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PAVE task force delivers plan on appraisal bias
On March 23, HUD delivered the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) Action Plan to President Biden. Created in June 2021 to address racial bias in home lending and appraisals and establish actions to root out inequity, PAVE Task Force members include HUD Secretary Marcia L. Fudge and White House Domestic Policy Advisor Susan Rice, the U.S. Attorney General, the Secretaries of Agriculture, Labor, and Veterans Affairs, the Comptroller of the Currency, the Chairmen of the Federal Reserve Board, FDIC, NCUA, Directors of the CFPB and FHFA, and the Executive Director of the Appraisal Subcommittee of the FFIEC.
According to the announcement, the Action Plan to Advance Property Appraisal and Valuation Equity (the Plan) will represent “the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.” According to the Task Force’s executive summary, “[o]n average, homes in majority-Black neighborhoods are valued at less than half of those in neighborhoods with few or no Black residents.” The summary also reports that the impact of undervaluation on homebuyers, sellers, and communities can sometimes result in higher down payments for home buyers, often causing sales to fall through, while low valuations in a refinance transaction can reduce the cash-out available and sometimes affect the refinance interest rate and mortgage insurance premiums paid by the homeowner. The Task Force further notes that since the Fair Housing Act was passed more than 50 years ago, “the racial wealth gap is wider than ever: in 2021, the Black homeownership rate reached only 44 percent, while the white homeownership rate reached 74 percent.”
The Plan will focus primarily on actions to substantially reduce racial bias in home appraisals, as well as steps federal agencies can “take using their existing authorities to enhance oversight and accountability of the appraisal industry and empower homeowners and homebuyers to take action when they receive a valuation that is lower than expected.” Among other things, the Plan states that Task Force members will exercise broad oversight and compliance authority to strengthen “guardrails against unlawful discrimination in all stages of residential valuation.” Agencies will also issue guidance on FHA and ECOA’s application to the appraisal industry and update appraisal-specific policies to “ensure that appraisers or regulated institutions’ use of appraisals are directly included in supervisory [FHA] and ECOA compliance requirements, and are considered in every review of relevant existing and future policies and guidance.” Relevant agencies have also committed to addressing potential bias in the use of technology-based valuation tools through a rulemaking related to automated valuation models (AVMs), including the addition of a nondiscrimination quality control standard in the proposed rule. In consultation with Congress, Task Force members will also pursue legislation to modernize the governance structure of the appraisal industry.
In the coming months, the Task Force will assess: (i) the “expanded use of alternatives to traditional appraisals as a means of reducing the prevalence and impact of appraisal bias”; (ii) the use of “range-of-value estimates instead of point estimates as a means of reducing the impact of racial or ethnic bias in appraisals”; (iii) the “potential use of alternatives and modifications to the sales comparison approach that may yield more accurate and equitable home valuation”; and (iv) “public sharing of a subset of historical appraisal data to foster development of unbiased valuation methods.”
CFPB Director Rohit Chopra stated that the Bureau will take an active leadership role in the Appraisal Subcommittee and will work “to implement a dormant authority in federal law to ensure that algorithmic valuations are fair and accurate.”
Acting Comptroller of the Currency Michael J. Hsu also announced that the OCC plans to enhance its supervisory methods for identifying discrimination in property valuations and will take steps to ensure consumers are aware of their rights regarding appraisals. The agency also intends to “support research that may lead to new ways to address the undervaluation of housing in communities of color caused by decades of discrimination.”
Additionally, acting FDIC Chairman Martin J. Gruenberg noted that the agency is committed to taking several concrete actions, including collaborating with Task Force members to exercise authorities “to support a more equitable state appraisal certification and licensing system.”
OCC releases 2021 4Q mortgage performance results
On March 22, the OCC announced the release of the OCC Mortgage Metrics Report, Fourth Quarter 2021, its quarterly report of the performance of seven national bank mortgage servicers representing 22 percent of all outstanding residential mortgages. As explained in the report, servicers initiated 1,294 new foreclosures in the fourth quarter of 2021—a 39.9 percent increase from the previous quarter and a 64 percent increase from a year ago. The impact of Covid-19, including foreclosure moratoriums, significantly affected these metrics, the OCC stated. Servicers also completed 47,488 mortgage modifications in the fourth quarter, up 40.8 percent from the previous quarter. Of these modifications, “70.5 percent reduced borrowers’ monthly payments, and 46,475, or 97.9 percent, were ‘combination modifications’—modifications that included multiple actions affecting the affordability and sustainability of the loan, such as an interest rate reduction and a term extension,” the OCC reported.
Agencies seek to update administrative enforcement proceedings
On March 22, the Federal Reserve Board, OCC, FDIC, and NCUA issued an interagency proposal to update policies and procedures governing administrative proceedings for supervised financial institutions. According to the proposal, the amendments are necessary to account for the routine use of electronic presentations in hearings and for use of technology in administrative proceedings, and to account for relevant legal developments since the rules were last updated, including the abolishment of the Office of Thrift Supervision, and the grant of new authorities to the agencies. Additionally, according to the proposal, the Fed “proposes to codify and clarify its long-standing practices concerning the conduct of formal administrative investigations and promulgate rules governing all formal investigations of organizations and individuals within the Board’s jurisdiction.” Finally, the FDIC proposes to amend its rules of administrative proceeding to permit greater use of depositions in the course of administrative proceedings.
District Court denies defendant’s motion to certify an interlocutory appeal in BIPA case
On March 18, the U.S. District Court for the Northern District of Illinois denied a retailer’s motion to certify for interlocutory appeal the court’s earlier ruling denying, in part, the retailer’s motion to dismiss. This multi-district litigation involves allegations that the retailer used a database containing photographs of individuals and other information to identify people whose images appeared in its surveillance cameras, in violation of the Illinois Biometric Information Privacy Act (BIPA), and California and New York laws. In denying the request for interlocutory appeal, the district court held that its earlier ruling had faithfully applied U.S. Court of Appeals for the Seventh Circuit precedent regarding standing of those who allege invasions of their personal privacy, and that the Supreme Court’s decision in TransUnion v. Ramirez (covered by InfoBytes here) did not undermine that precedent. It also held that the retailer’s disagreement with its prior application of the alleged facts to BIPA and its prior ruling that the plaintiffs had stated claims under California and New York laws did not warrant interlocutory review.
District Court denies motions in FDCPA and TCPA suit
On March 18, the U.S. District Court for the District of Nevada denied motions for judgment on the pleadings filed by both the plaintiff and defendant in a lawsuit alleging violations of the FDCPA and TCPA. According to the order, the defendant allegedly offered to settle an unpaid medical debt with the plaintiff; the plaintiff accepted the offer and paid the debt. After the settlement, the defendant allegedly called the plaintiff and left voicemails seeking to collect the same debt. The plaintiff filed suit, alleging that the calls violated the TCPA because she revoked consent to be contacted after she paid the debt. The plaintiff also alleged that the defendant violated the FDCPA by attempting to collect the debt after it had been settled. In denying the parties’ cross motions for judgment on the pleadings, district court observed that, although the plaintiff had previously consented to being contacted, it could not “determine as a matter of law whether merely settling the Debt was enough to revoke Plaintiff’s consent.” With respect to the FDCPA claim, the district court “would grant Plaintiff’s motion for judgment on the pleadings under the FDCPA, if it were not for Defendant’s affirmative defense ‘bona fide error,’” for which the debt collector has the burden of proof.
District Court grants final approval in data breach case
On January 4, the U.S. District Court for the Eastern District of Texas granted final approval of a settlement in a class action resolving claims that a software company and its subsidiary (collectively, “defendants”) failed to properly safeguard customers' personally identifiable information (PII). According to the memorandum of law in support of the plaintiff’s motion for preliminary approval, the plaintiffs filed suit after a data breach of the defendant’s systems, alleging that defendant violated numerous states’ privacy and other laws by failing to keep their PII confidential and securely maintained. According to the plaintiffs’ motion for preliminary approval, the settlement establishes a settlement class of approximately 4,341,523 members whose PII was potentially compromised by the breach. The settlement would provide $2,000 for each named plaintiff and reimbursement of up to $5,000 of out-of-pocket expenses per class member, including up to eight hours of lost time at $25 per hour and 12 months of financial fraud protection. Additionally, more funds will be given to the California subclass, comprised of 318,091 individuals, who will receive between $100 and $300 in relief each. The defendants are also be required to pay attorneys’ fees and litigation costs and expenses.
2nd Circuit remands case to determine whether loans that violate New York’s criminal usury law are void ab initio
On March 15, the U.S. Court of Appeals for the Second Circuit vacated a district court ruling that had declined to treat an option that permits a lender, in its sole discretion, to convert an outstanding balance to shares of stock, at a fixed discount, as interest for purposes of New York’s criminal usury law. The district court had also observed, though it had no need to reach the issue, that even if the loan was usurious, it would not necessarily be void ab initio. After the case was appealed, the 2nd Circuit certified both issues to the New York Court of Appeals, which concluded, contrary to the district court, that such an option should be treated as interest for purposes of the usury statute and that loans made in violation of the usury statute are void ab initio. In light of the New York Court of Appeals holdings on these issues of state law, the 2nd Circuit vacated the district court’s order, and remanded to the district court to determine, in the first instance, whether the value of the option rendered the loan usurious.
SEC proposes climate risk disclosures
On March 21, the SEC announced a proposed rule to require registrants to disclose certain climate-related information in their registration statements and periodic reports. According to the proposed rule, a registrant must disclose, among other things, information regarding its direct and certain indirect emissions of greenhouse gas (GHG). The GHG emissions disclosure proposals “would provide investors with decision-useful information to assess a registrant’s exposure to, and management of, climate-related risks, and in particular transition risks.”
The proposed rule also establishes that accelerated filers and large accelerated filers would be required to include an attestation report from an independent attestation service provider covering certain emissions disclosures, with a phase-in over time, to promote the reliability of GHG emissions disclosures for investors. The proposed rule further noted additional disclosure requirements for registrants that have made a so-called net-zero commitment or adopted a plan to reduce their GHG footprint or exposures.
The same day, the SEC released a Fact Sheet on the proposed rule, which summarized the content of the proposed disclosure and presentation and attestation requirements, among other things. According to a statement released by SEC Chair Gary Gensler, the proposed rule will “provide investors with consistent, comparable, and decision-useful information for making their investment decisions and would provide consistent and clear reporting obligations for issuers.” However, a statement released by SEC Commissioner Hester M. Peirce took a different view, stating that the proposed amendments would “turn[] the disclosure regime on its head” and noting that some elements are “missing,” such as “[a] credible rationale for such a prescriptive framework when our existing disclosure requirements already capture material risks relating to climate change;[a] materiality limitation; [and] [a] compelling explanation of how the proposal will generate comparable, consistent, and reliable disclosures.” Treasury Secretary Janet L. Yellen also released a statement commending the proposal and the SEC, calling the effort “an important step to protect investors and strengthen the overall resilience of the financial system.”
Comments on the proposal are due 30 days after publication in the Federal Register, or 60 days after the date of issuance and publication on sec.gov, whichever period is longer.
OFAC announces human rights abuse sanctions
On March 21, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13818 against the Republic of the Sudan Central Reserve Police (CRP) for serious human rights abuse. According to OFAC, the “CRP has used excessive force against pro-democracy protesters peacefully demonstrating against the military-led overthrow of the civilian-led transitional government in Sudan.” As a result of the sanctions, all property and interests in property belonging to the sanctioned person subject to U.S. jurisdiction are blocked and must be reported to OFAC. OFAC also noted that its regulations generally prohibit all dealings by U.S. persons that involve any property or interests in property of designated persons.
Indiana enacts data breach disclosure requirements
On March 18, the Indiana governor signed HB 1351, which provides that in the event of the discovery of a data breach, persons are required to disclose or provide notification “without unreasonable delay, but not more than forty-five (45) days after the discovery of the breach.” The bill provides for specific reasonable delays, including circumstances that are “necessary to restore the integrity of the computer system” or “to discover the scope of the breach,” or in certain instances where the attorney general or a law enforcement agency states that disclosure of the breach will impede a criminal or civil investigation or jeopardize national security. The statute amends an existing provision of Indiana law, IC-24-4.9.3-3, by making clear that notification must be within 45 days. HB 1351 takes effect July 1.