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Freddie Mac announces system updates to facilitate use of exterior-only appraisals
On April 16, Freddie Mac announced that it will be adding a new feedback message (effective April 17, 2020) to Loan Collateral Advisor and Uniform Collateral Data Portal (UCDP). The message will note when exterior-only appraisals (as identified in the Map Reference field of the appraisal report) are submitted to UCDP using an incorrect appraisal form and will request resubmission to UCDP on the appropriate form.
Agencies to hold webinar for bankers on loan modifications and reporting
On April 16, the FDIC released FIL-46-2020, announcing a webinar to provide accounting and reporting guidance for bankers pursuant to Section 4013 of the CARES Act and the revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (covered by InfoBytes here). The webinar is scheduled for Friday, April 24 at 3:00 pm EDT and will be jointly hosted by the FDIC, the Federal Reserve, the OCC, and the NCUA. Participants are encouraged to email questions prior to the webinar to asktheregulators@stls.frb.org. To register for the webinar, click here.
CFPB to host conference call on Covid-19 financial issues
On April 16, the CFPB published notices in the Federal Register announcing that the Bureau’s four advisory boards will host a May 1 combined open conference call to address the Covid-19 pandemic’s effects on consumers. The first half of this public meeting, which is scheduled to begin at 2:00 pm EDT, will focus on Covid-19’s impact on consumers and the financial marketplace, and the second half will focus on the impacts on specific consumer groups, including older individuals, students, servicemembers, and underserved individuals. Participants may email questions to the advisory boards at least seven days prior to the call date here. RSVPs must be submitted by April 30 here.
For additional information, see the Federal Register notice for the Consumer Advisory Board here, for the Credit Union Advisory Council here, for the Community Bank Advisory Council here, and for the Academic Research Council here.
OFAC guidance addresses Covid-19 humanitarian assistance and trade
On April 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a Fact Sheet providing guidance to ensure humanitarian-related trade and assistance reaches at-risk populations through legitimate and transparent channels during the global Covid-19 pandemic. Specifically, the Fact Sheet highlights the most pertinent exemptions, exceptions, and authorizations for humanitarian assistance and trade under the Iran, Venezuela, North Korea, Syria, Cuba, and Ukraine/Russia-related sanctions programs. OFAC notes, however, that under certain sanctions program, entities may be required to obtain separate authorization from other U.S. government agencies. The Fact Sheet also provides guidance for persons seeking to export personal protective equipment from the U.S. Additional questions regarding the scope or applicability of any humanitarian-related authorizations can be directed to OFAC’s Sanction Compliance and Evaluation Division.
Treasury and Small Business Administrator urge Congress to appropriate funds for Paycheck Protection Program
On April 15, the U.S. Treasury secretary and Small Business Administration administrator issued a statement urging Congress to appropriate additional funds for the Paycheck Protection Program to meet the high demand from small businesses for relief in response to Covid-19. The statement notes that “SBA will not be able to issue new loan approvals once the programs experiences a lapse in appropriations.”
FTC provides guidance on managing consumer protection risks when using AI and algorithms
On April 8, the FTC’s Bureau of Consumer Protection wrote a blog post discussing ways for companies to manage the consumer protection risks of artificial intelligence (AI) technology and algorithms. According to the FTC, over the years the Commission has dealt with the challenges presented by the use of AI and algorithms to make decisions about consumers, and has taken many enforcement actions against companies for allegedly violating laws such as the FTC Act, FCRA, and ECOA when using AI and machine learning technology. Financial services companies have also been applying these laws to machine-based credit underwriting models, the FTC stated. To assist companies, the FTC has provided the following guidance:
- Be transparent. Companies should not mislead consumers about how automated tools will be used and should be transparent when collecting sensitive data to feed an algorithm. Companies that make automated eligibility decisions about “credit, employment, insurance, housing, or similar benefits and transactions” based on information provided by a third-party vendor are required to provide consumers with “adverse action” notices under the FCRA.
- Explain decisions to consumers. Companies should be specific when disclosing to consumers the reasons why a decision was made if AI or automated tools were used in the decision-making process.
- Ensure fairness. Companies should avoid discrimination based on protected classes and should consider both inputs and outcomes to manage consumer protection risks inherent in using AI and algorithmic tools. Companies should also provide consumers access and opportunity to dispute the accuracy of the information used to make a decision that may be adverse to the consumer’s interest.
- Ensure data and models are robust and sound. According to the FTC, companies that compile and sell consumer information for use in automated decision-making to determine a consumer’s eligibility for credit or other transactions (even if they are not a consumer reporting agency), may be subject to the FCRA and should “implement reasonable procedures to ensure maximum possible accuracy of consumer reports and provide consumers with access to their own information, along with the ability to correct any errors.” The AI models should also be validated to ensure they work correctly and do not illegally discriminate.
- Accountability. Companies should consider several factors before using AI or other automated tools, including the accuracy of the data set, predictions based on big data, and whether the data models account for biases or raise ethical or fairness concerns. Companies should also protect these tools from unauthorized use and consider what accountability mechanisms are being employed to ensure compliance.
Fannie Mae and Freddie Mac release Covid-19 forbearance scripts for servicers to use with homeowners
On April 15, Fannie Mae and Freddie Mac released Covid-19 scripts that servicers may use with homeowners impacted by Covid-19 when discussing forbearance options. The scripts are intended to assist servicers with, among other things, determining the nature of the borrower’s hardship and appropriately describing forbearance options to borrowers.
Freddie Mac announces changes to forbearance program to align with CARES Act
On April 15, Freddie Mac announced revisions to its multifamily Covid-19 forbearance program to align with CARES Act provisions related to multifamily borrowers and tenants. The program now (i) no longer requires tenants to demonstrate that nonpayment is due to a Covid-19 related hardship in order to avoid eviction during the forbearance period, (ii) explicitly provides that borrowers may not charge late fees, penalties, or other charges related to nonpayment of rent during the forbearance period, and (iii) extends the last day to enter forbearance under the program to the end of the federally declared emergency period or December 31, 2020, whichever comes first.
FDIC updates Covid-19 FAQs for financial institutions
On April 15, the FDIC released updates to its list of Covid-19 frequently asked questions (FAQs) for financial institutions. The FAQs were originally released on March 19, covering bank operational issues and urging banks to work with borrowers who are experiencing payment difficulties due to Covid-19, as reported by InfoBytes here. New FAQs discuss credit reporting of payment accommodations, reminding lenders to report borrower accounts as current, provided the borrowers continue to observe the terms of the accommodations. The guidance also points financial institutions to a recent CFPB statement (covered here) for guidance on the FCRA under the CARES Act. The FDIC also updated the Troubled Debt Restructurings (TDRs) guidance, emphasizing that financial institutions do not need to classify Covid-19 borrower payment accommodations as TDRs if certain criteria are met, and that examiners “will not criticize prudent efforts to modify the terms on existing loans to affected customers.” Other updates to the FAQs include, among other things: (i) obligations to obtain updated real estate valuation information for Covid-19 related loan modifications; (ii) the use of alternative signatures for Part 363 annual reports and other notices; (iii) real estate loans in excess of loan-to-value percentages for loans refinanced by borrowers impacted by Covid-19; (iv) risk-based capital rules regarding multi-family loan modifications; (v) eligible Community Reinvestment Act activities during the Covid-19 pandemic; and (vi) Bank Secrecy Act issues regarding filing requirements, raising compliance challenges with FinCEN, and whether loans under the Small Business Administration’s Paycheck Protection Program are considered new accounts for customer due diligence purposes.
Special Alert: The Fed’s Main Street Lending Program: Fitting relief for fintechs and nonbank lenders?
The Federal Reserve Board’s recently announced the Main Street Lending Program, intended to provide financing for a range of small and mid-sized businesses, may provide much needed federal relief for fintech firms and nonbank lenders that has otherwise been lacking.
These firms generally have not qualified for the federal assistance efforts to date. The Fed designed its initial wave of programs — such as the Primary Market Corporate Credit Facility (PMCCF) and Secondary Market Corporate Credit Facility (SMCCF) for companies with investment-grade credit, or programs for companies involved in the broad commercial paper and money markets or certain securitizations — for larger, well-established corporations. At the other end of the spectrum, the Payroll Protection Program (PPP) is tied to preexisting Small Business Administration eligibility standards. Businesses “engaged in lending,” which includes finance companies, factoring companies, and “other business whose stock in trade is money,” generally are ineligible for the PPP.[1] Even if that eligibility rule were not a showstopper, many fintechs and nonbank lenders, particularly portfolio companies of private equity or venture capital funds, are precluded from the PPP by the SBA’s broad “affiliation rule,” which provides, for example, that applicants must include the number of employees of each of its affiliates.[2]