InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB obtains motion to dismiss in district court case against mortgage lender
On May 2, the U.S. District Court for the Southern District of Florida denied a mortgage lender’s motion to dismiss. The CFPB sued the lender in October 2023 for violating HMDA and Regulation C by intentionally misreporting data regarding borrower race, ethnicity, and sex pursuant to a data reporting requirement from a prior consent order. In a sample of the defendant’s data reporting submission, the CFPB allegedly found 51 data errors across seven data fields. The court sided with the CFPB on all four grounds raised in the lender’s motion to dismiss. First, the court found that the CFPB pleaded a plausible violation of the HMDA, sufficient to survive a motion to dismiss. Second, the court rejected the lender’s arguments that HMDA and Regulation C are “unconstitutionally vague” because they established a standard for covered loan data that meets a constitutional standard. Third, the court sided again with the CFPB in finding that the injunctive relief at issue did not qualify as an “obey the law” injunction since it provided reasonable clarity of what was required of the lender. And fourth, the court upheld the funding structure of the CFPB as constitutional, therein following guidance from the Second Circuit in upholding the structure as constitutional.
Court grants summary judgment for lack of disputed debt evidence
On May 7, the U.S. District Court for the Western District of Oklahoma entered into an order granting summary judgment in favor of the defendant, a debt recovery agency, on the basis that the plaintiff, an individual, failed to prove that the defendant knowingly provided false information to credit agencies in violation of the FDCPA. In this case, the plaintiff alleged violations of the FDCPA due to the defendant’s failure to report his debt as disputed to credit agencies.
The plaintiff claimed that he disputed the debt during a phone call with the defendant by questioning the balance owed on his account. Upon reviewing the call recording and other evidence, the Court found that the plaintiff did not actually dispute the debt during the call and instead asked about the charges. Since there was no evidence of an actual dispute, the Court granted summary judgment in the defendant’s favor.
CFPB and Fed adjust dollar thresholds for Regulation CC
On May 13, the CFPB and the Fed announced inflation-adjusted changes to Regulation CC, which governed the availability of customer funds from bank deposits. The final rule altered the minimum amounts that must be made available for withdrawal by the next business day for certain types of check deposits and modified the funds from certain checks deposited into new accounts that are subject to next-day availability. Mandated by Dodd-Frank, these adjustments were based on the five-year change in the CPI for Urban Wage Earners and Clerical Workers from July 2018 to July 2023. The updated thresholds will go into effect on July 1, 2025.
FTC’s Safeguards Rule notification requirement under GLBA now in effect
On May 14, the FTC published a business blog post announcing the Safeguards Rule, an amendment to the GLBA, is in effect as of May 13. The Safeguards Rule applies to financial institutions subject to the FTC’s jurisdiction and aims to protect customers' private personal information through data breach reporting requirements.
Additional revisions to the Rule related to data breach reporting were announced in October 2023, with amendments requiring covered companies to notify the FTC within 30 days of a security breach impacting at least 500 consumers. For reporting, businesses must use a new online form provided by the FTC. The Rule complements existing business security measures and does not negate other state and federal legal obligations. Businesses can refer to FTC guidance for further details on the rule and compliance requirements.
FSOC releases report on nonbank mortgage servicing
On May 10, the Financial Stability Oversight Council (FSOC) released a report analyzing the growing nonbank mortgage servicing sector. The report discussed the sector’s significant market share, strengths and vulnerabilities particularly in financial stress scenarios. The FSOC emphasized the potential for these vulnerabilities to affect financial stability including income, balance sheets, and access to credit simultaneously, and the need for enhanced resilience measures. To combat these issues, the FSOC suggested a series of recommendations to promote safe and sound operations, address liquidity pressures in the event of stress, and ensure continuity of servicing operations.
The FSOC’s recommendations included urging state regulators to improve oversight and prudential standards, suggesting Congress grant FHFA and Ginnie Mae greater authority to enforce safety and soundness standards. Furthermore, the report suggested that Congress would authorize Ginnie Mae and encourage state regulators to share information with each other and with Council member agencies. The Council also recommended that Congress would consider legislation to provide Ginnie Mae with authority to expand the Pass-Through Assistance Program into a more effective liquidity backstop to mortgage servicers participating in the program during periods of severe market stress. The report further proposed the creation of a fund to support servicing continuity in times of servicer failure, including loss-mitigation activities for borrowers and advancement of monthly payments to investors.
The Director of the CFPB, Rohit Chopra, released a statement in response to the FSOC’s report. Chopra emphasized the importance of the mortgage market to the economy, and the significant role played by nonbank mortgage companies. He expressed concern about the lack of oversight of nonbanks in comparison to banks and said that the Bureau will soon propose a rule “to strengthen certain homeowner protections.” He also mentioned that regulators were concerned about nonbanks’ lack of supervision and sensitivity to market volatility given their often-limited cash reserves and heavy dependence on bank borrowing.
House questions CFPB's rules on NSF fees and impact on small businesses
On May 9, the House Committee on Small Business expressed concerns in a letter addressed to CFPB Director, Rohit Chopra, on a proposed rule that would ban charging insufficient fund fees (NSF fees) on declined transactions (covered by InfoBytes here). The Committee argued this proposed rule could unduly complicate existing UDAAP regulations and impose additional burdens on small financial institutions.
The letter stated the CFPB did not convene a Small Business Advocacy Review (SBAR) panel and questioned the CFPB’s claims that the rule would not significantly affect a substantial number of small businesses. The Committee suggested that the CFPB’s analysis, which minimizes the impact of NSF fees on small institutions’ revenue, might be flawed and that the rule could have a significant economic impact in terms of reporting requirements and compliance, warranting a review by an SBAR panel. The Committee also challenges the CFPB’s assertion that NSF fees for certain transactions are inherently “abusive,” arguing that the CFPB is overstepping its authority by attempting to ban “business practices” altogether rather than limiting abusive practices. Finally, the Committee requests information from the CFPB on several fronts, including the number of small financial institutions affected by the rule, the compliance burden, the CFPB’s methodology for identifying UDAAP, and the CFPB's stance on disclosures compared to other financial regulations and the FTC's approach.
New York Fed reports on community development financial institutions
On May 8, the New York Fed released a report examining both the origination and sale of loans by community development financial institutions (CDFIs) and found that loans of both types more than doubled from 2018 to 2022. According to the report, in 2022, CDFIs originated $67 billion and sold $14 billion of loans, which was a major increase since 2018, where CDFIs originated $29 billion and sold $6 billion of loans. This doubling also contributed to some market concentration: The 10 most active CDFIs in 2022 originated over 25 percent of the total origination volume and 75 percent of the total sold loan volume. The report stressed “nearly all loan sales to Ginnie Mae and life insurance companies” were sold from the most active sellers.
On breakdown, the New York Fed found residential (single family) loans as the highest volume collateral data type, far outpacing lines of credit, multifamily, commercial real estate, and business. There were also a high number of CDFI originations in California and Florida, and credit unions were the most active originators over banks, thrifts, or loan funds.
On May 14, a member of the Fed Board of Governors Lisa Cook spoke on how CDFIs impact communities positively and some of the challenges CDFIs face. Cook noted specifically that CDFIs often “continue their work with borrowers even after loans are made… helping them through rough spots, should borrowers experience difficulty repaying loans,” which were unique among the CDFI borrower-banking relationship. On challenges, Cook noted how demand for capital was outpacing the current supply: Federal funding tied to past pandemic relief programs have dried up, leading to the challenge of building out long-term capital sources for future CDFI demand. She closed by emphasizing the importance of the CDFI industry and her continued support of CDFIs.
CFPB reports consumer complaints on credit card rewards programs
On May 9, the CFPB issued a report on credit card rewards programs which highlighted the CFPB’s views on issues affecting millions of consumers. The report opened with a note that the CFPB received over 1,200 complaints regarding credit card rewards in 2023, reportedly a 70 percent increase since before the pandemic, and according to the CFPB, the research found that the benefits of rewards programs “fail to exceed” the costs of credit cards for many borrowers. The report identified four themes: consumers felt misled by vague or hidden conditions that do not match marketing materials from issuers; consumers lost out when card issuers devalue rewards; consumers faced obstacles when card issuers do not resolve redemption issues; and consumers lost rewards when accounts are closed.
In a live panel between the Director of the CFPB, Rohit Chopra, Secretary of the DOT, Pete Buttigieg, and airline trade leaders on credit card reward programs, Chopra noted that there were 550 million credit cards in the U.S. which collectively account for over $1 trillion in consumer debt. Chopra also stated the CFPB will review how it can protect consumers against the devaluation of credit card points. In the panel, Chopra asked the trade groups what they would like the CFPB to do regarding credit card terms and conditions: some organizations asked for greater transparency in points systems, with one suggesting that credit card issuers’ ability to change terms mid-contract should be prohibited.
Agencies issue NPRM on incentive-based compensation
On May 6, the FDIC, OCC, NCUA and the FHFA issued a NPRM (proposed rule) on incentive-based compensation, pursuant to Dodd-Frank’s Section 956 (Section 956), which required federal regulators to prescribe regulations or guidelines regarding incentive-based compensation at covered financial institutions. Regulators first proposed a rule to implement Section 956 in 2011, and again in 2016. Now, regulators are reproposing the 2016 version without change, albeit with certain alternatives. The current proposal, however, will be published without involvement from the Fed or SEC.
Section 956 defined “covered financial institutions” as institutions with at least $1 billion in assets and include the following: depository institutions or depository institution holding companies, registered broker-dealers, credit unions, investment advisers, Fannie Mae, and Freddie Mac (or any other financial institution that federal regulators determined should be treated as a covered financial institution). Dodd-Frank required regulators to prohibit incentive-based compensation arrangements that encouraged “inappropriate risks.” The proposed rule included prohibitions intended to make these compensation arrangements more sensitive to risk, such as a ban on incentive-based compensation arrangements that do not include risk adjustment of awards, deferral of payments, or forfeiture and clawback provisions. In addition, the proposed rule set forth recordkeeping and disclosure requirements to help federal regulators monitor potential issues.
The agencies will review both new comments and those received in 2016 for the prior proposed rule. The agencies invited those who previously submitted comments and resubmit their comments to explain how their viewpoint may have changed from their prior comments. The agencies also requested comments on the compliance date and disclosures, like the recordkeeping and clawback requirements. Comments will be due no later than 60 days following publication in the Federal Register.
House passes resolution to nullify SEC’s rule on crypto accounting guidance
On May 8, the U.S. House of Representatives passed H. J. Res. 109, the first step in an attempt to nullify the SEC’s Staff Accounting Bulletin No. 121 (SAB 121) under the Congressional Review Act. SAB 121 describes how the SEC expects entities to account for and disclose their custodial obligations to “safeguard crypto-assets held for their platform users,” and has been in effect since April 11, 2022. As previously covered by InfoBytes, in October 2023, the GAO found SAB 121 was a rule, not guidance, making SAB 121 subject to the Congressional Review Act.