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CFPB settles with contract for deed companies on credit reporting violations
On June 23, the CFPB announced a settlement with several contract for deed companies to resolve allegations that the defendants violated the FCRA and its implementing Regulation V, as well as the Consumer Financial Protection Act, by, among other things, misrepresenting to consumers the necessary steps to resolve consumer-reporting complaints. Specifically, the CFPB’s investigation revealed that the defendants allegedly told consumers who complained about errors on their consumer reports that they had to file a dispute with the consumer reporting agency, even though Regulation V requires furnishers to investigate written disputes and contact the applicable consumer reporting agency to resolve any errors. According to the CFPB, this was inaccurate as a matter of law and a deceptive practice. In addition, the CFPB claimed that one defendant failed to implement policies and procedures required by Regulation V to protect the accuracy and integrity of furnished consumer information.
Under the terms of the consent order, the defendants will collectively pay a total of $35,000 in civil money penalties and have agreed not to “misrepresent or assist others in misrepresenting, expressly or impliedly, how consumers can initiate disputes concerning their consumer reports.”
Lawmakers urge HUD and FHFA to amend forbearance policies that reduce access to mortgage credit
On June 25, Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), Chairman of the Subcommittee on Housing, Community Development and Insurance, Wm. Lacy Clay (D-MO), and Congressman Juan Vargas (D-CA) sent a letter to HUD and FHFA calling for amendments to policies which penalize loans that go into forbearance prior to being insured by the Federal Housing Administration (FHA) or purchased by Fannie Mae or Freddie Mac (GSEs). According to the lawmakers, policies put into place prior to the Covid-19 pandemic by HUD and FHFA prohibited loans in forbearance from FHA endorsement or from being purchased by the GSEs. While the agencies amended the policies to allow for FHA insurance and GSE purchases due to the current economic crisis (covered by InfoBytes here and here), the lawmakers claim that lenders are required to pay “significant fees” and “increased costs” for these loans, which results in lenders (i) retaining mortgages that they had no intention, or may not have the capacity to maintain; (ii) paying a steep penalty to the GSEs; or (iii) agreeing to retain additional risk in the case of FHA. As a result, lenders have started limiting loans and access to credit or requiring “credit overlays” that are “disproportionately affecting borrowers of color and other underserved borrowers.” The lawmakers also assert that if a lender retains a loan to avoid a penalty, the loan does not become federally-backed and is consequently ineligible for protections afforded by the CARES Act and other federal regulations. The lawmakers ask that the agencies amend their policies to instead “spread the costs associated with those risks across a broader single-family portfolio,” which will lead to “near-negligible costs” on individual loans and “appropriately balance the need to manage risks to the taxpayer while serving [the] agencies’ missions of promoting access to credit.”
Community coalitions file complaint to block OCC CRA final rule
On June 25, two community coalitions filed a complaint in the U.S. District Court for the Northern District of California asking the court to block the OCC’s final rule to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). The complaint claims that the OCC failed to provide for meaningful public input on key revisions to the agency’s final rule, and argues that the May 20 rule (covered by a Buckley Special Alert) failed to consider the impact of the Covid-19 pandemic and is in violation of the Administrative Procedures Act. Notably, neither the FDIC nor the Federal Reserve Board joined in promulgating the final rule, the complaint notes. Among other things, the complaint argues that the final rule “guts the [CRA] and eviscerates the backing it provides to the [low- and moderate-income (LMI)] communities and communities of color that have long suffered from discrimination by financial institutions,” and will dilute benefits for these communities. The complaint also alleges that the final rule “will allow banks to claim credit for massive projects that they undoubtedly would have financed anyway; whose benefit to LMI people is questionable and speculative; and that are so costly that they will allow banks to fill up their CRA credits without making real investments in LMI communities as the CRA intended.” Additional arguments include that the final rule limits the coalitions’ ability to advocate for greater access to credit for LMI communities, issue evidence-based reports on banks’ CRA activity, and negotiate CRA funding increases with banks for specific communities. The complaint further alleges that the final rule includes definitions of “CRA deserts”—areas where banking services are not available—that were not part of the proposal, and fails to provide supporting data for many of the provisions. The coalitions seek injunctive and declaratory relief that would block the final rule from taking effect.
Fed: Large banks “sufficiently capitalized” for Covid-19 stress
On June 25, the Federal Reserve Board released the results of the Dodd-Frank Act stress tests for 2020 (DFAST 2020) and another report analyzing additional sensitivities due to the Covid-19 pandemic. The additional sensitivities report assessed the resiliency of large banks under three hypothetical recessions, which could result from the Covid-19 pandemic. Overall, under the hypothetical scenarios, loan losses for the 34 banks ranged from $560 billion to $700 billion in the sensitivity analysis, and aggregate capital ratios declined from 12 percent in the fourth quarter of 2019 to between 9.5 percent and 7.7 percent. The Fed concludes that due to strong current capital levels, “the large majority of banks remain sufficiently capitalized over the entirety of the projection horizon in all scenarios.” The Fed notes that this analysis did not incorporate the effects of government stimulus payments or expanded unemployment insurance. In response to the results, the Fed notes that all large banks are now required to, among other things, resubmit their capital plans later this year to reflect the current stresses, and the Fed intends to conduct additional analysis each quarter to determine if other response adjustments are needed.
Additionally, the results of the full DFAST 2020—which was designed prior to the Covid-19 pandemic—suggest that the 33 banks subject to the test would “experience substantial losses under the severely adverse scenario but could continue lending to businesses and households, due to the substantial buildup of capital since the financial crisis.”
SBA updates PPP FAQs
On June 25, the Small Business Administration (SBA) updated the Paycheck Protection Program (PPP) FAQs to include new details about the maturity dates of the PPP loans. Specifically, the FAQs note that if a PPP loan received an SBA loan number on or after June 5, the loan has a five-year maturity. Any loan that received an SBA loan number prior to June 5 has a two-year maturity, unless the borrower and lender agree to extend the term to five years. Additionally, the SBA updated two additional questions to reflect changes made by the Paycheck Protection Program Flexibility Act of 2020 (the Flexibility Act), previously covered by InfoBytes here. First, the Flexibility Act extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks. The FAQs note that the 24-week period applies to all borrowers, but any borrower that received an SBA loan number prior to June 5, may still use the eight-week period. Finally, the FAQs now reflect the new felony conviction standards of PPP eligibility. On June 12, the SBA reduced the look-back period from five years to one year for any felony conviction that does not involve fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance of any owner of 20 percent or more of the equity in the applicant (covered by InfoBytes here).
Fannie Mae modifies non-depository seller/servicer liquidity requirements
On June 24, Fannie Mae updated Lender Letter 2020-02 to temporarily modify the minimum liquidity requirements for non-depository institutions. Beginning with the financial quarter ending on June 30, 2020, the Agency Seriously Delinquent Mortgage Rate will include an adjustment for mortgage loans in a Covid-19-related forbearance plan that are 90 days or more delinquent but were current at the start of the Covid-19-related forbearance plan. The letter notes that the Mortgage Bankers Financial Reporting Form will be modified by June 30 to capture forbearance activity.
Freddie Mac modifies non-depository seller/servicer financial liquidity requirements
On June 24, Freddie Mac issued Bulletin 2020-24, which modifies the financial liquidity requirements for non-depository institutions. Specifically, the liquidity requirement is amended to take into account forbearances granted in association with Covid-19. Previously, the liquidity calculation was based in part on a premium on the amount of servicing for loans that are nonperforming (at least 90 days delinquent). The calculation now takes into account loans a lesser percentage with respect to forbearance loans that were current at the time they entered forbearance. For purposes of the liquidity requirement, if a mortgage exits forbearance during a calendar quarter, it will continue to be treated as being in forbearance until the end of that quarter for purposes of the liquidity requirement. The liquidity updates are effective on June 30, 2020.
Fed announces tools to help payments industry classify fraud
On June 18, the Federal Reserve Board (Fed) released a set of tools and materials to provide a consistent way for organizations to classify and better understand fraudulent activity occurring across the payments industry. The FraudClassifier model was developed by the Fraud Definitions Work Group (comprised of Fed and payment industry fraud experts), and will allow organizations to classify fraud independently of payment type, payment channel, or other payment characteristics by presenting a series of questions, beginning with who initiated the payment to differentiate payments initiated by authorized or unauthorized parties. This will “help ensure greater internal consistency in fraud classification across an organization. . .and allow for improved information and fraud tracking.” Each of the classifications is supported by definitions that allow the FraudClassifier model to be consistently applied across the industry.
CSBS challenges OCC’s Covid-19 preemption bulletin
On June 24, the Director of Regulatory Policy & Policy Counsel at CSBS, Mike Townsley, wrote a blog post in response to the OCC’s Bulletin on Covid-19 preemption, arguing that the bulletin does not have the force and effect of law. As previously covered by InfoBytes, on June 17, the OCC issued a Bulletin stating that banks are governed primarily by federal standards and generally are not subject to state law limitations. The OCC acknowledged states’ efforts to respond to the economic disruptions as “well-intended,” but noted that the competing requirements could risk banks’ safety and soundness. The Bulletin also provided specific examples of the types of state laws that do not apply to banks’ lending and deposit activities.
In response, Townsley asserts that the Bulletin has no preemptive effect, because the OCC did not follow the “process required by the National Bank Act (NBA) to determine that these state COVID-19 relief measures are preempted.” Specifically, Townsley argues that through the enactment of the Dodd-Frank Act, Congress “amended the NBA to overturn the OCC’s preemption regulations and establish substantive procedural requirements for the determination of whether the NBA preempts a state law.” The requirements include a court or the OCC having to conclude that the law “‘prevents or significantly interferes with the exercise by the national bank of its powers,’” which determination, according to Townsley, if made by the OCC, must be on a case-by-case basis, and include a notice and comment period and the backing of “‘substantial evidence’ on the record.” Townsley also seeks to cast further doubt as to whether the preemption regulations cited by the Bulletin can serve as a guide on procedural grounds, observing that Dodd-Frank requires the OCC to review and decide, through notice and comment, whether to “continue or rescind” each preemption determination every five years, and it has been “well over five years” since the rules were adopted and no such review has ever been conducted. Townsley concludes by citing to the 19th century Supreme Court decision Nat'l Bank v. Commonwealth, stating that national banks “’are subject to the laws of the State.’”
FTC and SBA warn companies about misleading SBA loan marketing
On June 24, the FTC and the Small Business Administration (SBA) sent warning letters to six companies that they may be misleading small businesses seeking SBA loans due to the Covid-19 pandemic. The press release highlights specific claims from each company that the letters assert “could lead consumers to believe the companies are affiliated with the SBA,” or that consumers could use their websites to apply for loans from the Paycheck Protection Program (PPP) or other programs authorized by the CARES Act. These cited claims include, among others, (i) offering “'COVID-19 SBA Loan Programs”; (ii) offering “SBA Lending experts” and “SBA Loan Officers”; and (iii) stating “Get matched with a PPP lender now!” The letters warn the recipients to remove all deceptive claims and advertisements and remediate any harm to small business consumers that may have been caused. The letters further instruct the companies to notify the FTC within 48 hours of the actions they take in response. Copies of all six warning letters are available via links in the press release.