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On January 24, the CFPB issued a notice and request for information (RFI) seeking public feedback on several aspects of the consumer credit card market in accordance with Section 502(b) of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). The CARD Act was enacted by Congress to establish fair and transparent practices related to the extension of credit within the credit card market, and requires the Bureau to undertake a biennial review of the industry to determine whether regulatory adjustments are needed. The Bureau said it plans to publish its report to Congress later in 2023.
The RFI covers several broad topics ranging from lending practices to the effectiveness of rate and fee disclosures, and seeks comments on the experiences of consumers and credit card issuers in the credit card market, as well as on the overall health of the credit card market. Specifically, the RFI requests feedback on issues related to:
- Credit card agreement terms and credit card issuer practices;
- The effectiveness of issuers’ disclosure of terms, fees, and other expenses of credit card plans;
- The adequacy of protections against unfair or deceptive acts or practices relating to credit card plans;
- The cost and availability of consumer credit cards;
- The safety and soundness of credit card issuers;
- The use of risk-based pricing for consumer credit cards; and
- Consumer credit card product innovation and competition
Comments on the RFI are due April 24. The Bureau noted in its announcement that it also issued market-monitoring orders to several major and specialized credit card issuers seeking information on various topics, including major credit card issuers’ practices related to, among other things, applications and approvals, debt collection, and digital account servicing.
On January 20, California Attorney General Rob Bonta sent a comment letter to CFPB Director Rohit Chopra in response to a preliminary determination issued by the Bureau in December, which concluded that commercial financial disclosure laws in four states (New York, California, Utah, and Virginia) are not preempted by TILA. As previously covered by InfoBytes, the Bureau issued a Notice of Intent to Make Preemption Determination under the Truth in Lending Act seeking comments pursuant to Appendix A of Regulation Z on whether it should finalize its preliminary determination. The Bureau noted that a number of states have recently enacted laws requiring improved disclosures of information contained in commercial financing transactions, including loans to small businesses, to mitigate predatory small business lending and improve transparency. In making its preliminary determination, the Bureau concluded that the state and federal laws do not appear “contradictory” for preemption purposes, explaining, among other things, that the statutes govern different transactions (commercial finance rather than consumer credit).
Under the California Commercial Financing Disclosures Law (CFDL), companies are required to disclose various financing terms, including the “total dollar cost of the financing” and the “total cost of the financing expressed as an annualized rate.” Bonta explained that the CFDL only applies to commercial financing arrangements (and not to consumer credit transactions) and “was enacted in 2018 to help small businesses navigate a complicated commercial financing market by mandating uniform disclosures of certain credit terms in a manner similar to TILA’s requirements, but for commercial transactions that are unregulated by TILA.” He pointed out that disclosures required under the CFDL do not conflict with those required by TILA, and emphasized that there is no material difference between the disclosures required by the two statutes, even if TILA were to apply to commercial financing. According to Bonta, should TILA preempt the CFDL’s disclosure requirements, there would be no required disclosures at all for commercial credit in the state, which would make it challenging for small businesses to make informed choices about commercial financing arrangements.
While Bonta agreed with the Bureau’s determination that TILA does not preempt the CFDL, he urged the Bureau to “articulate a narrower standard that emphasizes that preemption should be limited to situations where it is impossible to comply with both TILA and the state law or where the state law stands as an obstacle to the full purposes [of] TILA, which is to provide consumers with full and meaningful disclosure of credit terms in consumer credit transactions.” He added that the Bureau “should also reemphasize certain principles from prior [Federal Reserve Board] decisions, including that state laws are preempted only to the extent of actual conflict and that state laws requiring additional disclosures—or disclosures in transactions not addressed by TILA—are not preempted.”
On January 23, NYDFS reiterated expectations for sound custody and disclosure practices for entities that are licensed or chartered to custody or temporarily hold, store, or maintain virtual currency assets on behalf of customers (virtual currency entities or “VCEs”). NYDFS explained that under the state’s virtual currency regulation (23 NYCRR Part 200), VCEs operating under the BitLicense and Limited Purpose Trust Charter are required to, among other things, “hold virtual currency in a manner that protects customer assets; maintain comprehensive books and records; properly disclose the material terms and conditions associated with their products and services, including custody services; and refrain from making any false, misleading or deceptive representations or omissions in their marketing materials.”
The regulatory guidance on insolvency clarifies standards and practices intended to ensure that VCEs are providing high levels of customer protection with respect to licensed asset custody. Specifically, the guidance addresses customer protection concerns regarding:
- The segregation of and separate accounting for customer virtual currency. VCEs “should separately account for, and segregate a customer’s virtual currency from, the corporate assets of the VCE Custodian and its affiliated entities, both on-chain and on the VCE Custodian’s internal ledger accounts.”
- VCEs limited interest in and use of customer virtual currency. VCEs that take possession of a customer’s assets should do so “only for the limited purpose of carrying out custody and safekeeping services” and must not “establish a debtor-creditor relationship with the customer.”
- Sub-custody arrangements. VCEs may choose, after conducting appropriate due diligence, to safekeep a customer’s virtual currency through a third-party sub-custody arrangement provided the arrangement is consistent with regulatory guidance and approved by NYDFS.
- Customer disclosures. VCEs are “expected to clearly disclose to each customer the general terms and conditions associated with its products, services and activities, including how the VCE Custodian segregates and accounts for the virtual currency held in custody, as well as the customer's retained property interest in the virtual currency.” Additionally, a customer agreement should be transparent about the parties’ intentions to enter into a custodial relationship as opposed to a debtor-creditor relationship.
On January 23, the FCC announced that July 20 is the compliance date for amended telephone consumer protection act rules on prerecorded calls. As previously covered by InfoBytes, President Trump signed S. 151, the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act), which granted the FCC authority to promulgate rules to combat illegal robocalls and requires voice service providers to develop call authentication technologies. On December 30, 2020, the Commission released the TCPA Exemptions Order to implement section 8 of the TRACED Act. In that rulemaking, the Commission amended the TCPA rules related to exemptions for non-commercial calls to residential numbers and commercial calls to residential numbers that do not include an advertisement or constitute telemarketing, among other things. Specifically, the Commission adopted numerical limits on exempted artificial or prerecorded voice calls to residential lines and also required callers making such exempt calls to allow consumers to opt out of any future calls that they do not wish to receive. The Commission explained in the TCPA Exemptions Order that it would publish in the Federal Register a compliance date for the amended rules, which would be six months after publication.
Recently, HUD announced plans to publish a notice of proposed rulemaking (NPRM) entitled “Affirmatively Furthering Fair Housing” (AFFH). The new rule will update a 2015 final rule that was intended to implement the Fair Housing Act’s statutory mandate that HUD ensure that recipients of its funding work to further fair housing, which was repealed by the Trump administration. In 2021, the Biden administration published an interim final rule to restore certain definitions and certifications to its regulations implementing the Fair Housing Act’s requirement to affirmatively further fair housing (covered by InfoBytes here). “This proposed rule is a major step towards fulfilling the law’s full promise and advancing our legal, ethical, and moral charge to provide equitable access to opportunity for all,” HUD Secretary Marcia L. Fudge said in an announcement.
The NPRM incorporates much of the 2015 AFFH rule and will streamline the required fair housing analysis for states, local communities, and public housing agencies. Program participants would be required to ensure protected classes have equitable access to affordable housing opportunities, by, for example, submitting an equity plan to HUD every five years. HUD-accepted equity plan analysis, goals, and strategies would then be incorporated into program participants’ subsequent planning documents. Program participants would also be required to conduct and submit annual progress evaluations. Both the equity plans and annual progress evaluations would be made available online.
HUD further explained that the NPRM is intended to simplify required fair housing analysis, increase transparency for public review and comment, improve compliance oversight, provide a process for regular progress evaluations, and enhance accountability, among other things. Comments on the NPRM are due 60 days after publication in the Federal Register. HUD’s quick reference guide provides additional information.
On January 18, the CFPB released an updated version of its Mortgage Servicing Examination Procedures, detailing the types of information examiners should gather when assessing whether servicers are complying with applicable laws and identifying consumer risks. The examination procedures, which were last updated in June 2016, cover forbearances and other tools, including streamlined loss mitigation options that mortgage servicers have used for consumers impacted by the Covid-19 pandemic. The Bureau noted in its announcement that “as long as these streamlined loss mitigation options are made available to borrowers experiencing hardship due to the COVID-19 national emergency, those same streamlined options can also be made available under the temporary flexibilities in the [agency’s pandemic-related mortgage servicing rules] to borrowers not experiencing COVID-19-related hardships.” Servicers are expected to continue to use all the tools at their disposal, including, when available, streamlined deferrals and modifications that meet the conditions of these pandemic-related mortgage servicing rules as they attempt to keep consumers in their homes. The Bureau said the updated examination procedures also incorporate focus areas from the agency’s Supervisory Highlights findings related to, among other things, (i) fees such as phone pay fees that servicers charge borrowers; and (ii) servicer misrepresentations concerning foreclosure options. Also included in the updated examination procedures are a list of bulletins, guidance, and temporary regulatory changes for examiners to consult as they assess servicers’ compliance with federal consumer financial laws. Examiners are also advised to request information on how servicers are communicating with borrowers about homeowner assistance programs, which can help consumers avoid foreclosure, provided mortgage servicers collaborate with state housing finance agencies and HUD-approved housing counselors to aid borrowers during the HAF application process.
On January 17, Assistant Attorney General Kenneth A. Polite, Jr. delivered remarks at Georgetown University Law Center, during which he announced changes to the DOJ’s Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy. Polite provided background information on the DOJ Criminal Division’s voluntary self-disclosure incentive program, the FCPA Pilot Program, that was announced in 2016 and expanded in 2017 to become the FCPA Corporate Enforcement Policy (covered by InfoBytes here). This policy, Pilot said, has been applied to all corporate cases prosecuted by the Criminal Division since at least 2018, and provided, among other things, that “if a company voluntarily self-discloses, fully cooperates, and timely and appropriately remediates, there is a presumption that [the DOJ] will decline to prosecute absent certain aggravating circumstances involving the seriousness of the offense or the nature of the offender.” The policy also provided a maximum 50 percent reduction off the low end of the applicable sentencing guidelines penalty range to companies that self-disclosed violations where a criminal resolution is warranted. Last year, following a request by the Deputy Attorney General to have all DOJ components write voluntary self-disclosure policies, the Criminal Division conducted an assessment of its existing policy. Pilot said the division is now announcing the first significant changes to the policy since 2017.
Under the updated policy, companies are offered “new, significant and concrete incentives to self-disclose misconduct,” Polite said, explaining that “even in situations where companies do not self-disclose, the revisions to the policy provide incentives for companies to go far above and beyond the bare minimum when they cooperate with [DOJ] investigations.” He emphasized that the revisions clarify that companies will face very different outcomes if they do not self-disclose, meaningfully cooperate with investigations, or remediate. However, the revisions provide a path that incentivizes even more robust compliance on the front-end in order to prevent misconduct and requires even more robust cooperation and remediation on the back-end should a crime occur.
Polite stated that prosecutors might decline to bring charges against a company over crimes with aggravating factors if the company can demonstrate that it: (i) made voluntary disclosures immediately upon becoming aware of an allegation of misconduct; (ii) had an effective compliance program already in place at the time of the misconduct that allowed it to identify the misconduct and led it to voluntarily self-disclose; and (iii) provided exceptional cooperation and extraordinary remediation. Should a company fail to take these steps, it risks “increasing its criminal exposure and monetary penalties,” Polite warned, emphasizing that the DOJ’s “job is not just to prosecute crime, but to deter and prevent criminal conduct.” He added that the DOJ will recommend a reduction in fines of at least 50 percent and up to 75 percent (except in the case of a criminal recidivist) for companies that voluntarily report wrongdoing and fully cooperate with investigations. Even companies that do not voluntarily disclose wrongdoing but still fully cooperate with an investigation and timely and appropriately remediate could still receive a 50 percent reduction off the low end of the guidelines for fines, Polite said. “The policy is sending an undeniable message: come forward, cooperate, and remediate. We are going to be closely examining how companies discipline bad actors and reward the good ones.”
On January 17, the Financial Crimes Enforcement Network (FinCEN) published two notices and requests for comment in the Federal Register related to the reporting process the agency intends to use to collect beneficial ownership data pursuant to the Beneficial Ownership Information Reporting Requirements final rule (published last September and covered by InfoBytes here). Under the final rule, most corporations, limited liability companies, and other entities created in or registered to do business in the U.S. will be required to report information about their beneficial owners to FinCEN. The first notice and request for comments invites interested parties to provide feedback on the application that will be used to collect information from individuals who seek to obtain an optional FinCEN identifier. The second notice and request for comments requests feedback on a report that certain entities will be required to file with FinCEN. The electronically filed report will identify the reporting entity’s beneficial owners, and—in certain cases—the individual who “directly filed the document with specified governmental authorities that created the entity or registered it to do business, as well as the individual who was primarily responsible for directing or controlling such filing, if more than one individual was involved in the filing of the document.” Comments on both notices are due by March 20.
On January 12, FHFA released an advisory bulletin communicating supervisory expectations for Fannie Mae and Freddie Mac (the Enterprises) related to the valuation of mortgage servicing rights (MSRs) for managing counterparty credit risk. FHFA emphasized that Fannie and Freddie’s “risk management policies and procedures should be commensurate with an Enterprise’s risk appetite and based on an assessment of seller/servicer financial strength and MSR risk exposure levels.” FHFA relayed that while sellers and servicers assign values to their MSRs, the Enterprises should implement their own processes to evaluate the reasonableness of seller/servicer MSR values. FHFA explained that Fannie and Freddie are “exposed to counterparty credit risk when seller/servicers provide representations and warranties that mortgage loans conform with its selling guide requirements,” and reiterated that “[f]ailure to meet such obligations and commitments may cause the Enterprise to incur credit losses and operational costs.”
The advisory bulletin lays out risk management expectations to ensure MSR values are reasonable, objective, and transparent, and provides guidance covering several areas, including (i) objective evaluation of MSR values; (ii) MSR valuations for mortgage loans owned or guaranteed by Fannie and Freddie as well as stress testing; (iii) MSR valuations for mortgage loans not owned or guaranteed by Fannie or Freddie; (iv) market data input; (v) use of third-party providers; (vi) frequency of evaluations; and (vii) discount to MSR values when servicing rights are terminated. The advisory bulletin is applicable only to MSRs for single-family mortgage loans and is effective April 1.
On January 12, HUD Secretary Marcia L. Fudge announced at a Brookings Institute event that HUD is creating a process that people seeking FHA financing can use to request a review of their appraisal if they believe the results may have been affected by racial bias. According to the announcement, under the reconsideration of value (ROV) proposal, lenders will have clear guidance on how to review requests from borrowers for an ROV for the appraisal conducted in conjunction with their application for FHA-insured mortgage financing. The proposal also provides guidance for obtaining a second appraisal when material deficiencies are documented, and the appraiser is unwilling to resolve them. Fudge noted that the proposal “represents the first step to solidify the processes that lenders must follow when a borrower requests a [ROV] review if concerns arise around unlawful discrimination in residential property valuations.” Fudge also noted that the proposal supports the Biden-Harris administration’s PAVE Action Plan commitments and the continued work of the Interagency Task Force. As previously covered by InfoBytes, in March 2022, HUD delivered the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) Action Plan to President Biden. PAVE focuses 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.”