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01/19/2023

Most ALTA Members Not Covered by CFPB Proposal for Consumer Contracts

The Consumer Financial Protection Bureau (CFPB) on Jan. 11 announced a proposed rule that would create a registry of certain contract terms and conditions. This proposal would require certain nonbanks to annually submit information when their standard contracts impose limitations on consumer rights, including waivers of legal claims, choice of venue clauses, limitations on class actions, arbitration agreements and other legal waivers.

Fortunately, ALTA’s analysis is that this proposal will not likely require title companies to file anything with the CPFB.

Under the proposal, companies that must submit contracts are “supervised registrants,” which are a subset of “supervised nonbanks” as defined in the proposed definitions. It is unlikely that an ALTA member will qualify as a supervised registrant or nonbank as the proposal is drafted.

A starting point for this analysis is the definitions. The definition of a supervised nonbank there are four parts to examine. Critical parts of the definition are highlighted below.

    (g) Supervised nonbank means a nonbank covered person that is subject to supervision and examination by the Bureau pursuant to 12 U.S.C. 5514(a), except to the extent that     such person engages in conduct or functions that are excluded from the supervisory authority of the Bureau pursuant to 12 U.S.C. 5517 or 12 U.S.C. 5519.  Subject to the foregoing     statutory exclusions, this term includes any nonbank covered person that:

    (1) Offers or provides a residential mortgage-related product or service as described in 12 U.S.C. 5514(a)(1)(A); (2) Offers or provides any private educational consumer loan as     described in 12 U.S.C. 5514(a)(1)(D); (3) Offers or provides any consumer payday loan as described in 12 U.S.C. 5514(a)(1)(E); (4) Is a larger participant in any market as     defined by rule in part 1090 pursuant to 12 U.S.C. 5514(a)(1)(B); or (5) Is subject to an order issued by the Bureau pursuant to 12 U.S.C. 5514(a)(1)(C).

Analysis of Definition

The definition of covered person is foundational to any question about whether the CFPB can supervise a business. ALTA’s analysis starts with whether a provider of a service is a covered person under 12 U.S. Code § 5481(6). This definition applies to any person that offers or provides a “consumer financial product or service.” While definitions in the Consumer Financial Protection Act (CFPA) can get circular, in essence a consumer financial product or service under paragraph 5 of 5481 is a financial product or service as defined under paragraph 15 of the same section used primarily for consumer purposes.

It’s important to note two things when examining the definition of financial product of service under 12 USC 5481(15). First, 15(a)(iii) explicitly states that real estate settlement services are a financial product. This is where the CFPB gets the general power to oversee ALTA members and partially where the bureau draws its TILA-RESPA Integrated Disclosure (TRID) authority. However, it should be noted that this authority under 15(a)(iiI) also says that real estate settlement services are only covered to the extent they are not excluded under subparagraph C of the definitions. Subparagraph C says that the business of insurance (broadly defined in paragraph 3) is not within CFPB’s authority. Thus, a provider is not a covered person under the CFPA when the provision of real estate settlement services falls under the business of insurance. Put another way, since most contracts that title professionals use with customers are part of the insurance transaction, either because they are part of the insurance contract or because the service is overseen by the state department of insurance, they will likely not fall under the ambit of this proposal.

However, since there is some level of ALTA members and services that don’t fall into the business of insurance exception, there could still be some coverage for a portion of the business around settlement and escrow that is not explicitly part of the provision of insurance and supervised by insurance regulators. This would likely apply to entities like escrow companies that have separate escrow rules and regulations beyond the state DOI. In these instances, the other highlighted exclusions come into play.

In the definition above, a covered person only falls under this rule if they are subject to supervision under 5514(a). This section only applies to nonbank mortgage lenders or “larger participants” in other financial products. In general, for the CFPB to supervise a settlement company, it would need to issue a rule before supervising larger participants. ALTA is not aware of the bureau doing so in a manner that covers any title company. In addition, 5517(f) limits the CFPB’s authority to supervise people regulated by a state DOI.

Key Takeaway

While any new effort by the CFPB to push the envelope when it comes to regulation and supervision is concerning, most ALTA members should be excluded from this proposal as they are not covered persons.

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