September 22, 2014

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September 19, 2014

Consumer Financial Protection Bureau (CFPB) is Plowing Ahead With Roll-Out of Plan for the New Mortgage Rules Despite Noel Canning Decision

In the first two weeks of 2013 the CFPB released the much anticipated mortgage rules under Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act impacting the mortgage market. These included rules relating to ability to repay, mortgage servicing, high-cost mortgages, loan originator compensation and escrows on higher-priced mortgage loans. At the time of release of these rules, CFPB Director Cordray alluded to an intent to release implementation guides to help servicers understand the “supervisory expectations.”1 On February 13, 2013, the CFPB rolled-out a preview of its plan. Specifically, the CFPB laid out five specific actions it plans to engage in over the next year to help the industry understand its “supervisory expectations.”

The CFPB’s plan for the year ahead includes its continued coordination with other federal regulators, plain language guides, updates to official interpretations, examination and compliance readiness guides and more consumer education. Overall the plan details are a bit sparse at this time, but they are more than sufficient to send a clear message of the CFPB’s plan to plow full steam ahead with its mission in the face of all of its critics.

But wait, ‘What about Noel Canning v. NLRB?’

The CFPB’s announcement may come as a surprise to many of the CFPB’s critics and the commentators on the D.C. Circuit Court’s January 25, 2013 opinion in Noel Canning v. NLRB. Why? In a nutshell, the Court in Noel Canning invalidated the recess appointments of three members to the National Labor Relations Board — appointments made on the same day and based on the same authority as the appointment of CFPB Director Cordray. As a result, many questions have been raised concerning not only the validity of Director Cordray’s appointment but many of the actions of the CFPB over the last year under his oversight, including the release of the most recent mortgage rules.

Simply put, Section 1066(a) of Dodd-Frank limited the Treasury Secretary’s initial authority to transferred authorities and not newly created authorities under Title X of Dodd-Frank. Those newly created authorities were specifically for a newly appointed Director who had been confirmed by the Senate. Further, Dodd-Frank makes clear that certain actions can only be taken by an appointed Director.3  Some of these actions include the prescription of rules and the issuance of orders and guidance pursuant to Dodd-Frank Section 1022, supervision of non-depositories, and activities to prohibit unfair, deceptive or abusive acts or practices.4

A quandary now exists.

So the quandary is this, the CFPB has an unconfirmed Director who has been acting on newly created authorities, and who may or may not be a properly appointed “Director” under Dodd-Frank. But this quandary does not appear to have slowed down the Bureau, and nor should it slow down the industry’s preparation for implementation of the Title XIV mortgage rules. At bottom, no one knows what, if anything, the United States Supreme Court will do with Noel Canning or whether Congress will try to strike a deal to prevent the already tired and taxed industry from further uncertainty.

And so the roll-out begins.

Regardless of all the controversy presently surrounding Noel Canning, the CFPB plans to implement five strategies this year, including:

  • Coordination with other federal regulators who also conduct examinations of mortgage companies to ensure they share the CFPB’s “understanding” of the new rules.
  • Publication of plain-language guides in both written and video form, which the CFPB believes will be particularly helpful to smaller companies with limited staff — to be available this spring.
  • Publication of updates to the official interpretations to provide guidance, with a focus on some of the more “important questions raised by industry, consumer groups, or other agencies.”
  • Publication of readiness guides to assist mortgage originators and servicers prepare for compliance with the new rules. It is also noted that new in-depth exam procedures will be published later this year by the Federal Financial Institutions Examination Council — these procedures can be used for “self-assessments” and “internal reviews” of readiness.
  • And the education of consumers concerning their new protections.

In the Meantime.

In an abundance of caution, most mortgage loan originators and servicers are moving forward and preparing to implement the Dodd-Frank Title XIV mortgage rules. The extent to which the CFPB’s five strategies will provide real guidance to them and provide answers to outstanding questions raised by them will not be known until they have been issued and analyzed.


1 See Prepared Remarks of Richard Cordray, Director of the Consumer Financial Protection Bureau, Mortgage Servicing Field Hearing, Atlanta, GA, January 17, 2013. up

2 See CFPB Press Release, Consumer Financial Protection Bureau Lays Out Implementation Plan for New Mortgage Rules, Bureau to Publish Plain-Language Guides, dated February 13, 2013. up

3 See Offices of Inspector General, board of Governors of the Federal Reserve System and Bureau of Consumer Financial Protection, Department of the Treasury, Review of CFPB Implementation Planning Activities, FRB OIG 2011-03, OIG-11-088, July 15, 2011. up

4 Id. up

5 See FN 2. up

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About this Author

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Gil Rudolph is co-chair of the National Financial Institutions Practice. His practice focuses on the representation of  finance companies, mortgage lenders and servicers, banks, title insurance companies and other consumer financial service providers in regulatory and litigation matters. Gil also represents various alternative financial service providers including payday lenders, check cashers, pawn and auto title lenders. Gil additionally represents various participants in the credit, debit, and stored value card issuance and processing industries.

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Scott Sheehan is a business lawyer with a national practice in banking and financial institutions, and consumer and commercial financial services.  He is known for his issue advocacy and development of legal strategies for the banking and consumer finance sector, and co-authors the Texas Usury Law Handbook by West Publishing. He focuses his practice on legal and public policy issues and innovative solutions,  including new product development, legal compliance, litigation, and issue advocacy in judicial, legislative, administrative, and arbitration proceedings.  Scott...

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