InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB approves pilot program for construction loans
On November 21, the CFPB announced it approved an application from a community banking trade organization to pilot disclosures for construction loans. The application was submitted pursuant to the CFPB’s trial policy programs under Section 1032(e) of Dodd-Frank. According to the community banking trade organization, the application aims to increase the number of affordable loans that combine a construction phase loan with a mortgage, all within a single set of closing costs, i.e., a single-close construction-to-permanent loan. The community banking trade organization hopes to increase the number of these specific loans because first-time homebuyers in rural and small-town communities are more likely to build their first home than purchase existing ones. The community banking trade organization also stated that the current loan disclosure requirements offered by the CFPB were designed for either standard home purchase or refinance mortgage loans. The Bureau states that it wishes to receive applications for this pilot disclosure from lenders rather than single-market participants.
CFPB orders large bank to pay $25.9 million
On November 8, the CFPB announced an enforcement action against a large bank for allegedly discriminating against credit card applicants of Armenian descent. According to the consent order, from at least 2015-2021, respondent allegedly engaged in discriminatory practices that involved denying credit applications and providing false reasons for denials to credit applicants based on their national origin. Respondent’s supervisors also allegedly instructed employees not to discuss these practices in writing or on recorded phone lines. Respondent will pay $1.4 million to affected consumers and a $24.5 million civil money penalty. The CFPB found that respondent violated the Equal Credit Opportunity Act and its implementing Regulation B by unlawfully denying credit based on national origin stereotypes, as well as the CFPA.
NYDFS introduces guidelines for coin-listing and delisting policies in virtual currency entities
On November 15, NYDFS announced new regulatory guidance which adopts new requirements for coin-listing and delisting policies of DFS-regulated virtual currency entities, updating its 2020 framework for each policy. After considering public comments, the new guidance aims to enhance standards for self-certification of coins and includes requirements for risk assessment, advance notification, and governance. It emphasizes stricter criteria for approving coins and mandates adherence to safety, soundness, and consumer protection principles. Virtual currency entities must comply with these guidelines, requiring DFS approval for coin-listing policies before self-certifying coins, and submitting detailed records for ongoing compliance review. The guidance also outlines procedures for delisting coins and necessitates virtual currency entities to have an approved coin-delisting policy.
As an example under coin listing policy framework, the letter states that a virtual currency entity risk assessment must be tailored to a virtual currency entity's business activity and can include factors such as (i) technical design and technology risk; (ii) market and liquidity risk; (iii) operational risk; (iv) cybersecurity risk; (v) illicit finance risk; (vi) legal risk; (vii) reputational risk; (viii) regulatory risk; (ix) conflicts of interest; and (x) consumer protection. Regarding consumer protection, NYDFS says that virtual currency entities must “ensure that all customers are treated fairly and are afforded the full protection of all applicable laws and regulations, including protection from unfair, deceptive, or abusive practices.”
Similar to the listing policy framework, the letter provides a fulsome delisting policy framework. The letter also stated that all virtual currency entities must meet with the DFS by December 8 to preview their draft coin-delisting policies and that final policies must be submitted to DFS for approval by January 31, 2024.
FTC publishes letter to CFPB on its law enforcement and public outreach
On November 16, the FTC released its letter of its annual summary of activities in 2022 to the CFPB. The CFPB used the findings in its annual report to Congress on the Fair Debt Collection Practices Act (FDCPA). In the letter, the FTC outlined several of its important procedural law enforcement activities, such as debt collection issues affecting small businesses, redressing consumers harmed by debt collection schemes, halting collection in consumer debt, and combating unauthorized charges to consumers. The second part of the letter outlines how the FTC enables public outreach and cross-agency coordination. For public outreach, the FTC proactively educates consumers about their rights under the FDCPA, and how debt collectors can comply with the law. The FTC also noted that it publishes material in both English and Spanish to broaden its outreach. In addition, the FTC added that it distributes print publications to libraries and businesses and logs more than 50 million views on its website pages. In its efforts to raise awareness about scams targeting the Latino community, the FTC highlighted its series of fotonovelas (graphic novels) in Spanish.
DOJ and DOE share success after first year of student loan bankruptcy discharge process
On November 16, the DOJ and DOE announced a successful first year of their new student loan bankruptcy discharge process during 2022. The discharge process extinguishes a borrower’s obligation to pay back either some or all of a student loan in bankruptcy based on undue hardship. The DOJ cites two previous standards used by bankruptcy courts to determine if a borrower’s repayment would cause an undue hardship: the Brunner and Totality Tests. The DOJ’s guidance simplified the current standards to enhance “consistency and equity in the handling of these cases” and applies in both Burner and Totality Test jurisdictions. The guide permits a court to grant a discharge if three conditions are satisfied: (i) “the debtor presently lacks an ability to pay the loan”; (ii) “the debtor’s inability to pay the loan is likely to persist in the future”; and (iii) “the debtor has acted in good faith in attempting to repay the loan.”
The DOJ reported the success of their new guidance with several findings: (i) there were 632 cases filed in the first 10 months of the new process, a significant increase from recent years; (ii) this process was used by 97 percent of all borrowers; (iii) 99 percent of borrowers received either full or partial discharges; and (iv) two bankruptcy courts adopted this process. The DOJ is optimistic that some or all these trends will continue.
CFPB’s Language Access Plan breakdown for consumers with limited English proficiency
On November 15, the CFPB issued a report, titled “The CFPB Language Access Plan for consumers with limited English proficiency,” on expanding consumer needs in the financial marketplace for individuals with limited English proficiency. The CFPB released this report consistent with the mandates under E.O. 13166 to “educate and empower all consumers, provide information and assistance to traditionally underserved consumer and communities, enforce fair lending laws, and promote an equitable workforce for all consumers.”
The CFPB cites that 22 percent of the U.S. population over the age of five speak a language other than English at home. The CFPB commits itself to ensuring that tools, programs, and services are available to those who need language assistance by (i) understanding the needs of the population; (ii) conducting outreach and engagement; (iii) providing products and services in eight different languages other than English; and (iv) promoting fair and equitable access to the financial marketplace.
The CFPB’s report also lists several public enforcement actions involving communicating with consumer with limited English proficiency. The report mainly outlines how well the agency does in addressing the diverse language needs of the U.S. population, including translated disclosures, websites, and outreach and engagement sessions.
HUD increases inspection fee limits for single-family homes
On November 15, HUD increased its fee limits for property inspections for single-family homes. HUD requires federal mortgage holders to perform property inspections to determine “occupancy status, ascertain property condition and to maintain property preservation.” For example, according to the Mortgage Letter, the cost for an initial occupancy inspection increased from $20 to $30, with the cost per additional unit increased from $15 to $20, to “align with industry standards,” as found in the FHA Single Family Housing Policy Handbook 4000.1. Deputy Assistant Secretary for Single Family Housing Sarah Edelman called this the “first step in updating our policies governing property and preservation fees,” and will help prevent blight from poorly maintained homes.
Regulators address concerns at Senate Banking Committee hearing, receive written concerns regarding Basel III
On November 14, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing where regulators, Fed Vice Chair for Supervision Michael Barr, FDIC Chair Martin Gruenberg, NCUA Chair Todd Harper, and acting Comptroller of Currency Michael Hsu, testified regarding the Basel III Endgame proposal. Gruenberg’s prepared remarks noted that Basel III reforms are a “continuation of the federal banking agencies’ efforts to revise the regulatory capital framework for our nation’s largest financial institutions, which were found to be undercapitalized and over-leveraged during the Global Financial Crisis of 2008.” The proposal would raise capital requirements for large banks (covered by InfoBytes here).
Concerning Basel III, Senator Tester (D-MO) mentioned he has “some concerns about the proposed changes and how its impact will be on workers’ and households’ and small businesses’ access to credit and overall vibrancy of our capital markets.” “These rules don’t affect any banks in Montana, but they do affect the big guys that affect Montana,” he noted.
Among other testimonies, Senator Warner (D-VA) expressed concerns regarding the timeline of the comment period and potential changes to the proposal. Specifically, Sen. Warner mentioned that comments may not be received until after the rule is close to finalization. Fed Vice Chair Barr noted that the regulators have yet to evaluate comments on the proposal, as most are expected to come through mid-January, and that depending on the substance of some comments, they are open to making appropriate changes to the proposal. Acting Comptroller of the Currency Hsu’s written testimony echoed Barr’s remarks, stating “[w]e will consider all comments, including alternative approaches.”
Moreover, on November 12, a group of Republican lawmakers of the committee also sent a letter to the OCC, FDIC, and the Fed. In the letter, the senators argued that the proposal would restrict billions of dollars in capital, resulting in costlier and more limited access to credit for millions of consumers, impacting affordable housing, mortgage lending, small business lending, and consumer access to credit cards and home equity lines. The proposal was also criticized for its potential to disadvantage U.S. companies globally and harm middle-market private entities and small businesses. Moreover, the letter suggested that the proposal could negatively impact pension funds, increase fees for risk hedging, and decrease returns for retirees.
Also on November 12, several banking industry groups sent a letter to the Fed, FDIC, and the OCC requesting them to issue a revised proposal. The letter alleges violations of the Administrative Procedures Act because the data used to inform the interagency proposal is not publicly available. The groups also argued that the proposed rule repeatedly utilizes non-public analyses based on the agencies’ “supervisory experience” to support different aspects of the rule. Regarding sensitive data, the groups say, “Nothing prevents the agencies from releasing such data and analyses in a manner that is anonymized or aggregated to the extent necessary to protect bank or other party confidentiality.” The senators also believe the proposal would impose “significant harm” throughout the economy “particularly in the face of current economic headwinds and tightening credit conditions.”
CFPB imposes $15 million penalty on lender for violating 2019 order
On November 15, the CFPB announced a consent order against a Chicago-based small-dollar lender for allegedly violating a 2019 order and by independently violating the CFPA. According to the 2019 consent order, the respondent allegedly withdrew funds from consumers’ bank accounts without permission and failed to honor loan extensions. Specifically, the respondent replaced consumers’ bank account information used to pay for existing loans with separate account information supplied by a “lead generator.” Respondent allegedly debited consumers’ payments through the accounts provided by the lead generator, instead of the consumers’ originally saved payment method. The 2019 order, among other things, (i) barred the respondent from making or initiating electronic fund transfers without valid authorization; (ii) barred the respondent from failing to honor loan extensions; (iii) required the respondent to pay a $3.8 million civil money penalty. In its most recent order, the CFPB alleged that through an investigation of the respondent’s compliance with the 2019 order, the respondent continued the same unauthorized withdrawals and canceled loan extensions. The Bureau also alleged that the respondent failed to disclose that making a partial payment could cancel a loan extension and misrepresent associated fees, and they failed to provide consumers copies of signed authorizations. The respondent also allegedly provided inaccurate due dates, misrepresented skipping payments, and misrepresented loan amounts. The respondent released a statement on the enforcement action, highlighting its cooperation with the CFPB, and internal technical issues.
In the most recent order, the respondent, without admitting nor denying the CFPB’s allegations, agreed to pay a $15 million civil money penalty and refund affected consumers. The respondent also agreed to stop providing certain types of consumer loans for seven years (beginning in 2022) and to reform its executive compensation agreements and policies to ensure that compensation accounts for executives’ compliance with consumer financial protection laws, including the Consent Order. The respondent must conduct an annual compensation review and provide a report of the review to the CFPB.
Agencies finalize 2024 HPML smaller loan exemption threshold
On November 13, the CFPB, OCC, and the Fed published final amendments to the official interpretations for regulations implementing Section 129H of TILA, which establishes special appraisal requirements for “higher-risk mortgages,” otherwise termed as “higher-priced mortgage loans” (HPMLs). The final rule increases TILA’s loan exemption threshold for the special appraisal requirements for HPMLs. Each year, the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The exemption threshold will increase from $31,000 to $32,400 effective January 1, 2024.