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CFPB analyzes HMDA data of small to medium-size lenders
On June 14, the CFPB released a report analyzing differences in certain loan and borrower characteristics and general lending patterns for lenders below and above the 100-loan closed-end threshold set by the 2020 HMDA final rule. As previously covered by InfoBytes, last year the Bureau issued a final rule permanently raising coverage thresholds for collecting and reporting data about closed-end mortgage loans under HMDA from 25 to 100 loans.
While the Bureau notes that the “analysis is necessarily limited and preliminary,” the report’s findings, which analyzed publicly available HMDA data from 2019 for which the 25-loan threshold still applied, show, among other things, that (i) lenders that are exempt under the 2020 final rule (those whose origination volume exceeds the 25-loan threshold but falls below the 100-loan threshold) “do not appear to be more likely to lend to Black and non-White Hispanic borrowers than larger volume lenders”; (ii) these lenders may be more likely to lend to non-natural person borrowers such as trusts, partnerships, and corporations; (iii) a higher percentage of these loans are secured by properties in low-to-moderate income (LMI) census tracts, properties in rural areas, second liens, and investment properties; (iv) these lenders tend to make more loans to borrowers who appear to have higher income levels than large lenders’ borrowers; and (v) a slightly higher percentage of loans made by these lenders are secured by manufactured homes than by lenders with origination volumes over 300. According to the Bureau’s blog post, the “findings are consistent with a possible explanation that lenders below the 2020 rule’s 100-loan closed-end threshold are making more loans to investors buying up property in [LMI] census tracts for rental or resale.”
CFPB reports low delinquency rates despite Covid-19
On June 16, the CFPB released findings on delinquency trends for auto loans, student loans, mortgages, and credit cards. The post—the first in a series that will document consumer credit trend outcomes during the Covid-19 pandemic—examines how trends have evolved since June 2020. As previously covered by InfoBytes, last August, the Bureau issued a report examining trends through June 2020 in delinquency rates, payment assistance, credit access, and account balance measures, which showed that generally there was an overall decrease in delinquency rates since the start of the pandemic among auto loans, first-lien mortgages, student loans, and credit cards. According to the Bureau’s recent findings, as of March 2021, new delinquencies remain below pre-pandemic levels, despite a slight rise since July 2020 in auto loan and credit card delinquencies. These levels, the Bureau noted, may be attributed to federal, state, and local policy interventions that provide payment assistance and income support to consumers. Researchers also found that overall trends in new delinquencies were consistent across credit score groups, although “trends were more pronounced for consumers with lower credit scores.” Additionally, the Bureau reported that while stimulus payments and increasing vaccination rates may boost economic activity and keep delinquency rates down, accounts that would have been delinquent in the absence of payment assistance may begin to be reported as delinquent as assistance programs begin to end. Later this year, the Bureau will release a post in this series discussing payment assistance trends since June 2020.
Senate holds hearing on central bank digital currency
On June 9, the Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy held a hearing titled “Building A Stronger Financial System: Opportunities of a Central Bank Digital Currency” to discuss the potential opportunities of a central bank digital currency (CBDC). Among the issues discussed at the hearing were protecting consumer privacy and security, financial inclusion, and the Federal Reserve’s authority.
The Honorable J. Christopher Giancarlo, Senior Counsel at Willkie Farr & Gallagher, was a witness on behalf of the Digital Dollar Project (DDP). The digital dollar, proposed by the Fed, would be distributed through the two-tiered banking system and operated alongside physical currency and commercial bank money. Senator Catherine Cortez Masto (D-NV) asked how a CBDC should be designed, implemented, and regulated to reduce the risk of fraud and ensure privacy. Giancarlo, who stated he is not convinced of the need for CBDC, but believed in the need to examine this issue, said the DDP convened a privacy subcommittee which addressed four principles: (i) economic privacy; (ii) security; (iii) inclusion; and (iv) sufficient transparency to provide settlement and payment certainty. When Senator Mark Warner (D-VA) questioned witness Dr. Neha Narula, Director of the Digital Currency Initiative at MIT, on security risks associated with cryptocurrencies, she responded that, with respect to ransomware attacks, the issue is that valuable data has not been properly secured, and suggested that a CBDC could have built-in safeguards. She also believed that open source software is critical for security.
Subcommittee Chairwoman Senator Elizabeth Warren (D-MA) suggested that banks use “abusive” practices and that the crypto industry has promised a better and more inclusive financial system, which reduces cost and improves quality. When Warren asked if a well-designed CBDC could help people who are poorly served by the current financial system, Narula emphasized the importance of designing a CBDC with a focus on accessibility and reducing barriers to access.
Senator Sherrod Brown (D-OH) argued that Americans should not be subject to excessive fees to access their own money. He also noted that a CBDC may work with a solution he has proposed, called No-Fee Accounts, which would be available to every American and backed by the Fed. As previously covered by InfoBytes, Federal Reserve Governor Lael Brainard noted in a speech that a CBDC may address concerns regarding the lack of federal deposit insurance and banking supervision for nonbank issuers of digital assets, and that “new forms of private money may introduce counterparty risk into the payments system in new ways that could lead to consumer protection threats or, at large scale, broader financial stability risks.” Ranking Member Pat Toomey (R-PA) expressed his concerns around the Fed’s position in retail banking services and was doubtful that the Fed would provide high quality customer service, while Ranking Member John Kennedy (R-LA) questioned if it is appropriate for the federal government to get entangled in the credit markets by way of a CBDC.
FDIC announces Louisiana disaster relief
On June 10, the FDIC issued FIL-40-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Louisiana affected by severe storms, tornadoes, and flooding. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC further stated that it will also consider regulatory relief from certain filing and publishing requirements.
GAO reports on CFPB fair lending activities
Last month, the Government Accountability Office delivered a report at the request of Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) on the CFPB’s oversight and enforcement of fair lending laws after the agency’s 2018 reorganization which moved the Office of Fair Lending and Equal Opportunity from the Supervision, Enforcement, and Fair Lending Division to the Office of the Director and shifted certain responsibilities. GAO’s investigation focused on how the Bureau (i) “managed the reorganization of its fair lending activities”; (ii) “monitored and reported on its fair lending performance”; and (iii) used new HMDA data reported by some lenders since 2018 in its fair lending activities. The investigation team examined documents related to the Bureau’s fair lending activities, including strategic and performance reports and policies and procedures, and interviewed Bureau staff. GAO concluded that the Bureau “did not substantially incorporate key practices for agency reform efforts GAO identified in prior work” during the reorganization, and identified challenges related to the reorganization such as “loss of fair lending expertise and specialized data analysts,” which “may have contributed to a decline in enforcement activity in 2018.” The report also pointed out that the Bureau’s decision to stop reporting fair lending supervision and enforcement performance goals and measures has reduced transparency. However, the report noted that the Bureau has incorporated loan-level HMDA data to support its fair lending activities and that the new data points have improved the agency’s ability to compare how different institutions price loans, helping staff identify potentially discriminatory lending practices.
GAO’s report recommended that the Bureau: (i) collect and analyze information on the outcomes of its fair lending reorganization and use that assessment to address any related challenges or unintended consequences; and (ii) “develop and implement performance goals and measures specific to its efforts to supervise and enforce fair lending laws.” The Bureau agreed with both recommendations and affirmed its commitment to implementing them.
CFPB publishes rulemaking agenda
On June 11, the Office of Information and Regulatory Affairs released the CFPB’s spring 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau is “currently pursuing under interim leadership pending the appointment and confirmation of a permanent Director.” Any changes made by the new permanent director will be reflected in the fall 2021 rulemaking agenda. Additionally, the Bureau indicates that it plans to continue to focus resources on actions addressing the adverse impacts to consumers due to the ongoing Covid-19 pandemic, and highlighted an interim final rule issued in April that addresses certain debt collector conduct associated with the CDC’s temporary eviction moratorium order (covered by InfoBytes here). The Bureau will also continue to take concrete steps toward furthering the agency’s “commitment to promoting racial and economic equity.”
Key rulemaking initiatives include:
- Small Business Rulemaking. Last September, the Bureau released a Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) outline of proposals under consideration, convened an SBREFA panel last October, and released the panel’s final report last December (covered by InfoBytes here and here). The Bureau reports that it anticipates releasing a notice of proposed rulemaking (NPRM) for the Section 1071 regulations this September to “facilitate enforcement of fair lending laws as well as enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.”
- Consumer Access to Financial Records. The Bureau notes that it is considering rulemaking to implement section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued last fall regarding consumer data access (covered by InfoBytes here).
- Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA. The Bureau notes that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
- Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, [ ] avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for December.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued an NPRM in June 2020 to amend Regulation Z to address the sunset of LIBOR, and to facilitate creditors’ transition away from using LIBOR as an index for variable-rate consumer products. A final rule is expected in January 2022.
- Reviewing Existing Regulations. The Bureau notes in its announcement that while it will conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), it will no longer pursue two HMDA proposed rulemakings previously listed in earlier agendas related to the reporting of HMDA data points and public disclosure of HMDA data. Additionally, the Bureau states that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 and plans to publish any resulting changes in the fall 2021 agenda.
The Bureau’s announcement also highlights several completed rulemaking items, including (i) a final rule that formally extended the mandatory compliance date of the General Qualified Mortgage final rule to October 1, 2022 (covered by InfoBytes here); (ii) proposed amendments to the mortgage servicing early intervention and loss mitigation-related provisions under RESPA/Regulation X (covered by a Buckley Special Alert) (the Bureau anticipates issuing a final rule before June 30, when the federal foreclosure moratoria are set to expire); and (iii) a proposed rule (covered by InfoBytes here), which would extend the effective date of two final debt collection rules to allow affected parties additional time to comply due to the ongoing Covid-19 pandemic (the Bureau plans to issue a final rule in June on whether, and for how long, it will extend the effective date once it reviews comments).
FSB updates LIBOR transition roadmap
On June 2, the Financial Stability Board released an updated version of the Global Transition Roadmap for LIBOR, which is intended to advise those with exposure to LIBOR benchmarks of some of the steps they should take now and over the remaining period to LIBOR cessation dates to successfully mitigate risks. As previously covered by InfoBytes, the Financial Stability Board released the roadmap last October to outline the steps financial firms and their clients should take “in order to ensure a smooth LIBOR transition” from now through 2021. According to the recent announcement, “transition away from LIBOR requires significant commitment and sustained effort from both financial and non-financial institutions across many LIBOR and non-LIBOR jurisdictions.” In addition to identifying actions that should already be complete, the roadmap details the following steps:
- ISDA Fallback Protocol Effective Date. Firms should adhere to the International Swaps and Derivatives Association’s (ISDA) IBOR Fallback Protocol and IBOR Fallback Supplement, which were launched last October and took effect in January 2021 (covered by InfoBytes here).
- By mid-2021. Firms should have identified which contracts can be amended and contact other parties to prepare for the use of alternative rates. Firms should also execute formalized plans to covert legacy LIBOR contracts to alternative rates.
- By the end of 2021. All new business should be conducted in, or capable of switching immediately to, alternative rates.
- By June 2023. Firms should “be prepared for all remaining USD LIBOR settings to cease.”
CFPB to address racial equality
On June 2, CFPB acting Director Dave Uejio published a blog post highlighting Bureau efforts to address issues regarding racial injustice and the long-term economic effects of the Covid-19 pandemic on consumers. In January, as previously covered by InfoBytes, Uejio released a statement announcing his immediate priorities for the Bureau as: (i) relief for consumers facing hardship due to the Covid-19 pandemic and the related economic crisis; and (ii) racial equity. In the recent blog post, Uejio acknowledged that the “pandemic has created economic and financial insecurity for millions of Americans,” and has disproportionally impacted communities of color in terms of health and the related financial crises. Uejio also pointed out that, as acting director, his top priority is to “take bold and swift action to address issues of pervasive racial injustice and the long-term economic impacts of the COVID-19 pandemic on consumers” and noted that it is his “intent that the CFPB use all of [its] tools and authorities to protect and fight for fairness and equity.”
Fed winding down Secondary Market Corporate Credit Facility
On June 2, the Federal Reserve Board announced plans to wind down the portfolio of the Secondary Market Corporate Credit Facility (SMCCF), a temporary emergency lending facility that was established and provided by the Treasury Department under the CARES Act, which closed in December 2020. The SMCCF (covered by InfoBytes here) played a role in restoring market functioning, supported the availability of credit for certain employers, and assisted employment numbers during the Covid-19 pandemic. According to the announcement, sales from the SMCCF portfolio will be “gradual and orderly,” aiming to decrease the likelihood of “any adverse impact on market functioning by taking into account daily liquidity and trading conditions for exchange traded funds and corporate bonds.” The announcement also indicates that the Federal Reserve Bank of New York, which manages the operations of the SMCCF, will release more details before sales begin.
FTC alleges subscription service failed to provide access to paid-for services or secure personal data
On June 7, the FTC announced a complaint and proposed consent order against the operators of a movie subscription service to settle allegations that the respondents denied subscribers access to paid-for services and failed to secure subscribers’ personal information. The FTC alleges in its complaint that the respondents violated the FTC Act by employing multiple tactics to prevent subscribers from using the advertised services, including by (i) invalidating subscribers’ passwords while deceptively claiming to have “detected suspicious activity or potential fraud” on the subscribers’ accounts; (ii) imposing a deceptive ticket verification program, which required subscribers to submit photos of physical movie ticket stubs within a certain timeframe in order to view future movies or risk having their subscriptions cancelled; and (iii) using undisclosed financial thresholds known as “trip wires” to block certain subscribers after they reached certain viewing thresholds based on their monthly cost to the company. The FTC also alleged the respondents violated the Restore Online Shoppers’ Confidence Act, by failing to (i) disclose all material terms before obtaining consumers’ billing information; or (ii) obtain consumers’ express informed consent before charging them. Furthermore, the respondents allegedly failed to take reasonable measures to protect subscribers’ personal information, including storing personal data such as financial information and email addresses in unencrypted form and failing to restrict who could access the data, which lead to a data breach in 2019.
An analysis of the FTC’s proposed consent order notes that the respondents are prohibited from misrepresenting their services and must establish a comprehensive information security program that requires them—and any businesses controlled by the respondents —to implement and annually test and monitor safeguards and take steps to address security risks. The respondents must also obtain biennial third-party assessments of its information security program, notify the FTC of any future data breaches, and annually certify that it is complying with the order’s data security requirements. The FTC noted that because certain respondents have filed for bankruptcy, the order does not include monetary relief.