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FTC provides annual ECOA summary to CFPB
On February 3, the FTC announced it recently provided the CFPB with its annual summary of work on ECOA-related policy issues, focusing specifically on the Commission’s activities with respect to Regulation B during 2020. The summary discusses, among other things, the following FTC research and policy development initiatives:
- The FTC submitted a comment letter in response to the CFPB’s request for information on ways to provide additional clarity under ECOA (covered by InfoBytes here). Among other things, the FTC noted that Regulation B explicitly incorporates disparate impact and offered suggestions should the Bureau choose to provide additional detail regarding its approach to disparate impact analysis. The FTC also urged the Bureau to remind entities offering credit to small businesses that ECOA and Regulation B may apply based “on the facts and circumstances involved” and that entities cannot avoid application of these statutes based solely on how they characterize a transaction or the benefits they claim to provide.
- The FTC hosted the 13th Annual FTC Microeconomics Conference, which focused on the use of machine-learning algorithms when making decisions in areas such as credit access.
- The FTC’s Military Task Force continued to work on military consumer protection issues, including military consumers’ “rights to various types of notifications as applicants for credit, including for adverse action, and information about the anti-discrimination provisions, in ECOA and Regulation B.”
- The FTC continued to participate in the Interagency Task Force on Fair Lending, along with the CFPB, DOJ, HUD, and the federal banking regulatory agencies. The Commission also joined the newly formed Interagency Fair Lending Methodologies Working Group with the aforementioned agencies in order “to coordinate and share information on analytical methodologies used in enforcement of and supervision for compliance with fair lending laws, including ECOA.”
The summary also highlights FTC ECOA enforcement actions, business and consumer education efforts on fair lending issues, as well as blog posts discussing fair lending safeguards and the use of artificial intelligence in automated decision-making.
FHA issues Covid-19 measures to protect borrowers
On February 3, FHA issued a series of temporary measures in its Single Family Housing Policy Handbook, which waive provisions that, among other things, normally require in-person contact between mortgage servicers and borrowers. These waivers, FHA states, are intended to allow mortgage servicing activities to continue in a safe manner during the Covid-19 pandemic, and augment FHA’s recent extension of its foreclosure and eviction moratorium for borrowers through March 31, as well as the agency’s decision to extend the deadline for impacted borrowers to request a new forbearance (covered by InfoBytes here). Specifically, the waivers build upon previous waivers and will allow the following provisions through December 31, 2021:
- Rather than conducting face-to-face borrower interviews, the waiver will allow substitute methods (such as phone interviews, email, video calling services, and other conference technology) for servicers to conduct borrower interviews for FHA-insured forward and home equity conversion mortgages (HECM) when performing early default interventions for borrowers in danger of foreclosure.
- FHA is waiving the $5,000 property charge payment arrearages cap for HECM borrowers who are behind on their property charge payments.
- FHA is waiving the requirement for servicers to obtain a physical signature on an occupancy certification from a HECM borrower.
FTC finalizes settlement with video conferencing company
On February 1, the FTC finalized a settlement with a video conferencing provider, resolving allegations that the company violated the FTC Act by misleading users about the levels of encryption offered for securing communications during meetings. As previously covered by InfoBytes, in November 2020, the FTC announced a proposed consent order with the video conferencing provider alleging, among other things, that the company failed to implement any measures to protect users’ security, failed to monitor service providers who had access to the network, lacked a systematic process for incident response, and allegedly increased users’ risk of remote video surveillance by strangers, even though the company “touted its level of encryption as a reason for customers and potential customers to use [its] videoconferencing services.” In a 3-2 vote, the FTC finalized the proposed settlement, which (i) prohibits the company misrepresenting its privacy and security practices; (ii) includes a mandated information security program, which requires the company to assess and document security risks, develop ways to manage and safeguard against such risks, and deploy additional methods, including multi-factor authentication, to protect against unauthorized access of the network; and (iii) requires the company to obtain biennial third-party assessments of its security practices.
Acting Chairwoman Slaughter and Commissioner Chopra issued two dissenting statements, with Slaughter arguing that the final order does not adequately address the company’s privacy failings, nor does it require the company to provide any recourse to affected users, despite “widespread opposition” to the proposed settlement. Chopra argues the FTC “[r]ush[ed] to a final approval of [the] settlement,” and urges the FTC to “think beyond its status quo approach of simply requiring more paperwork, rather than real accountability relying on a thorough investigation.”
FTC settles with training companies that charged consumers to obtain credit cards
On January 29, the FTC announced a settlement with two Nevada companies and two individuals (collectively, “defendants”), resolving allegations that the defendants violated the FTC Act, the Telemarketing Sales Rule, the Credit Repair Organizations Act, and the Consumer Review Fairness Act by charging consumers thousands of dollars to apply for numerous personal credit cards in order to pay for real estate investment training programs offered by other companies. According to the complaint, the training companies (many of which, the FTC claims, have been the subject of FTC enforcement actions for operating deceptive training schemes) pitch the defendants’ funding services to individuals who want to participate in the training companies’ programs and coaching about starting businesses or becoming real estate investors. However, the FTC claims that, in reality, the defendants are not lenders and do not actually provide any form of financing themselves. Rather, the defendants charge $3,000 or more to apply for multiple credit cards with total credit lines of at least $50,000 on behalf of the individuals—a practice known as “credit card stacking.” In addition, the FTC claims that the defendants inflated individuals’ annual incomes on credit card applications and told individuals they could anticipate earning around $100,000 if they used the training companies’ program, which individuals often purchased using credit cards they obtained from the defendants. Because most individuals did not earn the expected money, they incurred substantial credit card debt and experienced significant credit score declines.
The proposed settlement imposes a $2.1 million monetary judgment against the defendants, and permanently bans the defendants from, among other things, selling consumer credit services, misrepresenting the financial status of any consumer to a financial institution, engaging in business connected with the offer or sale of a credit repair service, and applying for or obtaining credit cards for consumers in exchange for a fee.
OCC releases CRA determinations, distressed and underserved areas
On January 29, the OCC published Bulletin 2021-5, containing lists of bank type determinations and distressed and underserved areas for 2021, and its computation of the banking industry’s median hourly compensation value. The information is applicable to national banks, federal and state savings associations, and federal branches of foreign banks subject to the agency’s 2020 final rule to modernize the regulatory framework implementing the Community Reinvestment Act rule (CRA). As previously covered by a Buckley Special Alert, the 2020 final rule, among other things (i) updated deposit-based assessment areas; (ii) mandated the inclusion of consumer loans in CRA evaluations; and (iii) included a non-exhaustive illustrative list of activities that qualify for CRA consideration. The 2021 list of bank type determinations identifies banks based on asset size or business model. According to the OCC, a bank’s type will “generally determine[] the performance standards and related examination procedures used to evaluate that bank’s CRA performance.” The agency’s list of distressed or underserved areas identifies tracts where banks participating in qualifying activities may receive CRA consideration under the final rule’s community development definition. Finally, the OCC states that the banking industry median hourly compensation value applicable to qualifying community development service activities will be $39.03. This figure, the agency explains, will be “used to quantify the value of a bank’s community development services” performed from October 1, 2020 through December 31, 2021.
VA extends Covid-19 foreclosure and eviction moratorium
On January 29, the Department of Veterans Affairs issued Circular 26-21-2, which further extends foreclosure and eviction relief for borrowers affected by Covid-19 (previously covered here). Specifically, all properties secured by VA-guaranteed loans, including those previously secured by VA-guaranteed loans but currently in the VA’s REO (real estate owned) portfolio, are subject to a moratorium on foreclosure and eviction through March 31, 2021. With the exception of abandoned or vacant property, the moratorium applies to the initiation of foreclosures, the completion of foreclosures in process, and evictions.
SBA addresses BSA compliance obligations in updated PPP FAQs
On January 29, the Small Business Administration (SBA) updated its Paycheck Protection Program (PPP) frequently asked questions to further address borrower and lender questions. Among other things, the updated FAQs clarify that FinCEN’s April 2020 PPP FAQs are applicable to Second Draw PPP loans. In addition, for purposes of Bank Secrecy Act (BSA)/anti-money laundering compliance, SBA states that PPP lenders can rely on the same information received from a borrower during a First Draw loan application for a Second Draw PPP loan provided the borrower is an existing customer. Accordingly, FinCEN, as administrator of the BSA, published updates to its FAQs to include SBA’s newest clarifications. Additionally, SBA notes that FAQs 1-53 are currently being revised and do not reflect changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act enacted on December 27, 2020 (covered by InfoBytes here).
SBA guidance addresses unresolved First Draw PPP loans
Recently, the Small Business Administration (SBA) issued a procedural notice informing lenders that the Paycheck Protection Program (PPP) platform will begin processing new Second Draw PPP loan guarantee applications for borrowers who still have unresolved issues related to their First Draw loans. Second Draw submissions for unresolved borrowers will automatically be moved to a “research status,” providing opportunities for lenders to submit necessary documentation to support the resolution of outstanding First Draw issues. Information concerning the unresolved issues and resolution assistance will also be provided by SBA. Once outstanding First Draw issues are resolved, Second Draw loan applications will automatically be submitted into the next processing stage and will not require re-entry by the lender. However, if an outstanding First Draw issue cannot be resolved, lenders should withdraw a borrower’s Second Draw application from the platform. SBA notes that if a Second Draw application submitted before January 27 was rejected due to an unresolved First Draw issue, the lender should resubmit the application. SBA also issued several other procedural notices related to provisions under the Economic Aid Act (covered by InfoBytes here) that address, among other things, modifications to SBA’s 7(a) loan program, the elimination of certain 504 loan program fees, and a notice to lenders that SBA has informed eligible borrowers of available Section 1112 CARES Act assistance.
Biden directs HUD to examine disparate impact rule
On January 26, President Biden issued an Executive Order (E.O.) directing the secretary of HUD to examine the effects of the September 2020 final rule amending the agency’s interpretation of the Fair Housing Act’s 2013 disparate impact standard (2013 Rule). As previously covered by a Buckley Special Alert, the final rule is intended to align its 2013 Rule with the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs et al. v. Inclusive Communities Project, Inc. and among other things, includes a modification of the three-step burden-shifting framework in its 2013 Rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims. The E.O. emphasizes HUD’s “statutory duty to ensure compliance with the Fair Housing Act,” and requires the HUD secretary to take any necessary steps, “to implement the Fair Housing Act’s requirements that HUD administer its programs in a manner that affirmatively furthers fair housing and HUD’s overall duty to administer the Act (42 U.S.C. 3608(a)) including by preventing practices with an unjustified discriminatory effect.”
Acting director sets out CFPB priorities
On January 28, newly appointed CFPB acting Director, Dave Uejio, released a statement he sent to staff announcing his immediate priorities for the Bureau as: (i) relief for consumers facing hardship and economic crisis due to the Covid-19 pandemic, and (ii) racial equity. Acknowledging the recently released Covid-19 Supervisory Highlights (covered by InfoBytes here), Uejio stated he was “concerned” about the findings, which noted issues with mortgage servicing, auto loan servicing, student loan servicing, and small business lending (including banks' practice of only offering Paycheck Protection Program loans to pre-existing customers). Uejio stated that going forward, the Bureau will “take aggressive action to ensure that regulated companies follow the law and meet their obligations to assist consumers during the COVID-19 pandemic,” noting that companies will have already received or should expect to receive a letter dictating “remediat[ion] [to] all of those who are harmed” and should “change policies, procedures, and practices to address the root causes of harms.” Moreover, Uejio will be reversing policies put into place by the previous administration, including reinstating examinations of the Military Lending Act and rescinding “public statements conveying a relaxed approach to enforcement.”
Additionally, Uejio said fair lending enforcement is a “top priority,” calling it “time” for the CFPB to “take bold and swift action on racial equity.” Uejio noted plans to “elevate and expand existing investigations and exams,” as well as add new ones and focus broadly on “unlawful conduct that disproportionately impacts communities of color and other vulnerable populations.”