The Consumer Financial Protection Bureau has created an ombudsman’s office to help resolve individual and systemic problems that banks, nonbanks and consumers have with the bureau. The announcement states that depository or non-depository entity that the CFPB supervises may use the Ombudsman’s Office when they have not had success with the existing CFPB processes, or to achieve an informal resolution. Further information may be found at http://www.consumerfinance.gov/ombudsman/#FAQ.
The CFPB recently issued guidance on the treatment of confidential supervisory information. CFPB Bulletin 12-01 states that once the bureau issues a request for information, supervised financial institutions (i.e., those with total assets of more than $10 billion) are required to provide all documents and other information responsive to the request. The bulletin adds:
Supervised institutions may not selectively withhold responsive documents based on their judgment that such materials are not necessary to the Bureau’s execution of its responsibilities or that other materials would be sufficient to suit the Bureau’s needs. The supervisory process is based on the supervisor’s full and unfettered access to information, and the supervisor is entitled – indeed, duty bound–to ensure that it thoroughly understands the institution in question and has access to all information that, in its independent judgment, may bear on its supervisory responsibilities.
The Bulletin argues that providing requested information to the bureau will not result in a waiver of any privilege that may attach to such information, and thus it will not consider waiver concerns to be a valid basis for withholding information from the agency. However, the agency will give “due consideration to … requests to limit the form and scope of any supervisory request for privileged information.”
Finally, the Bulletin reiterates that all information obtained in the supervisory process will be treated as confidential and privileged, other than in cases when the exchange of such information with other regulators that share supervisory jurisdiction over a supervised institution is prudent, as determined by the CFPB’s general counsel.
The CFPB is republishing regulations for which it is assuming authority from other agencies pursuant to the Dodd-Frank Act and making technical and conforming changes to reflect the transfer of authority and other changes required by the act. Among others, the CFPB issued interim final rules with request for public comment for the Federal Reserve’s Regulation E (Electronic Fund Transfers, Regulation P (Privacy of Consumer Financial Information) and Regulation Z (Truth in Lending).
The preambles to the interim final rules state that the regulations do not impose any new substantive obligations on persons subject to the existing regulations as published by the Federal Reserve.
The interim final rules became effective Dec. 30, 2011. The Reg E interim final rule is available at http://www.gpo.gov/fdsys/pkg/FR-2011-12-27/pdf/2011-31725.pdf; comments are due by Feb. 27, 2012. Reg P is available at http://www.gpo.gov/fdsys/pkg/FR-2011-12-21/pdf/2011-31729.pdf; comments are due by Feb. 21, 2012. Reg Z is available at http://www.gpo.gov/fdsys/pkg/FR-2011-12-22/pdf/2011-31715.pdf; comments are due by Feb. 21, 2012.
President Obama recently announced his recess appointment of former Ohio Attorney General Richard Cordray to head the CFPB. This came despite the fact that the Senate held a series of “pro forma” sessions held over the congressional recess in an attempt to preclude a recess appointment. In response, the President dismissed the procedural requirements of a recess appointment, calling the pro forma sessions ‘gimmicks.’
Insiders have speculated some consequences of the recess appointment, including retaliation by Republicans in holding up the nominations of other agency heads. But more importantly, litigation is likely to stem from Cordray’s appointment, calling into question whether the specific requirements for a recess appointment were met. There is also the technical issue of whether the Dodd-Frank Act requirement of a “Senate-confirmed director” is met, which is key in establishing the CFPB’s authority over nonbanks. Despite Cordray’s appointment, it is unclear whether the bureau can legally exercise its full powers over nonbanks.
The CFPB published its Supervision and Examination Manual (the “Manual”) on October 13, 2011, designed to provide CFPB examiners with direction on how to determine if providers of consumer financial products are complying with consumer protection laws. The CFPB’s press release states that the Manual incorporates procedures already used by other federal regulators. The Manual does simply recite certain interagency procedures, such as for fair lending examinations. At the same time, the Manual addresses new Dodd-Frank concepts, such as unfair, deceptive and abusive acts or practices.
The CFPB will use the Manual initially to supervise the more than 100 large banks, thrifts, and credit unions that are subject to the CFPB’s examination authority pursuant to the Dodd-Frank Act (those with total assets over $10 billion, as well as their affiliates). The Bureau’s examiners will also ultimately use the Manual to supervise non-depository consumer financial service companies (e.g., mortgage lenders), with the stated goal of promoting “fair, transparent, and competitive consumer financial markets where consumers can have access to credit and other products and services, and where providers can compete for their business on a level playing field where everyone has to play by the rules.”
The CFPB Examination Framework and Philosophy
While only certain entities will be subject to CFPB examination, the Manual outlines an examination approach that is illustrative of the Bureau’s bend on matters over which it has rulemaking authority. This is particular true of its view of its authority over matters it considers unfair, deceptive or abusive acts or practices (UDAAP).
Like other bank regulators, the CFPB will prepare for examinations by gathering and reviewing a wide array of regulatory and public data about an institution: state and/or prudential regulator reports of examination and correspondence, enforcement actions, state licensing and registration information, complaint data, call reports, HMDA LARs, HAMP data, fair lending analyses, SEC or other securities-related filings, the institution’s website and advertising, and, among other things, “newspaper articles, web postings, or blogs that raise examination related issues.” The CFPB will then contact the institution about the examination and prepare its customized Information Request.
No, nothing to worry about yet, though it may be confusing for some time. One bureaucratic consequence of the Dodd-Frank Act moving the various consumer protection laws and regulations under the jurisdiction of the Consumer Financial Protection Bureau (CFPB) is that they now must reissue the relevant regulations.
Referred to by CFPB insiders as the “restatement project,” the CFPB is preparing to reissue over 3,000 pages of regulations through approximately fourteen Federal Register notices. The reissued regulations will be changed to reflect jurisdictional changes and some scope changes, but they are not expected to change substantively at this time (although we will be watching). We expect publication of these reissued regulations to begin within days.
The possible source of confusion will be a new numbering system. The regulations will still be in Title 12 of the Code of Federal Regulations, but moved to Chapter X. We understand that most of the numbers will be unchanged after the decimal point, but the other numbers could be very different. So, for example, 12 CFR § 226.1 of Regulation Z could become 12 CFR § 1000.1. In some cases, however, due to rules of the Office of the Federal Register, new numbers will be required. For example, Regulation Z sections 226.5a and 226.5b could become 12 CFR § 10XX.40 and 12 CFR § 10XX.60.
None of this is all that earth shaking except to lawyers with nothing else to worry about. All those years memorizing regulation numbers for naught.
The Consumer Financial Protection Bureau (CFPB) has moved into its fourth round of testing of a new consumer mortgage loan disclosure. Acting under the mandate of the Dodd-Frank Act, the CFPB is preparing a single, integrated disclosure to address the disclosure requirements of both the Truth in Lending Act and Real Estate Settlement Procedures Act.
The specific focus of this fourth round of testing is comparison shopping. Consumers and the lending industry have been asked to compare two different types of loan products using the same version of the form. The CFPB states that it wants to be sure that the disclosure actually helps consumers to understand the features of competing loan products, from the overall loan amount to estimates of tax and insurance costs.
The CFPB’s efforts in this area have generally met with approval from all interested parties. The proposed form is more clear, concise and informative than either the existing TILA or RESPA disclosures. For example, all of the useless “seller’s column” and “buyer’s column” information on the RESPA good faith estimate has been eliminated in favor of total dollar amounts for the services the consumer can shop for and for the services the consumer cannot shop for. Implementing the new requirements will require systems changes, but we might finally arrive at a disclosure that eliminates useless information, reconciles the differences between TILA and RESPA, and that is easier to explain to borrowers.
Past efforts to reconcile TILA and RESPA disclosures were hampered by the fact that the Federal Reserve had primary regulatory authority for TILA and the Department of Housing and Urban Development had primary authority for RESPA. The Dodd-Frank Act removed this roadblock by transferring these powers to the Bureau.
Q2 GDP Announced
On Friday, the Commerce Department released its report on the country’s gross domestic product for the second quarter showing that the GDP grew at an annual rate of 1.3 percent, after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.9 percent.
Senate to Hold CFPB Nomination Hearing
On Thursday, the Senate Banking Committee held a hearing on the nomination of Richard Cordray to be the new Director of the Consumer Financial Protection Bureau. While the nomination can be sent to the floor, Senate Republicans have vowed to block Cordray’s nomination and any other nominees for the directorship because they insist that the agency be run by a Commission rather than a Director and have its funding determined by Congress.
Carper/Blunt Introduce Consumer Data Security Bill
On Thursday, Sens. Tom Carper (D-Dela.) and Roy Blunt (R-Mo.) introduced legislation titled “The Data Security Act of 2011″ which would require entities such as financial establishments, retailers, and federal agencies to safeguard sensitive information, investigate security breaches and notify consumers when there is a substantial risk of identity theft or account fraud. These new requirements would apply to retailers who take credit card information, data brokers who compile private information and government agencies that possess nonpublic personal information.
Senate Nomination Hearings for New Bank Regulators
On Tuesday, the Senate Banking Committee held a hearing to consider the pending nominations for Martin Gruenberg to head the FDIC, Thomas Curry to be Comptroller, and Roy Woodall to be a member of the Financial Stability Oversight Council. Senator Richard Shelby, the Banking Committee’s top Republican, said after the hearing that he would support Gruenberg’s nomination but would need more to review Curry’s record before offering his support. The nominations will now be sent to the floor for full consideration by the Senate.
More Information
If you have any questions regarding any of these issues, please contact:
Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
1 314 259 2463
CFPB Announces Regulatory Targets
On Thursday, the new Consumer Financial Protection Bureau (CFPB) outlined six areas that could be subject to its supervision. The six areas include debt collection; consumer reporting; consumer credit; money transmitting/check cashing; prepaid cards; and debt consolidation. The Bureau also identified automobile loans and personal loans as large sectors that could fall under its supervision. However, the Bureau is prevented from regulating non-bank firms until it has a Senate-confirmed director, a position that will be difficult to fill given Senate Republicans’ pledge to block anyone President Obama nominates for the job. Republicans have said they will block the nomination unless changes are made to the agency’s structure, including making it a five-member commission rather than headed by a single director. The CFPB is expected to officially begin operations in July.
Cantor Pulls out of Biden Debt Limit Negotiations
On Thursday, House Majority Leader Eric Cantor (R-VA) announced that he was withdrawing from Vice President Biden’s debt limit negotiations over whether tax increases should be included in the deal. The only other Republican in the group, Sen. Jon Kyl (R-AZ), also withdrew citing the President’s involvement as the only remedy to break the logjam. The suspension of the group’s efforts could mark the start of the final stage of negotiations, which most participants had long assumed would be concluded by the President, Speaker John Boehner (R-OH), and Senate Majority Leader Harry Reid (D-NV). While it had been assumed that the Congressional leaders and the President would ultimately have to strike the final deal, the Biden talks were expected to extend at least through the end of June.
Greece Secures Second Bailout
On Friday, Prime Minister George Papandreou announced that Greece had secured a second bailout from the European Union and the International Monetary Fund totaling $156.83 billion. For Greece to receive the money, the country’s parliament must approve next week a multi-billion dollar austerity package that includes higher taxes and cuts to government programs.
White House Announces Release from Oil Reserve
On Thursday, President Obama announced the Strategic Petroleum Reserve would release 30 million barrels of oil. The decision sparked a plunge in crude oil prices in the U.S. and Europe. According to Energy Secretary Steven Chu, the oil will be released over the next 30 days and constitutes half of the 60 million barrels that the nations in the International Energy Agency plan to bring to market. Chu also said that the Energy Department estimates that the conflict in Libya has caused a loss of roughly 1.5 million barrels per day from global oil markets.
The OCC recently sent a letter to Sen. Tom Carper (D-Dela.) in response to his request for the OCC to clarify how it would interpret particular aspects of the preemption provisions of the Dodd-Frank Act. Among other things, the letter states that federal preemption of state consumer protection laws would continue even under Dodd-Frank, in accordance with the “Barnett” standard. Of particular interest, the OCC letter noted that Dodd-Frank did not overrule or reverse any pre-existing judicial decisions that were based on the Barnett standard and which found that the state law conflicted with bank powers.
The Dodd-Frank Act restricts the ability of national banks and federal savings associations to assert preemption from state consumer protection laws. For example, the ability to assert “field preemption” over an entire body of law (even if there is no conflict) no longer exists. However, contrary to some assertions, preemption is not “dead.” One way preemption would apply is when the state consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers, as established by the Supreme Court in the Barnett case.
In its letter, the OCC declares that this preemption standard as statutorily referenced in the Dodd-Frank Act is a “directive to apply the conflict preemption standard articulated in the Barnett decision.” However, the letter further adds that the OCC “recognizes that going forward, after the transfer date, the Dodd-Frank Act imposes new procedures and consultation requirements with respect to how [the OCC] may reach future preemption determinations, including the case-by-case requirement…” and specifically mentions that the OCC will be required to first consult with the Consumer Financial Protection Bureau prior to making its determination.