Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • GAO urges Fed to address outstanding recommendations

    Agency Rule-Making & Guidance

    On June 3, GAO released a letter addressed to Fed Chair, Jerome Powell, to provide an update on the Fed's implementation of past GAO recommendations. As of May, GAO noted 13 open recommendations under the Fed. The Fed recently implemented two of the GAO’s four 2023 priority recommendations: one on stress test capital ratio estimates, and the other pertaining to risk tolerance articulation. GAO did not add any new priority recommendations for the Fed, but instead emphasized the importance of addressing the remaining two items: one related to blockchain technology and the other on financial technology.

    Regarding the blockchain recommendation, GAO urged the Fed to work with other regulators to create a formal mechanism for identifying risks associated with this technology. GAO observed that the Fed had stated in April that it would participate in the Digital Asset Working Group to work with other agencies to address blockchain risks, but GAO recommended that the working group must include a “planning process for identifying and addressing” blockchain risks. Regarding the fintech partnerships recommendation, and in coordination with other federal financial regulators, GAO recommended clear communication on the appropriate use of alternative data in the underwriting process since fintech lenders “may analyze large amounts of alternative data on borrower characteristics … when determining borrowers’ creditworthiness.”

    GAO’s letter also emphasized the importance of Congressional oversight to implement recommendations, suggesting strategies such as legislative incorporation and oversight hearings.

    Agency Rule-Making & Guidance Federal Issues Federal Reserve Congress Blockchain Fintech

  • FHFA enhances Fannie and Freddie flex modification policies

    Federal Issues

    Recently, the FHFA announced that Fannie Mae and Freddie Mac will update their Flex Modification policies to help struggling borrowers reduce their mortgage payments. Flex Modification would be for eligible borrowers experiencing a permanent hardship and cannot make regular monthly mortgage payments. According to the FHFA, the enhanced policies will aim to decrease a borrower’s monthly payments by up to 20 percent through three incremental steps: (i) interest rate reduction; (ii) extending the loan term; and (iii) principal forbearance for those with loan-to-value ratios above 50 percent. These updates were built on the Servicing Alignment Initiative started in 2011 and have been aimed at better resolving mortgage payment delinquencies. The new Flex Modification policies will take effect on December 1.

    Federal Issues Agency Rule-Making & Guidance FHFA Freddie Mac Fannie Mae Mortgages

  • Ginnie Mae updates its guide to streamline processes for eMortgages

    Agency Rule-Making & Guidance

    On May 31, Ginnie Mae published its APM 24-09: Updates To Digital Collateral Program Guide to clarify, update, remove and expand policies on digital products, such as notes, closing systems, vaults, applicants and registries. The program may help streamline processes for digital mortgages known as “eMortgages.”

    The guide clarified eligibility requirements for issuers and custodians, aligning technology standards with industry best practices, and expanding the types of mortgage pools that can include digital loans. Additionally, Ginnie Mae clarified various requirements related to eMortgages, such as handling defects, transfers, and assumptions. This followed other efforts to promote eMortgages, including Ginnie’s efforts to securitize digital collateral in the same pools as traditional paper collateral (as covered by InfoBytes here). The Digital Collateral Program Guide can be found here, and the changes will go into effect on June 1.

    Agency Rule-Making & Guidance Digital Collateral Electronic Mortgages Mortgages Digital Platform

  • CFPB proposes final rule for registering nonbanks for supervision

    Agency Rule-Making & Guidance

    On June 3, the CFPB issued a final rule to require the registration and reporting of nonbank financial institutions that have been subject to public orders resulting from regulatory actions.  The Bureau’s stated goal in establishing the registry was to assist the public and enforcement agencies in identifying repeat offenders. The registry will compile and maintain all public orders issued by an agency or court, involving certain nonbank entities that were issued at least in part by an action or proceeding by any federal, state or local agency. The final rule mandated those nonbank covered entities—excluding depository institutions and credit unions—must register with the Bureau when they are subject to a public order. Under the CFPA, Section 1022(b)(1) authorized the Bureau to create rules “as may be necessary or appropriate to enable the Bureau to… carry out the purposes and objectives of the Federal consumer financial laws.” Section 1024(b) authorized the Bureau to exercise supervisory authority over certain nonbank entities. The final rule will also require nonbank entities to submit an annual written statement confirming compliance with each public order.

    This rule will apply to all covered entities, specifically nonbanks, which have entered into an order with an effective date on or later than January 1, 2017, and which remain in effect following the effective date of the final rule. Every nonbank that was named in an order and was covered under the rule must register, submitting all information required including the executed order. However, nonbanks that were subject to an order published on the NMLS’s Consumer Access website (other than an order in which the CFPB was involved) can elect for a simplified option.

    This action will be the latest step in the Bureau’s efforts to expand its nonbank supervision program. As previously covered by InfoBytes, the CFPB released a supervisory designation over a nonbank company in March since that company’s conduct posed an alleged risk to consumers (here), and in April the Bureau released its procedural rule to change how it will supervise nonbanks (here). In a prepared statement, the Director of the CFPB, Rohit Chopra, expressed that the final rule was designed to aid the CFPB and other law enforcement agencies to “monitor and track repeat offenders in order to better hold them accountable” regardless of companies reoffending. The director emphasized that court or enforcement orders are not a “tipsheet or set of suggestions.” This rule will go into effect on September 16. 

    Agency Rule-Making & Guidance Federal Issues CFPB Supervision Nonbank Nonbank Supervision

  • CFPB finalizes standards setting body component of open banking rule

    Agency Rule-Making & Guidance

    On June 5, the CFPB announced it finalized in part its proposed Personal Financial Data Rights rule, thus establishing the minimum qualifications necessary for the Bureau to become a recognized industry standard setting body when the full rule becomes final. Last October, the CFPB proposed the Personal Financial Data Rights rule to implement Section 1033 of the CFPA (covered by InfoBytes here) which was intended to offer consumers more control over their financial data and more consumer protections for misused data.

    After considering relevant public comments, the CFPB made several changes to the sections concerning standard setters and the standards they issue. Commenters asked for clarity regarding changes in standards, such as when a consensus standard ceases to have consensus status, and how it could potentially cause market uncertainty. In response, the Bureau replaced the term “qualified industry standard” with “consensus standard” and added a newly defined “recognized standard setter” term. The final rule defined “consensus standard” to clarify when a given standard will be a consensus standard, and also added that a “consensus standard” must be one that will be adopted and maintained by a recognized standard setter. In response to concerns about market uncertainty, the CFPB responded that they expect revocation of recognition for a standard setter to be a rare occurrence.

    Regarding periodic review, the final rule extended the maximum duration of the CFPB’s recognition of a standard-setting body from the proposed duration of three years to five years. The Bureau expects this change will incentivize standard-setting bodies to obtain recognition. The final rule included “data recipients” as an interested party in response to commenter concern that certain fintech sectors may be excluded. Additionally, meeting the criteria in the final rule is just the starting point for approval, as the CFPB may also assess whether the standard-setting body will be committed to developing and upholding open banking standards.

    The final rule also included a guide that detailed how standard setters can apply for CFPB recognition, how the Bureau will evaluate applications, and what standard setters can expect once recognized. The final rule will go into effect 30 days after publication in the Federal Register. 

    Agency Rule-Making & Guidance Federal Issues Privacy CFPB Open Banking Consumer Protection

  • CFPB releases RFI on mortgage closing costs

    Federal Issues

    On May 30, the CFPB announced a request for information (RFI) regarding mortgage “junk fees” and their impact on borrowers and lenders. The CFPB identified an increase of over 36 percent in median total loan costs for home mortgages from 2021 to 2023 in its analysis, with median mortgage closing costs of $6,000 in 2022. The Bureau argued these fees and costs, many of which are fixed, can reduce home equity and may undercut home ownership.

    The RFI requested public input on whether the fees are subject to competition, how fees are set, who profits from them, and how fee changes, if any, impact consumers and the mortgage market. The CFPB was particularly interested in the factors driving fee increases, such as hard-pull tri-merge credit report costs, and how such fees are affecting housing affordability and access to homeownership. The CFPB also highlighted the potential impact of title insurance and mortgage origination fees.

    The RFI included nine specific questions related to

    (i) whether there are fees that are particularly problematic or burdensome for consumers;

    (ii) whether there are unnecessary fees charged for loan closure;

    (iii) whether and to what extent consumers compare closing costs across lenders;

    (iv) whether and to what extent consumers shop for closing costs across settlement providers;

    (v) the determination of fees, the beneficiaries, and lenders’ influence over third-party costs;

    (vi) which fees have increased, and what are their causes;

    (vii) factors contributing to rising closing, credit report, and credit score costs, the roles of various entities in the credit report chain, competitive pressures on these costs, and their consumer impact;

    (viii) lenders’ ability to negotiate closing costs more effectively than consumers; and

    (ix) the potential impact of closing costs on housing affordability, homeownership access, or home equity.

    Comments in response to the RFI must be received by August 2.

    Federal Issues CFPB Agency Rule-Making & Guidance Mortgages Fees RFI

  • Ginnie Mae outlines recovery planning requirements for issuers with over $50 billion

    Agency Rule-Making & Guidance

    On May 20, Ginnie Mae released “APM 24-08: Mandatory Recovery Planning Requirements for Certain Issuers,” which outlined Ginnie Mae’s introduction of recovery planning requirements for issuers whose portfolios exceed $50 billion. Issuers will be required to submit recovery plans to Ginnie Mae no later than June 30, 2025. The submitted recovery plans must include, among other things, corporate structures (like organizational charts, locations, key personnel, etc.), information systems (detailed inventory mapping of management systems and processes), and recovery planning (which would meet the requirements of the Ginnie Mae Guaranty Agreement and included a plan to unwind its MBS portfolio in a timely and efficient manner). Covered issuers will be required to demonstrate their assessment of the risks that their organizational structure and business activities pose and that they have taken steps to mitigate such risks.  Further, covered issuers must update their plans every two years or confirm their prior plans remain current. More details can be found within the two attachments: the Issuer Recovery Plan Requirements, and Chapter 3 of the Ginnie Mae MBS Guide.

    Agency Rule-Making & Guidance Ginnie Mae MBS

  • Ginnie Mae updates its rules on the securitization of digital collateral

    Agency Rule-Making & Guidance

    On May 20, Ginnie Mae released an All Participant Memorandum (APM) titled “APM 24-07: Commingling Digital Collateral with Paper Collateral in Ginnie Mae Pools,” which included opening Ginnie Mae’s Digital Collateral Program Pilot from July 2020 to allow any issuer to participate in the Digital Collateral Program. In the program, Ginnie will permit the securitization of digital collateral into the same pools as traditional paper collateral. As highlighted in the memorandum, digital collateral was comprised of mortgage loans which have promissory notes that are “Eligible eNotes” as published in Ginnie Mae’s Digital Collateral Program Guide. These updates were implemented to “promote liquidity and increase participation” in the program by modernizing and digitizing Ginnie Mae’s Mortgage-Backed Securities program to align with other industry practices more closely. The updated program will go into effect on June 1.

    Agency Rule-Making & Guidance Securities Mortgage-Backed Securities Pilot Program

  • Chopra remarks on how less credit reporting competition may lead to higher mortgage costs

    Federal Issues

    On May 20, CFPB Director, Rohit Chopra, delivered a speech at a trade association event addressing the rising costs in the mortgage lending industry, which may be due to limited competition in the credit reporting sector. According to Chopra, the mortgage industry was dominated by three major conglomerates, and credit scores were provided by a single corporation. These entities have significantly increased the price for credit reports and credit scores in recent years, with increases reaching as high as 400 percent since 2022. These price hikes can increase a lender’s origination fees or interest rates and have impacted both lenders, especially small lenders, and homebuyers disproportionately.

    Chopra added how lenders require credit reports and credit scores for loan origination and adhere to secondary market requirements, which would necessitate purchasing these reports multiple times, like for joint applications. Director Chopra also noted that price increases were no longer tied to volume discounts and instead were now based on a flat fee pricing model, exacerbating costs for lenders. Additionally, the CFPB questioned the accuracy of credit reports, with the reporting industry profiting from expedited correction services known as a “rapid rescore.”

    Director Chopra emphasized the need for regulatory intervention to address these issues within the mortgage industry. Chopra stated that “limiting chokepoints” was critical. As a result, the CFPB was examining these rising costs and considering regulatory measures to enhance competition and affordability. The Bureau was also promoting “open banking,” which would allow consumers to share their financial data directly with lenders to potentially reduce reliance on traditional credit reports and credit scores.

    Federal Issues Agency Rule-Making & Guidance CFPB Mortgages Consumer Finance Credit Reporting Competition

  • CFPB issues interpretive rule likening BNPL accounts to credit cards under Regulation Z

    Agency Rule-Making & Guidance

    On May 22, the CFPB issued an interpretive rule stating its position that certain consumer protection provisions of Regulation Z applied to Buy Now, Pay Later (BNPL) accounts. The interpretive rule asserted that “digital user accounts” used to access BNPL credit are considered “credit cards” under Regulation Z.

    According to the CFPB, BNPL “digital user accounts” fell within TILA and Regulation Z’s definition of a credit card because they qualified as an “other credit device” or “other single credit device.” The CFPB likened its interpretation of “credit device” to the Fed’s interpretation of “access device” in Regulation E, which included non-physical payment codes to initiate an electronic fund transfer. Further, the CFPB stated that because BNPL “digital user accounts” were usable “from time to time to obtain credit,” they met the definition of a “credit card” under Regulation Z.

    As a result, the CFPB’s interpretive rule stated that entities issuing such accounts were “card issuers” and therefore “creditors” who are “broadly subject” to the regulations in Subpart B of Regulation Z. The interpretive rule noted that although Subpart B was entitled “Open-End Credit,” it nevertheless applied to closed-end BNPL credit issued through a digital user account if such credit was not subject to a finance charge and was not payable by written agreement in more than four installments. Subpart B included provisions applicable to, among other things, disclosures, consumer disputes, billing errors, and refunds.

    The CFPB will request public feedback on the interpretive rule but will reserve the right to move forward without revisions if they are not warranted. The CFPB will submit a report with the interpretive rule to the Senate, the U.S. House, and the U.S. Comptroller General (head of the GAO) prior to the rule’s published effective date.

    Agency Rule-Making & Guidance Federal Issues CFPB Buy Now Pay Later Regulation Z TILA Credit Cards

Pages

Upcoming Events