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MoFo Reenforcement

The Enforcement Blog

California Enacts Interest Rate and Other Restrictions on Consumer Loans

Posted in Credit Reports, Regulatory Developments

As expected, California has enacted legislation imposing interest rate caps on larger consumer loans. The new law, AB 539, imposes other requirements relating to credit reporting, consumer education, maximum loan repayment periods, and prepayment penalties. The law applies only to loans made under the California Financing Law (CFL). Governor Newsom signed the bill into law on October 11, 2019. The bill has been chaptered as Chapter 708 of the 2019 Statutes.

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Financial Services Report – Fall 2019

Posted in Arbitration, CFPB, Credit Cards, Credit Reports, Electronic Payments, Enforcement Actions, Fair Lending, Investigations, Mobile Payments, Mortgage, Payday Lending, Preemption, Privacy, Regulatory Developments, State Regulators, Student Lending

We start this issue with a feeling of déjà vu all over again. Decisions made during the mortgage crisis are back in the news with a powerhouse legal ruling and the Treasury’s initial thinking on how to turn back time. First, the Fifth Circuit issued an en banc decision finding the Federal Housing Finance Agency single-director structure is unconstitutional and that GSE investors may pursue their claim that FHFA exceeded its authority by directing the GSEs’ profits to the Treasury. Whether this part of the Fifth Circuit’s ruling impacts the debate among the courts on the constitutionality of the structure of the CFPB — which similarly has a single director who can only be removed for — remains to be seen.

Second, the Treasury released its Housing Reform Plan aimed at ending the government’s conservatorship of the GSEs. The Plan only underscores how challenging unwinding the financial crisis actions will be. Among several options for raising the capital needed for the GSEs to become independent is the possibility of ending the directing of their profits to the Treasury, the action targeted in the case revived by the Fifth Circuit’s decision.

Read on for more on the GSEs, the news in Beltway, Operations, Bureau, Privacy, BSA/AML, and more.

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FHFA Publishes Final Rule on Validation and Approval of Credit Score Models

Posted in Mortgage, Regulatory Developments

On August 16, the Federal Housing Finance Agency issued a final rule on validation and approval of third-party credit score models that Fannie Mae and Freddie Mac use in deciding whether to purchase residential mortgage loans. The FHFA is the GSEs’ prudential regulator and, since 2008, has served as their conservator. In doing so, the FHFA satisfied its obligation to publish a framework for credit score model validation and approval required in section 310 of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018. Section 310 now requires each GSE to publish its description of its validation and approval process for evaluating applications from credit score model developers, consistent with the FHFA’s framework.

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On Again, Off Again: Fannie and Freddie Drop the Applicant’s Language Preference Question from the Revised Uniform Residential Loan Application Form

Posted in Mortgage, Regulatory Developments

At the direction of the Federal Housing Finance Agency (FHFA), government sponsored enterprises Fannie Mae and Freddie Mac (the GSEs) announced in June 2019 that the optional use period for the redesigned Uniform Residential Loan Application (URLA) and automated underwriting system (AUS) implementations would be postponed. FHFA has now directed the GSEs to make specific modifications to the URLA form. To allow industry participants time to make the necessary changes, FHFA and the GSEs will be extending the deadlines for implementation of the URLA and AUS datasets; the mandatory use of the redesigned form and data will no longer begin on February 1, 2020.

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Federal Reserve to Create Faster Payments System

Posted in Electronic Payments, Regulatory Developments

On August 5, the Board of Governors of the Federal Reserve System issued a notice and request for comment on its determination that the Federal Reserve Banks should develop a new interbank faster payments system.  The Reserve Banks’ new system — the “FedNow” service — would have a targeted launch date in 2023 or 2024.

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CFPB ANPR on Qualified Mortgage Rule

Posted in Mortgage, Regulatory Developments

On July 25, 2019, the CFPB issued an Advance Notice of Proposed Rulemaking on the definition of a “qualified mortgage” under its ability-to-repay/qualified mortgage rule. The ANPR states that the Bureau does not intend to extend the temporary qualified mortgage (QM) classification for loans eligible to be purchased or guaranteed by Fannie Mae or Freddie Mac, which is scheduled to sunset no later than January 10, 2021. Because the majority of home purchase loans originated today fall within the temporary QM classification, expiration of the classification raises important regulatory and policy issues. We discuss these issues and will be monitoring for further developments.

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Another Joint Statement from the Federal Anti-money Laundering Working Group: Improving Transparency of Risk-Focused BSA/AML Supervision

Posted in Regulatory Developments

On July 22, 2019, the five federal agencies tasked with the supervision, examination, and enforcement of Bank Secrecy Act and anti-money laundering requirements for banks issued a joint statement clarifying their risk-based approach to BSA/AML examinations. Our alert discusses the key implications of the Statement.

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Agencies Issue Final Rule Conforming Volcker Rule Regulations to 2018 Regulatory Relief Act

Posted in Regulatory Developments

On July 22, 2019, a final rule conforming the Volcker Rule regulations to Sections 203 and 204 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (“Regulatory Relief Act”) was published in the Federal Register. The final rule, and the provisions of the Regulatory Relief Act upon which it is based, exclude certain community banks from coverage of the Volcker Rule and relax restrictions on banking entities using the same name as hedge funds and private equity funds. The final rule does not change the manner in which the Volcker Rule is currently applied, since the relevant provisions of the Regulatory Relief Act were effective upon enactment.

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Secured Overnight Financing Rate and the Future of the Mortgage Market

Posted in Mortgage, Regulatory Developments

On July 11, Fannie Mae and Freddie Mac (the GSEs) announced their plans to develop new adjustable rate mortgage products that would rely on the Secured Overnight Financing Rate (SOFR) instead of LIBOR. Given the GSEs’ dominance in the mortgage market, their re-designed ARMs will undoubtedly have a significant impact on hybrid ARMs of the future. While the GSEs provided no details about the new products, both pledged to rely on a framework provided in the Alternative Reference Rate Committee’s (the ARRC) whitepaper entitled “Options for Using SOFR in Adjustable Rate Mortgages.”

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Blair v. Rent-A-Center, Inc.: California’s McGill Rule Not Preempted by the FAA

Posted in Preemption

The Ninth Circuit affirmed the district court’s denial of Rent-A-Center, Inc.’s motion to compel arbitration in a putative class action challenging the company’s structuring of its rent-to-own pricing. We discuss the court’s recent decision and how its preemption analysis means that the California Supreme Court’s ruling in McGill v. Citibank will continue to impact the enforceability of arbitration agreements in the Ninth Circuit.

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