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05.29.2020 | Legal Advisory

Last week, the Consumer Financial Protection Bureau (the “CFPB”) released two “no action” letter templates that address the affordable small dollar loans and mortgage repayment relief for consumers when many may need it most. Both templates were issued as part of the CFPB’s Policy on No-Action Letters (the “Policy”), which was revised in 2019. Depository institutions seeking CFPB approval for small dollar installment loans and mortgage servicers seeking CFPB approval for use of certain loss mitigation solutions can use these templates as the basis for their no-action letter applications. In a related May action, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency issued the “Interagency Lending Principles for Offering Responsible Small-Dollar Loans” that outline important risk management considerations for regulated financial institutions to consider when making small dollar loans to individuals and small businesses.

Small Dollar Lending

The small-dollar template was issued in response to an application from the Bank Policy Institute (“BPI”) and provides a path for BPI bank members and other deposit taking institutions seeking to offer small-dollar credit products. An applicant can use this template to request a CFPB no-action letter providing assurance that its small-dollar credit products will not trigger a CFPB supervisory or enforcement action.

The template requires an applicant to provide different categories of information, including the following: (1) the items listed in Section A of the Policy, including a description of the applicant’s proposed credit product and an explanation of the product’s potential consumer benefits and risks; (2) certain certifications, including that the applicant is, or is affiliated with, an insured depository institution or insured credit union with total assets of greater than $10 billion, that the small-dollar credit product is structured as either a fixed term, amortizing installment loan or an open-end line of credit, and that the loan amount does not exceed $2,500; and (3) information about product features and lending practices, including the anticipated APR range, additional fees, a description of the repayment structure and a description of the lender’s underwriting criteria. A complete list of the items required in the template is available here. The BPI no-action letter request did not specify a maximum interest rate but anticipated that such loans would be lower than the 400% to 500% interest rates charged by nonbank payday loan firms.

As referenced above, installment loans or lines of credit cannot exceed $2,500 to receive this NAL relief. The repayment term for installment loans and each draw on a line of credit must be more than 45 days but less than one year, and payments must be amortized on a straight-line basis across more than one payment. One exception is for lines of credit with repayment terms of 45 days or less that permit a single payment and where a draw is no more than 10 percent of the maximum dollar amount established for the product.

Digitizing Mortgage Loss Mitigation Services

The loss mitigation template was issued in response to an application by Brace Software, Inc. (“Brace”), and provides mortgage servicers and borrowers each with an online interface for digital loss mitigation services. The platform, which is geared toward borrowers, allows borrowers to more easily interact with their mortgage servicers remotely and provides a digitized version of the Fannie Mae/Freddie Mac Form 710 Borrower Solicitation Package. The platform allows borrowers to, among other things, upload loss mitigation documents directly to the platform for receipt and review by their mortgage servicers. The template also contains a platform for mortgage servicers, which is inaccessible to borrowers. The mortgage servicers’ template allows servicers to process and manage the loss mitigation documents uploaded by borrowers. This platform allows mortgage servicers to customize the interface in order to best suit their processing needs.

In addition to the items required in Section A of the Policy referenced above, the loss mitigation template requires the applicant to provide the following information: (1) statements that the letter is specific to the applicant and the specific platform being described by the applicant in the letter, is based on the factual representations made in the applicant’s application, does not purport to provide any legal conclusions regarding various statutory sections, and does not constitute an endorsement by the CFPB of any described uses of the platform; (2) commitments by the applicant to apprise the CFPB of any material changes to the information submitted in the application, or material changes to the performance quality of the platform described in the application; (3) statements pertaining to the CFPB’s commitment not to take certain regulatory action, and conditions surrounding potential termination of the letter; and (4) other statements and assurances regarding transparency of information. A full list of items required for this template is available here.

The loss mitigation template also requires an applicant to provide the following certifications: (1) the applicant intends to use the platform for processing loss mitigation applications; (2) the applicant will consider loss mitigation applications from borrowers to be received pursuant to Regulation X, 12 C.F.R. § 1024.41(b)(2) when a borrow clicks “Submit” in the borrower’s online application form presented through the platform; (3) the applicant will process and effectuate requests to cease communication with the borrower in the same manner as those requests that were submitted and received in writing.

Conclusion

Both of these templates provide assurances that if the CFPB issues no-action letters in response to applicants using these templates that it will not make supervisory findings or bring a supervisory or enforcement action under its authority to prevent unfair, deceptive, or abusive acts or practices against applicants for products described in their application. Importantly, as we have emphasized before, this NAL relief is limited to CFPB action only, and depository institutions and Fintechs must consider the risks that other agencies with jurisdiction over these products and services, including but not limited to financial regulators and state law enforcement agencies, may still take action when appropriate. 

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.