The CFPB Finalizes Amendments to the Ability‐to‐Repay Rule

On May 29, 2013, the CFPB issued its final amendments to the Ability‐to‐Repay Rule.1 The amended rule will go into effect on January 10, 2014.

The new amendments provide certain exemptions to the Ability‐to‐Repay Rule for community development lenders and nonprofit lenders who make fewer than 200 home loans per year and loan to low and moderate income consumers. They also provide the same exemption to certain housing agencies.

The amendments also are intended to facilitate lending by smaller lenders who have less than $2 billion in assets and each year make 500 or fewer first‐lien mortgages. For example, the revised rule allows certain loans by these small lenders to still qualify as Qualified Mortgages even if a consumer’s debt‐toincome ratio exceeds 43 percent. Furthermore, these smaller lenders will be permitted to continue originating balloon loans to all customers for two more years, and in certain conditions, such loans can also still qualify as Qualified Mortgages.

Calculating loan origination compensation also changes under the revised rule. Specifically, the amendments provide that (i) compensation paid by a mortgage broker to a loan originator employee, and (ii) compensation paid by a lender to a loan originator, will both no longer count towards the points and fees cap set forth in Dodd‐Frank.

CFPB Continues to Expand and Increase the Capabilities of its Consumer Complaint Database

The CFPB announced that it has expanded its Consumer Complaint Database by, (i) adding a feature by which persons can search and sort information based upon the state where the complaint originated, (ii) including complaints about money transfers, and (iii) including complaints about credit reporting. CFPB Director Richard Cordray explained that the purpose of these and similar enhancements are to make the money transfers and credit reporting markets “more transparent and accountable to all consumers.”

The new state‐search option allows consumers to sort data by state. For example, consumers can now use the search feature to see the states with the most complaints concerning mortgages (New Hampshire), credit cards (District of Columbia), and bank accounts/servicing (District of Columbia).

In adding money transfers and credit reporting to the Consumer Complaint Database, the CFPB has enabled database searchability based upon the following common issues in these two industries:

Money Transfers:

  1. Money was not available when promised;
  2. The wrong amount was charged or received;
  3. There were incorrect/missing disclosures or information;
  4. Other transaction issues such as an unauthorized transaction, cancellation, or refund;
  5. Other service issues such as with advertising, marketing, pricing, or privacy; and
  6. Other fraud or scam issues.

Credit Reporting:

  1. Incorrect information on a credit report;
  2. Problems with a credit reporting company’s investigation;
  3. Improper use of a credit report;
  4. Not being able to get a credit report or a credit score; and
  5. Problems with credit monitoring or identity protection services.

Director Cordray Stresses the Importance of Financial Education

In his remarks to the FINRA Investor Education Conference on May 29, 2013, CFPB Director Richard Cordray noted that “consumers of all ages need sound information and advice to bolster their financial knowledge and capability.” Director Cordray implied the unreliability of the private marketplace in providing such information, stating that consumers “can look to the marketplace itself [for such information], but much of what they find there is likely to be skewed by the financial self‐interest of other parties.” Instead, he explained that the CFPB “intend[s] to make the Consumer Bureau itself a source for this kind of information . . . .”

To achieve this goal, Director Cordray highlighted a number of recent CFPB efforts, including the CFPB’s work with the FDIC’s MoneySmart Curriculum and the CFPB’s online “Ask CFPB” feature. He also stated that the CFPB continues to develop modules for use by consumers, such as the “Paying for College” resource that is already available on the CFPB’s website, http://www.consumerfinance.gov.

Director Cordray’s solutions, however, are not just geared toward adults. Instead, he again urged the integration of financial curricula into the nation’s schools. He recommended the inclusion of this subject into standardized tests to help motivate educators to teach these principles to students and therefore ensure pre‐exposure to some of the financial decisions children will be required to make as adults.

CFPB Brings Landmark Enforcement Action for Abusive Acts or Practices

Marking the first time the CFPB has prosecuted a covered person or service provider for engaging in “abusive acts or practices” under Sections 1031 and 1036 of Dodd Frank, the CFPB filed a six count Complaint and Stipulated Final Judgment on May 30, 2013 against American Debt Settlement Solutions, Inc. (“ADSS”) and its owner based upon alleged violations of the FTC’s Telemarketing Sales Rule and Title X of Dodd Frank.2 ADSS is a debt relief provider that restructures, modifies, or settles debt for consumers in exchange for payment of various fees.

Although the CFPB alleged that ADSS “engaged in deceptive acts or practices” by making various misrepresentations to consumers regarding the likelihood of successful restructurings, the enforcement action’s real significance comes from the CFPB’s additional allegation that ADSS engaged in “abusive acts or practices” by knowingly enrolling and collecting draconian enrollment fees from consumers who are unlikely to complete the restructuring program. In other words, ADSS was alleged to be collecting fees for these services, but failed to restructure, modify, or settle debt for 89 percent of its enrolled consumers.

This case is the first of what is sure to be an evolving scope of the prohibited “abusive acts or practices” that the CFPB will seek to prevent.

A more detailed Alert on this enforcement action is available here.