CFPB Issues Interpretive Rule on Juneteenth and Regulation Z

Many of you have asked me for my thoughts on the CFPB’s August 5, 2021 interpretive rule regarding the treatment of June 19, 2021, the new Juneteenth federal holiday, for purposes of rescission and TRID timeframes under Regulation Z.   So, I’ve put together my thoughts for you in this blog post. 

As I wrote about here and here, the creation of this new holiday on June 17th, just a little over a day before the June 19th holiday, created significant compliance issues for the mortgage industry, because of the uncertainty regarding how the new federal holiday affected the counting of specific “business days” under Regulation Z.   The interpretive rule confirms the CFPB’s view that the legislation creating the new federal holiday became effective upon President Biden’s signature on June 17, 2021, and that June 19, 2021 was a federal holiday for purposes of Regulation Z.  The CFPB stated, “June 19 became a Federal holiday on June 17, 2021.”

Significantly, the CFPB stated that the definition of “business day” that applies to a transaction is, “the version of the definition in effect when the relevant time period begins.”  The CFPB further clarified that this means:

 if the relevant time period began on or before June 17, 2021, then June 19, 2021 is a business day for purposes of the specific business day definition. If the relevant time period began after June 17, 2021, then June 19, 2021 is a Federal holiday for purposes of the specific business day definition.

The CFPB also stated that creditors are not prohibited from providing longer time periods than required under Regulation Z, so it would be compliant for creditors to consider June 19, 2021 a federal holiday for purposes of timeframes that began on or before June 17.  There are some other useful examples and statements provided by the CFPB in the interpretive rule. 

The CFPB’s interpretive rule provides much-needed clarity to the industry.  But the industry needs to consider some issues after the issuance of this rule.  Lenders need to think about whether they need to reopen rescission for rescission periods that started on June 18th.  And investors need to think about how they’re going to treat closings that may have occurred too early, if lenders ignored the new holiday. 

Even though the industry can rely on the interpretive rule, there are some interesting issues raised by the interpretive rule.  One of the issues surrounds the case law the CFPB cited, United States v. Casson, 434 F.2d 415 (D.C. Cir. 1970), which found that Supreme Court precedent, to avoid ex post facto liability, makes statutes effective at the time of the President’s signature, rather than at 12:01 A.M. on the day of signature.  But even though President Biden signed the legislation at about 4 P.M on June 17th, the CFPB did not make the new holiday effective at that time.  Instead, the CFPB applied the new holiday only to time periods that began on the next day, June 18th, essentially ignoring the precedent in the case law.  In addition, the CFPB could have decided to make the new holiday effective for time periods that started on June 17th, in part, because it was already ignoring the time of signature precedent in the case law, and it was clear from public reporting that President Biden would quickly sign the bill after it was passed on June 16.  Another question is, does case law support the new holiday only becoming effective for purposes of Regulation Z for time periods that began after its creation? 

However, the CFPB stated that it is not treating Juneteenth as a holiday for time periods that began at any time on June 17th, because the relevant provisions of Regulation Z only deal with the date that an event occurred, rather than the time of day.  In addition, the CFPB stated that its interpretation, “serves the purposes of the regulation, by providing certainty to creditors and uniformity in the application of the specific business day definition across the mortgage market.”  I think the CFPB’s interpretation also makes practical sense for the CFPB to ignore the time of signature and apply the effectives to the start of the time period, especially because many lenders do not have procedures or systems in place to track exact times or to change the “business day” definition mid-stream. 

But can the CFPB interpret a statute to not take effect pursuant to its interpretive authority contrary to case law?  And did the CFPB correctly choose June 18 to start the effectiveness of the new holiday, rather than June 17?   Another lingering question is why the scope of this rule is expressly limited to closed-end mortgage loans, when time periods for other transactions, such as for open-end transactions, are affected by this new holiday?  What does this interpretive rule mean for those time periods?

Although the industry can and should rely on this interpretive rule, it will be fascinating to see what happens if any of these issues are ever raised in a lawsuit. 

Please contact me at rich@garrishorn.com if you would like to discuss any of these issues.