Richard Horn
Legal PLLC

The Truth in Regulation Blog

CFPB’s New Strategic Plan and “Call for Evidence”

3/3/18

I am writing to highlight some recent issuances by the CFPB. First, the CFPB is issuing a series of Requests for Information to obtain feedback from the public regarding the CFPB’s operations, which it is calling its “Call for Evidence.” The CFPB has already issued several, which are summarized below, and plans to issue several more. Second, the CFPB issued a new Strategic Plan in February, which signals a new direction for the CFPB in terms of its focus on UDAAP, enforcement, and regulatory reform. I hope you find this information helpful. Please let me know if you have any questions.

I.  CFPB’s “Call for Evidence” on its Operations

A.  The Call for Evidence

On January 17, 2018, the CFPB issued a press release announcing that it planned to issue a series of Requests for Information (“RFIs”) seeking comment on enforcement, supervision, rulemaking, market monitoring, and education activities. The CFPB stated that the purpose of these RFIs is to “ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers.”

This represents an excellent opportunity for the industry to inform changes at the CFPB, considering that the CFPB’s new leadership is likely more receptive to the industry’s concerns. Some have suggested that this RFI process might not result in real change, because Acting Director Mulvaney’s position is temporary under the Federal Vacancies Reform Act (“FVRA”) and new permanent leadership may not focus on this endeavor or the RFIs. But consider that Acting Director Mulvaney could be at the CFPB for a while, as he is permitted to serve under the FVRA while a nomination for Director is pending in the Senate, and there is another 210-day clock that begins to run if that nominee is rejected or withdrawn.  Mulvaney is also permitted to serve while a second nomination is being considered by the Senate, and he also gets another 210-day clock if that nominee is rejected or withdrawn.  This means Mulvaney could potentially be in his acting role for some time, and he could accomplish some significant changes during his tenure. In addition, the Trump administration could appoint a new Director who is also interested in reforming the CFPB’s activities, and the administrative record from this RFI process would provide a very useful resource to a new Director’s reform efforts.

Please note, though, that if you would like to comment on any of these RFIs, it may be prudent to comment anonymously through a third party, such as a law firm or trade association, for a number of reasons. This may be especially true for certain RFIs. For example, comments will become part of the administrative record, which will be publicly available, and institutions may not want to identify themselves as being familiar with the CFPB’s CID or enforcement processes. In addition, an institution may be concerned about submitting negative comments on particular experiences with CFPB processes, as they could be tied back to its previous interactions with the CFPB, and possibly with particular staff members. There are other reasons why an institution may wish to comment anonymously. Please contact me for assistance with commenting on any of these RFIs.

B.  The RFIs Issued to Date

The CFPB has issued the following RFIs so far, with the following comment deadlines:

i. CIDs. This RFI was published on January 26, 2018. It requests information on the CFPB’s CID processes “to consider whether any changes to the processes would be appropriate.” The CFPB asked questions on specific topics such as:

  • “Specific steps that the Bureau could take to improve CID recipients’ understanding of investigations, whether through the notification of purpose included in each CID or through other avenues;”
  • “The nature and scope of requests included in Bureau CIDs, including whether topics, questions, or requests for written reports effectively achieve the Bureau’s statutory and regulatory objectives, while minimizing burdens;” and
  • “The timeframes associated with each step of the Bureau’s CID process, including return dates, and the specific timeframes for meeting and conferring, and petitioning to modify or set aside a CID.”

The comment deadline is March 27, 2018. As explained above, this is a particularly sensitive topic for many reasons and it may be prudent for institutions to comment anonymously through third parties, such as trade associations or law firms.

ii. Administrative Adjudication. This RFI was published on February 5, 2018. It requests information on the CFPB’s rules for administrative enforcement proceedings under 12 C.F.R. Part 1081. The RFI requests comments on certain specific topics, including:

  • “Whether, as a matter of policy, the Bureau should pursue contested matters only in Federal court rather than through the administrative adjudication process;”
  • The requirements for the contents of the CFPB’s notice of charges; and
  • The requirement that respondents file an answer to a notice of charges within 14 days.

The comment deadline is April 6, 2018.

iii. Enforcement. This RFI was published on February 12, 2018. It requests information on the CFPB’s enforcement processes to assist the CFPB in considering changes to its processes. The CFPB requested comment on specific topics, including:

  • “Communication between the Bureau and the subjects of investigations, including the timing and frequency of those communications, and information provided by the Bureau on the status of its investigation;”
  • “The length of Bureau investigations;” and
  • The CFPB’s Notice and Opportunity to Respond and Advise (NORA) process;
  • The calculation of civil money penalties (CMPs); and
  • The standard provisions in CFPB consent orders.

The comment deadline is April 13, 2018. As explained above, this is a particularly sensitive topic for many reasons and it may be prudent for institutions to comment on this RFI through a third party.

iv. Supervision Program. This RFI was published on February 20, 2018. It requests information on the CFPB’s supervision program to assist the CFPB in considering changes to the program. The CFPB requested comment on specific topics, including:

  • “The timing, frequency, and scope of supervisory exams;”
  • “The timing, method or process used by the Bureau to collect information and documents from a supervised entity prior to the commencement of an examination;”
  • “The effectiveness and accessibility of the CFPB Supervision and Examination Manual;”
  • “The efficiency and effectiveness of onsite examination work;” and
  • “The effectiveness of Supervision’s communications when potential violations are identified, including the usefulness and content of the potential action and request for response (PARR) letter.”

The comment deadline is May 21, 2018. It may also be prudent for institutions to comment on this RFI anonymously through a third party.

v. External Engagement. This RFI was published on February 26, 2018. It requests information on the CFPB’s public and non-public engagement processes, including its field hearings, town halls, roundtables, and meetings of the Advisory Board and Councils. The CFPB requested comment on specific topics, including:

  • “Strategies for seeking public and private feedback from diverse external stakeholders on the Bureau’s work;”
  • “Processes for transparency in determining topics, locations, timing, frequency, participants, and other important elements of both public and private events;”
  • Methods of soliciting input from outside of Washington, DC;
  • Strategies for promoting transparency of external engagements; and
  • Other methods not currently utilized by the CFPB.

The comment deadline is May 29, 2018. One of frequent criticisms I have heard about the CFPB’s work is that it does not solicit enough input from the public, or it does not obtain input from the most knowledgeable sources. This RFI, in light of the CFPB’s change in leadership, represents a great opportunity to try and improve the CFPB’s engagement with the public.

vi. Consumer Complaints. This RFI was issued on March 1, 2018, and is expected to be published in the Federal Register on March 6, 2018. It requests information to assist the CFPB in, “assessing potential changes that can be implemented to the Bureau’s public reporting practices of consumer complaint information.” The CFPB requested comment on specific topics, including:

  • Reporting on State and local complaint trends;
  • “Whether it is net beneficial or net harmful to the transparent and efficient operation of markets for consumer financial products and services for the Bureau to publish the names of the most-complained-about companies;”
  • “Whether the Bureau should provide more, less, or the same data fields in the Consumer Complaint Database;” and
  • “Whether the Bureau should supplement observations from consumer complaints with observations of company responses to complaints.”

The comment deadline should be on or about June 4, 2018 (it will be 90 days after publication in the Federal Register). I frequently hear criticisms of the CFPB’s consumer complaint database, including its publishing of unverified consumer narratives and its public reporting (or shaming) on complaints, such as its monthly complaint “snapshots.” In fact, I wrote an article that addresses the potential consumer confusion from and the CFPB’s lack of research on the issue of its publishing of unverified consumer complaint narratives in the database, which is available here: http://journals.ama.org/doi/10.1509/jppm.17.037. This RFI represents an excellent opportunity to achieve change in the CFPB’s consumer complaint database and reporting.

Finally, the CFPB has published a website that compiles its series of RFIs, which is available at: https://www.consumerfinance.gov/policy-compliance/notice-opportunities-comment/open-notices/call-for-evidence/. Please contact me if you would like assistance with commenting on any of these RFIs.

II.  Strategic Plan

On February 12, 2018, the CFPB issued its Strategic Plan for the next five years, i.e., fiscal years 2018-2022. The Strategic Plan replaces the one that the CFPB issued in February 2015 that covered fiscal years 2013-2017, and finalizes a draft Strategic Plan that the CFPB posted for comment in October 2017 under former Director Cordray. The new Strategic Plan signals a change in the CFPB’s view of its unfair, deceptive, or abusive acts or practices (“UDAAP”) authority and enforcement function, and indicates a new focus on regulatory reform.

A.  CFPB’s Move Away from UDAAP

One notable change is that Acting Director Mulvaney has revised the CFPB’s vision statement from its last Strategic Plan issued in 2015 to remove a reference to the agency’s authority to enforce against UDAAP. The old vision statement included a specific reference to a market “in which no one can build a business model around unfair, deceptive, or abusive practices.” But the CFPB’s new vision statement does not contain any reference to UDAAP. Instead, it contains a statement referencing only consumer choice and transparency in the market, and protecting the rights of all parties. Specifically, the CFPB’s new Vision is, “Free, innovative, competitive, and transparent consumer finance markets where the rights of all parties are protected by the rule of law and where consumers are free to choose the products and services that best fit their individual needs.”

I believe this is a signal that the days of the CFPB’s aggressive use of its UDAAP authority are over. Remember that most of the CFPB’s enforcement actions cited at least one UDAAP violation, and some enforcement actions were based exclusively on UDAAP. This UDAAP authority was the CFPB’s “go to” tool to address issues it identified in investigations or examinations that were not necessarily violations of specific requirements. In addition, some rulemakings were based substantially on UDAAP authority. For example, the CFPB’s new payday loan rule relies almost exclusively on its UDAAP authority, as there was no statutory mandate for the rule. While the reference to “transparency” in the new vision statement could mean that deception will still be a focus under UDAAP, to ensure cost information is transparent, the removal of a specific reference to UDAAP from the CFPB’s vision statement signals a change in the CFPB’s focus on UDAAP in its enforcement and regulatory activities.

B.  CFPB’s Move Away From Focusing on Enforcement

It also looks like the CFPB will have a different view of its enforcement function, from being one of its primary functions to a last and final resort. The CFPB changed its first goal in the Strategic Plan from referencing enforcement to referencing access to credit. Specifically, the first goal previously was to, “prevent financial harm to consumers while promoting good practices that benefit them.” The new Strategic Plan’s first goal is to, “ensure that all consumers have access to markets for consumer financial products and services.” This focus on access to credit is significant, considering the Strategic Plan also appears to be signaling a period of regulatory reform, as described further below.

To be fair, the new Strategic Plan does reference enforcement in its second goal, but that goal also describes supervisory activities and ensuring consistent enforcement with respect to depository and non-depository institutions. But in a January 23, 2018 memorandum to staff, Acting Director Mulvaney describes enforcement as “the most final of last resorts,” to be used “only when all other attempts at resolution have failed.”   It does appear that the agency will be focusing less on enforcement under Acting Director Mulvaney’s leadership.

C.  CFPB’s Move Towards Focusing on the Limits of its Statutory Authorities

The Strategic Plan also appears to signal a focus on the limits of the CFPB’s statutory authority. Acting Director Mulvaney’s message accompanying the new Strategic Plan states that after reading the previous draft plan, “it became clear to me that the Bureau needed a more coherent strategic direction,” and describes the change he has made to the CFPB’s strategic direction as having “committed to fulfill the Bureau’s statutory responsibilities, but go no further.” In an apparent reference to a reported statement from a CFPB official about Director Cordray’s past leadership that Director Cordray was “pushing the envelope” during his time at the CFPB, Acting Director Mulvaney stated in his message that pushing the envelope “ignores the will of the American people, as established in law…,” and “risks trampling upon the liberties of our citizens, or interfering with the sovereignty or autonomy of the states or Indian tribes.” Along this line, the Strategic Plan states that the CFPB will work, “[a]cting with humility and moderation.” This is a clear signal that the CFPB’s focus has changed towards focusing on the limits of its statutory authorities, rather than testing them as former Director Cordray admitted to doing.

D.  Regulatory Reform

This new Strategic Plan also signals that the CFPB is going to enter into a period of regulatory reform. The Strategic Plan states that the CFPB will take steps to ensure it meets its goals, which include conducting reviews of the CFPB’s existing rules and reducing regulatory burden. Specifically, these steps include:

  • Launching a program to review existing regulations or subparts of major regulations to assess opportunities for clarification, updating, and streamlining;
  • Forming a cross-Bureau Regulatory Burden Task Force to identify opportunities to reduce regulatory burden; and
  • Develop databases that will allow the Bureau to appropriately monitor markets and conduct research to surface trends, opportunities, and risks relevant to consumers.

As you know, the CFPB has already signaled that it plans to conduct a rulemaking this year to revisit aspects of the HMDA rule, including its scope and discretionary data points, and that it plans to revisit the payday loan rule. It looks like other rules could be next. And this is in addition to the Dodd-Frank Act’s five-year lookbacks.

This represents a major opportunity for the industry to affect change in the CFPB’s rules, especially considering that this period of regulatory reform could come as the CFPB is more focused on access to credit and consumer choice, as described above. The industry should begin considering how it might respond to requests for information under such a program, such as identifying issues or concerns with particular rules and guidance, both new and old. In addition, considering the CFPB’s interest in the topic, the industry could begin submitting information regarding opportunities to streamline rules, provide clarification, or reduce regulatory burden, before such a formal process begins. Such information could be helpful to the CFPB in determining the scope and issues in future RFIs or proposed rules. Please let me know if you’d like any assistance in thinking about or submitting information to the CFPB.

E.  Compliance Should Continue to be a Concern

While the CFPB’s focus has changed under its new leadership, compliance should still be a concern for the industry. At some point in the future there will be a new Director of the CFPB, and Acting Director Mulvaney’s changes to the CFPB could be changed. While changes in statutes and regulations are difficult to accomplish, changes in allocation of resources or the focus of the agency’s efforts would be relatively easy for a new Director to accomplish.

In addition, supervision and enforcement is backward looking. Violations that occur while an Acting Director Mulvaney heads the agency could be reviewed later when the CFPB has a new Director who is more inclined to use the agency’s enforcement authority. Further, state regulatory agencies will likely, and some have already signaled their intentions to, pick up the slack and increase their focus on enforcement of both technical requirements and their sources of UDAAP authority. And there is always the risk of consumer lawsuits. Many consumer protection laws provide consumers with a private right of action, meaning that civil lawsuits under both federal and state law are still possible, even if the CFPB’s priorities have changed.

III. Conclusion

This new Strategic Plan and the CFPB’s series of RFIs are positive news for the industry. The Strategic Plan signals a change to a CFPB that is less apt to test the boundaries of its enforcement authority or engage in regulation by enforcement. In addition, this signals a change to a CFPB that is more focused on maintaining access to credit and consumer choice.

In addition, this appears to be a unique moment in which the industry can affect real change at the CFPB and the rules affecting the consumer financial services markets. These RFIs represent a fantastic opportunity for industry to provide their own unique insights and information on the CFPB’s processes, which will be heard by a more sympathetic and receptive leadership. The Strategic Plan’s signal of a period of regulatory reform also represents an opportunity to inform the CFPB about issues and concerns with particular rules and guidance. I hope that many of you plan to comment on these RFIs (and responding to any future regulatory reform efforts), as having more information directly from the institutions under its jurisdiction will help the CFPB improve its processes. Please contact me if you would like assistance with commenting on any of these RFIs.

PHH Corp. v. CFPB: Are Captive Arrangements and Marketing Services Agreements (MSAs) Back in Business?

February 28, 2018

As many of you have been asking me for my thoughts on the recent decision in the PHH Corp. v. CFPB case by the U.S. Court of Appeals for the D.C. Circuit, I decided to write a brief update to summarize the decision and provide some of my thoughts on what the decision means for the industry, including whether this means captive arrangements and marketing services agreements are back in business.

I. Background

You likely know by now that on January 31, 2018, the U.S. Court of Appeals for the D.C. Circuit issued a decision in PHH Corp. v. CFPB. As you may recall, this case arose because PHH appealed an administrative enforcement action by the CFPB. That enforcement action, which the CFPB initiated against the company in January 2014, alleged violations of RESPA section 8 stemming from a captive reinsurance arrangement that continued through 2013. In June 2015, former CFPB Director Cordray issued a decision in the enforcement action imposing a $109 million judgment. PHH then appealed, asking the court to vacate the CFPB’s decision on the grounds that the CFPB misinterpreted RESPA section 8 and violated due process in applying a new interpretation retroactively, and that the CFPB’s structure is unconstitutional because it has a single Director who is removable only for cause (the Dodd-Frank Act uses the typical causes of “inefficiency, neglect of duty, or malfeasance in office”).

In October 2016, the Court of Appeals issued its opinion by a three-judge panel, finding the CFPB’s structure unconstitutional and the CFPB’s interpretation of RESPA invalid. But in November 2016, the CFPB petitioned the court for a rehearing of the case en banc (i.e., by the full court), which the court granted in February 2017. I wrote about the three-judge panel’s opinion in a previous Client Update on the PHH case, which you can access here: http://richhornlegal.com/blog/dc-circuit-phh-decision/.

II. The En Banc Court’s Opinion

The en banc court issued an opinion on both the constitutionality and RESPA issues, both of which could have significant effects on the industry. Regarding the constitutionality issue, the court held in a 7-3 decision that the CFPB’s structure is constitutional, reversing the three-judge panel’s opinion on the issue. Regarding the RESPA issues, the court reinstated the three-judge panel’s opinion, and did not otherwise address these issues in its opinion. Specifically, the court stated that, “[t]he panel opinion, insofar as it related to the interpretation of RESPA and its application to PHH and Atrium in this case, is accordingly reinstated as the decision of the three-judge panel on those questions.” Note that this was essentially a 7-3 decision as well, as three judges issued a concurring opinion that disagreed on the RESPA issue, finding the CFPB’s interpretation of RESPA section 8(c)(2) reasonable.

As described further below (and in my previous Client Update on the case), the D.C. Circuit’s panel opinion held that the CFPB’s interpretation of RESPA section 8 was invalid, finding that captive reinsurance arrangements are permissible under RESPA section 8(c)(2), as long as the reinsurance payments were not in excess of the reasonable market value of the reinsurance. Another important aspect of the panel’s RESPA opinion is the holding that the applicable statute of limitations for the CFPB’s administration actions under RESPA is three years. The panel opinion would have, and now the en banc decision does send the case back to the CFPB to determine whether, in fact, the payments in the arrangement were for the reasonable market value of the reinsurance, satisfying the exemption under section 8(c)(2).

I discuss below the en banc opinion and the panel’s RESPA opinion it reinstates in more detail, and provide some thoughts on its impact on the industry.

III. The Constitutionality Issue

A. CFPB’s Structure is Constitutional

Without getting into the details of constitutional law (please let me know if you’d like to discuss them, as I’d be happy to), the en banc court decided that the CFPB’s structure was constitutional. The decision on the CFPB’s constitutionality means that the CFPB can continue operating as it is currently structured, with a single Director at the helm who is removable only for cause.

This was not a certain outcome. The three-judge panel’s opinion held that the CFPB’s structure was unconstitutional, because the President could only remove the Director “for cause,” which inhibited the President’s ability to exercise executive authority over the single Director of the CFPB. Much of the opinion focused on the threat to individual liberty of a single CFPB Director who is removable only for cause and wields significant power. The panel’s opinion raised concerns that the authorities vested in the CFPB’s single Director, such as the authority to issue subpoenas and impose civil money penalties, could be abused or otherwise harm individuals. The panel also discussed historical precedent, describing the CFPB’s structure as an independent agency with a single Director as a “gross departure from settled historical practice.” In addition, the panel discussed the benefits of a multi-member commission structure over a single agency head for an independent agency. Finding the structure unconstitutional, the panel held that the proper remedy was to “sever” the “for cause” removal provision, which would have allowed the CFPB to continue operating with a Director who is removable without cause (at will) and would not have invalidated the enforcement action against PHH.

But in spite of these significant concerns, the en banc court did not agree with the panel’s opinion, finding the CFPB’s structure constitutional. The court reasoned, in part, that financial regulatory agencies have typically been structured as independent agencies with heads removable only for cause. The court also noted that the Office of the Comptroller of the Currency, a financial regulatory agency, has a single head. However, it is notable that there were multiple dissenting opinions on the constitutionality issue by the en banc court. And notably, one of the dissenting opinions would have invalidated Title X of the Dodd-Frank Act (the statute that created the CFPB), putting the CFPB out of existence, in its entirety and set aside the CFPB’s PHH decision. It appears that there is some level of disagreement on this issue, and PHH could potentially appeal the decision on the CFPB’s constitutionality, if they are so inclined.

B. What the Decision Means for the Industry

This decision’s immediate effect on the CFPB’s operations and the industry will be minimal. The CFPB is currently headed by Acting Director Mick Mulvaney, who President Trump designated under the Federal Vacancies Reform Act to act as Director after Cordray resigned in November 2017. That statute allows an acting official designated by the President to serve for a limited time period and is not subject to a “for cause” removal provision, and thus, this decision does not appear to have an immediate effect on Acting Director Mulvaney’s ability to serve or protect against his removal.

That being said, this decision could cause the Trump administration to be more careful about who it nominates to be the permanent Director of the CFPB. Based on this decision, whoever becomes the appointed and Senate-confirmed Director will be removable only for “inefficiency, neglect of duty, or malfeasance in office.” Although one of the concurring opinions in the case argued that this “for cause” removal provision under the Dodd-Frank Act allowed removal for “ineffective policy choices,” and as a result only provides a “minimal restriction” on the President’s removal power, an attempt to remove a Director under this provision solely for policy reasons could result in a prolonged legal battle that may be unappealing politically. For this reason, I think that in light of this decision, the Trump administration will strongly weigh whether its choice for Director will adhere to their policy views throughout the five-year term.

In addition, I personally hope that this decision spurs Congress to act on legislation to change the CFPB’s structure to a multi-member board or commission. The panel opinion and en banc court’s dissenting opinions demonstrate that some well-respected judges, as well as others outside of the courts, have found legitimate legal and policy concerns with placing control over decision-making and enforcement for the country’s consumer financial protection laws in a single Director who is removable only “for cause.” In addition to providing for more thoughtful and deliberate decision-making in the agency, placing a commission at the top of the CFPB will also prevent the regulatory pendulum from swinging too wildly when the political party in power changes. The benefits of regulatory stability and certainty to industry cannot be overstated.

IV. The RESPA Issues

Because the en banc court reinstated the panel opinion with respect to the RESPA issues, I briefly summarize below the panel opinion and provide my thoughts on the impact of decision on the industry.

A. Whether RESPA Section 8(c)(2) is an Exemption

As you may recall, Director Cordray’s decision in the CFPB’s enforcement action found that RESPA section 8(c)(2) was not an exemption and thus, PHH violated RESPA section 8(a), even if the payments for reinsurance in the arrangement were reasonably related to the market value. Specifically, Director Cordray stated that, “section 8(c) clarifies section 8(a), providing direction as to how that section should be interpreted, but does not provide a substantive exemption from section 8(a).” He reasoned, in part, that, “reading section 8(c)(2) as an exemption would substantially undermine the protections of section 8,” and that “[i]f section 8(c)(2) permitted compensated referrals, it would “distort the market in ways that the statute as a whole plainly sought to prevent.” Director Cordray reasoned that for section 8(c)(2) to apply, the payment must be “bona fide” and “for services actually performed,” and that “bona fide” in this provision means that the “payment must be solely for the service actually being provided on its own merits, but cannot be a payment that is tied in any way to a referral of business.” Director Cordray essentially found that the term “bona fide” applies to “the purpose of the payment, not to its amount.” The CFPB, defending the enforcement action, argued before the D.C. Circuit that “bona fide” in section 8(c)(2) means that the payment is in “good faith,” i.e., not as a quid pro quo for referrals.

PHH argued that Regulation X, which implements RESPA section 8, treats section 8(c)(2) as an exemption, as it expressly permits payments for services, as long as they are for services actually performed and are reasonably related to the market value of the services.

The panel opinion in the PHH case strongly disagreed with the CFPB’s interpretation of REPSA section 8, describing the issue as “not a close call” and the CFPB’s interpretation as “strained.” The panel opinion held that section 8(c)(2) is an exemption from section 8(a)’s prohibition, rather than an interpretative aid as the CFPB argued, and that section 8(c)(2) permits the captive reinsurance arrangements to the extent the payment does not exceed the reasonable market value. Specifically, the panel opinion stated, “[w]e agree with PHH that Section 8 of the Act allows captive reinsurance arrangements so long as the amount paid by the mortgage insurer for the reinsurance does not exceed the reasonable market value of the reinsurance.”

B. Due Process and HUD’s 1997 Letter

In addition to arguments based on the statutory language, PHH argued that it relied on a prior letter that HUD issued in 1997 specifically addressing captive reinsurance arrangements, in which it stated that such arrangements were permissible under RESPA section 8, as long as the payments were for reinsurance that was actually provided, and were bona fide and not in excess of the value of the reinsurance. Director Cordray had addressed HUD 1997 letter in his decision, finding that the letter “is not in such a form as to be binding on any adjudicator” because it was never published in the Federal Register, and that the letter was “internally inconsistent.”

The panel opinion found that the CFPB’s retroactive application of a change from HUD’s interpretation of section 8(c)(2) to its own interpretation would be a violation of “Rule of Law 101.” Specifically, the panel opinion held that, “even if the CFPB’s new interpretation were consistent with the statute (which it is not), the CFPB violated due process by retroactively applying that new interpretation to PHH’s conduct that occurred before the date of the CFPB’s new interpretation.” The panel stated that the CFPB’s argument that the HUD letter was not binding confused the due process issue of whether the public could rely on an agency pronouncement with the administrative law issue of deference by courts to agency interpretations. The panel opinion stated that to trigger due process protection, “an agency pronouncement about the legality of proposed private conduct need not have been set forth in a rule preceded by notice and comment rulemaking, or the like.”

The panel found that the fact that HUD’s guidance was provided by “top HUD officials” and was given “repeatedly,” was “sufficient” to justify reliance on the guidance for purposes of due process. Notably, the panel stated that it, “do[es] not imply that those two conditions are necessary to justify citizens’ reliance for purposes of the Due Process Clause.”

C. Statute of Limitations

On the issue of the statute of limitations that applies to the CFPB’s administrative enforcement actions under RESPA, the CFPB had originally argued to the three-judge panel that it was not subject to any statute of limitations in its administrative proceedings. In addition, the CFPB argued that RESPA only provides a statute of limitations for court proceedings.

The panel opinion found that the CFPB’s interpretation was “absurd” and “especially alarming,” and held that the CFPB’s administrative actions are subject to the statutes of limitations of the statutes it is enforcing. The panel based this decision on language in the Dodd-Frank Act that states that the CFPB can conduct administrative actions under federal consumer finance laws, “unless such Federal law specifically limits the Bureau from conducting a hearing or adjudication proceeding and only to the extent of such limitation.” The panel held that this provision incorporates the “limits” under specific consumer laws, like RESPA, and that RESPA’s three-year statute of limitations applies to CFPB actions, both administrative and in court, resulting in the CFPB being subject to a three-year statute of limitations for its administrative actions under RESPA.

Notably, the CFPB did not argue that it was not subject to a statute of limitations to the en banc court. The CFPB relented in the oral arguments in the en banc rehearing of the case that it was generally subject a five-year statute of limitations under 28 U.S.C. § 2462.

One issue that was not resolved in the panel or en banc court opinions was whether each reinsurance payment or only the loan closing was a violation of RESPA. Director Cordray’s decision in the CFPB’s administrative enforcement action found, and the CFPB argued in court, that PHH had violated RESPA section 8(a) every time it accepted a reinsurance payment, even if the loan had closed earlier than the date of the payment. But PHH argued that if a violation occurred under section 8(a), it occurred at the time the loan closed.

The panel opinion stated in a footnote that, “we do not here decide whether each alleged above-reasonable-market value payment from the mortgage insurer to the reinsurer triggers a new three-year statute of limitations for that payment. We leave that question for the CFPB on remand and any future court proceedings.” The en banc court did not further address this issue. It remains to be seen if this issue is further litigated if the CFPB decides each payment was a separate violation on remand.

D. What the Decision Means for the Industry

Are Captive Arrangements and MSAs Back in Business?  

The en banc court’s decision on the RESPA issues could have a profound impact on the real estate industry. The decision essentially finds that captive arrangements, marketing services agreements (MSAs), and other arrangements that are designed to fall under the RESPA section 8(c)(2) exemption are permissible, even if they are designed as a quid pro quo for referrals, as long as the payment bears a reasonable relationship to the market value of the services or products that are the subject of the arrangement. As the CFPB offered as an example in oral arguments, under this decision a company purchase paper at wholesale and then require other companies to purchase the paper from it at retail prices to receive referrals. You could say that these captive arrangements and MSAs are back in business, after industry began pulling back on their use when the CFPB began aggressively enforcing against such agreements and issued a compliance bulletin strongly discouraging their use. Many companies have already pulled back on MSAs or other similar arrangement in response to the CFPB, and this decision could represent a significant effect on their business.

Compliance with RESPA section 8 should still be a concern, even though the D.C. Circuit has found such practices permissible under RESPA. First of all, section 8(c)(2) still requires that the services in the arrangement are actually performed, and that the payment is reasonably related to the market value of the services. The court’s opinion sends the case back to the CFPB for a factual determination of whether the reinsurance payments meet this standard. This means that for companies engaging in MSAs or other similar arrangements, obtaining a proper valuation of the services being performed and ensuring those services are actually provided is still a critical step for compliance purposes.

In addition, courts in other circuits could come to a different conclusion. Note that there was a concurring opinion by three judges in the en banc decision that was actually essentially a dissent on the RESPA issue, finding that the CFPB’s interpretation of RESPA, specifically its interpretation of the term “bona fide” in RESPA section 8(c)(2), was reasonable. The CFPB’s interpretation, including its argument regarding the purpose of RESPA being to prevent the type of referral arrangements that the court’s opinion now says are permissible, could be persuasive to courts in other circuits in future litigation. Finally, it would be prudent to review the applicable state laws, as some states have similar prohibitions as RESPA section 8(a) and those states may interpret their laws similarly to the CFPB’s interpretation in the PHH case.

New RESPA Guidance on the Horizon?

In addition, it will be interesting to see if the CFPB revises its October 2015 compliance bulletin regarding marketing services agreements based on this decision, or engages in rulemaking under RESPA to provide more formal guidance regarding section 8(c)(2). Some of the substance of that compliance bulletin conflicts with the court’s opinion.   In addition, as part of its focus on regulatory reform that is signaled in its recently issued Strategic Plan, the CFPB could take revisiting guidance under RESPA section 8 more generally, including updating the policy statements issued by HUD in the 1990s and early 2000s.

Due Process Protections for CFPB Informal Guidance?

With respect to the due process issue, the panel opinion’s discussion regarding due process protections from reliance HUD’s informal guidance may be viewed by some as supporting the industry’s ability to rely on the CFPB’s informal guidance. Most of the CFPB’s new rules have required substantial amounts of informal guidance to clarify significant issues under the rules. While the CFPB has issued very little formal guidance or amendments based on industry requests for clarification, the agency has issued some informal guidance to address industry concerns. In addition, some of that informal guidance has been issued publicly, such as its webinars and compliance guides.

The two factors cited by the court in applying due process protections to the HUD informal guidance were the fact that the guidance was provided by top officials at the agency and that it was repeatedly provided. Much of the CFPB’s informal guidance is issued by CFPB staff and subject to extensive disclaimers warning against reliance. In addition, much of the informal guidance industry relies on is provided in the context of one-on-one telephone calls or presentations at industry events. Further complicating the ability to rely on the CFPB’s informal guidance is the fact that some of the CFPB’s publicly issued informal guidance has had questionable technical accuracy. These facts distinguish much of the CFPB’s informal guidance from the types of guidance the court stated provided due process protections. Another important point is that the panel’s discussion of the due process issues might not be considered by other courts to carry the same weight as the panel’s holding regarding RESPA section 8(c)(2). To the extent that the industry looks to the panel opinion as supporting due process protections for reliance on the CFPB’s informal guidance, caution is warranted.

Statute of Limitations?

Finally, on the issue of the CFPB’s statute of limitations, the decision that the CFPB’s administrative actions are subject to the statute of limitations of the law the agency is enforcing, and the CFPB’s admission that is at least subject to a general five-year statute of limitations will have a significant impact on the CFPB’s future administrative enforcement actions. This includes its enforcement actions under its UDAAP authority, which did not have an explicit statute of limitations. Therefore, the CFPB’s admission of a general five-year statute of limitations is a significant curtailing of its view of its UDAAP authority. In addition, to the extent any pending enforcement actions or investigations look past this five-year mark or the applicable statute of limitations under the law being enforced, this should be an issue raised in those actions.

V. Conclusion

The impact of the PHH case is significant, both with respect to the CFPB’s existence and current structure, and the relationships and potential for referral arrangements between companies in the real estate market. The court’s decision essentially blesses marketing services agreements and other arrangements designed to fall under RESPA section 8(c)(2), even if they are entered into with the understanding that business will be referred between the parties. We may see an increase in the use of these types of agreements based on the court’s decision. But compliance should still be a concern, because the factors under RESPA section 8(c)(2) must still be followed, and state regulators and other courts may come to different conclusions.

Update on the Battle over the Interim Leadership of the CFPB – The Deputy Director’s New Argument, a New Lawsuit, and Some Thoughts on the Current Situation at the CFPB

December 9, 2017

I am writing this post to update you on the ongoing battle to lead the CFPB. Although the District Court for the District of Columbia denied Deputy Director English’s motion for a temporary restraining order, giving the Trump administration an initial win, the case continues and has to be decided on the merits. On December 6, 2017, Deputy Director English filed a motion for a preliminary injunction. The hearing on this motion is scheduled for December 22.

In this post, I discuss the current status of the lawsuit, briefly summarize some the main arguments made by Deputy Director English in her filing for a preliminary injunction, and highlight a new argument that her legal team made. This new argument is that the CFPB Director is exempt from the Federal Vacancies Reform Act (FVRA), because the FVRA expressly exempts members of boards of government corporations, and the Director is also a member of the Board of Directors of the Federal Deposit Insurance Corporation (FDIC). I actually suggested this as a possible argument on a Mortgage Bankers Association webinar that I presented on November 29 regarding the leadership situation at the CFPB. The webinar was a great discussion about the lawsuit and the potential effects on the CFPB. You can obtain a recording of the webinar by clicking here: https://store.mba.org/ProductDetail.aspx?product_code=DL2-011413-WC-W.

In addition, a new lawsuit was filed by the Lower East Side People’s Federal Credit Union on December 5, 2017 to fight the Trump administration’s designation of Director Mulvaney as Acting Director of the CFPB. I briefly summarize the main arguments in this new lawsuit, which also uses the new argument made by Deputy Director English in the motion for a preliminary injunction.

I also discuss the current situation at the CFPB and the steps that Acting Director Mulvaney has already taken at the bureau. It appears that Acting Director Mulvaney could have a substantial impact on the CFPB’s rules and enforcement actions during his interim leadership. This may be a good time for industry to consider submitting information to the CFPB regarding steps Acting Director Mulvaney can take to provide regulatory relief.

I.  Status of the Lawsuit by Deputy Director English

A.  Trump Administration Wins the First Round

As you already know, President Trump designated Mick Mulvaney (who is also the Director of the Office of Management and Budget) the Acting Director of the CFPB upon Richard Cordray’s resignation on November 24, 2017. However, on his last day at the CFPB, Richard Cordray had also named the CFPB’s Chief of Staff, Leandra English, the Deputy Director and, pursuant to the automatic succession provision under the Dodd-Frank Act, the Acting Director of the CFPB.

Deputy Director Leandra English filed a lawsuit on Sunday, November 26, 2017, in the U.S. District Court for the District of Columbia, to prevent from assuming the role of Acting Director. Deputy Director English asked the District Court for a temporary restraining order (TRO) to temporarily prevent Mulvaney from assuming the role, and asked for a declaratory judgment that she is the authorized Acting Director. The case was assigned to Judge Timothy J. Kelly, who coincidentally was appointed by President Trump and joined the court in September 2017.   At a hearing on Tuesday, November 28, Judge Kelly issued a judgment denying the motion for a TRO, effectively keeping Mulvaney in place as the purported Acting Director of the CFPB while the case continues, as described below.

 B.  Deputy Director English Files a Motion for a Preliminary Injunction with a New Argument

Although the Trump administration won the first round, Deputy Director English continues to pursue the case. On December 6, 2017, Deputy Director English filed a motion for a preliminary injunction in the case. Below I briefly summarize the main arguments made by Deputy Director English’s legal team:

  1. The Dodd-Frank Act’s succession provision controls the Acting Director position of the CFPB, rather than the FVRA, because the two statutes conflict and the Dodd-Frank Act was enacted later and is more specific. They point to the Dodd-Frank Act’s mandate that the Deputy Director “shall” serve as the Acting Director of the CFPB, and argue the mandate is more specific with respect to the CFPB because the FVRA’s provision provides that the President “may” designate an acting official. They also argue that although the FVRA has been determined to continue to apply to other statutes with mandatory succession provisions, those other statutes are distinguished from the Dodd-Frank Act, because they were enacted before the FVRA. They also point to the legislative history of the Dodd-Frank Act, noting that Congress in the final legislation changed the succession provision from a previous version that expressly relied on the FVRA, arguing that this indicates a choice by Congress to override the FVRA.
  2. The President’s appointment violates the Constitution’s Appointments Clause, because there is no statute authorizing the President to designate an Acting Director of the CFPB (based on their arguments that the Dodd-Frank Act’s mandatory succession provision controls).
  3. Even if the FVRA did apply to the CFPB’s Acting Director position, it would violate the requirement under the Dodd-Frank Act that the CFPB be “independent” (noting that the CFPB’s Director position is removable only for cause and it is not funded through appropriations). They argue that the CFPB’s independence is violated by Mulvaney serving as Acting Director, because he will continue to be an at-will employee of the White House as Director of OMB. In addition, they argue that the CFPB and FDIC are expressly exempted from OMB oversight by statute, and thus, the designation of the OMB Director to lead the CFPB and also serve on the FDIC board violates that independence.

In addition to these arguments, as noted above, Deputy Director English’s legal team also made a new argument that was not included in the initial complaint or filing for the TRO. The new argument is that the CFPB Director position is exempt from the FVRA, because the CFPB Director is also a member of the FDIC’s Board of Directors and FDIC board members are exempt from the FVRA. Specifically, the FVRA exempts, “any member who is appointed by the President, by and with the advice and consent of the Senate to any board, commission, or similar entity that governs an independent establishment or Government corporation.” 5 U.S.C. § 3349c(1). The CFPB Director is by statute a member of the FDIC board, which member positions satisfy this exemption under the FVRA, because the FDIC board is a board of a government corporation. 12 U.S.C. § 1812(a)(1). To support this argument, they also note that the Acting Director of the CFPB automatically serves on the FDIC board in the event of the absence of the CFPB Director. 12 U.S.C. § 1812(d)(2).

Notably, Deputy Director English’s filing did not cite the CFPB Director’s membership on the Financial Stability Oversight Council (FSOC), which is also required by statute under the Dodd-Frank Act. This may be another fact that supports the CFPB Director being exempt from the FVRA under section 3349c(1), because the FSOC is similar to a board or commission, and arguably an independent establishment.

Deputy Director English’s legal team appears to have largely abandoned the argument that the Dodd-Frank Act is exempt from the FVRA pursuant to 5 U.S.C. § 3347 (which exemption I discuss in my previous Client Update), although there are still references to this exemption in their filing. As I noted in my previous Client Update, the plain language of this exemption states that it provides an exemption from the “exclusivity” of the FVRA, and for that reason, it has been interpreted that even if a statute satisfies this exemption, the FVRA would still remain available to the President. In fact, the DOJ made this argument in its memorandum in opposition to the TRO. For this reason, they may have decided to focus their efforts on the other arguments.

C.  Possible Counterarguments for the DOJ

Before we turn to the possible counterarguments to the new argument in Deputy Director English’s motion for a preliminary injunction, it is worth noting that her filing uses some of the same arguments that were in the previous motion for a TRO. For that reason, in its opposition to the preliminary injunction, DOJ may use some of the same counterarguments it used to oppose the TRO. I briefly review some of the DOJ’s counterarguments below:

  1. With respect to the argument that the Dodd-Frank Act overrides the FVRA because it was enacted later and is more specific, the DOJ argued that for the Dodd-Frank Act to implicitly repeal the FVRA, under prior precedent, there has to be a “clear and manifest” intent of Congress. The DOJ argued that this intent is not clear, noting that the Dodd-Frank Act explicitly provides that it does not override federal laws dealing with employees and officers, unless expressly provided. See 12 U.S.C. § 5491(a). The DOJ also argued that the legislative history does not indicate this intent, and that if Congress had intended to override the FVRA, they would have made it clearer in light of past interpretations of the FVRA.
  2. With respect to the argument regarding the independence of the CFPB, the DOJ argued that the FVRA can apply to independent agencies, as it has previously been determined to apply to independent agencies such as the NLRB, Export-Import Bank, and Social Security Administration. The DOJ also argued that the court does not have jurisdiction to grant an injunction against the President from exercising his official appointment power.

Turning to the new argument, I believe that this is a potentially strong argument. As noted above, I actually raised this as a possible argument on a Mortgage Bankers Association webinar regarding the leadership situation at the CFPB on November 27. The legislative history for the exemption indicates that the drafters of the FVRA believed that this exemption “has always been the case with the respect to the Vacancies Act…” and wanted to preserve it in its legislation replacing the prior Vacancies Act. And there does not appear to be an issue with the FVRA remaining available to the President for a board member, as there is with the exemption from the “exclusivity” of the FVRA under 5 U.S.C. § 3347. In addition, this is the main argument that Lower East Side People’s Federal Credit Union used in its new lawsuit filed on December 5, 2017, which I briefly describe below.

A possible counterargument is that the exemption under section 3349c(1) of the FVRA only applies to members that were specifically appointed and confirmed to the board, and thus, it does not apply to the CFPB Director whose membership on the FDIC board is based on a statutory mandate. This argument is based on the plain language of the exemption, which expressly states that it applies to a board member “who is appointed by the President, by and with the advice and consent of the Senate to any board….” 5 U.S.C. § 3349c(1) (emphasis added). Arguably, the person appointed and confirmed to be the CFPB Director is not appointed and confirmed to the FDIC board. The CFPB Director only serves on the FDIC board pursuant to a statutory mandate under the Federal Deposit Insurance Act (FDI Act). 12 U.S.C. § 1812(a)(1)(B). This is different than the members who are expressly appointed and confirmed to the FDIC board, including the Chairperson, under the FDI Act. 12 U.S.C. § 1812(a)(1)(C). In contrast, the statutory mandate for the CFPB Director means that the CFPB Director is not appointed and confirmed to the FDIC board. Accordingly, the CFPB Director position is not “appointed…to any board” as required under the FVRA for the exemption to apply, and thus, is not subject to the exemption.

With respect to the vacancy provision under 12 U.S.C. § 1812(d) under which the Acting Director of the CFPB automatically serves as a member of the FDIC board in the event of a vacancy in the CFPB Director’s seat, this provision does not speak to whether or not the FVRA applies to the CFPB. In addition, this vacancy provision was in the FDI Act before the FVRA was enacted, when it applied to the Comptroller of the Currency and the Director of the Office of Thrift Supervision (OTS). Notably, it appears that case law has interpreted the previous version of the FVRA to apply to the OTS, which could indicate that an acting official designated under the FVRA can serve on the FDIC board under this succession provision.

I raise these only as possible counterarguments. There may be deficiencies to these arguments, or there may be other possible counterarguments and interesting threads that could be analyzed further. For example, there are cases under the prior version of the Vacancies Act involving the Acting Director position at the OTS, which also served on the FDIC board under a statutory mandate, in which the issue of an exemption for FDIC board members does not appear to have been raised. This is in spite of the legislative history of the FVRA noting that this exemption for board members had “always been the case.” It will be interesting to see the upcoming briefs and hearing on this issue.

D.  The Case Going Forward

Although the Trump administration won the first round, the judge ordered the parties to meet and confer and submit a proposed schedule by December 1. They filed separate schedules on December 1 and indicated that Deputy Director English planned to file a motion for a preliminary injunction. Notably, the two proposed schedules differed substantially, with the DOJ’s schedule continuing through February 2018 and Deputy Director English’s schedule completing briefings by December 15. Because the parties submitted separate schedules, Judge Kelly ordered a scheduling conference on December 5 and then ordered the following schedule for the motion for a preliminary injunction:

  • Deputy Director English’s motion for a preliminary injunction due by December 6
  • DOJ’s opposing brief is due by December 18 at 1:00 p.m.
  • Deputy Director English’s reply brief is due by December 20 at 1:00 p.m.
  • The hearing on the motion for a preliminary injunction is set for December 22 at 10:00 a.m.

I want to reiterate that it is not certain who will ultimately prevail in this case. It is an open question whether the Dodd-Frank Act or the FVRA controls the succession of the Acting Director of the CFPB.   There are many arguments and counterarguments on both sides, including a new argument by Deputy Director in her most recent motion, as described above. And there could be appeals by either party from the District Court’s decision, meaning that this leadership question could last some time. It is important to reiterate that, as I mentioned in my last Client Update, there will be a question mark hanging over any official actions of the CFPB while this issue is unresolved, because such actions could be void.

E.  Lower East Side People’s Federal Credit Union Lawsuit

On December 5, 2017, another lawsuit was filed against the Trump administration’s designation of Director Mulvaney as Acting Director of the CFPB. The Lower East Side People’s Federal Credit Union filed a lawsuit in the District Court for the Southern District of New York against the Trump administration and Mulvaney. The credit union asked the court for an injunction against Mulvaney serving as Acting Director of the CFPB, and a declaratory judgment that Deputy Director English is the Acting Director of the CFPB.

The credit union made similar arguments to those by Deputy Director English, including the new argument based on the CFPB Director also serving on the FDIC board. These arguments are that the Dodd-Frank Act controls succession at the CFPB, because it is more specific and was enacted later; the CFPB Director position is exempt from the FVRA under 5 U.S.C. § 3349c, because the CFPB Director is a member of the FDIC board; and the appointment of an at-will White House employee violates the independence of the CFPB that is required under the Dodd-Frank Act. It will be interesting to see how this separate case is handled by the court and the DOJ.

II.  Current Situation at the CFPB

Director Mulvaney has been serving as Acting Director of the CFPB since the day after his appointment on November 27. His ability to serve as Acting Director is due to the District Court’s denial of Deputy Director English’s motion for a TRO. In addition, the CFPB staff’s treatment of Director Mulvaney as Acting Director appears due to an internal November 25 memorandum by the CFPB’s General Counsel, Mary McLeod, which opined that President Trump has the authority to designate Mulvaney as Acting Director CFPB. Specifically, the General Counsel advised the CFPB’s senior staff to “act consistently with the understanding that Director Mulvaney is the Acting Director of the CFPB.” Therefore, it appears that Director Mulvaney will be performing the functions of the Director of the CFPB, including directing CFPB staff, for the time being.

It appears that the CFPB will be frozen for some time under Acting Director Mulvaney. On his first day, November 27, he announced that he is imposing a “freeze” on hiring, new regulations, and payments from the CFPB civil penalty fund. In addition, it was reported that Acting Director Mulvaney instituted a moratorium on CFPB’s collection of consumer data citing cyber security risks.

With respect to the CFPB’s enforcement activities, it was also reported that Acting Director Mulvaney is reviewing the CFPB’s pending investigations and enforcement actions. Notably, the outcome of one of Mulvaney’s reviews of a pending investigation involving a large bank may be affected by a December 8 tweet by the President that signaled the President’s desire for a certain outcome. This could potentially serve as evidence of the claims in the two lawsuits that the CFPB’s independence under an at-will White House employee is violated. In addition, this also highlights the policy concerns of many regarding the ability of any administration to directly influence consumer financial regulation and enforcement, and may serve to increase support from both sides of the aisle for a change to the CFPB’s leadership structure to a board or commission.

With respect to the CFPB’s regulatory activities, it appears that Acting Director Mulvaney will be open to regulatory reform. He reportedly inquired about revising the CFPB’s payday loan final rule, which the CFPB issued this fall, but instead announced his support for the disapproval of the rule under the Congressional Review Act, for which a resolution was introduced in the House on December 1, 2017. It is still possible Acting Director Mulvaney could take action to curtail the rule if the disapproval resolution does not pass Congress. He also reportedly plans to bring on politically appointed staff to move the CFPB’s priorities closer to those of the Trump administration. This signals what is likely to be an increased focus at the CFPB on regulatory relief and reform during this time. There have already been some notable requests to Acting Director Mulvaney for regulatory relief. For example, an industry trade association and House Republicans have already asked Acting Director Mulvaney to delay the effective date of the HMDA rule. In addition, letters submitted to the CFPB have raised concerns with the CFPB’s plans for the public disclosure of the expanded HMDA data.

It is also interesting that many of these actions by Acting Director Mulvaney come to us through the news media. While this may not be surprising in light of the recent change and the public interest in the leadership situation at the CFPB, it is hopeful that as time goes on, information about the CFPB’s activities under its interim and future permanent leadership will come through official CFPB statements and announcements that are also published on its website and/or in the Federal Register.

In spite of the questions surrounding this interim leadership situation, as I noted above, this may be a good opportunity for the industry to inform the CFPB about opportunities for regulatory relief and reform. Please let me know if you’d like me to assist you in submitting information to the CFPB.

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Please let me know if you have any questions or if you’d like to discuss.

The CFPB Going Forward – Cordray’s Resignation, the Federal Vacancies Reform Act, and More

November 26, 2017

Clients and Friends,

You’ve probably already seen in the news that Director Cordray of the CFPB announced on November 15 that he planned to resign by the end of the month, and he officially resigned on Friday, November 24. Soon after Cordray announced his planned resignation, it was reported by several news organizations that the Trump administration planned to appoint the current Director of the Office of Management and Budget (OMB), Mick Mulvaney, as the Acting Director of the CFPB under the Federal Vacancies Reform Act of 1998 (FVRA). However, before Cordray resigned, he named the CFPB’s Chief of Staff, Leandra English, as the Deputy Director, and is reported to have stated to staff that she will be the Acting Director of the CFPB pursuant to the Dodd-Frank Act. In what is a sign of a coming fight over the leadership of the CFPB, soon after Director Cordray’s resignation, the Trump administration announced its appointment of Director Mulvaney as the Acting Director of the CFPB. Here are the relevant CFPB and White House press releases:

https://www.consumerfinance.gov/about-us/newsroom/leandra-english-named-deputy-director-consumer-financial-protection-bureau/

https://www.whitehouse.gov/the-press-office/2017/11/24/statement-president-donald-j-trumps-designation-omb-director-mick.

As you might suspect, the CFPB cannot have two Acting Directors. This situation sets up a new and interesting legal question, and likely a court battle, regarding whether the Dodd-Frank Act’s succession provision or the FVRA applies to the CFPB’s Director position. As I was quoted as stating in a RESPA News November 20, 2017 article regarding the FVRA, “I don’t think it’s entirely certain that the Vacancies Act applies to the CFPB, because the Act exempts statutes that designate an employee to perform functions in an acting capacity, and the Dodd-Frank Act provides that the Deputy Director acts for the Director in an acting capacity in the Director’s absence. So, the Dodd-Frank Act might be exempt from the Vacancies Act.” You can find the full article here: https://www.respanews.com/RN/ArticlesRN/The-tale-of-the-Federal-Vacancies-Reform-Act-71663.aspx. The White House is reported to have consulted with the Department of Justice before appointing Director Mulvaney and a formal opinion is reportedly forthcoming. But given the strong interests of both sides on this issue and the likelihood of a lawsuit, I think this question will ultimately need to be resolved by the courts. It will be interesting to see what happens at the CFPB on Monday.

Before this question can be answered by the courts, it is uncertain how the CFPB will be able operate with two supposed Acting Directors. And even if one side relents, the questions surrounding the legal authority of the Acting Director may persist. Actions undertaken by an unauthorized Acting Director of the CFPB may be void, which will place a huge question mark on any CFPB actions during this time period, including regulatory and enforcement actions. I will discuss in more detail below the FVRA and the legal issues regarding whether the FVRA or the Dodd-Frank Act controls the succession at the CFPB.

In addition, if Director Mulvaney is ultimately determined to be the authorized Acting Director of the CFPB, this interim directorship could last a significant amount of time under the FVRA and it could have a significant impact on the CFPB. In this update, I will briefly provide some of my thoughts on what this means for the CFPB going forward.

Finally, in other news, a bi-partisan regulatory relief bill was recently introduced in the Senate on November 16, 2017. Senate Bill 2155, titled the “Economic Growth, Regulatory Relief, and Consumer Protection Act” would affect a number of the CFPB’s mortgage rules, including the Ability to Repay/Qualified Mortgage and TRID rules. I will briefly highlight some of the provisions for you below.

I.  The Federal Vacancies Reform Act and the CFPB

A.  The Dodd-Frank Act and the FVRA

The question of whether the Trump administration can appoint an Acting Director of the CFPB in the event of Director Cordray’s expected departure has been the subject of much discussion recently. There are two relevant statutes, which appear to conflict: (1) section 1011(b)(5) of the Dodd-Frank Act, which provides that the Deputy Director “shall” act as the Director in the event of the Director’s “absence or unavailability;” and (2) the FVRA, which provides that the “first assistant” fills the role in an acting capacity, but also provides the President the authority to instead appoint someone already confirmed by the Senate or a different senior officer or employee on an acting basis. The question of the day is whether the Dodd-Frank Act or the FVRA controls the succession of the CFPB’s Acting Director in the event of the Director’s resignation. This is an open question that will likely need to be answered by the courts.

Specifically, the Dodd-Frank Act provides that the Director position is appointed by the President and has to be confirmed by the Senate, but the Deputy Director position is not. Instead, the Director appoints the Deputy Director. Dodd-Frank Act section 1011(b)(5) provides that the Deputy Director “shall serve as acting Director in the absence or unavailability of the Director.” 12 U.S.C. § 5491(b)(5). This provision appears to apply in the event of the Director’s resignation, because the Director would arguably be absent or unavailable.

However, the FVRA, which was enacted in 1998, well before the Dodd-Frank Act, also appears to apply to this situation. Specifically, it applies in the event an officer of an “executive agency” who is appointed by the President and Senate-confirmed “dies, resigns, or is otherwise unable to perform the functions and duties of the office.” 5 U.S.C. § 3345(a). The FVRA provides that the “first assistant” to the office fills the role in an acting capacity, as a default. But the statute also authorizes the President to appoint someone who has already been confirmed by the Senate to assume the role, or a different senior employee (if they meet certain conditions), in an acting capacity. Id. Significantly, the statute also provides that its authority is the “exclusive means for temporarily authorizing an acting official to perform the functions and duties” of a Presidentially-appointed and Senate confirmed position in an executive agency. But the FVRA provides an exception to its exclusivity if another statute “expressly…designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity.” 5 U.S.C. § 3347(a)(1).

B.  Is the CFPB Exempt from the FVRA?

One of the arguments in support of the Dodd-Frank Act controlling the succession of the Acting Director (which supporters of the CFPB would favor) is that Dodd-Frank Act section 1011(b)(5) satisfies the exemption from the exclusivity of the FVRA. At first glance, it appears that the Dodd-Frank Act does satisfy the exemption, because it provides that the Deputy Director acts as the Director in the Director’s absence or unavailability. In fact, the Dodd-Frank Act mandates that the Deputy Director serve in an acting capacity in this event. It does not provide that the Deputy Director “may” serve, but that the Deputy “shall” serve as Acting Director. This would appear to be the type of provision described by the exemption in the FVRA, because it designates an acting official.

However, those favoring the Trump administration’s ability to appoint an Acting Director under the FVRA could argue that the Dodd-Frank Act provision does not contain certain language necessary to satisfy the exemption from the FVRA. One of the potential arguments is that the Dodd-Frank Act provision does not refer to a “vacancy,” as does other statutes that are understood to be exempt. The legislative history for the FVRA shows that the drafters intended for 40 statutes that existed at that time in 1998 to be exempt. See S. Rept. 105-250 (1998). Some of these statutes have very similar provisions as the Dodd-Frank Act, and designate an agency official to serve as an acting head of the agency in the event of the official’s absence or inability to serve. However, these statutes also expressly refer to a “vacancy” in the office, which terminology does not appear in the Dodd-Frank Act. For example, the legislative history identified 49 U.S.C. § 102(c)(2), which applies to the Department of Transportation and provides that the Deputy Secretary “acts for the Secretary when the Secretary is absent or unable to serve or when the office of Secretary is vacant.” A recent report from the Congressional Research Service also stated that this statutory provision might satisfy the exemption from the FVRA. And while the language for the exemption changed in the final version of the legislation, the intent of the drafters may still be instructive to a court.

Is this a fatal flaw that prevents section 1011(b)(5) of the Dodd-Frank Act from satisfying the exemption under the FVRA? The plain language of the exemption under the FVRA does not expressly require use of the word “vacant,” and supporters of the CFPB could argue that the absence and unavailability of the Director are synonymous with a vacancy. On the other hand, supporters of the Trump administration could argue that the choice of Congress to use only the words “absence” and “unavailability” in the Dodd-Frank Act, while these other statutes also refer to a vacancy, means that it does not apply to a vacancy. They could also argue that even if Dodd-Frank Act section 1011(b)(5) satisfies the exemption in the event of the absence or unavailability of the Director, the FVRA is still the exclusive authority when the position is vacant (such as a resignation or removal of the Director).

There are other possible arguments that have been raised, aside from the issue of the exemption. For example, supporters of the Trump administration could argue that the FVRA applies to the resignation of the CFPB’s Director, because it specifically refers to the resignation of an agency official, while the Dodd-Frank Act does not. Supporters of the CFPB could argue that based on the rules of statutory interpretation, the Dodd-Frank Act should apply because it was enacted after the FVRA and is more specific to the CFPB than the FVRA. All of these potential arguments show that this is a difficult legal question.

C.  Can the FVRA Apply to the CFPB Even if it is Exempt?

Another legal issue is whether the FVRA’s authority for the President to designate someone remains available even if the Dodd-Frank Act satisfies the exemption from exclusivity under the FVRA. The legislative history for the FVRA indicates that the intent of the drafters was that the FVRA would provide an “alternative procedure for temporarily occupying the office” when a statute is exempt. There have been interpretations of the FVRA that have determined the FVRA provides additional authority to the President, even if there is existing authority under an agency’s statute to appoint an official temporarily. Under this interpretation, the Dodd-Frank Act and the FVRA would not be mutually exclusive, and both would be available as options for the President.

But supporters of the CFPB could argue that because the Dodd-Frank Act was enacted after the FVRA and provides the specific mandate as described above, the Dodd-Frank Act supersedes the authority of the FVRA. The legislative history of the FVRA shows that the drafters intended for the FVRA to be able to be superseded by future statutes, stating that if “a statutory provision expressly provides that it supersedes the Vacancies Reform Act, the other statute will govern.” The final legislation’s language does not contain a particular provision for statutes to supersede the FVRA. But the CFPB’s supporters could potentially argue that, in light of the intent of the drafters, the Dodd-Frank Act has the effect of superseding the FVRA by creating a mandate for the Deputy Director to act as Director.

D.  An Open Question

It is an open question whether the Trump administration has the authority under the FVRA to appoint an Acting Director to the CFPB upon Director Cordray’s resignation, or whether the Dodd-Frank Act exclusively controls. To my knowledge, the courts have not addressed this issue. And as I’ve hopefully illustrated above, there are some plausible arguments on both sides of this debate. Given the strong interests on both sides of this issue, we could be headed for a protracted legal battle for the interim leadership of the CFPB.

II.  What Does this Mean for the CFPB?

 A.  CFPB Actions Potentially Void if Unauthorized Acting Director

If there is any question of whether the Acting Director of the CFPB is legally authorized, it could have a significant effect on the CFPB’s operations. The FVRA provides that unless someone is acting in a Presidentially appointed and Senate-confirmed position as authorized by the FVRA, the office remains vacant, actions by that acting officer have no force or effect, and such actions cannot be ratified later. 5 U.S.C. § 3348(d). This means that, as long as this question remains unanswered, the actions of whoever purports to be the Acting Director of the CFPB could potentially be held void by a court. In addition, because the FVRA provides that a future duly appointed Director cannot simply ratify such actions, this raises significant questions about any CFPB actions during this period being adopted by the CFPB in the future.

This could have some serious consequences and poses some serious questions. For example, enforcement actions initiated the CFPB could potentially be void and unable to be ratified in the future. This means that the CFPB would likely need to refrain from initiating lawsuits or administrative enforcement actions during this time. And does this apply to other legal actions or court filings, such as Civil Investigative Demands, settlements, Consent Orders, or the filing of appeals? What about appeals of agency actions to the CFPB Director? Also, how does this apply to proposed rules, final rules, or adjustments of regulatory thresholds required by statute?

In addition, the lack of clarity regarding who is the authorized Acting Director of the CFPB could have consequences even if one side relents before the initiation of a lawsuit. The actions of the other Acting Director could be called into question in future lawsuits. For example, if the White House decides to relent and accept the current Deputy Director of the CFPB as Acting Director, interested parties could still attempt to defend against particular actions of the CFPB, such as Civil Investigative Demands, by arguing that they are void under the FVRA. In addition, if the CFPB’s Deputy Director decides to relent, the actions of Acting Director Mulvaney could also be called into question. For example, if the Acting Director attempted to withdraw or rescind a rule, the authority to do so could be raised in a lawsuit. These are serious consequences that the industry could face during this period.

B.  The CFPB under an Acting Director Mulvaney

Industry should also consider how the CFPB might change if Director Mulvaney is determined to be the authorized Acting Director and takes the helm. The CFPB would be headed by someone who has been critical of the agency’s very existence. Director Mulvaney has been clear about his disdain for the agency. He referred to the agency as a “a sad, sick joke,” and stated, “I don’t like the fact that CFPB exists, I will be perfectly honest with you.” He also co-sponsored a bill to eliminate the CFPB in 2015 (HR 3118), among other bills affecting the CFPB.

One of the major areas where the effect of this change could be significant is the CFPB’s rulemaking function. The CFPB’s regulatory agenda would likely be stalled. The agenda included many rulemakings that are also controversial, such as rules affecting third party and first party debt collection, an overhaul of the overdraft disclosures, and a rule allowing the agency to supervise installment lenders. It is likely that the work on these rulemakings would cease. In addition, the CFPB could engage in rulemakings to rescind or delay the effectiveness of its other recent controversial rules, such as its HMDA final rule. Further, remember that Mick Mulvaney is currently the Director of OMB (he is expected to retain his role at OMB) and is responsible for implementing the administration’s executive orders on regulatory reform, which I have written about in the past. Director Mulvaney could potentially subject the CFPB to some of these executive orders on a voluntary basis.

And as you may recall, the CFPB issued two controversial final rules this year, its arbitration rule that would have restricted certain mandatory arbitration clauses and its payday loan rule that will restrict certain practices for short-term loans. As you may recall, Congress rejected the arbitration rule under the Congressional Review Act this fall. The payday loan rule is equally controversial. Significantly, Director Mulvaney has made critical comments about the CFPB’s payday loan rulemaking in the past, and sponsored a bill that would have put a moratorium on CFPB issuing a payday loan rule and allowed states to obtain renewable five-year waivers from such a rule. This means that an Acting Director Mulvaney could engage in a rulemaking to rescind the CFPB’s payday loan rule or provide such waivers, which would not require any action by Congress under the Congressional Review Act.

Hopefully, with a new agency head that is more sympathetic to the industry’s concerns, the CFPB would work to enhance its guidance function. The agency could improve its “No Action Letter” policy, or work on amendments to its current rules to provide additional official guidance or regulatory relief to the industry.

In addition, the CFPB would likely continue working on its assessments of the effectiveness of its significant rules under section 1022(d) of the Dodd-Frank Act. The CFPB is required to publish the report for each assessment no later than five years after the effective date of the rule. You may recall that the CFPB solicited information from the public for its review of the Ability-to-Repay/Qualified Mortgage rule this summer. The CFPB will soon need to begin its assessments of its other significant rules, including the TRID rule, which could require significant work.

The CFPB’s enforcement activity would also likely slow under an Acting Director Mulvaney. I expect the agency would be far less likely to engage in new investigations or to initiate new enforcement actions. This is especially true for those actions based on new or novel interpretations of the existing law, as Director Cordray has done in the past. The industry has been very critical of Director Cordray’s use of “regulation by enforcement,” which I would expect to cease under an Acting Director Mulvaney. This change in leadership might also affect the outcome of currently pending enforcement actions or settlement negotiations, or the CFPB’s willingness to appeal unfavorable court decisions.

While this slowing of enforcement activity appears to be a good result for the industry, it may be a double-edged sword. If the CFPB ceases enforcing against truly bad actors, companies that take compliance seriously could be forced to compete on an uneven playing field. Without the deterrent of a strong CFPB enforcement function, other companies may be more inclined to operate using potentially unfair and illicit practices. While state regulatory agencies or attorneys general may increase their enforcement activity to pick up the slack, this could still be an issue for industry. Industry should consider these potential effects of new interim leadership at the CFPB.

III. The Senate Regulatory Relief Bill

Senator Crapo, Chairman of the Senate Banking Committee, introduced a bill on November 16, 2017 to amend some financial regulatory statutes to provide regulatory relief. Senate Bill 2155, titled the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” is a bi-partisan bill with a number of Democratic co-sponsors. The legislation would affect several of the mortgage rules, including the Ability-to-Repay/Qualified Mortgage (ATR/QM) and TRID rules. Please find a link to the announcement of the bill here: https://www.banking.senate.gov/public/index.cfm/2017/11/senators-release-text-of-economic-growth-regulatory-relief-and-consumer-protection-act. I will briefly highlight a few of the provisions of the bill below.

The bill would amend the ATR/QM provisions of the Truth in Lending Act to add a safe harbor for mortgages originated and held in portfolio by depository institutions with less than $10 billion in total consolidated assets. The loans would still have to meet the existing ATR/QM 3% points and fees cap, documentation requirements, and prepayment penalty restrictions, and not contain negative amortization or interest-only features. The bill would also add an exemption from new data requirements the Dodd-Frank Act added to the Home Mortgage Disclosure Act for insured depository institutions that originated fewer than 500 closed-end or open-end mortgage loans in the preceding two calendar years, which were implemented in the CFPB’s HMDA final rule.

The bill would also provide transitional licensing under the SAFE Act for a 120-day period for federally registered loan originators that become employed by state-licensed lenders, or for state-licensed loan originators that transfer to a different state. The bill would also amend the timing requirement for the HOEPA disclosures to provide that if a creditor provides a second loan offer with a lower APR, the three-business day timing requirement for the HOEPA disclosures would not apply to that second offer.

Finally, with respect to the TRID rule, the bill would also express the “sense of Congress” that the CFPB “should endeavor to provide clearer, authoritative guidance on” the applicability of the TRID rule to assumptions, construction-to-permanent loans, and the ability to rely on model forms published by the CFPB that do not reflect recent amendments to the rules.

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Please let me know if you have any questions or if you’d like to discuss.

CFPB Issues TRID 2.0 Final Rule – Summary Available

July 17, 2017

Clients and Friends,

The CFPB issued its final rule to amend TRID on July 7, 2017, almost one year after the CFPB issued its proposal. The CFPB stated that, “[t]his final rule will generally benefit consumers and industry alike by providing greater clarity for implementation going forward.” The final rule, which has been commonly referred to as “TRID 2.0,” finalized many of the proposed changes that would have affected the scope of the rule and the completion of the Loan Estimate (“LE”) and Closing Disclosure (“CD”) for particular loan transactions, but it did not finalize some of the most controversial proposed changes in the CFPB’s proposal. The press release and final rule are available at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-finalizes-updates-know-you-owe-mortgage-disclosure/.

Weighing in at 560 pages, there is certainly a great deal of information in this rule for industry to review and implement. In addition, the final rule has some surprising changes and raises some new questions.

I have drafted a detailed summary of the final rule, which includes some of my thoughts on the changes.  Please contact me if you would like to obtain a copy of the summary.

My Article on the CFPB’s Consumer Testing Published in the Journal of Public Policy & Marketing

April 26, 2017

An article I authored titled “The Consumer Financial Protection Bureau’s Consumer Research: Mission Accomplished?” will be published in the spring issue of the Journal of Public Policy & Marketing (JPPM).  The issue is due out in a few weeks, but I wanted to share my article with you in advance.  The article first introduces the reader to the CFPB, and then analyzes the CFPB’s consumer research for its disclosure rulemakings and other initiatives, such as its mortgage servicing rule, prepaid card rule, consumer complaint database, and HMDA rule.  The article questions whether the CFPB has conducted enough research for these projects and suggests ways in which the CFPB could improve its work.

Of note is that the CFPB also authored a companion article in this issue of JPPM, which discusses the CFPB’s research efforts for its disclosure rules.  It is also worth reading.

Here are links to both articles: http://journals.ama.org/doi/abs/10.1509/jppm.17.037 and http://journals.ama.org/doi/abs/10.1509/jppm.17.025.

Please let me know if you’d like to discuss any of the issues in the article.

Client Update – Potential CFPB Changes and Issues for 2017

December 20, 2016

Clients and Friends,

I wanted to write and share some of my thoughts on recent events affecting our industry, now that we’ve had some time to reflect on the election’s potential effects on the CFPB. I have drafted a discussion of some of the possible changes to the CFPB’s structure and activities. I included a brief summary of the pertinent provisions of the proposed Financial CHOICE Act, which may provide a blueprint for legislation by the next Congress. I also addressed the CFPB’s Fall 2016 regulatory agenda, the CFPB’s recent enforcement actions against three reverse mortgage lenders for deceptive advertising, and the CFPB’s 2017 fair lending priorities.  Please let me know if you’d like a copy of this document.

Please let me know if you would like to discuss or have any questions.

Wishing you a wonderful holiday season. I look forward to working together in the new year.

DC Circuit PHH Decision

October 17, 2016

Clients and Friends,

The U.S. Court of Appeals for the D.C. Circuit issued its decision in PHH v. CFPB on October 11, 2016. The court, in a strongly worded opinion, held that the CFPB was wrong in its interpretation of RESPA, due process, and the applicable statute of limitations, calling the CFPB’s various arguments “absurd,” “nonsensical,” “strained,” “deeply unsettling,” and “alarming.” The court also called the CFPB’s lack of due process a violation of “Rule of Law 101.” Significantly, the court also held that the CFPB’s structure was unconstitutional, because it was an independent agency with a single director who could only be removed by the President for cause. The court allowed the CFPB to continue to operate as an “executive agency,” but held that going forward the President is able to remove the Director at will.

The court described the CFPB’s structure as a threat to individual liberties and likened the CFPB to a “wolf.” After the court’s strong words for the CFPB’s interpretations, the wolf should be limping away with its tail between its legs. But the CFPB will likely request an en banc review by the court, and the case most likely will ultimately be appealed to the Supreme Court by one of the parties. This is just the beginning, and whether this opinion will stand remains to be seen. It may not be time to start revising your marketing services agreements just yet.

It is worth noting one significant effect of this decision for current subjects of CFPB administrative enforcement actions or civil investigative demands. For those institutions, the court’s rejection of the CFPB’s argument that its administrative enforcement actions are not subject to any statute of limitations should warrant attention, as it could be raised to limit the actionable violations in such proceedings.

Another question is whether the CFPB will be more careful about the limits of its authority after this opinion. Remember that recently, in April 2016, the CFPB had one of its civil investigative demands issued to a college accreditation company rejected by the U.S. District Court for the District of Columbia, because it was outside the CFPB’s statutory authority. In that decision, the court stated that, “[a]lthough it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow head long into fields not clearly ceded to them by Congress.” Will the CFPB take this advice?

I have drafted a summary of the court’s opinion, and provided some of my thoughts on the current and future effects of the decision.  Please let me know if you’d like a copy of this document.

Please let me know if you have any questions, or if I can provide any assistance in understanding the repercussions of this opinion.

CFPB TRID Proposal Summary

August 11, 2016

Clients and Friends,

The CFPB issued its long-awaited proposed rule to amend TRID on July 29, 2016. The proposal was intended to “formalize guidance in the rule, and provide greater clarity and certainty.” The press release is available at: http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-proposes-updates-know-you-owe-mortgage-disclosure-rule

The proposal is available on the CFPB’s website at: http://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/amendments-federal-mortgage-disclosure-requirements-under-truth-lending-act-regulation-z/

As a general matter, this proposal addresses many of the difficult compliance issues in the rule. It does not, however, address major policy issues such as the disclosure of title insurance, cures, or liability. But it is apparent that the CFPB put a great deal of work into this proposal, and thoughtfully considered much of the input from the public regarding compliance with the rule. The CFPB also explained the proposed changes and its reasoning for the changes in the preamble in a clear and concise manner, which is very helpful. As with any proposed rule, there are issues that the public may want to comment on to provide further input, especially considering the detailed nature of the proposed changes. But the CFPB’s effort and the quality of its proposal should be commended.

Please contact me if you’d like my summary of the proposal along with some of my thoughts on the issues for industry in the proposal. Please let me know if I can be of any assistance in understanding the proposal or preparing a comment letter for your organization.

CFPB Publishes LE and CD Annotated for TILA

May 12, 2016

Clients and Friends,

The CFPB announced in an email today that it has published on its website versions of the Loan Estimate (LE) and Closing Disclosure (CD) that are annotated with the sections of chapter 2 (Part B) of TILA that the CFPB says were “referenced in the Integrated Mortgage Disclosure final rule.” This is important information because, as you may already know, provisions of the rule that are implemented under authority in Part B of TILA will most likely be subject to civil liability under TILA section 130. In addition, the particular provisions of Part B that were relied on by the CFPB will determine whether statutory damages are available to plaintiffs.

Please note that the CFPB stated that these annotated forms contain the “citations…referenced in the preamble of the [final rule],” and the CFPB appears to have cited more than the statutory provisions that it expressly relied on in the preamble of the final rule. The CFPB appears to cite literally any statutory provision that was “referenced” in the preamble, which may indicate an intent to expand the statutory authority for the forms from what was relied on in the final rule, and to increase the potential liability under TRID.

For example, the annotated LE cites TILA section 128(b)(2)(C)(ii) for the Product disclosure under section 1026.37(a)(10), but the preamble for this provision only notes the existence of this statutory provision and does not include the provision in the statutory authority that was expressly relied on for the Product disclosure. This is also the case for the AIR Table under section 1026.37(j), for which the annotated LE cites TILA section 128(b)(2)(C)(ii), but the preamble only notes the existence of that provision and does not expressly rely on it as authority. In addition, significantly, page 2 of the annotated LE and CD both cite TILA section 128(a)(17) for the entirety of the Closing Cost Details.

For these reasons, these annotated disclosures will be important documents to review and understand to fully analyze the potential liability under TRID. For my clients, if I have already provided you with an analysis of the liability under TRID, please let me know if you would like to discuss updating it to reflect the CFPB’s annotated disclosures. For my other clients and friends, please let me know if you would like an analysis of the liability under TRID.

You can access the versions of the LE and CD at http://files.consumerfinance.gov/f/documents/201605_cfpb_loan-estimate-with-truth-in-lending-act-disclosure-citations.pdf and http://files.consumerfinance.gov/f/documents/201605_cfpb_closing-disclosure-with-truth-in-lending-act-disclosure-citations.pdf.

Please let me know if you have any questions.