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Republicans seek to overturn student loan relief program
On March 27, Republican lawmakers Representative Bob Good (R-VA) and Senator Bill Cassidy (R-LA) introduced a joint resolution of disapproval under the Congressional Review Act to overturn the Department of Education’s (DOE) student loan debt relief program, which has yet to take effect. As previously covered by InfoBytes, the three-part debt relief plan was announced last August to provide, among other things, up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE, and up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples.
Opponents of the debt relief program immediately filed legal challenges after the plan was introduced last August. On December 1, the U.S. Supreme Court agreed to hear the Biden administration’s appeal of an injunction entered by the U.S. Court of Appeals for the Eighth Circuit that temporarily prohibited the Secretary of Education from discharging any federal loans under the agency’s student debt relief plan (covered by InfoBytes here). In a brief unsigned order, the Supreme Court deferred the Biden administration’s application to vacate, pending oral argument. Shortly after, the Supreme Court also granted a petition for certiorari in a challenge currently pending before the U.S. Court of Appeals for the Fifth Circuit, announcing it will consider whether the respondents (individuals whose loans are ineligible for debt forgiveness under the plan) have Article III standing to bring the challenge, as well as whether the DOE’s debt relief plan is “statutorily authorized” and was “adopted in a procedurally proper manner” (covered by InfoBytes here). The Supreme Court heard oral arguments in both cases at the end of February.
Good noted in his announcement that more than 120 members of the House signed an amicus brief expressing concerns about the constitutionality of the debt relief program. And last month, the Government Accountability Office issued a letter of opinion stating that the final waivers and modification rules submitted by the DOE last October to streamline and improve targeted debt relief programs (covered by InfoBytes here) constitute rules under the CRA and shall have no force or affect.
Hsu says OCC focused on fairness in banking
On March 30, acting Comptroller of the Currency Michael J. Hsu commented that the safety and soundness of the federal banking system continues to be a top agency priority, as is improving fairness in banking. Speaking at a conference, Hsu discussed several measures taken by the OCC to elevate and advance fairness, particularly for the underserved and financially vulnerable. Explaining that OCC examiners are encouraging bank management to review existing overdraft protection programs and consider adopting pro-consumer reforms, Hsu referred to CFPB guidance issued last October to address unfair, deceptive, and abusive practices associated with “so-called ‘surprise overdraft’ fees.” (Covered by InfoBytes here.) He also commented that both the Federal Reserve Board and the FDIC have cited the risk of violating UDAP in connection with the certain overdraft practices. Hsu noted that not all overdraft practices are equal, stating that “authorize positive, settle negative” and “representment” fees both present heightened risks.
Recognizing the recent decline in banks’ reliance on overdraft fees, Hsu emphasized that most bankers he has spoken to “understand the importance of treating their customers fairly and have been open to learning about best practices.” He noted that “[t]hese bankers are committed to being there for their customers and providing them with short-term, small dollar liquidity when it is needed most. Many customers tell their banks, as well as groups that have studied overdraft practices, that this banking service helps them meet payments when they come due.” Hsu added that the OCC’s intended goal is to “improve the fairness of these programs by making them more pro-consumer, not to eliminate them,” and that “[m]ore fairness means more financially healthy communities, which means more trust in banking.” Hsu also discussed efforts taken by the OCC to combat discriminatory lending practices, including working to enhance supervisory methods for identifying appraisal discrimination.
FDIC announces Arkansas and Mississippi disaster relief
On April 5, the FDIC issued FIL-14-2023 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Arkansas affected by severe storms and tornadoes on March 31. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and encouraged 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 instructs institutions to contact the Dallas Regional Office for consideration. Earlier, on March 30, the FDIC issued FIL-12-2023 to provide similar regulatory relief to financial institutions and help facilitate recovery in areas of Mississippi affected by severe storms, straight-line winds, and tornadoes on March 24 and 25.
OCC establishes Office of Financial Technology
On March 30, the OCC announced the establishment of the Office of Financial Technology, and selected Prashant Bhardwaj to lead the office as Deputy Comptroller and Chief Financial Technology Officer beginning April 10. As previously covered by InfoBytes, last October the OCC said the new office will build on and incorporate the agency’s Office of Innovation (established in 2016 and covered by InfoBytes here), and will strengthen the OCC’s expertise and ability to adapt to a rapidly evolving banking landscape. The Office of Financial Technology will “enhance the OCC’s expertise on matters regarding digital assets, fintech partnerships, and other changing technologies and business models within and that affect OCC-supervised banks,” the OCC said in its announcement, noting that Bhardwaj will lead a team responsible for analyzing, evaluating, and discussing relevant fintech trends, emerging and potential risks, and the potential implications for OCC supervision.
OFAC sanctions arms facilitator for attempted North Korea-Russia deals
On March 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 13551, against a Slovakian national for attempting to facilitate arms deals between Russia and the Democratic People’s Republic of Korea (DPRK) to aid Russia’s war against Ukraine. “Schemes like the arms deal pursued by this individual show that Putin is turning to suppliers of last resort like Iran and the DPRK,” Secretary of the Treasury Janet L. Yellen said. “We remain committed to degrading Russia’s military-industrial capabilities, as well as exposing and countering Russian attempts to evade sanctions and obtain military equipment from the DPRK or any other state that is prepared to support its war in Ukraine.”
As a result of the sanctions, all property and interests in property of the sanctioned individual that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC, as well as “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons.” Persons that engage in certain transactions with the designated individual may themselves be exposed to sanctions, and “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for the individual designated today could be subject to U.S. correspondent or payable-through account sanctions.”
FinCEN looks at business email threat in real estate
On March 30, FinCEN released a Financial Trend Analysis examining threat patterns and trends identified in Bank Secrecy Act (BSA) data relating to business email compromise (BEC) in the real estate sector during 2020 and 2021. According to the analysis, BEC attackers target businesses and financial institutions that routinely conduct large wire transfers and rely on email for communication about these wires. FinCEN explained in its announcement that attackers “may obtain unauthorized access to networks and systems to misappropriate confidential and proprietary information,” noting in its analysis that “[p]erpetrators typically compromise a key email account by using computer intrusions or social engineering and send an email that fraudulently directs funds to criminal-controlled accounts” where many times “the victim is tricked into thinking a legitimate email from a trusted person or entity is directing them to make a payment.” According to the Federal Bureau of Investigation’s Internet Crime Compliant Center, BEC incidents resulted in more than $43 billion in worldwide losses between June 2016 and December 2021.
FinCEN’s analysis found that attackers most commonly impersonated title and closing entities and personnel, and that 1,767 incidents involved initial domestic transfers of fraudulent funds to accounts at U.S. depository institutions (151 incidents involved initial transfers of fraudulent funds to international institutions). Additionally, the analysis found that 83 of the 2,103 reported real estate-related BEC incidents involved convertible virtual currency.
FinCEN reiterated that financial institutions, real estate sector entities, and the public “may all play an important role in protecting the U.S. financial system from [real estate] BEC attacks through awareness of actions to detect and mitigate attacks, information sharing mechanisms that can prevent attacks, and various ways to report incidents when they occur.” FinCEN further encouraged these entities to “[a]ssess the vulnerability of their business processes with respect to BEC and consider actions to ‘harden’ or increase the resiliency of their processes and systems against email fraud schemes.” This includes understanding quantifiable risks associated with the authentication of participants involved in communications, the authorization of transactions, and the communication of information and changes about transactions. Additionally, entities should “[a]dopt a multi-faceted transaction verification process—as well as training and awareness-building—to identify and evade spear phishing attempts.” FinCEN emphasized that “[i]dentifying fraudulent transaction payment instructions before payments are issued is essential to preventing and reducing unauthorized transactions.”
SEC awards whistleblowers more than $12 million
On March 31, the SEC announced awards totaling more than $12 million to two whistleblowers whose information and assistance led to a successful SEC enforcement action. According to the redacted order, the first whistleblower prompted the opening of the investigation and provided information on violations that would otherwise have been difficult to detect, including by identifying key witnesses and helping enforcement staff understand complex fact patterns and issues concerning the matters under investigation. This information was also used to create an investigative plan and craft initial document requests. Citing the first whistleblower’s persistent efforts to remedy the issues, and the fact that the information was received several years before the second whistleblower’s information, the SEC said the first whistleblower will receive more than $9 million. The second whistleblower will receive $3 million for submitting important information “as a percipient witness” during the course of the investigation on topics that went beyond what the first whistleblower had been able to provide.
CFPB finalizes Section 1071 rule on small business lending data
On March 30, the CFPB released its final rule implementing Section 1071 of the Dodd-Frank Act. Consistent with Section 1071, the final rule will require financial institutions to collect and provide to the Bureau data on lending to small businesses, defined as an entity with gross revenue under $5 million in its last fiscal year, which the Bureau will ultimately publish. (See also an executive summary here.)
As explained in a corresponding fact sheet, the final rule is intended to foster transparency and accountability by requiring financial institutions—both traditional banks and credit unions, as well as non-banks—to collect and disclose data about small business loan recipients’ race, ethnicity, and gender, as well as geographic information, lending decisions, and credit pricing. The credit application information will be compiled in a comprehensive, publicly available database to help policymakers, borrowers, and lenders better address economic development needs and adapt to future challenges. The final rule also contains a sample data collection form that lenders can, but are not required to, use to collect applicants’ demographic data, and while small businesses are given the option not to provide this information, lenders must not discourage applicants from supplying this data (as explained in more detail in an accompanying policy statement). The Bureau also released a report detailing user testing research used to learn about lenders’ likely experience in filling out the sample data collection form, as well as a report describing the agency’s methodology for estimating how many lenders will be required to report under the final rule and for producing cost estimates associated with implementing the final rule.
The final rule contains important changes from the proposed rule issued in September 2021 (covered by a Special Alert here). Explaining that these changes are designed to make the final rule more effective and easier to follow, the Bureau stated that larger lenders will be required to collect and report data earlier than small lenders. The reporting requirements begin once a lender originates at least 100 covered small business loans in each of the two prior calendar years—a threshold that “accounts for more than 95 percent of small-business loans by banks and credit unions,” the Bureau said in its press release, noting that it was raised from the originally proposed 25-loans-per-year threshold.
While the final rule is effective 90 days after publication in the Federal Register, lenders will follow a tiered compliance date structure:
- Lenders that originate at least 2,500 covered small business loans in both 2022 and 2023, must begin collecting data on October 1, 2024.
- Lenders that originate at least 500 covered small business loans in both 2022 and 2023, must begin collecting data on April 1, 2025.
- Lenders that originate at least 100 covered small business loans in both 2022 and 2023 must begin collecting data on January 1, 2026.
- Lenders that did not originate at least 100 covered small business loans in both 2022 and 2023, but subsequently originated at least 100 transactions in two consecutive calendar years may begin collecting data no earlier than January 1, 2026.
- Lenders that originate between 100 and 500 small business loans in both 2024 and 2025, must begin collecting data on January 1, 2026.
Other changes from the proposal include allowing applicants to self-identify demographic information, including race and ethnicity, rather than requiring loan officers to make the determination. The final rule also now includes an exclusion for mortgage loans that must be reported under HMDA, and suggests that under the federal regulators’ forthcoming Community Reinvestment Act (CRA) reporting requirements, data submitted under the Bureau’s final rule will satisfy relevant CRA requirements. Additionally, financial institutions and other third parties will be allowed to develop services and technologies to assist lenders with collecting and reporting data. The Bureau noted that it is working on a supplementary proposal that would, if finalized, give more compliance time for small lenders that are already successful in meeting the needs of the local communities they serve.
CFPB Director Rohit Chopra commented that the final rule’s impact “will be in the comprehensive data that it produces, which can be used by lenders, borrowers, and the broader public to achieve better credit outcomes for small businesses and communities across the country.”
FHFA expands deferral policies for hardships
On March 29, FHFA announced enhanced payment deferral policies for borrowers facing financial hardships. Under the newly enhanced policies, Fannie Mae and Freddie Mac will allow borrowers to defer up to six months of mortgage payments, enabling borrowers “to keep the same monthly mortgage payment by moving past-due amounts to the end of the loan as a non-interest bearing balance, due and payable at maturity, sale, refinance, or payoff.” Fannie and Freddie will work with servicers to implement the enhanced payment deferral policies, which carry a voluntary adoption date of July 1, and a mandatory adoption date of October 1.
Recognizing that the more than one million Covid-19 payment deferrals completed by Fannie and Freddie during the pandemic helped borrowers stay in their homes, FHFA Director Sandra L. Thompson said the agency is making the payment deferral policies a key part of its standard loss mitigation toolkit that is available to all borrowers with eligible hardships.
HUD announces Mississippi disaster relief
On March 28, HUD announced disaster assistance for areas in Mississippi impacted by severe storms, straight-line winds, and tornadoes beginning March 24 to March 25. The disaster assistance follows President Biden’s major disaster declaration on March 26. According to the announcement, HUD is providing immediate foreclosure relief, making various FHA mortgage insurance available to disaster victims, and providing information on housing providers, as well as HUD-approved housing counseling agencies, among other measures. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties, as well as a 90-day extension granted automatically for home equity conversion mortgages, effective March 26. It is also making various FHA insurance options available to victims whose homes require repairs or were destroyed or severely damaged. HUD’s Section 203(h) program allows borrowers from participating FHA-approved lenders to obtain 100 percent financing, including closing costs, for homes that require “reconstruction or complete replacement.” HUD’s Section 203(k) loan program enables individuals to finance the repair of their existing homes or to include repair costs in the finance of a home purchase or a refinance of a home through a single mortgage. HUD is also allowing administrative flexibilities to community planning and development grantees, as well as to public housing agencies and Tribes.