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On November 3, the House Financial Services Subcommittee on Consumer Protection and Financial Institutions held a hearing titled “Cyber Threats, Consumer Data, and the Financial System.” The hearing examined cybersecurity and consumer data protection challenges for financial institutions, discussed agencies efforts to strengthen cyber defenses for financial institutions, and reviewed the current legal framework governing data security. According to a committee memorandum, cyberattacks on banks are increasing in number. In the first half of 2021, banks and credit unions saw a 1,318 percent increase in ransomware attacks. In written testimony, one of the witnesses expressed his concern regarding the technological disparity between minority depository institutions (MDI) and large banks, observing that “cultural shifts inside the financial services industry, including the core processors and regulators, are necessary to help MDIs better orient themselves to meet new customer demands.” Another witness discussed in his written testimony support for the NCUA to obtain data security and privacy authority over third-party vendors, which is an authority currently given to other federal agencies. Among other things, the hearing addressed several bills on cybersecurity and consumer protection: (i) Safeguarding Non-bank Consumer Information Act; (ii) Strengthening Cybersecurity for the Financial Sector; and (iii) Enhancing Cybersecurity of Nationwide Consumer Reporting Agencies Act. Specifically, one of the witnesses in his written testimony recommended that Congress revise the definition of “data aggregators” in the Safeguarding Non-bank Consumer Information Act to ensure that it covers non-financial institution entities and individuals.
On June 17, President Biden signed S. 475 establishing June 19, Juneteenth, as a federal holiday. The “Juneteenth National Independence Day Act” amends 5 U.S.C. § 6103(a) which codifies the legal public holidays. Because June 19 falls on a Saturday this year, the holiday will be observed on Friday, June 18.
The establishment of a new federal holiday mere hours before the first observance of that holiday poses novel compliance challenges for the mortgage industry. Notably, both TRID and TILA rescission requirements have important timing standards that reference federal holidays.
Under TRID, the Loan Estimate must be provided to the consumer at least seven business days prior to consummation, and the Closing Disclosure must be provided to the consumer at least three business days prior to consummation. For purposes of these requirements, “business day” is defined as “all calendar days except Sundays and legal public holidays” as specified in 5 U.S.C. § 6103(a). As the holiday occurs on a Saturday this year, Saturday, June 19 is not a “business day” for purposes of calculating either the 7-business day waiting period after delivery of the Loan Estimate or the 3-business-day waiting period after delivery of the Closing Disclosure. Commentary to Regulation Z also states that, for purposes of rescission and the provision of mortgage disclosures, when a federal holiday falls on a Saturday but is observed on the preceding Friday, the observed holiday is a business day.
Accordingly, for purposes of providing the Loan Estimate at least seven business days prior to closing and the Closing Disclosure at least three business days prior to closing, lenders may not count Saturday, June 19, as a business day, but must count Friday, June 18, as a business day. Absent clarification from the CFPB, lenders are advised to push closings back one day where they were previously counting Saturday (June 19) as a business day. For example, if a Closing Disclosure was received by the consumer on Thursday, June 17, closing may not occur until Tuesday, June 22.
A rescission period expires on midnight on the third business day after closing and uses the same definition of business days, which is “all calendar days except Sundays and legal public holidays.” As such, Saturday, June 19 this year is not a “business day” for purposes of the 3-business day rescission period and lenders should ensure that consumers are provided an extra day where the rescission period encompasses June 19, and are made aware of that extension. This raises unique funding and Notice of Right to Cancel disclosure related questions, the answers to which may depend on individual facts and circumstances. Absent further guidance from the CFPB, creditors may wish to delay closing by one day for those transactions where the three-day Closing Disclosure period is relevant, as well as consider providing updated Notices of Right to Cancel with a new rescission period taking into account both the new public holiday and when such new notice is sent.
On June 18, CFPB acting Director Dave Uejio issued a statement recognizing that "some lenders did not have sufficient time after the Federal holiday declaration to consider whether and how to adjust closing timelines" and that "some lenders may delay closings to accommodate the reissuance of disclosures adjusted for the new Federal holiday." Uejio further noted that "TILA and TRID requirements generally protect creditors from liability for bona fide errors and permit redisclosure after closing to correct errors." He added that any guidance ultimately issued by the Bureau "would take into account the limited implementation period before the holiday and would be issued after consultation with the other FIRREA regulators and the Conference of State Bank Supervisors to ensure consistency of interpretation for all regulated entities."
On May 19, acting FTC Chairwoman Rebecca Kelly Slaughter published a letter reaffirming the need to restore the Commission’s ability to return money to harmed consumers following the U.S. Supreme Court’s decision in FTC v. AMG Capital Management. As previously covered by InfoBytes, on April 22, the Court unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.” Last month, Slaughter testified before both House and Senate subcommittees on the need for Congressional action to clarify Section 13(b) and affirmatively confirm the FTC’s authority to seek permanent injunctions and other equitable relief for violations of any law under its enforcement authority (covered by InfoBytes here).
Slaughter’s letter, directed to Senators Maria Cantwell (D-WA) and Roger Wicker (R-MS)—the chair and ranking member of the Senate Committee on Commerce, Science, and Transportation, respectively—addressed several issues raised by the U.S. Chamber of Commerce concerning recently introduce legislation (see H.R. 2668), which is intended to restore the FTC’s ability under Section 13(b) to seek consumer compensation in antitrust and consumer protection cases. Among other things, Slaughter disagreed with the Chamber’s position that Congress always intended for Section 13(b) to be used only in so-called “fraud cases.” She pointed to a 1994 action, in which Congress “directly ratified the FTC’s reliance on Section 13(b) in all manner of cases by expanding its venue and service of process provisions without placing any limitations on the types of cases to which Section 13(b) applies,” and noted that to date, the FTC has obtained billions of dollars of monetary relief for consumers, many of which were in non-fraud consumer protection cases. According to Slaughter, limiting the FTC’s ability to seek monetary relief to only “cases involving ‘egregious’ frauds” would allow companies and individuals “adjudicated to have engaged in unfair, deceptive, or anticompetitive practices” to keep money earned from unlawful conduct at the expense of harmed consumers.
Slaughter also emphasized that limiting Section 13(b) to only ongoing or imminent conduct does not make sense. Waiting for violations to recur in order to obtain a federal court injunction, Slaughter argued, “creates weak incentives for compliance, and is an inefficient enforcement mechanism that will result only in more consumer harm.” In addressing the Chamber’s concern that statutory fix proposals lack a statute of limitations for monetary relief under Section 13(b), Slaughter emphasized that H.R. 2668 would provide a 10-year limit on monetary relief.
On May 13, the U.S. House passed, by a vote of 215-207, H.R. 2547, which would provide additional financial protections for consumers and place several restrictions on debt collection activities. Known as the “Comprehensive Debt Collection Improvement Act,” H.R. 2547 consolidates 10 separate proposed consumer protection bills into one comprehensive package.
Provisions under the package would cover:
- Confessions of Judgment (COJs). The bill would amend TILA and expand the ban on COJs to cover small business owners and merchant cash advance companies.
- Servicemembers. The bill would amend the FDCPA to prohibit debt collectors from threatening servicemembers, including by representing to servicemembers that failure to cooperate will result in a reduction of rank, revocation of their security clearance, or prosecution. Covered debtors would include active-duty service members, those released from duty in the past year, and certain dependents.
- Student Loans. The bill would amend TILA to require the discharge of private student loans in the case of a borrower’s death or total and permanent disability.
- Medical Debt. The bill would amend the FDCPA by making it an unfair practice to “engag[e] in activities to collect or attempt to collect a medical debt before the end of the 2-year period beginning on the date that the first payment with respect to such medical debt is due.” The bill would also amend the FCRA to, among other things, bar entities from collecting medical debt or reporting it to a consumer reporting agency without providing a consumer notice about their rights.
- Electronic Communication. The bill would amend the FDCPA to limit a debt collector from contacting a consumer by email, text message, or direct message on social media without receiving the debtor’s permission to be contacted electronically. It would also prevent debt collectors from sending unlimited electronic communications to consumers.
- Other Debt Provisions. The bill would (i) expand the definition of debt covered under the FDCPA to include money owed to a federal agency, states, or local government; certain personal, family, or household transactions; and court debts; (ii) restrict federal agencies from transferring debt to a collector until at least 90 days after the obligation becomes delinquent or defaults; (iii) require agencies to notify consumers at least three times—with notifications spaced at least 30 days apart—before transferring their debt; and (iv) limit the fees debt collectors can charge.
- Penalties. The bill would require the CFPB to update monetary penalties under the FDCPA for inflation. It would also (i) clarify that courts can award injunctive relief; (ii) cap damages in class actions; and (iii) add protections for consumers affected by national disasters.
- Non-Judicial Foreclosures. The bill would amend the FDCPA to clarify that companies engaged in non-judicial foreclosure proceedings are covered by the statute.
- Legal Actions. The bill would amend the FDCPA to outline requirements for debt collectors taking legal action to collect or attempt to collect a debt, including providing a consumer with written notice, as well as documents showing the consumer agreed to the contract creating the debt, and a sworn affidavit stating the applicable statute of limitations has not expired.
On April 27, acting FTC Chairwoman Rebecca Kelly Slaughter asked the House Energy and Commerce Subcommittee on Consumer Protection and Commerce to pass legislation to clarify Section 13(b) of the FTC Act and restore the Commission’s ability to return money to harmed consumers following the U.S. Supreme Court’s decision in FTC v. AMG Capital Management. As previously covered by InfoBytes, on April 22, the Court unanimously reduced the FTC’s powers by holding that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.”
Section 13(b), Slaughter testified, has been “the agency’s primary and most effective way of returning money to consumers,” as it authorizes the Commission to sue directly in federal court for violations of the FTC Act. Until recently, “seven of the twelve courts of appeals, relying on longstanding Supreme Court precedent, interpreted the language in Section 13(b) to authorize district courts to award the full panoply of equitable remedies necessary to provide complete relief for consumers, including disgorgement and restitution of money,” Slaughter emphasized, noting, however, that a shift in recent court interpretations of Section 13(b) has “significantly limited the Commission’s primary and most effective tool for providing refunds to harmed consumers.” Slaughter also stressed that “if Congress does not act promptly, the FTC will be far less effective in its ability to protect consumers and execute its law enforcement mission.”
H.R. 2668, introduced by House Democrats, seeks to affirmatively confirm the FTC’s authority to seek permanent injunctions and other equitable relief for violations of any law under its enforcement authority. In her prepared statement, Slaughter told the Subcommittee that legislation such as H.R. 2668 is “urgently needed to address legal challenges to critical authority that enables the FTC to do its job of protecting consumers and competition.” She further noted that legislation is needed to ensure that the FTC is able to prevent harmful conduct from reoccurring. Slaughter pointed to two recent decisions issued by the U.S. Court of Appeals for the Third Circuit that reinterpreted Section 13(b) and “jeopardize[d] the FTC’s ability to enjoin illegal conduct in federal court.” The decisions “hamper the Commission’s longstanding ability to protect consumers by enjoining defendants from resuming their unlawful activities when the conduct has stopped but there is a reasonable likelihood that the defendants will resume their unlawful activities in the future,” she stated.
On March 11, President Biden signed the American Rescue Plan Act of 2021 (the Act), which will, among other things, extend certain emergency authorities and temporary regulatory relief contained in the CARES Act to address the continued impact of the Covid-19 pandemic. Under a section titled, “Committee on Small Business and Entrepreneurship,” the Act will provide an additional $7.25 billion for the Paycheck Protection Program (PPP), extend the eligibility of certain nonprofit entities for covered loans under the PPP, and amend certain aspects of the program allowing for certain businesses to take second loans. However, the Act does not actually extend the PPP, which is currently set to expire on March 31 (covered by InfoBytes here). The Act also allocates nearly $10 billion through the Homeowner Assistance Fund to allow eligible entities to provide direct assistance for mortgage payments, property insurance, utilities, and other housing-related costs to help prevent delinquencies, defaults, and foreclosures. Moreover, a provision related to fair housing activities provides $20 million “to ensure fair housing organizations have additional resources to address fair housing inquiries, complaints, investigations, and education and outreach activities, and costs of delivering or adapting services, during or relating to the coronavirus pandemic.” Additionally, the Act provides $15 billion for Economic Injury Disaster Loan (EIDL) advance payments, including $5 billion for supplemental targeted EIDL advance payments for the hardest hit.
In addition to providing Covid-19 relief, the Act also includes, among other things, a section that modifies the treatment of student loan forgiveness. Specifically, Section 9675 will exclude from gross income any amount of student loan debt that is modified or discharged (in whole or in part) after December 31, 2020, and before January 1, 2026. The tax exemption will include federal, private, and institutional loans. According to a press release issued by Senators Bob Menendez (D-NJ) and Elizabeth Warren (D-MA), the provision is intended to “ensur[e] borrowers whose debt is fully or partially forgiven are not saddled with thousands of dollars in surprise taxes.”
On February 24, the House Financial Services Committee’s Subcommittee on Oversight and Investigations held a hearing entitled “How Invidious Discrimination Works and Hurts: An Examination of Lending Discrimination and Its Long-term Economic Impacts on Borrowers of Color.” The subcommittee’s memorandum regarding the hearing discussed the importance of exploring “available tools and potential legislative solutions to detect hidden discrimination and deter discrimination in lending and housing,” and addressed topics such as modern-day redlining, racial wealth gaps, and matched-pair testing (a method for detecting impermissible differences in treatment based on protected classes).
Subcommittee members also discussed recently introduced H.R. 166, the “Fair Lending for All Act,” which would, among other things: (i) direct the CFPB to establish an Office of Fair Lending Testing charged with testing creditors’ ECOA compliance, and permit the Bureau to refer ECOA violations to the attorney general for appropriate action; (ii) extend the protected classes under the law to sexual orientation, gender identity, and an applicant’s location based on zip code or census tract; (iii) establish criminal penalties under ECOA for knowing and willful violations of prohibited credit discrimination, including personal liability for executive officers and directors; (iv) require the Bureau to review loan applications for compliance with ECOA and other federal consumer laws; and (v) amend HMDA Section 304(b)(4) to add the new prohibited credit discrimination categories.
On January 8, the Small Business Administration (SBA) announced the Paycheck Protection Program (PPP) will re-open the week of January 11, with only community financial institutions able to make “First Draw” PPP loans on Monday, January 11, and “Second Draw” PPP loans on Wednesday, January 13 (re-opening to all participating lenders “shortly thereafter”). The SBA also released two interim final rules and associated guidance relating to the relaunch of the PPP, as dictated by the Consolidated Appropriations Act, 2021 (HR133). The Act, which was signed by President Trump on December 27, extends certain emergency authorities and temporary regulatory relief contained in the CARES Act, including an extension of the eviction moratorium until January 31. Under a section titled, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), the legislation also provides an additional $284 billion for the PPP, extending the authority to make PPP loans through March 31, amending certain aspects of the program, and allowing for certain businesses to take second loans. The SBA notes that the new issuances satisfy the Economic Aid Act’s requirement that the agency promulgate rules to carry out the PPP provisions within 10 days of enactment:
- SBA Guidance. The guidance covers access to capital for minority, underserved, veteran, and women-owned business concerns and details the set-asides for loans issued by community development financial institutions, minority depository institutions, and certain small depository institutions. Most notably, the guidance states that the SBA will only accept PPP loan applications from community financial institutions for at least the first two days when the PPP loan portal re-opens.
- First Interim Final Rule. The interim final rule incorporates the Economic Aid Act’s amendments required to be implemented by regulation within 10 days of enactment. It also consolidates and restates SBA’s previous interim final rules and guidance covering the PPP (such as those governing borrower eligibility, lender eligibility, and PPP application and origination, and loan forgiveness). The interim final rule implements the various changes to the PPP made by the Economic Aid Act, including:
- Allowing additional expenses and forgivable uses for PPP funds, including certain operational expenditures, certain costs related to property damage due to public disturbances that occurred during 2020, certain supplier costs, and certain protective equipment expenditures. The expanded forgivable expenses may be utilized by borrowers who obtained PPP loans before the enactment of the Act so long as they have not already had their loans forgiven.
- Provisions stating that lenders (i) may rely on any certification or documentation submitted by applicants for both initial and second PPP loans, and (ii) may not be subject to enforcement action or penalties relating to loan origination or forgiveness, so long as (a) the lender acts in good faith relating to loan origination or forgiveness, and (b) all relevant federal, state, local and other statutory and regulatory requirements are satisfied.
- Certain streamlined conditions for loans of up to $150,000, including simplified loan forgiveness application and simplified certification of revenue for second loans.
- Second Interim Final Rule- PPP Second Draw. The interim final rule implements the key provisions of section 311 of the Economic Aid Act, allowing for a second PPP draw. Specifically, the Economic Aid Act allows for certain businesses to take a second loan under the PPP with a maximum draw amount of $2 million. In order to qualify, businesses must generally: (i) employ no more than 300 employees; (ii) have used or will use the full amount of their first PPP loan; and (iii) demonstrate at least a 25 percent reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same quarter in 2019. Applications submitted after January 1, 2021 can utilize gross receipts from the fourth quarter of 2020. Additionally, the Economic Aid Act includes restrictions on types of eligible businesses, including entities involved in political and lobbying activities. Qualified borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs during the 1-year period prior to the date of the loan or in calendar year 2019.
Additionally, in response to the Consolidated Appropriations Act, the Federal Reserve Board extended the termination date of the Main Street Lending Program facilities to January 8, in order to allow more time to process and fund loans that were submitted to the portal on or before December 14, 2020. The SBA also extended the deadline to apply for the Economic Injury Disaster Loan (EIDL) program to December 31, pending the availability of funds.
On January 1, the U.S. Senate voted to override President Trump’s veto of the National Defense Authorization Act (NDAA) for Fiscal Year 2021, following a similar vote in the House a few days prior. As previously covered by InfoBytes, the NDAA includes significant changes to the Bank Secrecy Act (BSA) and anti-money laundering (AML) laws under the Anti-Money Laundering Act of 2020, such as:
- Establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”;
- Expanding the declaration of purpose of the BSA and establishing national examinations and supervision priorities;
- Requiring streamlined, real-time reporting of Suspicious Activity Reports;
- Establishing a Subcommittee on Innovation and Technology within the Bank Secrecy Act Advisory Group to encourage and support technological innovation in the area of AML and countering the financing of terrorism and proliferation (CFT);
- Expanding the definition of financial institution under the BSA to include dealers in antiquities;
- Requiring federal agencies to study the facilitation of money laundering and the financing of terrorism through the trade of works of art; and
- Including digital currency in AML-CFT enforcement by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.”
On December 11, the U.S. Senate passed the National Defense Authorization Act (NDAA) for Fiscal Year 2021 in a 84-13 vote, which was passed by the U.S. House of Representatives earlier in the week. As previously covered by InfoBytes, the NDAA includes a number of anti-money laundering provisions, such as (i) establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”; (ii) expanding the declaration of purpose of the Bank Secrecy Act (BSA) and establishing national examinations and supervision priorities; (iii) requiring streamlined, real-time reporting of Suspicious Activity Reports; (iv) expanding the definition of financial institution under the BSA to include dealers in antiquities; and (v) including digital currency in the AML-CFT enforcement regime by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.” The NDAA has been sent to President Trump, who has publicly threatened to veto the measure; however, the legislation passed both the Senate and the House with majorities large enough to override a veto.