The Consumer Financial Protection Bureau (CFPB) has taken two notable steps that signal a new interest in regulating marketplace, or “peer-to-peer,” lending. The CFPB announced that it will expand its consumer complaint portal to accept complaints about marketplace lenders. Simultaneously, the CFPB released a consumer bulletin containing information and tips for consumers considering taking out a loan with a marketplace lender.

Marketplace lending now joins mortgages, student loans, auto loans or leases, payday loans, bank accounts and services, credit cards, prepaid cards, credit reporting, debt collection, money transfer or virtual currency, and payday loans as categories of financial services for which the CFPB accepts complaints. The consumer complaint portal has been and continues to be controversial in the financial services industry. The complaints are publicly available and not vetted or filtered by the CFPB for accuracy or veracity, although it scrubs personal information from the narrative and takes steps to confirm a commercial relationship between a consumer and a company. The financial services provider receiving a complaint is expected to submit an answer within 15 days if possible, and no later than 60 days.

In the spirit of the new year, we decided to take our Ouija board out of the attic and venture a few predictions for 2016 in financial services regulation. The financial regulatory agencies have been relatively quiet for the last few weeks, but we expect to see significant regulatory activity in 2016. So, we have consulted the spirit of FinReg Nostradamus and assembled a list of some of the regulatory actions that we expect to see this year.

  • Incentive Compensation Rules: The financial agencies’ 2011 proposed rules regarding incentive compensation were never finalized, and the agencies are reportedly engaged in discussions regarding the framework of the incentive compensation rules and intend to release a new proposed rule this year. Key issues that the new proposed rule will likely address include triggers for required clawback of compensation and the scope of clawback powers, mandatory compensation deferral requirements and time periods, and application of the rules to alternative compensation arrangements, such as carried interest.
  • Net Stable Funding Ratio: Although the Basel Committee on Banking Supervision (Basel Committee) finalized the net stable funding ratio (NSFR) standards of Basel III at the end of 2014, proposed regulations that implement the NSFR have yet to be issued by the US federal banking agencies. The agencies and industry representatives have been engaged in ongoing discussions with respect to the NSFR regulations. Considering the NSFR standards are required under Basel III to be fully implemented by January 2018, barring any unexpected delays, we should see proposed NSFR regulations in the first half of 2016.
  • Consumer Financial Protection Bureau (CFPB): A number of rulemakings from the CFPB are expected this year, including long-awaited rulemakings on debt collection and prepaid accounts. We also expect proposed rules on mortgage servicing and on short-term lending (e.g., payday and auto title loans) based on the framework that the CFPB released in 2015. Also on the CFPB’s regulatory agenda for 2016 are mandatory arbitration clauses, checking account overdraft programs, and larger participants in the consumer installment loan and title loan markets.

As the Consumer Financial Protection Bureau (CFPB) completes its fifth year as a fully operating entity in 2016, distinct enforcement patterns have emerged that can assist businesses and individuals that have or may become targets of the agency in assessing penalties and their impact should they elect to settle with the CFPB.

The CFPB’s Settlement Precondition Provisions

Key provisions required by the CFPB as a precondition for settlement deeply impact the bottom line result of a settlement and are different in material respects from those typically required by other federal and state financial services enforcement agencies. These key provisions include the following:

  • Prohibitions on the settling party (Respondent) claiming favorable tax treatment for monetary penalties
  • Prohibitions on the Respondent claiming any part of the monetary penalties against available insurance
  • Prohibitions against the Respondent asserting a setoff for payments made to the CFPB against any judgment in a related private action or, in the alternative, the payment of any such setoff to the US Treasury

The specific language is comprehensive, but will vary somewhat depending on whether the matter is a resolution in US District Court or in an administrative proceeding, as well as if the matter involves entities, individuals, or both.

The California Department of Business Oversight (DBO) has launched an inquiry into the increasingly popular marketplace lending industry. The stated purpose of the inquiry is “to assess the effectiveness and proper scope of [the DBO’s] licensing and regulatory structure as it relates to [marketplace] lenders.”

The DBO sent its online survey to 14 marketplace lenders and requested a variety of information, including the volume of business, types of loans, APR, delinquency rates, and investor funding or sale data. The survey requests data from January 1, 2010 through June 30, 2015. Responses to the survey are due by March 9, 2016. Although the DBO has not identified the 14 marketplace lenders that received the survey, reports confirm that the inquiry includes both consumer lenders and commercial and small business lenders.

The DBO’s inquiry follows the Department of the Treasury’s request for information earlier this year seeking public comments on marketplace lending. Given the growing popularity of marketplace lending platforms among consumers and small businesses, further regulatory interest and possible future regulatory action are likely.

Not every significant action taken by the federal banking agencies is accompanied by great fanfare. In this spirit, the FDIC has quietly issued a Financial Institutions Letter (FIL-59-2015) announcing revisions to its Compliance Examination Manual (Manual). The changes in question reflect FDIC and interagency supervisory guidance issued primarily over the past year.

Among the changes incorporated into the updated Manual are the following:

  • New guidance about the Matters Requiring Board Attention (MRBA) section of the Report of Examination (ROE)
  • Guidance on evaluating the impact of consumer harm on examination and supervisory activities, and a new "Assessment of Risk of Consumer Harm" (ARCH) that provides pre-examination planning and scoping guidance to FDIC examination staff
  • New and detailed guidance on retail sales of nondeposit investment and insurance products
  • Revised interagency examination procedures for the Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure (TRID) rule
  • Revised guidance on unfair and deceptive practices under the Federal Trade Commission Act
  • Updated templates providing examples of a consumer compliance ROE and a Community Reinvestment Act (CRA) Performance Evaluation for a hypothetical, FDIC-supervised bank

Although the Manual is published as guidance for the FDIC’s compliance examiner staff, it provides important information and insights to FDIC-supervised banks (state nonmember banks) on the FDIC’s current examination activities, priorities, and expectations regarding financial consumer protection compliance issues. Therefore, the revisions to the Manual should be required reading for these banks.

The Consumer Financial Protection Bureau (CFPB) has issued its latest monthly report summarizing complaints made by the public to the CFPB regarding bank account and service issues. The CFPB asserts that “many consumers are experiencing problems opening up and managing accounts, while other consumers found their accounts closed without explanation.”

According to the report, the three primary areas for complaints are as follows:

  1. Account opening: Consumers complain that they are unable to open accounts and are unable to determine why they are unable to do so.
  2. Access to funds: Consumers complain that their access to deposited funds is restricted.
  3. Disputing transactions: Consumers complain that it is difficult to dispute transactions and receive refunds or credits when a dispute is sustained.

The CFPB names the financial institutions that received the most complaints and provides many other metrics based on information in its Consumer Complaint Database.

On October 15, 2015, the Consumer Financial Protection Bureau (CFPB) released the anticipated final rule amending Regulation C, 12 C.F.R. part 1003, which implements the Home Mortgage Disclosure Act (HMDA).

HMDA and Regulation C have long required covered lenders to collect and report certain data about mortgage applications, which the federal government uses to assess a covered institution’s fair lending risk. The new rule, which is intended to implement amendments made to HMDA by the Dodd-Frank Act, makes several important changes to Regulation C. These changes include:

  • dramatically broadening the data that covered institutions must collect (around 25 new data points are added and around a dozen existing data points are modified);
  • effectively expanding the scope of covered non-depository institutions and slightly narrowing the scope of covered depository institutions through implementation of loan-volume thresholds for triggering application of Regulation C; and
  • modifying the scope of covered products.

The long-awaited and somewhat delayed TILA-RESPA Integrated Disclosure Rule took effect on October 3. The new rule requires mortgage lenders to use a new, integrated disclosure form and comply with new rules regarding disclosures and timing of the same.

Because of industry pressures, the Integrated Disclosure Rule’s implementation was delayed by two months (the original effective date was August 1). Despite industry concerns regarding the ability to comply with the new rule and possible delays that the new rule would cause for mortgage closings after October 1, the Consumer Financial Protection Bureau (CFPB) declined requests to further delay the rule. In a letter to the industry, CFPB Director Richard Cordray stated that the CFPB recognizes the “substantial resources” that the mortgage industry has had to dedicate to the conversion to the new disclosures, and in initial examinations, CFPB examiners will look for “good-faith efforts” to comply with the rule. According to Director Cordray, examiners will consider a mortgage lender’s

  • implementation plan, including actions to update policies and procedures;
  • training of appropriate staff; and
  • handling of early technical problems and other implementation challenges.

On September 29, four senators and 39 representatives sent a letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray expressing concern about the CFPB’s proposed rulemaking for prepaid accounts. (Read our LawFlash discussing the proposed rule.)

The letter specifically identifies four areas of concern:

  • The broad coverage of the proposed rule, which encompasses person-to-person transfers and other transactions where consumers might not necessarily expect protections similar to credit cards and other traditional financial products.
  • The requirement of multiple disclosures, and the lack of usefulness of the long-form disclosure.
  • The implementation deadline—requesting 24 months from the final rule’s publication date instead of the proposed nine-month implementation period.
  • The effect of the overdraft provisions and whether consumers would be better served by overdrafts that allow for “micro-credit” but are exempt from the requirements of Regulation Z.