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  • Biden administration, HUD tackle rental-housing fees

    Federal Issues

    On July 19, the White House released a Fact Sheet announcing that the Biden-Harris administration is cracking down on junk fees in rental housing to lower costs for renters. The administration explained how rental housing fees can be burdensome for renters, with application fees often exceeding the actual cost of background checks, accumulating to hundreds of dollars as prospective renters apply for multiple units. Additionally, mandatory fees, such as convenience fees for online rent payment, mail sorting, trash collection, and obscure charges like "January fees," further strain renters' finances and hinder comparison shopping, as the true cost of renting may be higher than expected or affordable, the announcement states. The Fact Sheet outlines the president’s steps for taking action: (i) major rental housing platforms will disclose total upfront costs in addition to the advertised rent; (ii) legislative efforts to regulate rental housing fees and safeguard consumer interests are underway in several states; and (iii) HUD presented new research outlining a blueprint for a nationwide initiative to tackle rental housing fees. HUD’s new research presents an extensive review of rental fees, emphasizing strategies adopted by state, local, and private sectors to promote transparency and equity in the rental market. These strategies encompass measures like capping or abolishing rental application fees, enabling renters to submit their own screening reports, utilizing a single application fee for multiple applications, and ensuring clear disclosure of total move-in and monthly rent costs. HUD's research serves as a guide for local authorities and landlords alike to enhance conditions for renters.

    Federal Issues Biden HUD Junk Fees Affordable Housing Consumer Finance

  • Fed’s Barr raises concerns about AI redlining

    Federal Issues

    On July 18, Federal Reserve Vice Chair for Supervision Michael Barr delivered a speech on adjusting the Fair Housing Act and ECOA in response to the increasing relevance of artificial intelligence. Barr explained how the digital economy offers many great utilizations, such as accessing the creditworthiness of individuals without credit history and facilitating wider access to credit for those who may otherwise be excluded. Along with a digital economy, Barr cautioned, comes negative implications where technologies can potentially violate the fair lending laws and may perpetuate existing disparities and inaccuracies, among other things. Barr highlighted Special Purpose Credit Programs as a tool to address discrimination and bias in mortgage credit transactions. In addition, Barr highlighted two recent initiatives taken by the Fed to tackle appraisal discrimination and bias in housing mortgage credit transactions—one involved inviting public feedback on a proposed rule to uphold credibility and integrity in automated valuation models, and the other sought input on guidance addressing risks related to deficient home appraisals, emphasizing "reconsiderations of value" in the process. (Covered by InfoBytes here and here.) Barr also commented that through the Fed’s supervisory process, it is evaluating whether firms have proper risk management and controls, including with respect to these new technologies.

    Federal Issues Fintech Federal Reserve Fair Housing Act ECOA Artificial Intelligence Fair Lending Redlining Consumer Finance

  • NYDFS: Auto loan borrowers are entitled to rebates for cancelled ancillary products

    State Issues

    On July 18, NYDFS sent a letter reminding regulated auto lenders and auto loan servicers that they are responsible for ensuring certain rebates are credited to consumers whose vehicles were repossessed or were a total loss. During its examinations, NYDFS identified instances where certain institutions that finance ancillary products, such as extended warranties, vehicle service contracts, and guaranteed asset protection insurance, failed to properly calculate, obtain, and credit rebates to consumers as required. NYDFS explained that the terms of sale for such ancillary products “provide that if the vehicle is repossessed or is a total loss prior to the product’s expiration, the consumer is entitled to a rebate for the prorated, unused value of the product (a ‘Rebate’), payable first to the [i]nstitution to cover any deficiency balance, and then to the consumer.” NYDFS found that some institutions either neglected to pursue Rebates from the issuers of the ancillary products or miscalculated the owed amounts, adding that in some instances, institutions made initial requests for Rebates but did not follow through to ensure that they were received and credited to consumers.

    NYDFS explained that an institution’s failure to obtain and credit Rebates from unexpired ancillary products is considered to be unfair “because it causes or is likely to cause substantial injury to consumers who are made to pay or defend themselves against deficiency balances in excess of what the consumer legally owes.” The resulting injury caused to consumers is not outweighed by any countervailing benefits to consumers or to competition, NYDFS stressed.

    Additionally, NYDFS said an institution’s statements and claims of consumers’ deficiency balances that do not include correctly calculated and applied Rebates are considered to be deceptive, as they mislead consumers about the amount they owe after considering all setoffs. NYDFS said it expects institutions to fulfill their contractual obligations by ensuring Rebates are properly accounted for, either by deducting them from deficiency balances or issuing refund checks if no deficiency balance is owed.

    NYDFS further noted in its announcement that recent CFPB examinations found that certain auto loan servicers engaged in deceptive practices when they notified consumers of deficiency balances that misrepresented the inclusion of credits or rebates. The Bureau’s supervisory highlights from Winter 2019, Summer 2021, and Spring 2022 also revealed that collecting or attempting to collect miscalculated deficiency balances that failed to account for a lender’s entitled pro-rata refund constituted an unfair practice.

    State Issues Bank Regulatory State Regulators NYDFS Auto Finance Consumer Finance UDAAP Ancillary Products Deceptive Unfair CFPB Act

  • FHA proposes to change lender and mortgagee requirements, clarify GSE definition

    Agency Rule-Making & Guidance

    On July 18, FHA announced a proposed rule for public comment that would revise requirements for investing lenders and mortgagees “to gain or maintain status as an FHA-approved lender or mortgagee.” The proposed rule would also “separately define Government-Sponsored Enterprises (GSEs) and the Federal Home Loan Banks (FHLB) from other governmental entities and align general FHA approval standards with current industry business practices.” The proposed changes are mainly aimed at accommodating more precise language and definitions concerning an investing lender or mortgagee's limited participation in FHA programs. According to FHA, these changes do not represent a significant departure from existing requirements for most lenders and mortgagees involved in originating, endorsing, or servicing FHA-insured loans. Through the proposed rule, HUD proposes to: (i) “separately define the GSEs and their approval requirements from other Federal, State, or municipal governmental agencies and Federal Reserve Banks”; (ii) include Freddie Mac, Fannie Mae, and the FHLBs in the GSE definition; (iii) add language to require investing lenders and mortgagees to comply with applicable audit and financial statement requirements; and (iv) “clarify that investing lenders and mortgagees must comply with FHA’s annual certification requirements.”

    Agency Rule-Making & Guidance Federal Issues FHA Mortgages FHLB GSEs Fannie Mae Freddie Mac

  • E-commerce company fined $25 million for alleged COPPA violations

    Federal Issues

    On July 19, the DOJ and FTC announced that a global e-commerce tech company has agreed to pay a penalty for alleged privacy violations related to its smart voice assistant’s data collection and retention practices. The agencies sued the company at the end of May for violating the Children’s Online Privacy Protection Act Rule and the FTC Act, alleging it repeatedly assured users that they could delete collected voice recordings and geolocation information but actually held onto some of this information for years to improve its voice assistant’s algorithm, thus putting the data at risk of harm from unnecessary access. (Covered by InfoBytes here.)

    The stipulated order requires the company to pay a $25 million civil money penalty. The order also imposes injunctive relief requiring the company to (i) identify and delete any inactive smart voice assistant children’s accounts unless requested to be retained by a parent; (ii) notify parents whose children have accounts about updates made to its data retention and deletion practices and controls; (iii) cease making misrepresentations about its “retention, access to or deletion of geolocation information or voice information, including children’s voice information” and delete this information upon request of the user or parent; and (iii) disclose its geolocation and voice information retention and deletion practices to consumers. The company must also implement a comprehensive privacy program specific to its use of users’ geolocation information.

    Federal Issues Privacy, Cyber Risk & Data Security DOJ FTC Enforcement COPPA FTC Act Consumer Protection

  • CFPB reports on employer-driven debt

    Federal Issues

    On July 20, the CFPB released an Issue Spotlight covering findings from an inquiry into worker experiences with employer-driven debt. In June 2022, the Bureau launched a formal inquiry on practices and financial products that may cause an employee to owe a debt to their employer. (Covered by InfoBytes here.) The inquiry focused on debt obligations incurred by consumers in the context of an employment or independent contractor arrangement, including training repayment agreements where employees are required to repay the costs of job training should they voluntarily or involuntarily leave a job within a set time period. The inquiry sought information on “prevalence, pricing and other terms of the obligations, disclosures, dispute resolution, and the servicing and collection of these debts,” and asked consumers whether they felt they “have a meaningful choice” in agreeing to these products, what these agreements’ terms and conditions are, and whether the products might prevent individuals from seeking alternative employment.

    The recent Issue Spotlight found that employer-driven debt presents several risks to consumers, including:

    • Workers experience unique harms related to employer-driven debts, as these debts are tied to their employment, and the issuer of the debt controls their ability to repay it.
    • Employees may be rushed into signing agreements that conceal debt details or employers may change terms and conditions after origination without a worker’s knowledge.
    • Workers’ focus on securing or advancing employment may lead them to overlook valuation, disclosures, and terms of credit or lease products.
    • Employer-driven debts may be imposed as a mandatory precondition of employment, potentially hindering workers’ ability to negotiate terms before accepting a job.
    • Employers may misrepresent the value and nature of employer-driven debt, work conditions, and potential job earnings, leading workers to expect career mobility and higher earnings.
    • Workers may suffer negative impacts on household financial stability, such as lower earnings, damaged credit scores, and additional debts, to meet repayment-related obligations.

    The Bureau stated that it is committed to working with other federal, state, and local regulators to address potential workplace consumer harms and said it intends to evaluate the use of training repayment agreement provisions or other employer-driven debts for potential violations of consumer financial laws.

    Federal Issues CFPB Consumer Finance Employer-Driven Debt Products

  • CFPB alleges UDAAP violations by “lease-to-own” financer

    Federal Issues

    On July 19, the CFPB announced it is suing a lease-to-own finance company that provides services that allows consumers, typically with limited access to traditional forms of credit for their financing, to finance merchandise or services over a 12-month period. According to the complaint, the Bureau claims that once a consumer falls behind on payments, the company’s purchase agreement essentially “lock[s] [consumers] into the 12-month schedule—even if they want to return or surrender their financed merchandise.”  The alleged violations include:

    • Misleading consumers. The company is accused of designing and implementing its financing program in a way that misleads consumers by using print advertisements featuring the phrase “100 Day Cash Payoff” without including details of the purchase agreement financing. The company is accused of misrepresenting that consumers could not terminate their agreement, that consumers could not return their merchandise, and that the “best” or “only” option for consumers who no longer want to finance their merchandise is to enter a “buy-back” agreement. The Bureau alleges that such conduct, among other things, violated the CFPA's prohibition on deceptive and abusive acts and practices.
    • Unlawful conditioning of credit extension. The company is accused of violating the EFTA and its implementing Regulation E by allegedly improperly requiring consumers to repay credit through preauthorized automated clearing house debits.
    • Failing to establish reasonable policies concerning consumer information. The Bureau alleges that the company violated the FCRA and its implementing Regulation V by not having adequate written policies and procedures to ensure the accuracy and integrity of consumer information that it furnished, considering the company’s “size, complexity, and scope.”

    The Bureau seeks, among other things, injunctions to prevent future violations, rescission or reformation of the company's financing agreements, redress to consumers, and civil money penalties.

    Federal Issues CFPB Consumer Finance Enforcement CFPA FCRA Regulation E Regulation V Deceptive Abusive UDAAP

  • FTC proposal would allow facial recognition for consent under COPPA

    Agency Rule-Making & Guidance

    On July 19, the FTC announced it is seeking public feedback on whether it should approve an application that proposes to create a new method for obtaining parental consent under the Children’s Online Privacy Protection Act (COPPA). The new method would involve analyzing a user’s facial geometry to confirm the individual’s age. Under COPPA, online sites and services directed to children under 13 are required to obtain parental consent before collecting or using a child’s personal information. COPPA provides a number of acceptable methods for obtaining parental consent but also allows interested parties to submit proposals for new verifiable parental consent methods to the FTC for approval.

    The application was submitted by a company that runs a COPPA safe harbor program, along with a digital identity company and a technology firm that helps companies comply with parental verification requirements. Specifically, the FTC’s request for public comment solicits feedback on several questions relating to the application, including: (i) whether the proposed age verification method is covered by existing methods; (ii) whether the proposed method meets COPPA’s requirements for parental consent (i.e., can the proposed method ensure that the person providing consent is the child’s parent); (iii) does the proposed method introduce a privacy risk to consumers’ personal information, including their biometric information; and (iv) does the proposed method “pose a risk of disproportionate error rates or other outcomes for particular demographic groups.” Comments are due 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues Privacy, Cyber Risk & Data Security Consumer Protection FTC COPPA

  • FDIC announces Vermont disaster relief

    On July 19, the FDIC issued FIL-36-2023 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Vermont affected by severe storms and flooding from July 7 through the present. The FDIC acknowledged the unusual circumstances faced by affected institutions and encouraged those institutions to work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements and instructed institutions to contact the New York Regional Office if they expect delays in making filings or are experiencing difficulties in complying with publishing or other requirements.

    Bank Regulatory Federal Issues FDIC Consumer Finance Disaster Relief Vermont

  • European Data Protection Board clarifies GDPR transfers

    Privacy, Cyber Risk & Data Security

    On July 18, the European Data Protection Board (EDPB) published an information note to provide clarity on data transfers under the GDPR to the United States following the European Commission’s adoption of the adequacy decision as part of the EU-U.S. Data Privacy Framework on July 10. The information note also addresses available redress mechanisms under the framework, as well as a new redress mechanism relating to the area of national security. As previously covered by InfoBytes, the European Commission concluded that the U.S. “ensures an adequate level of protection – comparable to that of the European Union – for personal data transferred from the EU to U.S. companies under the new framework.” With the adoption of the new adequacy decision, personal data can now be transferred securely from the EU to U.S. companies participating in the framework without having to implement additional data protection safeguards.

    The information note clarified that transfers based on adequacy decisions do not require supplementary measures. However, transfers to the U.S. not included in the “Data Privacy Framework List” will require appropriate safeguards, such as standard data protection clauses or binding corporate rules. The EDPB emphasized that U.S. government safeguards put in place in the area of national security (including the redress mechanism) will “apply to all data transfers to the [U.S.], regardless of the transfer tool used.” Additionally, EU individuals whose data is transferred to the U.S. based on the adequacy decision may use several redress mechanisms, including submitting complaints with the relevant U.S. organization, while EU organizations may seek advice from their national data protection authority to oversee related processing activities. Moreover, regardless of the transfer method used for sending personal data to the U.S., EU data subjects can submit complaints to their national data protection authority to utilize the new redress mechanism concerning national security. The national data protection authority, in turn, will ensure that the complaint is sent to the EDPB, which will transmit the complaint to the appropriate U.S. authorities.

    The EDPB noted that the European Commission will conduct a review of the adequacy decision one year after it enters into force to ensure all elements have been fully implemented and are effective. Depending on the findings, the European Commission will decide, in consultation with the EDPB and the EU member states, whether subsequent reviews are warranted.

    Privacy, Cyber Risk & Data Security Of Interest to Non-US Persons EU European Data Protection Board GDPR EU-US Data Privacy Framework

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