From overdraft to HMDA, rulemaking has new look at Mulvaney’s CFPB

May 16, 2018 4:56 PM

Acting Consumer Financial Protection Bureau Director Mick Mulvaney has overhauled the agency’s spring agenda, dropping several longstanding goals of his predecessor, including a rule on overdraft programs, checking accounts and student loan servicing.

Notably, Mulvaney also apparently scrapped plans to extend CFPB supervision to a wider group of nonbanks, such as large marketplace lenders.

The changes are yet another boon for corporations as Mulvaney seeks to reshape the agency.

"The bureau is considerably narrowing its footprint in the market," said Isaac Boltansky, director of policy research at Compass Point Research & Trading.

Following is a summary of where the CFPB is changing gears.

Long-term shift

The CFPB's agenda no longer includes any reference to a rulemaking for overdraft programs on checking accounts, student loan servicing or so-called “larger participants.”

Banks had preemptively opposed further efforts to crack down on overdraft programs, arguing that rules that took effect in 2010 which required customers to opt in to such programs had proven effective. But former CFPB Director Richard Cordray had continued to sound the alarm on overdraft, suggesting that customers weren’t necessarily aware of the risks involved.

That the agenda makes no mention of overdraft is a concrete sign Mulvaney is not interested in pursuing that course, which many had expected given his desire to ease regulations.

The CFPB also dropped mention of any reference to oversight of the $1.3 trillion student loan servicing industry. Mulvaney last week also stripped the student lending office of all its functions except consumer education.

Taken together, the moves show the CFPB is not likely to engage in rule writing or significant supervision of that area.

Finally, the CFPB dropped plans to release a larger participant rule to give it oversight of large installment lending firms, including marketplace lenders which are not directly subject to any federal supervision for consumer protection.

The move leaves the firms grappling with state-by-state regulation, but saves a potential headache from a federal regulator that might have sought to restrict such firms.

"CFPB supervision would have exposed [marketplace lenders] to potential greater liability for their compliance with federal disclosure and substantive laws, like the [Truth in Lending Act] and fair lending, and compliance costs in connection with gearing up for CFPB supervision," said Richard Horn, a former CFPB official and now principal at the law firm Garris Horn.

Mick Mulvaney, director of the Office of Management and Budget (OMB), listens during a Senate Budget Committee hearing in Washington, D.C., U.S., on Tuesday, Feb. 13, 2018. Mulvaney discussed the $4.4 trillion federal budget plan that would slash entitlements and other domestic programs in favor of higher spending on the military and immigration enforcement. Photographer: Zach Gibson/Bloomberg

Zach Gibson/Bloomberg

Acting Consumer Financial Protection Bureau Director Mick Mulvaney has overhauled the agency’s spring agenda, dropping several long-time goals of his predecessor, including a rule on overdraft programs, checking accounts and student loan servicing.

Notably, Mulvaney also apparently scrapped plans to extend CFPB supervision to a wider group of nonbanks, such as large marketplace lenders.

The changes are yet another boon for corporations as Mulvaney seeks to reshape the agency.

"The bureau is considerably narrowing its footprint in the market," said Isaac Boltansky, director of policy research at Compass Point Research & Trading.

Following is a summary of where the CFPB is changing gears:

Long-term shift

The CFPB's agenda no longer includes any reference to a rulemaking for overdraft programs on checking accounts, student loan servicing or so-called “larger participants.”

Banks had preemptively opposed further efforts to crack down on overdraft programs, arguing that rules that took effect in 2010 which required customers to opt-in to such programs had proven effective. But former CFPB Director Richard Cordray had continued to sound the alarm on overdraft, suggesting that customers weren’t necessarily aware of the risks involved.

The agenda’s lack of mention is a concrete sign that Mulvaney is not interested in pursuing that course, which many had expected given his desire to ease regulations.

The CFPB also dropped mention of any reference to oversight of the $1.3 trillion student loan servicing industry. Mulvaney last week also stripped the student lending office of all its functions except consumer education.

Taken together, the moves show the CFPB is not likely to engage in rulewriting or significant supervision of that area.

Finally, the CFPB dropped plans to release a larger participant rule to give it oversight of large installment lending firms, including marketplace lenders which are not directly subject to any federal supervision for consumer protection.

The move leaves the firms grappling with state-by-state regulation, but saves a potential headache from a federal regulator which might have sought to restrict such firms.

"CFPB supervision would have exposed [marketplace lenders] to potential greater liability for their compliance with federal disclosure and substantive laws, like the [Truth in Lending Act] and fair lending, and compliance costs in connection with gearing up for CFPB supervision," said Richard Horn, a former CFPB official and now principal at the law firm Garris Horn.

Home Mortgage Disclosure Act

The CFPB had already announced in December that it would reconsider certain aspects of the 2015 Home Mortgage Disclosure Act rule, which required firms to provide more data on home loans.

Under the revised agenda, the new reconsideration of the HMDA rule is expected to be issued in January 2019. As a result, firms will have to report the next round of HMDA data before CFPB issues its new rule.

The CFPB wrote in the agenda that reopening the rule "could involve such issues as the institutional and transactional coverage tests and the rule's discretionary data points."

Mulvaney's predecessor Richard Cordray had added roughly 25 new data fields to the existing 23 data fields required by the Dodd-Frank Act. The new fields would have collected data on borrower credit scores, mortgage loan terms and points and fees assessed on home loans.

Mortgage lenders have complained of the burden of the added, discretionary data but the industry also has balked at the collection effort itself, since consumer groups would be mining the data to identify lenders that may be discriminating.

Moreover, Congress is already poised to give a vast number of banks relief from HMDA, with the House expected to approve regulatory relief legislation next week that would, among other things, carve out an exemption for 85% of all banks and credit unions from any new HMDA data requirements.

Payday lending

The CFPB is revamping its rule to restrict small-dollar lending.

According to its agenda, it plans to issue the revised rule in February 2019, making it likely it will push off the effective date of that plan currently schedule for August 2019.

The rule written under Cordray "will face substantive structural changes that will dramatically lessen its impact on covered industries," Boltansky said.

Mulvaney is widely expected to gut the payday rule's core requirement that lenders determine a borrower's ability to repay a small-dollar loan of less than 45 days.

The rule also placed restrictions on lenders' ability to automatically withdraw payments from borrowers' accounts, and to rollover the loans repeatedly, in addition to record keeping and disclosure requirements.

The CFPB will have to provide a reasonable basis for eliminating the ability-to-repay requirement given that the rule was finalized in October on the basis of three years of research.

But the final rule had stopped short of regulating installment loans, so it is possible a new rule will refocus on disclosure requirements.

Payday lenders have been fighting the rulemaking for years, claiming it would force them out of business.

Mulvaney has been criticized for supporting the industry after dropping an inquiry into the installment lender World Acceptance Corp. and several online lenders associated with Indian tribes.

Debt collection

The CFPB's third-party debt collection rule is expected to be issued in the first quarter of 2019 and likely will be scaled back to focus primarily on communication practices and consumer disclosures, according to the CFPB's agenda.

Though Mulvaney has said that consumers file the most complaints with the CFPB against debt collectors, a third-party debt collection rule would likely reduce the legal liability of debt collectors and might even benefit recovery rates.

The CFPB already had split its debt collection proposal into two parts and issued the first federal regulations in July 2017 governing third-party debt collectors that are covered by the Fair Debt Collection Practices Act.

Those regulations are expected to be scaled back.

"A rulemaking under a Trump appointee is unlikely to demand the same degree of disclosure, validation and communication requirements as outlined in earlier proposals," Boltansky said.

Third-party debt buyers and collection agencies have said they want regulations that would require banks, credit card companies and other first-party creditors that are not subject to the FDCPA to substantiate the documentation of debts because it would make third-party collection easier.

Small-business data collection

As the enforcer of the Equal Credit Opportunity Act, the CFPB has partial oversight of small-business loans.

The CFPB's agenda lists "pre-rule" activities for small businesses, women and minority business lending, indicating that the bureau may convene a small business review panel by March 2019.

The CFPB is required by the Dodd-Frank Act to collect data on small businesses for fair-lending enforcement.

Congress has already identified specific pieces of information that should be collected, including the amount and type of financing applied for, the size and location of the business and the race, ethnicity and general of the principal small-business owners.

The CFPB has yet to release a proposal on its small-business data collection efforts. Last year, the U.S. Chamber of Commerce urged the agency to narrow its approach fearing it would add costs and compliance burdens.