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CFPB seeks to prevent algorithmic bias
On February 23, the CFPB released an outline of possible options for upcoming rulemaking to prevent algorithmic bias in automated home valuation models (AVMs). Dodd-Frank mandates that the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA engage in joint agency rulemaking to strengthen the oversight of AVMs, which requires (i) ensuring a high level of confidence in the estimates; (ii) protecting against data manipulation; (iii) avoiding conflicts of interest; (iv) requiring random sample testing and reviews; and (v) accounting for other factors deemed “appropriate” by the agencies. The Small Business Advisory Review Panel’s Outline of Proposals and Alternatives Under Consideration details options for ensuring computer models used to determine home valuations are accurate and fair. While recognizing that AVMs “have the potential to contribute to lower costs and shorter turnaround times in the performance of property valuations” and are increasingly being used—in part due to advances in database and modeling technology and the availability of larger property datasets—the Bureau cautioned that using AVMs may introduce several risks that can impact data integrity and accuracy. The outline also expressed concerns that AVMs may “reflect bias in design and function or through the use of biased data and may introduce fair lending risk.” To mitigate potential fair lending risks in AVMs, the Bureau stated it is considering proposing “a requirement that covered institutions establish policies, practices, procedures, and control systems to ensure that their AVMs comply with applicable nondiscrimination laws.” The Bureau added that it “preliminarily believe[s] standards designed to ensure compliance with applicable nondiscrimination laws may help ensure the accuracy, reliability, and independence of AVMs for all consumers and users.” Without proper safeguards, the Bureau warned in its announcement that “flawed” AVMs “could digitally redline certain neighborhoods and further embed and perpetuate historical lending, wealth, and home value disparities.”
Among other things, the outline also previewed definitions under consideration for terms such as “mortgage originator,” “mortgage,” and “consumer’s principal dwelling,” and noted that the Bureau is considering a “principles-based option” to allow regulated institutions more flexibility to set their own AVM quality control standards, as well as a “prescriptive option” with a more detailed set of requirements for institutions to reduce potential compliance uncertainty. “It is tempting to think that machines crunching numbers can take bias out of the equation, but they can’t,” CFPB Director Rohit Chopra said. “This initiative is one of many steps we are taking to ensure that in-person and algorithmic appraisals are fairer and more accurate.”
The Bureau stated that the next step will be to review the options to determine their potential impact on small business stakeholders as required by the Small Business Regulatory Enforcement Fairness Act of 1996. Feedback will be used to inform the Bureau’s efforts on developing a formal proposal with the other agencies.
FDIC announces final rule to simplify deposit insurance
Recently, the FDIC published a final rule that amends the deposit insurance regulations for trust accounts and mortgage servicing accounts. According to the FDIC, the final rule is intended to make the deposit insurance rules more understandable, facilitate timely insurance determinations for trust accounts in the event of a bank failure, and enhance consistency of insurance coverage for mortgage servicing account deposits. Highlights of the final rule include, among other things: (i) merging the revocable and irrevocable trust deposit insurance categories into a “trust accounts” category; (ii) establishing a consistent formula for calculating deposit insurance coverage for trust accounts; (iii) establishing that “a deposit owner’s trust deposits will be insured in an amount up to $250,000 per beneficiary, not to exceed five beneficiaries, regardless of whether a trust is revocable or irrevocable, and regardless of contingencies or the allocation of funds among the beneficiaries”; and (iv) providing a maximum amount of deposit insurance coverage of $1,250,000 per owner, per insured depository institution for trust deposits. The final rule becomes effective on April 1, 2024, which provides “depositors and insured depository institutions more than two years to prepare for the changes in coverage.” The FDIC also released a fact sheet which provides information on the final rule.
CFPB revises Rules of Practice for Adjudication Proceedings
On February 22, the CFPB published a procedural rule and request for public comment in the Federal Register, to update its Rules of Practice for Adjudication Proceedings. Under Section 1053(e) of the Consumer Financial Protection Act, the Bureau has authority to conduct administrative proceedings. The CFPB indicated that the amendments would provide greater procedural flexibility, providing parties earlier access to relevant information, expanding deposition opportunities, and making various changes related to “timing and deadlines, the content of answers, the scheduling conference, bifurcation of proceedings, the process for deciding dispositive motions, and requirements for issue exhaustion, as well as other technical changes.” The proposed amendments also propose to simplify and clarify the computation of deadlines and would indicate that motions for extension of time are “generally disfavored” (a list of factors to be considered, however, would be retained). Comments must be received by April 8.
FTC publishes ANPR on bogus money-making opportunities
On February 17, the FTC announced an advanced notice of proposed rulemaking (ANPR), which “launched a proceeding to challenge bogus money-making claims used to lure consumers, workers, and prospective entrepreneurs into risky business ventures that often turn into dead-end debt traps.” According to the FTC, a rule in this area would permit “the Commission to recover redress for defrauded consumers, and seek steep penalties against the multilevel marketers, for-profit colleges, ‘gig economy’ platforms, and other bad actors who prey on people’s hopes for economic advancement.” The FTC summarized recent actions against “coaching or mentoring schemes, multi-level marketing companies, work-from-home, e-commerce, or other business opportunity scams, chain referral schemes, gig companies and employers, job scams, and businesses purporting to offer educational opportunities,” but noted that “the recent Supreme Court decision in the AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act.” (Covered by InfoBytes here). The ANPR gives notice of a new possibility of rulemaking for false, misleading, and unsubstantiated earnings claims, and, if adopted, the FTC will have the ability to return money to consumers injured by deceptive income claims, while holding bad actors accountable with civil penalties. The ANPR also solicits public comment on: (i) whether earnings claims are prevalent among all or only some industries; (ii) how a rule addressing earnings claims should be drafted; (iii) the benefits to consumers from such a rule and the costs to businesses; and (iv) whether the potential rule should address disclaimers, lifestyle claims, or liability for agents’ claims.
CFPB updates remittance transfer examination procedures
Recently, the CFPB updated its remittance transfer examination procedures to reflect the latest amendments to Regulation E (EFTA’s implementing regulation), Subpart B, as of May 2020. The updates are reflected within the Bureau’s Supervision and Examinations Manual. The updated procedures outline practices for examiners when evaluating institutions that provide remittances in the normal course of business to individuals and businesses in foreign countries. “Examiners should complete a risk assessment, conduct necessary scoping, and use these procedures, in conjunction with the compliance management system review procedures, to conduct a remittance transfer examination,” the Bureau stated. The procedures specify four objectives for remittance transfer examinations: (i) to assess the quality of a regulated entity’s compliance risk management systems in its remittance transfer business; (ii) to identify acts or practices that materially increase the risk of federal consumer financial law violations, as well as associated harm to consumers in connection with remittance transfers; (iii) to gather facts to help determine whether a supervised entity engages in acts or practices in connection with remittance transfers that are likely to violate federal consumer financial law; and (iv) to determine, in accordance with CFPB internal consultation requirements, whether a federal consumer financial law has been violated and whether it is appropriate to take further supervisory or enforcement action.
VA establishes threshold for reporting VA debts to CRAs
On February 2, the Department of Veterans Affairs published a final rule in the Federal Register amending its regulations around the conditions by which VA benefits debts or medical debts are reported to consumer reporting agencies (CRAs), and creating a methodology for determining a minimum threshold for debts reported to the CRAs. According to the VA, approximately 5,000 delinquent accounts are reported monthly to credit bureaus, and, in many cases, veterans complained about the loss of security clearance or an inability to obtain credit or rental housing. In amending the rule, the VA acknowledged that certain debts, such as medical debts, “are fundamentally different than consumer debt.” Under the new rule, debts are to be reported to a credit bureau if (i) they are considered to be “currently not collectible,” meaning the VA has exhausted available debt collection efforts; (ii) the debt is not owed by someone who has been determined to be catastrophically disabled or has a gross household income below a certain amount; and (iii) the debt owed is over $25. The rule is effective March 4.
On February 7, the CFPB published a blog highlighting the changes that the VA made in its final rule. Among other things, the blog discussed changes to VA’s debt collection practices, protections against surprise medical bills, and getting help with medical bills.
FCC proposes to classify ringless voicemails as “calls” under the TCPA
On February 2, FCC Chairwoman Jessica Rosenworcel announced a proposal that would classify technology that leaves ringless voicemails on consumers’ cell phones as “calls” under the TCPA and therefore subject to the FCC’s robocalling restrictions. If adopted by the full Commission, callers using this form of technology would be required to obtain a consumer’s consent before delivering a ringless voicemail. The announcement explained that the TCPA “prohibits making any non-emergency call using an automatic telephone dialing system or an artificial or prerecorded voice to a wireless telephone number without the prior express consent of the called party.” According to Chairwoman Rosenworcel, ringless voicemails should face the same consumer protection rules as other robocalls. The proposal is in response to a petition that asked the FCC to find that ringless voicemails are not calls protected by the TCPA.
CFTC issues no-action letter on compliance date for swap data
On January 31, the CFTC issued a no-action letter on the compliance dates for the November 25, 2020 amendments to the swap data reporting rules. According to the letter, the CFTC’s Division of Data does not recommend that the Commission take enforcement action against market participants “for failure to comply with the Amendments before December 5, 2022, and for failure to comply with the Block and Cap Amendments before December 4, 2023, provided that the entity comply with the Parts 43, 45, 46, and 49 regulations that were in effect on January 1, 2021.” A statement released by CFTC Commissioner Dawn D. Stump noted that she “expect[s] market participants to work diligently toward resolving the operational and technological issues they have encountered in complying with the Amendments,” and that she hoped the efforts will “better align swap data reporting rules internationally [and] will at last permit much needed international deference among the various regulatory bodies who long ago committed to improving swap data for the benefit of these global markets.”
CFPB releases regulatory agenda
On January 31, the CFPB released its semiannual regulatory agenda in the Federal Register, as part of the Fall 2021 Unified Agenda of Federal Regulatory and Deregulatory Actions. According to the CFPB, it “reasonably anticipates having the regulatory matters identified below under consideration during the period from November 1, 2021 to October 31, 2022.” The next agenda will be published in Spring 2022, which will update the recently released agenda through Spring 2023. Among other things, the agenda noted that the Bureau made “significant progress” on the implementation of Section 1071 of the Dodd-Frank Act, which covers banks’ collection, reporting, and disclosure of information on credit applications made by women-owned, minority-owned, and small businesses. Other highlights of the agenda include the Bureau’s: (i) continued collaboration with other federal agencies on regulations for automated valuation models under the FIRREA amendments to Dodd-Frank; (ii) expectation to issue a final rule on the transition away from the LIBOR index, which aims to ensure that loans tied to LIBOR are transitioned “in an orderly, transparent, and fair manner”; (iii) assessment of a rule implementing HMDA; (iv) work on regulations for PACE financing and its “continu[ed] engagement with stakeholders and collect information” from a Advance Notice of Proposed Rulemaking, issued in March 2019 (covered by InfoBytes here); and (v) continued monitoring of consumer financial product markets and creation of working groups to focus on specific markets for potential future rulemakings.
Treasury requests comments on certain nonbanks
On January 28, the U.S. Treasury Department published a notice and request for comment in the Federal Register on the proposed information collection “Determinations Regarding Certain Nonbank Financial Companies.” According to the notice, “information collected in § 1310.20 from state and federal regulatory agencies and from nonbank financial companies will be used generally by the [Financial Stability Oversight Council] to carry out its duties under Title I of the Dodd-Frank Act.” Additionally, “[t]he collections of information in §§ 1310.21, 1310.22 and 1310.23 provide an opportunity for a nonbank financial company to request a hearing or submit written materials to the Council concerning whether, in the company’s view, material financial distress at the company, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the company, could pose a threat to the financial stability of the United States.” Comments are due March 29.