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1 TITLE OF PRESENTATION CLIENT/LATERAL NAME DATE
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TITLE OF PRESENTATION
CLIENT/LATERAL NAME
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THE CFPB AND COMMUNITY BANKS: MIND THE CREEP!
Tennessee Risk Management Seminar 2016
April 21, 2016
Timothy V. Kemp Butler Snow LLP – Washington and Nashville
CFPB Overview – What It Is • Title X of Dodd-Frank Wall Street Reform and Consumer
Protection Act created a new federal agency, the CFPB.
• CFPB vested with sweeping powers to fulfill its mandate – the protection of consumers related to financial products and services
• Title X of Dodd-Frank Act granted CFPB authority to do:
– rulemaking under Title X and certain “enumerated consumer laws” throughout U.S. Code
– supervision of “covered persons”
– enforcement of Title X and certain “enumerated consumer laws”
• Essentially, Dodd-Frank transferred primary rulemaking and enforcement authority over all or parts of 18 federal consumer protection statutes from 7 different federal
agencies into 1.
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CFPB Overview – What It Does
• Title X of Dodd-Frank – UDAAP (unfair, deceptive and abusive acts & practices) – UDAAP is a roving commission to do “good”
• Enumerated Consumer Laws, include among others: – Electronic Fund Transfer Act
– Equal Credit Opportunity Act
– Fair Credit Reporting Act
– Fair Debt Collection Practices Act
– Section 43 of the Federal Deposit Insurance Act
– Sections 502 through 509 (Privacy) of the Gramm-Leach-Bliley Act
– Real Estate Settlement Procedures Act
– Truth in Lending Act 4
Introduction
• Consumer Financial Protection Bureau (“CFPB”) – What It Is…?
– What It Does…Authority?
– Who It Reaches…?
• CFPB and the Creep
– Community Banks
– Insurance
• Regulation of Service Providers
• Enforcement Risk Analysis • What CFPB May do Directly
• What CFPB May do Indirectly
• Minimizing your Risk
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CFPB Overview – Who It Reaches
• CFPB regulates “covered persons” providing consumer financial products and services – banks and non-bank lenders (e.g., payday loans)
– credit reporting agencies
– debt counseling services
• CFPB also regulates “service providers” to covered persons – servicing companies
– others designing / operating / maintaining financial product or service at issue
– escrow or settlement services providers
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CFPB Overview – Who It Reaches
• “consumer financial product or service” includes, – “extending credit and servicing loans, including acquiring,
purchasing, selling, brokering, or other extensions of credit,” as well as:
– Leasing or real/personal property if equivalent to finance arrangements
– Deposit taking activities
– Check cashing, check collection, or check guaranty services
– Certain financial data processing
– Debt collection
– Stored value or payment instruments
– Financial advisory services
– Consumer report services 7
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CFPB and Community Banks
• Ever since Dodd-Frank became law, there has been fear and speculation what the impact would be on community banks
– In 2011, when the CFPB was still a twinkle in Elizabeth Warren’s eye, the Independent Community Bankers Association voiced its concerns that the new bureau would fail to appreciate the difference in the business models and customer bases of the mega-banks or shadow non-bank financial institutions and the community banks
– Admonished the new agency to be careful not to throw the baby out with the bath water
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CFPB and Community Banks
• By 2012, industry watchers again warned that even though the examination and enforcement of laws and regulations governing banks with less than $10 Billion in assets remained under their same prudential banking regulators, CFPB could participate in such exams and enforcement actions “on a sampling basis”
• As the CFPB set out to develop new standards and “make the big banks play by the same rules as the community banks”, community banks would inevitably be impacted by the CFPB’s enforcement activities.
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CFPB and Community Banks
• By 2013, articles were being published describing the oppressively burdensome regulatory requirements impacting community banks
– Promulgation of consumer protection regulations
• By 2014, headlines were reading “Dodd-Frank is Killing Community Banks”
– Formation of Community Bank Advisory Council, which advises CFPB on regulating consumer financial products or services and specifically to share the unique perspectives of community banks. They share information, analysis, and recommendations to better inform our policy development, rulemaking, and engagement work.
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CFPB and Community Banks
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• By 2015, those same headlines started to read “Is Dodd-Frank Really Killing Community Banks”
– Even though most recently community bank market share decreased at a more rapid rate that in previous periods, the consensus seems to be that the cost of compliance has impacted but not crippled community banks
– Wall Street Journal reported on October 4, 2015 that Dodd-Frank’s impact on small banks was “muted”
So all the worries of Community Banks are over?
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CFPB and Insurance: A Cautionary Tale
• First Principles
– “business of insurance” is excluded from the list of financial products and services subject to CFPB’s jurisdiction
– CFPB prohibited from enforcing Title X against “any person regulated by a state insurance regulator”
• Second Guesses
– there are a few exemptions to the above rules
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The “Business of Insurance”
• The “business of insurance” is defined in Dodd-Frank to mean: – “writing of insurance or the reinsuring of risks by an insurer,
including all acts necessary to such writing or reinsuring and the activities relating to the writing of insurance or the reinsuring of risks conducted by persons who act as, or are, officers, directors, agents, or employees of insurers or who are other persons authorized to act on behalf of such persons.”
• Does this include sales and marketing activity?
• other authority: – McCarran Ferguson
– Case law: Dep’t of Treasury v. Fabe (1993); Group Life & Health Ins. v. Royal Drug (1979); FTC v. Nat’l Casualty (1958)
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CFPB and Insurance
• despite noted exclusions for “business of insurance” and “any person regulated by a state insurance regulator,” CFPB has authority over insurance companies if:
– providing a “consumer financial product or service”
– operating as a “service provider” to a “covered person”
– covered by an “enumerated consumer law”
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CFPB and Insurance
• instances where an insurance industry participant may
provide a “consumer financial product or service”
– financial advisory services
– loans to policyholders
– insurance premium financing…?
– vehicle service contracts…?
• instances where an insurance industry participant may
operate as a “service provider” to a “covered person” – debt protection contract administration
– design of a product offering…?
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CFPB and Insurance
• instances where an insurance industry participant may
operate under an “enumerated consumer law” – Electronic Fund Transfer Act
– Fair Credit Reporting Act
– Fair Debt Collection Practices Act
– Sections 502 through 509 (Privacy) of the Gramm-Leach-Bliley Act*
• (technically this is outside CFPB scope if state regulator handles)
– Real Estate Settlement Procedures Act
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Service Providers
CFPB Bulletin 2012-03 (April 2012)
– (a) Supervised banks and nonbanks must oversee vendors (“service providers”) in a “manner that ensures compliance with Federal consumer financial law, which is designed to protect the interests of consumers and avoid consumer harm”
– (b) Focus is to avoid presenting any “unwarranted risks to consumers”
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Service Providers
CFPB Bulletin 2012-03 (April 2012)
– (c) Bulletin requires a financial institution to: Conduct thorough due diligence of vendors to verify that they understand and comply with the law
Review vendors’ policies, procedures, internal controls, and
training materials to ensure that they conduct appropriate training and oversight of employees/agents who have consumer contact or compliance responsibilities
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Service Providers
CFPB Bulletin 2012-03 (April 2012)
Include clear expectations about compliance in contracts, as well as consequences for violations of compliance-related responsibilities
Establish internal controls and on-going monitoring to monitor compliance
Take prompt action to address compliance issues
“Indirect” Regulation as a practical impact
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Insurance as Add-On Product
• Beyond the text of Dodd-Frank, concerns remain that the CFPB may attempt to regulate insurance products offered in conjunction with loans (add-on products) through its authority under the Truth in Lending Act.
• In comment letters submitted to FIO, several trade associations requested that the regulatory actions of the CFPB be monitored to ensure that it does not attempt to directly or indirectly regulate insurance products.
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CFPB Enforcement Actions
• Noteworthy Enforcement Actions to Date
• CFPB’s “To Do List”
– Payday Lending
– Prepaid Cards
– Arbitration Rules
– Debt Collections
– Overdrafts
• Regulation by enforcement
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Minimizing Your Risk
• Manage your consumer complaints
• Conduct pre-CFPB readiness evaluations
• Pay attention to your vendor relationships, where you are either vendor or vendee
• Follow CFPB and other agency enforcement actions and observe trends
• Expect inter-agency referrals (federal and state)
• Develop a Strategic Plan
– Enterprise Risk Management
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Timothy V. Kemp Butler Snow LLP D:(202) 481-6838 | C: (714) 380-1342 | F: (601) 985-4500 Eleventh Floor South, 601 Thirteenth Street NW Washington, D.C. 20005 D: (615) 651-6793 | C: (714) 380-1342 | F: (615) 651-6701 150 3rd Avenue South, Suite 1600, Nashville, TN 37201 [email protected]
