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On July 27, the OCC appointed Darrin Benhart as its Climate Change Risk Officer and announced its membership in the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). OCC’s membership in NGFS will allow the agency to collaborate with central banks and peer supervisors, share best practices, and contribute to the development of climate risk management in the financial sector. The appointment of Benhart to the newly created position “will significantly expand the agency’s capacity to collaborate with stakeholders and to promote improvements in climate change risk management at banks,” acting Comptroller Michael J. Hsu stated, adding that Benhart “brings a wealth of supervisory, policy, and leadership experience to the role.” Hsu emphasized that “[p]rudently managing climate change risk is a safety and a soundness issue,” noting that these changes “will enable the agency to be more proactive in accelerating the development and adoption of robust climate change risk management practices, especially at the larger banks.”
On July 23, President Biden announced additional actions taken by HUD, the VA, and USDA, which are intended to ensure stable and equitable recovery from disruptions caused by the Covid-19 pandemic and prepare homeowners to exit mortgage forbearance. According to the Biden administration, the goal of these new measures is to bring homeowners with HUD-, VA-, and USDA-backed mortgages closer in alignment with options provided for homeowners with Fannie Mae- and Freddie Mac-backed mortgages (covered by InfoBytes here). Specifically, mortgage servicers will be required or encouraged to offer new payment reduction offers to assist borrowers.
- HUD. FHA announced enhanced Covid-19 recovery loss mitigation options to help homeowners with FHA-insured mortgages who have been financially impacted by the pandemic. Mortgagee Letter (ML) 2021-18 supersedes previously issued FHA-loss mitigation options, and will, among other things, require mortgage servicers to offer a zero-interest subordinate lien option to eligible homeowners who can resume their existing mortgage payments under the “COVID-19 Recovery Standalone Partial Claim” option. For borrowers that are unable to resume their monthly mortgage payments, FHA established the “COVID-19 Recovery Modification” option, which extends the term of a mortgage to 360 months at market rate and targets a 25 percent principal and interest (P&I) reduction for all eligible borrowers. Servicers may start offering the options as soon as operationally feasible but must begin using the new options within 90 days. These additional options supplement FHA Covid-19 protections published last June (covered by InfoBytes here), which extended the foreclosure and eviction moratorium, expanded the Covid-19 forbearance and home equity conversion mortgage extension, and established the Covid-19 advance loan modification.
- VA. The VA also announced it will offer a new “COVID-19 Refund Modification” option to assist veterans impacted by the pandemic who need a significant reduction in their monthly mortgage payments. Under the plan, the VA will be able to purchase a veteran’s past-due payments and unpaid principal—subject to certain limits—“depending on how much assistance is necessary,” and, in certain circumstances, veterans will be able to receive a 20 percent payment reduction (certain borrowers may be eligible to receive a larger reduction). Mortgage servicers will modify the loan to ensure veterans can afford future mortgage payments. Similar to the VA’s “COVID–19 Veterans Assistance Partial Claim Payment” (covered by InfoBytes here), the deferred indebtedness will be established as a junior lien, which will not accrue interest, will not require monthly payments, and will only become due once the property is sold or the guaranteed loan is paid off or refinanced. The option is available through September 30, 2021.
- USDA. The agency announced new Covid-19 special relief measures, as well as clarifications to existing policies, for servicing borrowers impacted by the pandemic. USDA noted that Chapter 18 Section 5 of Handbook-1-3555 will be expanded to include “COVID-19 Special Relief Alternatives,” which includes an option that targets a 20 percent reduction in a borrower’s monthly P&I payments and offers “a combination of interest rate reduction, term extension and mortgage recovery advance.” These measures are immediately available and will be effective through December 31, 2022. Eligible borrowers must occupy the property, must not be more than 120 days past due on March 1, 2020, and must have received an initial forbearance due to a pandemic-related hardship before September 30, 2021.
On July 27, the CFPB published a special issue brief finding that consumer applications for auto loans, new mortgages, and revolving credit cards had, for the most part, returned to pre-pandemic levels by May 2021. The brief compares the number of applications made in these categories before the pandemic to the number being made now and provides a state-by-state analysis of the change in applications. Highlights of the brief include: (i) sub-prime borrower credit applications increased in conjunction with federal stimulus payments; (ii) auto loan inquiries dropped 52 percent by the end of March 2020 but returned to their usual pre-pandemic trend by January 2021; however, the Bureau reports wide geographic variability in the demand for auto loans while changes in credit card applications were generally uniform; (iii) new mortgage credit inquiries experienced a smaller drop in March 2020 compared to other credit types but later saw a surge, with inquiries exceeding the usual, seasonally adjusted volume by 10 to 30 percent—a reflection of unusually high activity seen throughout the pandemic; (iv) revolving credit card inquiries declined by over 40 percent and took the longest to rebound, not returning to normal levels until March 2021; and (v) consumers with deep subprime credit scores represented the largest decline in auto loan inquiries compared to prior years, followed by inquiries from consumers with subprime credit scores, with both categories of consumers also showing declines in new mortgage and revolving credit card inquiries. “While consumer credit applications have generally recovered to pre-pandemic levels in the aggregate, we see important differences across consumers,” acting CFPB Director David Uejio stated. “Both borrowers with superprime and subprime credit scores are still not applying for credit as much as they were pre-pandemic. We will continue to keep a close watch on the marketplace as the economic recovery continues, to help ensure all consumers have access to financial products and services that are fair, transparent, and competitive.”
On July 23, the FDIC issued FIL-52-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Michigan affected by severe storms, flooding, and tornadoes. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, 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 further stated that it will also consider regulatory relief from certain filing and publishing requirements.
On July 21, the CFPB marked its 10 year anniversary. Prepared remarks published by acting Director Dave Uejio highlighted Bureau activities taken over the past decade in consumer empowerment and racial equity, as well as recent actions in response to the Covid-19 pandemic. With respect to enforcement, Uejio noted that since 2011, the Bureau’s work has led to approximately $14.4 billion in consumer relief and $1.7 billion in civil penalties. According to a Bureau blog post, during this time period more than 183 million consumers and consumer accounts have received economic redress and consumers have filed more than 3 million complaints. Additionally, over 7 million consumers have accessed the Bureau’s Covid-19 educational materials. “In the decade to come, we will continue to use all the tools at our disposal to empower American consumers and work to ensure the financial markets they interact with are fair, transparent, and competitive,” Uejio wrote.
Recently, the Federal Reserve Board and the OCC issued reports pursuant to Section 367 of the Dodd-Frank Act generally detailing the health of Minority Depository Institutions (MDIs) and the agencies’ efforts taken to assist MDIs as the Covid-19 pandemic disproportionately affected low- and moderate-income communities and racial and ethnic minorities. The Fed’s report, “Promoting Minority Depository Institutions,” discussed, among other things, extra steps taken by the agency to support and assist MDIs over the past year, which included conducting individualized outreach on several topics like how to access the discount window and the Paycheck Protection Program Liquidity Facility (covered by InfoBytes here and here). The report also examined efforts taken by the Fed to preserve and promote MDIs through its Partnership for Progress program—“a national outreach effort to help MDIs confront unique business-model challenges, cultivate safe banking practices, and compete more effectively in the marketplace”—and covered the Fed’s unanimous approval last September to approve an Advance Notice of Proposed Rulemaking on modernizing the Community Reinvestment Act (covered by InfoBytes here).
The OCC outlined actions taken to preserve and promote MDIs in its “2020 Annual Report,” including the launch of the Roundtable for Economic Access and Change known as Project REACh (covered by InfoBytes here). OCC subject matter experts also provided regulatory technical assistance to MDIs on topics including safety and soundness, cybersecurity, compliance with Bank Secrecy Act/anti-money laundering requirements, and current expected credit loss accounting methodology, among others. The OCC also noted that despite a seven-basis-points drop on the average return on assets for MDIs through the pandemic, the health of those institutions “remained satisfactory.”
On July 16, the FTC announced a $1.6 million settlement with a New Jersey-based septic tank cleaning company, its officers, and an individual connected to the officers (collectively, “defendants”) for allegedly making illegal robocalls to consumers, including tens of millions of calls to numbers listed on the FTC’s Do Not Call Registry. The complaint, which was filed on behalf of the FTC by the DOJ in July, alleged that the defendants violated the FTC Act and the Telemarketing Sales Rule, among other things, by engaging in illegal telemarketing practices, including the use of prerecorded messages. The defendants allegedly falsely told consumers they were calling from an unnamed “environmental company” to provide consumers with “free info” regarding their septic tank cleaning products. In addition, the defendants allegedly sent letters to customers “threatening to direct their purportedly delinquent accounts to a collection agency or legal department even though [the company] never intended to send customer accounts to either a collections agency or legal department.” Under the terms of the stipulated final order, the defendants are, among other things: (i) permanently banned from engaging in telemarketing; (ii) prohibited from making misrepresentations to consumers regarding referrals to attorneys or collection agencies or material facts concerning goods or services; (iii) prohibited from billing or attempting to collect payments from any consumers connected to the sale of their septic tank cleaning products; and (vi) required to notify all customers with unpaid balances that their balances have been cancelled. A $10.2 million monetary judgment will be partially suspended after the officers pay approximately $1.6 million and the individual pays $15,000 to the U.S. Treasury.
On July 15, the OCC marked the one-year anniversary of Project REACh, an initiative launched by the agency last year to promote greater financial inclusion of underserved populations. As previously covered by InfoBytes, Project REACh (Roundtable for Economic Access and Change) brings together leaders from the banking industry, national civil rights organizations, and various businesses and technology organizations to identify and reduce barriers to accessing capital and credit. While the project’s scope in its first year included a national workstream and a regional effort centered on Los Angeles, acting Comptroller Michael Hsu announced that Project REACh will soon expand its regional focus to Washington, D.C., Dallas, and Detroit in order “to replicate the success of the project’s national workstream.” In prepared remarks, Hsu emphasized that addressing economic inequality needs to be “transformational, not transactional,” pointing out that “the financial system can perpetuate inequality” as “traditional credit scores, traditional overdraft practices, and predatory lending make it expensive to be poor, while wealthy clients can borrow and access a wide range of financial services at lower cost.” Hsu explained that Project REACh’s structure and approach allows for collaborative problem identification and problem solving and creates opportunities for business and community representatives to incubate ideas and pilots “that can later be implemented on a broader scale than possible by any one institution.”
On July 14, the FTC announced an $18 million settlement with a financial services company (defendant) over allegations that it deceived consumers. The FTC originally filed a complaint in 2018 claiming, among other things, that the defendant violated the FTC Act, the Privacy of Consumer Financial Information Rule, and the Gramm-Leach-Bliley Act, by falsely advertising loans with “no hidden fees” and misleading consumers with respect to whether their loan applications had been approved. The complaint also alleged that the defendant withdrew double payments from consumers’ accounts and continued to charge consumers who cancelled automatic payments or paid off their loan, leading to overdraft fees and preventing borrowers from making other payments. Under the terms of the stipulated final order, the defendant is permanently barred from (i) misrepresenting fee amounts, the status of an application, and other material facts concerning any extension of credit; and (ii) making any representation about a specific loan amount prior to accepting a loan application, without clear and conspicuous disclosure of the dollar amount of any prepaid, up-front, or origination fee or the total amount of funds that would be disbursed to the consumer.
On July 15, the SBA issued Procedural Notice 5000-812316 to remind lenders of their servicing responsibilities and provide guidance on the agency’s guaranty purchase process for Paycheck Protection Program (PPP) first-draw and second-draw loans. Lenders may submit requests for SBA to purchase and charge off PPP loans in instances where a borrower (i) is past due 60 days or more on scheduled loan payments where the default has not been cured; (ii) has permanently closed and does not intend to submit a forgiveness application; (iii); has filed for bankruptcy; or (iv) is deceased in the case of self-employed individuals, sole proprietors, single-member LLCs, or independent contractors. In circumstances where a borrower or any owner of 20 percent or more of the borrower has been indicted for, or convicted of, a felony related to a PPP loan, or in a case where a borrower has appealed an SBA loan review decision, the lender may request guaranty purchase without charge-off from SBA. Additionally, SBA outlines procedures for lenders when a borrower submits a forgiveness application after the lender has submitted a request to SBA for guaranty purchase. Guidelines for submitting guaranty purchase and charge-off requests are provided in the procedural notice.
- Jeffrey P. Naimon to provide “Fair lending update” at the Colorado Mortgage Lenders Association Operational and Compliance Forum
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- APPROVED Webcast: Strategy & Technology: A dynamic duo for successful regulatory exams
- Jonice Gray Tucker to discuss "Fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss “State law regulatory and enforcement trends” at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute