CFPB Takes Enforcement Action against Company Offering Deferred-Interest Credit Product

On December 10^th, the CFPB issued a consent order in which it ordered a company to refund $34.1 million to approximately 1 million consumers who purchased a deferred interest credit product that the company marketed to them at doctors’ and dentists’ offices as a means of financing the costs of consumers’ medical care.¹  The terms of the product provided for a promotional period during which consumers accrued but did not have to pay interest as long as they paid their balances in full by the end of the promotional period. If consumers failed to pay their balances in full during the promotional period, then they became liable for all of the interest that accrued during the term of the loan. In the consent order, the CFPB alleged that the company marketed its product deceptively in that it relied upon poorly trained and supervised administrative staff in medical offices to explain the terms of the product to consumers and to provide them with required disclosures. As part of the order, the CFPB will require a representative from the company to enroll consumers directly when they seek credit in excess of $1,000.

Regulators Issue Guidance on Social Media

On December 11^th, the CFPB, FDIC, FRB, NCUA, OCC, and the State Liaison Committee of the FFEIC issued joint guidance on the applicability of consumer protection and compliance laws, regulations, and policies to activities conducted via social media by banks, savings associations, credit unions, and nonbank entities subject to supervision by the CFPB.²  The guidance does not impose new requirements on financial institutions. Instead, it seeks to help financial institutions understand “potential consumer compliance and legal risks, as well as related risks such as reputation and operational risks, associated with the use of social media, along with expectations for managing those risks.”

CFPB Issues Revised TILA/HOEPA Thresholds for 2014

On December 11^th, the CFPB issued a final rule adjusting certain threshold amounts under the Truth in Lending Act and the Home Ownership and Equity Protection Act.³  The amounts are adjusted periodically based on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2013. The minimum interest charge disclosure thresholds will remain unchanged in 2014. The adjusted dollar amount for the penalty fees safe harbor in 2014 is $26 for a first late payment and $37 for each subsequent violation within the following six months. The adjusted statutory fee trigger for HOPEA loans is $632, effective January 1, 2014.

CFPB Releases Initial Arbitration Study Findings

On December 12^th, the CFPB released a preliminary report on its study of the use of arbitration clauses in connection with consumer financial products and services.⁴ The CFPB has been conducting this study of arbitration agreements as required by section 1028 of the Dodd-Frank Act. After conducting the study, section 1028 further provides the CFPB with the regulatory authority to prohibit or impose conditions or limitations on the use of arbitration agreements if the CFPB finds that such restrictions would be in the public interest and protect consumers.

According to the preliminary results of the study, the CFPB found that arbitration clauses are commonly used by large banks in credit card and checking account agreements and “that roughly 9 out of 10 clauses allow banks to prevent consumers from participating in class actions.” The study also indicated that although “tens of millions of consumers are subject to arbitration clauses in the markets the CFPB studied, on average, consumers filed 300 disputes in these markets each year between 2010 and 2012 with the leading arbitration association.”

The CFPB also noted the following results in its preliminary report:

• Larger institutions are most likely to use arbitration clauses;

• Arbitration clauses are more complex than the rest of the contract;

• Consumers do not choose arbitration over class action settlements;

• Consumers do not file arbitrations for small-dollar disputes; and

• To the extent that arbitration clauses permit consumers to litigate small-dollar disputes in small claims court, few consumers do so.

In the second phase of the CFPB’s study, the Bureau intends to look at a number of other areas. Among other things, the Bureau will study whether consumers are aware of the terms of arbitration clauses and whether arbitration clauses influence consumers’ decisions about which consumer products to purchase.

Final Supplemental Rule on HPML Appraisals

On December 12^th, the CFPB, FDIC, FHFA, NCUA, OCC, and FRB issued a supplemental final rule to the interagency Higher-Priced Mortgage Loans Appraisal (HPMLA) Rule, which was originally issued in January 2013.⁵  For certain mortgages with an annual percentage rate that exceeds the average prime offer rate by a specified percentage, the rule requires creditors to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used. The supplemental rule provides exemptions from the appraisal rule for the following transactions:

• Extensions of credit of $25,000 or less, indexed every year for inflation.

• Certain types of refinancings with characteristics common to refinance products often referred to as “streamlined refinances.”

• All loans secured in whole or in part by a manufactured home will be exempt from the HPMLA Rule for 18 months, until July 18, 2015. For loan applications received on or after July 18, 2015, the following applies:

• Transactions secured by a new manufactured home and land will be exempt from the requirement that the appraisal include a physical inspection of the interior of the property, but will be subject to all other HPMLA Rule requirements.

• Transactions secured by an existing (used) manufactured home and land will not be exempt from the rules.

• Transactions secured solely by a manufactured home and not land will be exempt from the rules if the creditor gives the consumer one of three types of information about the home’s value:

• The manufacturer’s invoice of the unit cost (for a transaction secured by a new manufactured home).

• An independent cost service unit cost.

• A valuation conducted by an individual who has no financial interest in the property or credit transaction, and has training in valuing manufactured homes.

Regulators Issue Statement on Effect of QM Lending on CRA Ratings

On December 13^th, the FRB, FDIC, OCC, and NCUA issued an interagency statement clarifying certain Community Reinvestment Act (CRA) considerations for financial institutions engaged in residential mortgage lending in light of the CFPB’s Ability-to-Repay and Qualified Mortgage (QM) Rule.⁶  Addressing concerns that originating predominantly QM loans could adversely effect financial institutions’ CRA evaluations, the agencies stated: “[T]he requirements of the Bureau’s Ability-to-Repay Rule and CRA are compatible. Accordingly, the agencies that conduct CRA evaluations do not anticipate that institutions’ decision to originate only QMs, absent other factors, would adversely affect their CRA evaluations.”

_{¹ The consent order is available here.}

_{² See the final interagency guidance here.}

_{³ See the final rule here.}

_{⁴ The results of the study are available here.}

_{⁵ See the supplemental final rule here.}

_{⁶ The interagency statement is available here.}