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Mortgage Bankers Association Regulatory Compliance Conference Washington, D.C.

September 25-27, 2011 Hot Topics Roundtable: Preemption and CFPB Developments

Jed Mayk Stevens & Lee, P.C. 610-205-6043

SL1 1101045 v1

Topics Covered
OCC Preemption Developments Revised AMTPA Preemption CFPB Developments Combined TILA/RESPA Disclosure CFPB Administrative-related Rulemakings Ex parte Presentations

OCC Preemption Developments

Dodd-Frank, Section 1044: A state consumer financial law is preempted for national banks (and federal thrifts) only if

The law would have a discriminatory effect on a national bank vis a vis a state-chartered bank; In accordance with the legal standard for preemption in Barnett Bank, the law prevents or significantly interferes with a national banks exercise of its powers; or The state consumer financial law is preempted by other federal law Note: Federal banking law on the charging of interest is not subject to this test

OCC Preemption Developments (contd)

On July 21, 2011, the OCC issued a final rule amending existing 12 C.F.R. 34.4. See 76 Fed. Reg. 43549 (Jul. 21, 2011)

The amendments add a specific reference to Barnett Bank, but not to the prevents or significantly interferes language in Section 1044
The amendments also delete the obstruct, impair, or condition language from prior Section 34.4(a), which lists categories of state laws that are inapplicable to a national bank

OCC Preemption Developments (contd)

According to the OCC As used in Section 1044, the legal standard for preemption in Barnett Bank is conflict preemption The reference in Section 1044 to prevents or significantly interferes is a touchstone in the conflict preemption analysis, rather than an independent, stand-alone preemption standard A conflict preemption analysis can be state law-specific, or it can apply to provisions or terms in multiple states laws that present the same type of conflict

OCC Preemption Developments (contd)

According to the OCC The OCC re-reviewed the categories of laws listed in Section 34.4(a) to confirm that preemption of those types of laws is consistent with Barnett Bank conflict preemption The obstruct, impair, or condition language was removed from Section 34.4(a) to avoid confusion and misunderstanding, and to place the focus on Barnett Banks conflict preemption analysis as the proper standard While any prior preemption determination that relied exclusively on the obstruct, impair, or condition language would have to be reexamined, the OCC has not identified any OCC-issued preemption determinations based solely on that language 6

OCC Preemption Developments (contd)

According to the OCC The requirement in Section 1044 that a Barnett Bank preemption finding be made on a case-by-case basis applies only to post-July 21, 2011 preemption determinations; and, moreover, even then categorical preemption determinations are permitted after proper consultation with the CFPB

OCC Preemption Developments (contd)

State regulators, consumer groups and others have expressed disagreement with the OCCs position Courts will have to decide who is right Baptista v. J.P. Morgan Chase Bank, N.A., 640 F.3d 1194 (11th Cir. 2011) (it is clear that under the Dodd-Frank Act, the proper preemption test asks whether there is a significant conflict between the state and federal statutes that is, the test for conflict preemption)

OCC Preemption Developments (contd)

The final rule also Removed 12 C.F.R. 7.4006, which gave operating subsidiaries the same preemptive rights as the parent national bank, and Amended the visitorial powers regulation (12 C.F.R. 7.4000) to codify the Supreme Courts decision in Cuomo (i.e., state officials can sue national banks to enforce applicable laws, but cannot conduct non-judicial investigations or other oversight activities)

Revised AMTPA Preemption

For transactions entered into on and after July 22, 2011, the availability of AMTPA preemption has been narrowed

Section 1083 of Dodd-Frank amended 12 U.S.C. 3802(1) to limit the definition of an alternative mortgage transaction to a loan where the interest rate or finance charge maybe adjusted or renegotiated
Fixed-rate loans that were previously considered AMTs (e.g., a fixed-rate loan with an interestonly payment period or a neg am feature) are no longer AMTs

Revised AMTPA Preemption (contd)

Section 1083 also amended 12 U.S.C. 3803(a) to provide that the CFPB has rulemaking authority for AMTs made on and after July 22, 2011

Finally, Section 1083 amended 12 U.S.C. 3803(c) to limit AMTPA preemption to state laws that prohibit AMTs, and further provides that state laws that regulate mortgage transactions generally, including state law limits on PPPs and late fees, do not prohibit AMTs


Revised AMTPA Preemption (contd)

On July 22, 2011, the CFPB issued an interim final rule, effective immediately, to implement the changes to AMTPA. See 76 Fed. Reg. 44226 (Jul. 22, 2011) Creates a new Regulation D, 12 C.F.R. Part 1004


Revised AMTPA Preemption (contd)

Under the interim final rule Shared equity/appreciation loans and fixed-rate balloon loans where there is a commitment to renew are still considered AMTs (CFPB relies, in part, on characterization of such loans as variable rate transactions under Regulation Z) AMTPA preemption applies both to state laws that expressly prohibit the making, purchase or enforcement of AMTs and to state laws that restrict the ability of the lender to adjust or renegotiate an interest rate or finance charge or to change the amount of interest or finance charges in a regular payment as a result of the adjustment or renegotiation

Revised AMTPA Preemption (contd)

Under the interim final rule Specific rules are provided on rate/finance charge changes and renegotiations; these must be followed in order to use AMTPA preemption Commentary gives examples of preempted and non-preempted state laws State law limits on how much/frequently rates can increase are preempted State law requirements that a loan be underwritten using the maximum contractual rate are preempted State law restrictions on increasing the interest rate due to a late payment are not preempted State disclosure laws are not preempted

CFPB Developments Combined TILA/RESPA Disclosure

On September 12, 2011, the CFPB released its fourth set of prototype forms intended to combine TILA and RESPA origination disclosures

Required by Dodd-Frank, Section 1032(f)

Rules and model disclosures must be proposed for public comment no later than July 21, 2012


CFPB Developments Administrative-Related Rulemakings

On July 21, 2011, the CFPB issued a final list of the enforceable rules of other federal agencies that are transferred to and will be enforced by the CFPB. See 76 Fed. Reg. 43569 (Jul. 21, 2011) CFPB also noted that it will continue to apply related official commentary, guidance and policy statements from a transferor agency with exclusive rulemaking authority for the law in question, pending further CFPB action


CFPB Developments Administrative-Related Rulemakings (contd)

On July 28, 2011, the CFPB issued four interim final rules covering The procedures for disclosing and keeping confidential CFPB records and information obtained through investigations and other means (76 Fed. Reg. 45372) Procedural rules for administrative proceedings brought by the CFPB to ensure or enforce compliance with rules and statutes under its authority (76 Fed. Reg. 45338)


CFPB Developments Administrative-Related Rulemakings (contd)

On July 28, 2011, the CFPB issued four interim final rules covering Procedural rules for CFPB investigations (76 Fed. Reg. 45168) Procedures that a state attorney general or similar state official must follow to notify the CFPB before initiating any action or proceeding to enforce any provision of Dodd-Frank Title X or related regulations (76 Fed. Reg. 45174)


CFPB Developments Ex Parte Presentations

On August 16, 2011, the CFPB released Bulletin 11-3, which requires public disclosure of oral or written ex parte presentations to the CFPB in connection with rulemakings Subject to certain exceptions, an ex parte presentation is defined as any oral or written communication by a person outside the CFPB that imparts information or argument directed to the merits or outcome of a rulemaking proceeding Essentially, these are communications with the CFPB other than formal written comment letters submitted to the rulemaking docket

CFPB Developments Ex Parte Presentations


An ex parte presentation can include factual information provided at the CFPBs request The disclosure requirements apply to ex parte presentations that occur between the time a rule is proposed for public comment and the time the rule is finalized


CFPB Developments Ex Parte Presentations


Within three days of an oral ex parte presentation, the party making the presentation must file to the applicable docket a memorandum summarizing the presentation and provide a copy to the CFPBs Executive Secretary and to all CFPB employees to whom the presentation was made Similar requirement applies to written ex parte presentations