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OCC permits remote director, shareholder, and member meetings
On May 26, the Office of the Comptroller of the Currency announced an interim final rule that would permit national banks and federal savings associations to hold all board of director, shareholder and member meetings telephonically or electronically, including after the Covid-19 emergency ends. The OCC also published optional model bylaws for mutual savings associations and federal savings associations to authorize and govern telephonic and electronic meetings. The interim final rule takes effect on May 28, and comments must be received by July 13, 2020.
Fannie launches Covid-19 resource online portal
On May 26, Fannie Mae announced a new online resource for homeowners and renters titled, “Here to Help,” which compiles tools and resources to assist consumers with financial hardships due to the Covid-19 pandemic. The online portal features videos, fact sheets, and mortgage loan look-up tools for consumers and also provides lenders and servicers with tools to better assist their customers, including explanations of loss mitigation offerings and training videos for loan servicers.
FTC and Utah add TSR charges to real estate seminar complaint
On May 20, the FTC announced that it and the Utah Division of Consumer Protection amended their complaint against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. The amended complaint adds additional defendants and new charges asserting the defendants violated the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, the U.S. District Court for the District of Utah issued a temporary restraining order against the defendants after the FTC and the Utah Division of Consumer Protection accused the defendants of violating the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law, by marketing real estate events with false claims and celebrity endorsements. Among other things, the defendants allegedly told consumers they would (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “‘a minimum of three times’” the price of the workshop within six months. The amended complaint alleges that, in addition to the claims made at the real estate events, the defendants reiterated the false or misleading statements in the course of their telemarketing activities in violation of the TSR.
FHFA tries again on GSE capital framework
On May 20, the FHFA announced the re-proposal of a notice of proposed rulemaking that would establish a new regulatory capital framework for Fannie Mae and Freddie Mac (GSEs). In June 2018, the FHFA issued a proposed rulemaking that would implement a regulatory capital framework for the GSEs including (i) a new framework for risk-based capital requirements; and (ii) two alternative approaches to setting minimum leverage capital requirements. (Covered by InfoBytes here.) The FHFA states that while the 2018 proposal remains the foundation of the re-proposal, including the mortgage risk-sensitive framework, the re-proposal “increas[es] the quantity and quality of the [GSEs]’ regulatory capital and reduc[es] the pro-cyclicality of the aggregate capital requirements.”
According to a factsheet released in conjunction with the re-proposal, the purpose is to ensure that the GSEs operate in a safe and sound manner and are positioned, particularly during times of financial stress, to “fulfill [their] statutory mission to provide stability and ongoing assistance to the secondary mortgage market across the economic cycle.” Specifically, the re-proposal changes include, among other things (i) supplemental capital requirements; (ii) quality of capital changes, such as a risk weight floor and capital buffers; (iii) measures to address pro-cyclicality; and (iv) requirements for the GSEs to assess their own credit, market, and operational risk. Comments on the proposal must be submitted within 60 days of publication in the Federal Register.
CFPB approves mortgage servicing and small-dollar lending NAL templates
On May 22, the CFPB announced it issued two no-action letter (NAL) templates. The two templates approved by the Bureau are intended to support financial institutions to better assist struggling consumers during the Covid-19 pandemic. Details of the two approved templates include:
- Mortgage servicing. The Bureau approved a template submitted by a mortgage software company that would enable mortgage servicers to use the company’s online platform—which is an online version of Fannie Mae Form 710—to implement loss mitigation practices for borrowers. A copy of the company’s application is available here.
- Small-dollar lending. The Bureau approved a template, in response to a request by a nonpartisan public policy, research and advocacy group for banks, that would assist depository institutions in offering a standardized, small-dollar credit product under $2,500 with a repayment term between 45 days and one year. The template covers, among other things, a product structured as either (i) a fixed-term, installment loan, which the customer would pay back in fixed minimum payment amounts over the term of the loan; or (ii) an open-end line of credit, linked to the consumer’s deposit account, where any amounts drawn would be repaid by consumers in fixed minimum amounts over a fixed repayment period. An institution would need to certify that their product offering meets the product features—labeled as “guardrails” in the template—but the Bureau notes that the inclusion of “any particular guardrail should not be interpreted as a statement by the Bureau that small-dollar credit products must contain such guardrails to avoid violating the law.” A copy of the group’s application is available here.
FINRA provides guidance on whether member firms must disclose reliance on agency relief during Covid-19
On May 21, FINRA updated its frequently asked questions (previously discussed here, here, here, here, here, and here) to provide additional detail on how and when to document that it has relied on temporary relief from FINRA rules during the Covid-19 pandemic. Among other things, the updated FAQs also address Form U4 filings and temporary extensions of time to pass qualification examinations for operations professionals.
SBA gives guidance on collecting PPP processing fees
On May 21, the Small Business Administration (SBA) released a procedural notice detailing the Form 1502 reporting process through which lenders will be able to collect the processing fees on eligible Paycheck Protection Program (PPP) loans. The SBA will pay lenders’ processing fees for PPP loans, based on the balance of the loan at the time of full disbursement, in the following amounts: (i) five percent for loans of not more than $350,000; (ii) three percent for loans of more than $350,000 and less than $2 million; and (iii) one percent for loans of at least $2 million. Lenders are required to report to the SBA on Form 1502 loans have been fully disbursed or canceled. Form 1502 should be submitted electronically to the SBA by the later of (i) May 29, or (ii) 10 calendar days after disbursement or cancellation of the PPP loan. (This is an updated deadline that was recently reflected in the SBA’s FAQs and was first announced in an interim final rule regarding disbursements under the PPP, covered by InfoBytes here.)
The SBA will begin accepting 1502 reports on fully disbursed or cancelled PPP loans on May 22. Lenders will not receive a processing fee payment if the loan is canceled before disbursement or if a disbursed loan is canceled or voluntarily terminated but repaid before May 18 (the borrower certification safe harbor date). As detailed in the procedural notice, lenders will be required to create an account in the Fiscal Transfer Agent Lender portal to access and submit Form 1502. The procedural notice includes, among other things, specifics on account creation and reporting. Additionally, the procedural notice contains useful questions and answers, including how the processing fees will be disbursed and when processing fees may be subject to clawbacks from the SBA.
CFPB: March and April set records for most complaints
On May 21, the CFPB issued a consumer complaint bulletin analyzing complaints the Bureau has received during the Covid-19 pandemic. The bulletin analyzes complaints mentioning “COVID, coronavirus, pandemic, or CARES Act” that were received as of May 11. Of the over 143,000 complaints the Bureau has received in 2020, 4,541 complaints were related to Covid-19. Highlights of the bulletin include: (i) overall, the Bureau had the highest complaint volumes in its history in March and April at 36,700 and 42,500, respectively; (ii) mortgage and credit cards are the top complaint categories for Covid-19 complaints; (iii) eight percent of complaints submitted by servicemembers were Covid-19 related compared to five percent of non-servicemembers; and (iv) after the emergency declaration, the weekly average complaint volume for prepaid cards grew 84 percent, while the volume for student loans decreased by 19 percent. Among other things, the bulletin includes breakdowns of complaint volumes by consumer financial products and examples of common issues from complaint narratives that mention a Covid-19 keyword.
FTC announces $40 million settlement with payment processor in credit card laundering case
On May 19, the FTC filed a complaint against a large payment processing company and its former executive for allegedly participating in deceptive or unfair acts or practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR) by processing payments and laundering, or assisting in the laundering of, credit card transactions targeting hundreds of thousands of consumers. The FTC’s complaint alleges, among other things, that the payment processing company received and ignored repeated “warnings and direct evidence” dating back to 2012 showing that the former executive was using his company to open hundreds of fake merchant accounts and shell companies, and allowed him to continue to open merchant accounts until 2014. According to the FTC, the “schemes included, but were not limited to, a debt relief scam that used deceptive telemarketing, business opportunity scams that used deceptive websites, and a criminal enterprise that used stolen credit card data to bill consumers without their consent” in which the both defendants received fees for processing the scheme’s payments. The FTC also claims that the payment processing company violated its own anti-fraud policies by failing to adequately underwrite, monitor, or review its sales agents and their risk management processes, and failed to timely terminate the merchant accounts involved in the scheme.
The payment processing company’s proposed settlement imposes a $40 million monetary judgment and prohibits the company from assisting or facilitating TSR and FTC Act violations related to payment processing. Additionally, the company will be required to (i) screen and monitor prospective restricted clients; (ii) establish and implement a written oversight program to monitor its wholesale independent sales organizations (ISO); and (iii) hire an independent assessor to monitor the company’s compliance with the settlement’s ISO oversight program.
The former executive’s proposed settlement imposes a $270,373.70 monetary judgment, and bans him from payment processing or acting as an ISO for certain categories of high-risk merchants. He is also prohibited from credit card laundering activities, making or assisting others in making false or misleading statements, and assisting or facilitating violations of the FTC Act or TSR.
Neither defendant admitted or denied the allegations, except as specifically stated within the proposed settlements.
SBA clarifies PPP eligibility for foreign affiliates
On May 21, the SBA recently published an interim final rule (IFR), which addresses the eligibility requirements related to employees of a Paycheck Protection Program (PPP) borrower’s foreign affiliates. The SBA reiterated in the IFR that a small business must include foreign affiliate employees when calculating how many people it employs for purposes of determining if the business meets the PPP eligibility requirement of 500 or fewer employees. The SBA acknowledged, however, that previous guidance (covered by InfoBytes here) may have created “reasonable borrower confusion,” so in “an exercise of enforcement discretion,” the agency reiterated that the “SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-US employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States.” The SBA further determined that these borrowers will “not be deemed to have made an inaccurate certification of eligibility solely on that basis.”
The IFR takes effect upon publication in the Federal Register and is applicable to PPP applications submitted through June 30, 2020, or when program funding is exhausted. Comments are due within 30 days.