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On December 3, the Federal Reserve, the CFPB, the FDIC, the NCUA, and the OCC (agencies) issued an Interagency Statement on alternative data use in credit underwriting, highlighting applicable consumer protection laws and noting risks and benefits. (See press release here). According to the statement, alternative data use in underwriting may “lower the cost of credit” and expand credit access, a point previously raised by the CFPB and covered in InfoBytes. Specifically, the potential benefits include: (i) increased “speed and accuracy of credit decisions”; (ii) lender ability to “evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system”; and (iii) consumer ability “to obtain additional products and/or more favorable pricing/terms based on enhanced assessments of repayment capacity.” “Alternative data” refers to information not usually found in traditional credit reports or typically provided by customers, including for example, automated “cash flow evaluation” which evaluates a borrower’s capacity to meet payment obligations and is derived from a consumer’s bank account records. The statement indicates that this approach can improve the “measurement of income and expenses” of consumers with steady income over time from multiple sources, rather than a single job. The statement also recognizes that the way in which entities use alternative data—for example, implementing a “Second Look” program, where alternative data is only used for applicants that would otherwise be denied credit—can increase credit access. The statement points out that use of alternative data may increase potential risks, and that those practices must comply with applicable consumer protection laws, including “fair lending laws, prohibitions against unfair, deceptive, or abusive acts or practices, and the Fair Credit Reporting Act.” Therefore, the agencies encourage entities to incorporate appropriate “robust compliance management” when using alternative data in order to protect consumer information.
On December 3, the CFPB issued a Notice of Proposed Rulemaking (NPRM) relating to the Remittance Transfer Rule (Rule), which implements the Electronic Fund Transfer Act’s (EFTA) protections for consumers sending international money transfers, or remittance transfers. The NPRM makes three proposals. First, the Bureau proposes to increase the Rule’s safe harbor threshold, mitigating compliance costs for financial institutions. The EFTA and the Rule consider a “remittance transfer provider” to include “any person that provides remittance transfers for a customer in the normal course of business.” However, the Rule currently includes a “safe harbor” provision that excludes persons that process 100 or fewer remittance transfers annually. The NPRM proposes increasing this threshold from 100 to 500 international remittance transfers per year. According to the Bureau’s announcement, the change would “reduce the burden on over 400 banks and almost 250 credit unions that send a relatively small number of remittances—less than .06 percent of all remittances.”
Second, the NPRM proposes adopting two permanent exceptions. The first is a permanent statutory exception that would allow certain insured institutions to estimate exchange rates and money transfer fees they are required to disclose, rather than provide consumers with exact costs when they send money abroad. Such an exemption would only apply in instances where a remittance payment is made in the local currency of the designated recipient’s country and the insured institution processing the transaction made 1,000 or fewer remittance payments to that country in the previous calendar year. An identical exemption provision is currently set to expire July 21, 2020. (Previous InfoBytes coverage here.) The NPRM proposes adopting a second permanent exception to allow insured institutions to estimate covered third-party fees for remittance transfers to a recipient’s institution provided, among other things, the insured institution made 500 or fewer remittance transfers to the recipient’s institution the prior calendar year.
Third, the NPRM requests comments on a list of safe harbor countries for which providers may use estimates for remittance transfers.
Comments must be received 45 days after publication in the Federal Register. In conjunction with the NPRM, the Bureau also released a summary of the NPRM, a table of contents, and an unofficial redline of the proposed amendments to the Rule.
On November 22, in a speech at The Clearing House + Bank Policy Institute Annual Conference, CFPB Director Kathy Kraninger noted that the Bureau is considering changes to its consent order process to “ensur[e] consent orders remain in effect only as long as needed to achieve their desired effects.” Specifically, Kraninger discussed that while most consent orders are effective for five-year periods and companies can request early termination or termination of indefinite orders, the Bureau has only terminated “a few” consent orders in the past. Similar to the Bureau’s recent changes to its Civil Investigative Demand (CID) policy (covered by InfoBytes here), Kraninger stated that the Bureau intends to announce an updated consent order policy “soon,” in order to “provide clarity and consistency.”
On November 25, Senators Elizabeth Warren (D-Mass) and Sherrod Brown (D-Ohio) wrote to CFPB Director Kathy Kraninger requesting a breakdown of how the Bureau enforces fair lending laws in light of recent allegations brought against a global financial services company that reportedly offered lower credit limits to women than to similarly creditworthy men. According to the Senators, the allegations raise questions as to whether a pattern of sex discrimination exists in the underwriting of the credit product and “underscore the importance of the CFPB adequately monitoring the lending practices of financial institutions . . . that are new to the consumer lending space.” The Senators also expressed concern that adjustments to the structure of the Bureau under President Trump’s administration have affected its “commitment to enforcing fair lending laws and carrying out its statutory responsibilities.” (Previous InfoBytes coverage here.) The Senators stated: “We’re concerned that this new structure, where many offices have varying degrees of authority, may allow new potentially discriminatory products to get to market without adequate oversight.” Specifically, the Senators asked the Bureau to respond to the following questions by December 9: (i) how does the Bureau “prioritize and evaluate risk when determining which financial institutions to examine for compliance with fair lending laws”; (ii) has the Bureau ever conducted a supervisory examination of the global financial services company’s fair lending compliance management system; (iii) have changes made to the Bureau’s structure affected its fair lending enforcement abilities; and (iv) are the Bureau’s standards used to determine violations of ECOA different under Director Kraninger.
On November 25, the CFPB announced a settlement with two companies that originated and serviced travel-related loans for military servicemembers and their families. According to the consent order with the lender and its principal, the lender (i) charged fees to customers who obtained financing, at a higher rate than those customers who paid in full, but failed to include the fee in the finance charge or APR; (ii) falsely quoted low monthly interest rates to customers over the phone; and (iii) failed to provide the required information about the terms of credit and the total of payments in violation of TILA and the TSR. The consent order prohibits future lending targeted to military consumers and requires the lender and its principal to pay a civil money penalty of $1. The order also imposes a suspended judgment of almost $3.5 million, based on an inability to pay.
In its consent order against the servicer, the Bureau asserts the servicer engaged in deceptive practices by overcharging servicemembers for debt-cancellation products and, in violation of the FCRA’s implementing Regulation V, never established or maintained written policies and procedures regarding the accuracy of information furnished to credit reporting agencies. The consent order issues injunctive relief and requires the servicer to (i) pay a $25,000 civil money penalty; (ii) provide redress to consumers who were allegedly overcharged for the debt-cancellation product; (iii) pay over $54,000 in restitution to borrowers with no outstanding balance on their loans and issue additional account credits to borrowers with outstanding balances; and (iv) establish reasonable policies and procedures for accurate reporting to consumer reporting agencies.
On November 22, the CFPB released a new Data Point report from the Office of Research titled “Borrower Experiences on Income-Driven Repayment,” which examines, among other things, the types of student loan borrowers who participate in income-driven repayment (IDR) plans, the evolution of borrower delinquencies, and borrower experiences with enrollment recertification processes. According to the Bureau, while student loans are currently the largest non-mortgage form of debt held by U.S. consumers, “there remains limited evidence of how this growing debt burden affects the use of other financial products and services.” Key findings of the report include:
- Delinquencies decreased 19 to 26 percent after one year into IDR enrollment for borrowers who received partial payment relief as compared to the quarter before enrollment, and the share of borrowers actively in repayment on their loans was 27 percent higher at the end of the first year of being enrolled in IDR than prior to entering IDR.
- Delinquent borrowers who enrolled in IDR showed a 17 percent reduction in their delinquencies on other credit products, however, the Bureau noted that “one in five such borrowers were still behind on their payments on these other credit products one year later, reflecting persistent financial struggles for some borrowers.”
- Roughly two-thirds of borrowers who recertified their IDR enrollment for a second year did so either immediately or within two months after the initial IDR period ended, with an additional 12 percent entering forbearance or deferment. The Bureau stated that borrowers who do not recertify on time after their first year may face persistent difficulties, and reported that delinquencies more than tripled for these borrowers.
- More than 80 percent of borrowers enrolled in IDR “sought out prolonged payment relief beyond a single year.”
According to the Bureau, the data “helps the Bureau and other researchers and policymakers understand how consumers repay their student loans and how that behavior affects their use of other financial products.”
On November 22, the CFPB announced a settlement with an employment background screening company resolving allegations that the company violated the FCRA. In the complaint, the Bureau asserts that the company failed to “employ reasonable procedures to assure maximum possible accuracy” in the consumer reports it prepared. Specifically, the Bureau claims that until October 2014, the company matched criminal records with applicants based on only two personal identifiers, which created a “heightened risk of false positives” in commonly named individuals. The company also had a practice of including “high-risk indicators,” sourced from a third party, in its consumer reports and did not follow procedures to verify the accuracy of the designations. Additionally, the Bureau asserts that the company failed to maintain procedures to ensure that adverse public record information was complete and up to date, resulting in reporting outdated adverse information in violation of the FCRA. Under the stipulated judgment, in addition to injunctive relief, the company will be required to pay $6 million in monetary relief to affected consumers and a $2.5 million civil money penalty.
On November 27, the CFPB announced that the ceiling on the maximum allowable charge for disclosures by a consumer reporting agency to a consumer pursuant to section 609 of the FCRA will remain unchanged at $12.50 for the 2020 calendar year. The final rule announcing the amount was published the same day in the Federal Register.
On November 21, the CFPB released a new Data Point report from the Office of Research titled, “Servicer Size in the Mortgage Market,” which examines the differences between large and small mortgage servicers in the mortgage market. The report considers mortgage servicers in three size categories, (i) “small servicers” that service 5,000 or fewer loans; (ii) “mid-sized servicers” that service between 5,000 and 30,000 loans; and (iii) “large servicers” that service more than 30,000 loans.” Key findings of the report include:
- Only five percent of loans at small servicers are insured by FHA or guaranteed by the VA, the Farm Service Agency, or the Rural Housing Service, whereas such loans account for about 25 percent of loans at mid-sized and large servicers.
- Less than one-third of conventional loans are serviced on behalf of Fannie Mae or Freddie Mac at small servicers, whereas at large servicers, over 75 percent of conventional loans are serviced for Fannie Mae or Freddie Mac.
- Small servicers service the majority of loans in a number of rural counties in the U.S., particularly in the Midwest.
- From 2012 to 2018, delinquency rates of loans at large and small servicers generally converged, as compared to mortgage crisis levels when delinquency rates for loans serviced by small services were much lower than at mid-sized and large servicers.
- In response to a survey, 74 percent of borrowers with mortgages at small servicers said having a branch or office nearby was important, compared to 44 percent of borrowers with mortgages at large servicers.
On November 20, the Office of Information and Regulatory Affairs released the CFPB’s fall 2019 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters it “reasonably anticipates having under consideration during the period from October 1, 2019, to September 30, 2020.”
Key rulemaking initiatives include:
- Property Assessed Clean Energy (PACE) Financing: As previously covered by InfoBytes, the Bureau published an Advanced Notice of Proposed Rulemaking (ANPR) in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA. The Bureau notes it is currently reviewing comments as it considers next steps.
- Small Business Rulemaking: On November 6, the Bureau held a symposium on small business lending to gather information for upcoming rulemaking (previously covered by InfoBytes here). The Bureau emphasized it will focus on rulemaking that would not impede small business access to credit by imposing unnecessary costs on financial institutions. According to the Bureau, materials will be released prior to convening a panel under the Small Business Regulatory Enforcement Fairness Act to consult with businesses that may be affected by future rulemaking.
- HMDA/Regulation C: The Bureau plans to finalize the permanent thresholds for reporting data on open-end lines of credit and closed-end mortgage loans in March 2020, and expects to issue a Notice of Proposed Rulemaking (NPRM) to govern the collection of HMDA data points and the disclosure of this data in July 2020. Both initiatives follow an NPRM and an ANPR issued by the Bureau in May (previously covered by InfoBytes here).
- Payday, Vehicle Title, and Certain High-Cost Installment Loans: As previously covered by InfoBytes, the Bureau published two NPRMs related to certain payday lending requirements under the final rule titled “Payday, Vehicle Title, and Certain High-Cost Installment Loans.” Specifically, the Bureau proposed to rescind the portion of the rule that would make it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay, and to delay the rule’s compliance date for mandatory underwriting provisions. The Bureau notes it is currently reviewing comments and expects to issue a final rule in April 2020.
- Debt Collection: Following an NPRM issued in May concerning debt collection communications, disclosures, and related practices (previously covered by InfoBytes here), the Bureau states it is currently “engaged in testing of consumer disclosures related to time-barred debt disclosure issues that were not addressed in the May 2019 proposal.” Once testing has concluded, the Bureau will assess the need for publishing a supplemental NPRM related to time-barred debt disclosures.
- Remittance Transfers: The Bureau expects in December to issue a proposed rule to address the July 2020 expiration of the Remittance Rule’s temporary exception for certain insured depository institutions from the rule’s disclosure requirements related to the estimation of fees and exchange rates. (Previously covered by InfoBytes here.)
- GSE Patch: The Bureau plans to address in December the so-called GSE patch, which confers Qualified Mortgage status for loans purchased or guaranteed by Fannie Mae and Freddie Mac while those entities operate under FHFA conservatorship. The patch is set to expire in January 2021, or when Fannie and Freddie exit their conservatorships, whichever comes first. (See Buckley Special Alert here.)
The Bureau further notes in its announcement the addition of entries to its long-term regulatory agenda “to address issues of concern in connection with loan originator compensation and to facilitate the use of electronic channels of communication in the origination and servicing of credit card accounts.”
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