NCUA’s Appraisal Threshold Increase to $1 Million for Commercial Real Estate Loans Set to Go into Effect

NCUA’s Appraisal Threshold Increase to $1 Million for Commercial Real Estate Loans Set to Go into EffectThe National Credit Union Administration’s (NCUA) new appraisal threshold rule for commercial real estate loans will go into effect on October 22, 2019. Under the NCUA’s new appraisal rule, credit unions will not be required to obtain an appraisal for commercial real estate transactions less than $1 million. The new rule sharply increases the appraisal threshold, which the NCUA previously set at $250,000.

As a basis for the increase, the NCUA noted that the appraisal rule had not been updated since 2001. Since that time, the rising values of commercial properties have resulted in a higher proportion of commercial real estate transactions requiring an appraisal, leading to increased burden in time and cost for credit unions. The NCUA, however, stressed that the appraisal rule balances safety and soundness concerns with necessary reductions in regulatory burdens to address credit unions’ rising costs.

In conjunction with raising the transaction amount threshold, the new appraisal rule also eliminates the prior rule’s categorical exemption from the appraisal requirement altogether for commercial transactions that are partially or fully guaranteed by a U.S. government agency or a sponsored agency. In addressing this change, the NCUA noted that most U.S. government guaranty and insurance programs currently require appraisals so the elimination of the exemption should not materially increase the burden on credit unions.

The new rule also requires credit unions to use their own judgment, “consistent with safe and sound lending practices,” to determine whether a full appraisal by a state-certified appraiser should be obtained for a given transaction that falls below the $1 million threshold. Even if a transaction falls below the $1 million threshold and a full appraisal is not obtained, written estimates of value from an independent third party are still required in many cases. The new rule strengthens the independence requirement for written estimates, requiring the person giving the written estimate to be unbiased and independent of the loan production and collection process.

Credit unions and credit union trade organizations praised the new rule for its potential to reduce regulatory burdens, reduce member costs, and increase access to credit. The NCUA noted in the text to the new appraisal rule that banks, however, submitted comments criticizing the rule for creating an “imbalance in the commercial real estate market between credit unions and banks.”  Banks are subject to a $500,000 threshold for general commercial real estate transactions, under regulations issued by the OCC, Federal Reserve, and FDIC.

The new appraisal rule may give credit unions an advantage to continue to increase their presence in the business lending market. Credit unions, however, should be careful to create adequate policies and procedures to address situations where safety and soundness concerns require an appraisal for transactions that fall below the $1 million threshold. A recent report on fraud in small and mid-size business lending revealed that fraud in small business lending impacts credit unions at twice the rate of larger banks.

Navigating ADA Compliance Issues in an Online World

Navigating ADA Compliance Issues in an Online WorldThe landscape remains murky as to whether and how Title III of the Americans with Disabilities Act (ADA) applies to websites. As the financial services industry moves increasingly and inexorably from a “bricks and mortar” presence to a virtual environment, these issues are likely to only become more prominent. With differing authority from courts across the U.S. and minimal guidance from the Department of Justice and financial services regulators, financial services companies, particularly fintechs, must navigate these thorny issues to best mitigate risk and serve their customers.

A recent example is Domino’s Pizza’s petition for certiorari to the Supreme Court. The Ninth Circuit held that the ADA applied to Domino’s website and app because the ADA mandates that places of public accommodation, such as Domino’s, provide auxiliary aids and services to make visual materials available to individuals who are blind. Even though customers primarily accessed the website and app away from Domino’s physical restaurants, the court stated that the ADA applies to the services of a public accommodation, not services in a place of public accommodation. According to the Ninth Circuit, Domino’s website and mobile application “connect customers to the goods and services of Domino’s physical restaurants,” which are places of public accommodation. The court reasoned that there was a sufficient “nexus” between the website and app and its restaurants since customers could use the website and app to locate a nearby store and order pizzas for delivery or in-store pick-up. Given that nexus, the ADA applied to the website and app.

The question presented in the petition for certiorari was: “Does Title III of the ADA require a website or mobile phone application that offers goods or services to the public to satisfy discrete accessibility requirements with respect to individuals with disabilities?” Domino’s urged the Supreme Court to grant certiorari to “stem a burdensome litigation epidemic.” The recent increase in litigation relating to ADA website compliance is fueled in part by the cross- jurisdictional uncertainty. Specifically, there is a split in the federal Court of Appeals over whether Title III imposes accessibility requirements on web-only businesses with no fixed location, as well as confusion over whether Title III imposes discrete accessibility requirements on websites maintained by businesses whose brick-and-mortar locations constitute ADA-covered public accommodations.

This cert denial may cause businesses to more carefully evaluate website accessibility concerns. However, even careful evaluation may result in an uptick in litigation due to the lack of clear federal standards for accessibility of websites and mobile apps. We will continue to report developments in this area.

Upcoming Webinar

If these are areas you would like to learn more about, we encourage you to join us for our “Navigating ADA Compliance Issues in an Online World?” webinar, which is scheduled for Tuesday, October 22, from 11:30 a.m. to 12:30 p.m. CT. This webinar will provide a case law update on these issues and offer practical tips to navigate compliance.

CFPB Issues Final HMDA Rule Offering Relief to Smaller Institutions and Credit Unions

CFPB Issues Final HMDA Rule Offering Relief to Smaller Institutions and Credit UnionsThe Consumer Financial Protection Bureau (CFPB) issued its long-awaited final rule amending the Home Mortgage Disclosure Act (HMDA) on Thursday, October 10. These changes promise to bring some measure of relief to smaller financial institutions and credit unions. Prior to this new rule, the CFPB did not require the collection and reporting of HMDA data for institutions originating less than 500 open-ended lines of credit until January 1, 2020. The new rule provides that this temporary collection and reporting threshold will be extended to January 1, 2022.

This rule follows a May 2019 advance notice of proposed rulemaking (ANPR) in which the CFPB would, along with extending the temporary reporting threshold for open-ended loans, temporarily raise the collection and reporting threshold for closed-end mortgage loans from 25 to 50 to 100 loans for 2018 and 2019. The ANPR would then ultimately lower the threshold to 200 open-end loans after January 1, 2022. While the final rule does not include the ANPR’s provisions related to closed-end loan collection and reporting requirements, it signals the CFPB’s intent to issue a separate rule addressing this issue.

Finally, the new rule implements certain exemptions for smaller financial institutions that were issued in 2018 pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). For instance, the rule specifies that some smaller insured depository institutions and credit unions have the option of reporting exempt data so long as all data fields within an exempt data point are reported. This clarification is designed to assist smaller institutions that may find it less burdensome to report all data points rather than institute policies and procedures to separate exempt and non-exempt data points before reporting.

To be sure, collection and reporting requirements under HMDA have increased both the costs and risks associated with consumer and some commercial lending. According to an October 15, 2019 joint comment to the CFPB by, among others, the American Bankers Association and the Mortgage Bankers associations, since 2008 the cost of originating mortgage loans for mid-sized banks has approximately doubled from approximately $4,800 to $9,000. Likewise, most institutions responding to the ABA’s annual Real Estate Lending Survey have reported higher compliance costs as a result of increased regulations. In a May 2019 statement, CFPB Director Kathleen Kraninger suggested that she was attuned to some of these concerns, stating that the proposed changes to HMDA collection and reporting requirements were designed to “provide much needed relief to smaller community banks and credit unions while still providing federal regulators and other stakeholders with the information [the CFPB] need[s] under the Home Mortgage Disclosure Act.”

We anticipate additional changes to Regulation C that will provide relief to small to medium-sized institutions. Nevertheless, HMDA’s collection and reporting requirements will continue to be a source of significant regulatory, litigation, and reputational risk. As such, all covered institutions should have in place easy-to-use policies and procedures, as well as training programs designed to guarantee accurate collection, reporting, and analysis of HMDA data.

Regulators Release Updated Examination Procedures for Acceptance of Private Flood Insurance

Regulators Release Updated Examination Procedures for Acceptance of Private Flood InsuranceThe final rule promulgated by the Board of Governors of the Federal Reserve (Federal Reserve), the Farm Credit Administration, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration, and the Office of the Comptroller of the Currency (OCC) went into effect on July 1, 2019, to implement the portion of the Biggert-Waters Flood Insurance Reform Act mandating regulated lending institutions to accept private flood insurance policies.

In response to the new rule, the Federal Reserve, OCC, and FDIC have each recently released updated examination procedures used by the agencies to review their respective regulated institutions. The press releases and updated examination procedures can be found at the following sites:

As detailed previously in Bradley’s Financial Services Perspectives blog, the various federal agencies expect lenders to conduct substantive reviews of private flood insurance policies, and this expectation is reflected in the updated examination procedures. The procedures provide guidance regarding the regulators’ expectations as to how institutions will implement the private flood insurance requirements. By way of example, the Federal Reserve’s updated procedures include the following guidance on examination objective and purchase requirements.

Examination Objectives:

  • To determine whether an institution performs required flood determinations for loans secured by improved real estate or a mobile home affixed to a permanent foundation.
  • To determine if the institution complies with the private flood insurance requirements of the regulation.

Purchase Requirements:

  • Analysis regarding the mandatory acceptance provision, including whether the policy contains the exact compliance aid language or whether the private flood policy meets the definition of “private flood insurance” set forth in the regulation.
  • If a private flood policy was accepted under the discretionary acceptance process, verifying that: (1) the policy provides a sufficient amount of insurance; (2) the policy is issued by an insurer permitted under the regulation; (3) the policy covers both the mortgagor and the mortgagee as loss payees; and (4) the institution determined that the policy provides sufficient protection of the designated loan, consistent with general safety and soundness principles; and (5) the institution documented its conclusion regarding sufficiency of the protection of the loan in writing.

Even with the additional guidance provided in the newly released examination procedures, there are still many open questions regarding how the agencies will interpret various requirements of the private flood insurance rules, particularly with respect to the rejection of any private flood policy. For example, the OCC exam procedure notes, “[c]consumer complaints can be a source of information about private flood policies that the institution did not accept.”

Lenders and servicers should implement a thorough procedure to ensure a complete and efficient private flood insurance policy review process. To the extent lenders and servicers utilize vendors to perform their private flood insurance review, the exam guidelines demonstrate that regulated institutions will bear responsibility for ensuring such vendors are providing private flood insurance review in compliance with the private flood rules.

The NCUA Doubles Amount Credit Unions Can Offer for Payday Alternative Loans

The NCUA Doubles Amount Credit Unions Can Offer for Payday Alternative LoansAt the September open meeting, the National Credit Union Administration (NCUA) voted 2-1 to approve the final rule related to expanding payday alternative loan options (PAL II). Although the NCUA made clear in the final rule that the PAL II does not replace the PAL I, the flexibility of the PAL II will create  new opportunities for borrowers to refinance their payday loans or other debt obligations under the PAL II lending model. Importantly, though, credit unions may only offer one type of PAL to a borrower at any given time.

The key differences between PAL I and PAL II are as follows:

Loan Type PAL I PAL II
Loan Amount

$200 Minimum;

$1,000 Maximum

No Minimum;

$2,000 Maximum

Loan Term

1 Month Minimum;

6 Month Maximum

1 Month Minimum;

12 Month Maximum

Membership Requirement Must be a member of Credit Union for 1 month before obtaining loan No membership time requirement
Overdraft or Non-sufficient Funds (NSF) Fees No Restrictions Cannot charge overdraft or NSF fees


Based on the NCUA’s discussion of the comments that it received, one of the hottest issues was the interest rate for the PAL II. For PAL I, the maximum interest rate is 28% inclusive of finance charges. The NCUA indicated that “many commenters” requested an increase in the maximum interest rate to 36%, while consumer groups pushed for a decreased interest rate of 18%. Ultimately, the NCUA elected to keep the interest rate at 28% for PAL II, explaining that, unlike the CFPB’s rule and the Military Lending Act, the NCUA allows collection of a $20 application fee.

PAL Volume Restrictions

The NCUA also discussed the current limitation that the total amount of a credit union’s PAL I loan balances cannot exceed 20% of the credit union’s net worth. The final rule makes clear that a credit union’s combined PAL I and PAL II loan balances cannot exceed 20% of the credit union’s net worth. This limitation faced criticism from those seeking an exemption for low-income credit unions and credit unions designated as community development financial institutions where payday loans may be more pervasive in the surrounding community. The NCUA declined to consider the net worth cap since it was outside the scope of the rule-making notice, but the NCUA indicated that it would revisit those comments in the future if appropriate. Of course, in light of the OCC recently taking comments on modernizing the Community Reinvestment Act (CRA), the NCUA will likely revisit lending issues for low-income credit unions.

CFPB Small Dollar Rule Implications

Finally, in response to several commenters, the NCUA made clear the impact of the CFPB’s Small Dollar Rule on PAL II. As covered in our two-part webinar, the CFPB’s Small Dollar Rule imposes significant changes to consumer lending practices. However, because of the “regulatory landscape” related to the CFPB’s Small Dollar Rule, the NCUA has opted to adopt the PAL II rule as a separate provision of the NCUA’s general lending rule. This places a PAL II under the “safe harbor” provision of the CFPB’s Small Dollar Rule.

PAL I Remnants

The NCUA also considered other changes to the structure of the existing PAL I but rejected those changes. In particular, NCUA retained several existing requirements from PAL I, including, among others:

  • A member cannot take out more than one PAL at a time and cannot have more than three rolling loans in a six-month period;
  • A PAL cannot be “rolled over” into another PAL, but a PAL can be extended if the borrower is not charged fees or extended additional credit, and a payday loan may still be rolled over into a PAL; and
  • A PAL must fully amortize over the life of the loan — in other words, a PAL cannot contain a balloon payment feature.


The NCUA clearly wants to encourage credit unions to offer PAL options. According to the NCUA, the December 31, 2017, call report indicated that approximately 518 federal credit unions offered payday alternative loans, with 190,723 outstanding loans at that time having  an aggregate balance of $132.4 million. In comparison, the CFPB has cited an analyst’s estimate that storefront and online payday loan volumes were approximately $39.5 billion in 2015.

Further, the NCUA is already considering a third alternative – the PAL III, noting in the final rule background that “[b]efore proposing a PAL III, the PAL II [notice of proposed rule making] sought to gauge industry demand for such a product, as well as solicit comment on what features and loan structures should be included in a PAL III.” These two payday loan alternatives could increase the market for Fintech-credit union partnerships to innovate underwriting and lending moving forward, provided credit unions take steps to ensure their Fintech partners are also in compliance with federal regulations. The new rule will become effective 60 days after publication in the Federal Register.

House Financial Services Committee Meets to Discuss Improvements to FHA HECM Program

House Financial Services Committee Meets to Discuss Improvements to FHA HECM ProgramThe U.S. House of Representatives Financial Services Subcommittee on Housing, Community Development, and Insurance convened a hearing on September 25, 2019, to discuss the federal Home Equity Conversion Mortgage (HECM) program, including recently proposed HECM legislation. The subcommittee hearing, titled “Protecting Seniors: A Review of the FHA’s Home Equity Conversion Mortgage Program,” included testimony from four witnesses. The witnesses were comprised of representatives from the National Consumer Law Center, the Urban Institute, the Government Accountability Office (GAO), and the National Reverse Mortgage Lenders Association (NRMLA). The hearing covered a range of topics, including discussion of proposed legislation, HECM servicing issues regarding foreclosures, and separating the HECM program from the Mutual Mortgage Insurance Fund (MMIF).

The first of two pieces of legislation discussed at the hearing included proposed legislation co-sponsored by Rep. Maxine Waters (D-CA), chairwoman of the U.S. House Committee on Financial Services, and Rep. Denny Heck (D-WA). The legislation focuses on adding borrower safeguards to the HECM program, including further protections for non-borrowing spouses. The proposed legislation also would require the Department of Housing and Urban Development (HUD) to submit an annual report to Congress identifying the amount of and reasons behind HECM foreclosures caused by defaults for failure to pay taxes and insurance premiums. The second piece of legislation, sponsored by Rep. Lacy Clay (D-MO), would conform the maximum loan limit for FHA-insured HECMs to match the area maximum loan limits for FHA-insured forward mortgages. In prepared statements, Peter Bell, president and CEO of NRMLA, testified that tying the maximum area loan limit for forward mortgages to HECMs would prevent some homeowners who have built up equity in their homes from accessing that accumulated equity.

The discussion on HECM servicing issues focused on changes to servicing practices and regulations to reduce certain foreclosure actions. Suggested changes consisted of servicing practice changes to better address defaults because of borrowers falling behind on paying property charges. The witness representing the GAO outlined that additional data collection from FHA on the reasons for foreclosure initiation could provide additional insight on how to further prevent foreclosures. The discussion of alterations to HECM servicing practices was especially timely because earlier in the week FHA announced changes to the Mortgagee Optional Election (MOE), including providing additional protections to non-borrowing spouses.

During the hearing, Rep. Joyce Beatty (D-OH) raised the topic of the financial health of the MMIF. As reported in the most recent report to Congress, the economic condition of the overall MMIF is sound, with a net worth of $34.86 billion. However, the HECM portfolio was determined to have a net worth of negative $13.6 billion. In a brief exchange, the representative from Urban Institute and Peter Bell of NRMLA both agreed that it would be appropriate to separate the HECM portfolio into its own insurance fund. According to the witnesses, separating the forward and reverse mortgage portfolios would allow each fund to be operated in a manner best suited to the type of mortgage portfolio.

Importantly, while the attendees at the hearing offered differing viewpoints on the various topics, there was wide-spread recognition by the hearing attendees of the importance of the HECM program and the value it provides to senior consumers. Additionally, various subcommittee members and witnesses recognized that important protections had been introduced into the HECM program in the wake of the 2008 recession. Perhaps because of the recognition of the improvements implemented to the HECM program, all of the testifying witnesses believed that additional improvements to the HECM program could reap benefits for borrowers. Based on the aging U.S. population, the HECM program will only continue to grow in importance for FHA.  Industry members should look to continue to grow their business with the increasing HECM program eligible population while staying aware of new requirements introduced by Congress and FHA.

FHA Tasked With Improving Reverse Mortgage Oversight

FHA Tasked With Improving Reverse Mortgage OversightThe U.S. Government Accountability Office (GAO) published two reports on September 25 identifying several weaknesses in the Federal Housing Administration’s (FHA) oversight of reverse mortgages made under the Home Equity Conversion Mortgage (HECM) program (see GAO-19-702 titled “FHA Needs to Improve Monitoring and Oversight of Loan Outcomes and Servicing”; GAO-19-721T titled “FHA’s Oversight of Loan Outcomes and Servicing Needs Strengthening”). Since 2014, the HECM program has seen a significant increase in the number of HECM terminations and foreclosures related to borrower defaults, i.e., a borrower’s failure to meet mortgage conditions such as paying property taxes or homeowner’s insurance. In turn, consumer advocacy groups have expressed concerns about the increase in HECM foreclosures, perceived problems with the management of foreclosure prevention options available to HECM borrowers, and the number of displaced seniors. To understand these issues, the GAO was tasked with analyzing the following: (1) what FHA data shows about HECM terminations and the use of foreclosure prevention options; (2) the extent to which FHA assesses and monitors the HECM portfolio; (3) the extent to which FHA and Consumer Financial Protection Bureau (CFPB) oversee HECM servicers; (4) how the FHA and CFPB collect, analyze and respond to consumer complaints about HECMs; and (5) how and why the market for HECMs has changed in recent years.

Between July 2018 and September 2019, the GAO analyzed FHA loan data and reviewed FHA and CFPB documents on HECM servicer oversight, including FHA and CFPB data on consumer complaints related to reverse mortgages. The GAO also interviewed agency officials, the five largest HECM servicers (representing 99 percent of the market), and legal aid organizations representing HECM borrowers. The GAO noted significant weaknesses in the FHA’s monitoring, performance assessment, and reporting for the HECM program. For example, the FHA’s loan data does not currently capture the reason for approximately 30% of HECM terminations. The FHA also has not established comprehensive performance indicators for the HECM portfolio and has not regularly tracked key performance metrics, such as reasons for HECM terminations and the number of distressed borrowers who have received foreclosure prevention options. Further, the FHA has not conducted on-site reviews of HECM servicers since fiscal year 2013 and has not benefited from oversight efforts by the CFPB because the agencies do not share information.

Ultimately, the GAO concluded the FHA lacks assurance that servicers are operating in a compliant manner and does not know how well the HECM program is serving its purpose of helping meet the financial needs of elderly homeowners. The following recommendations have been proposed for executive action:

  1. The FHA commissioner should take steps to improve the quality and accuracy of HECM termination data;
  2. The FHA commissioner should establish, periodically review, and report on performance indicators for the HECM program;
  3. The FHA commissioner should develop analytic tools, such as dashboards or watch lists, to better monitor outcomes for the HECM portfolio;
  4. The FHA commissioner should evaluate FHA’s foreclosure prioritization process for FHA-assigned loans;
  5. The FHA commissioner should develop and implement procedures for conducting on-site reviews of HECM servicers, including a risk-rating system for prioritizing and determining the frequency of reviews;
  6. The FHA commissioner should work with CFPB to complete an agreement for sharing the results of CFPB examinations of HECM servicers with FHA;
  7. The CFPB director should work with FHA to complete an agreement for sharing the results of CFPB examinations of HECM servicers with FHA;
  8. The FHA commissioner should collect and record consumer inquiries and complaints in a manner that facilitates analysis of the type and frequency of the issues raised; and
  9. The FHA commissioner should periodically analyze available internal and external consumer complaint data about reverse mortgages to help inform management and oversight of the HECM program.

Accordingly, HECM servicers should brace for additional on-site examinations by HUD, the CFPB, or both, in 2020, as well as additional scrutiny driven by consumer complaints.  Any HECM servicer facing an on-site examination should consult with experienced outside counsel to prepare for the examination, help manage the examination process, and address any issues that may arise during the course of the examination.

FHA Extends Non-Borrowing Spouse Protections

FHA Extends Non-Borrowing Spouse ProtectionsThe United States Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2019-15, in which it announced several modifications to the Mortgagee Optional Election (MOE) Assignment claim process for Home Equity Conversion Mortgages (HECMs) with FHA case numbers assigned before August 4, 2014. As background, the MOE is a foreclosure deferral program that provides FHA-approved lenders the option to allow certain non-borrowing spouses (NBSs) to remain in their homes following the death of the last surviving borrower. More specifically, the MOE provides mortgagees the ability to defer the due and payable status upon the death of the last surviving borrower and assign the HECM to HUD, where the HECM would not otherwise be assignable to HUD solely as a result of the death of the borrower (see Mortgagee Letters 2015-03, 2015-15 and 2016-05). The modifications that were outlined include:

  • Elimination of the MOE Assignment election and assessment deadlines, along with associated notification requirements;
  • Elimination of the 120-day timeframe for bringing current all property charges on a HECM that is subject to a pre-existing loss mitigation repayment plan;
  • Establishment of a 180-day reasonable diligence timeframe to initiate an MOE Assignment;
  • Elimination of the requirement for an NBS to obtain good and marketable title to the property that secured the HECM or demonstrate the legal right to reside in the property for life, and modification of related certifications and assignment criteria; and
  • Requirement for mortgagees to request information from borrowers to attempt to identify NBSs.

As an initial takeaway, MOE Assignments will no longer be time-barred. HUD has eliminated the requirement that assignments be made within 240 days of the last borrower’s date of death. Instead, mortgagees will now be subject to a reasonable diligence timeline to complete the MOE Assignment. Under the new rule, mortgagees will have 180 days from the last borrower’s date of death or the effective date of Mortgagee Letter 2019-15 (September 23, 2019), whichever is later, to complete the assignment within the reasonable diligence timeframe. MOE Assignments made after the reasonable diligence timeframe will be subject to debenture interest curtailment. More importantly, the FHA seems to be giving new life to previously time-barred claims, which should be welcome news for the reverse mortgage industry.

In light of Mortgagee Letter 2019-15, reverse mortgage investors and servicers would be well-advised to update their procedures and policies, re-evaluate previously time-barred claims, and consider any mitigating effect this may have on debenture interest curtailment.

The CFPB (Yes, the CFPB!) Offers New Compliance Tools for Innovation

The CFPB (Yes, the CFPB!) Offers New Compliance Tools for InnovationCompanies that offer innovative consumer financial products and services have new tools to help them stay in compliance with federal consumer financial laws. In a refreshing twist from prior policy, the Consumer Financial Protection Bureau (CFPB) announced last week that it had revamped its No-Action Letter Policy and released a Compliance Assistance Sandbox and a Trial Disclosure Program to help companies remain in regulatory compliance.

The Bureau Revises Its No-Action Letter Policy

In 2016, the CFPB introduced its first No-Action Letter Policy that would allow companies to seek a no-action letter from the CFPB if the company was unsure of whether a product or service complied with consumer financial laws. Unfortunately, the requirements for obtaining a no-action letter were too difficult and the relief offered was too limited. Indeed, during the past three years, only one company has successfully obtained a no-action letter from the CFPB.

Accordingly, the CFPB recognized the policy’s shortcomings and revised the policy to encourage more companies to apply, and receive, no-action letters. In its new No-Action Letter Policy, the CFPB made the following changes:

  • Expanded the scope of the policy. The 2016 policy was limited to only emerging products and services and was not available for well-established or hypothetical products. The old policy also included a strong bias against granting no-action letters for issues related to prohibitions on unfair, deceptive, or abusive acts or practices (commonly referred to as UDAAP). The new policy removes these restrictions and opens the policy to all products and regulatory issues.
  • Removed unduly burdensome and duplicative requirements. The CFPB removed several requirements to streamline the application process. For example, the previous policy required an applicant to provide a discussion of the consumer risk that its product posed in comparison to competing products. The CFPB found this requirement overly burdensome — especially since applicants do not readily have information regarding a competitor’s products — and eliminated this and other requirements.
  • Eliminated the need to show “substantial” benefits or uncertainty. Previously, the CFPB would only grant a no-action letter request if the product could provide “substantial” consumer benefits and was subject to “substantial” regulatory uncertainty. Now applicants need only show that there is a “potential” consumer benefit and that there is regulatory uncertainty or ambiguity.
  • Provided greater assurances. Under the old policy, CFPB staff issued the no-action letter, which could be modified or revoked at any time for any reason. Under the new policy, CFPB leadership will issue the letter with the “any time/any reason” language removed, and the CFPB will follow specific procedures if it is considering modifying or terminating a no-action letter.
  • No retroactive liability. As long as the no-action letter recipient substantially complies in good faith with the terms of the letter, the recipient will not face retroactive liability if the CFPB modifies or terminates the no-action letter.
  • Provided greater relief. The old policy stated that no-action letters would only last for a limited amount of time and would come with the expectation that no-action letter recipients will share data with the CFPB. The new policy removes both these limitations.
  • Decision within 60 days. The old policy made no commitment as to when, or whether, the CFPB would respond to a no-action letter application. The new policy specifies a 60-day timeframe for the CFPB to evaluate applications.
  • Included an alternative application process. If a trade organization wants to obtain a no-action letter on behalf of companies providing the consumer financial services, the trade organization may obtain a provisional “template” no-action letter. This letter may then be converted into a final no-action letter once the companies submit information to the CFPB about the product for which they are seeking the no-action letter.

The Compliance Assistance Sandbox

In addition to the new No-Action Letter Policy, the CFPB released a new Compliance Assistance Sandbox policy. The policy offers companies “the binding assurance that specific aspects of a product or service are compliant with specified legal provisions.” The features of the sandbox include:

  • Safe harbor for a specific consumer financial law. A company may apply to the CFPB for a statement that the proposed product or service is compliant with an identified federal consumer financial law.
  • No exemptions. Although the CFPB originally contemplated including exemptions from statutory and regulatory burdens, the sandbox as finalized only provides “approvals with respect to products, services, and practices that are compliant with identified statutory and regulatory provisions.” The CFPB intends to create an exemption framework under a new proposed legislative rule.
  • No-action letter joint application. Although the sandbox is not as robust as proposed, since an application for a no-action letter and the sandbox can be made jointly, the process for jointly requesting sandbox approval is relatively minimal.

Trial Disclosure Program

Finally, the CFPB is permitting experimentation with consumer disclosures through its “Revised Policy to Encourage Trial Disclosure Programs.” The CFPB hopes to encourage more trial disclosure programs than were conducted under the 2013 policy. Under this program, companies are given permission to utilize novel disclosures for a limited period. The finalized program includes:

  • Trial disclosures deemed compliant or exempt. The CFPB deems a program recipient to be in compliance with, or exempt from, identified federal disclosure requirements. Furthermore, as a result of such a determination, there is no predicate for a private suit or federal or state enforcement action based on the recipient’s permitted use of the trial disclosures within the scope of the program with respect to the identified federal disclosure requirements.
  • Coordination with other regulators. Recognizing that a disclosure graced by the CFPB may still face scrutiny under regulations other than those of the identified federal disclosure requirements, the CFPB intends to coordinate with federal and state regulators to secure a commitment not to initiate enforcement actions under other regulatory regimes with respect to the use of the trial disclosures.
  • Similar, but not joint, application process. Although the process for requesting a trial disclosure is similar to the applications for the other two policies, the CFPB does not seem to allow for a trial disclosure application to be included as part of an application for either a no-action letter or a Compliance Assistance Sandbox approval.

This news is refreshing. Companies that may have been reluctant to develop new products or new ways of providing products to their customers due to regulatory uncertainty now have a way to obtain certainty from the CFPB. The issuance of these three policies together shows that current CFPB leadership is open to innovation and is actively encouraging companies to apply for relief. If a company was hesitant under the older policies to apply, now might be the time to do it.

Lessons from the CFPB’s First Remittance Transfer Rule Consent Order

In 2010, Congress amended the Electronic Funds Transfer Act (EFTA) by creating “a comprehensive system of consumer protections for money sent by U.S. consumers to individuals and businesses in foreign countries.” In 2013, the CFPB issued the Remittance Transfer Rule to implement the EFTA’s new requirements and updated its EFTA exam procedures to incorporate the new rule. While the CFPB identified potential Remittance Rule Violations in several supervisory highlights (see Winter 2016 Supervisory Highlights, Summer 2017 Supervisory Highlights, and Winter 2019 Supervisory Highlights), it had not taken any Remittance Transfer Rule enforcement actions until last month when it entered into a consent order with Maxitransfers Corporation.

The CFPB alleged that Maxitransfers, a provider of international remittance transfers located in Irving, Texas, engaged in an unfair, deceptive, or abusive act or practice (UDAAP) and violated the Remittance Transfer Rule. Specifically, the CFPB alleged the following:

  • Maxitransfers’ disclosures stated that Maxitransfers would not be responsible for errors made by payment agents, when in fact the Remittance Transfer Rule specifies that a remittance transfer provider is liable for the errors of its payment agents;
  • Maxitransfers failed to maintain appropriate policies and procedures regarding the Remittance Transfer Rule’s error resolution requirements;
  • Maxitransfers failed to appropriately investigate and respond to alleged errors;
  • Maxitransfers failed to use appropriate terminology in its remittance disclosures; and
  • Maxitransfers failed to treat its international bill-pay services as remittances.

The CFPB required Maxitransfers to pay a $500,000 civil money penalty and alter the practices that resulted in the alleged violations.

The CFPB had previously identified several of the practices that formed the basis of the consent order as problematic in prior supervisory highlights. Remittance service providers should take this opportunity to review the Remittance Transfer Rule, consent order and past supervisory highlights to ensure they are EFTA compliant.

Upcoming Webinar

WebinarIf you would like to learn more about the remittance transfer rules or the Maxitransfers consent order, we encourage you to join us for our “Remittance Transfer Rules: Lessons from the CFPB’s Recent Action Against Maxitransfers” Webinar, which is scheduled for Tuesday, September 24, 2019, from 11:30 a.m. to 12:30 p.m. CST. Webinar login information will be provided one day prior to the event. Register for the webinar today.