Weekly RoundUp
June 6, 2024

CFPB Launches Process to Recognize Open Banking Standards

In this issue. The Consumer Financial Protection Bureau (CFPB) launched a process to recognize open banking standards; the CFPB issued a final rule on nonbank registration of orders; the CFPB launched an inquiry into junk fees in mortgage closing costs; the Financial Industry Regulatory Authority (FINRA) released a statement to correct misinformation about the New Residential Supervisory Location Rule; Securities and Exchange Commission (SEC) Chair Gensler provided a statement on the implementation of T+1 settlement cycle; and the CFPB sued a student loan servicer for pursuing borrowers for loans discharged in bankruptcy. These and other developments are discussed in more detail below.

Regulatory Developments

CFPB Launches Process to Recognize Open Banking Standards
On June 5, the CFPB issued a final rule (the “Rule”) outlining the qualifications required to become a recognized industry standard-setting body. Standard-setting bodies can issue standards that companies can use to help them comply with the CFPB’s upcoming Personal Financial Data Rights rule, which is expected to be finalized in the coming months and will accelerate the shift to open banking within the United States. The Rule sets forth characteristics that standard-setting bodies must demonstrate to be recognized by the CFPB, includes guidance for applying for recognition, and details the CFPB’s application evaluation process. To be recognized, standard-setting bodies must apply to the CFPB and satisfy seven requisite attributes: openness, balance, due process, appeals, consensus, transparency, and that the standard-setting body has been recognized by the CFPB as an issuer of qualified industry standards within the last three years. The Rule also provides a mechanism for the CFPB to revoke recognition and sets a maximum recognition time span of five years, after which industry standard setters must reapply for recognition. The Rule is effective 30 days after publication in the Federal Register.

CFPB Issues Final Rule on Nonbank Registration of Orders
On June 3, the CFPB issued a final rule requiring certain nonbank entities to register information about their company and certain orders that enforce certain laws and are issued by or obtained  by government agencies, such as enforcement orders. Covered nonbanks must submit copies of those orders to the CFPB’s Nonbank Registry. The CFPB will publish filing instructions to provide details on the information that must be submitted, including the formats required. The final rule provides a one-time, alternative registration option for covered orders that are published on the Nationwide Multistate Licensing System Consumer Access website. The final rule is effective on September 16, 2024 with rolling registration submission periods thereafter based on entity type.

CFPB Launches Inquiry into Junk Fees in Mortgage Closing Costs
On May 30, the CFPB launched a public inquiry into “junk fees” which impact mortgage closing costs to understand which closing costs are subject to competition, how these fees are set, how they are changing and affecting consumers, and ways to reduce anticompetitive closing costs that harm both homebuyers and lenders. The CFPB highlighted two particular trends in its announcement which may be subject to further scrutiny: (1) borrowers must typically purchase title insurance during a closing and generally have limited options when doing so; and (2) lenders’ costs when obtaining credit reports has risen significantly in recent years. Comments must be received within 60 days of the request for information’s publication in the Federal Register.

“The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”
— Rohit Chopra, Director, CFPB

FINRA Statement to Correct Misinformation About the New Residential Supervisory Location Rule
On May 22, FINRA made a public statement to correct misinformation about its remote working rules. The Residential Supervisory Location Rule and Remote Inspections Pilot Program Rule provide member firms flexibility for their registered persons to work remotely, so long as the firms comply with the requirements to adequately supervise and inspect the remote locations pursuant to these rules. FINRA clarified that the rules are intended to provide greater, not less, flexibility to allow eligible registered persons to work from home. FINRA’s statement came as a result of firms making statements that FINRA’s “stringent” rules would require workforce to go back to the office full time. FINRA repudiated these statements as incorrect and encouraged member firms to review its regulatory notice, FAQs, webinars, and direct staff communications and to reach out if there are questions about these rules.

SEC Chair Gensler’s Statement on Upcoming Implementation of T+1 Settlement Cycle
On May 21, SEC Chairman Gary Gensler issued a statement discussing the conversion of the US securities market to a T+1 standard settlement cycle. Under this new settlement cycle, scheduled to take effect May 28, all applicable US securities transactions will settle within one business day of their transaction date, down from the current standard of two business days (T+2). Gensler stated that this shortened settlement cycle will allow investors to get their money more quickly and reduce market risk. He noted, however, that previous transitions to shorter settlement cycles led to short-term upticks in settlement failures. To that end, Gensler stated that SEC staff continue to monitor the efforts of market participants to prepare for the shorter cycle and coordinate with regulatory authorities across the globe.

Litigation & Enforcement Developments

CFPB Sues Student Loan Servicer PHEAA for Pursuing Borrowers for Loans Discharged in Bankruptcy
On May 31, the CFPB sued student loan servicer Pennsylvania Higher Education Assistance Agency (PHEAA) for violating the Consumer Financial Protection Act and the Fair Credit Reporting Act and its implementing regulation for collecting on student loans discharged in bankruptcy and sending false information about consumers to credit reporting companies. PHEAA treated consumers’ education-related loans that were discharged in bankruptcy as not discharged, unless PHEAA received an explicit court order or other express direction from the loan owner. This resulted in borrowers being forced to pay debt they do not owe, defaulting for purported non-payment, or suffering negative credit reporting. The CFPB’s complaint asks the court to order PHEAA to stop its illegal conduct, provide redress to impacted borrowers, and pay a civil money penalty.

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