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  • FHFA issues 2023 annual report and noted challenges in housing market

    Federal Issues

    On June 14, the FHFA released its annual report to Congress, as required under the Housing and Economic Recovery Act of 2008, detailing FHFA’s activities and the state of the housing finance industry in 2023. The report highlighted the current housing market’s tight supply of homes, high construction costs, and rising interest rates. All three factors contributed to difficulties buying or refinancing homes, as well as significantly increasing the cost of rent and home prices.

    The report also discussed the conservatorships of Fannie Mae and Freddie Mac. Despite remaining undercapitalized, the government-sponsored enterprises built out their capital reserves during 2023 and transferred more credit risks onto private investors. The report detailed the FHFA’s effort to promote equitable access to affordable housing through initiatives focused on energy efficiency products and fair lending practices.

    The annual report covered FHFA’s research and regulatory activities, including publications of several working papers on climate risk, mortgage debt, and housing supply.  An overview of the FHFA’s regulatory activity included several proposed and final rules, including amendments to the Enterprise Regulatory Capital Framework and the Enterprise Duty to Serve Underserved Markets regulation.

    The 2023 annual report followed the FHFA’s report on the FHLBank System, as previously covered by InfoBytes. The FHLBank report recommended actions for banks to provide more consistent and sustained access to home financing. The report highlighted the role of the 11 FHLBanks in providing liquidity to their members and supporting housing and community development. The banks faced increased demand for loans in early 2023 due to volatility in the banking sector but maintained good capital liquidity and lending capacities. 

    Federal Issues FHFA FHLB Housing Finance Reform Mortgages Lending

  • CFPB reports negative equity findings from the Auto Finance Data Pilot

    Federal Issues

    On June 17, the CFPB published the first report in a series that will analyze detailed information from nine major auto lenders – including banks, finance companies, and captive lenders – following the launch of its Auto Finance Data Pilot. The initiative aimed to monitor the market to better understand loan attributes that may result in increased consumer distress.

    This report analyzed financing of negative equity, “where the trade-in value offered for a consumer’s vehicle is less than the outstanding loan balance and the unpaid balance is rolled into the new loan.” According to the CFPB’s report, between 2018 and 2022, 11.6 percent of all vehicle loans in the dataset collected by the CFPB from industry participants included negative equity, ranging from about 8 percent of such loans in 2022, to about 17 percent in 2020. Among other findings, the report also highlighted that when compared to consumers who had a positive trade-in balance, consumers who financed negative equity: (i) financed larger loans; (ii) had lower credit scores and household income; (iii) had longer loan terms; and (iv) were more than twice as likely to have their account assigned to repossession within two years. The Bureau concluded that a higher proportion of consumers buying less expensive vehicles tended to finance negative equity into their auto loans compared with those purchasing more expensive vehicles. The CFPB said data from the pilot suggested that financing negative equity can result in unfavorable outcomes for consumers, with both the occurrence and the amount of negative equity financed increasing through 2023.

    Federal Issues CFPB Auto Finance Pilot Program Consumer Finance Consumer Protection

  • CFPB highlights updated guidance on unemployment benefit delivery, prepaid card fees

    Federal Issues

    On June 17, the CFPB published a blog post highlighting The Department of Labor’s recently updated Unemployment Insurance Program Letter which clarified regulatory obligations regarding the delivery of unemployment benefits by state workforce agencies. The revised guidance came in response to CFPB research which identified issues with prepaid debit cards such as “junk fees” that lessen the value of benefits for recipients, the CFPB said. The guidance will aim to ensure that unemployment insurance, particularly highlighted during the Covid-19 pandemic, was delivered efficiently and with minimal additional costs to beneficiaries.

    The guidance reiterated that recipients of unemployment benefits must be given a choice in how they receive their payments. It is unlawful for a state to require recipients to receive any unemployment payments on a state-administered debit card, even if they have the option of moving funds to another account later. The CFPB found that certain fees associated with prepaid cards, including ATM and customer service fees, can be burdensome for users, and states were encouraged to negotiate terms that reduce or eliminate additional fees. Recipients facing issues with prepaid cards will be advised to file a complaint with the CFPB or reach out to their state unemployment offices for assistance. 

    Federal Issues Agency Rule-Making & Guidance Department of Labor CFPB Prepaid Cards

  • CFPB proposes order against co-trustees for concealing assets to avoid fine

    Federal Issues

    On June 17, the CFPB filed a stipulated order and judgment, subject to court approval in the U.S. District Court for the District of Kansas, in an action against two individuals to resolve a lawsuit accusing them of concealing assets. The CFPB averred the defendants engaged in multiple fraudulent transfers over two years to avoid paying a fine owed to the Bureau. As previously covered by InfoBytes, the CFPB filed a complaint last year accusing the individuals of concealing assets to avoid paying $38 million in restitution and $12.5 million in civil penalties owed by the company and an individual defendant related to their payday lending practices. The Bureau will be seeking recovery of the transferred funds by declaring the transactions fraudulent and imposing liens on properties, as well as pursuing monetary judgment against the wife of one of the individual defendants and her trust.

    The stipulated order and judgment would release freezes and holds on defendants’ accounts and require defendants to pay about $7.3 million of an imposed $12.3 million judgment, with the remainder suspended due to a demonstrated inability to pay more. The payment will apply toward satisfying one defendant’s existing $43 million judgment, which included consumer redress and civil money penalties. That defendant must also share their filed federal and state income taxes with the Bureau until the fine is paid. If any additional financial information is found or if defendants made any financial misrepresentations, then defendants would be required to pay the fine in full. 

    Federal Issues Courts CFPB Enforcement Trust Fund Payday Lending Online Lending FDCPA

  • CFPB’s payday lender rule to begin in March 2025

    Agency Rule-Making & Guidance

    On June 14, the CFPB published a press release announcing that its payday lender rule from 2017, titled “Payday, Vehicle Title and Certain High-Cost Installment Loans,” will take effect on or around March 30, 2025. The rule will target unfair and abusive practices in short-term lending and will aim to curb lenders’ repeated attempts to withdraw payments from consumers’ accounts even after knowing the accounts may have nonsufficient funds. The CFPB found that such practices resulted in accumulated fees for consumers such as nonsufficient fund fees and overdraft fees. The Bureau also maintained that repeated attempts to withdraw payment from a consumer’s account rarely benefitted lenders because once a withdrawal fails, consecutive attempts are unlikely to succeed.

    As previously covered by InfoBytes, the Bureau’s payday lender rule included a “two-strikes-and-you’re-out” rule, which would prohibit lenders from attempting further withdrawals after two failed attempts without the borrower’s explicit authorization. The rule was supposed to take effect in 2019 – however, the rule’s implementation was delayed due to a challenge by an industry trade group. A court order pausing the rule will expire 286 days after the Supreme Court issued a decision in CFPB v. CFSA, which it did so on June 17. In CFPB v. CFSA, the Supreme Court held that the CFPB’s funding structure was constitutional (covered by InfoBytes here).

    Agency Rule-Making & Guidance CFPB Payday Lending Supreme Court Federal Issues

  • Senator Warren urges Fed vote on Basel III requirements

    On June 17, in a letter to Fed Chair, Jerome Powell, Senator Elizabeth Warren (D-MA) requested information regarding discussions of potentially cutting the Basel III capital requirements in half.

    Warren highlighted reports that Powell was considering reducing Basel III capital requirements and was allegedly influenced by lobbying efforts. Warren also referenced Powell's public comments suggesting significant changes or elimination of these requirements. She cited a news article detailing the Fed's alleged plan to lessen the mandated capital increase for major U.S. banks and reports of lobbying efforts, bypassing the Fed's Vice Chair for Banking Supervision, Michael Barr.

    Warren expressed concern that such a move could compromise the financial stability and security of middle-class and working families, while benefiting wealthy investors and CEOs. She argued that this contradicted the purpose of the Basel III rules, which were designed to prevent financial crises.

    Warren also discussed ongoing risks in the banking and financial sector, including reports of potential regional bank failures due to troubled commercial real estate loans. She challenged the arguments made by large banks against increasing capital reserves and accused Powell of taking lucrative deals following bank failures, suggesting that Powell's actions undermined the role of the Vice Chair for Banking Supervision.

    Bank Regulatory Federal Issues Federal Reserve Congress Basel

  • President Biden taps Goldsmith Romero to become next FDIC Chair

    Federal Issues

    On June 13, President Biden announced Christy Goldsmith Romero as his nominee for FDIC Chair. Goldsmith Romero most recently served as a Commissioner at the CFTC since 2022, where she sponsored the CFTC’s Technology Advisory Committee examining cybersecurity, artificial intelligence, digital assets, and blockchain technologies. Goldsmith Romero spent 12 years at the Treasury where she served as the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), as well as on a Council of Inspectors General overseeing the FSOC. Her oversight of SIGTARP resulted in the recovery of more than $11 billion in civil charges against large financial institutions and criminal charges against hundreds of individuals. Goldsmith Romero has also held positions at the SEC as well as in academia as a law professor.

    Federal Issues FDIC CFTC TARP Department of Treasury

  • Chopra testifies at House, Senate committee hearings

    Federal Issues

    On June 12, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing to address the CFPB’s Semi-Annual Report to Congress. The CFPB Director, Rohit Chopra, in his opening statement addressed the Committee to report on the agency's recent activities and initiatives including its efforts in financial data privacy, open banking rules, and the protection of financial data from surveillance and misuse. Additionally, Chopra highlighted the CFPB’s work in the credit card market, having issued rules seeking to reduce certain credit card fees, foster competition, and protect consumers’ points and rewards. Chopra expressed a willingness to collaborate with the Committee to further address the country’s financial challenges.

    Ranking Member Tim Scott (R-SC) warned that the Supreme Court’s recent ruling on the constitutionality of the CFPB’s funding structure was “not a green light for your progressive wish list.” Ranking Member Scott also questioned the CFPB’s issuance of civil investigative demands (CIDs), providing an example of a lengthy multi-year audit that resulted in no CFPB action. Additionally, Senator Reed (D-RI) raised concerns about the Buy Now, Pay Later (BNPL) market, noting that unlike credit card companies, BNPL firms do not consistently report consumer repayments to credit bureaus. He noted that the situation could lead to issues where consumers do not receive credit score benefits for responsible credit usage and where the industry lacks visibility into a consumer's total debt burden. Director Chopra acknowledged Reed’s concerns, citing that auto and mortgage lenders are worried about the lack of BNPL data in credit reports, which could affect their ability to assess borrowers' creditworthiness. Chopra suggested that while reporting is not currently mandated by federal law, it was an area of concern for the CFPB. Additionally, Senator Lummis (R-WY) highlighted “junk fees” and how the concept is being applied in the mortgage industry. Lummis mentioned a working paper by CFPB staff that credited consumer education provided by banks for a particular finding regarding rural borrowers’ understanding of the mortgage process. She followed by asking Chopra if the Bureau considered consumer education a valuable service provided by community banks because, according to Lummis, the cost to educate consumers was being labeled as a “junk fee” by the administration. Chopra’s response noted that there was no attempt to label all mortgage closing costs as “junk fees.” Senator Kennedy (R-LA) expressed confusion regarding the funding of the CFPB, referencing a distinction between revenue and earnings. He cited the statute that governs the CFPB's funding, which stated the agency received its funds from the combined earnings of the Fed. Kennedy pointed out that since September 2022, the Fed had been losing money and therefore had no earnings to transfer, questioning how the CFPB was entitled to any funds under these circumstances. Director Chopra acknowledged the concern and suggested that it was a theory the CFPB has previously explored.

    The following day, the House Financial Services Committee also held a hearing to address the CFPB’s Semi-Annual Report. Representative McHenry (R-NC) reflected on the Supreme Court's decision to uphold the funding structure of the CFPB as established by the Dodd-Frank Act. He interpreted the court's opinion as affirming Congress's authority over funding mechanisms and suggested that Democrats join Republicans in creating legislative plans to make the CFPB more accountable. McHenry criticized Director Chopra's leadership, claiming the CFPB under Chopra had become politicized and was neglecting consumer protection in favor of political objectives. He also accused the CFPB of unfairly characterizing financial institutions and questioned Chopra's involvement in the FDIC's internal issues, referencing a toxic workplace culture and leadership problems. On the other hand, Representative Waters (D-CA) highlighted that the CFPB was “combating excessive and illegal junk fees, fighting against housing discrimination and redlining, and holding mega-banks accountable for breaking the law and harming consumers.”

    Addressing the Bureau’s proposed rule under Section 1033 of the Dodd-Frank Act, which governed consumer access to financial records, McHenry expressed concerns that the CFPB's proposed regulations might “entrench” those in the financial industry by valuing their hold on financial data. Director Chopra responded by emphasizing the need to prevent practices like bait-and-switch, where financial products such as auto loans are offered with the ulterior motive of “harvesting” and selling data. When McHenry asked for a timeline, Chopra indicated the aim to finalize the rule by October.

    Among questions from other representatives, Representative Wagner (R-MO) questioned Director Chopra about the principles of risk-based pricing in the financial industry. Chopra stated that while it was not mandated, risk-based pricing was commonly used by institutions to appropriately measure risk. Wagner expressed concerns that the CFPB's new rules on credit card late fees and overdrafts could undermine this principle. Chopra disagreed, arguing that the rules would encourage better risk-based pricing, and he did not see a connection between aligning late fees with Congressional guidelines and undermining risk-based pricing. Wagner then suggested the new rules could increase persistent debt among consumers. Throughout the discussion, Chopra insisted that the CFPB's actions were in line with common sense and Congressional prohibitions against unreasonable fees.

    Federal Issues CFPB Senate Congressional Oversight Hearing U.S. House

  • CFPB bans medical debt in credit reporting decisions

    Federal Issues

    On June 11, the CFPB released a proposed rule to ban obtaining or using medical information for credit eligibility determinations. Specifically, the proposed rule would amend the FCRA to remove the medical financial information exception and limit credit reporting of medical debt.

    In 2003, Congress amended the FCRA to restrict creditors’ use of medical information for purposes of making credit eligibility determinations, and it authorized the banking agencies to issue exemptions from the restriction through rulemaking. In 2005, the banking agencies issued a regulatory exception to permit creditors to obtain and use consumers’ medical financial information when making credit eligibility determinations if certain conditions were met. The CFPB’s proposed rule would roll back the 2005 exception, in addition to other changes. First, the proposed rule would remove the financial information exception that permits creditors to obtain and use medical and financial information (including regarding medical debt) in connection with credit eligibility decisions (with certain limited exceptions). Second, the proposed rule would limit consumer reporting agencies’ ability to furnish medical debt information to creditors.

    CFPB Director Rohit Chopra noted in prepared remarks that the proposed rule would eliminate the “loophole” that allowed lenders to access and use medical debt information, which he argued would align regulations with congressional intent. A fact sheet from the White House, published on behalf of Vice President Kamala Harris and Director Chopra, stated that this action builds on prior efforts by the Biden-Harris administration to reduce the burden of medical debt.

    As previously covered by InfoBytes, the Bureau announced this initiative in September 2023. The CFPB signaled its interest in proposing this rule when it threw its support behind Connecticut SB 395, which bans the inclusion of medical debt in consumer reports (covered by InfoBytes here). The proposed rule would go into effect 60 days following publication in the Federal Register.

    Federal Issues CFPB Medical Debt Credit Reporting FCRA

  • FHFA enhances Fannie and Freddie flex modification policies

    Federal Issues

    Recently, the FHFA announced that Fannie Mae and Freddie Mac will update their Flex Modification policies to help struggling borrowers reduce their mortgage payments. Flex Modification would be for eligible borrowers experiencing a permanent hardship and cannot make regular monthly mortgage payments. According to the FHFA, the enhanced policies will aim to decrease a borrower’s monthly payments by up to 20 percent through three incremental steps: (i) interest rate reduction; (ii) extending the loan term; and (iii) principal forbearance for those with loan-to-value ratios above 50 percent. These updates were built on the Servicing Alignment Initiative started in 2011 and have been aimed at better resolving mortgage payment delinquencies. The new Flex Modification policies will take effect on December 1.

    Federal Issues Agency Rule-Making & Guidance FHFA Freddie Mac Fannie Mae Mortgages

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