts more specific disclosure requirements for automated teller machines; expands security breach notification requirements; and increases the DFR’s enforcement powers. The law begins at Vermont ¶6011.

Smart Charts Highlights

Some of the latest changes reflected in Consumer Credit Smart Charts include:

• The Legislative Developments Smart Charts are updated regularly as legislation is enacted allowing users to keep up to date without waiting for a scheduled report. Links to legislative summaries and to full text of laws amended, repealed or added are provided. Recent updates include:
• Colorado: Uniform Debt-Management Services Act—Exemptions.
• Texas: Retail Installment Sales—Documentary Fee.

Secured Transactions Guide

FAAAA Does Not Preempt New Hampshire Storage Lien Law
The U.S. Supreme Court has unanimously decided that a debtor’s action against a towing company for allegedly violating New Hampshire’s towing and storage lien provisions was not preempted by the Federal Aviation Administration Authorization Act (FAAAA). Affirming the decision of the Supreme Court of New Hampshire, the Court concluded that the New Hampshire provisions did not regulate the price, route, or service of a motor carrier with respect to the transportation of property.  Dan’s City Used Cars, Inc. v. Pelkey  (USSCt) at ¶56,318.

Floating Oil Rig Was Not a “Vessel” Subject to Maritime Liens
Creditors that provided materials and services to a floating oil and gas production facility could not assert maritime liens against the facility for the unpaid services, because the facility was not subject to federal maritime lien law, the U.S. District Court for the Eastern District of Louisiana has held. Because the facility was not practically capable of transportation over water, it could not be considered a "vessel" subject to the law. Considering the infrastructure affixing the facility to its location, its function as a production platform, the way in which it was brought to its current location, and the enormous expense anticipated if it is moved, a reasonable observer would not likely find that the facility was "practically capable" of transporting people or things. Warrior Energy Services Corporation v. ATP TITAN (EDLa), ¶56,315.

Description of Collateral Sufficient to Perfect Security Interest
A lender that provided financing to a debtor to fund the debtor’s farming operations, including a partnership to farm land in Arkansas, held a perfected security interest in the crops produced on the Arkansas property, despite the fact that the lender’s financing statement did not mention the Arkansas site, the Arkansas Court of Appeals has held. Because the lender’s financing statement described the collateral as “all crops,” it reasonably identified the Arkansas crops. While it did not specifically place the crops in Arkansas, “such exactitude is not required under the current version of the UCC, adopted in 2001.” Newsom v. Rabo Agrifinance, Inc. (ArkCtApp) at ¶56,317.

State Law Update

Connecticut: Connecticut has amended its procedures for the enforcement of self-service storage facility liens to allow for electronic notice. The law provides that the owner must notify the occupant and any person who has filed a valid security interest in the property of the owner’s intention to satisfy the lien with a written notice, which may be delivered in person, sent by electronic mail, or sent by registered or certified mail, return receipt requested, to the last known address of the occupant. The law is at Connecticut ¶430.

Delaware: Delaware has enacted the amendments to Article 9 released by the Uniform Laws Commission (ULC) and the American Law Institute (ALI) in 2010. The amendments are in substantially the same form as proposed by the ULC and ALI. The law begins at Delaware ¶R702.

Georgia: Georgia has also enacted the amendments to Article 9 released by the Uniform Laws Commission (ULC) and the American Law Institute (ALI) in 2010 in substantially the same form as proposed by the ULC and ALI. The law begins at Georgia ¶R702.

Indiana: Indiana has amended its certificate of title provisions for motor vehicles and watercraft. The amended law revises existing definitions, provides new title procedures for the transfer of a vehicle, and amends the application requirements for a certificate of title to a watercraft. The law begins at Indiana ¶1057.

Indiana has added new filing office procedures to Revised Article 9 that allow for the refusal of a financing statement for filing or recording. The law provides that the secretary of state may refuse to accept a financing statement for filing or recording if the financing statement is not required or authorized to be filed or recorded with the secretary of state or the secretary of state has reasonable cause to believe the financing statement is materially false or fraudulent. The law is at Indiana ¶R826, ¶R833, and ¶R890.

Mississippi: Mississippi has amended its certificate of title provisions for scrap motor vehicles to revise the contents of the form statement to be provided to the Department of Revenue when transferring ownership of a scrap motor vehicle without title. The form must now include a statement that the vehicle must never be titled again and must be scrapped or dismantled and an acknowledgment that it is a misdemeanor, punishable by a fine of no more than $1,000 or imprisonment of less than six months, to knowingly falsify information on the statement. The law appears at Mississippi ¶1199.

Nebraska: A person who fraudulently submits for filing or recording in the public record a financing statement, lien, or document in Nebraska commits a class IV felony. In addition, nonconsensual common-law liens are not binding or enforceable under the new law. The law begins at Nebraska, ¶926.

Financial Privacy Law Guide

Fax Ad Requires Opt-Out Language Even with Cosent
The receipt of a fax advertisement that did not contain opt-out language violated the Telephone Consumer Protection Act (TCPA) even though the recipient consented to receive the fax, the United States Court of Appeals for the Eighth Circuit has decided. Regulations under the TCPA require the opt-out language even if the sender received prior express authorization to send the fax, the court determined, stating that this plain-language interpretation of the regulation is consistent with the FCC’s interpretation. The court could not entertain arguments that the unambiguous regulation is contrary to unambiguous statutory language as such challenge would be precluded by the Hobbs Act. The court reversed the judgment of the trial court and remanded for further proceedings, during which the trial court may entertain requests to stay proceedings for pursuit of administrative determination of the issues. The story on Nick v. Walburg (8thCir) is in Privacy Extra, May 31, 2013.

TCPA Damages Are Remedial; Insurance Coverage Applies
Damages under the Telephone Consumer Protection Act (TCPA) are remedial in nature, rather than punitive; therefore, a class action lawsuit and settlement regarding fax advertisements alleged to violate the TCPA were covered by an insurance company’s liability policies, the Illinois Supreme Court has decided. According to the court, Congress clearly identified that the animating purpose of the TCPA was to prevent advertisers from unfairly shifting the cost of their ads to consumers while simultaneously preventing the use of their fax machines for legitimate purposes. The harms were compensable. The story on Standard Mutual Insurance Co., v. Lay (IllSCt) is in Privacy Extra, May 31, 2013.

Washington Supreme Court Addresses Disclosure of Emails
In connection with a third-party’s request under the Washington Public Records Act to review email records that the Washington Attorney General’s Office (Washington AGO) obtained from a consumer lender, the Supreme Court of Washington decided that, while the Washington AGO may not disclose or even redact any email records containing information protected by the Gramm-Leach-Bliley Act (GLBA), any remaining email records not protected by the GLBA are not otherwise shielded or protected from disclosure by the Washington Public Records Act or the Washington Consumer Protection Act. The story on Ameriquest Mortgage Company v. Office of the Attorney General of Washington (WashSCt) is in Report No. 143, May 15, 2013.

State Law Update

Georgia: Georgia’s Criminal Code has been amended to clarify that medical identity fraud is included in the crime of identity fraud. The story on S.B. 170 is in Report No. 143, May 15, 2013.

Maryland: Maryland has expanded the crime of identity fraud to include health information. The story on Chs. 300 and 301 is in Report No. 143, May 15, 2013.

South Carolina: An amendment to South Carolina’s Personal Financial Security Act broadens the scope of financial identity fraud, revises the definition of “personal identifying information,” defines the term “financial resources,” and provides a venue for prosecution of an identity fraud offense. The amendment also narrows the jurisdiction of an identity theft investigation, and it revises the definition of “personal identifying information” for purposes of breaches of data security. The story on Act No. 15 is in Report No. 143, May 15, 2013.

Texas: New legislation in Texas authorizes the creation of credit files and the placement of a security freeze on the consumer file or other consumer reporting agency record regarding a person under 16 years of age. The story is in Privacy Extra, May 31, 2013.

Utah: Recent legislation modifies the Criminal Code regarding the definition of identity fraud by deleting the requirement that an identity thief “obtains” the personal information of another person. “Using” without proof of “obtaining” the information may result in a violation. The story on Ch. 119 is in Report No. 143, May 15, 2013.

Vermont: An omnibus financial regulation measure amends various statutes under the jurisdiction of the Department of Financial Regulation. Among its amendments, the legislation: enacts more specific disclosure requirements for automated teller machines; expands security breach notification requirements; and increases the DFR’s enforcement powers. The story is in  The notice is in Privacy Extra, May 31, 2013.