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Montana Division of Banking and Financial Institutions encourages financial institutions to work with customers during pandemic
On March 16, Montana’s Division of Banking and Financial Institutions (Division) announced regulatory guidance encouraging financial institutions to work with customers and communities affected by the Covid-19 pandemic. Specifically, financial institutions are encouraged to engage in various efforts, including: (i) waiving fees such as ATM, overdraft, and late fees; (ii) increasing ATM daily cash withdrawal limits; (iii) easing restrictions on cashing checks; (iv) increasing credit card limits for creditworthy borrowers; and (v) offering payment accommodations, including forbearance. The Division also addressed financial condition review, supervisory responses, and regulatory relief, as well as reporting requirements, and making alternative service options available to customers.
Mississippi Department of Banking and Consumer Finance encourages institutions to work with customers during pandemic
On March 13, Mississippi’s Department of Banking and Consumer Finance announced regulatory guidance encouraging financial institutions to work with customers and communities affected by the Covid-19 pandemic. Specifically, financial institutions are encouraged to engage in various efforts, including: (i) waiving fees such as ATM, overdraft, and late fees; (ii) increasing ATM daily cash withdrawal limits; (iii) easing restrictions on cashing checks; (iv) increasing credit card limits for creditworthy borrowers; and (v) offering payment accommodations including forbearance. The Department also addressed financial condition review, supervisory responses, and regulatory relief, as well as reporting requirements, and making alternative service options available to customers.
Mortgage sellers, servicers reminded of relief options for borrowers impacted by Covid-19
On March 10, Federal Housing Finance Agency Director Mark Calabria released a statement reminding mortgage servicers that borrowers impacted by Covid-19 and experiencing payment hardship would be eligible for hardship forbearance options set forth in the relevant Fannie Mae and Freddie Mac servicing guidelines. Calabria directed sellers and servicers to guidance issued the same day by Freddie Mac, which also reminds sellers and servicers that business continuity plans must be in place in order to conduct business operations in the event of an interruption. Fannie Mae has provided similar guidance to its seller/servicers.
Separately, on March 9, the Federal Housing Administration (FHA) issued a notice to all FHA-approved mortgagees and servicers reminding entities of loss mitigation program options that should be offered to distressed borrowers, including those impacted by Covid-19, to prevent foreclosures. These options, FHA noted, are available in the Single Family Housing Policy Handbook, 4000.1 Section III.A.2.
California DBO denies point-of-sale lending license application; issues related guidance
On December 30, the California Department of Business Oversight (DBO) announced the denial of a Minnesota-based point-of-sale company’s application to make loans under the California Financing Law (CFL) after determining the company had already been making unregulated loans to California consumers in violation of the CFL. According to the DBO’s Statement of Issues, the fintech company offers a product that allows consumers to enter into small installment loans in order to make online purchases at participating merchants. The company contended that it purchases credit sale contracts from merchants selling goods to consumers, and argued that these types of purchases do not qualify as loans subject to the CFL. However, following a review of the company’s application and products, the DBO concluded that the company structured its merchant partners’ purported credit sales to evade otherwise applicable consumer protections. Moreover, the DBO stated in its press release that the company’s “extensive role in its merchants’ transactions and pre-existing relationship with some consumers who were parties to the purported credit sales showed that [the company] was making loans under California law.” According to the decision, “[e]xtensive third-party involvement in the underlying credit sale may cause transactions to be deemed loans, regardless of form . . . even if the underlying credit sale is bona fide” (italics in original).
The DBO also issued a separate legal opinion advising a different, unidentified lender that its deferred payment products meet the Civil Code and case law definition of “loans” and therefore require a CFL license to be offered in the state. Among other things, the DBO argued that it is unclear as to why the lender’s products—which the lender claims “are not loans but similar to a forbearance”—would be exempt from the CFL, reiterating that loans and forbearances are both subject to usury provisions. The DOB noted that point-of-sale financing transactions may meet the definition of a loan when: (i) the transactions are treated like loans by the consumer, merchant, and third-party financer, “despite contradictory language in the applicable contracts”; (ii) there is an extensive relationship between the merchant and third-party financer; (iii) disclosures are not clearly made to the consumer about the role of the third-party financer and all financing terms; and (iv) “the financing transaction is not otherwise regulated.”
CFPB examines student loan borrowers enrolled in IDR plans
On November 22, the CFPB released a new Data Point report from the Office of Research titled “Borrower Experiences on Income-Driven Repayment,” which examines, among other things, the types of student loan borrowers who participate in income-driven repayment (IDR) plans, the evolution of borrower delinquencies, and borrower experiences with enrollment recertification processes. According to the Bureau, while student loans are currently the largest non-mortgage form of debt held by U.S. consumers, “there remains limited evidence of how this growing debt burden affects the use of other financial products and services.” Key findings of the report include:
- Delinquencies decreased 19 to 26 percent after one year into IDR enrollment for borrowers who received partial payment relief as compared to the quarter before enrollment, and the share of borrowers actively in repayment on their loans was 27 percent higher at the end of the first year of being enrolled in IDR than prior to entering IDR.
- Delinquent borrowers who enrolled in IDR showed a 17 percent reduction in their delinquencies on other credit products, however, the Bureau noted that “one in five such borrowers were still behind on their payments on these other credit products one year later, reflecting persistent financial struggles for some borrowers.”
- Roughly two-thirds of borrowers who recertified their IDR enrollment for a second year did so either immediately or within two months after the initial IDR period ended, with an additional 12 percent entering forbearance or deferment. The Bureau stated that borrowers who do not recertify on time after their first year may face persistent difficulties, and reported that delinquencies more than tripled for these borrowers.
- More than 80 percent of borrowers enrolled in IDR “sought out prolonged payment relief beyond a single year.”
According to the Bureau, the data “helps the Bureau and other researchers and policymakers understand how consumers repay their student loans and how that behavior affects their use of other financial products.”
VA encourages relief for Tropical Storm Imelda-affected borrowers
On November 8, the Department of Veterans Affairs (VA) issued Circular 26-19-29, encouraging mortgagees to provide relief for VA borrowers affected by Tropical Storm Imelda. Among other forms of assistance, the Circular encourages loan holders and servicers to (i) extend forbearances to borrowers in distress because of the disaster; (ii) establish a 90-day moratorium from the disaster declaration date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting related to affected loans. The Circular is effective until January 1, 2021. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.
Regulators tackle company offering relief from student loans
On October 30, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against a student loan debt relief operation for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21 and unsealed on October 29 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015 the defendants have violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the Bureau and the states claim the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments. The defendants also allegedly failed to inform borrowers that they automatically requested that the loans be placed in forbearance and submitted false information to student loan servicers to qualify borrowers for lower payments. The complaint seeks injunctive relief, as well as damages, restitution, disgorgement, and civil money penalties.
On November 15, the court entered a preliminary injunction enjoining the alleged violations of law in the complaint, continuing the asset freeze, and appointing a receiver against the defendants.
FDIC, VA issue disaster relief guidance
On October 10, the FDIC issued Financial Institution Letter FIL-56-2019 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Texas affected by Tropical Storm Imelda. In the letter, the FDIC encourages institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to borrowers affected by the severe weather. Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.
Separately on October 8, the Department of Veterans Affairs (VA) issued Circular 26-19-27 to encourage mortgagees to provide relief for VA borrowers affected by Hurricane Dorian. Among other forms of assistance, the Circular encourages loan holders and servicers to (i) extend forbearances to borrowers in distress as a result of the disaster; (ii) establish a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting. The Circular will be rescinded October 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.
VA encourages relief for Hurricane Barry-affected borrowers
On July 30, the Department of Veterans Affairs (VA) issued Circular 26-19-21, encouraging mortgagees to provide relief for VA borrowers affected by Hurricane Barry on the Gulf Coast. Among other forms of assistance, the Circular encourages loan holders and servicers to (i) extend forbearances to borrowers in distress because of the severe storms and flooding; (ii) establish a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting. The Circular is effective until July 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.
VA encourages relief for Arkansas borrowers
On June 20, the Department of Veterans Affairs (VA) issued Circular 26-19-16, encouraging mortgagees to provide relief for VA borrowers impacted by severe storms and flooding in Arkansas. Among other forms of assistance, the Circular encourages loan holders and servicers to (i) extend forbearance to borrowers in distress because of the severe storms and flooding; (ii) establishes a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waives late charges on affected loans; and (iv) suspends credit reporting. The Circular is effective until July 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.