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Treasury highlights climate transition efforts
On March 3, the U.S. Treasury Department released a Fact Sheet covering topics discussed during “The Climate Transition: Federal Policy and State and Local Government Best Practices” roundtable, including efforts to support states, localities, and communities impacted by climate change. Topics discussed included, among others: (i) promoting an equitable and sustainable recovery and driving green investments; (ii) disseminating analysis and recommendations to advance shared climate priorities; (iii) monitoring climate-related issues in municipal markets and identifying best practices; and (iv) promoting resilience to extreme weather events. Specifically, Treasury pointed out its Federal Insurance Office is advancing a set of priorities on climate-related issues by developing a report “focused on climate-related insurance supervision and regulation, with an assessment of climate-related issues or gaps in the supervision and regulation of insurers, including their potential impact on U.S. financial stability.” (Covered by InfoBytes here). Additionally, Treasury noted that it is “coordinating with interagency partners and state and local governments on a national mitigation framework,” and is “promoting energy efficiency and sustainability through tax incentives for homes and buildings.”
Waters sends letter to HUD and others regarding appraisal bias
On February 22, Chairwoman of the House Financial Services Committee Maxine Waters (D-CA) sent a letter to HUD Secretary Marcia Fudge, the Appraisal Subcommittee, the Appraisal Foundation, and the Appraisal Institute regarding appraisal bias and discrimination. The letter, among other things, urged federal regulators and the Appraisal Institute to investigate appraiser misconduct and the possibility of illegal discrimination and highlighted “longstanding racial inequities plaguing America’s home valuation system, particularly in Black-majority communities and other communities of color,” according to the press release. In the letter, Waters noted that during her time with the House Financial Services Committee, the committee has “paid special attention to the racial inequities that continue to plague America’s home valuation system, including through home appraisals, despite the passage of anti-discrimination laws.” She further pointed to “qualitative research” from the National Fair Housing Alliance to shed light on “the ways in which individual appraisers and the appraisal profession help perpetuate systemic and overt racism, highlighting statements made by appraisers as well as policies and practices that continue to be upheld by an appraisal profession that is 97% White.” The letter also provided excerpts from an appraiser’s email as an example of discriminatory practices, in which Waters asserted, “shines a spotlight on the racist stereotypes and harmful lines of thinking prevalent in an industry which systematically devalues the homes of Black people and other people of color.” Waters noted that she will be drafting legislation “to address systemic appraisal discrimination,” recommended that the recipients of her letter conduct pertinent investigations, and urged them to respond to her letter accordingly. Waters also disclosed that the House Financial Services Committee “will convene hearings, advance legislation, and continue working with stakeholders to end housing discrimination and hold the appraisal industry fully accountable.”
CFPB looks at removing medical debt from credit reports
On March 1, the CFPB announced plans to review whether data on unpaid medical bills should be included in consumer credit reports. The Bureau stated in its report, Medical Debt Burden in the United States, that research found $88 billion in medical debt on consumer credit reports, accounting for 58 percent of all uncollected debt tradelines reported to credit reporting agencies (CRAs). “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe,” CFPB Director Rohit Chopra said in a statement.
The Bureau noted that medical debt is often less transparent than other types of debt, due to opaque pricing, complicated insurance, charity care coverage, and pricing rules, reporting that in many instances, consumers may not even sign a billing agreement until after receiving treatment. Medical debts often end up in collections, the Bureau added, which can cause far-ranging repercussions even if the bill itself is inaccurate or erroneous. The report noted additional challenges for uninsured consumers, as well as for Black and Latino families, consumers with low incomes, veterans, older adults, and young adults of all races and ethnicities. The report further stated that the Covid-19 pandemic has exacerbated the situation, with costs and medical debt expected to increase post-pandemic, and found that medical debt weakens underwriting accuracy, as it is less predictive of future repayment than reporting on traditional credit obligations. The Bureau pointed out that it has seen dramatic effects when newer credit scoring models weigh medical collections tradelines less heavily, but noted that there has been very little adoption of this approach so far.
The Bureau stated it intends to examine CRAs to ensure they are collecting accurate information from medical debt collectors and expects CRAs to take action against furnishers who routinely report inaccurate information, including cutting off their access to the system. The Bureau also plans to work with the Department of Health and Human Services to make sure consumers are not forced to pay more than the amount due for medical debt. A January compliance bulletin reminded debt collectors and CRAs of their legal obligations under the FDCPA and the FCRA when collecting, furnishing information about, and reporting medical debts covered by the No Surprises Act. The Bureau also recently supported changes by the Department of Veterans Affairs to amend its regulations related to the conditions by which VA benefit debts or medical debts are reported to CRAs. (Covered by InfoBytes here and here.)
CFPB reviewing 2,100 comments on small business data collection
On February 22, the CFPB filed its eighth status report in the U.S. District Court for the Northern District of California, as required under a stipulated settlement reached in February 2020 with a group of plaintiffs, including the California Reinvestment Coalition, related to the collection of small business lending data. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses. The current status report states that the Bureau has met the deadlines under the stipulated settlement, which included issuing its long-awaited proposed rule (NPRM) last September. As covered by a Buckley Special Alert, the NPRM would require a broad swath of lenders to collect small business loan data, including information about the loans themselves, borrower characteristics, and demographic information regarding the borrower’s principal owners. This information would be reported annually to the Bureau and published by the Bureau on its website. The Bureau notes in its status report that the NPRM’s comment period ended on January 6. The Bureau is currently reviewing approximately 2,100 comments submitted via the public docket and will confer with plaintiffs regarding an appropriate deadline for issuing a final rule.
Find continuing Section 1071 coverage here.
FTC bans debt relief scheme operators
On February 28, the FTC announced the permanent ban of the operators (collectively, “defendants”) of a debt relief scheme from processing debt relief payments and ordered the defendants to pay a $5.3 million fine. According to the FTC’s July 2020 complaint, which was filed jointly with the Florida attorney general in the U.S. District Court for the Middle District of Florida, the defendants allegedly engaged in deceptive and abusive practices by selling their credit card interest rate reduction services to consumers in violation of the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. The FTC and Florida AG claimed that the defendants utilized telemarketing calls promising to reduce consumers’ credit card interest rates permanently and substantially, and, after posing as representatives or affiliates of consumers’ credit card companies, the defendants allegedly claimed they could save consumers thousands of dollars in credit card interest and enable them to pay off their debt faster. The complaint also asserted that the defendants, at times, opened new credit cards that offered low introductory interest rates and transferred the balances of consumers’ existing debt to the new cards. For that, customers paid upfront fees of between $995 and $4,995 while also paying “substantial” fees to transfer the balances.
Under the terms of the settlement, the operators are permanently prohibited from participating the debt relief industry, misrepresenting material facts in connection with any product or service, and engaging in deceptive and abusive telemarketing acts and practices, unsubstantiated claims, and other payment practices. Two individual defendants agreed to pay a $225,000 monetary penalty and the other defendant agreed to pay $200,000.
CFPB guidance on automobile repossession warns on UDAAPs
On February 28, the CFPB released Bulletin 2022-4 regarding the repossession of vehicles and the potential for violations of Dodd-Frank’s prohibition on engaging in unfair, deceptive, or abusive acts or practices (collectively, “UDAAPs”) when repossessing vehicles. According to the Bulletin, “[t]he Bureau intends to hold loan holders and servicers accountable for UDAAPs related to the repossession of consumers’ vehicles.” To prevent UDAAPs, the Bureau noted that entities should, among other things: (i) review their policies and procedures regarding repossession and cancellation of repossession; (ii) ensure prompt communications between servicers and repossession service providers when a repossession is canceled and monitor compliance with cancellations; (iii) utilize monitoring of wrongful repossessions through routine oversight and audits of customer communications; and (iv) ensure corrective action programs are in place to address any violations and reimburse consumers for costs incurred as a result of unlawful repossessions. Additionally, the Bulletin suggests that entities should monitor service providers and any force-placed collateral protection insurance programs to verify that consumers are not charged for unnecessary force-placed insurance. According to the CFPB’s blog post released the same day, “the Bureau is closely watching the auto lending market. Auto loans are already the third largest consumer credit market in the United States at over $1.46 trillion outstanding, double the amount from ten years ago.”
FDIC releases January enforcement actions
On February 25, the FDIC released a list of administrative enforcement actions taken against banks and individuals in January. During the month, the FDIC made public nine orders consisting of “four Orders to Pay Civil Money Penalty, one order terminating consent order, one voluntary termination of deposit insurance, and three orders of prohibition from further participation.” Among the actions is an order to pay a civil money penalty imposed against a Wisconsin-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “fail[ed] to obtain adequate flood insurance for two loans,” and “faile[d] to provide to borrowers a Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance within a reasonable time before the completion of the transaction on four loans.” The order requires the payment of a $3,000 civil money penalty. The orders also include pay a civil money penalty order imposed against a Iowa-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank: (i) “made, increased, extended, or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; (ii) “made, increased, extended, or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral”; and (iii) “failed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $16,250 civil money penalty.
FHFA finalizes enterprise regulatory capital framework
On February 25, FHFA announced a final rule, which amends the Enterprise Regulatory Capital Framework (ERCF) by refining the prescribed leverage buffer amount (leverage buffer) and risk-based capital treatment of retained credit risk transfer (CRT) exposures for Fannie Mae and Freddie Mac (collectively, GSEs). Among other things, the final rule: (i) replaces the fixed leverage buffer equal to 1.5 percent of a GSE's adjusted total assets with a dynamic leverage buffer equal to 50 percent of the GSE's stability capital buffer; (ii) replaces the prudential floor of 10 percent on the risk weight assigned to any retained CRT exposure with a prudential floor of 5 percent on the risk weight assigned to any retained CRT exposure; and (iii) removes the requirement that a GSE must apply an overall effectiveness adjustment to its retained CRT exposures in accordance with the ERCF’s securitization framework. Additionally, the final rule implements technical corrections to provisions of the ERCF that were published in December 2020. (Covered by InfoBytes here.) The ERCF amendments and technical corrections will be effective 60 days after publication in the Federal Register.
FHFA re-proposes GSE seller/servicer eligibility requirements
On February 24, FHFA re-proposed updated eligibility standards that Fannie Mae and Freddie Mac (collectively, GSEs) mortgage sellers and servicers would have to meet. The updated proposed requirements are designed to provide transparency and consistency of capital and liquidity requirements for sellers and servicers with different business models, and would differentiate between the servicing of Ginnie Mae mortgages and GSE mortgages. FHFA noted that the updated proposed requirements, which reflect coordination with other federal agencies, also incorporate feedback from a January 2020 proposal (covered by InfoBytes here), as well as lessons learned from the Covid-19 pandemic.
Under the updated proposed requirements, all GSE sellers and servicers (both depositories and non-depositories) would be required to maintain a tangible net worth requirement of $2.5 million, plus 35 basis points of the unpaid principal balance for Ginnie Mae servicing and 25 basis points of the unpaid principal balance for all other 1-to-4 unit residential loans serviced, including GSE loans. Current GSE sellers and servicers, as well as new applicants, will be required to comply with the updated proposed requirements by December 31, 2022, minus the exception that Capital and Liquidity Plan requirements must be submitted to the GSEs by December 31, 2023, and are due annually by the end of each year thereafter. Comments on the proposed changes are due in 60 days. FHFA stated it anticipates finalizing the updated proposed requirements in the second quarter of 2022, with most requirements taking effect six months after finalization.
CFPB blogs about growth in auto lending
On February 24, the CFPB published a blog post regarding the auto lending market. In the post, the Bureau noted that the consumer price index for new and used cars increased by nearly 40 percent over the last year, and that it anticipated “that both the total amount of debt and the average loan size will continue to increase and that larger car loans will put increased pressure on some consumers’ budgets for much of the next decade.” Among other things, the Bureau highlighted it is monitoring the loan-to-value ratios in the auto lending market, auto loan servicing and collections practices, and the subprime auto lending market, stating that with respect to the subprime auto lending market, it is “looking to better understand potential barriers to competition in the subprime auto lending market that may drive” variation among subprime interest rates for auto loans. The post pointed to research that found “that typical ‘shallow subprime’ small BHPH ('buy-here-pay-here') borrowers would save around $894 over the life of a loan if they could reduce the interest rate from 13 percent, which is typical for such BHPH borrowers, to 9 percent, which is typical for bank borrowers with similar default rates.” The Bureau also noted that it “will continue to research auto lending policies and practices that may hinder a fair, transparent, and competitive market" and will work with its counterparts at the FTC and the Federal Reserve to use the agencies' collective authorities to address issues in the market.