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Hot Topics Roundtable:Preemption and CFPB Developments

Mortgage Bankers Association

Regulatory Compliance ConferenceWashington, D.C.

September 25-27, 2011

SL1 1101045 v1

Jed Mayk

Stevens & Lee, P.C.

[email protected]

610-205-6043
mailto:[email protected]:[email protected]


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Topics Covered

OCC Preemption Developments

Revised AMTPA Preemption

CFPB Developments

Combined TILA/RESPA Disclosure

CFPB Administrative-related Rulemakings

Ex partePresentations


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OCC Preemption Developments

Dodd-Frank, Section 1044: A state consumer

financial law is preempted for national banks (and

federal thrifts) only if

The law would have a discriminatory effect on anational bank vis a visa state-chartered bank;

In accordance with the legal standard forpreemption in Barnett Bank, the law preventsor significantly interferes with a national banks

exercise of its powers; or

The state consumer financial law is preempted

by other federal law Note: Federal banking law on the charging of

interest is not subject to this test


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OCC Preemption Developments (contd)

On July 21, 2011, the OCC issued a final rule

amending existing 12 C.F.R. 34.4. See 76 Fed.

Reg. 43549 (Jul. 21, 2011)

The amendments add a specific reference to Barnett

Bank, but not to the prevents or significantly

interferes language in Section 1044

The amendments also delete the obstruct, impair,

or condition language from prior Section 34.4(a),

which lists categories of state laws that are

inapplicable to a national bank


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According to the OCC

As used in Section 1044, the legal standard forpreemption in Barnett Bankis conflictpreemption

The reference in Section 1044 to prevents orsignificantly interferes is a touchstone in the

conflict preemption analysis, rather than anindependent, stand-alone preemption standard

A conflict preemption analysis can be statelaw-specific, or it can apply to provisions orterms in multiple states laws that present the

same type of conflict


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The OCC re-reviewed the categories of lawslisted in Section 34.4(a) to confirm thatpreemption of those types of laws is consistentwith Barnett Bankconflict preemption

The obstruct, impair, or condition language was

removed from Section 34.4(a) to avoid confusionand misunderstanding, and to place the focus onBarnett Banks conflict preemption analysis asthe proper standard

While any prior preemption determination that

relied exclusively on the obstruct, impair, orcondition language would have to be

reexamined, the OCC has not identified anyOCC-issued preemption determinations basedsolely on that language


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The requirement in Section 1044 that a BarnettBankpreemption finding be made on acase-by-case basis applies only to post-July 21,2011 preemption determinations; and, moreover,even then categorical preemption determinations

are permitted after proper consultation with theCFPB


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State regulators, consumer groups and others have

expressed disagreement with the OCCs position

Courts will have to decide who is right

Baptista v. J.P. Morgan Chase Bank, N.A., 640 F.3d

1194 (11th Cir. 2011) (it is clear that under the

Dodd-Frank Act, the proper preemption test asks

whether there is a significant conflict between the

state and federal statutes that is, the test for

conflict preemption)


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The final rule also

Removed 12 C.F.R. 7.4006, which gaveoperating subsidiaries the same preemptiverights as the parent national bank, and

Amended the visitorial powers regulation(12 C.F.R. 7.4000) to codify the Supreme

Courts decision in Cuomo(i.e., state officialscan sue national banks to enforce applicablelaws, but cannot conduct non-judicialinvestigations or other oversight activities)


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Revised AMTPA Preemption

For transactions entered into on and after July 22,

2011, the availability of AMTPA preemption has

been narrowed

Section 1083 of Dodd-Frank amended 12 U.S.C.

3802(1) to limit the definition of an alternative

mortgage transaction to a loan where the interest

rate or finance charge maybe adjusted or

renegotiated

Fixed-rate loans that were previously considered

AMTs (e.g., a fixed-rate loan with an interest-only payment period or a neg am feature) are nolonger AMTs


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Revised AMTPA Preemption (contd)

Section 1083 also amended 12 U.S.C. 3803(a) to

provide that the CFPB has rulemaking authority for

AMTs made on and after July 22, 2011

Finally, Section 1083 amended 12 U.S.C.

3803(c) to limit AMTPA preemption to state laws

that prohibit AMTs, and further provides that state

laws that regulate mortgage transactions generally,

including state law limits on PPPs and late fees, do

not prohibit AMTs


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On July 22, 2011, the CFPB issued an interim final

rule, effective immediately, to implement the

changes to AMTPA. See76 Fed. Reg. 44226

(Jul. 22, 2011)

Creates a new Regulation D, 12 C.F.R. Part 1004


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Under the interim final rule

Shared equity/appreciation loans and fixed-rateballoon loans where there is a commitment torenew are still considered AMTs (CFPB relies, inpart, on characterization of such loans asvariable rate transactions under Regulation Z)

AMTPA preemption applies both to state lawsthat expressly prohibit the making, purchase orenforcement of AMTs and to state laws thatrestrict the ability of the lender to adjust orrenegotiate an interest rate or finance charge or

to change the amount of interest or financecharges in a regular payment as a result of theadjustment or renegotiation


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Under the interim final rule

Specific rules are provided on rate/financecharge changes and renegotiations; these mustbe followed in order to use AMTPA preemption

Commentary gives examples of preempted and

non-preempted state laws State law limits on how much/frequently rates

can increase are preempted

State law requirements that a loan beunderwritten using the maximum contractual rate

are preempted State law restrictions on increasing the interest

rate due to a late payment are not preempted

State disclosure laws are not preempted


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CFPB Developments Combined TILA/RESPA

Disclosure

On September 12, 2011, the CFPB released its

fourth set of prototype forms intended to combine

TILA and RESPA origination disclosures

Required by Dodd-Frank, Section 1032(f)

Rules and model disclosures must be proposed for

public comment no later than July 21, 2012


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CFPB Developments Administrative-Related

Rulemakings

On July 21, 2011, the CFPB issued a final list of the

enforceable rules of other federal agencies that are

transferred to and will be enforced by the CFPB.

See76 Fed. Reg. 43569 (Jul. 21, 2011)

CFPB also noted that it will continue to apply related

official commentary, guidance and policy statements

from a transferor agency with exclusive rulemaking

authority for the law in question, pending further

CFPB action


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Rulemakings (contd)

On July 28, 2011, the CFPB issued four interim final

rules covering

The procedures for disclosing and keepingconfidential CFPB records and informationobtained through investigations and other means(76 Fed. Reg. 45372)

Procedural rules for administrative proceedingsbrought by the CFPB to ensure or enforcecompliance with rules and statutes under itsauthority (76 Fed. Reg. 45338)


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Rulemakings (contd)

On July 28, 2011, the CFPB issued four interim final

rules covering

Procedural rules for CFPB investigations(76 Fed. Reg. 45168)

Procedures that a state attorney general orsimilar state official must follow to notify theCFPB before initiating any action or proceedingto enforce any provision of Dodd-Frank Title X orrelated regulations (76 Fed. Reg. 45174)


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CFPB Developments Ex Parte Presentations

On August 16, 2011, the CFPB released Bulletin

11-3, which requires public disclosure of oral or

written ex partepresentations to the CFPB in

connection with rulemakings

Subject to certain exceptions, an ex parte

presentation is defined as any oral or written

communication by a person outside the CFPB that

imparts information or argument directed to the

merits or outcome of a rulemaking proceeding

Essentially, these are communications with theCFPB other than formal written comment letterssubmitted to the rulemaking docket


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CFPB Developments Ex Parte Presentations(contd)

An ex partepresentation can include factual

information provided at the CFPBs request

The disclosure requirements apply to ex parte

presentations that occur between the time a rule is

proposed for public comment and the time the rule is

finalized


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CFPB Developments Ex Parte Presentations(contd)

Within three days of an oral ex parte presentation,

the party making the presentation must file to the

applicable docket a memorandum summarizing the

presentation and provide a copy to the CFPBs

Executive Secretary and to all CFPB employees to

whom the presentation was made

Similar requirement applies to written ex parte

presentations

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