2015 Northwest Compliance Conference 2015 National Update: More new- and regulations-from Washington DC October 1, 2015 Nessa Feddis American Bankers Associatio n
Washington Update • Mood in Washington • Fair Credit Reporting Act • Military Lending Act • Small dollar loan • Prepaid Card proposal • UDAAP • Fair Lending • Miscellaneous • Debt collection • Arbitration • Regulation CC
Regulator’s Perspective • Bureau dominates but is not alone • Consumer centric • Consumer understanding • Behavior focus • Beyond how people think and act • Using regulations to influence products and consumer behavior • Opt in and default • Cooling off periods • “ability to repay” requirement • Summaries of costs or other new calculations
Regulator’s Perspective • Reliance on press • Press statement not supported by own data or underlying document • Embargoed so reporters only have one side of story • Enforcement as tool to “send message,” “public deterrents” • Statutory and legal authority unnecessary
FCRA • Bureau focus • CRAs (including Chex) • Furnishers • Areas of focus • Accuracy • Dispute resolutions • Compliance process
Accuracy • Seem appropriately focused on “material” error • Debt collectors appear to be biggest problem
Dispute Process • Few complaints about small banks • Transmitting documents through E-Oscar • What are banks doing with the documents? • What are banks doing regarding training staff to review documents? • Includes documents dealing with other creditors. Need to protect. • Is there up-tick in credit repair or other frivolous complaints? • Bulletin (http://files.consumerfinance.gov/f/201309_cfpb_bulletin_furnishers.pdf)
Credit Scores • Conducting credit variance study • New credit scoring models • Reduced weight of medical records and public records • How will regulators view creditors using older models? • Looking for inclusion • Looking for disparate impact
Deposit Account Reporting Agencies • Negative database • Reports of accounts closed for cause • Fraud • Mismanagement • Regulators view differently • Does bank review whether fraud or mismanagement? • How define “fraud”? • Should there be de minimus threshold? • About inclusion
Attorneys General Settlements with CRAs • Focus • Accuracy of information in reports • CRA’s practices regarding disputes • Reporting of medical debt
Attorneys General Settlements with CRAs • Settlement with CRA, but implication for furnishers • Retirement of Metro 1 data reporting format • Authorized users must report date of birth • Working Group to establish minimum standard to match data to consumer • Two disputes permitted if additional documentation • Enhancement of e-OSCAR furnisher certifications and terms of use • Emphasize compliance with furnishers’ obligations under FCRA • Reinforce obligation to review documents • Incorporate regulatory guidance from Bureau re handling of disputes
Attorneys General Settlements with CRAs Furnisher Monitoring Working Group • ID best practices/data quality metrics for monitoring furnishers • Report on rates of consumer complaints, furnisher disputes and responses, and dispute outcomes (by industry, not by individual furnisher) • Corrective action when a furnisher fails to comply with obligations regarding furnishing data and investigating disputes
Military Lending Act • Final amendments to MLA regulation • Published July 22, 2015 • Highlights • Expands types of loans covered • Imposes 36% “MAPR” • Imposes other significant restrictions • Requires lender to verify military status with DOD database or consumer reporting agency • Significant penalties for violations
Military Lending Act • Mandatory compliance date: • October 3, 2016 • October 3, 2017 for credit cards. Secretary may extend an additional year • ABA Staff analysis – (http://www.aba.com/Compliance/Mem/Documents/MLA-final-rule- staff-analysis.pdf)
Military Lending Act Background : • Passed in 2006 • Based on 2006 DOD Report and intended to address problems military personnel and families had with: • Payday loans • Auto title loans • Tax refund anticipation loans Current Rule Covers Closed-end Loans: • Payday loans of $2,000 or less with a term of 91 or fewer days • Car title loans with a term of 181 or fewer days • Tax refund anticipation loans
Military Lending Act Major provisions of the final rule: • Covers all consumer credit (except mortgage loans and purchase money loans) including: − Credit cards − Overdraft lines of credit − Small $ loans (with narrow exception) − Loans to refinance a car or personal property (except for loans from insured depository institutions) − Personal loans • Like the existing rule, covers active duty service members and their spouses and dependents • Creates new “military” APR (MAPR)
Military Lending Act Limitations under Rule: • 36 percent military annual percentage rate (MAPR) cap − Includes finance charges, application and “participation” fees, and fees for credit - related “ancillary” products − Requires “effective” or “historical” MAPR for open -end
Military Lending Act Exclusion of “bona fide” credit card fees from MAPR • “Bona fide” fees must be reasonable • Compare fees “typically” imposed for “the same or a substantially similar product or service.” • That no other credit card issuer charges the fee does not per se mean it is not reasonable • If any fee charged is not bona fide, none may be excluded
Military Lending Act Participation fees may be reasonable: • If the amount reasonably corresponds to: − Credit limit − Services offered − Other factors relating to the credit card account. • Does not address how annual fee might correspond to interest rate
Military Lending Act Other prohibitions: 1. Prepayment penalties 2. Waiver of right to legal recourse “Other” onerous legal notice if dispute 3. 4. Unreasonable notice as a condition for legal action 5. Liquid secured credit 6. Arbitration 7. Requirement to repay by allotment 8. Refinancing or renewing with same creditor (with exceptions) 9. Vehicle title loans (with exceptions)
Military Lending Act Disclosure Requirements: • Contents: − Statement of MAPR (model language) − Reg. Z disclosures − Clear description of payment obligation • Form − Written for all − Oral for MAPR statement and payment obligation and initial disclosure − Oral may be provided through 800 number on application form or required disclosures • Timing -- Before or when borrower becomes obligated or establishes an account
Military Lending Act Identification of covered borrower: • Eliminates safe harbor based on borrower’s declaration • Safe harbor: − Assessing the MLA database “directly or indirectly” − Using information from nationwide consumer reporting agency − May make determination 30 days prior to time consumer establishes an account
Military Lending Act Penalties: • Criminal penalties • Voidance of contract • Private right of action and civil liability • Costs of the action • Regulation Z violations also MLA violation
Military Lending Act Issues : • Having an interest rate under 36% doesn’t solve problem − Particular problem for: • Open-end credit • Small-dollar loans • Other limitations – unresolved • Options: − Conform all covered products, if possible − Eliminate products not covered − Deny access to covered borrowers • Accessing the database
Prepaid Proposal • Released November 13, 2014 • Published December 23, 2014 • Comments due March 23, 2015 • Follow ANPR
Prepaid Proposal • Even if do not offer prepaid cards • Vague definition may cover products • Restrictions on credit and overdraft services for any covered product
Prepaid Proposal Prepaid cards: • Distinction from other covered accounts is unclear . • Any account not otherwise covered which is “either issued on a prepaid basis in a specified amount” or not issued on a prepaid basis but “capable of being loaded” thereafter • Is “redeemable” upon presentation of multiple, unaffiliated merchants for goods or services, usable at ATMs or usable for p-to-p transactions. • Excludes gift cards • Includes payroll cards and government benefits cards (already covered under Reg E)
Prepaid Proposal: Disclosures • “Short - form” and “long - form” • For branches – both provided before purchase • For retail stores – not branches • “Short - form” – must be available before purchase • “Long form” – if information is available on web or on phone • Required formats, tables, minimum fonts • Separate requirements if oral or by phone
Prepaid Proposal: Periodic statement “light” • Statement alternative: No statement if: • Balance available by phone • Electronic hx available for prior 18 months (was 60 days) • “Written” history available for prior 18 months • Summary of total of fees, deposits, and debits by month and year to date
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