[Federal Register Volume 78, Number 91 (Friday, May 10, 2013)]
[Proposed Rules]
[Pages 27308-27310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11223]

Proposed Rules
                                                Federal Register

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.


Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed 

[[Page 27308]]


12 CFR Part 1026

[Docket No. CFPB-2013-0013]
RIN 3170-AA37

Loan Originator Compensation Requirements Under the Truth In 
Lending Act (Regulation Z); Prohibition on Financing Credit Insurance 
Premiums; Delay of Effective Date

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule with request for public comment.


SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
proposing to temporarily delay the June 1, 2013, effective date of a 
prohibition on creditors financing credit insurance premiums in 
connection with certain consumer credit transactions secured by a 
dwelling. The prohibition was adopted in the Loan Originator 
Compensation Requirements under the Truth in Lending Act (Regulation Z) 
Final Rule, issued on January 20, 2013. Temporary delay of the 
effective date would permit the Bureau to clarify, before the provision 
takes effect, its applicability to transactions other than those in 
which a lump-sum premium is added to the loan amount at closing.

DATES: Comments must be received on or before May 25, 2013.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2013-
0013 or RIN 3170-AA37, by any of the following methods:
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail/Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1700 G 
Street NW., Washington, DC 20552.
    Instructions: All submissions should include the agency name and 
docket number or Regulatory Information Number (RIN) for this 
rulemaking. Because paper mail in the Washington, DC area and at the 
Bureau is subject to delay, commenters are encouraged to submit 
comments electronically. In general, all comments received will be 
posted without change to http://www.regulations.gov. In addition, 
comments will be available for public inspection and copying at 1700 G 
Street NW., Washington, DC 20552, on official business days between the 
hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment 
to inspect the documents by telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or social 
security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Richard Arculin or Daniel Brown, 
Counsels, Office of Regulations, at (202) 435-7700.


I. Background

    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). Public Law 
111-203, 124 Stat. 1376 (2010). One of these final rules was the Loan 
Originator Compensation Requirements under the Truth in Lending Act 
(Regulation Z) Final Rule (``Final Rule'').\1\ 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 Sec.  1026.36(i).

    \1\ 78 FR 11279 (Feb. 15, 2013).

A. Title XIV Rulemaking Effective Dates

    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.\2\ To avoid uncertainty and potential disruption in the national 
mortgage market at a time of economic vulnerability, the Bureau issued 
several final rules (``the 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 issuance 
of the earliest of the Title XIV Rulemakings--as the baseline 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 Sec.  1026.36(h) on mandatory arbitration clauses 
and waivers of certain consumer rights and Sec.  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.

    \2\ Dodd-Frank Act section 1400(c), 15 U.S.C. 1601 note.

B. Implementation Initiative for New Mortgage Rules

    On February 13, 2013, the Bureau announced an initiative to support 
implementation of its new mortgage rules (Implementation Plan),\3\ 
under which the Bureau would work with the mortgage industry to ensure 
that the new rules can be implemented accurately and expeditiously. The 
Implementation Plan included (1) coordination with other agencies; (2) 
publication of plain-language guides to

[[Page 27309]]

the new rules; (3) publication of 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 proposal is a proposed adjustment to the new rules. 
The purpose of these updates is to address important questions raised 
by industry, consumer groups, or other agencies.

    \3\ Consumer Financial Protection Bureau Lays Out Implementation 
Plan for New Mortgage Rules. Press Release. Feb. 13, 2013.

II. Legal Authority

    On July 21, 2011, section 1061 of the Dodd-Frank Act transferred to 
the Bureau the ``consumer financial protection functions'' previously 
vested in certain other Federal agencies, including the Board of 
Governors of the Federal Reserve System. The term ``consumer financial 
protection function'' is defined to include ``all authority to 
prescribe rules or issue orders or guidelines pursuant to any Federal 
consumer financial law, including performing appropriate functions to 
promulgate and review such rules, orders, and guidelines.'' 12 U.S.C. 
5581(a)(1). TILA is a Federal consumer financial law. Dodd-Frank Act 
section 1002(14), 12 U.S.C. 5481(14) (defining ``Federal consumer 
financial law'' to include the ``enumerated consumer laws'' and the 
provisions of title X of the Dodd-Frank Act); Dodd-Frank Act section 
1002(12), 12 U.S.C. 5481(12) (defining ``enumerated consumer laws'' to 
include TILA). Accordingly, the Bureau has authority to issue 
regulations pursuant to TILA.
    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 proposing to temporarily delay the 
effective date 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.

III. Effective Date

    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.\4\ 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.

    \4\ 15 U.S.C. 1639(d).

    The Bureau proposed to implement this provision through Sec.  
1026.36(i), which generally tracks the statutory language. In the 
proposal, the Bureau stated its belief that the provisions were 
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.\5\

    \5\ 77 FR 55272 (Sept. 7, 2012).

    The Bureau received very few public comments on the substance of 
the proposed prohibition or the earlier effective date. Consumer groups 
sought clarification on the provision's applicability to certain 
factual scenarios where credit insurance premiums are charged 
periodically, rather than as a lump-sum added to the loan amount at 
closing. They also urged the Bureau to provide an early effective date 
for the provision. The Bureau did not receive any public comments from 
the credit insurance industry. The Bureau received some limited 
comments from creditors concerning the general prohibition, but these 
comments did not address the applicability of the provision to 
transactions in which premiums are charged periodically. In the 
preamble to the Final Rule, the Bureau provided some explanation 
concerning the provision's applicability to credit insurance premiums 
charged periodically, rather than as a lump-sum added to the loan 
amount at closing. 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 
charged on a periodic basis in connection with a covered consumer 
credit transaction secured by a dwelling. These stakeholders have 
requested clarification on Sec.  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 Sec.  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 new proposal to seek further 
notice and comment on the provision in June 2013. In that proposal, 
among other things, the Bureau plans to (1) seek public comment, 
including from industry stakeholders and consumers, regarding the 
applicability of the prohibition to transactions in which credit 
insurance premiums are charged periodically; and (2) propose a new 
effective date for Sec.  1026.36(i), under which the provision would 
take effect some time after finalization of that proposal.
    In the interim, the Bureau is proposing to temporarily delay the 
June 1, 2013, effective date of Sec.  1026.36(i). The Bureau is 
concerned that, if the effective date is 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. The Bureau 
believes this could result in a substantial compliance burden to 
industry. The Bureau thus proposes that the effective date for Sec.  
1026.36(i) be temporarily delayed. The Bureau contemplates delaying the 
effective date only as long as necessary for any clarifications to be 
proposed, finalized, and implemented. The Bureau solicits comment on 
what that new date should be. Further, whatever new effective date the 
Bureau may announce as a result of this proposal, the Bureau also 
intends to propose and again seek comment on the effective date for any 
clarifications to Sec.  1026.36(i) as part of the forthcoming June 
proposal. The Bureau believes that the temporary delay would balance 
the need for consumers to receive the protections

[[Page 27310]]

afforded by the rule as quickly as possible with industry's need to 
make adjustments to comply with the provisions of the rule.

IV. Section 1022(b)(2) of the Dodd-Frank Act

    The Bureau is considering the potential benefits, costs, and 
impacts of the proposed rule.\6\ The Bureau requests comment on the 
preliminary analysis presented below as well as submissions of 
additional data that could inform the Bureau's analysis of the 
benefits, costs, and impacts of the proposed rule. The Bureau has 
consulted, or offered to consult with, the prudential regulators, SEC, 
HUD, VA, 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.

    \6\ Section 1022(b)(2)(A) of the Dodd-Frank Act, 12 U.S.C. 
5521(b)(2), directs the Bureau, when prescribing a rule under the 
Federal consumer financial laws, to consider the potential benefits 
and costs of regulation to consumers and covered persons, including 
the potential reduction of access by consumers to consumer financial 
products or services; the impact on insured depository institutions 
and credit unions with $10 billion or less in total assets as 
described in section 1026 of the Dodd-Frank Act; and the impact on 
consumers in rural areas. Section 1022(b)(2)(B) of the Dodd-Frank 
Act directs the Bureau to consult with appropriate prudential 
regulators or other Federal agencies regarding consistency with 
prudential, market, or systemic objectives that those agencies 

    In part VII of the Final Rule, the Bureau previously considered the 
costs, benefits, and impact of Sec.  1026.36(i) as adopted by the Final 
Rule. The Bureau believes that, compared to the baseline established by 
the Final Rule,\7\ the proposed delay of Sec.  1026.36(i)'s effective 
date would 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 would benefit to the extent that the changes eliminate any 
disruptions in the provision of credit insurance products to consumers 
while interpretive questions concerning Sec.  1026.36(i) are addressed. 
The Bureau believes that delaying the effective date of Sec.  
1026.36(i) would 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 sought to prohibit 
through TILA section 129C.

    \7\ The Bureau has discretion in any rulemaking to choose an 
appropriate scope of analysis with respect to potential benefits and 
costs and an appropriate baseline.

    In addition, the proposed rule is not expected to have a 
differential impact on depository institutions and credit unions with 
$10 billion or less in total assets as described in section 1026 of the 
Dodd-Frank Act or on consumers in rural areas. The Bureau does not 
believe that the proposed rule would meaningfully reduce consumers' 
access to consumer products and services.

V. Regulatory Flexibility Act Analysis

    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.\8\ These analyses must 
``describe the impact of the proposed rule on small entities.'' \9\ 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,\10\ or if the agency considers a series of closely related 
rules as one rule for purposes of complying with the IRFA or FRFA 
requirements.\11\ 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.\12\

    \8\ 5 U.S.C. 601 et seq.
    \9\ 5 U.S.C. 603(a). For purposes of assessing the impacts of 
the proposed rule on small entities, ``small entities'' is defined 
in the RFA to include small businesses, small not-for-profit 
organizations, and small government jurisdictions. 5 U.S.C. 601(6). 
A ``small business'' is determined by application of Small Business 
Administration regulations and reference to the North American 
Industry Classification System (NAICS) classifications and size 
standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
for-profit enterprise which is independently owned and operated and 
is not dominant in its field.'' 5 U.S.C. 601(4). A ``small 
governmental jurisdiction'' is the government of a city, county, 
town, township, village, school district, or special district with a 
population of less than 50,000. 5 U.S.C. 601(5).
    \10\ 5 U.S.C. 605(b).
    \11\ 5 U.S.C. 605(c).
    \12\ 5 U.S.C. 609.

    The Bureau concludes that an IRFA is not required for this proposed 
rule because the proposed rule, if adopted, would not have a 
significant impact on a substantial number of small entities. As 
discussed above, the proposal would temporarily delay the June 1, 2013 
effective date of Sec.  1026.36(i), as adopted by the Final Rule, 
pending the finalization of a forthcoming proposal that will address 
certain interpretive questions that have arisen regarding the 
application of the provision to non-lump sum credit insurance products. 
The Bureau will determine the new effective date when it finalizes that 
proposal. 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.

VI. Paperwork Reduction Act Analysis

    The Bureau may not conduct or sponsor, and, notwithstanding any 
other provision of law, a respondent is not required to respond to, an 
information collection unless it displays a currently valid OMB control 
number. Regulation Z currently contains collections of information 
approved by OMB. The Bureau's OMB control number for Regulation Z is 
3170-0015. However, the Bureau has determined that this proposed rule 
would not materially alter these collections of information or impose 
any new recordkeeping, reporting, or disclosure requirements on the 
public that would constitute collections of information requiring 
approval under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. 
Comments on this determination may be submitted to the Bureau as 
instructed in the ADDRESSES section of this notice and to the attention 
of the Paperwork Reduction Act Officer.

    Dated: May 7, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-11223 Filed 5-8-13; 11:15 am]