The Consumer Financial Protection Bureau (CFPB) is proposing to delay implementation of part of the Loan Originator Compensation Requirements it issued in January. The proposed delay affects a prohibition on creditors financing credit insurance premiums which is currently scheduled to go into effect on June 1, 2013. CFPB is asking for public comment on the delay which it is proposing in order to address some interpretive issues that have arisen.
The Final Rule on Loan Originator Compensation Requirements implemented Dodd-Frank Act amendments to the Truth in Lending Act (TILA) addressing compensation, qualifications and registration of loan originators, compliance procedures for depository institutions, mandatory arbitration; and the financing of single-premium credit insurance. The last item prohibits creditors from financing premiums or fees for certain credit insurance products in connection with certain consumer credit transactions secured by a dwelling.
CFPB set implementation dates for most of the several rules issued in January 2013 for January 10, 2014 in order to allow the mortgage industry sufficient time to prepare for and comply with them. However it identified certain provisions that it believed did not present significant implementation burdens for the industry including the credit insurance provision and another concerning mandatory arbitration clauses and waivers of certain consumer rights. For these a date of June 1, 2013 was set.
The prohibition in the credit insurance provision applies to credit life, credit disability, credit unemployment, credit property insurance, and other similar products but 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 premiums are reasonable, the creditor receives no compensation, and the premiums are paid pursuant to a separate insurance contract and not to the creditor's affiliate.
CFPB received very few public comments either on the proposed provision or on the earlier implementation date and those it did receive from consumer groups concerned credit insurance premiums charged periodically while those from creditors concerned the general prohibition, not premiums. None were received from the credit insurance industry. In the preamble to the Final Rule the Bureau provided some explanation about periodic premiums.
Since publication of the final rule, industry stakeholders have expressed concern that the regulation left substantial uncertainty about whether and under what circumstances premiums for certain credit insurance products can be charged on a periodic basis. These stakeholders have requested clarification and also expressed concern about their ability to comply with the effective date of implementation.
The Bureau said that in response to these concerns it intends to publish a new proposal in June and seeks additional public comment regarding the applicability of the prohibition to transactions where credit insurance premiums are charged periodically and to propose a new effective date that will allow sufficient time after a new proposal is finalized for industry participants to comply.
If the rule goes into effect on June 1 as written the Bureau said it could create uncertainty that will result in a substantial compliance burden for industry. It contemplates delaying the effective date only as long as necessary for any clarifications to be proposed, finalized, and implemented.
The current proposal seeks comment on a new effective date for any clarifications as part of the upcoming June proposal and on a final date for implementation of the revised rule. The Bureau believes that the temporary delay would balance the need for consumers to receive the protections afforded by the rule as quickly as possible with industry's need to make adjustments to comply with the provisions of the rule. Interested parties have 15 days to comment on the proposal after it is published in the Federal Register.
This proposal follows two that were issued by CFPB last month to clarify and correct some aspects of the 2013 Escrows Final Rule, the Ability-to-Repay and Qualified Mortgage Rule and the Mortgage Servicing Rules. The Bureau said it is issuing these proposals as part of its ongoing commitment to facilitate implementation of the rules issued under the Dodd-Frank Act in January.
