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Financial Services Law Insights and Observations


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  • Financial regulators release final AVM rule for publication

    Agency Rule-Making & Guidance

    On July 17, the CFPB, OCC, Fed, FDIC, NCUA and FHFA adopted a final rule titled “Quality Control Standards for Automated Valuation Models.” As previously covered by InfoBytes, this final rule implemented new provisions governing the use of automated valuation models (AVMs), which were commonly used by mortgage originators and secondary-market issuers to estimate a property’s value for loan underwriting and portfolio monitoring. The Dodd-Frank Act mandated these new rules to give mortgage originators and secondary market issuers a chance to issue quality control standards while using AVMs in determining the collateral worth of a mortgage secured by a consumer’s principal dwelling. The previous version of this final rule can be found here.

    Agency Rule-Making & Guidance Federal Issues Model Valuation CFPB Mortgages

  • CFPB proposes an interpretive rule for earned wage access

    Agency Rule-Making & Guidance

    On July 18, the CFPB proposed an interpretive rule to clarify that many paycheck advance products, or "earned wage" products, were consumer loans and therefore subject to TILA. The CFPB seeks to require lenders to provide workers with clear disclosures about the costs and fees associated with earned wage products, pursuant to TILA’s implementing Regulation Z. The CFPB also published an online report examining these types of products.

    The interpretive rule proposes to replace a 2020 advisory opinion that stated that one particular type of earned wage product does not constitute “credit” because it is not a “debt.” The interpretive rule now cites to many definitions of the term “debt,” including that of the FDCPA, to support a broad reading of “debt” under TILA.

    The proposed interpretive rule also recognizes certain fees as finance charges, such as tips and fees for expedited delivery. The CFPB states that earned wage access providers must reflect the appropriate finance charges on the disclosures that the provider provides to the consumers.

    The report published by the CFPB in conjunction with the interpretive rule examined earned wage loans and revealed that on average, workers take out 27 such loans each year, and these loans often have an APR exceeding 100 percent. The report also highlighted that a significant number of workers pay fees for earned wage access, with the majority of fees being for expedited transfer services.

    Public comments on the proposed interpretive rule must be received by August 30.

    Agency Rule-Making & Guidance Federal Issues Interpretive Rule CFPB Earned Wage Access Consumer Finance Disclosures TILA Regulation Z

  • CFPB proposes rule for mortgage servicing and loss mitigation

    Agency Rule-Making & Guidance

    On July 10, the CFPB proposed a rule to amend RESPA regulations originally issued in 2013 regarding the responsibilities of mortgage servicers.

    The rule removes the definition of “loss mitigation application” and replaces it with “loss mitigation review cycle” and “request for loss mitigation assistance.” The CFPB proposes defining the “loss mitigation review cycle” as the period between a borrower’s loss mitigation assistance request and when the loan is brought current or the procedural safeguards in § 1024.41(f)(2)(i) or (ii) are met, so long as the request is made more than 37 days before a foreclosure sale. A “request for loss mitigation assistance” is defined as any oral or written communication where a borrower asks a servicer for mortgage relief. This can include a request for loss mitigation, an interested response to a servicer’s unsolicited offer of loss mitigation, or if the borrower “indicates” an experienced hardship and asks the servicer for assistance making payments, retaining their home, or avoiding foreclosure. The CFPB is also proposing that loss mitigation determinations be subjected to notice of error procedures, and to require servicers to retain records that document actions regarding a borrower’s mortgage loan account until one year after the date of the mortgage loan is discharged or transferred to another servicer.

    The Bureau further proposes to require servicers to make a “good faith effort[]” to  make live contact with a delinquent borrower to present loss mitigations options, if appropriate. Good faith efforts may include attempting to reach the borrower by phone more than once or sending written communication encouraging the borrower to establish live contact with the servicer. Servicers would be exempt from the live contact requirement if a borrower is in a forbearance but must resume good faith efforts if a forbearance ends. The proposal would also limit the fees a servicer can charge a borrower while the servicer is reviewing possible options to help the borrower. 

    Under the proposed rule, borrowers who received marketing materials in another language may request mortgage assistance communications in that same language, and servicers must provide the notices in English and Spanish to all borrowers, as well as make available oral interpretation services in telephone calls with borrowers.

    The proposed rule includes loss mitigation guidelines and would set forth procedures regarding (i) enforcement; (ii) loss mitigation determination notices; (iii) application denial due to missing documents or information not in the borrower’s control; (iv) unsolicited loss mitigation offers; and (v) appeal processes. “Under the proposal, servicers would have more flexibility to review borrowers for each option individually, potentially enabling quicker assistance,” the CFPB said in its press release. Finally, the proposed rule would set forth certain circumstances under which a servicer cannot make the first notice or filing required by law for any foreclosure process. Servicers would generally only be allowed to pursue foreclosure after all possibilities for assistance are exhausted or the borrower has stopped communicating with the servicer.

    The proposed rule would not apply to small servicers.

    Comments must be received by September 9, 2024

    Agency Rule-Making & Guidance Federal Issues CFPB Consumer Finance Mortgage Servicing Loss Mitigation RESPA Regulation X

  • House GOP writes to financial regulators on Loper Bright ruling

    Federal Issues

    On July 9 and 10, GOP congressional committee leaders wrote 40 letters to the heads of executive branch agencies to remind them of how Loper Bright has set limits on an agency’s authority. As previously covered by InfoBytes, Loper Bright overturned the so-called Chevron doctrine stipulating that courts cannot reference an agency’s interpretation of law they claim is ambiguous. The letters to the financial regulators claimed that the agency’s rules have been based on “aggressive interpretations” of statutes, which the GOP alleged to “undermine” our government and “overwhelm the founders’ system of checks and balances.”

    Each congressional committee wrote to the agency for which each maintains oversight; thus, House Financial Services Committee Chairman Patrick T. McHenry (R-NC) and House Oversight Committee Chairman James Comer (R-KY) both wrote to CFPB Director Rohit Chopra, FDIC Chairman Martin Gruenberg, Fed Chair Jerome Powell, NCUA Chairman Todd Harper, OCC Acting Director Michael Hsu, SEC Chair Gary Gensler, and Treasury Secretary Janet Yellen.

    In their letters, they reminded the financial regulators that they plan to “reassert forcefully” Congress’s Article I responsibilities and ensure the Biden administration respected the limits placed by the ruling. They requested information concerning the following proposed, initiated or completed actions during the Biden administration, no later than August 7: lists of all rulemaking legislative rules, adjudications, enforcement actions, interpretative rules, and judicial decisions that may be impacted by Loper Bright.

    Federal Issues Congress Financial Services Chevron

  • FTC and international networks reveal use of dark patterns in consumer apps and websites

    Federal Issues

    On July 10, the FTC and two international consumer protection networks announced the results of its review of the websites and apps that may use dark patterns to obtain privacy consent from consumers. The review covered 642 websites and mobile apps, revealing that a significant portion may use "dark patterns" — commercial techniques designed to manipulate consumers.

    Conducted by the International Consumer Protection and Enforcement Network (ICPEN) and the Global Privacy Enforcement Network, the review found nearly 76 percent of sites and apps employed at least one dark pattern, with 67 percent employing multiple. Common dark patterns included hiding information and interface interference. For example, a sneaking practice would be hiding or delaying important disclosure information, often related to costs, to influence consumer decisions. Examples include adding non-optional charges at the last minute (drip-pricing) and automatically renewing subscriptions after a free trial without consent (subscription traps). The most common sneaking practice found was preventing consumers from turning off auto-renewal during purchase, observed in 81 percent of traders with auto-renewal subscriptions. Other prevalent issues were the lack of cancellation steps (70 percent) and not providing a cancellation deadline (67 percent). Forced action practices require consumers to perform an action or provide information to access certain functionalities – the investigation found that at least 66 percent of the cases reviewed required forced action.

    While it was not determined if these practices violated laws, the findings highlighted potential impacts on consumer decisions and privacy. The announcement coincided with the FTC assuming the 2024-2025 ICPEN presidency.

    Federal Issues Privacy, Cyber Risk & Data Security FTC Dark Patterns Consumer Protection

  • CFPB takes action against national bank for auto loan practices, unauthorized account openings

    Federal Issues

    On July 9, the CFPB issued a consent order against a national bank regarding its auto loans practices that allegedly violated the CFPA. According to the order, if borrowers failed to secure insurance for physical damage to their vehicles, the bank would impose its own physical-damage insurance on the vehicle, known as force-placed insurance. The CFPB alleged that from 2011 through 2019, the bank imposed insurance policies on borrowers who either consistently had their own insurance or secured required insurance within 30 days after their previous policy had lapsed. The Bureau determined that the bank’s practices of applying redundant force-placed insurance on auto loans, billing for premiums on force-placed insurance policies that had ended, and not adequately notifying consumers about the resulting increase in monthly payments due to force-placed insurance — all violated the CFPA.

    Furthermore, the Bureau alleged that the bank was deceptive in informing borrowers about the time it would take to cancel force-placed insurance policies and misrepresented the total amounts owed in right-to-cure notices, leading to wrongful delinquency fees. Additionally, the bank allegedly violated the FCRA by reporting incorrect information on repossessions to credit agencies. The bank allegedly failed to properly inform customers about increases in preauthorized electronic fund transfers caused by force-placed insurance, violating the EFTA and Regulation E. As a result of these findings, the bank was ordered to adjust its practices to legal standards, compensate affected consumers, and pay a $5 million civil penalty to the Bureau.

    The CFPB concurrently filed a proposed consent order in the U.S. District Court for the Southern District of Ohio to resolve allegations of the bank’s sales practices and opening fake accounts. According to the proposed order, the Bureau initiated a lawsuit against the bank in 2020 for alleged deceptive sales practices. The proposed settlement, pending the court’s approval, would mandate that the bank pay a $15 million civil penalty, provide and implement a redress plan for consumers, comply with the law, and eliminate employee incentives that encourage unauthorized account openings.

    Federal Issues CFPB Enforcement Consumer Finance Auto Finance Consumer Protection

  • FSB G20 Roadmap proposes cross-border payment enhancements

    Federal Issues

    On July 16, the Financial Stability Board (FSB) released its proposed recommendations to address issues and promote efficiencies in cross-border payments for public consultation. The recommendations were part of the G20 Roadmap, with the goal of improving cross-border payments by 2027. The FSB focused on two key areas:

    1. Aligning Data Frameworks: The FSB suggested creating greater alignment in data frameworks to reduce the cost and improve the speed and transparency of cross-border payments. The FSB identified the misalignment of data, restrictions on data sharing, and the cost of data storage as significant issues. To address these issues, the FSB recommended establishing a forum for collaboration across sectors, including payments, anti-money laundering and countering terrorism financing, and similar.
    2. Regulating and Supervising Payment Service Providers (PSPs): The FSB proposed policy recommendations to ensure consistent regulation and supervision of both bank and non-bank PSPs. The aim will be to create a level playing field, prevent regulatory arbitrage, and adapt to the rapidly changing landscape of cross-border payment services.

    The FSB will be soliciting feedback on these proposals and has provided online forms for responses, which will be due September 9. 

    Federal Issues FSB Financial Stability Board Cross Border Activities

  • SAVE Plan partially blocked by 2 federal judges


    Recently, two district court judges partially blocked President Biden’s student debt relief program, known as the Saving on a Valuable Education (SAVE) plan. The judges from Missouri and Kansas ruled that the program lacks clear authorization from Congress as required under the Higher Education Act. Judge John Ross of Missouri issued a preliminary injunction to prevent the Department of Education from forgiving loans under the program. Similarly, Judge Daniel Crabtree of Kansas prohibited the plan from fully launching on July 1. The judges’ decisions came after state attorneys general filed lawsuits, arguing that the SAVE Plan presents a “major question” of economic and political significance, which demands explicit congressional approval. Despite the government’s claim that the Higher Education Act authorizes the plan, both judges found the arguments insufficiently persuasive to demonstrate clear congressional authorization.

    Courts Federal Issues Biden SAVE Plan Congress Student Loans Higher Education Act

  • 7th Circuit reverses district court, holds ECOA prohibits discouragement of prospective applicants for credit


    On July 11, the U.S. Court of Appeals for the Seventh Circuit reversed a district court’s decision to dismiss the CFPB’s claims that a Chicago-based nonbank mortgage company and its owner violated ECOA by engaging in discriminatory marketing. As previously covered by an Orrick Insight, the CFPB initiated a redlining enforcement action against the company in 2020, alleging defendants discouraged African Americans from applying for mortgage loans from the company and redlined African American neighborhoods in Chicago. Last year, the U.S. District Court for the Northern District of Illinois dismissed the CFPB’s action (covered by InfoBytes here). On appeal, the CFPB argued that its interpretation of ECOA is supported by the historical context of Regulation B and has not been contested by Congress (covered by InfoBytes here).

    The 7th Circuit noted that Congress intended to allow for penalties in cases where prospective applicants are discouraged. Therefore, the court stated that Regulation B's rule against deterring prospective applicants aligns with both the text and the intent of the ECOA. In determining whether Regulation B’s prohibition on the discouragement of prospective applicants is consistent with ECOA, the court reasoned that it “cannot constrain artificially the ECOA to a single provision” and rather, must review it as a whole. Applying this standard, the court held that ECOA prohibits “not only outright discrimination against applicants for credit, but also the discouragement of prospective applicants for credit.” In remanding the case, the 7th Circuit left it to the district court to determine whether the defendants’ alleged conduct was prohibited discouragement under ECOA, in addition to whether defendants’ argument that their allegedly unlawful conduct is protected by the First Amendment’s guarantee of free speech.

    Of note, while the parties’ briefing before the 7th Circuit addressed the then-effective Chevron doctrine, the 7th Circuit noted that its decision treated the ECOA issue as “a question of statutory interpretation subject to our de novo review” and took into account the recent Supreme Court ruling in Loper Bright Enterprises v. Raimondo, No. 22-451, 603 U.S. ___ (2024) overturning Chevron (covered by InfoBytes here).

    Courts Federal Issues CFPB Consumer Finance Redlining Chevron Seventh Circuit ECOA First Amendment Regulation B

  • CFPB emphasizes importance of accurate HMDA data reporting

    Federal Issues

    Recently, the CFPB released a blog post to remind mortgage lenders of its commitment to maintaining a fair, competitive, and nondiscriminatory market. The CFPB’s research found a small group of lenders and loan originators allegedly failed to report HMDA data, particularly demographic information for an abnormally large percentage of their total loan originations, which could be an indicator that this group was misreporting data. The Bureau’s analysis found thousands of loan officers who reported a lack of demographic information for 95 percent or more of their mortgage applications, raising concerns about potential discrimination. The CFPB noted its work against two major lenders for failing to report accurate data under HMDA, one against a large mortgage lender (as covered by InfoBytes here) for allegedly submitting false mortgage lending information and imposed a $3.95 million civil penalty. The CFPB separately ordered another bank to pay a $12 million penalty for allegedly failing to collect accurate demographic information from mortgage applicants and reporting that applicants had chosen not to respond.

    HMDA requires lenders to collect and report certain applicant data, including demographic information. If an applicant declines to provide this information in person, the lender must attempt to collect it through either visual observation or surname. Failure to comply with these requirements constitutes a violation of HMDA and Regulation C.

    The CFPB has intensified its efforts to address HMDA compliance through enforcement actions and supervisory examinations. The agency emphasized its commitment to holding companies accountable for non-compliance and encourages employees who suspect violations to report them.

    Federal Issues Mortgages CFPB Competition HMDA


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