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Agencies finalize 2023 HPML exemption threshold
On October 13, the CFPB, OCC, and Federal Reserve Board published finalized 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 $28,500 to $31,000 effective January 1, 2023.
House subcommittee asks CFPB to review CRAs' handling of consumer disputes
On October 13, Chairman of the Select Subcommittee on the Coronavirus Crisis James E. Clyburn sent a letter to CFPB Director Rohit Chopra addressing reports that nationwide consumer reporting agencies (CRAs) were less responsive to consumer complaints and disputes related to credit report errors during the Covid-19 pandemic. According to Clyburn, investigative reports allegedly revealed that the CRAs, which are legally obligated to address errors contained in consumer credit reports, did not always investigate these disputes and purportedly used “broad and speculative criteria” to determine whether a dispute was submitted by an unauthorized third party. The letter also expressed concerns that the CRAs’ alleged “overreliance on data furnishers” raises questions about the sufficiency of the CRAs’ dispute investigations, and that, moreover, using different levels of automation to resolve disputes and complaints is creating variability in the quality and thoroughness of their investigations. Clyburn expressed concerns that by failing to investigate certain legitimate disputes, identify and correct erroneous information, or provide the Bureau with information on the outcomes of the complaint investigations, the CRAs may be failing to meet their obligations under the FCRA. He asked Chopra to review the CRAs for possible statutory violations and to “consider investigating whether the CRAs have made sufficient revisions to their procedures for identifying and taking corrective action against unreliable furnishers.”
FHFA proposes amendments to help GSEs better serve colonias
Recently, FHFA announced a notice of proposed rulemaking (NPRM) to amend its Enterprise Duty to Serve Underserved Markets regulation. Under Section 1129 of the Housing and Economic Recovery Act of 2008, Fannie Mae and Freddie Mac (GSEs) are required to develop loan products and flexible underwriting guidelines for facilitating “a secondary market for mortgages on housing for very low-, low-, and moderate-income families for the manufactured housing, affordable housing preservation, and rural housing markets.” The amendments would add a “colonia census tract” definition, which would serve as a census tract-based proxy for a “colonia” (as generally applied to “unincorporated communities along the U.S.-Mexico border in California, Arizona, New Mexico, and Texas that are characterized by high poverty rates and substandard living conditions”), and would amend the “high-needs rural region” definition by substituting “colonia census tract” for “colonia.” The NPRM would also revise the definition of “rural area” to include all colonia census tracts regardless of their location, in order to make GSE activities in all colonia census tracts eligible for duty to serve credit. “FHFA is committed to promoting affordability, equity, and sustainability in the nation’s housing finance markets, especially in underserved communities,” FHFA Director Sandra L. Thompson said in the announcement. “With this rule, we seek to remove barriers that have hindered the [GSEs’] Duty to Serve activities for people living in colonias.”
Biden authorizes borrowers to separate joint consolidation loans
On October 11, President Biden signed S. 1098, which amends the Higher Education Act of 1965 to authorize borrowers to separate joint consolidation loans. According to the bill, borrowers are permitted to split up federally guaranteed student loans held by private lenders into two new federal direct loans. The bill is effective immediately.
Senator urges SEC to issue crypto rulemaking
On October 13, Senator John Hickenlooper (D-CO) sent a letter to SEC Chair Gary Gensler urging him to issue regulations on digital asset securities. According to the letter, Hickenlooper urged the agency to publish regulations through a notice-and-comment process, stating that “existing laws and regulations were not designed to deal with how digital assets are being used in the market.” Hickenlooper noted that the SEC has repeatedly mentioned that existing securities regulations do not ‘cleanly apply’ to digital securities and said that retail investors may not always receive proper disclosures for comprehending the risks tied to digital assets. Hickenlooper also commented that “there are some products and investments, such as Initial Coin Offerings (ICOs), where the SEC is well positioned to offer regulatory guidance since ICOs operate similarly to a traditional financial product.” He specifically urged the SEC to, among other things, clarify what types of digital assets are securities, address how digital securities should be issued and listed, determine what disclosures are necessary for investors to be properly informed, and establish a registration regime for digital asset security trading platforms.
FTC, DOJ participate in G-7 digital competition summit
On October 12, the DOJ and FTC announced their participation in a G7 Joint Competition Policy Makers & Enforcers Summit (Summit) as part of the 2022 G7 Digital and Technology Track. The Summit, hosted by the German Bundeskartellamt and Ministry for Economic Affairs and Climate Action, examined how G7 governments approach competition policy and enforcement in digital markets. According to the agencies, the Summit provided “a unique opportunity for competition officials to discuss common areas of interest and consider areas for increased cooperation and coordination to support competitive digital markets.” The participating delegates included G7 competition authorities and economic ministries in Canada, France, Germany, Italy, Japan, the U.K., and the U.S., in addition to the European Commission. The agencies also noted that to prepare for the Summit, the agencies “contributed to the Compendium of Approaches to Improving Competition in Digital Markets, with highlights from G7 competition authority’s work on digital markets," as well as the Policy Makers Inventory of legislative approaches to competition in digital markets within the G7. According to FTC Chair Lina Khan, “international cooperation is especially crucial as enforcers navigate the global challenges posed by dominant digital platforms and work to promote fair competition and the many benefits it delivers.”
CFPB releases annual college credit card report
On October 13, the CFPB released its annual report to Congress on college credit card agreements. The report was prepared pursuant to the CARD Act, which requires card issuers to submit to the CFPB the terms and conditions of any agreements they make with colleges, as well as certain organizations affiliated with colleges. According to the Bureau, the report “raises questions about whether some marketing deals between colleges and financial institutions comply with Department of Education rules.” The report also highlighted the need for transparency in the arrangements schools have with financial institutions. In conjunction with the report, the DOE issued guidance clarifying colleges’ responsibility to ensure that campus financial products are consistent with students’ best financial interests, including by reviewing whether any fees assessed are consistent with or below prevailing market rates. The DOE’s guidance discussed overdraft and NSF fees, given that financial institutions in the general market have increasingly been reducing or eliminating certain fees. The Bureau’s report included data on 11 account providers, including non-bank financial service providers, banks, and credit unions offering more than 650,000 student accounts in partnership with 462 institutions of higher education during the 2020-2021 award year. Key findings of the report include, among other things: (i) financial services providers and their partner schools appear to offer and promote more costly products to students than are otherwise available in the market; (ii) one entity dominates the market for financial aid disbursements, providing nearly 70 percent of the accounts offered in partnership with schools; and (iii) nearly 30 percent of accounts in the Bureau’s sample were subject to arrangements in which the financial services provider made payments to the partner school.
SEC amends electronic recordkeeping requirements for security-based swap entities
On October 12, the SEC adopted final amendments to its rule governing the electronic recordkeeping requirements for security-based swap entities. (See SEC fact sheet here.) The updates are applicable to security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs), and are intended to make the rule adaptable to new technologies in electronic recordkeeping. The amendments will also facilitate examinations of broker-dealers, SBSDs, and MSBSPs by “designating broker-dealer examining authorities as Commission designees for purposes of certain provisions of the broker-dealer record maintenance and preservation rule,” the SEC said. Specifically, the amendments address requirements related to the maintenance and preservation of electronic records, the use of third-party recordkeeping services to hold records, and the prompt production of records. Under the SEC’s broker-dealer electronic recordkeeping rule, broker-dealers are required “to preserve electronic records exclusively in a non-rewriteable, non-erasable format,” known as the “write once, read many format.” The amendments now provide an audit-trail alternative under which broker-dealers “must preserve electronic records in a manner that permits the recreation of an original record if it is altered, over-written, or erased.” According to the SEC’s announcement, the audit-trail alternative is intended to provide broker-dealers greater flexibility when configuring their electronic recordkeeping systems so they more closely align with current electronic recordkeeping practices, while also ensuring that the authenticity and reliability of the original records are protected. The amendments are also applicable to nonbank SBSDs and MSBSPs.
The final amendments are effective 60 days after publication in the Federal Register.
Fed vice chair discusses regulating financial innovation
On October 12, Federal Reserve Vice Chair for Supervision Michael S. Barr delivered remarks at D.C. Fintech Week in a speech titled Managing the Promise and Risk of Financial Innovation. Barr’s remarks focused on financial innovation supported by new technologies, or fintech. Among other things, Barr discussed supporting innovation with appropriate regulation, striking the right balance for crypto-asset activity, regulating stablecoins, recognizing the risks of tokenizing bank liabilities, advancing customer autonomy, and providing public sector support for payment innovation. Barr noted that cryptoassets’ rapid growth, in market capitalization and activity outside and inside supervised banks requires oversight, including safeguards to ensure that crypto service providers are subject to similar regulations as other financial services providers. Barr stated that “[t]he same type of activity should be regulated in the same way,” and this remains the case “even when the activity may look different from the typical activities we regulate, or when it involves an exciting new technology or a new way to provide traditional financial services.” He also disclosed that there are additional types of crypto asset-related activities where the Fed may need to provide guidance to the banking sector in the future. Barr noted that since “crypto assets have proved to be so volatile, they are unlikely to grow into money substitutes and become a viable means to pay for transactions.” He also warned banks seeking to experiment with these new technologies that they should only do so "in a controlled and limited manner.” Regarding the risks of tokenizing bank liabilities, Barr expressed concerns, stating that banks’ crypto-asset-related activities pose “novel risks,” and said that stablecoins could eventually pose a risk to financial stability and that regulators need to put in guardrails before their adoption is more widespread. Barr also acknowledged that not all tokenization arrangements are the same. He stated that potential designs “range from issuance of tokens on private, controlled networks to facilitate payments within or among banks, to proposals that explore issuance of freely circulating tokens on open, permissionless networks.”
District Court enters $228 million judgment in BIPA class action
On October 12, the U.S. District Court for the Northern District of Illinois entered a judgment for $228 million after a jury found that a defendant railway company committed 45,600 reckless or intentional violations of the Illinois Biometric Information Privacy Act (BIPA). The jury’s judgment, which does not include pre-judgment interest, was entered against the defendant in the amount of $228 million (BIPA provides for statutory damages of $5,000 for every willful or reckless violation and $1,000 for every negligent violation). Class members consisting of more than 44,000 truck drivers alleged in their second amended complaint that the defendant violated BIPA when it collected, captured, and stored their biometric identifiers and biometric information without obtaining their informed written consent or providing written disclosures explaining the purpose and duration of such use. The defendant countered that it should not be held liable for biometric data collection conducted on its behalf by a third-party contractor because BIPA does not impose liability for the acts of a third party. The court disagreed, ruling, among other things, that BIPA’s language “makes clear that [the defendant] need not have ‘collected’ the data itself to be liable,” and that there is evidence that the defendant “ultimately called the shots on whether and how biometric information is collected.”