Consumer Financial Protection Bureau Alert—Vol. 1, No. 1
Legal Alerts
9.01.11
Regulations and Guidance Report
Transferred Regulatory Authority
Section 1063(i) of the Dodd-Frank Act required the CFPB to publish in the Federal Register a list of the rules and regulations it would enforce after the Transfer Date. It listed consumer financial protection authorities that would be transferred from seven federal agencies, including the transfer of TILA from the FRB. The CFPB published the list in the Federal Register on July 21, 2011 (76 FR 43569). In addition to the transfer of all of the agencies’ authority regarding privacy, the Fair Credit Reporting Act, and the registration of mortgage loan originators, the various agencies’ regulatory authority for the following statutes and regulations, among others, was transferred: FRB – TILA, ECOA, HMDA, EFTA, TISA, and Consumer Leasing Act; OCC—ARM rules for non-federally chartered housing creditors; OTS—adjustment to home loans for non-federally chartered housing creditors, and Alternative Mortgage Transaction Parity Act; NCUA—loans to members and lines of credit, and TISA; FTC—Preservation of Consumer Claims and Defenses Rule, Door-to-Door Sales Rule, Mortgage Acts and Practices Advertising Rule, and Telemarketing Sales Rule; and HUD—RESPA, and SAFE Act licensing requirements. The only matters transferred from the FDIC were privacy, FCRA, and the registration of mortgage loan originators.
Current CFPB Authority
Because the Director of the CFPB has not yet been appointed and confirmed, some of the authority that was delegated to the CFPB under the Dodd-Frank Act cannot yet be invoked. The Inspector General of the Department of the Treasury and the Federal Reserve Board issued a joint letter on January 10, 2011, regarding CFPB authority with and without a Director in place. Without a Senate-confirmed Director by the designated Transfer Date, the two agencies concluded that section 1066(a) of the Dodd-Frank Act grants the Secretary of the Treasury the authority to carry out the functions of the Bureau found under subtitle F of title X. On the designated Transfer Date, subtitle F grants the Bureau the authority to: (1) prescribe rules, issue orders, and produce guidance related to the federal consumer financial laws that were, prior to the designated Transfer Date, within the authority of the FRB, OCC, OTS, FDIC, and NCUA; (2) conduct examinations (for federal consumer financial law purposes) of banks, savings associations, and credit unions with total assets in excess of $10 billion, and any affiliates thereof; (3) prescribe rules, issue guidelines, and conduct a study or issue a report (with certain limitations) under the enumerated consumer laws that were previously within the authority of the FTC prior to the designated Transfer Date; (4) conduct all consumer protection functions relating to the Real Estate Settlement Procedures Act of 1974, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, and the Interstate Land Sales Full Disclosure Act that were previously within the authority of HUD prior to the designated Transfer Date; (5) enforce all orders, resolutions, determinations, agreements, and rulings that have been issued, prior to the designated Transfer Date, by any transferor agency or by a court of competent jurisdiction, in the performance of consumer financial protection functions that are transferred to the Bureau, with respect to a bank, savings association, or credit union with total assets in excess of $10 billion, and any affiliates thereof; and (6) replace the FRB, OCC, OTS, FDIC, NCUA, and HUD in any lawsuit or proceeding that was commenced by or against one of the transferor agencies prior to the designated Transfer Date, with respect to a consumer financial protection function transferred to the Bureau.
The Treasury Secretary is not permitted to perform certain newly established Bureau authorities if there is no confirmed Director by the designated Transfer Date. Accordingly, without a Senate-confirmed Director, the Treasury is not permitted to exercise the Bureau’s authority to: (1) prohibit unfair, deceptive, or abusive acts or practices under subtitle C in connection with consumer financial products and services; (2) prescribe rules and require model disclosure forms under subtitle C to ensure that the features of a consumer financial product or service are fairly, accurately, and effectively disclosed, both initially and over the term of the product or service; (3) prescribe rules under section 1022 relating to, among other things, the filing of limited reports to the Bureau for the purpose of determining whether a nondepository institution should be supervised by the Bureau; and (4) supervise nondepository institutions under section 1024, including the authority to (a) prescribe rules defining the scope of nondepository institutions subject to the Bureau’s supervision, (b) prescribe rules establishing record-keeping requirements that the Bureau determines are needed to facilitate nondepository supervision, and (c) conduct examinations of nondepository institutions.
While there are some who do not agree with the Treasury’s analysis, there appears to be a consensus that the CFPB can perform all consumer financial protection functions of the FRB, OCC, OTS, FDIC, FTC, NCUA, and HUD in connection with issuing regulations under existing consumer financial protection laws. It cannot, however, carry out new functions provided to the CFPB under the Dodd-Frank Act, such as prohibiting unfair, deceptive, or abusive acts or practices in connection with consumer products and services; prescribing rules and requiring model disclosures to ensure that features of consumer financial products or services are fairly, accurately, and effectively disclosed; or supervising non-depository institutions.
CFPB Combined TILA and RESPA Disclosure
Section 1032(f) of the Dodd-Frank Act requires that the CFPB create a form combining the disclosure requirements of both TILA and sections 4 and 5 of RESPA. While the CFPB cannot officially act on its obligation to create a combined Truth in Lending/RESPA credit shopping disclosure until it has a Director in place, it has begun moving ahead with this task by creating two alternative prototypes (labeled as “Azalea” and “Camellia”) that are available for review and comment on its website (www.consumerfinance.gov). In addition to requesting comment from the public and the industry, the CFPB will be using these prototypes in its consumer testing process in preparation for its formal proposal of a single combined disclosure form. The CFPB is currently analyzing its third round of comments and will likely post revised prototypes in the near future. The CFPB has one year from the Transfer Date to propose its TILA/RESPA disclosure for comment.
Practical Tip: Remember that in combining and amending the Truth in Lending and RESPA disclosures, the CFPB will have to revise Regulations Z and X in order to accomplish this goal. The implementation of these disclosure changes will again require systems and processing changes – not too long after the industry geared up for 2009’s RESPA GFE amendment. Also note that the CFPB will be publishing under its own title in the Code of Federal Regulations all the regulations that implement the federal consumer financial laws transferred to the Bureau’s authority. We understand that this reissuance of the regulations may require the renumbering of certain regulatory sections. |
Openness and Transparency in Rulemaking: Ex Parte Presentations in Rulemaking Proceedings
To promote openness and transparency in its rulemaking, the CFPB has adopted a policy requiring public disclosure of ex parte presentations made to the Bureau staff concerning a pending informal rulemaking. In the normal course, regulators will designate a comment period during which the public can weigh in on proposed or interim final rules in a formal comment letter. This policy addresses communications outside the normal comment procedure – known as ex parte presentations. Len Kennedy, the Bureau’s General Counsel, indicated the importance of these ex parte communications and recognized the need for disclosure to promote openness and fairness. Accordingly, the new policy addresses the procedures and deadlines for those parties making ex parte presentations to the Bureau. Any person who communicates directly with “decision-making personnel” at the Bureau, either in person or writing, about a published rule is required to summarize the communication and post the summary on the public docket within three business days after the presentation. Excluded from the disclosure requirement are presentations by other federal agencies, communications to the Bureau’s General Counsel or his staff by members of the public seeking judicial review of a CFPB decision, and members of Congress (unless the Congressional comments are of major significance, contain information or arguments not already reflected in the rulemaking docket, and are intended to affect the ultimate outcome of the rulemaking).
Practical Tip: This ex parte presentation rule applies to informal (as opposed to formal) rulemaking. Informal rulemaking under the Administrative Procedure Act, the process used by most federal agencies to create regulations, involves publication of a “Notice of Proposed Rulemaking” in the Federal Register, the opportunity for public comment, and publication of a final rule in the Federal Register not less than 30 days before its effective date after the agency has reviewed and analyzed the public comments. Formal rulemaking requires trial-like, on-the-record proceedings. |
Mortgage Assistance to Borrowers
The CFPB has added consumer assistance and guidance to its website for borrowers struggling to pay their mortgages. The guidance lists a number of steps for borrowers to take, starting with collecting documents and information and then calling the Bureau at a specified telephone number. The Bureau will connect the borrower with a HUD-approved housing counselor who will work with the borrower and his or her mortgage company to try to avoid foreclosure. A link is also provided for those borrowers who prefer to seek mortgage help online. Finally, the CFPB warns borrowers to be vigilant against foreclosure prevention and loan modification scammers, and directs consumers to contact the Bureau if they think they may be a target or a victim of such a scam.
Examinations/Enforcement Here and Now
Rules Relating to Investigations
The CFPB issued an interim final rule governing investigations undertaken pursuant to section 1052 of the Dodd-Frank Act, which authorizes the Bureau to investigate whether persons have engaged in conduct that violates any provision of the federal consumer financial laws. The rule describes the Bureau’s policies and procedures that apply in a nonadjudicative setting and includes the CFPB’s authority to conduct investigations before instituting judicial or administrative adjudicatory proceedings under the federal consumer financial laws. The rights of persons from whom the Bureau seeks to compel information during an investigation are also addressed. Under the rule, the CFPB is authorized to issue civil investigative demands for documentary material, tangible things, written reports or answers to questions, and oral testimony, all of which may be enforced in federal district court. The Bureau also has the authority to conduct investigations and hold investigative hearings. The rule also serves to protect those under investigation by requiring certain notifications of an investigation, setting forth procedures under which a petition for an order modifying or setting aside a civil investigative demand can be filed, providing a right to counsel, and setting forth the process for obtaining copies of, or access to, documents or testimony provided to the Bureau.
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Practical Tip: Those familiar with the investigative rules of the banking regulators, and particularly those of the FTC, should find similarities in the CFPB’s procedures, because the Investigation Rule was based on section 20 of the FTC Act. In conducting an investigation, the Bureau must first advise the party being investigated of the nature of the conduct constituting the alleged violation under investigation and the applicable provisions of law. The Division of Enforcement may close an investigation when the facts of an investigation indicate an enforcement action is not necessary or warranted in the public interest. |
Rules of Practice for Adjudication Proceedings
The CFPB has issued an interim final rule regarding the practice for adjudication proceedings pursuant to section 1053 of the Dodd-Frank Act, which authorizes the Bureau to use administrative adjudications to ensure or enforce compliance with (a) the provisions of the Act, (b) the rules prescribed by the Bureau under the Act, and (c) any other federal law or regulation that the Bureau is authorized to enforce. Modeled after the FTC rules, the SEC rules, and the uniform rules and procedures for administrative hearings adopted by the other federal banking agencies (collectively, the “Agency Rules”), the rule is intended to create a process that provides for the expeditious resolution of claims, while ensuring that parties that appear before the Bureau receive a fair hearing.
The rule implements a procedure, like that of the Agency Rules, whereby a hearing officer will issue a recommended decision in each administrative adjudication. The rule also provides any party the right to contest the recommended decision by filing a notice of appeal to the Director and perfecting the appeal by later filing an opening brief. In the event a party fails to timely file or perfect an appeal, the Director may either adopt the recommended decision as the Bureau’s final decision or order further briefing with respect to any findings of fact or conclusions of law contained in the recommended decision. The rule also provides that the hearing officer will decide dispositive motions in the first instance, subject to the same right of review provided for recommended decisions, in the event that the ruling upon such a motion disposes of the case. The Bureau indicated that it adopted this model because it provides for the most expeditious resolution of matters, while preserving all parties’ rights to review by the Director.
The rule sets deadlines for both the recommended decision of the hearing officer and the final decision of the Director. The hearing officer is permitted a specified period of time – 300 days, beginning with service of the notice of charges – to issue a recommended decision. The proceedings are initiated by the filing of a notice of charges, which must be served on the party being charged. The respondent then has 14 days to file an answer. The rule requires the hearing officer to convene a scheduling conference soon after the respondent files its answer to craft a schedule appropriate to the particular proceeding. If a recommended decision is appealed to the Director, or the Director orders additional briefing regarding the recommended decision, the rule provides that the Director must notify the parties that the case has been submitted for final Bureau decision at the expiration of the time permitted for filing reply briefs with the Director. The Director then must issue his or her final decision within 90 days of providing such notice to the parties.
The Bureau has adopted an affirmative disclosure approach to fact discovery in administrative adjudications. The rule provides that the Division of Enforcement will provide any party in an adjudication proceeding with an opportunity to inspect and copy certain categories of documents obtained by the Division of Enforcement from persons not employed by the Bureau in connection with the investigation leading to the institution of the proceedings and certain categories of documents created by the Bureau, provided such material is not privileged or otherwise protected from disclosure. The Division of Enforcement’s obligation under this rule relates only to documents obtained by the Division of Enforcement; documents located only in the files of other divisions or offices of the Bureau are beyond the scope of the rule. The rule also includes an obligation to turn over material exculpatory information in the Division of Enforcement’s possession.
The rule attempts to ensure that respondents have access to all the material facts underlying Enforcement Counsel’s decision to commence enforcement proceedings and have a fair opportunity to prepare and represent a defense, while eliminating much of the expense and delay often associated the pretrial discovery in civil matters. Recognizing that administrative adjudications will take place after a Bureau investigation intended to gather relevant evidence, and in light of the affirmative obligation that the rule places on Enforcement Counsel to provide access to materials gathered in the course of the investigation, the rule does not provide for many other traditional forms of pretrial discovery, such as interrogatories and depositions. The rule does provide for the deposition of witnesses unavailable for trial; the use of subpoenas to compel the production of documentary or tangible evidence; and, in appropriate cases, expert discovery, thus ensuring that respondents have an adequate opportunity to marshal evidence in support of their defense.
Practical Tip: While patterned on the Agency Rules, the Bureau’s Adjudication Proceedings Rule does not appear to provide the protections of an SEC Wells process – the process whereby prospective defendants are provided with a notice of charges and the opportunity to respond prior to the filing of an enforcement action, as many had hoped. Accordingly, unless the Division of Enforcement closes the investigation, based on facts or documents obtained during the investigation process, it is likely that an enforcement proceeding will ensue. |
News from the Bureau
President Obama nominated Richard Cordray as Director of the CFPB on July 18, 2011. Mr. Cordray, a former Ohio Attorney General, had been heading the CFPB’s Enforcement Division. Congressional hearings on Mr. Cordray’s nomination are scheduled for September 6, 2011.
The Treasury announced that Raj Date, who had been serving as the CFPB’s Associate Director of Research, Markets, and Regulations, will, as of August 1, serve as the Special Advisor to the Secretary of the Treasury on the CFPB, replacing Elizabeth Warren, who returned to her position at Harvard Law School.
Leonard Kennedy, the CFPB’s General Counsel, in a recent interview, tried to reassure the financial services industry that the Bureau would be fair in its enforcement activities, saying, “[We] are reasoned decision makers and reasonable people.” The General Counsel’s Office, which currently employs about 35 lawyers, advises the Bureau on a host of internal policies as well as regulatory and enforcement activities. Mr. Kennedy also indicated that the Bureau would be taking an inclusive posture and encouraging input from all sources and noted that the Bureau does not “have all the received wisdom.” What you need to know now: There are now approximately 500 employees at the CFPB, and the Assistant Director positions are almost filled. Many of the employees at the federal agencies whose authority was transferred to the CFPB were also transferred to the Bureau, so there is a continuity of expertise and historical knowledge concerning the various statutes and regulations now under the Bureau’s purview.
Regulatory Scorecard
Below is Dykema's up-to-date chart of pending and final regulatory activities and proceedings at the CFPB.
Consumer Financial Protection Bureau Pending Rulemakings, Final Rulemakings and Other Initiatives under Dodd-Frank Act (DFA) as of September 1, 2011
Description |
Date of Proposal/ |
Summary of Contents |
Key Dates |
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Proposed Federal Reserve Board Comprehensive Regulation Z Proposals |
August 26, 2009 |
Two proposals issued in August of 2009 contained revisions to disclosures for closed-end mortgage loans and HELOCs. |
On February 1, 2011, Fed elected not to finalize proposals, recognizing CFPB’s impending authority |
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Proposed Federal Reserve Board Comprehensive Regulation Z Proposal |
September 24, 2010 |
Proposed rule to: (1) expand the right to rescind to additional loan types, (2) amend disclosures to explain the right to rescind, (3) clarify lender’s responsibilities upon rescission, (4) mandate disclosures for loan modifications, (5) change reserve mortgage disclosures, and (6) place restrictions on certain advertising and sales practices for reverse mortgages. |
On February 1, 2011, Fed elected not to finalize proposals, recognizing CFPB’s impending authority |
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Department of Treasury Privacy Act System of Records |
January 10, 2011 |
In accordance with the Privacy Act of 1974, as amended, Department of Treasury provided notice of the establishment of a Privacy Act System of Records. |
Written comments due on or before February 9, 2011 |
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Proposed Federal Reserve Board Regulation Z: Escrow Requirements |
March 2, 2011 |
Proposed rule to: (1) extend the minimum period an escrow account must be maintained for first lien, higherpriced mortgage loans from one to five years, (2) provide an exemption from the mandatory escrow for certain loans, (3) exempt from the mandatory escrow requirement creditors that operate primarily in “rural or "undeserved” counties, and (4) require new disclosure explaining how the escrow account works or what the effects would be of not having an escrow account at all. |
Written comments due on or before May 2, 2011 |
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CFPB and JAGs Partnership |
July 6, 2011 |
CFPB and Judge Advocate Generals will work together to identify potential violations of consumer law involving service members and their families. |
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OCC, FED, FDIC, SEC, FHFA, and HUD Risk Retention/Qualified Residential Mortgage (QRM) |
April 29, 2011 |
DFA §941 requires sponsors of assetbacked securities (ABSs) to retain at least 5% of the credit risk of assets underlying the securities; proposal includes loan-level requirements such as minimum down payment. |
Written comments due on or before August 1, 2011 |
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Federal Reserve Board Increase in Regulations Z & M Coverage Thresholds |
April 4, 2011 |
Consumer credit transactions and consumer leases with transaction amounts up to $50,000 will be covered by Regulation Z and Regulation M. Beginning the end of this year (December 31, 2011), the threshold will be adjusted annually based upon the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers. |
Effective July 21, 2011 |
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CFPB Data Collection under ECOA |
April 11, 2011 |
DFA §1071 amended ECOA to require financial institutions to collect and report credit application information for women- or minority-owned businesses and small businesses. CFPB issued guidance to financial institutions clarifying that DFA §1071 does not take effect until the CFPB issues necessary implementing regulations. |
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Federal Reserve Board Ability to Repay/Qualified Mortgage (QM) |
April 19, 2011 |
DFA §1411 requires creditors, when making loans covered by TILA, to determine the consumer’s ability to repay before making a loan and also to establish minimum mortgage underwriting standards; proposal includes alternatives for final regulation. |
Written comments due on or before July 22, 2011 |
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Federal Reserve Board Foreign Remittance Transfers under Regulation. E |
May 23, 2011 |
DFA §1073 amended the EFT Act, adding a new section to require providers of “remittance transfers” to provide disclosures about such transfers, including exchange rate, applicable fees and taxes, and the amount to be received by the “designated recipient.” |
Written comments due on or before July 22, 2011 |
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Federal Reserve Board Collection Data at Motor Vehicle Dealers under Regulation. B |
June 20, 2011 |
Proposed rule to clarify that motor vehicle dealers temporarily are not required to comply with certain data collection requirements in the DFA until the board issues final regulations to implement the statutory requirements. |
Written comments due on or before July 29, 2011 |
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CFPB “Single Integrated Disclosure” Proposal (in advance of proposed rule) under DFA §1032 |
May – June, 2011 |
CFPB posted “sample” forms on its website and sought public feedback; U.S. Treasury has solicited comments “concerning a proposed generic information collection for development and evaluation of integrated loan disclosures” (combining Regulation. Z mortgage disclosure and the RESPA Good Faith Estimate (GFE) into a single, integrated disclosure form). |
Treasury requests comments on or before September 19, 2011; DFA requires final rule no later than July 21, 2012 |
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CFPB “Larger Participant” Definition |
June 29, 2011 |
DFA §1024 provides that CFPB may supervise covered persons in the residential mortgage, private education lending and payday lending markets. For other markets for consumer financial products or services, CFPB’s supervision program will apply only to a “larger participant” of these markets, as defined by rule. |
Written comments due on or before August 15, 2011 |
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CFPB Identification of Enforceable Rules and Orders |
July 21, 2011 |
CFPB published consumer financial protection authorities that would be transferred from seven federal agencies and that it would enforce after the Transfer Date. |
Effective Date: July 21, 2011 |
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CFPB Alternative Mortgage Transaction Parity (Regulation D) |
July 22, 2011 |
CFPB published interim final rule establishing Regulation D pursuant to the Alternative Mortgage Transaction Parity Act and the Truth in Lending Act. |
Effective for state housing creditors July 22, 2011 |
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FTC Statement of General Policy or Interpretation; Commentary on the Fair |
Credit Reporting Act |
FTC is rescinding its Statements of General Policy or Interpretations under the FCRA. |
Effective Date: July 26, 2011 |
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Disclosure of Records and Information |
July 28, 2011 |
Interim Final Rule establishes procedures for the public to obtain information from the CFPB under the Freedom of Information Act (FOIA). CFPB also established its rules regarding the confidential treatment of information it obtains in connection with the exercise of its authority. |
Effective Date: July 28, 2011 |
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Rules of Practice of Adjudication Proceedings |
July 28, 2011 |
Interim Final Rule establishes procedures regarding the conduct of adjudication proceedings under §1053 of the Dodd-Frank Act, used to enforce compliance with the Dodd-Frank Act or any laws for which it has enforcement authority. |
Effective Date: July 28, 2011 |
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State Official Notification Rules |
July 28, 2011 |
Interim Final Rule establishes procedures to be used by state officials to notify the CFPB of their actions or proceedings in enforcing the Dodd-Frank Act or its regulations. |
Effective Date: July 28, 2011 |
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Rules Relating to Investigations |
July 28, 2011 |
Interim Final Rule describing the CFPB’s procedures for investigations regarding compliance with the federal consumer financial laws. |
Effective Date: July 28, 2011 |
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Notice of Proposed Privacy Act System of Records |
August 1, 2011 |
Notice of new records system to collect process, log, track and respond to all FOIA- and Privacy Act-related requests. |
Written comments due on or before August 31, 2011 |
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Policy on Ex Parte Presentations in Rulemaking Proceedings
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August 16, 2011 |
Policy requiring public disclosure of ex parte presentations made to the CFPB staff concerning a pending rulemaking.
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August 16, 2011
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Contacts and Caveats
For more information, please contact one of the listed attorneys, or your Dykema relationship attorney.
As part of our service to you, we regularly compile short reports on new and interesting developments regarding the Consumer Financial Protection Bureau. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Readers should seek specific legal advice before acting with regard to the subjects mentioned here. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. our comments on this Alert or any Dykema publication are always welcome. ©2011 Dykema Gossett PLLC.
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