Compliance Blog

Consumer Compliance Outlook Publishes Third Issue of 2021

The Philadelphia Federal Reserve issues a quarterly Consumer Compliance Outlook that reviews promulgated rules that may have an impact on the financial services industry. The issues discussed in the third quarter’s outlook are as follows:

  • Consumer Privacy—Overview of Federal Consumer Privacy and Security Laws for Financial Services
  • Regulation X—Mortgage Servicers’ Duties Under Regulation X to Respond to Notices of Error and Requests for Information
  • Regulation X—Temporary Rule Under Regulation X to Help Mortgage Borrowers Affected by the COVID-19 Pandemic
  • Regulation Z—Temporary Qualified Mortgage for Government-Sponsored Enterprise Loans Effectively Ended in July

Overview of Federal Consumer Privacy and Security Laws for Financial Services

In a recent Pew Research Center survey, 79 percent of consumers said they were concerned about how a company used their personal data. The Consumer Compliance Outlook has provided an overview of privacy and security requirements a financial services company is required to follow when handling consumer data. Several of the laws discussed are the Gramm-Leach-Bliley Act (GLBA), the Fair Credit Reporting Act (FCRA), the Senior Safe Act, and the Right to Financial Privacy Act. The article also suggests how these laws such as the FCRA and GLBA interact with each other.

Mortgage Servicers’ Duties Under Regulation X to Respond to Notices of Error and Requests for Information

A mortgage servicer has a duty under Regulation X to respond to notices of error and requests for information made by a consumer. The article suggests an important step in the information-gathering process is, therefore, to determine “whether a borrower’s written communication is an error notice, information request, or both” because the issue may be different than what is described in the written request. The article emphasizes the servicer should look at the substance of the communication to understand the issue.

The compliance alert also examines the error resolution requirements under § 1024.35, such as the types of error notices covered by the regulation and the investigative time frame established to fix the error. In addition, the article details a mortgage servicer’s obligations to comply with requests for information under § 1024.36. The rule asks a servicer to comply with any written request related to mortgage servicing that contains: (1) the name of the borrower; (2) information that enables the servicer to identify the borrower’s mortgage loan account; and (3) information the borrower is requesting. The Consumer Compliance Outlook indicates servicers may see an increase in error notices or information requests from borrowers as COVID-19 continues and foreclosure forbearances and moratoriums expire.

Temporary Rule Under Regulation X to Help Mortgage Borrowers Affected by the COVID-19 Pandemic

Over the pandemic, the Consumer Financial Protection Bureau (CFPB) and other federal banking regulators have promulgated several rules to help consumers. In the second quarter of 2021, the CFPB promulgated a temporary rule, effective on August 31, 2021, with the aim of establishing temporary procedures to make sure borrowers have an opportunity to be reviewed for loss mitigation before a mortgage servicer can file for foreclosure on certain types of mortgages. In the rule’s promulgation, the CFPB expressed concern borrowers would seek assistance from servicers at approximately the same time this fall, resulting in delays and errors because of the high volume of inquiries and applications. The CFPB also believed conditions created by the pandemic would impact a consumer’s ability to obtain and understand information the existing rule generally provides to the consumer. Consequently, the temporary rule includes five amendments to Regulation X to help borrowers and servicers avoid foreclosure proceedings because of pandemic-related events.

Temporary Qualified Mortgage for Government-Sponsored Enterprise Loans Effectively Ended in July

In 2020, the CFPB altered the qualified mortgage (QM) rules and moved from the DTI-based general definition QM to a general definition QM that was price-based, meaning that it looked at the APR on the loan. In making that change, the CFPB also changed the sunset date of the temporary QM for government-sponsored enterprise loans (QM Patch). The QM Patch was designed to help lenders transition to the origination of general definition QMs by permitting certain loans sold to the GSEs to qualify for the benefits of a QM (e.g., the conclusive or rebuttable presumption that the mortgage loan satisfied the ability-to-repay rules in section 1026.43). The CFPB established the QM patch to avoid “disrupting the mortgage market’s recovery from the financial crisis” as the article suggests.

Initially, the QM patch was to sunset on January 21, 2021. The article indicates the CFPB extended the sunset date to October 2022 because it was tied to the mandatory compliance date of the new price-based general definition QM. While the CFPB extended the sunset date of the QM Patch to October 2022, the article explains that the GSEs inability to purchase these types of loans after June 2021 has effectively killed off the QM Patch.

NAFCU Resources

Over the past 18 months, NAFCU has written and compiled several resources on some of the regulations discussed above. I have included some of the resources below.

Generally, the Consumer Compliance Outlook provides a comprehensive overview of rules and some practical compliance considerations in these areas. Compliance officers tasked with reviewing these topics may find the full article helpful.

About the Author

Justin White, Regulatory Compliance Counsel, NAFCU

Justin White, NAFCU-Regulatory-Compliance-Counsel

Justin joined NAFCU as a regulatory compliance counsel in August 2021. As part of the Regulatory Compliance Team, he provides daily compliance assistance to member credit unions on a variety of topics.

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