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On June 10, HUD published an interim final rule (IFR) to restore certain definitions and certifications to its regulations implementing the Fair Housing Act’s requirement to affirmatively further fair housing (AFFH). The IFR also reinstates a process where HUD will provide technical assistance and other support to funding recipients engaged in fair housing planning. The IFR essentially repeals HUD’s 2020 final rule (covered by a Buckley Special Alert), which was intended to align its disparate impact regulation, adopted in 2013, with the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. As previously covered by InfoBytes, earlier in January, President Biden directed HUD to examine the effects of the final rule while emphasizing that HUD has a “statutory duty to ensure compliance with the Fair Housing Act,” and on April 12, the Office of Management and Budget posted notices (covered by InfoBytes here) announcing a pending proposed rule to reinstate HUD’s Discriminatory Effects Standard related to the 2020 final rule.
Among other things, the IFR “restores the understanding of the AFFH obligation for certain [funding recipients] to the previously established understanding by reinstating legally supportable definitions that are consistent with a meaningful AFFH requirement and certifications that incorporate these definitions.” The IFR also notes that HUD will provide technical assistance and support prior to the IFR’s July 31 effective date, due to a requirement that HUD funding recipients certify compliance with their AFFH duties on an annual basis, as well as HUD’s statutory obligation to ensure that it follows the Fair Housing Act’s AFFH requirements. HUD further recognizes that the 2020 final rule “did not interpret the AFFH mandate in a manner consistent with statutory requirements, HUD’s prior interpretations, or judicial precedent,” adding that the agency also failed to “provide sufficient justification for this substantial departure.”
HUD also announced that it will separately restore guidance and resources for funding recipients to use when conducting fair housing planning until the agency finalizes a new regulation to implement the statutory mandate to AFFH. Comments on the IFR are due July 12.
On June 3, the FCC announced that it entered into a memorandum of understanding (MOU) with the Australian Communications and Media Authority (ACMA) on providing mutual assistance in the enforcement of laws on certain unlawful communications, such as robocall, robotexts, and “spoofing.” FCC Acting Chairwoman Rosenworcel noted that “[r]obocall scams are a global problem that require global commitment and cooperation” and that coordinating with ACMA can aid in removing scammers off of networks to protect consumers and businesses. ACMA Chair Nerida O’Loughlin noted that the agreement strengthens the existing relationship between the ACMA and the FCC in the regulation of unsolicited communications. According to the MOU, the FCC and ACMA understand that it is in their common public interest to, among other things: (i) “cooperate with respect to the enforcement against Covered Violations, including sharing complaints and other relevant information and providing investigative assistance”; (ii) enable “research and education related to unlawful robocalls and caller ID spoofing or overstamping”; (iii) “facilitate mutual exchange of knowledge and expertise through training programs and staff exchanges”: (iv) encourage awareness of economic and legal conditions and theories related to the enforcement of applicable laws as identified in Annex 1 to the MOU; and (v) update each other regarding developments related to the MOU in their respective countries in a timely manner.
On June 2, the CFPB released new FAQs regarding the Mortgage Servicing Rule and Regulation X and Regulation Z relating to escrow account guidance and analysis. General highlights from the FAQs are listed below:
- Regulation X provides that (i) an escrow account is any account established or controlled by a servicer for a borrower to pay taxes or other charges associated with a federally related mortgage loan, including charges that the servicer and borrower agreed to have the servicer collect and pay; and (ii) the computation year for an escrow account is a 12-month period that the servicer establishes for the account, starting with the borrower’s first payment date and including each subsequent 12-month period, unless the servicer issues a short year statement.
- Servicers must send the borrower an annual escrow account statement “within 30 days of the completion of the escrow account computation year.”
- Disbursement date is defined as “the date the servicer pays an escrow item from the escrow account.”
- “The initial escrow statement is the first disclosure statement that the servicer delivers to the borrower concerning the borrower’s escrow account,” and must include: (i) “the amount of the monthly mortgage payment”; (ii) “the portion of the monthly payment going into the escrow account”; (iii) “itemized anticipated disbursements to be paid from the escrow account”; (iv) “anticipated disbursement dates”; (v) “the amount the servicer elects as a cushion”; and (vi) “trial running balance for the account.”
- The annual escrow statement must include, among other things, “an account history that reflects the activity in the escrow account during the prior escrow account computation year and a projection of the activity in the account for the next escrow account computation year.”
- An escrow account analysis is the accounting a servicer conducts in the form of a trial running balance for an escrow account to: (i) “determine the appropriate target balances”; (ii) “compute the borrower’s monthly payments for the next escrow account computation year and any deposits needed to establish or maintain the account”; and (iii) “determine whether a shortage, surplus, or deficiency exists.”
- “If there is a shortage that is equal to or more than one month’s escrow account payment, the servicer may accept an unsolicited lump sum repayment to resolve the shortage. However, the servicer cannot require or provide the option of a lump sum payment on the annual escrow account statement. In addition, Regulation X does not govern whether borrowers can freely pay the servicer to satisfy an escrow account shortage. Therefore, “the acceptance of a voluntary, unsolicited payment made by the borrower to the servicer to satisfy an escrow account shortage is not a violation of Regulation X.”
- Servicers may inform borrowers that borrowers “may voluntarily provide a lump sum payment to satisfy an escrow shortage if they choose to” if “the communication is not in the annual escrow account statement itself and does not appear to indicate that a lump sum payment is something that the servicer requires but rather is an entirely voluntary option.”
On June 3, the CFPB published correcting amendments to its Official Interpretations to Regulation Z (TILA) that were not part of the final rule published in February, which exempts certain insured depository institutions and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). As previously covered by InfoBytes, under the final rule, any loan made by an insured depository institution or credit union that is secured by a first lien on the principal dwelling of a consumer would be exempt from Regulation Z’s HPML escrow requirement if (i) the institution has assets of no more than $10 billion; (ii) “the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year”; and (iii) the institution meets certain existing HPML escrow exemption criteria.
The amendments add one comment to the CFPB’s commentary that was not incorporated into the Code of Federal Regulations “due to an omission in an amendatory instruction,” and revise a second comment that inadvertently did not appear in the final rule. The amendments to the commentary relate to (i) Regulation Z section 1026.35(b)(2)(vi)(B), which covers requirements for escrow exemptions for HPMLs; and (ii) Regulation Z section 1026.43(f)(1)(vi), which addresses the exemption associated with balloon-payment qualified mortgages made by certain creditors under the minimum standards for transactions secured by a dwelling. The corrections took effect June 3.
On June 4, the CFPB released eight new FAQs regarding compliance with the Electronic Fund Transfer Act (EFTA) and Regulation E. Highlights from the FAQs are listed below:
- As explained by the commentary to Regulation E, unauthorized electronic funds transfers (EFTs) include transfers by a person who obtained an access device from a consumer through fraud or robbery. “Similarly, when a consumer is fraudulently induced into sharing account access information with a third party, and a third party uses that information to make an EFT from the consumer’s account, the transfer is an unauthorized EFT under Regulation E.”
- “If a third party fraudulently induces a consumer to share account access information,” subsequent EFTs initiated using that information are not excluded from the definition of an unauthorized EFT under the exclusion for transfers initiated by persons who “furnished the access device to the consumer’s account by the consumer.”
- Financial institutions cannot consider a consumer’s negligence when determining liability for unauthorized EFTs under Regulation E because it establishes “the conditions in which consumers may be held liable for unauthorized transfers, and its commentary expressly states that negligence by the consumer cannot be used as the basis for imposing greater liability than is permissible under Regulation E.”
- Financial institutions cannot rely on a consumer agreement that “includes a provision that modifies or waives certain protections granted by Regulation E, such as waiving Regulation E liability protections if a consumer has shared account information with a third party” when determining whether the EFT was unauthorized and what liability provisions apply. The EFTA “includes an anti-waiver provision stating that ‘[n]o writing or other agreement between a consumer and any other person may contain any provision which constitutes a waiver of any right conferred or cause of action created by [EFTA].’”
- Less protective rules do not change a financial institution’s Regulation E obligations, even if private network rules and other agreements provide additional consumer protections beyond Regulation E.
- “A financial institution must begin its investigation promptly upon receipt of an oral or written notice of error and may not delay initiating or completing an investigation pending receipt of information from the consumer.”
- “If a consumer has provided timely notice of an error under 12 CFR § 1005.11(b)(1) and the financial institution determines that the error was an unauthorized” EFT, Regulation E’s liability protections under Section 1005.6 would apply. “Depending on the circumstances regarding the unauthorized EFT and the timing of the reporting, a consumer may or may not have some liability for the unauthorized EFT.”
On June 3, President Biden issued a memo designating the “fight against corruption” as a top priority in preserving national security in the United States. The memo notes, among other things, that corruption not only corrodes public trust and development efforts, it also decreases global gross domestic product by an estimated two to five percent. In establishing “countering corruption as a core United States national security interest,” the memo highlights that the Biden administration will “lead efforts to promote good governance; bring transparency to the United States and global financial systems; prevent and combat corruption at home and abroad; and make it increasingly difficult for corrupt actors to shield their activities.” This includes efforts that will significantly bolster the ability of the U.S. government to, among other things: (i) boost the ability of key executive departments and agencies to encourage fair governance; (ii) counter illicit finance in the U.S. and foreign financial systems; (iii) hold corrupt individuals accountable; (iv) “strengthen the capacity of civil society, media, and other oversight and accountability actors to conduct research and analysis on corruption trends”; (v) coordinate with international partners to counteract strategic corruption; and (vi) encourage partnerships with the private sector and civil society. The memo further points out that an interagency review must take place within 200 days of the date of the memo, and a report and recommendations will be submitted to the president for further direction and action.
On June 2, the Federal Reserve Board announced the approval of a final rule amending Regulation D, which eliminates “references to an interest on required reserves” rate and “to an interest on excess reserves” rate and replaces them with a reference to “a single interest on reserve balances” rate. The final rule also simplifies “the formula used to calculate the amount of interest paid on balances maintained by or on behalf of eligible institutions in master accounts at Federal Reserve Banks.” The final rule is effective July 29.
Earlier, on June 1, the Fed also issued a proposed rule, which would create a new, comprehensive set of rules for governing funds transfers over the FedNow Service. Specifically, the proposed rule would amend Regulation J by establishing a new subpart C to specify terms and conditions for the processing of funds transfers by Reserve Banks. It would also grant Reserve Banks the authority to issue operating circulars for the FedNow Service, and would include, among other things, a requirement that a beneficiary’s bank agree to “make funds available to the beneficiary immediately after it has accepted the payment order.” The Fed is also proposing changes and clarifications to subpart B, which governs the Fedwire Funds Services, “to reflect the fact that the Reserve Banks will be operating a second funds transfer service in addition to the Fedwire Funds Service.” As previously covered by InfoBytes, the Fed intends to implement the FedNow Service—a “round-the-clock real-time payment and settlement service”—through a phased approach with a target launch date sometime in 2023 or 2024. Comments on the proposed rule are due 60 days after publication in the Federal Register.
On May 28, the Federal Reserve Board issued a notice and request for comments on proposed changes to its Policy on Payments System Risk (PSR Policy) to expand access to collateralized intraday credit from Federal Reserve Banks (Reserve Banks) and clarify eligibility standards for accessing uncollateralized intraday credit from the Reserve Banks. Specifically, the Fed is proposing changes to part II of its PSR Policy, which was previously revised and implemented in 2011 to “improve intraday liquidity management and payment flows for the banking system while helping to mitigate the credit exposures of the Reserve Banks from daylight overdrafts.” The proposed changes would also align the Fed’s payments system risk and overnight overdraft policies with the deployment of the FedNow Service (covered by InfoBytes here) and the Fed’s 24x7x365 payment environment. Relatedly, the Fed noted it is also proposing to incorporate its policy on overnight overdrafts into the PSR Policy. Comments on the proposed changes are due 60 days after publication in the Federal Register.
On May 27, the FDIC, OCC, and the Fed (collectively, “Agencies”) issued an interagency statement on granting a 36-month extension of the original period provided for Community Reinvestment Act (CRA) consideration for bank activities that help to revitalize or stabilize Puerto Rico and the U.S. Virgin Islands in response to Hurricane Maria. As previously covered by Infobytes, the Agencies issued an interagency statement on the availability of CRA credit for financial institution activities that “help revitalize or stabilize the U.S. Virgin Islands and Puerto Rico, which were designated as major disaster areas by the President because of Hurricane Maria” in January 2018. Provided financial institutions continue to be responsive to the community needs of their own CRA assessment areas, the Agencies will now give “favorable consideration” to community development activities, such as assistance to displaced people, in the areas impacted by Hurricane Maria. In addition, the Agencies state that they may give greater weight to activities aimed at assisting the low and moderate income affected areas, but that general consideration will be given regardless of median or personal income. The Agencies have determined that the ongoing impact of Hurricane Maria in Puerto Rico and the U.S. Virgin Islands warrants an extension through September 20, 2023.
On May 27, the OCC announced the publication of a final rule that adopts one change to the interim final rule published last August. As previously covered by InfoBytes, the interim final rule clarified, among other things, that under the OCC’s fiduciary activities regulation (12 CFR 9.18 (b)(5)(iii)), a bank that is administering a collective investment fund (CIF) invested “primarily in real estate or other assets that are not readily marketable” may require a prior notice period of up to one year for withdrawals. The interim final rule codified the OCC’s interpretation of the notice requirement as “requiring the bank to withdraw an account within the prior notice period or, if permissible under the CIF’s written plan, within one year after prior notice was required” (known as “the standard withdrawal period”). An exception allows banks to extend the withdrawal period (with opportunities for further extensions) under certain conditions and with OCC approval. While the final rule adopts the interim final rule’s framework, it revises one of the criteria necessary for OCC approval of an extension. Specifically, in order to qualify for an extension, a “bank must ‘represent’ rather than ‘commit’ that it will act upon the withdrawal request as soon as practicable.” The final rule took effect May 26.