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
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
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.
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.