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CSBS, state regulators express concerns with CFPB taskforce RFI
On June 1, the Conference of State Bank Supervisors (CSBS) submitted a comment letter in response to the CFPB’s Taskforce on Federal Consumer Financial Law’s request for information (RFI). As previously covered by InfoBytes, the taskforce issued the RFI in March seeking input on consumer protection areas for the taskforce to focus its research and analysis, and requesting suggestions for “harmonizing, modernizing, and updating the federal consumer financial laws.” In the letter, CSBS expresses significant concerns regarding the timing of the RFI due to the Covid-19 pandemic, as well as the content of the RFI itself. The letter conveys state regulator concerns over the RFI’s “inclusion of inquiries soliciting input on whether additional preemption of state laws and state regulatory authority is warranted” and highlights the absence of questions asking whether less federal preemption is warranted. According to the letter, “the inclusion of outcome-oriented questions focused on expanding preemption of state authority raises serious questions regarding the objectivity and mission of the Taskforce.” The letter also notes that state regulators and the CFPB have exercised “concurrent regulatory, supervisory, and enforcement authority,” while retaining independent authority, and that coordinated efforts have “fostered a more efficient and effective regulatory system.” The fact that former state regulators are not represented on the taskforce raises several concerns for the state regulators: “This spirit of coordination and collaboration does not seem to be reflected in the timing or content of the request for information, and we fear, the future work of the Taskforce,” the letter states.
CFPB settles with short-term lenders for $2 million
On June 2, the CFPB announced a settlement with a payday and auto title loan lender and its subsidiaries (collectively, “lender”) resolving allegations that the lender violated the Consumer Financial Protection Act (CFPA) and TILA. Specifically, the Bureau asserts that the lender—which is based in Cleveland, Tennessee and operates 156 stores in eight states—violated the CFPA and TILA by (i) disclosing finance charges that were substantially lower than what the consumer would actually incur if repaid according to the amortization schedules; (ii) delayed refunds of consumer credit balances for months; (iii) made repeated debt collection calls to third-parties, including workplaces after being told to stop; and (iv) improperly disclosed, or risked disclosure, of consumer debt information to third parties. The Bureau alleges that the lender received over $3.5 million in finance charges that exceeded the amount stated in required TILA disclosures.
The consent order requires the lender to pay $2 million of the $3.5 million in consumer redress and $1 civil money penalty, based on a demonstrated inability to pay. The consent order also prohibits the lender from misrepresenting finance charges or engaging in unlawful collection practices and requires certain compliance and reporting measures to be undertaken.
HUD will allow mortgages to be endorsed despite forbearance
On June 4, HUD announced new, temporary guidance (see FHA Info #20-36 and HUD Mortgagee Letter 2020-16), which, among other things, grants mortgagees the ability to submit a mortgage for insurance endorsement involving a borrower who is experiencing financial hardships due to the Covid-19 pandemic, provided the mortgagee “executes a two-year partial indemnification agreement.” The temporary guidance sets the initial amount of partial indemnification at 20 percent of the original loan amount, which will only become payable if the mortgage goes into foreclosure and results in a claim to the FHA Mutual Mortgage Insurance Fund. Mortgagees may access the new agreement and instructions for endorsing these loans here. The guidance also provides for a temporary certification amendment to HUD 92900-A, which allows mortgagees to submit a separate addendum to a mortgagee’s certification addressing a mortgagee’s knowledge of changes in a borrower’s employment status and ability to make payments as a result of Covid-19 after the closing of a mortgage. HUD will also “continue to monitor the impacts to the market as well as implications to the Mutual Mortgage Insurance Fund and may adjust the level of partial indemnification for future indemnification contracts accordingly.”
CFPB, CSBS issue CARES Act forbearance guidance
On June 4, the CFPB and the Conference of State Bank Supervisors (CSBS) issued joint guidance to assist mortgage servicers in complying with the CARES Act provisions granting a right to forbearance to consumers impacted by the Covid-19 pandemic. In addition to providing a statutory overview of the CARES Act protections related to forbearance and additional resources on how the CARES Act impacts other rules and regulations, the guidance contains specific FAQs based on observed or anticipated actions of mortgage servicers related to forbearance. Specifically, the FAQs address the following:
- Servicers are able to grant CARES Act forbearance periods for less than 180-days at a borrower’s request or if the borrower has provided consent. In situations where a borrower and a servicer cannot agree on the length of the forbearance, or where a servicer cannot communicate with the requesting borrower under certain circumstances, servicers are required to default to the term requested by the borrower, which cannot exceed 180 days.
- Servicers may not request information from borrowers supporting the need for forbearance. Borrowers do not need to prove hardship—an attestation of hardship due to Covid-19 is the only requirement established by the CARES Act for forbearance. Servicers must also grant forbearance to any requesting borrower with a federally-backed mortgage regardless of delinquency status.
- Servicers, depending on the facts and circumstances, may be at risk of legal violation or causing consumer harm if they offer “limited repayment options when others are reasonably available.”
- Examiners will evaluate originators’ communications with borrowers for legal compliance or to determine if consumer harm has occurred. Originators that mislead borrowers by using “loan closing attestations, notices or other communications to discourage borrowers from seeking forbearance” may be at risk of legal violation or causing consumer harm.
VA clarifies property inspection requirements for CARES forbearance cases
On June 4, the Department of Veterans Affairs issued Circular 26-20-21 to clarify inspection requirements for properties purchased with loans guaranteed by the VA, where the borrower has been negatively impacted by Covid-19. The VA temporarily suspended its requirement to conduct a property inspection before the 60th day of delinquency for borrowers whose loans are currently in forbearance and were current or had not reached the 60th day of delinquency when the borrower requested CARES Act forbearance. The circular sunsets on July 1, 2021.
Acting Comptroller Brooks will focus on responsible innovation, fintech charters
On May 29, Acting Comptroller of the Currency Brian P. Brooks issued a statement focusing on four priorities intended to help meet the challenges facing banks today. As previously covered by InfoBytes, Brooks was named Acting Comptroller following the departure of former Comptroller Joseph Otting. These priorities include building upon responsible innovation to provide regulatory certainty, flexible frameworks, and oversight that will allow banks to “evolve and capitalize on technology and innovation to deliver better products and services, to operate more efficiently, and to reduce risk in the system.” Brooks reiterated that the OCC has the authority to issue bank charters to companies engaged in “the business of banking on a national scale, including taking deposits, lending money, or paying checks,” and emphasized that the OCC will work to “clarify what true lender means, to underscore that the terms of a lawfully made contract remain valid for the duration of that contract even if it is sold by a bank to another investor, and to specify what the parameters of the ‘fintech charter’ and other special purpose charters should be.” The same day the OCC issued a final rule (covered by a Buckley Special Alert), which establishes that when a bank transfers a loan, the interest rate permissible before the transfer will still be valid after the transfer.
Among other topics, Brook also discussed the OCC’s recent issuance of a final rule to strengthen the Community Reinvestment Act (covered by a Buckley Special Alert), stating that the OCC will work to ensure that banks provide “fair access” to all customers and stressing that the agency “should not tolerate lawful entities being denied access to our federal banking system based on their popularity among a powerful few.”
Federal Reserve Board announces revised terms for Municipal Liquidity Funds
On June 3, the Federal Reserve Board announced an expansion in the number and type of entities that are eligible to directly use its Municipal Liquidity Facility (MLF). Under the revised terms, at least two cities or counties in each U.S. state will be eligible to directly issue notes to the MLF regardless of population. Additionally, each state governor will be able to designate two issuers in their jurisdictions whose revenues are generally derived from operating government activities to be eligible to directly use the facility. The FRB also issued an Appendix with limits per state and responses to frequently asked questions regarding the MLF.
FTC reaches settlement with payment processor
On June 1, the FTC announced a settlement with a payment processor that the FTC alleged had engaged in unfair acts or practices in violation of the FTC Act by ignoring warnings that its client was operating a scheme through which it persuaded consumers to pay thousands of dollars each for worthless business coaching and investment mentoring services. (See InfoBytes coverage on the affiliate marketer settlements here.) The FTC’s complaint provides that the company’s processing data, which showed a large number of charges and associated refunds and chargebacks, immediately raised red flags regarding the client’s business model. According to the FTC, the company failed to adequately investigate why the client “greatly exceeded its approved processing volumes and accrued significant chargebacks,” and that while some of the client’s accounts were terminated, the company continued to provide processing services for five other accounts. In addition, the FTC states that the company failed to monitor both the products sold and claims made by the client. The settlement imposes a monetary judgment of over $46.7 million, which is suspended due to the company’s inability to pay. The company is also required to surrender any claims to the client’s assets, which are being held in receivership in a separate action.
Fannie updates Covid-19 FAQs
On June 3, Fannie Mae updated its Covid-19 FAQs for sellers to reflect updates to the temporary purchase and refinance eligibility outlined in Lender Letter LL-2020-03. As previously covered by InfoBytes, Fannie Mae announced that borrowers are eligible to purchase a new home or refinance their mortgage if they are current on their mortgage—defined as having “made all mortgage payments due in the month prior to the note date of the new loan transaction by no later than the last business day of that month”—or if the mortgage is currently in a loss mitigation solution (the borrower must have made at least three timely payments as of the note date of the new transaction). The newly updated selling FAQs outline additional details of this policy, including (i) what is meant by “full payments” with regard to loss mitigation programs; (ii) whether the forbearance must be completed before a borrower can be eligible for a purchase or refinance transaction; and (iii) what sources of funds are eligible to be used to reinstate mortgages with missed payments.
CFPB provides E-Sign consent flexibility due to Covid-19
On June 3, the CFPB released a statement on temporary and targeted flexibility for credit card issuers regarding electronic provision of certain disclosures during the Covid-19 pandemic. The statement highlights that certain credit card issuers are receiving far more calls from consumers seeking relief as a result of the pandemic, but are unable to provide such relief without first providing certain written disclosures required by Regulation Z. Because such disclosures can only be provided electronically after consent sufficient under the Electronic Signatures in Global and National Commerce Act (E-Sign Act) is obtained, credit card issuers may be unable to move quickly to assist consumers. To address this issue, the statement provides that the CFPB “will take a flexible supervisory and enforcement approach during this pandemic regarding card issuers’ electronic provision of disclosures required to be in writing for account-opening disclosures and temporary rate or fee reduction disclosures mandated under provisions governing non-home secured, open-end credit.”
Specifically, the Bureau states that it does not intend to cite a violation in an examination or bring an enforcement action against an issuer that, during a phone call, does not obtain the formal E-Sign consent required by Regulation Z to receive electronic written disclosures, as long as the issuer obtains both (i) oral consent to electronic delivery of the written disclosures, and (ii) oral affirmation of the consumer’s ability to access and review the electronic written disclosures. The Bureau states that it expects issuers to take “reasonable steps during the phone call to verify consumers’ electronic contact information,” including verifying the accuracy of email addresses already on file.