Compliance Blog

Written by Steve Van Beek

Yesterday's blog post looked at the CFPB's proposed exemption for mortgage servicers who service 1000 or fewer mortgages.  Today, we'll look at the "coupon book exemption" that was mandated by Dodd-Frank and how the CFPB plans to implement this exemption.  

Initially, here are the three pages of the CFPB's TILA mortgage servicing proposal that discuss the proposed coupon book exemption.

Dodd-Frank Exemption.  The beginning step for reviewing the "coupon book exemption" is to review the underlying statutory text from Dodd-Frank - Section 1420.  Section 1420 of Dodd-Frank adds paragraph (f) to Section 128 of the Truth in Lending Act (TILA) and mandates periodic statements for mortgages.  Importantly, subsection (f)(3) provides the coupon book exemption:

‘‘(3) EXCEPTION.—Paragraph (1) shall not apply to any fixed rate residential mortgage loan where the creditor, assignee, or servicer provides the obligor with a coupon book that provides the obligor with substantially the same information as required in paragraph (1).’’

First, it is clear the coupon book exemption is only available for fixed rate residential mortgage loans.  Any adjustable-rate mortgages would need to be provided the periodic statement (assuming the CU services over 1000 mortgages).  

Second, the "coupon book exemption" applies when the credit union provides the borrower with "substantially the same information as required in paragraph (1)."  So, what is required by paragraph (1)?

‘‘(1) IN GENERAL.—The creditor, assignee, or servicer with respect to any residential mortgage loan shall transmit to the obligor, for each billing cycle, a statement setting forth each of the following items, to the extent applicable, in a conspicuous and prominent manner:

‘‘(A) The amount of the principal obligation under the mortgage.

‘‘(B) The current interest rate in effect for the loan.

‘‘(C) The date on which the interest rate may next reset or adjust.

‘‘(D) The amount of any prepayment fee to be charged, if any.

‘‘(E) A description of any late payment fees.

‘‘(F) A telephone number and electronic mail address that may be used by the obligor to obtain information regarding the mortgage.

‘‘(G) The names, addresses, telephone numbers, and Internet addresses of counseling agencies or programs reasonably available to the consumer that have been certified or approved and made publicly available by the Secretary of Housing and Urban Development or a State housing finance authority (as defined in section 1301 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989).

‘‘(H) Such other information as the Board may prescribe in regulations." (Emphasis added).

Thus, Congress indicated what information must be included in the coupon book to qualify for the exemption - but also gave the CFPB the ability to require additional items as well.  

CFPB's Coupon Book Exemption Proposal.  Fast forward to the CFPB's proposed "coupon book exemption" and it is clear the CFPB does not like the "static" nature of coupon books.  Here is the CFPB's explanation:

"The Bureau recognizes the value of the coupon book as striking a balance between ensuring consumers receive important information, and providing a low burden method for servicers to comply with the periodic statement requirements.  As such, the Bureau seeks to effectuate the coupon book exemption. The nature of a coupon book (both its smaller size and static nature) creates difficulties in including substantially similar information as would be on a periodic statement.  The main problem is the static nature of a coupon book.  Because a coupon book may cover an entire year or more, it cannot include information that changes on a monthly basis.  By contrast, a periodic statement can provide dynamic information that changes on a monthly basis.  To address this problem, the Bureau is proposing to modify the coupon book exception permitted by TILA section 128(f)(3) to apply the exception where the coupon book contains certain static information and other dynamic information is made accessible to the consumer."  (Emphasis added).

Thus, the CFPB is utilizing its authority to require additional information be provided before a coupon book would qualify for an exemption from the mortgage periodic statement requirement.  

Providing Information Upon Request.  The CFPB's proposal would require credit unions that offer members coupon books to also provide information to members upon request.  Here is the explanation:

"Information made available.  As discussed above, due to the static nature of the coupon book, certain dynamic information that is required to be included on periodic statements cannot be included.  To use the coupon book provision, the proposed rule would require that the dynamic information be made available upon the consumer’s request.  The servicer could provide the information orally, or in writing, or electronically, if the consumer consents.  Thus, proposed paragraph (e)(3)(iii) would require the following dynamic information be made available to the consumer upon request: the monthly payment amount, including a breakdown showing how much, if any, will be allocated to principal, interest, and any escrow account; the total of fees or charges imposed since the last payment period; any payment amount past due; the total of all payments received since the beginning of the payment period, including a breakdown of how much, if any, of those payments was applied to principal, interest, escrow, fees and charges, and any partial payment suspense accounts; the total of all payments received since the beginning of the calendar year, including a breakdown of how much, if any, of those payments was applied to principal, interest, escrow, fees and charges, and how much is currently in any partial payment or suspense account; and a list of all the transaction activity (as defined in proposed comment 41(d)(4)-1) that occurred since the payment period.

The Bureau seeks comment on whether requiring servicers to make this information available would impose significant burden or costs that exceed consumer benefits.  In particular, the Bureau seeks comment on whether providing the past payment breakdown information would impose greater burden then benefits."  (Emphasis added).

Ultimately, this requirement for "dynamic information" clearly diminishes the benefit of the "coupon book exemption" and whether it is a useful avenue for credit unions to pursue.

For reference, the proposed regulatory text - 12 CFR 1026.41(e)(3) - is available here.  The preamble to the proposed exemption is available here.    

***

Comments.  As with many of the other issues, credit union comments on their current practices and how the CFPB's proposed exemption impacts their practices are extremely important.  If you have stories, information or data on your current practices that you would like to share with NAFCU - please pass it along and we'll make sure the CFPB is aware of how their proposal will impact credit unions.