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CFPB releases TRID FAQs
On May 14, the CFPB released five new FAQs regarding housing assistance loans to assist with TILA-RESPA Integrated Disclosure Rule (TRID Rule) compliance. Highlights from the FAQs are listed below:
- The TRID Rule covers a loan if it: “[i] is made by a creditor as defined in § 1026.2(a)(17); [ii] is secured in full or in part by real property or a cooperative unit; [iii] is a closed-end, consumer credit (as defined in § 1026.2(a)(12)) transaction; [iv] is not exempt for any reason listed in § 1026.3; and [v] is not a reverse mortgage subject to § 1026.33.”
- Regulation Z exempts certain mortgage loans from the TRID disclosure requirements (i.e., providing the LE and CD) (the “Partial Exemption”). This exemption covers certain subordinate housing assistance loans. To qualify, “a transaction must meet all of the following criteria: [i] the transaction is secured by a subordinate-lien; [ii] the transaction is for the purpose of a down payment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies; property rehabilitation assistance; energy efficiency assistance; or foreclosure avoidance or prevention; [iii] the credit contract provides that it does not require the payment of interest; [iv] the credit contract provides that repayment of the amount of credit extended is: forgiven either incrementally or in whole, deferred for at least 20 years after the transaction, or until the sale of the property, or until the property securing the transaction is no longer the consumer’s principal dwelling; [v] the total of costs payable by the consumer in connection with the transaction only include recording fees, transfer taxes, a bona fide and reasonable application fee, and a bona fide and reasonable fee for housing counseling services[;] the application fee and housing counseling services fee must be less than one percent of the loan amount; [and] [iv] the creditor provides either the Truth-in-Lending (TIL) disclosures or the Loan Estimate and Closing Disclosure[.] Regardless of which disclosures the creditor chooses to provide, the creditor must comply with all Regulation Z requirements pertaining to those disclosures.”
- The BUILD Act includes a partial statutory exemption from the TRID disclosure requirements for similar transactions. To qualify for the Partial Exemption from the TRID disclosure requirements under the BUILD Act, the loan must be a residential mortgage loan, offered at a 0 percent interest rate, have only bona fide and reasonable fees, and be primarily for charitable purposes and be made by an organization described in Internal Revenue Code section 501(c)(3) and exempt from taxation under section 501(a) of that Code.
- If a housing assistance loan creditor opts for one of the partial exemptions under either the Regulation Z Partial Exemption or under the BUILD Act, they are excused from the requirement to provide the Loan Estimate and Closing Disclosure for that transaction. The Partial Exemption under Regulation Z does not excuse the creditor from providing certain other disclosures required by Regulation Z. If the creditor qualifies for the exemption under the BUILD Act, they have the option to provide the GFE, HUD-1 and Truth In Lending disclosures in lieu of the LE and CD at the creditor’s discretion.
Fed continues to allow bank insiders access to PPP loans
On May 14, the Federal Reserve Board announced the third extension of a temporary exception from the requirements of section 22(h) of the Federal Reserve Act and corresponding provisions of Regulation O to allow certain bank directors and shareholders to apply for Small Business Administration (SBA) Paycheck Protection Program (PPP) loans from their affiliated banks. The extension is effective immediately and applies to PPP loans made from March 31 through June 30. If the PPP is extended, the rule change will ultimately end on March 31, 2022. The Fed reiterated that any PPP loans extended to bank directors and shareholders must be consistent with SBA’s PPP lending restrictions and done without favoritism from the bank. The original extension was announced on April 17 (covered by InfoBytes here).
Fed will resume HMDA quarterly reporting
On May 14, the Federal Reserve’s Division of Consumer and Community Affairs issued a letter informing supervised financial institutions that HMDA quarterly reporting will resume beginning with institutions’ 2021 first quarter data, due on or before May 31, 2021, for all covered loans and applications with a final action taken date between January 1 and March 31, 2021. As previously covered by InfoBytes, last year the Fed eased quarterly HMDA reporting requirements during the Covid-19 pandemic in order to provide supervised institutions with flexibility to reallocate resources to serving customers. The Fed’s newest letter, which supersedes previous guidance, notes that it “does not intend to cite in an examination or initiate an enforcement action against any entity that did not make the quarterly filing for data collected in 2020.”
Senate moves to repeal OCC’s “true lender” rule
On May 11, the U.S. Senate passed S.J. Res. 15 by a vote of 52 - 47 to invoke the Congressional Review Act and provide for congressional disapproval and invalidation of the OCC’s “true lender" rule. Issued last year, the final rule amended 12 CFR Part 7 to state that a bank makes a loan when, as of the date of origination, it either (i) is named as the lender in the loan agreement or (ii) funds the loan. The final rule also clarified that if “one bank is named as the lender in the loan agreement and another bank funds the loan, the bank that is named as the lender in the loan agreement makes the loan.” (Covered by InfoBytes here.) In applauding the passage of the resolution, Senator Chris Van Hollen (D-MD), who introduced S.J. Res. 15, stated that “strik[ing] down the ‘Rent-A-Bank’ rule will help prevent predatory lenders from ripping off consumers by charging loan-shark rates under deceptive terms.” He noted that the legislation has support from a broad array of stakeholder and consumer protection groups, including a bipartisan group of state attorneys generals and the Conference of State Bank Supervisors, as previously covered by InfoBytes here.
Ranking member of the Senate Banking Committee, Senator Pat Toomey (R-PA) countered, however, that “[w]ithout the rule, the secondary market for these loans would be disrupted, which, again, disproportionately harms lower-income borrowers.” He further added that “[v]oting in favor of the CRA is a direct assault on fintech. It will make it harder for Congress to legislate here. It will make it harder for regulators to issue guidance and rules that promote fintech. Courts will see it as Congress buying into the notion that fintechs are ‘predatory’ lending. And it will scare away state legislatures from promoting fintech.”
S.J. Res. 15 now heads to the House of Representatives for consideration.
Fed proposes changes to its PSR Policy governing intraday credit
On May 7, the Federal Reserve Board issued a notice of proposed rulemaking (NPRM) seeking comments regarding proposed amendments to Regulation II, which implements Section 920 of the EFTA, that would require banks to ensure that two unaffiliated payment networks are available on their debit cards for online purchases. In a memo to the Board, Fed staff noted that due to the growth in online commerce, “card-not-present transactions have become an increasingly significant portion of all debit card transactions, and technology has evolved to enable multiple networks for these transactions.” However, “[d]espite this, two unaffiliated payment card networks are often not available to process card-not-present transactions, such as online purchases, because some issuers do not enable multiple networks for such transactions.” This outcome, Fed staff stated, is “inconsistent with Regulation II’s requirement that at least two unaffiliated networks be available to process each debit card transaction.”
The NPRM addresses this issue by amending Regulation II and its official commentary to (i) “clarify that the requirement that each debit card transaction must be able to be processed on at least two unaffiliated payment card networks applies to card-not-present transactions”; (ii) clarify requirements imposed “on debit card issuers to ensure that at least two unaffiliated payment card networks have been enabled for debit card transactions”; and (iii) “standardize and clarify the use of certain terminology.” Notably, Fed staff emphasized in their memo that the NPRM would not impact Regulation II’s provisions governing interchange fees for certain debit card transactions. As previously covered by InfoBytes, last month, two North Dakota trade associations filed a complaint against the Fed claiming that the agency has “failed to properly follow Congress’s instructions to ensure that debit-card processing fees are reasonable and proportional to the costs of debit-card transactions.”
The Fed published its report on debit card transactions in 2019, and noted it “will continue to review the parts of Regulation II that directly address interchange fees for certain electronic debit transactions in light of the most recent data collected by the Board pursuant to section 920 of the EFTA and may propose revisions in the future.”
CFPB Office of Servicemember Affairs releases annual report on servicemembers’ financial needs
On May 6, the CFPB’s Office of Servicemember Affairs (OSA) released its annual report, which provides an overview of OSA’s activities in fulfilling its statutory responsibilities for fiscal year 2020 and covers the period between January 1, 2020 to December 31, 2020. The report also addresses concerns raised by military consumers based on approximately 40,000 complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). Key takeaways from the report include the following:
- Financial help due to the Covid-19 pandemic. In response to Covid-19, the Bureau released an online resource “to highlight tools and information that consumers can use to protect themselves and manage their finances, including information on topics such as mortgage and housing assistance, student loans, and avoiding scams.” For servicemembers, the page connects to an OSA blog detailing resources that military personnel can use for immediate financial assistance and to sustain long-term financial well-being.
- Misadventures in Money Management (MiMM). MiMM serves as an online educational tool that provides young servicemembers with an important “baseline of financial education through the power of storytelling and gamification.”
- Consumer Financial Protection Week and Military Consumer Protection Month. OSA took part in a joint webinar with the CFPB’s Office of Older Americans and the Office of Community Affairs, which highlighted initiatives for vulnerable populations and emphasized the “importance of research in understanding the financial well-being of military consumers.” The webinar also unveiled the Bureau’s “first research report that studied how the credit records of young servicemembers coevolve with military service.”
- National Veterans and Military Families Month. During November 2020, OSA organized with other agencies and organizations to encourage the military community to leverage available resources to help improve their financial well-being. These initiatives included, among other things: (i) publishing OSA’s Debt and Delinquency after Military Service research report; (ii) participating in the Bureau’s Financial inTuition Repayment Podcast Series; and (iii) convening “a virtual military consumer webinar with partner agencies and organizations to discuss financial challenges facing servicemembers, veterans, and their families in the financial marketplace.”
- Education and empowerment. The Bureau also “deployed and amplif[ied] [its] financial education tools through partners, engaging servicemembers and military families at townhall-style listening sessions at military installations.”
CFPB argues eviction disclosure rule does not require false speech
On May 11, the CFPB urged the U.S. District Court for the Middle District of Tennessee to deny a request for a temporary injunction of a CFPB rule that would require all landlords to disclose to tenants federal protections put in place as a result of the ongoing Covid-19 pandemic, arguing that the rule does not require false speech and is justified by the First Amendment. As previously covered by InfoBytes, the plaintiffs, including members of the National Association of Residential Property Managers, sued the CFPB asserting the Bureau’s recently issued interim final rule (IFR) violates their First Amendment rights. The IFR amended Regulation F to require debt collectors to provide tenants clear and conspicuous written notice alerting them of their rights under the CDC’s moratorium on evictions in response to the Covid-19 pandemic (covered by InfoBytes here). The plaintiffs alleged that the IFR violates the First Amendment because it “mandates untrue speech and encourages plainly misleading speech” by requiring disclosures about a moratorium that has been challenged or invalidated by several federal courts, including the U.S. Court of Appeals for the Sixth Circuit. The CFPB asked the court not to grant the plaintiffs’ request for the temporary injunction, pointing out that the “plaintiffs fail to demonstrate that they are entitled to the extraordinary relief they seek.” The brief also notes that “requiring debt collectors to provide routine, factual notification of rights or legal protections that consumers ‘may’ have, in jurisdictions where the CDC Order applies, does not compel false speech and plainly passes First Amendment muster.”
Senators urge FinCEN to implement beneficial ownership database
On May 5, Senators Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), Chuck Grassley (R-IA), and Marco Rubio (R-FL) sent a letter to FinCEN’s Policy Division urging the implementation of a new company ownership database as a result of sweeping new anti-money laundering legislation. As previously covered in Infobytes, FinCen issued an advanced notice of proposed rulemaking (ANPRM) in March seeking comments on a range of issues related to the implementation of the beneficial ownership information requirements under the Corporate Transparency Act (CTA), which is included within the Anti-Money Laundering Act of 2021, enacted in January as part of the National Defense Authorization Act for Fiscal Year 2021. The Senators stress that “FinCEN should ensure that authorized users, including law enforcement and national security officials, and financial institutions with customer consent, have early, timely, and full access to beneficial ownership information.” The letter also notes that the passing of the CTA “represents perhaps the most important anti-money laundering reform of the past decade. Despite the legislative success, this achievement can only be realized if the system works in practice.” The letter requests FinCEN to promptly execute a straightforward, efficient, and effective system.
Fed shaping “novel institutions” guidelines
On May 5, the Federal Reserve Board issued a notice and request for comments on proposed guidelines for evaluating account and service requests that would allow companies with “novel types of banking charters” to access the Fed’s payments system. Among other things, the notice outlines six proposed principals for Reserve Banks to consider when an institution requests access. These include:
- Whether the institution is eligible under federal statute to maintain an account at a Federal Reserve Bank and has a “well-founded, clear, transparent, and enforceable legal basis for its operations.”
- Whether the provision of an account and services to an institution would “present or create undue credit, operational, settlement, cyber or other risks to the Reserve Bank.”
- Whether the provision of an account and services to an institution would “present or create undue credit, operational, settlement, cyber or other risks to the overall payment system.”
- Whether the provision of an account and services to an institution would “create undue risk to the stability of the U.S. financial system.”
- Whether the provision of an account and services to an institution would “create undue risk to the overall economy by facilitating activities such as money laundering, terrorism financing, fraud, cybercrimes, or other illicit activity.”
- Whether the provision of an account and services to an institution would “adversely affect the Federal Reserve’s ability to implement monetary policy.”
“With technology driving rapid change in the payments landscape, the proposed Account Access Guidelines would ensure requests for access to the Federal Reserve payments system from novel institutions are evaluated in a consistent and transparent manner that promotes a safe, efficient, inclusive, and innovative payment system, consumer protection, and the safety and soundness of the banking system,” Fed Governor Lael Brainard said in the announcement.
If the Fed decides to grant an access request, “it may impose (at the time of account opening, granting access to service, or any time thereafter) obligations relating to, or conditions or limitations on, use of the account or services as necessary to limit operational, credit, legal, or other risks posed to the Reserve Banks, the payment system, financial stability or the implementation of monetary policy or to address other considerations,” the notice stated, adding that the “account-holding Reserve Bank may, at its discretion, decide to place additional risk management controls on the account and services, such as real-time monitoring of account balances, as it may deem necessary to mitigate risks.”
Comments on the proposal are due 60 days following publication in the Federal Register.
FHA clarifies timing to review Covid-19 loss mitigation options for borrowers
On May 7, FHA issued a notice clarifying when it is appropriate to begin reviewing borrowers for loss mitigation options outlined in the “Review of Borrowers in a Pandemic-Related Forbearance for a Covid-19 Loss Mitigation Option.” The notice acknowledges that some mortgagees are unsure about when to start reviewing borrowers for Covid-19 loss mitigation options. The notice points out that FHA requires mortgagees to review borrowers for Covid-19 loss mitigation options “upon the completion or expiration of the borrower forbearance period.” For clarifying purposes, however, the notice highlights that mortgagees may review borrowers for Covid-19 loss mitigation options “at any point prior to the completion or expiration of their COVID-19 or other pandemic-related forbearance period.” Not only is it permissible for a mortgagee to undertake a loss mitigation review before the borrower exits forbearance, FHA actually urges mortgagees to review borrowers for available Covid-19 loss mitigation options “as soon as practicable as these options are designed to help borrowers resolve their delinquencies and avoid foreclosure.”