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CFPB settles with two mortgage companies over misleading VA loan advertisements
On August 26, the CFPB announced a settlement with a mortgage company to resolve allegations that the company, which is licensed as a mortgage broker or lender in approximately 11 states, sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans for its VA-guaranteed loans in violation of the CFPA, Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. According to the Bureau, among other things, the mortgage company (i) advertised credit terms that the lenders were not actually prepared to offer; (ii) failed to clearly and conspicuously disclose payment terms; (iii) made numerous “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; and (iv) misrepresented the consumer’s repayment obligations by failing to state the amount of each payment that would apply over the term of the loan or failing to clearly and conspicuously state that actual payment obligations would be greater. In addition to a $260,000 civil money penalty, the consent order requires the company to enhance its compliance functions, designate a compliance official to review mortgage advertisements for compliance with consumer protection laws, and comply with certain enhanced disclosure requirements. Additionally, the company is prohibited from making similar misrepresentations in the future.
Earlier on August 21, the CFPB also announced a settlement with a mortgage company to resolve allegations that the company sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans for its VA-guaranteed loans in violation of the CFPA, Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. According to the Bureau, among other things, the mortgage company (i) advertised credit terms that the lenders were not actually prepared to offer; (ii) described variable-rate loans as “fixed,” when in fact the rates were adjustable; (iii) falsely stated or implied that consumers with “FICO scores as low as 500” would qualify for advertised rates; and (iv) gave the false impression the lenders were affiliated with the government. In addition to a $150,000 civil money penalty, the consent order prohibits the company from making similar misrepresentations and requires the company to designate a compliance official to review mortgage advertisements for compliance with consumer protection laws.
The latest enforcement actions are part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. In July, the Bureau issued consent orders with two other mortgage lenders for similar violations, covered by InfoBytes here.
VA extends foreclosure and eviction moratorium for borrowers affected by Covid-19
On August 24, the Department of Veterans Affairs issued Circulars 26-20-30 and 26-20-29, which extend foreclosure and eviction relief for borrowers affected by Covid-19, respectively. Specifically, properties secured by VA-guaranteed loans are subject to a moratorium on foreclosure through December 31, 2020. The moratorium applies to the initiation of foreclosures and to the completion of foreclosures in process. The foreclosure circular is rescinded January 1, 2021. Similarly, properties secured by VA-guaranteed loans, including those loans currently in VA’s Real Estate Owned portfolio, are subject to a moratorium on evictions through December 31, 2020. The eviction moratorium circular is rescinded April 1, 2021.
CFPB reaches $122 million settlement with national bank to resolve overdraft violations
On August 20, the CFPB announced a settlement with a national bank, resolving allegations that the bank violated the EFTA, CFPA, and FCRA through the marketing and sale of its optional overdraft service. According to the consent order, the bank violated the EFTA and Regulation E by enrolling customers who orally consented to the bank’s optional overdraft program without first providing the customers with written notice, and subsequently charged those customers overdraft fees. The bank also allegedly engaged in abusive practices by, among other things, (i) requiring new customers to sign its optional overdraft notice with the “enrolled” option pre-checked without first providing written notice or, in certain instances, without mentioning the optional overdraft service to the customer at all; (ii) enrolling new customers in the optional overdraft service without requesting their oral enrollment decision; and (iii) deliberately obscuring, or attempting to obscure, the overdraft notice “to prevent a new customer’s review of their pre-marked ‘enrolled’ status” in the optional overdraft service. The CFPB also asserted the bank engaged in deceptive practices by marketing the optional overdraft service as a “free” service or benefit, downplaying the associated fees and disclosures, and by suggesting that the overdraft service was a “‘feature’ or ‘package’ that ‘comes with’ all new consumer-checking accounts, rather than as an option that new customers must opt in to.” However, the bank actually charged customers $35 for each overdraft transaction paid through the service, the CFPB alleged.
With respect to the alleged FCRA and Regulation V furnishing violations, the CFPB claimed the bank failed to establish and implement policies and procedures concerning the accuracy and integrity of the consumer-account information it furnished to two nationwide specialty consumer reporting agencies (NSCRAs). The bank also allegedly failed to implement policies or procedures for investigating customer disputes related to the furnished information, failed to timely investigate certain indirect customer disputes concerning its furnishing to one of the NSCRAs, and instructed customers who called to dispute furnished information to contact the NSCRA instead of submitting a direct dispute to the bank.
Under the terms of the consent order, the bank is required to provide approximately $97 million in restitution to roughly 1.42 million consumers and pay a $25 million civil money penalty. The bank has also agreed to (i) correct its optional overdraft service enrollment practices; (ii) stop using pre-marked overdraft notices to obtain affirmative consent from customers; (iii) provide current customers who have remained enrolled in the optional overdraft service with enrollment status details and instructions on how to unenroll from the service; and (iv) establish policies and procedures designed to ensure its furnishing practices comply with the FCRA.
DOJ initiates two SCRA actions for auctions without court orders
On August 18, the DOJ announced (see here and here) two separate Servicemembers Civil Relief Act (SCRA) actions. First, the DOJ filed a complaint against a Massachusetts-based moving and storage company for failing to obtain a court order prior to auctioning an active duty servicemember’s storage unit, while he was deployed overseas. The DOJ asserts that while a servicemember has no duty to inform lienholders of their military service, the servicemember told the storage company’s agent about his military status during a phone call. Additionally, the servicemember provided the storage company with his address on Hanscom Air Force Base. In the second complaint, the DOJ alleges a Florida-based towing company auctioned a car belonging to an active duty servicemember without obtaining a court order. The DOJ asserts that the towing company had reason to believe the car was owned by a servicemember, including that there was a military decal on the car and the owner’s auto loan was through a military-oriented financial institution. In both actions, the DOJ is seeking damages, injunctive relief and civil penalties.
Federal agencies and CSBS to hold webinar on PPP
On August 20, the FDIC, Federal Reserve Board, OCC, NCUA, and the Conference of State Bank Supervisors announced that a webinar will be held with SBA officials discussing the loan forgiveness process and recent changes in the Paycheck Protection Program on Thursday, August 27 from 11:00 a.m. to 12:00 p.m. (EDT). Participants must preregister for the webinar and are encouraged to email questions in advance to asktheregulators@stls.frb.org. An archive of the webinar materials will be available here, a few hours after the webinar ends.
Department of Education extends Covid-19 student loan protections until 2021
On August 21, the U.S. Department of Education announced the implementation of the presidential memorandum extending a forbearance plan on federal student loans through the end of the year. As previously covered by InfoBytes, the memorandum directed the Department of Education to take action to continue to provide “deferments to borrowers as necessary to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.” According to the announcement, until December 31, in addition to suspended payments and the waiver of all interest, there will be (i) no collections on defaulted federal loans; and (ii) borrowers will receive a refund of any continued employer garnishment related to defaulted federal loans. Additionally, non-payments by borrowers working full-time for qualified Public Service Loan Forgiveness employers will continue to receive credit towards their 120 payments.
ARRC releases transition guides for ARMs, private student loans referencing LIBOR
On August 18, the Alternative Reference Rates Committee (ARRC) released reference rate transition guides for adjustable-rate mortgages (ARMs) and variable rate private student loans that reference LIBOR. Both guides are intended to support the transition from LIBOR to an alternative reference rate, such as the Secured Overnight Financing Rate (SOFR), and focus on LIBOR-based contracts that will continue to exist after LIBOR’s anticipated cessation at the end of 2021. The LIBOR ARM Transition Resource Guide and the LIBOR-Based Private Student Loan Transition Resource Guide cover key milestones, suggested readiness timeframes, transition risks, and stakeholder impacts, and include various resource guidance, tools, and templates to assist institutions in “fortify[ing] their products and support[ing] consumers’ transitions to SOFR.”
Find continuing InfoBytes coverage on LIBOR here.
Senators question FHFA on adverse market refinance fee
On August 19, a group of Democratic Senators wrote to FHFA Director Mark Calabria expressing concern over the newly announced adverse market refinance fee of 50 basis points, or 0.5 percent, on certain refinance mortgages (covered by InfoBytes here). The letter acknowledges that throughout the Covid-19 pandemic, Fannie Mae and Freddie Mac (GSEs) “have adopted policies to ease purchase and most refinance transactions,” to assist homeowners. However, the new refinance fee “that will be implemented just three weeks after it was announced” was a “surprise to see,” according to the letter. The senators stress that the new fee “will shift more of a financial burden to consumers,” which would contradict the GSEs’ purpose of providing stability in the secondary mortgage market.
The letter follows an August 14 letter from the Chair of the Senate Banking Committee, Mike Crapo (R-ID), which expresses similar concern for consumers but also notes that the short window before the effective date can complicate the refinance process for current buyers and negatively impact community lenders who already have closed loans that cannot be delivered before September 1.
Both letters request Calabria provide more information on the policy change, including details regarding the market conditions that would be addressed by the fee and how the fee amount was determined.
FHA releases electronic appraisal technology for single family submissions
On August 18, HUD announced the availability of a new electronic appraisal delivery module on the FHA Catalyst platform. According to the announcement, the “FHA Catalyst: Electronic Appraisal Delivery” module can be used by lenders to electronically submit, track, and manage single family appraisal reports and updates for FHA Single Family Title II forward mortgages. Assistant Secretary for Housing and Federal Housing Commissioner Dana Wade noted that the new electronic appraisal module is “one more way FHA is supporting the housing market with innovative technology during the COVID-19 economic recovery.” Among other details, Mortgagee Letter 2020-26 states that lenders may begin using the new module on or after September 1.
Fannie Mae issues Covid-19-related selling updates
On August 12, Fannie Mae updated its Covid-19 frequently asked questions regarding the underwriting and loan eligibility for sellers. Fannie Mae’s FAQs (previously discussed here) were updated to address questions on selling loans in forbearance. The FAQs cite to Lender Letter 2020-06 (covered by InfoBytes here), stating that Fannie Mae will purchase loans that go into forbearance after loan closing before sale that became eligible for sale beginning May 1 and have note dates on or before August 31 and are delivered by October 31. Additionally, the FAQs state there are no plans to further extend the August 31 date.