Reading between the lines of CFPB’s regulatory to-do list

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The biggest news about the Consumer Financial Protection Bureau's rulemaking to-do list may not be the items topping the agenda — but what was left off of it.

The agency's recent spring rulemaking agenda includes significant items, including a new process for collecting small-business lending data as well as plans to update underwriting rules for loans backed by Fannie Mae and Freddie Mac.

But a year and a half after the Trump administration assumed leadership of the bureau, heralding a series of regulatory relief changes, some in the industry might have been expecting more from the latest report.

While the rulemaking agenda suggests some significant moves by the agency in the near future, it leaves out mention of other areas of interest, such as compensation standards for loan originators, a more complete revamp of the CFPB's "Qualified Mortgage" standard and additional industry requests to water down the Dodd-Frank Act.

Limiting the to-do list to areas such as addressing small-business data collection and the so-called Fannie and Freddie "patch" means the bureau may put off until fall a more comprehensive list of its future plans and priorities.

“The Bureau expects to communicate further information about future planning and priorities in the coming months,” the CFPB said in a blog post announcing the spring agenda on May 22. “In the meantime, this Spring 2019 Agenda reflects ongoing rulemaking activities, including initiatives to implement statutory requirements and to address the potential sunset of statutory and regulatory provisions.”

Here are key takeaways from the rulemaking to-do list.

CFPB's agenda has become more targeted under Kraninger

When the Trump administration initially assumed control of the agency — appointing then-acting Director Mick Mulvaney in late 2017 to succeed former chief Richard Cordray — it signaled its intention to rapidly overhaul regulatory policy at the agency.

Mulvaney quickly implemented staffing and operational changes, but he also began a top-to-bottom review of the agency's internal processes through a series of requests for public information to gather industry feedback on the agency's direction.

Director Kathy Kraninger has resumed much of Mulvaney's approach. Yet on the rulemaking side, it is unclear whether the RFI process will lead to wholesale changes.

And following recent proposals to overhaul Cordray's payday lending rule and set boundaries on how debt collectors can contact delinquent borrowers, the rulemaking agenda released earlier this month suggests the bureau will be more targeted in changing Obama-era regulations.

A rule on small-business loan data collection is a priority

The CFPB topped its list of priorities with a small-business data collection rule, perhaps responding to a March lawsuit by the California Reinvestment Coalition and Democracy Forward that say the agency has been too slow to require such data.

The data collection is similar to mortgage data collected under the Home Mortgage Disclosure Act, known as HMDA, that is used to identify discrimination in home loans.

A big reason the CFPB has put off a rulemaking is the difficulty of navigating various statutes, specifically the Equal Credit Opportunity Act’s prohibition on collecting race and gender information from small businesses.

Last year, Mulvaney said in a speech to the U.S. Chamber of Commerce that a rulemaking was “difficult to accomplish.”

“Small-business lending is different than credit cards, it’s different than large commercial banking — it’s hard to do,” Mulvaney said.

The two consumer advocacy groups have asked the U.S. District Court for the Northern District of California to require the bureau “to promptly issue a proposed and final rule … and begin collecting and publishing the required data.”

The groups allege in a lawsuit that the CFPB has “unlawfully withheld and unreasonably delayed” agency action on a rule, in violation of the Administrative Procedure Act.

In April, Kraninger announced a symposia series that would address future rulemakings and small-business loan data
collection was on the list.

The U.S. Chamber of Commerce has urged Kraninger to pursue the data collection rule because the Trump-appointed director may be more willing to tailor the rule to the industry’s liking.

Currently, banks and financial firms collect limited data on small-business lending decisions.

“This is like HMDA for small businesses, but no one really knows exactly what it should look like because it has to be built from the ground up,” said Ben Olson, a partner at the Buckley law firm and a former CFPB deputy assistant director. “It’s hard, it’s big and industry is wary of it.”

In addition, Andrew Smith, the director of the Federal Trade Commission’s bureau of consumer protection, has made small- business lending a focus as well.

The CFPB's blog post said the agency intends "to recommence work later this year to develop rules” to require that financial institutions collect, report and make public certain information concerning credit applications made by women-owned, minority-owned and small businesses. The bureau expects pre-rulemaking, typically by convening a small-business review panel, in the next year.

CFPB only going part of the way on changes to QM

Last year, Mulvaney raised the mortgage industry's hopes of a rollback of the agency's underwriting requirements, which provide a safe harbor to an ultrasafe class of loans known as qualified mortgages.

"Our duty is to look at unduly and overly burdensome regulations and our statutory interest is to see markets function,” Mulvaney said at an industry conference. “You’re going to see us try to bring some sanity to the larger market, including QM.”

But the latest rulemaking agenda appears to focus on Fannie and Freddie's "QM patch." Under a temporary policy that expires in January 2021, any loan backed by the government-sponsored enterprises has QM status.

The CFPB likely put the GSE patch at the top of its agenda because Congress and the Federal Housing Finance Agency have heightened their focus on broader reform plans for Fannie and Freddie. The mortgage giants' QM exemption sunsets either by the 2021 deadline when the GSEs' federal conservatorships end, whichever happens first.

"The Bureau is now focusing its attention on a regulatory provision .... that extends qualified mortgage status to loans that are eligible to be purchased or guaranteed by either Fannie Mae or Freddie Mac ... while they operate under Federal conservatorship or receivership," the CFPB said in the blog post.

However, the agency still left open the possibility of doing more. "After further policy analysis on this issue, the Bureau will determine whether rulemaking or follow up activity is appropriate concerning the patch or other aspects of the ATR/QM rules," the CFPB said.

Most experts believe Kraninger has indicated a willingness to simply extend the GSE patch.

When the CFPB issued its Qualified Mortgage rule in 2014, the expectation was that Congress would have found a way to take Fannie and Freddie out of conservatorship. But that hasn’t happened, forcing the CFPB to determine whether to extend the patch. Nearly a third of GSE-backed loans enjoy the exemption even though they exceed a 43% debt-to-income limit for non-GSE QM loans.

With the current credit cycle is in its late stage, it is unclear whether officials want to take responsibility for any disruption to the mortgage market by allowing the GSE patch to expire. Many believe doing so would plummet the mortgage industry into uncertainty given its symbiotic relationship with the government.

At the same time, Kraninger may be willing to address Appendix Q, a little-known but related mortgage regulation that involves documenting and calculating a borrower’s income and debt to determine whether the loan qualifies for QM status.

For years, mortgage lenders have sought to ease the requirements in Appendix Q claiming it excludes too many self-employed borrowers from getting home loans.

The issue is compounded because the CFPB’s leadership is dominated by political appointees with little experience in the mortgage industry.

Policy changes for HMDA, remittances and PACE loans also on the agency's radar

The CFPB also is working on a number of others rulemakings related to the Home Mortgage Disclosure Act, remittance transfers and Property Assessed Clean Energy Loans.

In May, the CFPB said it is looking to permanently raise the HMDA reporting threshold for closed-end mortgage loans to either 50 or 100 closed-end loans in the previous two years, up from the current 25-loan threshold.

On remittance transfers, the CFPB issued a request for information in April on two aspects of its remittance rule that requires the disclosure of exact exchange rates, fees and the amount expected to be delivered in international money transfers. The bureau is determining whether to change the number of remittances a provider has to make to be bound by the rule, among other issues.

The bureau in March said it would issue a proposal on green energy loans that finance home upgrades such as solar panels or cooling and heating systems. The CFPB is seeking public comment on a plan to apply the Truth-in-Lending Act’s ability-to-repay requirements and civil liability provisions to the financing of PACE loans.

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