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CFPB reports on veterans’ financial hurdles despite legislative wins
On November 1, the CFPB published a broad summary of several findings regarding how financial institutions may not be doing all they can to help service members under federal legislation. For instance, in 2022, the CFPB found that service members were losing $10 million a year in savings in eligible auto and personal loans. Last month, the CFPB released a similar study on how credit card companies were also limited in giving all the benefits they could offer under the SCRA. Loans aside, military payroll allotments provide financial companies with a way to force automatic payments––something the CFPB acknowledges is “ripe for abuse.” The CFPB worked with the DOD to close loopholes that could exploit servicemembers. Additionally, military identity theft in 2023 is still an ongoing issue, as has been previously covered by InfoBytes here. But in October the CFPB found that Transunion had failed to provide crucial identity theft protection for thousands of individuals, including active-duty members of the military. There are also issues with supposed consulting services: “Earlier this year, the CFPB published a joint WARNO with the VA on unaccredited individuals and organizations and the CFPB is working closely with federal and state agencies to protect veterans’ benefits.”
The CFPB notes it will “continue to work with all our partners as the financial marketplace evolves so we can understand the unique needs and challenges of members of the military community. If you have a problem with a financial product or service, submit a complaint to us, and we’ll work to get you a response.”
CFPB releases report on state community reinvestment acts
On November 2, the CFPB issued a report on several states’ community reinvestment laws. The report focused on how much outstanding mortgage debt banks hold in the residential mortgage market: in 1977, “banks held 74 percent of outstanding mortgage debt. By 2007, this share had declined to just 28 percent.”
In 1977, Congress passed the Community Reinvestment Act (CRA) to combat redlining practices that prevailed despite the passing of the Fair Housing Act of 1968 and the Home Mortgage Disclosure Act of 1975. While the federal CRA applies to banks only, many states created their community reinvestment laws to cover non-bank mortgage companies, including CT, IL, MA, NY, RI, WA, WV, and DC.
Key findings from the CFPB's report are below:
- Some states require mortgage companies to provide affirmative lending, service delivery, and investment services;
- Some states conduct independent examinations, while other states review federal performance evaluations in conjunction with state factors;
- Enforcement includes limitations on mergers, acquisitions, branching activities, and licensing;
- Some states collect information beyond federal requirements for evaluation; and
- Some state acts have been amended in response to market changes.
The CFPB finds that states play an active role in promoting reinvestment by institutions, but further review is necessary to understand these developments.
FHA updates guidance on sales comparison grid for manufactured homes
On November 2, the FHA released a mortgage letter (ML) updating the sales comparison approach for manufactured homes. The update to the FHA’s rule affects how real estate appraisers will now appraise manufactured homes using the sales comparison approach (SCA) grid. The SCA is the mix of attributes in a home that determine its value (e.g., floor area, features, location, number of bathrooms, lot size, etc.). A manufactured home is a home unit constructed entirely off-site and then shipped on-site. According to the FHA’s ML, this letter “updates the exception in the Sales Comparison Approach for Manufactured Housing (II.D.5.k) section of the Single-Family Housing Policy Handbook 4000.1” by aligning the “FHA[’s] insurance guidelines with the requirements from Fannie Mae and Freddie Mac programs.”
HUD Secretary Marcia L. Fudge spoke on this change, stating “[t]he critical step we're taking today ensures HUD is in alignment with our industry partners, and it will make more quality affordable housing available to people across the country.”
FSOC approves analytic framework for financial stability risks and guidance on nonbank financial company determinations
On November 3, the Financial Stability Oversight Council (FSOC) announced that it unanimously voted to issue the final versions of a new analytic framework regarding financial stability risks, in addition to updated interpretive guidance on the council’s nonbank designation guidance. The analytic framework indicates vulnerable points that commonly contribute to financial stability risks, and it explains how FSOC may address the risks, including interagency coordination, recommendations to regulators, or the designation of certain entities. The nonbank designation guidance establishes how the council determines whether a given nonbank should be under the Fed’s supervision and prudential standards under Section 113 of Dodd-Frank. In April, FSOC released the proposed analytic framework and the proposed nonbank designation guidance (as covered by InfoBytes here) and opened a comment period on the proposals.
FSOC adopted key changes in consideration of public comments on the proposed framework, including (i) clarifications to the interpretation of “threat to financial stability”; (ii) more examples of quantitative metrics considered in its analysis; (iii) expanded discussion of transmission channels; and (iv) additional emphasis on FSOC’s engagement with state and federal financial regulatory agencies regarding risk. Comments directed at the interpretive guidance were addressed, and some changes are reflected in the framework. Both CFPB Director Rohit Chopra and OCC Acting Comptroller Michael J. Hsu issued statements supporting the issuance of the interpretive guidance and the framework. Chopra commented that FSOC’s actions to evaluate whether any “shadow bank” meets the statutory threshold for enhanced oversight are essential in preventing potential threats to financial stability. Hsu also noted the significance of leveraging Dodd-Frank's tools for “monitoring and mitigating risks to U.S. financial stability.”
The analytic framework will be effective upon publication in the Federal Register, and the nonbank designations guidance will be effective 60 days after publication in the Federal Register.
Agencies revise TCPA examination procedures
On November 2, the OCC published revisions to the interagency examination procedures for the Telephone Consumer Protection Act (TCPA), which are utilized by the FDIC, NCUA, and the OCC. The OCC also announced that it is rescinding the “‘Telephone Consumer Protection Act and Junk Fax Protection Act’ section of the ‘Other Consumer Protection Laws and Regulations’ booklet of the Comptroller’s Handbook” and explained that OCC examiners will rely on the new interagency procedures.
The revisions were made to reflect amendments to the TCPA that became effective on October 25, 2021. “The revised interagency examination procedures address:
- provisions governing how customers can revoke consent under the TCPA;
- special exemptions from the customer consent provisions of the TCPA for banks using automated communications to notify customers of potential account fraud; and
- safe harbors for callers that check a reassigned number database maintained by the Federal Communications Commission.”
The revised examination procedures booklet can be found here.
FHA announces update and consolidation of the HECM program
On October 31, the Federal Housing Administration (FHA) announced, after a multi-year effort, the inclusion of policies for its Home Equity Conversion Mortgage (HECM) program in the Single-Family Housing Policy Handbook 4000.1. The FHA indicated this is the first time that all HECM program requirements will be available in a single place. According to the FHA, consolidating these programs eliminates more than one hundred individual policy documents and assist with strengthening the understanding and implementation of the HECM by lenders. New sections include Section II.B covering FHA policy for the origination through post-closing and endorsement of HECMs; and Section III.B, covering FHA policy for the servicing of HECMs and loss mitigation options to assist HECM borrowers who are behind on their HECM obligations. Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon stated that the “completion of the HECM sections of our Single Family Handbook reinforces FHA’s commitment to the HECM program and is part of a larger effort to retool the program for long-term success.” The FHA also updated model documents, frequently asked questions, and training and expects the online version to be available soon.
Fed seeks comment on lowering the interchange fee for debit card issuers
On October 25, the Fed announced a proposed rule that would lower the maximum interchange fee that a debit card issuer with at least $10 billion in total consolidated assets can receive for a debit card transaction and would also establish a regular process for updating the maximum fee amount every other year going forward. Moreover, the Board approved the release of its latest biennial report which sets forth data collected from larger debit card issuers on interchange fees, issuer costs, and fraud related to debit card transactions.
Under the Dodd-Frank Act, the Fed is required to establish standards for assessing whether the amount of any interchange fee received by a debit card issuer is reasonable and proportional to the costs incurred by the issuer for the applicable transaction, which results in the Fed setting an interchange fee cap. The FRB developed the fee cap in 2011 using data provided by large debit card issuers with $10 billion or more in assets. But since that time, the Fed has found that certain costs incurred by such debit card issuers have declined dramatically, yet the interchange fee cap has remained the same. As such, the Fed (i) proposes to update the interchange fee cap based on the latest data reported to the Board by large debit card issuers, and (ii) proposes to update the fee cap every other year by linking the fee cap to data from the Fed’s biennial report of large debit card issuers.
The comment period will close 90 days after the proposal is published in the Federal Register.
District Court grants 1071 Rule nationwide stay
On October 26, the U.S. District Court of the Southern District of Texas entered an order granting intervenors’ motions for preliminary injunction against the CFPB and its small business loan rule.
As previously covered by InfoBytes, the district court entered an order in August enjoining enforcement of the rule pending the Supreme Court’s decision in Consumer Financial Protection Bureau v. Community Fin. Serv. of Am. and extending the rule’s compliance date to account for the tine the stay remained in place. The court, however, limited that relief to the plaintiffs at that time—a bank and two bank trade associations—and their members. In the wake of this ruling, separate trade associations representing small business lenders asked the CFPB to take administrative action to ensure that the compliance date for other lenders would be adjusted commensurately. The CFPB declined their request.
In response, separate groups of intervenor plaintiffs, including trade associations representing other types of small business lenders, intervened in the action and filed motions seeking to expand the scope of the preliminary injunction to all affected lenders (or at least their members), claiming the court’s decision to spare some from the rule put them at a competitive disadvantage. The CFPB opposed those motions (covered by InfoBytes here).
In its most recent order, the court reasoned that the preliminary injunction should extend to intervenors because the CFPB lacked evidence supporting its argument that that greater harm would result from a stay on its 1071 rule and “its intended benefits for small businesses failed to tip the balance in their favor.” The court reasoned that the purpose of the statute underlying the Bureau’s final rule is the equal application of lending laws to all credit applications to avoid disparate outcomes, presuming uniform application to covered financial institutions. Therefore, to exempt plaintiffs and not all other covered financial institutions would undermine the statute, leaving “non-exempted lenders subject to the discretion of an agency whose very ability to act is a matter of constitutional concern pending resolution on a nationwide scale.” Under that reasoning, the district court granted plaintiffs’ motions for preliminary injunction, enjoining the CFPB from implementing its 1071 Rule for small business lending.
FDIC issues NPR to revise Federal Deposit Insurance Act regulations on Section 19
On October 24, FDIC announced a proposed rule to implement the Fair Hiring in Banking Act (FHB Act). The proposed rule amends 2 C.F.R. part 303, subpart L, and part 308, subpart M. The Federal Deposit Insurance Act (FDI Act) prohibits a person from participating in the affairs of an FDIC-insured institution if he or she has been convicted of an offense involving dishonesty, breach of trust, or money laundering, or has entered a pretrial diversion or similar program in connection with a prosecution for such an offense, without the prior written consent of the FDIC, among other provisions. The proposed rule would incorporate several statutory changes to the FDI Act, such as:
- Excluding certain offenses from the scope of the FHB Act based on the amount of time that has passed since the offense occurred or since the individual was released from incarceration;
- Clarifying that the FHB Act does not apply to the following offenses, if one year or more has passed since the applicable conviction or program entry: using fake identification, shoplifting, trespassing, fare evasion, and driving with an expired license or tag;
- Excluding certain offenses from the definition of “criminal offenses involving dishonesty,” including “an offense involving the possession of controlled substances”;
- Excluding certain convictions from the scope of the FHB Act that have been expunged, sealed, or dismissed. While existing FDIC regulations already exclude most of those offenses, the proposed rule would modestly broaden the statutory language concerning such offenses to harmonize the FDIC’s current regulations concerning expunged and sealed records with the statutory language; and
- Prescribing standards for the FDIC’s review of applications submitted under the FHB Act.
The proposed rule also provides interpretive language that addresses, among other topics, when an offense “occurs” under the FHB Act, whether otherwise-covered offenses that occurred in foreign jurisdictions are covered by the FDI Act, and offenses that involve controlled substances.
Comments will be accepted for 60 days after publication in the Federal Register.
Agencies extend comment period on proposed rules to strengthen large bank capital requirements
On October 20, the Fed issued a joint press release with the FDIC and the OCC announcing the extension of the comment period on proposed rules to expand large bank capital requirements. Earlier this year, the agencies announced the proposed rule which would implement the final components of the Basel III Agreement. The components would revise capital requirements for large banking organizations, among other things. (Covered by InfoBytes here.) Adding an additional six weeks (from the original 120-day comment period set to expire on November 30), the new comment period deadline is by January 16, 2024.