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Congressmembers push for swift FDTA implementation
On May 14, the Chairman of the House Financial Services Committee, Patrick McHenry (R-NC), Ranking Member Maxine Waters (D-CA), U.S. Senator Mike Crapo (R-ID), and U.S. Senator Mark Warner (D-VA) sent a letter to federal financial regulators urging them to implement their respective obligations under the Financial Data Transparency Act (FDTA) as directed by the National Defense Authorization Act for Fiscal Year 2023 (NDAA). The letter was addressed to various heads of financial regulatory agencies from members of Congress regarding FDTA, specifically urging the agencies to expedite their rulemaking processes in accordance with the timelines established by the FDTA. The letter asserted that implementation of the FDTA will reduce reporting burdens and increase accessibility, uniformity and usefulness of federal financial data. The letter also highlighted those advancements in technology, like artificial intelligence, were already used by the private market to utilize data, and that publishing machine-readable data in a consistent format under the FDTA, will allow those viewing the data to use such technologies with greater efficiency and provide for more transparency. The legislators also note that the FDTA has bipartisan support and stressed the importance of these agencies' adherence to implementing these efforts.
OIG makes recommendations for CFPB’s examiner commissioning program
On May 15, the Office of Inspector General (OIG) for the Fed and CFPB published a report entitled “The CFPB Can Enhance Certain Aspects of Its Examiner Commissioning Program.” The report assessed the CFPB’s examiner commissioning program (ECP) and included recommendations to enhance the program. The OIG made three high-level recommendations in the report:
- Create clear guidelines delineating the duties and expectations for those servicing in ECP support roles, including (i) mentorship during acting EIC assignments, (ii) provide regional training leads support during rotations, and (iii) field manager assistance in selecting suitable examinations and identifying acting examiner in charge (EIC) tasks for commissioning candidates.
- Establish a uniform method for supervision learning and development and regional offices to jointly offer additional support to examiners during their ECP preparation.
- Review and improve the feedback parameters for the EIC case study assessment, ensuring examiners receive detailed, constructive feedback while maintaining the integrity of the EIC case study assessment. Update the feedback guidelines accordingly and provide training on these new standards.
FCC suspects robocaller of illegal call traffic
On May 20, the FCC released a notification of suspected illegal traffic against a voice service provider (VSP) for allegedly originating illegal robocall traffic. According to the FCC, it appeared that the VSP claimed to offer financial services by delivering prerecorded messages related to debt consolidation loans, and it claimed to be from one of three financial institutions, two of which contained names that were confusing to unrelated financial institutions. The two unrelated financial institutions posted warnings on their websites notifying consumers of the misuse of their names to make “spam” type calls. The FCC reviewed 13 traceback calls from the approximately 78 million calls the company solicited between November 2023 and February 2024. Upon review, the FCC claimed that the VSP was the originating provider of these calls, and that the VSP did not contest the calls.
The FCC alleged the call traffic was illegal since the prerecorded messages contained advertisements without any consents of the called party, nor was there any emergency purpose for the calls. The FCC noted three potential consequences that may arise, including blocking of upstream, downstream, and intermediate providers. Additionally, the FCC noted that in the event all deficiencies are not cured, the VSP may face removal from the Robocall Mitigation Database (RMD). Notably, intermediate and other VSPs are only permitted to accept traffic from a domestic VSP if that provider was listed in the RMD.
In a public notice, the FCC notified all U.S.-based VSPs of unlawful robocalls related to debt consolidation loans originating the from the VSP in the above notification.
Minnesota amends list of deceptive practices to include hidden fees
On May 20, the Governor of Minnesota approved HF 3438 (the “Act”) which rewrote two sections of Minnesota’s statutes to 1) redefine the scope of engaging in a deceptive trade practice, and 2) indemnify certain exemptions. Under the revised statute, in Minnesota, a person will engage in a deceptive trade practice when it lists the price of a good or service but does not include all mandatory fees or surcharges. Further, a mandatory fee will include, but is not limited to, a fee that must be paid in order to purchase the goods or services advertised, was not reasonably avoidable by the consumer, or that would be reasonably expected in the purchase of a good or service. A mandatory fee would not include taxes imposed by a government entity. When a consumer would complete a purchase on a delivery platform, the delivery platform must display “in a clear and conspicuous manner” any additional flat fees or percentages which are charged for that purchase. Upon checkout, the delivery platform must display the subtotal and any additional fees added to the total cost. The second amended section referred to exemptions related to lawful fees in association with the purchase or lease of an automobile from a dealership. The Act will go into effect on January 1, 2025.
Ginnie Mae updates its rules on the securitization of digital collateral
On May 20, Ginnie Mae released an All Participant Memorandum (APM) titled “APM 24-07: Commingling Digital Collateral with Paper Collateral in Ginnie Mae Pools,” which included opening Ginnie Mae’s Digital Collateral Program Pilot from July 2020 to allow any issuer to participate in the Digital Collateral Program. In the program, Ginnie will permit the securitization of digital collateral into the same pools as traditional paper collateral. As highlighted in the memorandum, digital collateral was comprised of mortgage loans which have promissory notes that are “Eligible eNotes” as published in Ginnie Mae’s Digital Collateral Program Guide. These updates were implemented to “promote liquidity and increase participation” in the program by modernizing and digitizing Ginnie Mae’s Mortgage-Backed Securities program to align with other industry practices more closely. The updated program will go into effect on June 1.
Chopra remarks on how less credit reporting competition may lead to higher mortgage costs
On May 20, CFPB Director, Rohit Chopra, delivered a speech at a trade association event addressing the rising costs in the mortgage lending industry, which may be due to limited competition in the credit reporting sector. According to Chopra, the mortgage industry was dominated by three major conglomerates, and credit scores were provided by a single corporation. These entities have significantly increased the price for credit reports and credit scores in recent years, with increases reaching as high as 400 percent since 2022. These price hikes can increase a lender’s origination fees or interest rates and have impacted both lenders, especially small lenders, and homebuyers disproportionately.
Chopra added how lenders require credit reports and credit scores for loan origination and adhere to secondary market requirements, which would necessitate purchasing these reports multiple times, like for joint applications. Director Chopra also noted that price increases were no longer tied to volume discounts and instead were now based on a flat fee pricing model, exacerbating costs for lenders. Additionally, the CFPB questioned the accuracy of credit reports, with the reporting industry profiting from expedited correction services known as a “rapid rescore.”
Director Chopra emphasized the need for regulatory intervention to address these issues within the mortgage industry. Chopra stated that “limiting chokepoints” was critical. As a result, the CFPB was examining these rising costs and considering regulatory measures to enhance competition and affordability. The Bureau was also promoting “open banking,” which would allow consumers to share their financial data directly with lenders to potentially reduce reliance on traditional credit reports and credit scores.
District court dismisses FDCPA class action for lack of standing
Recently, the U.S. District Court for the District of New Jersey granted defendant debt collectors’ motion to dismiss a FDCPA class action without prejudice. In 2016, the defendants obtained the plaintiff’s credit card debt and then settled that debt with plaintiff for approximately half of the original amount owed. Thereafter, plaintiff initiated a putative class action alleging defendants made false and misleading representations in the collection letter because they did not specify if the total amount owed included interest, costs, or fees. To establish Article III standing, the Court stated that plaintiff must “allege some form of detrimental reliance on the representations made by a defendant in a collection letter.” The Court found that the plaintiff ultimately failed to demonstrate that the alleged missing interest information in defendants' collection letter was detrimental, and that “informational statements in the [c]ollection [l]etter are not an actual injury unless [p]laintiff acted on them.” Accordingly, the Court concluded that the plaintiff failed to allege any adverse effects of the misleading information, and as a result, failed to establish standing.
6th Circuit affirms district court’s decision to discard case for lack of standing
On May 17, the U.S. Court of Appeals for the Sixth Circuit affirmed a lower court’s sua sponte dismissal for lack of subject-matter jurisdiction. This case was brought by two nonprofit organizations seeking to halt the Department of Education’s (DOE) plan to provide participants in the Public Service Loan Forgiveness (PSLF) program with a one-time account adjustment that would allow time spent in excessive forbearance status to count toward debt forgiveness under the program, as announced in April 2022 and July 2023. Plaintiffs alleged standing on the basis that they “have previously employed, and currently employ, borrowers who participate, may become eligible to participate, or have previously participated in the statutory PSLF program” and “expect to recruit other such employees in the future.” Notably, and not long after filing their complaint in the lower court, plaintiffs filed an ex parte motion for a temporary restraining order and preliminary injunction, seeking to prevent the Department of Education from discharging any debt through the long-term forbearance aspect of the adjustment. Before defendants could respond, however, the U.S. District Court for the Eastern District of Michigan dismissed plaintiffs’ complaint sua sponte without prejudice.
On appeal, plaintiffs argued that they were not required to link the proposed adjustment to a specific tangible loss and that the adjustment injured them by reducing their expected benefits under a loan forgiveness program. The Sixth Circuit disagreed. It found plaintiffs failed to allege standing due to an injury resulting “from the [student loan] adjustment based on competitor standing and deprivation of a procedural right” and affirmed the dismissal for lack of subject-matter jurisdiction.
FDIC Chairman Gruenberg to step down
On May 20, Martin J. Gruenberg, Chairman of the FDIC, announced his intention to step down as Chairman of the FDIC – once a successor will be confirmed. Having served at the helm of the FDIC since August 2005, as Chairman, Vice Chairman, and Director, Gruenberg expressed pride in upholding the FDIC's mission to preserve public trust and ensure stability in the banking system. He pledged to continue his duties until a new chairman was appointed, with a focus on transforming the FDIC’s workplace culture.
Congressional Democrats pen letter to financial regulators on “de-risking” and inclusion
On May 15, 11 Congressional Democrats sent a letter to Treasury Secretary Yellen, now-former FDIC Chairman Gruenberg, Acting Comptroller Hsu, Fed Chair Powell, FinCEN Director Gacki, NCUA Chair Harper, and CFPB Director Chopra asking for robust, modernized anti-money laundering (AML) and financial crimes compliance to support equitable banking access for Muslim Americans and immigrant communities. The congressmembers raised these concerns as banks increasingly engaged in the practice of “de-risking,” which involved indiscriminately terminating or restricting business relationships with broad categories of customers rather than managing risk consistent with risk-based supervisory or regulatory requirements. The letter highlighted that customers in the Muslim American, Middle Eastern, and South Asian American communities “may” be considered “high-risk” erroneously for sending payments or remittances abroad, or by donating to charities or religious institutions. The letter asserts that this practice can also harm economic stability and sustainability in countries that depend on remittances for development.
The Democrats proposed several changes to address these concerns. First, the letter asked financial regulators to issue a joint statement affirming financial inclusion as a priority. Second, it requested a formal advisory group on financial inclusion. Third, the letter requested FinCEN issue FAQs to help financial institutions “avoid shutting down or restricting accounts unnecessarily.” Fourth, the letter asked the Treasury to amend its annual examiner training to include a discussion on financial inclusion. Fifth, it asked for the promulgation of guidance for banks to provide pre-clearance mechanisms for consumers likely to raise AML flags. Finally, the letter requested that the CFPB establish notice and dispute resolution requirements for consumers who “experience account closures especially when a SAR is not filed.”