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Financial Services Law Insights and Observations


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  • Agencies highlight downpayment assistance, child privacy in regulatory agendas

    Agency Rule-Making & Guidance

    Recently, the Office of Information and Regulatory Affairs released fall 2022 regulatory agendas for the FTC and HUD. With respect to an FTC review of the Children’s Online Privacy Protection Rule (COPPA) that was commenced in 2019 (covered by InfoBytes here), the Commission stated in its regulatory agenda that it is still reviewing comments. COPPA “prohibits unfair or deceptive acts or practices in connection with the collection, use and/or disclosure of personal information from and about children under the age of 13 on the internet,” and, among other things, “requires operators of commercial websites and online services, with certain exceptions, to obtain verifiable parental consent before collecting, using, or disclosing personal information from or about children.”

    HUD stated in its regulatory agenda that it anticipates issuing a notice of proposed rulemaking in March that would address mortgage downpayment assistance programs. The Housing and Economic Recovery Act of 2018 amended the National Housing Act to add a clause that prohibits any portion of a borrower’s required minimum cash investment from being provided by: “(i) the seller or any other person or entity that financially benefits from the transaction, or (ii) any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).” According to the agenda, FHA continues to receive questions about prohibitions on persons or entities that may financially benefit from a mortgage transaction, including “whether down payment assistance programs operated by government entities are being operated in a fashion that would render such assistance prohibited.” A future NPRM would clarify the circumstances in which government entities are deriving a prohibited financial benefit.

    Agency Rule-Making & Guidance Federal Issues FTC HUD COPPA Downpayment Assistance Mortgages Privacy, Cyber Risk & Data Security Consumer Protection FHA

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  • CFPB releases regulatory agenda

    Agency Rule-Making & Guidance

    Recently, the Office of Information and Regulatory Affairs released the CFPB’s fall 2022 regulatory agenda. Key rulemaking initiatives that the agency expects to initiate or continue include:

    • Overdraft and NSF fees. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation Z with respect to special rules for determining whether overdraft fees are considered finance charges. According to the Bureau, the rules, which were created when Regulation Z was adopted in 1969, have remained largely unchanged despite the fact that the nature of overdraft services has significantly changed over the years. The Bureau is also considering whether to engage in pre-rulemaking activity in November regarding non-sufficient fund (NSF) fees. The Bureau commented that while NSF fees have been a significant source of fee revenue for depository institutions, recently some institutions have voluntarily stopped charging such fees.
    • FCRA rulemaking. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation V, which implements the FCRA. As previously covered by InfoBytes, on January 3, the Bureau issued its annual report covering information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). CFPB Director Rohit Chopra noted that the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.”
    • Section 1033 rulemaking. Section 1033 of Dodd-Frank provides that covered entities, such as banks, must make available to consumers, upon request, transaction data and other information concerning consumer financial products or services that the consumer obtains from the covered entity. Over the past several years, the Bureau has engaged in a series of rulemaking steps to prescribe standards for this requirement, including the release of a 71-page outline of proposals and alternatives in advance of convening a panel under the Small Business Regulatory Enforcement Fairness Act (SBREFA). The outline presents items under consideration that “would specify rules requiring certain covered persons that are data providers to make consumer financial information available to a consumer directly and to those third parties the consumer authorizes to access such information on the consumer’s behalf, such as a data aggregator or data recipient (authorized third parties).” (Covered by InfoBytes here.) The Bureau anticipates issuing a SBREFA report in February.
    • Amendments to FIRREA concerning automated valuation models. The Bureau is participating in interagency rulemaking with the Fed, OCC, FDIC, NCUA, and FHFA to develop regulations to implement the amendments made by Dodd-Frank to FIRREA concerning appraisal automated valuation models (AVMs). The FIRREA amendments require implementing regulations for quality control standards for AVMs. The Bureau released a SBREFA outline and report in February and May 2022 respectively (covered by InfoBytes here), and estimates that the agencies will issue a notice of proposed rulemaking (NPRM) in March.
    • Property Assessed Clean Energy (PACE) financing. The Bureau issued an advance notice of proposed rulemaking (ANPRM) in March 2019 to extend TILA’s ability-to-repay requirements to PACE transactions. (Covered by InfoBytes here.) The Bureau is working to develop a proposed rule to implement Economic Growth, Regulatory Relief, and Consumer Protection Act Section 307 in April.
    • Nonbank registration. The Bureau issued an NPRM in December to enhance market monitoring and risk-based supervision efforts by including all final public written orders and judgments (including any consent and stipulated orders and judgments) obtained or issued by any federal, state, or local government agency for violation of certain consumer protection laws related to unfair, deceptive, or abusive acts or practices in a database of enforcement actions taken against certain nonbank covered entities. (Covered by InfoBytes here.) In a separate agenda item, the Bureau states that the NPRM would also require supervised nonbanks to register with the Bureau and provide information about their use of certain terms and conditions in standard-form contracts. The Bureau proposes “to collect information on standard terms used in contracts that are not subject to negotiating or that are not prominently advertised in marketing.” 
    • Credit card penalty fees. The Bureau issued an ANPRM last June to solicit information from credit card issuers, consumer groups, and the public regarding credit card late fees and late payments, and card issuers’ revenue and expenses. (Covered by InfoBytes here.) Under the CARD Act rules inherited by the Bureau from the Fed, credit card late fees must be “reasonable and proportional” to the costs incurred by the issuer as a result of a late payment. Calling the current credit card late fees “excessive,” the Bureau stated it intends to review the “immunity provision” to understand how banks that rely on this safe harbor set their fees and to examine whether banks are escaping enforcement scrutiny “if they set fees at a particular level, even if the fees were not necessary to deter a late payment and generated excess profits.” The Bureau is considering comments received on the ANPRM as it develops an NPRM that may be released this month.
    • Small business rulemaking. Section 1071 of Dodd-Frank amended ECOA to require financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses, and directed the Bureau to promulgate rules for this reporting. An NPRM was issued in August 2021 (covered by InfoBytes here). The Bureau anticipates issuing a final rule later this month.

    Agency Rule-Making & Guidance Federal Issues CFPB Consumer Finance Overdraft NSF Fees FCRA Section 1033 SBREFA FIRREA AVMs PACE Nonbank Credit Cards Small Business Lending Section 1071

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  • CFPB releases 2023 rural or underserved counties list

    Federal Issues

    Recently, the CFPB released its annual lists of rural counties and rural or underserved counties for lenders to use when determining qualified exemptions to certain TILA regulatory requirements. In connection with these releases, the Bureau also directed lenders to use its web-based Rural or Underserved Areas Tool to assess whether a rural or underserved area qualifies for a safe harbor under Regulation Z.

    Federal Issues Agency Rule-Making & Guidance CFPB Underserved Consumer Finance TILA Regulation Z

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  • Agencies extend Reg. O relief for some companies controlled by funds

    On December 22, the Federal Reserve Board, FDIC, and OCC extended Regulation O relief for certain investment fund-controlled companies. The agencies issued a temporary no-action position in 2019 to allow time for the Federal Reserve, in consultation with the FDIC and OCC, “to consider whether to amend Regulation O to address concerns about unintended consequences of the application of Regulation O to companies that sponsor, manage, or advise investment funds and institutional accounts that invest in voting securities of banking organizations.” The interagency statement extends the no-action relief under Regulation O for another year to the sooner of either January 1, 2024, or the effective date of a final Federal Reserve rule revising Regulation O “that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of the bank.” Specifically, the agencies state that action will not be taken against banks extending credit to fund complex-controlled portfolio companies that would otherwise violate Regulation O, provided the company controls (directly or indirectly) less than 15 percent of the bank’s voting securities (or 20 percent under certain circumstances) and has not or does not plan to place representatives in the bank or seek to exercise a controlling influence over the bank. Extensions of credit to these companies must be on “substantially the same terms as those prevailing for comparable transactions with unaffiliated third parties” and may not “involve more than normal risk of repayment or present other unfavorable features,” the agencies explained, noting that the relief applies only to fund complex-controlled portfolio companies, not the fund complexes.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance FDIC OCC Federal Reserve Regulation O

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  • FCC proposes new data breach notification requirements

    Agency Rule-Making & Guidance

    On January 6, the FCC announced a notice of proposed rulemaking (NPRM) to launch a formal proceeding for strengthening the Commission’s rules for notifying customers and federal law enforcement of breaches of customer proprietary network information (CPNI). FCC Chairwoman Jessica Rosenworcel noted that “given the increase in frequency, sophistication, and scale of data leaks, we must update our rules to protect consumers and strengthen reporting requirements.” She commented that the “new proceeding will take a much-needed, fresh look at our data breach reporting rules to better protect consumers, increase security, and reduce the impact of future breaches.” The NPRM, which seeks to improve alignment with recent developments in federal and state data breach laws covering other sectors, would require telecommunications providers to notify impacted customers of CPNI breaches without unreasonable delay, thus eliminating the current seven business day mandatory waiting period for notifying customers of a breach.

    Among other things, the FCC requests feedback on whether to establish a specific timeframe (e.g. a requirement to report breaches of customers’ data within 24 or 72 hours of discovery of a breach) or whether a disclosure deadline should vary based on a graduated scale of severity. The FCC also seeks comments on whether a carrier should “be held to have ‘reasonably determined’ a breach has occurred when it has information indicating that it is more likely than not that there was a breach,” and whether the Commission should publish guidance on what constitutes a reasonable determination or adopt a more definite standard. Feedback is also solicited on topics such as threshold triggers, what should be included in a security breach notification, the delivery method of these notifications, and whether to expand the definition of a data breach to also include inadvertent disclosures. Comments are due 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Privacy, Cyber Risk & Data Security FCC Data Breach Consumer Protection

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  • FHA seeks feedback on changing reconsideration of valuation requests

    Federal Issues

    Recently, FHA published a draft mortgagee letter (ML) proposing policy changes to its requirements for processing and documenting reconsideration of valuation (ROV) requests, specifically when requests are initiated by a borrower for the review of appraisal results. According to the ML, FHA provided proposed guidance to improve the process when prospective borrowers applying for FHA-insured Title II forward or Home Equity Conversion Mortgages (HECM) request an ROV on a property if the initial valuation is lower than expected, or that there is indication of illegal bias, that Fair Housing regulations have been violated, or that there may be unlawful discrimination. The draft also proposed updated appraisal review standards, which are intended to provide mortgagees and appraisers with clarifying guidance on the quality of an appraisal report and the ROV process and responsibilities. Public comments are due by February 2.

    Federal Issues Agency Rule-Making & Guidance FHA Mortgages HECM Appraisal

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  • NYDFS revises proposed amendments to third-party debt collection rules

    State Issues

    In December, NYDFS released revised proposed amendments to 23 NYCRR 1, which regulates third-party debt collectors and debt buyers. NYDFS first issued a proposed amendment to 23 NYCRR 1 in December 2021 (covered by InfoBytes here), which factored in findings from NYDFS investigations that revealed instances of abusive and deceptive debt collection practices, as well as consumer debt collection complaint data. The first proposed amendment, among other things, is intended to enhance consumer protections by increasing transparency, requiring heightened disclosures, reducing misleading statements about consumer debt obligations, and placing stricter limits on debt collection phone calls than those currently imposed under federal regulations. The revised proposal, among other things, also include the following requirements:

    • A debt collector must send written notification within five days after the initial communication with a consumer that clearly and conspicuously contains validation information as required under Regulation F. Debt collectors are prohibited from using the charge-off date as the itemization date for the alleged debt unless it is a revolving or open-end credit account. Instead, debt collectors should use the last payment date as the itemization date if available.
    • Written notifications must be clear and conspicuous and also include the following, in addition to validation information: (i) the reference date relied upon to determine the itemization date; (ii) for revolving or open-end credit accounts, an account number (or a truncated version of the account number) associated with the debt on the last payment date or the last statement date if no payment has been made; (iii) the merchant brand, affinity brand, or facility name, if any, associated with the debt; (iv) the date and amount of the last payment or a statement noting that no payment was made, if available; (v) the applicable statute of limitations expressed in years for debt that has not been reduced to judgment; (vi) information on a debt that has been reduced to a judgment, if applicable; and (vii) notice that a consumer has the right to dispute the validity of a debt and instructions on how to submit a dispute.
    • Debt collectors must inform consumers of available language access services and are required to record the consumer’s language preference, if other than English, in the written notification.
    • Unless affirmatively requested by the consumer, required disclosures may not be made exclusively by electronic communication. Additionally, a debt collector may communicate with a consumer exclusively through electronic communication only if: (i) the consumer has voluntarily provided contact information for electronic communication; (ii) the consumer has given revocable consent in writing to receive electronic communication from the debt collector in reference to a specific debt (electronic signatures constitute written consent); (iii) the debt collector retains the written consent for six years or until the debt is discharged, sold, or transferred (whichever is longer); and (iv) all electronic communications include clear and conspicuous disclosures regarding revoking consent.
    • Communications sent in the form of a pleading in a civil action will not be considered an initial communication for the purposes of these amendments.
    • Debt collectors must provide substantiation of debt within 45 days.
    • Debt collectors may not communicate or attempt to communicate excessively with a consumer. Specifically, debt collectors are limited to one completed phone call and three attempted phone calls per seven-day period per alleged debt. Telephone calls more than these limits may be permitted when required by federal or state law, or when made in response to the consumer’s request to be contacted and in the manner indicated by the consumer, if any.

    Comments are due February 13. The amendments are scheduled to take effect 180 days after the notice of adoption is published in the State Register.

    State Issues Bank Regulatory Agency Rule-Making & Guidance NYDFS New York Debt Collection State Regulators

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  • FHFA issues model risk management guidance

    Agency Rule-Making & Guidance

    On December 21, FHFA issued guidance to Freddie Mac, Fannie Mae, the Federal Home Loan Banks (FHLBanks), and the Office of Finance on its model risk management framework. According to the bulletin, the purpose of the guidance—formatted as Frequently Asked Questions—“is to provide supplemental guidelines that will address some of the gaps in [FHFA’s 2013 Model Risk Management guidance] prompted by changes in model-related technologies and questions generated from the expanded use of complex models by the FHLBanks.” “The supplemental guidance also addresses model documentation, the communication of model limitations, model performance tracking, on-top adjustments, challenger models, model consistency, and internal stress testing.”

    Agency Rule-Making & Guidance FHFA FHLB Fannie Mae Freddie Mac GSEs Risk Management

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  • DFPI modifies proposed regulations for complaints and inquiries under the CCFPL

    State Issues

    On December 22, the California Department of Financial Protection and Innovation (DFPI) released modifications to proposed regulations for implementing and interpreting certain sections of the California Consumer Financial Protection Law (CCFPL) related to consumer complaints and inquiries. As previously covered by InfoBytes, DFPI issued a notice of proposed rulemaking (NPRM) last May to implement Section 90008 subdivisions (a) and (b) of the CCFPL, which authorize DFPI to promulgate rules establishing reasonable procedures for covered persons to provide timely responses to consumers and DFPI concerning consumer complaints and inquiries, as well as subdivision (d)(2)(D), which “permits covered persons to withhold nonpublic or confidential information, including confidential supervisory information, in response to a consumer request to the covered person for information regarding a consumer financial product or service.”

    After considering comments received on the NPRM, changes proposed by the DFPI include the following:

    • Amended definitions. The proposed regulations will not apply to, in addition to consumer reporting agencies and student loan servicers, a person or entity already exempt from the CCFPL under Section 90002. The definition of “complaint” is amended to include “an oral or written expression of dissatisfaction from a complainant regarding a specific issue or problem with a financial product or service.” Additionally, “complainant” is amended to also provide that a consumer must have been a resident of California at the time of the act, omission, decision, condition, or policy giving rise to the complaint. The proposed regulations also outline several categories that are not included in the definition of “complaint” or “inquiry.”
    • Complaint procedure updates. The proposed regulations outline requirements for covered persons related to consumer disclosures and written communications covering the complaint process. The proposed regulations also require covered persons to accept all complaints, whether written or oral, provided the complaint includes a reason for filing the complaint and sufficient information to identify the complainant.
    • Restrictions. Covered persons shall not (i) “[r]equest personal identifying information beyond what is reasonably necessary to identify the complainant and to send correspondence”; (ii) “[r]equest financial information unrelated to the specific complaint of the consumer:” or (iii) impose a time limit for filing a complaint that is shorter than one year from the time the complainant discovers the act, omission, decision, condition, or policy that is the subject of the complaint (if a time limit is imposed it must be stated in the required consumer disclosures).
    • Complaint acknowledgements. For every complaint received, covered persons must send the complainant a written acknowledgement of receipt that is postmarked or otherwise shows that acknowledgement was sent within five business days after receiving the complaint. Within 15 business days after receiving a complaint, a covered person must provide a final decision on all issues. If additional time is required, a covered person must provide the complainant with a written update within three business days after the initial 15-business day period ends.
    • Inquiry response requirements. Covered persons are required to develop and implement written policies and procedures to implement the regulations’ inquiry requirements, and must also respond to all issues raised by an inquiry within 10 business days. Covered persons must retain copies of all written inquiries and written responses for at least three years from the time the written response was issued.
    • Reporting requirements. Covered persons must submit an annual complaint report to DFPI for each financial product or service offered or provided that will be made available to the public with limited exceptions. Each report shall include information regarding all complaints received by the covered person during the reporting period, and must be filed electronically with the Consumer Financial Protection Division no later than 60 business days after the end of each calendar year.

    Comments on the proposed modifications are due January 20 (extended from January 13).

    State Issues State Regulators California DFPI CCFPL Consumer Complaints Consumer Protection Agency Rule-Making & Guidance Consumer Finance

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  • Colorado releases second draft of Colorado Privacy Act rules

    Privacy, Cyber Risk & Data Security

    On December 21, the Colorado attorney general released a second set of draft rules for the Colorado Privacy Act (CPA). As previously covered by a Buckley Special Alert, the CPA was enacted in July 2021 to establish a framework for personal data privacy rights. The CPA, which is effective July 1, 2023 with certain opt-out provisions taking effect July 1, 2024, provides consumers with numerous rights, including the right to access their personal data, opt-out of certain uses of personal data, make corrections to personal data, request deletion of personal data, and obtain a copy of personal data in a portable format. Under the CPA, the AG has enforcement authority for the law, which does not have a private right of action. The AG also has authority to promulgate rules to carry out the requirements of the CPA and issue interpretive guidance and opinion letters, as well as the authority to develop technical specifications for at least one universal opt-out mechanism. The first set of draft rules was issued last September and published by the Secretary of State on October 10 (covered by InfoBytes here).

    The second set of draft rules seeks to address concerns raised through public comments as well as feedback received during three stakeholder sessions. The AG seeks specific input on questions related to (i) clarifications to definitions; (ii) the use of IP addresses to verify consumer opt-out requests; (iii) implementation of a universal opt-out mechanism; (iv) controller obligations related to meaningful privacy notices; and (v) bona fide loyalty programs. Among other things, the modifications would:

    • Clarify definitions. The modifications add, delete, and amend several definitions, including those related to “biometric identifiers,” “commercial product or service,” “controller,” “employee,” “employer,” “employment records,” “noncommericial purpose,” “personal data,” “process,” “processor,” “profiling,” and terms involving automated processing.
    • Amend purpose-based privacy notices. The modifications remove the requirement that privacy notices be purpose-based, and will instead require that the processing purpose and type of personal data processed be connected in a way that provides consumers a meaningful understanding of how their personal data will be used. The AG seeks feedback on ways the draft rules can “be made interoperable with California’s privacy notice requirements, while still considering the CPA’s purpose specification, secondary use requirements, and ensuring that a consumer has a meaningful understanding of the way their personal data will be used when they interact with a controller.” Feedback is also requested on whether controllers “who have updated their privacy policies to comply with California’s privacy notice requirements anticipate making a separate policy for Colorado, updating a California specific privacy notice to include Colorado or other state requirements, or revising the main privacy policy/notice to meet Colorado and other non-California state requirements[.]”
    • Update universal opt-out mechanism. The modifications grant controllers six months from the date a universal opt-out mechanism is recognized by the AG to begin complying with that new mechanism. An initial public list of approved opt-out mechanisms will be published no later than January 1, 2024, and will be updated periodically.
    • Clarify security measures and duty of care. The modifications provide additional details about the duty to safeguard personal data, and will require controllers to, among other things, consider “[a]pplicable industry standards and frameworks,” and the sensitivity, amount, and original source of the personal data when identifying reasonable and appropriate safeguards. The modifications also include provisions related to the processing of sensitive data inferences and specifies deletion requirements.
    • Reduce data protection assessment requirements. The modifications reduce the information that must be included in a controller’s data protection assessment.
    • Clarify privacy notice changes. The modifications clarify when a controller must notify a consumer of “substantive or material” changes to its data processing that trigger updates to its privacy notice. The modifications emphasize that disclosure of a new processing purpose in a privacy policy alone does not constitute valid consent.
    • Address refreshing of consumer consent. The modifications provide that consumer consent must be refreshed when a consumer has not interacted with the controller in the last 12 months, and (i) the controller is processing sensitive personal information; or (ii) is processing personal data for secondary data use that involves profiling for a decision that could result “in the provision or denial of financial or lending services, housing, insurance, education enrollment or opportunity, criminal justice, employment opportunities, health-care services, or access to essential goods or services.” However, controllers will not be required to refresh consent in situations where consumers have the ability to update their own opt-out preferences at any time.

    Comments on the second set of draft rules are due February 1. If the formal rulemaking hearing on the proposed rules (scheduled for February 1) extends beyond that date, comments must be received on or before the last day of the hearing.

    Privacy, Cyber Risk & Data Security State Issues State Attorney General Colorado Colorado Privacy Act Agency Rule-Making & Guidance

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