Source: https://www.federalregister.gov/documents/2013/05/31/2013-13023/loan-originator-compensation-requirements-under-the-truth-in-lending-act-regulation-z-prohibition-on
Timestamp: 2019-06-20 11:25:01
Document Index: 517370968

Matched Legal Cases: ['§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026', '§\u20091026']

A Rule by the Consumer Financial Protection Bureau on 05/31/2013
32547-32551 (5 pages)
https://www.federalregister.gov/d/2013-13023 https://www.federalregister.gov/d/2013-13023
In January 2013, the Bureau issued several final rules concerning mortgage markets in the United States, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).[1] One of these final rules was the Loan Originator Compensation Requirements Under the Truth in Lending Act (Regulation Z) (Final Rule).[2] The Final Rule implemented Dodd-Frank Act amendments to the Truth in Lending Act (TILA) addressing loan originator compensation; qualifications of, and registration or licensing of loan originators; compliance procedures for depository institutions; mandatory arbitration; and the financing of single-premium credit insurance. With regard to the financing of single-premium credit insurance, the Final Rule included a provision implementing the Dodd-Frank Act section 1414 amendment that added new TILA section 129C(d), 15 U.S.C. 1639c(d). That provision prohibits creditors from financing premiums or fees for certain credit insurance products in connection with certain consumer credit transactions secured by a dwelling. The Bureau implemented this provision by adopting § 1026.36(i).
In enacting the Dodd-Frank Act, Congress significantly amended the statutory requirements governing a number of mortgage practices, including loan originator compensation. Under the statute, most of these new requirements would have taken effect automatically on January 21, 2013, if the Bureau had not issued implementing regulations by that date.[3] To avoid uncertainty and potential disruption in the national mortgage market at a time of economic vulnerability, the Bureau issued several final rules (Title XIV Rulemakings) in January 2013, including the Final Rule issued on January 20, 2013, to implement these new statutory provisions and provide for an orderly transition. To allow the mortgage industry sufficient time to comply with the new rules, the Bureau established January 10, 2014—one year after Start Printed Page 32548issuance of the earliest of the Title XIV Rulemakings—as the effective date for most of the Title XIV Rulemakings, including most provisions of the Final Rule. However, the Bureau identified certain provisions that it believed did not present significant implementation burdens for industry, including § 1026.36(h) on mandatory arbitration clauses and waivers of certain consumer rights and § 1026.36(i) on financing single-premium credit insurance, as adopted by the Final Rule. For these provisions, the Bureau set an earlier effective date of June 1, 2013.
On February 13, 2013, the Bureau announced an initiative to support implementation of its new mortgage rules (Implementation Plan),[4] under which the Bureau would work with the mortgage industry to ensure that the Title XIV Rulemakings can be implemented accurately and expeditiously. The Implementation Plan included (1) coordination with other agencies; (2) publication of plain-language guides to the new rules; (3) publication of updates, such as additional corrections, adjustments, and clarifications of the new rules, as needed; (4) publication of readiness guides for the new rules; and (5) education of consumers on the new rules.
This final rule, which delays the effective date of the provision on financing single-premium credit insurance, is one of several updates to the Title XIV Rulemakings. The purpose of these updates is to address important questions raised by industry, consumer groups, or other agencies. The update addressed by this final rule was given priority because the effective date for § 1026.36(i) was June 1, 2013, and certainty regarding compliance is a matter of some urgency. The Bureau intends to publish a proposal shortly to seek further comment on clarifications to the provision as discussed further below.
As amended by the Dodd-Frank Act, TILA section 105(a), 15 U.S.C. 1604(a), directs the Bureau to prescribe regulations to carry out the purposes of TILA and provides that such regulations may contain additional requirements, classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for all or any class of transactions, that the Bureau judges are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance. Further, under Dodd-Frank Act section 1022(b)(1), 15 U.S.C. 5512(b)(1), the Bureau has general authority to prescribe rules as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof. The Bureau is delaying the effective date until January 10, 2014, pursuant to its TILA section 105(a) and Dodd-Frank Act section 1022(b)(1) authority. The Bureau believes such a delay will facilitate compliance and help ensure that the Final Rule does not have adverse unintended consequences. In particular, the delay will permit the Bureau to clarify, before § 1026.36(i) takes effect, its applicability to transactions other than those in which a lump-sum premium is added to the loan amount at closing.
As discussed above, Dodd-Frank Act section 1414 added TILA section 129C(d), which generally prohibits a creditor from financing any premiums or fees for credit insurance in connection with any residential mortgage loan or with any extension of credit under an open-end consumer credit plan secured by the consumer's principal dwelling.[5] The prohibition applies to credit life, credit disability, credit unemployment, credit property insurance, and other similar products. The same provision states, however, that the prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis or to credit unemployment insurance for which the premiums are reasonable, the creditor receives no compensation, and the premiums are paid pursuant to a separate insurance contract and are not paid to the creditor's affiliate.
In a proposed rule published on September 7, 2012,[6] the Bureau proposed to implement this provision through § 1026.36(i), which generally tracks the statutory language. In the proposal, the Bureau stated its belief that the provision was generally straightforward but sought comment on whether any issues raised by the provision required clarification. Anticipating that few, if any, clarifications would be necessary and that accordingly industry would not require significant time to accommodate any clarifications of the final rule, the Bureau also sought comment on whether the provision should become effective sooner than January 2014.[7]
Since publication of the Final Rule, industry stakeholders have expressed concern that the regulation text and preamble left substantial uncertainty about whether, and under what circumstances, premiums for certain credit insurance products can be Start Printed Page 32549charged on a periodic basis in connection with a covered consumer credit transaction secured by a dwelling. Specifically, representatives of credit unions and credit insurers have raised a concern that the Final Rule could be interpreted to prohibit any level or levelized credit insurance premiums, which they believe are not financed by the creditor and/or should be permissible as calculated and paid in full on a monthly basis.[8] These stakeholders pointed out that the preamble to the Final Rule states that “charging a fixed monthly charge for the credit insurance that does not decline as the loan balance declines would fail to meet the requirement for the premium to be `calculated . . . on a monthly basis' [and] . . . [a]s a result, this practice would fail to satisfy the conditions for the exclusion from what constitutes `financ[ing], directly or indirectly' credit insurance premiums.” Thus, absent clarification by the Bureau, the Final Rule could be interpreted to assume that any level or levelized premiums are both financed by the creditor and not calculated and paid on a monthly basis—and therefore they are prohibited.
Accordingly, they have requested clarification on § 1026.36(i)'s applicability to these credit insurance products and also have expressed concern regarding their ability to comply timely, given that the Final Rule provided an effective date for § 1026.36(i) of June 1, 2013.
In light of the interpretive questions that have arisen since publication of the Final Rule, the Bureau intends to publish a proposal to seek further comment on the provision shortly. In that proposal, the Bureau intends, among other things to seek public comment, including from industry stakeholders and consumers, on (1) the applicability of the prohibition to transactions in which credit insurance premiums are charged periodically; and (2) given these proposed clarifications to § 1026.36(i), what effective date would be appropriate.
On May 10, 2013, the Bureau issued a proposed rule seeking comment on a temporary delay of the June 1, 2013 effective date of § 1026.36(i).[9] The Bureau made clear in the proposal that it contemplated delaying the effective date only as long as necessary for any clarifications to be proposed, finalized, and implemented, and sought public comment on two issues: (1) whether the effective date should be delayed; and (2) if so, what the new effective date should be. The Bureau also stated it was concerned that, if the effective date were not delayed, creditors could face uncertainty about whether and under what circumstances credit insurance premiums may be charged periodically in connection with covered consumer credit transactions secured by a dwelling, which could result in a substantial compliance burden to industry. Finally, the Bureau noted that it intends to propose and again seek comment on the effective date for any clarifications to § 1026.36(i) as part of the forthcoming proposal.
Upon consideration of these public comments, the Bureau is finalizing the proposal to delay the effective date for § 1026.36(i). The Bureau is persuaded that significant interpretive questions exist regarding the application of the provision to credit insurance charged periodically, which it intends to address in a forthcoming proposal. The Bureau also agrees with industry commenters that, if the effective date were not delayed, creditors would face uncertainty about whether and under what circumstances credit insurance premiums may be charged periodically in connection with covered consumer credit transactions secured by a dwelling, which could result in a substantial compliance burden to industry.
Rather than suspend the effective date indefinitely pending the clarification, the Bureau believes it is appropriate to adopt a new effective date for § 1026.36(i) of January 10, 2014, which is consistent with the effective date for most of the Title XIV Rulemakings. Thus, § 1026.36(i) will be effective for any transactions where applications were received by the creditor on or after January 10, 2014.
However, with respect to the January 10, 2014 effective date, the Bureau emphasizes that it intends to issue a new proposal shortly that will, among other things, specifically seek comment on the appropriate effective date in light of the proposal to provide additional clarifying amendments. The Bureau is mindful of the public comments it received in connection with this notice that suggest creditors will need time to adjust certain credit insurance premium billing practices once the clarifications are finalized. However, any such amendments will not be finalized until the Bureau has proposed amendments to § 1026.36(i), appropriately considered public comment, and issued a final rule in connection with the upcoming proposal. The Bureau is also mindful of the fact that the protections provided by Congress would have applied effective January 21, 2013, had the Bureau not promulgated implementing regulations. Start Printed Page 32550The Bureau expects that industry will use the intervening time to review systems and begin making appropriate modifications to facilitate the implementation process as quickly as practicable once the additional clarifications are finalized.
This final rule will be effective on June 1, 2013. Under section 553(d) of the Administrative Procedure Act (APA), the required publication or service of a substantive rule shall be made not less than 30 days before its effective date, except for (1) a substantive rule which grants or recognizes an exemption or relieves a restriction; (2) interpretive rules and statements of policy; or (3) as otherwise provided for good cause found and published with the rule. 5 U.S.C. 553(d). This final rule does not establish any requirements, but rather delays the effective date of § 1026.36(i) until January 10, 2014. Therefore, under 553(d)(1) of the APA, the Bureau is publishing this final rule less than 30 days before its effective date because it is a substantive rule which grants or recognizes an exemption or relives a restriction. 5 U.S.C. 553(d)(1). Further, making the delay effective on June 1, 2013, will ensure that § 1026.36(i) does not take effect until the Bureau has an opportunity to clarify the provision's applicability to transactions other than those in which a lump-sum premium is added to the loan amount at closing, facilitating compliance with the statute and helping to ensure that the Final Rule does not have adverse unintended consequences. Therefore, The Bureau further finds it has good cause pursuant to section 553(d)(3) of the APA to dispense with the 30 day delayed effective date requirement because, on balance, the need to implement immediately the delay of the June 1, 2013 effective date of § 1026.36(i) outweighs the need for affected parties to prepare for this delay.
In developing the final rule, the Bureau has considered the potential benefits, costs, and impacts.[10] The Bureau requested comment on its preliminary analysis as well as submissions of additional data that could inform the Bureau's analysis of the benefits, costs, and impacts of the final rule. The Bureau has consulted, or offered to consult with, the prudential regulators, HUD, USDA, FHFA, the Federal Trade Commission, and the Department of the Treasury, including regarding consistency with any prudential, market, or systemic objectives administered by such agencies.
In part VII of the Final Rule, the Bureau previously considered the costs, benefits, and impact of § 1026.36(i) as adopted by the Final Rule. The Bureau believes that, compared to the baseline established by the Final Rule,[11] the delay of the effective date for § 1026.36(i) will generally benefit creditors and the credit insurance industry by delaying the start of ongoing compliance costs, and allowing time for a process to clarify the scope and compliance requirements of the regulation. Creditors and the credit insurance industry will benefit to the extent that the changes eliminate any disruptions in the provision of credit insurance products to consumers while interpretive questions concerning § 1026.36(i) are addressed. The Bureau believes that delaying the effective date of § 1026.36(i) will also delay the consumer benefit that would result from allowing the rule to take effect. Specifically, delaying the effective date would delay the prohibition on lump-sum credit insurance premiums added to the loan amount at closing, which Congress prohibited through TILA section 129C(d).
The Regulatory Flexibility Act (RFA) generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment rulemaking requirements.[12] These analyses must “describe the impact of the final rule on small entities.” [13] An IRFA or FRFA is not required if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities,[14] or if the agency considers a series of closely related rules as one rule for purposes of complying with the IRFA or FRFA requirements.[15] The Bureau also is subject to certain additional procedures under the RFA involving the convening of a panel to consult with small business representatives prior to proposing a rule for which an IRFA is required.[16]
The Bureau did not perform an IFRA for the proposed rule because it determined and certified that the proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. The Bureau did not receive any comments regarding its certification of no significant economic impact. The Bureau concludes that a FRFA is not required for this final rule because it will not have a significant impact on a substantial number of small entities. As discussed above, the final rule will delay the June 1, 2013 effective date of § 1026.36(i), as adopted by the Final Rule, until January 10, 2014. The delay in effective date will benefit small creditors by delaying the start of any ongoing compliance costs.
Accordingly, the undersigned hereby certifies that the final rule will not have a significant economic impact on a substantial number of small entities.Start Printed Page 32551