July 19: CFPB Recent Updates

The Consumer Financial Protection Bureau (CFPB) today proposed an interpretive rule explaining that many paycheck advance products, sometimes marketed as “earned wage” products, are consumer loans subject to the Truth in Lending Act. The guidance will ensure that lenders understand their legal obligations to disclose the costs and fees of these credit products to workers. The CFPB also published a report examining employer-sponsored paycheck advance loans. The report finds that workers using these employer-sponsored products take out an average of 27 such loans per year and that the typical employer-sponsored loan carries an annual percentage rate (APR) over 100%.

“Paycheck advance products are often marketed to and designed for employers, rather than employees,” said CFPB Director Rohit Chopra. “The CFPB’s actions will help workers know what they are getting with these products and prevent race-to-the-bottom business practices.”

“In recent years, workers have seen big increases in wages, but junk fees and high rates on financial products not only chip away at these gains – they take advantage of workers,” said Acting Secretary of Labor Julie Su. “As part of the most pro-worker, pro-union administration in history, here at the Department of Labor, we proudly support efforts by the CFPB to guard against predatory lending in the workplace.”

Almost three-quarters of workers receive their wages every two weeks or monthly. One major source of demand for consumer credit stems from the mismatch of when people receive compensation for the work they perform and when they incur expenses. While lenders have long offered credit for consumers to pay expenses in advance of a payday, a new market for paycheck advance products has emerged and is growing rapidly.

Six federal regulatory agencies today issued a final rule, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, designed to help ensure the credibility and integrity of models used in valuations for certain mortgages secured by a consumer’s principal dwelling. In particular, the rule will implement quality control standards for automated valuation models (AVMs) used by mortgage originators and secondary market issuers in valuing those homes. The final rule is substantially similar to the proposal issued in June 2023.

• The final rule is available here: www.consumerfinance.gov/rules-policy/final-rules/quality-control-standards-for-automated-valuation-models/.
• The CFPB has also issued a Fast Facts about the final rule.  The Fast Facts is available here: www.consumerfinance.gov/compliance/compliance-resources/mortgage-resources/quality-control-standards-for-automated-valuation-models/.

Under the final rule, the agencies will require institutions that engage in certain transactions secured by a consumer’s principal dwelling to adopt policies, practices, procedures, and control systems designed to:

• ensure a high level of confidence in estimates;
• protect against data manipulation;
• seek to avoid conflicts of interest;
• require random sample testing and reviews; and
• comply with nondiscrimination laws.

Driven in part by advances in database and modeling technology and the availability of larger property datasets, AVMs are being used with increasing frequency as part of the real estate valuation process. While advances in AVM technology and data availability have the potential to reduce costs and turnaround times of the property valuation process, it is important that institutions using AVMs take appropriate steps to ensure the credibility and integrity of the valuations produced. It is also important that the AVMs institutions use adhere to quality control standards designed to comply with applicable nondiscrimination laws.

The final rule will become effective on the first day of the calendar quarter following 12 months after publication in the Federal Register.