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DOJ and EEOC address AI employment decision disability discrimination
On May 12, the DOJ and the Equal Employment Opportunity Commission (EEOC) released a technical assistance document addressing disability discrimination when using artificial intelligence (AI) and other software tools to make employment decisions. According to the announcement, the DOJ’s guidance document, Algorithms, Artificial Intelligence, and Disability Discrimination in Hiring, provides a broad overview of rights and responsibilities in plain language, and, among other things, (i) provides examples of technological tools used by employers; (ii) clarifies that employers must consider the impact on different disabilities when designing or choosing technological tools; (iii) describes employers’ obligations under the ADA when using algorithmic decision-making tools; and (iv) provides information for employees on actions they may take if they believe they have experienced discrimination. The EEOC also released a technical assistance document, The Americans with Disabilities Act and the Use of Software, Algorithms, and Artificial Intelligence to Assess Job Applicants and Employees, which focuses on preventing discrimination against job seekers and employees with disabilities.
CFPB, FTC weigh in on consumer reporting obligations under the FCRA
On May 5, the CFPB and FTC filed a joint amicus brief with the U.S. Court of Appeals for the Second Circuit, seeking the reversal of a district court’s decision which determined that a consumer reporting agency (CRA) was not liable under Section 1681e(b) of the FCRA for allegedly failing to investigate inaccurate information because the inaccuracy was “legal” and not “factual” in nature. The agencies countered that the FCRA, which requires credit reporting companies to follow reasonable procedures to assure maximum possible accuracy of the information included in consumer reports, “does not contain an exception for legal inaccuracies.”
The plaintiff noticed that the CRA reported that she owed a balloon payment on an auto lease that she was not obligated to pay under the terms of the lease. After the plaintiff confirmed she did not owe a balloon payment, she filed a putative class action against the CRA contending that it violated the FCRA by inaccurately reporting the debt. The CRA countered that it could not be held liable because “it is not obligated to resolve a legal challenge to the validity of the balloon payment obligation reported by” the furnisher “and that it reasonably relied on [the furnisher] to report accurate information.” Moreover, the CRA argued that even if it did violate the FCRA, the plaintiff was not entitled to damages because the violation was neither willful nor negligent. The district court sided with the CRA, drawing a distinction between factual and legal inaccuracies and holding that whether the plaintiff actually owed the balloon payment was a “legal dispute” requiring “a legal interpretation of the loan’s terms.” According to the district court, “CRAs cannot be held liable when the accuracy at issue requires a legal determination as to the validity of the debt the agency reported.” The court further concluded that since the plaintiff had not met the “threshold showing” of inaccuracy, the information in the consumer report “was accurate,” and therefore the CRA was “entitled to summary judgment because ‘reporting accurate information absolves a CRA of liability.’”
In urging the appellate court to overturn the decision, the agencies argued that the exemption for legal inaccuracies created by the district court is unsupported by statutory text and is not workable in practice. This invited defense, the FTC warned in its press release, “invites [CRAs] and furnishers to skirt their legal obligations by arguing that inaccurate information is only legally, and not factually, inaccurate.” The FTC further cautioned that a CRA might begin manufacturing “some supposed legal interpretation to insulate itself from liability,” thus increasing the number of inaccurate credit reports.
Whether the plaintiff owed a balloon payment and how much she owed “are straightforward questions about the nature of her debt obligations,” the agencies stated, urging the appellate court to “clarify that any incorrect information in a consumer report, whether ‘legal’ or ‘factual’ in character, constitutes an inaccuracy that triggers reasonable-procedures liability under the FCRA.” The agencies also pressed the appellate court to “clarify that a CRA’s reliance on information provided by even a reputable furnisher does not categorically insulate the CRA from reasonable-procedures liability under the FCRA.”
The Bureau noted that it also filed an amicus brief on April 7 in an action in the U.S. Court of Appeals for the Eleventh Circuit involving the responsibility of furnishers to reasonably investigate the accuracy of furnished information after it is disputed by a consumer. In this case, a district court found that the plaintiff, who reported several fraudulent credit card accounts, did not identify any particular procedural deficiencies in the bank’s investigation of her indirect disputes and granted summary judgment in favor of the bank on the grounds that the “investigation duties FCRA imposes on furnishers [are] ‘procedural’ and ‘far afield’ from legal ‘questions of liability under state-law principles of negligence, apparent authority, and related inquiries.’ Moreover, the district court concluded that there was no genuine dispute as to whether the bank conducted a reasonable investigation as statutorily required. The Bureau noted in its press release, however, that the bank “had the same duty to reasonably investigate the disputed information, regardless of whether the underlying dispute could be characterized as “legal” or “factual.” In its brief, the Bureau urged the appellate court to, among other things, reverse the district court’s ruling and clarify that the “FCRA does not categorically exempt disputes presenting legal questions from the investigation furnishers must conduct.” Importing this exemption would run counter to the purposes of FCRA, would create an unworkable standard that would be difficult to implement, and could encourage furnishers to evade their statutory obligations any time they construe the disputes as “legal.” The brief also argued that each time a furnisher fails to reasonably investigate a dispute results in a new statutory violation, with its own statute of limitations.
CFPB releases Spanish translations of certain disclosures
On May 11, the CFPB announced that it made available Spanish translations of certain disclosures to help financial institutions better support Spanish-speaking communities. According to the Bureau, financial service providers recognize the need for additional services and customer-facing materials in multiple languages. The Bureau also noted that it has encouraged financial institutions to provide fair and transparent access to products and services to those who prefer using a language other than English. Translations of the disclosures released by the Bureau include: (i) prepaid card model forms; (ii) adverse action sample notices; (iii) home mortgage origination documents, including the loan estimate and closing disclosure; (iv) early intervention clauses for mortgage servicers; (v) credit reporting notices; and (vi) debt collection model validation notices.
Senate confirms Bedoya as FTC commissioner; Powell to serve second term as Fed chair
On May 11, the U.S. Senate voted along party lines to confirm Alvaro Bedoya as an FTC Commissioner. Bedoya, who brings a background in privacy and data security, fills the FTC commissioner seat vacated by current CFPB Director Rohit Chopra. A Georgetown University visiting professor of law, Bedoya also founded the law school’s Center on Privacy & Technology. According to the administration’s announcement, Bedoya previously “co-led a coalition that successfully pressed an Internet giant to drop ads for online payday loans” and served as the first chief counsel to the Senate Judiciary Subcommittee on Privacy, Technology and the Law. (Covered by InfoBytes here.) FTC Chair Lina M. Khan praised Bedoya’s “expertise on surveillance and data security,” and, following his confirmation, stated that his “knowledge, experience, and energy will be a great asset to the FTC.”
The Senate also confirmed Jerome Powell by a vote of 80-19 to serve a second four-year term as Federal Reserve Chair, and confirmed Lisa Cook and Philip Jefferson to serve as Board Governors (see here and here). Still pending is President Biden’s nomination of Michael Barr to serve as Vice Chair for Supervision of the Federal Reserve.
FTC temporarily halts unlawful credit repair operation
On May 6, the FTC announced that the U.S. District Court for the Middle District of Florida granted a temporary restraining order against a credit repair operation for allegedly engaging in deceptive practices. According to the FTC’s complaint, the operation violated the FTC Act, the CROA, and the TSR by, among other things; (i) making misrepresentations regarding credit repair services; (ii) making misrepresentations regarding a money-making opportunity associated with a government benefit related to Covid-19; (iii) making untrue or misleading representations to consumers, which included increasing their credit score; (vi) charging for the performance of credit repair services that the defendants agreed to perform prior to such services being fully performed; (v) making untrue or misleading statements with respect to their sales pitch on credit worthiness, credit standing, or credit capacity to consumer reporting agencies, creditors, and potential creditors; and (vi) charging illegal advance fees. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, the appointment of a receiver, immediate access to business premises, an asset freeze, and other equitable relief.
Agencies issue revised interagency flood insurance Q&As
On May 11, the FDIC, OCC, Federal Reserve Board, NCUA, and the Farm Credit Administration (the agencies) jointly issued revised, reorganized, and expanded interagency questions and answers (Q&As) regarding federal flood insurance laws. The revised Q&As supersede versions published in 2009 and 2011, and consolidate Q&As proposed by the agencies in 2020 and 2021 (covered by InfoBytes here). Reflecting significant changes to flood insurance requirements made by the Biggert-Waters Flood Insurance Reform Act and the Homeowner Flood Insurance Affordability Act, as well as regulations issued by the agencies to implement these laws, the revised Q&As consist of 144 Q&As (including 24 private flood insurance Q&As) covering a range of topics, including the escrow of flood insurance premiums, the detached structure exemption to the mandatory flood insurance purchase requirement, force placement procedures, and the acceptance of flood insurance policies issued by private insurers. The agencies also made non-substantive revisions to certain Q&As to provide more direct responses to questions asked, additional clarity, or make technical corrections. In response to concerns raised by several commenters, the agencies confirmed that they are providing the interagency Q&As “as guidance only,” and clarified that “all the Q&As apply to all policies, whether [National Flood Insurance Program] or a flood insurance policy issued by a private insurance company, unless otherwise noted in the Q&A.” Additionally, the agencies noted “that they are working individually and on an interagency basis to address financial risks associated with climate change consistent with the [a]gencies’ regulatory and supervisory authorities,” and therefore “decline to make changes to any of the Q&As in response to climate risk change.
The same day, the agencies issued Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance. The interagency questions and answers replace the 2009 and 2011 publications and consolidate Q&As proposed by the agencies in July 2020 and in March 2021. This bulletin rescinds: (i) OCC Bulletin 2009-26, Flood Disaster Protection Act: Revised Interagency Questions and Answers Regarding Flood Insurance; (ii) OCC Bulletin 2011-42, Flood Disaster Protection Act: Interagency Questions and Answers Regarding Flood Insurance’ (iii) OCC Bulletin 2020-69, Flood Disaster Protection Act: Proposed Revisions to Interagency Questions and Answers Regarding Flood Insurance; (iv) OCC Bulletin 2020-78, Flood Disaster Protection Act: Agencies Extend Comment Period on Proposed Revisions to Interagency Questions and Answers Regarding Flood Insurance; and (v) OCC Bulletin 2021-13, Flood Disaster Protection Act: Proposed Interagency Questions and Answers Regarding Private Flood Insurance.
Fed updates synthetic identity fraud mitigation toolkit
Recently, the Federal Reserve updated a synthetic identity fraud mitigation toolkit offering new information regarding fraud detection technology and data sharing and discussing the value of fraud information sharing within the industry to help fight synthetic identity fraud. As previously covered by InfoBytes, in February, the Fed released the synthetic identity fraud mitigation toolkit intended to help financial institutions, businesses, and consumers improve awareness, detection, measurement, and mitigation of identity fraud. The recent updates in the toolkit provide guidance on enhancing organizations' ability to prevent and mitigate synthetic identity fraud using a variety of detection and prevention technologies and approaches. Topics contained in the toolkit include insights and downloadable resources covering, among other things: (i) the basics of synthetic identity fraud; (ii) how synthetic identities are used; (iii) when synthetics become a reality; (iv) detecting a synthetic identity; (v) validating identities; and (vi) identifying synthetics.
CFPB: ECOA protection extends past application process
On May 9, the CFPB issued an advisory opinion to affirm its interpretation that ECOA bars lenders from discriminating against customers after they have applied for and received credit, not just during the application process. The Bureau’s opinion and analysis interprets ECOA and its implementing rule, Regulation B, as applying to the “approval, denial, renewal, continuation, or revocation of any open-end consumer credit account,” and is consistent with the agency’s joint amicus brief filed last December with the DOJ, Federal Reserve Board, and FTC, which argued that the term “applicant” as used in ECOA/Regulation B, includes both those seeking credit, as well as persons who have sought and have received credit (i.e., current borrowers). (Covered by InfoBytes here.) This has been the agency’s “longstanding position,” the Bureau stressed, noting it was the view of federal agencies prior to the Bureau’s creation as well.
However, “[d]espite this well-established interpretation, the Bureau is aware that some creditors fail to acknowledge that ECOA and Regulation B plainly apply to circumstances that take place after an extension of credit has been granted, including a revocation of credit or an unfavorable change in the terms of a credit arrangement,” the advisory opinion stated, explaining that ECOA prohibits creditors from lowering a borrower’s available line of credit or subjecting a borrower to more aggressive collections practices on a prohibited basis, such as race or national origin. “In addition, the Bureau is aware that some creditors fail to provide applicants with required notifications that include a statement of the specific reasons for the adverse action taken or disclose an applicant’s right to such a statement.” Creditors are required to provide “adverse action notices” when denying a loan, the Bureau wrote, adding that these notices are required when the terms of an existing loan are modified or terminated. “This interpretation of ECOA, therefore, forecloses a potential loophole that could effectively swallow much of the Act. Such a loophole would be plainly inconsistent with ECOA,” the advisory opinion stressed. While the Bureau acknowledged that “a few other district court decisions have interpreted ‘applicant’ to include only persons actively seeking credit,” the agency stressed that the district courts “read ‘applicant’ in isolation instead of reading this statutory term in context, as required by the Supreme Court,” and that “no court of appeals has endorsed these district courts’ narrow reading.”
As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.
SBA says nonprofit lenders are eligible for PPP loan forgiveness
On May 5, the SBA added question #70 to its Paycheck Protection Program (PPP) frequently asked questions explaining that 501(c)(3) nonprofit lenders are eligible for PPP loan forgiveness provided they have complied with all applicable PPP rules aside from 13 CFR 120.110(b). 13 CFR 120.110(b) provides that non-profit businesses and other financial businesses that are “primarily engaged in the business of lending” are ineligible for SBA business loans. While the CARES Act specifically allowed nonprofit organizations to be eligible for PPP loans, it did not mention financial businesses/lenders, which SBA interpreted as “allowing nonprofits to overcome the 13 CFR 120.110 restriction, but not lenders.” Following a review of the agency’s PPP loan records, SBA found that 501(c)(3) nonprofit lenders were confused as to whether they were eligible for PPP loans. In order to provide clarity, SBA “determined that 501(c)(3) nonprofit lender borrowers reasonably relied on the CARES Act’s nonprofit authority regarding their eligibility for a PPP loan. In addition, enforcing the Forgiveness and Loan Review IFR (86 FR 8283) that provides for denial of forgiveness to 501(c)(3) nonprofit lenders due to application of the PPP eligibility rule incorporating 13 CFR 120.110(b) will negatively affect the remaining small number of 501(c)(3) nonprofit lenders that have not yet received forgiveness.” As such, the SBA administrator has elected to exercise broad discretion “to decline to enforce the Forgiveness and Loan Review IFR rule providing for denial of forgiveness to ineligible borrowers for 501(c)(3) nonprofit lenders” and will allow such lenders to be eligible for forgiveness of their PPP loans.
Hsu: Bank merger framework needs updating
On May 9, acting Comptroller of the Currency Michael J. Hsu delivered remarks before the Brookings Institution focusing on updating the framework used to analyze bank merger applications. In his remarks, Hsu described that bank mergers have “received significant attention this past year” and that “[c]oncerns about the negative effects of bank mergers on competition, communities and financial stability have prompted some to call for a moratorium on merger activity.” Hsu also noted that “others have defended the benefits of mergers,” noting that “the U.S. financial services market is highly competitive, and mergers allow institutions to achieve needed economies of scale and to diversify risk through geographic or product expansion.” The OCC adopted the DOJ’s bank merger review guidelines, which were last revised in 1995, but public comments as to whether it should update the guidelines to reflect trends in the banking and financial services sector and to modernize its approach to bank merger review is currently pending. Stating that the frameworks for analyzing bank mergers need updating, Hsu noted that imposing a moratorium on mergers would “lock in the status quo,” thus, “prevent[ing] mergers that could increase competition, serve communities better, and enhance industry resiliency.” Considering that it is time to “rethink the frameworks” for analyzing bank merger applications, Hsu stated that he does not believe that “the statutory prongs of competitiveness, safety and soundness, meeting community needs, and financial stability need to be revisited.” Instead, he described that, “the modes of analysis used by regulators to apply these factors need to be improved.” According to Hsu, there is a “resolvability gap” among large regional banks, which is creating a whole new set of "too-big-to-fail" entities as these banks grow in size.