CFPB developments and perspectives: questions and answers
What is the status of President Biden’s candidate for CFPB director Rohit Chopra?
The nomination of Mr. Chopra has left the committee and is ready for a vote by room. However, President Biden has indicated that Mr. Chopra’s confirmation will be delayed until the administration fills the vacant FTC position created by the resignation of former FTC Chairman Joseph Simons. As Mr. Chopra is currently FTC commissioner, his departure before Mr. Simon’s replacement was in place would leave the Republican FTC commissioners with a 2: 1 majority. To avoid this result, Mr. Chopra must follow the confirmation of Professor Lina Khan of Columbia Law School, appointed by President Biden to replace Mr. Simons at the FTC. Ms. Khan’s appointment remains in committee and it could take some time – late April or even early May – before the Senate begins to confirm Mr. Chopra.
Importantly, CFPB Acting Director David Uejio, motivated by Mr Chopra’s views and intentions, wasted little time initiating a major course correction at CFPB. While some of the recent CFPB actions appear motivated to maintain the status quo until Mr. Chopra’s arrival, Mr. Uejio has taken many active steps to advance a new Chopra-aligned agenda at CFPB.
Talk about recent CFPB actions that illustrate this new agenda?
Where to start? There has been a wave of political and regulatory activity. In addition, our industry contacts are already reporting increased scrutiny during reviews, and our contacts in the Bureau also report that the number of new investigations is already on the rise and will only increase. To begin with, the CFPB has made it clear that its immediate priorities are the protection of consumers affected by the pandemic and the promotion of racial equality. Many of its recent actions demonstrate the Bureau’s commitment to these new priorities by combining increased oversight of supervised institutions and assistance to borrowers. For example, between March 31 and April 5, 2021, the CFPB rescinded seven policy statements published in 2020 providing regulatory flexibility to financial institutions and replaced a 2018 bulletin on prudential communications that eliminates the use of prudential recommendations; issued a newsletter warning mortgage managers to be prepared for the wave of borrowers who will submit loss mitigation requests as pandemic moratoria and forbearance plans exit in the fall; and proposed modifications to the RESPA X regulation in order to avoid foreclosures on these same borrowers.
The CFPB has also extended the compliance dates for the eligible debt and mortgage collection rules, which presumably preserves Mr. Chopra’s ability to revise them later. And, showing its return to a “regulation by enforcement” regime, in early March, the Bureau rescinded a 2020 policy statement limiting its prosecution of civil penalties for “abusive” acts or practices. In addition, the Office reversed the course of the previous administration, indicating that it will apply the Law on Military Loans. At the end of March, Uejio also released a statement that small dollar lenders will be subject to increased oversight and control, with the Bureau enforcing the law where business models “depend on the inability to pay”. This inability to repay the check will also likely be extended to other consumer credit products.
On the fair loan front, in early March, the CFPB published an interpretive rule specifying that lenders cannot discriminate on the basis of sexual orientation or gender identity. It has also issued guidelines on providing financial services to consumers with limited English proficiency. Additionally, the Bureau is reinstating the Home Mortgage Disclosure Act (HMDA) data reporting requirements, moving forward with the implementation of the Small Business Data Collection Rule, and joining a Interagency DDR to understand what regulatory clarity might be needed regarding the use of artificial intelligence. by consumer credit companies.
Meanwhile, the Bureau’s Research, Markets and Regulation team is studying pressing issues related to housing insecurity and barriers to racial equity in consumer credit. And this is not an exhaustive list! Mr. Uejio has indeed been an active interim director.
What are the areas of intervention of the CFPB that await us?
As for the protection of consumers affected by the pandemic, and as the CFPB has already indicated, it intends to use its unfair, deceptive and / or abusive acts or practices (UDAAP) and other powers to examine mortgage managers closely. The same will apply to student loan managers, debt collectors and credit report information providers, as well as other financial services products and practices. Regarding other areas of interest, Mr. Uejio specifically identified small dollar lenders as an area that the Bureau will consider. A similar review of overdraft practices may also come back.
In promoting racial equity in financial services, equitable loans and services have once again become a top priority for the Office. In many ways, CFPB’s equitable lending priorities may align with its goal of protecting consumers affected by the pandemic. For example, the CFPB – through its statements and intention to move forward with the small business data collection rule – has indicated that it will use its authority under the Equal Opportunities Act in credit to fight discrimination in small business credit (an industry hard hit by COVID-19). In this regard, surveys to find out whether financial institutions have discriminated against women and minority-owned businesses when offering PPP loans. These questions will focus on the adequacy of compliance procedures, whether the PPP lending program has restricted access to certain protected categories of borrowers and whether an institution has complied with the requirements of the rule B regarding record keeping and notice of adverse action.
Another example is fair service – for mortgage and student loans. Here, the Bureau is likely to focus on whether administrators have engaged in sufficient and consistent loss mitigation outreach to borrowers in the protected group, managed communications with borrowers with limited control over l ‘English and correctly accounted for income from part-time employment, alimony, child support, separate alimony payments, retirement benefits or assistance public when assessing income as part of determining eligibility for loss mitigation options.
More generally, the Bureau may revert to a more aggressive use of the disparate effects theory to establish claims of discrimination against creditors. To this end, users of non-traditional data and / or algorithmic models may be subject to more scrutiny – although the Bureau will continue to balance the risk of bias and the potential for such alternative approaches to expand. access to credit. For lenders using such approaches, it will be important to plan for a fair lending process around them, including developing appropriate business justifications and performing performance tests where appropriate.
On the regulatory front, the CFPB appears poised to continue moving towards proposed rules regarding banking openness and consumer access to financial data – a step that could bring much-needed standardization among the targets somewhat. competitors of consumers, banks, fintechs and data service providers.
What can financial institutions and other service providers do now to manage CFPB risk?
Although the proactive steps vary from issue to issue, at a high level now is the time to ensure that your institution’s change management and risk and compliance management approaches are sound; its risk assessments and policies and procedures are adequate in light of new directives and rules issued almost daily by the Office; and its procedures for responding to customer complaints are comprehensive. In addition, complaints should be dealt with fully and in a timely manner, new oversight expectations should be addressed in a proactive dialogue with your reviewer in charge, and Office developments should be kept in mind. through regular coordination with your regulatory and government affairs teams. , professional associations, industry peers and third party advisors.
© 2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XI, Number 148