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Financial Services Law Insights and Observations


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  • New York AG warns mortgage servicers of obligation to help homeowners affected by Covid-19

    State Issues

    On December 13, New York Attorney General Letitia James sent a letter warning mortgage servicers operating in the state of their obligation to help homeowners impacted by the Covid-19 pandemic. The letter, which was also sent to mortgage industry trade associations, reiterated that mortgage servicers are expected to comply with New York law and federal regulations and guidelines when providing long-term relief to affected homeowners. James also announced “that the Office of the Attorney General’s (OAG) Mortgage Enforcement Unit (MEU) will be helping to oversee the distribution of New York state’s Homeowner Assistance Fund (HAF) announced last week by New York Governor Kathy Hochul.” According to the letter, HAF funds “may be used to pay off arrears or reduce mortgage principal so that homeowners can qualify for an affordable loan modification.” However, James stressed that these funds “must supplement rather than replace the mortgage industry’s own efforts,” adding that mortgage servicers must “play their part by offering homeowners all available loss mitigation options before that homeowner seeks an outside HAF grant, in order to help the program save as many homes as possible.” MEU will contact the mortgage industry, including New York legal services and housing counseling agencies, to provide additional information on the HAF application process. MEU will also be responsible for reviewing HAF applications to determine whether homeowners have been presented all available and affordable loan modification options.

    James’ announcement stated that mortgages servicers are also expected to comply with streamlined modification programs offered by various federal agencies, Fannie Mae, and Freddie Mac, and must also “provide comparable relief (pursuant to New York state Banking Law § 9-x and New York’s mortgage servicing regulations) to homeowners whose mortgages are owned by private investors through private label securities or by banks in their own portfolios.” Mortgage servicers should also prepare for surges in requests for assistance, and will be held responsible for staffing shortages and poor customer communications, James warned. She noted in her letter that the OAG is “currently investigating whether certain servicers of privately-owned mortgages have failed to offer homeowners the forbearance relief and post-forbearance modifications required by New York Banking Law § 9-x,” and emphasized that the OAG “will continue to monitor compliance and initiate enforcement actions against individual mortgage servicers as needed to protect New York homeowners.”

    State Issues State Attorney General Mortgages Mortgage Servicing Covid-19 New York Consumer Finance

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  • CFPB publishes fall 2021 rulemaking agenda

    Agency Rule-Making & Guidance

    On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.

    Key rulemaking initiatives include:

    • Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
    • Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
    • Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
    • Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
    • Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
    • Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”

    Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.

    Agency Rule-Making & Guidance CFPB Covid-19 Small Business Lending Section 1071 Consumer Finance PACE Programs AVMs Dodd-Frank Section 1033 Regulation Z LIBOR HMDA RESPA TILA CARES Act Debt Collection EGRRCPA Federal Reserve OCC FDIC NCUA FHFA Bank Regulatory FIRREA CARD Act

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  • OCC reports on mortgage performance

    Federal Issues

    On December 10, the OCC reported that 95.6 percent of first-lien mortgages were current and performing at the end of the third quarter of 2021—an increase from 92.5 percent at the end of the third quarter of 2020. According to the report, seriously delinquent mortgages declined from 3.8 percent in the prior quarter (5.8 percent a year ago) to 3.1 percent. In the third quarter of 2021, servicers initiated 925 new foreclosures, which is a 56.3 percent increase from the previous quarter and an increase of 150.7 percent compared to a year ago. The OCC noted that events related to the pandemic, such as foreclosure moratoriums, “significantly affected these metrics.” Additionally, mortgage modifications decreased 14.8 percent from the prior quarter. Of the reported 33,721 mortgage modifications, 59.6 percent reduced borrowers’ pre-modification monthly payments, while 98.3 percent were “combination modifications” that “included multiple actions affecting affordability and sustainability of the loan, such as an interest rate reduction and a term extension.”

    Federal Issues OCC Bank Regulatory Mortgages Foreclosure Consumer Finance Covid-19

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  • CFPB supervisory highlights cover wide range of violations

    Federal Issues

    On December 8, the CFPB released its fall 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. The report’s findings cover examinations that were completed between January and June of 2021 in addition to prior supervisory findings that led to public enforcement actions in the first half of 2021. Highlights of the examination findings include:

    • Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse late fees after determining a missed payment was not credited to a consumer’s account; and (iii) conduct reasonable investigations into billing error notices concerning missed payments and unauthorized transactions. Examiners also identified deceptive acts or practices related to credit card issuers’ advertising practices.
    • Debt Collection. The Bureau found instances of FDCPA violations where debt collectors represented to consumers that their creditworthiness would improve upon final payment under a repayment plan and the deletion of the tradeline. Because credit worthiness is impacted by numerous factors, examiners found “that such representations could lead the least sophisticated consumer to conclude that deleting derogatory information would result in improved creditworthiness, thereby creating the risk of a false representation or deceptive means to collect or attempt to collect a debt in violation of Section 807(10).”
    • Deposits. The Bureau discussed violations related to Regulation E, including error resolution violations related to misdirected payment transfers and failure to investigate error notices where consumers alleged funds were sent via a person-to-person payment network but the intended recipient did not receive the funds.
    • Fair Lending. The report noted instances where examiners cited violations of ECOA and Regulation B by lenders "discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions,” which led to observed pricing disparities, specifically as compared to similarly situated non-Hispanic white and male borrowers. Among other things, examiners also observed that lenders’ policies and procedures contributed to pricing discrimination, and that lenders improperly inquired about small business applicants’ religion and considered religion in the credit decision process.
    • Mortgage Servicing. The Bureau noted that it is prioritizing mortgage servicing supervision attributed to the increase in borrowers needing loss mitigation assistance due to the Covid-19 pandemic. Examiners found violations of Regulations Z and X, as well as unfair and deceptive acts and practices. Unfair acts or practices included those related to (i) charging delinquency-related fees to borrowers in CARES Act forbearances; (ii) failing to terminate preauthorized EFTs; and (iii) assessing fees for services exceeding the actual cost of the performed services. Deceptive acts or practices found by examiners related to mortgage servicers included incorrectly disclosed transaction and payment information in a borrower’s online mortgage loan account. Mortgage servicers also allegedly failed to evaluate complete loss mitigation applications within 30 days, incorrectly handled partial payments, and failed to automatically terminate PMI in a timely manner. The Bureau noted in its press release that it is “actively working to support an inclusive and equitable economic recovery, which means ensuring all mortgage servicers meet their homeowner protection obligations under applicable consumer protection laws,” and will continue to work with the Federal Reserve Board, FDIC, NCUA, OCC, and state financial regulators to address any compliance failures (covered by InfoBytes here). 
    • Payday Lending. The report identified unfair and deceptive acts or practices related to payday lenders erroneously debiting consumers’ loan balances after a consumer applied and received confirmation for a loan extension, misrepresenting that consumers would only pay extension fees on the original due dates of their loans, and failing to honor loan extensions. Examiners also found instances where lenders debited or attempted one or more duplicate unauthorized debits from a consumer’s bank account. Lenders also violated Regulation E by failing “to retain, for a period of not less than two years, evidence of compliance with the requirements imposed by EFTA.”
    • Prepaid Accounts. Bureau examiners found violations of Regulation E and EFTA related to stop-payment waivers at financial institutions, which, among other things, failed to honor stop-payment requests received at least three business days before the scheduled date of the transfer. Examiners also observed instances where service providers improperly required consumers to contact the merchant before processing a stop-payment request or failed to process stop-payment requests due to system limitations even if a consumer had contacted the merchant. The report cited additional findings where financial institutions failed to properly conduct error investigations.
    • Remittance Transfers. Bureau examiners identified violations of Regulation E related to the Remittance Rule, in which providers “received notices of errors alleging that remitted funds had not been made available to the designated recipient by the disclosed date of availability” and then failed to “investigate whether a deduction imposed by a foreign recipient bank constituted a fee that the institutions were required to refund to the sender, and subsequently did not refund that fee to the sender.”

    The report also highlights recent supervisory program developments and enforcement actions.

    Federal Issues CFPB Supervision Enforcement Consumer Finance Examination Credit Cards Debt Collection Regulation Z FDCPA Deposits Regulation E Fair Lending ECOA Regulation B Mortgages Mortgage Servicing Regulation X Covid-19 CARES Act Electronic Fund Transfer Payday Lending EFTA Prepaid Accounts Remittance Transfer Rule

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  • Chopra concerned about PE investment in nursing homes

    Federal Issues

    On December 7, CFPB Director Rohit Chopra spoke before the Elder Justice Coordinating Council Meeting and raised concerns regarding worsening fraud, neglect, and financial exploitation in nursing homes and other for-profit facilities. Chopra discussed that financial straits due to the pandemic would continue leading to increased nursing home closures or takeovers of nursing homes by private equity investors. He noted that typically, private equity investors purchase assets, often using significant amounts of debt financing, to increase profits prior to selling the asset in a short amount of time, and warned that, due to the short investment and need to escalate profitability, “this investment approach invites aggressive strategies that warrant regulatory scrutiny.”

    Citing to a recent NYU study that found private equity investments in U.S. healthcare to be on the rise, Chopra inquired whether for-profit incentives are misaligned with serving seniors well. He specifically warned that for-profit nursing homes “disproportionately lag behind their nonprofit counterparts across a broad array of measures for quality” and that “private equity owners may also have the incentive to drain financial assets from residents or increase risks of other financial exploitation.”

    In conclusion, Chopra noted that he had asked the Bureau’s Office of Financial Protection for Older Americans to “identify cross-cutting consumer protection issues, including when it comes to housing, as many older Americans with substantial financial assets are a target for bad actors,” and will be working “to find systemic fixes to emerging risks, such as the encroachment of private equity into facilities serving and housing America’s older adults.”

    Federal Issues CFPB Elder Financial Exploitation Consumer Finance Covid-19

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  • OCC warns of key cybersecurity and climate-related banking risks

    Agency Rule-Making & Guidance

    On December 6, the OCC reported in its Semiannual Risk Perspective for Fall 2021 the key issues facing national banks and federal savings associations and the effects of Covid-19 on the federal banking industry. The agency reported that although banks showed resilience in the current environment with satisfactory credit quality and strong earnings, weak loan demand and low net interest margins continue to affect performance.

    The OCC identified elevated operational risk as banks continue to face increasingly complex cyberattacks, pointing to an increase in ransomware attacks across financial services. While innovation and technological advances can help counter such risks, the OCC warned they also come with additional concerns given the expansion of remote financial services offered through personally owned computers and mobile devices, remote work options due to the Covid-19 pandemic, and the reliance on third-party providers and cloud-based environments. “The adoption of innovative technologies to facilitate financial services can offer many benefits to both banks and their customers,” the report stated. “However, innovation may present risks. Risk management and control environments should keep pace with innovation and emerging trends and a comprehensive understanding of risk should be achieved to preserve effective controls. Examiners will continue to assess how banks are managing risks related to changes in operating environments driven by innovative products, services, and delivery channels.”

    The report calls on banks to “adopt robust threat and vulnerability monitoring processes and implement stringent and adaptive security measures such as multi-factor authentication or equivalent controls” to mitigate against cyber risks, adding that critical systems and records must be backed up and stored in “immutable formats that are isolated from ransomware or other destructive malware attacks.”

    The report further highlighted heightened compliance risks associated with the changing environment where banks serve consumers in the end stages of various assistance programs, such as the CARES Act’s PPP program and federal, state, and bank-initiated forbearance and deferred payment programs, which create “increased compliance responsibilities, high transaction volumes, and new types of fraud.”

    The report also discussed credit risks, strategic risk challenges facing community banks, and climate-related financial risks. The OCC stated it intends to request comments on its yet-to-be-published climate risk management framework for large banks (covered by InfoBytes here) and will “develop more detailed expectations by risk area” in 2022.

    Agency Rule-Making & Guidance Federal Issues OCC Bank Regulatory Covid-19 Risk Management Community Banks Climate-Related Financial Risks Privacy/Cyber Risk & Data Security Third-Party Risk Management

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  • FHA extends partial waiver of face-to-face borrower interviews

    Federal Issues

    On December 2, FHA announced an extension to its temporary partial waiver of the face-to-face borrower interviews with borrowers as part of FHA’s early default intervention requirements under 24 C.F.R. § 203.604. The waiver was first published in March 2020 in response to the Covid-19 pandemic (covered by InfoBytes here). The temporary waiver, now effective through December 31, 2022, allows mortgagees to establish contact with borrowers by alternative methods, such as phone, email, or video calling services.

    Federal Issues FHA Mortgages Consumer Finance Covid-19 HUD

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  • District Court says bank’s arbitration clauses apply to PPP loans


    On November 23, the U.S. District Court for the District of New Jersey granted a national bank’s motion to compel arbitration in an action concerning the bank’s alleged mishandling of Paycheck Protection Plan (PPP) loan applications. The plaintiff filed a lawsuit claiming the bank’s PPP loan disbursement process allegedly favored wealthy clients over smaller, less wealthy clients to maximize the bank’s origination fees. The plaintiff alleged that because the bank did not process applications on a “first-come, first-served” basis, the plaintiff did not receive its PPP loan in a timely manner. The bank moved to compel arbitration, “arguing that questions of arbitrability are for the arbitrator to decide in the first instance.” The plaintiff argued that the arbitration clauses in the bank’s agreements applied only to disputes regarding bank deposit accounts, and not to other financial products such as PPP loans. The court stayed the case and granted the bank’s motion to compel arbitration, noting that the bank’s deposit account agreement and online services agreement both include arbitration clauses. These clauses, the court stated, are “clear evidence” that the bank intended an arbitrator to decide questions related to scope. “Accordingly, Plaintiff must bring its claim before the arbitrator in the first instance, even if it contests the scope of arbitrability,” the court wrote.

    Courts Covid-19 SBA Arbitration CARES Act State Issues Small Business Lending

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  • District Court dismisses PPP putative class action against nonbank


    On November 24, the U.S. District Court for the Central District of California dismissed, with prejudice, a putative class action alleging that a nonbank lender prioritized high-dollar Paycheck Protection Program (PPP) loan applicants. The plaintiff’s complaint—which alleged claims of fraudulent concealment, fraudulent deceit, unfair business practices, and false advertising—claimed, among other things, that the lender (i) was not licensed to make loans in California when she applied; (ii) did not have adequate funding to make the loans; and (iii) advertised it would process loan requests on a first-come, first-served basis, but actually prioritized favored customers and higher-value loans that yielded higher lending fees. The court granted the lender’s motion to dismiss. According to the court, the plaintiff’s allegation that the parties were “transacting business in order to enter into a contractual, borrower-lender relationship” was not supported by any facts, and that while the plaintiff claimed she submitted a PPP loan application to the lender, a confirmation e-mail from the lender did not mention a submitted application—only a loan request. “This court cannot, therefore, assume the truth of Plaintiff’s allegation that she submitted a loan application, let alone her conclusory allegation that the parties entered into a borrower-lender relationship or engaged in any other transaction,” the court stated. The court also determined that the plaintiff’s fraudulent deceit claim failed because her allegation, made on information and belief, that the lender prioritized large loans had no factual foundation, and the plaintiff failed to plead the elements of that claim.

    Courts Covid-19 Small Business Lending SBA Class Action CARES Act Nonbank State Issues California

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  • CFPB releases draft strategic plan for FY 2022-26

    Federal Issues

    On December 2, the CFPB released for public feedback its draft strategic plan for fiscal years 2022-2026, which outlines and communicates its mission, strategic goals, and objectives for the next five years.

    External Factors Impacting the Bureau’s Strategic Goals and Objectives:

    The Bureau identified four key external factors that may affect its strategic goals and objectives: (i) the continued effect of the Covid-19 pandemic on regulated markets; (ii) the increase of data security threats and resulting consumer harm as the role of data and technology in the consumer financial system continues to grow; (iii) rapid developments in the consumer financial marketplace technology; and (iv) executive, legislative, judicial, and state actions, including actions by other financial regulators, which may impact the financial regulatory environment and, in turn, the Bureau’s policy strategies. 

    Cross-Bureau Priorities:

    With its “cross-functional, cross-Bureau approach,” the CFPB intends to address a number of outcomes for households and communities, “many of which reference the concept of equity.” To achieve the outcomes below, the Bureau will “embed a racial equity lens and focus [its] attention on these communities, recognizing that work to protect and empower underserved people benefits all people.”

    • Equitable recovery from the COVID-19 pandemic: Continuing monitoring of pandemic recovery, with a focus on minority and traditionally underserved communities, including rising housing insecurity.
    • Equitable access to and engagement with consumer finance infrastructure: Addressing obstacles that restrict access to credit or push consumers to higher cost products, in addition to “promoting transformation of financial marketplaces to serve all people.”
    • Equitable wealth creation from home and small business ownership: Promoting equitable wealth creation in housing and small business markets, with a focus on minority and underserved communities. Specifically, the Bureau notes that (i) home ownership as a “key building block of wealth,” has become out of reach for young people and underserved communities due to record high home prices and tightened credit underwriting during the pandemic; and (ii) small businesses, especially women- and minority-owned, have faced more serve economic consequences from the pandemic.
    • Fair, transparent, and competitive markets for consumer financial products and services: Promoting competition for the benefit of consumers and businesses, where “[t]he personal touch previously provided by local financial institutions has, in many instances, been replaced with institutions that take advantage of consumers without concern for their well-being.” The Bureau identified weakened competition in many markets as a contributing factor in the widening of racial, income, and wealth inequality, and noted that consolidations over the last several decades have “denied consumers the benefits of an open economy.”
    • Privacy, access, and fairness in a new data-driven economy: Prioritizing its work to ensure consumer privacy and security remains at the forefront of the evolving data economy. The Bureau expressed specific concern with how consumer financial account data is accessed, transmitted, and stored, in addition to the potential racial equity impact from the increased use of algorithms in the decision-making process.

    The Strategic Goals:

    The Bureau identified four strategic goals, which are articulated by specific function within the agency:

    • “Implement and enforce the law to ensure consumers have access to fair, transparent, and competitive markets that serve consumers’ needs and protect consumers from unfair, deceptive, and abusive practices, and from discrimination.” Objectives include issuing rules and guidance, supervising institutions, and enforcing federal consumer financial laws.
    • “Empower consumers to live better financial lives, focusing on traditionally underserved people.” Objectives include engaging with consumers, creating and offering educational resources, handling complaints, and expanding relationships with stakeholders and government partners.
    • “Inform public policy with data-driven analysis on consumers’ experiences with financial institutions, products, and services.” Objectives include monitoring markets and producing research reports.
    • “Foster operational excellence and further commitment to workforce equity to advance the CFPB’s mission.” Objectives include cultivating a workforce aligned with the Bureau’s mission, implementing a forward-leaning workplace model, and utilizing innovative and optimized operational support.

    The Bureau is requesting comments by January 3, 2022.

    Federal Issues Agency Rule-Making & Guidance CFPB Covid-19 Privacy/Cyber Risk & Data Security Consumer Finance

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