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On June 21, Chairwoman of the House Financial Services Committee Maxine Waters (D-CA) sent a letter to several federal agencies “urging them to administratively extend their moratoria on foreclosures at least until the CFPB is able to finalize and implement its pandemic recovery mortgage servicing rule.” As previously covered by a Buckley Special Alert, the Bureau issued a proposed rule in April that would broadly halt foreclosure initiations on principal residences from August 31, 2021 until 2022, and change servicing rules to promote consumer awareness and processing of Covid-relief loss mitigation options. The proposed rule also would create new and detailed obligations for communicating with borrowers to ensure they are aware of their loss mitigation options for pandemic-related hardships.
The letter, which was sent to the secretaries of HUD, the Department of Agriculture, the Department of Veterans Affairs, as well as the director of FHFA and the acting director of the CFPB, stresses that many homeowners will face the risk of foreclosure when the emergency federal foreclosure mortarium expires on June 30, as the Bureau’s proposed rule is not expected to take effect until August. This gap in critical protections, Waters cautions, “could result in servicers expediting efforts to initiate foreclosures before a final rule takes effect, especially for borrowers who have not been able to access forbearance options during the pandemic[.]” The letter requests not only an extension of the current foreclosure moratoriums but also urges the Bureau to finalize the rule (or issue an interim final rule if necessary) as soon as possible to prevent unnecessary foreclosures and ensure homeowners have the opportunity to finalize affordable loan modifications. Additionally, Waters urges the Bureau to alert servicers of the consequences should they, among other things, fail to notify homeowners about their post-forbearance options, unnecessarily delay reviewing loan modification applications, engage in improper foreclosure-related activity, unlawfully discriminate against borrowers, or provide inaccurate, adverse information to credit reporting agencies.
On June 16, Chairwoman of the House Financial Services Committee Maxine Waters (D-CA) announced the organization of the “Digital Assets Working Group of Democratic Members” to develop “legislation and policy solutions” on issues emerging in the digital asset space, including those related to (i) the regulation of cryptocurrency; (ii) the use of blockchain and distributed ledger technology; and (iii) the potential development of a U.S. central bank digital currency (see InfoBytes coverage on matters related to a CBDC here). During the first hearing held by the Task Force on Financial Technology, Waters stated that the working group will “focus on making sure there is responsible innovation in the cryptocurrency and digital asset space,” noting that “[a]s cryptocurrencies, central bank digital currencies and other digital assets enter the mainstream, the Committee will look at how digital assets have begun to enter many aspects of our lives—from payments to investments to remittances—and consider how to devise legislation to support responsible innovation that protects consumers and investors while promoting greater financial inclusion.”
On May 27, the House Financial Services Committee held a hearing entitled “Holding Megabanks Accountable: An Update on Banking Practices, Programs and Policies.” During the hearing, chief executive officers from the six largest U.S. banks testified on their banks’ activities during the Covid-19 pandemic, as well as various issues related to safety and soundness, consumer protection, diversity and inclusion, risk management, compensation, climate risk, and the use of emerging technology. Several proposed bills containing provisions that would impact the banks if enacted were also discussed, including those that would (i) require the banks to publicly disclose and pay damages to harmed consumers within a short timeframe when more than 50,000 consumers are affected or potential remediation exceeds $10 million; and (ii) require federal regulators to design strategic plans to hold the banks accountable for compliance failures resulting in extensive consumer harm. The Committee’s memorandum focused on several areas discussed during the hearing including the following:
- Pandemic response. The Committee expressed concerns over allegations that some of the banks prioritized Paycheck Protection Program (PPP) loans for wealthier clients over smaller borrowers, including small and minority-owned businesses, and that certain banks allegedly inappropriately charged overdraft fees.
- Banking deserts. The Committee reported that the number of branches in the U.S. is down from ten years ago, noting that the existence of communities lacking adequate access to a bank branch makes it more difficult to reduce the number of unbanked and underbanked consumers.
- Diversity and inclusion. The Committee suggested that lack of diversity within the banks continues to be an issue, pointing out that shareholder proposals at certain banks for racial equality audits were not supported by the banks. However, the Committee noted that all six banks made commitments in 2020 to invest millions into supporting minority depository institutions and community development financial institutions to support communities of color during the pandemic.
- Fintech. The Committee discussed the increased use of artificial intelligence and machine learning to assist in digital banking, customer relations, fraud detection, and underwriting. Some of the banks, the Committee noted, have “acknowledged the competitive threat of fintech’s growth” and have asked regulators to “create a level playing field.” With respect to cryptocurrency custody services and the use of distributed ledger technology to perform payment activities, the Committee observed that while the banks do not yet provide these services, a few of them recently announced that they are considering the idea of offering funds to select investors allowing bitcoin ownership, while others may offer bitcoin investments in the near future.
Earlier in the week, the same CEOs discussed pandemic responses during the Senate Banking Committee’s hearing on the “Annual Oversight of Wall Street Firms.” The CEOs addressed challenges with building out digital platforms to facilitate PPP loan applications and forgiveness programs, as well as challenges to distributing funds quickly and in a manner that would prevent fraud from entering the system. The CEOs also emphasized their continued commitment to helping borrowers still facing financial hardships as federal foreclosure and eviction moratoriums begin to expire. One CEO noted during the hearing that his bank intends to continue to assist borrowers find loan modifications “irrespective of the deadline passing.”
On May 19, the House Financial Services Committee held a hearing entitled “Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions.” Committee Chairwoman Maxine Waters (D-CA) opened the hearing by expressing her concerns about the “harmful deregulatory actions” taken by the previous administration’s appointees to “roll back key Dodd-Frank reforms and other consumer protections.” She noted, however, that she was pleased that the Senate is moving forward to reverse the OCC’s true lender rule and commented that she has asked House leadership to address the related Congressional Review Act resolution as soon as possible.
Fed Vice Chair for Supervision Randal K. Quarles provided an update on the Fed’s Covid-19 regulatory and supervisory efforts, noting that the Fed has “worked to align [the Fed’s] emergency actions with other relief efforts as the economic situation improves” and is maintaining or extending some measures to promote continued access to credit. When Congresswoman Velazquez inquired how government programs like the Paycheck Protection Program helped to stabilize businesses and improve the overall economy, Quarles answered, “We would have experienced a much deeper and more durable economic contraction, and would have had more lasting economic scarring with closed businesses and defaulting obligations  had those programs not been put in place.”
OCC Comptroller Michael Hsu discussed the agency’s increasing coordination with other federal and state regulators on fintech policy, in addition to OCC efforts to strengthen Community Reinvestment Act (CRA) regulations and address climate change. The OCC has been encouraging innovation, Hsu said, but added that his “broader concern is that these initiatives were not done in full coordination with all stakeholders. Nor do they appear to have been part of a broader strategy related to the regulatory perimeter.” In his written testimony, Hsu emphasized his concerns with providing charters to fintechs, noting that in doing so, it would “convey the benefits of banking without its responsibilities,” but also “that refusing to charter fintechs will encourage growth of another shadow banking system outside the reach of regulators.” Hsu expressed in his oral statement the importance of finding “a way to consider how fintechs and payment platforms fit into the banking system” and emphasized that it must be done in coordination with the FDIC, Fed, and the states. He also explained that “the regulatory community is taking a fragmented agency-by-agency approach to the technology-driven changes taking place today. At the OCC, the focus has been on encouraging responsible innovation. For instance, we updated the framework for chartering national banks and trust companies and interpreted crypto custody services as part of the business of banking.” When Congressman Bill Huizenga (R-MI) asked how the OCC planned to address the “true lender” rule, which would soften the regulations for national banks to sell loans to third parties, Hsu stated that the OCC originally intended to review the rule, but that after the Senate passed S.J.Res. 15 to invoke the Congressional Review Act and provide for congressional disapproval and invalidation of the rule (covered by InfoBytes here), the agency decided to leave it up to congressional deliberation and will monitor it instead.
FDIC Chairman Jelena McWilliams discussed, among other things, the FDIC’s policy of granting industrial loan company charters. As previously covered by Infobytes, the agency approved a final rule in December 2020 establishing certain conditions and supervisory standards for the parent companies of industrial banks and ILCs. McWilliams defended the FDIC’s new rule during the hearing, stating it “ensures that the parent company serves as a source of financial strength for the ILC while providing clarity about the FDIC's supervisory expectations of both the ILC and its parent company.”
NCUA Chairman Todd Harper also outlined agency measures taken in response to the pandemic. Among other things, Harper noted that the NCUA is supporting low-income credit unions through the Community Development Revolving Loan Fund and that the agency is working to strengthen its Consumer Financial Protection Program (CFPP) to ensure fair and equitable access to credit. During the hearing, Harper stated, “there is an increased emphasis on fair lending compliance, and agency staff are studying methods for improving consumer financial protection supervision for the largest credit unions not primarily supervised by the CFPP.”
On April 30, the House Financial Services Committee announced the reauthorization of the Task Forces on Financial Technology and Artificial Intelligence. According to Chairwoman Maxine Waters (D-CA), the “Task Forces will investigate whether these technologies are serving the needs of consumers, investors, small businesses, and the American public, which is needed especially as we recover from the COVID-19 pandemic.” Representative Stephen Lynch (D-MA) will chair the Task Force on Financial Technology, which will continue to monitor the opportunities and challenges posed by fintech applications for lending, payments, and money management and offer insight on how Congress can ensure Americans’ data and privacy is protected. Representative Bill Foster (D-IL) will chair the Task Force on Artificial Intelligence, which will examine how AI is impacting the way Americans operate in the marketplace, how to think about identity security, and how to interact with financial institutions. The task forces will also examine issues related to algorithms, digital identities, and combatting fraud. As previously covered by InfoBytes, these task forces were set to expire in December 2019.
House GOP members also released a report that highlights efforts of the Task Forces on Financial Technology and on Artificial Intelligence and includes recommendations on how to utilize innovation. According to the report, the two “key takeaways” are that “Congress must (1) promote greater financial inclusion and expanded access to financial services, and (2) ensure that the federal government does not hinder the United States’ role as a global leader in financial services innovation.” The report also includes recommendations for policy regulators and Congress to: (i) decide how to assist innovation, especially in the private sector; (ii) use the power of data and machine learning to fight fraud, streamline compliance, and make better underwriting decisions; and (iii) “keep up with technology to better protect consumers.”
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 December 4, Chairman of the House Financial Services Committee, Maxine Waters (D-CA) sent a letter to President-Elect Biden providing a list of regulations and other executive actions taken by the Trump administration that the Biden administration should immediately reverse, as well as recommendations for strengthening other regulations. Among other things, Waters recommended that the Biden administration (i) issue an executive order to prevent evictions by “directing the CDC to extend and improve its public health order so people can remain in their homes until emergency rental assistance is available”; (ii) amend HUD and FHFA policies that impose restrictions and increased costs for certain loans that go into forbearance prior to FHA endorsement or purchase by Fannie Mae or Freddie Mac to ensure these loans are still eligible for FHA insurance and purchase by Fannie and Freddie; and (iii) fully use Coronavirus Aid, Relief, and Economic Security (CARES) Act lending authorities, many of which will terminate at the end of December (covered by InfoBytes here).
Waters also urged the Biden administration to take measures to ensure consumer protections, including by, among other things, dismissing Director Kathy Kraninger, enforcing CARES Act protections, and directing the CFPB to (i) issue guidance to financial institutions to ensure affected borrowers are afforded “appropriate forbearance and loan modifications”; (ii) “work to replace the ’Payday, Vehicle Title, and Certain High-Cost Installment Loans’ rule with [one] that protects consumers from predatory lenders”; (iii) restore the Bureau’s Office of Fair Lending and Equal Opportunity’s roles and responsibilities; and (iv) rescind its recently issued final rule amending certain debt collection rules (covered by InfoBytes here), and instead strengthen “consumer protections against abusive debt collection practices.” Other recommendations address diversity and inclusion, financial stability, investor protection, affordable housing, and international development.
On October 9, the Conference of State Bank Supervisors (CSBS) wrote to the ranking members of the Senate Banking Committee and the House Financial Services Committee with an update on the organization’s efforts regarding the CARES Act and oversight of nonbank mortgage servicers. CSBS notes that state regulators are the primary authority over nonbank mortgage servicers, and during the early stages of the Covid-19 pandemic, the state regulators “identified liquidity as a supervisory priority.” Thus, according to CSBS, state regulators have been actively monitoring liquidity and other business operations by seeking real time data and other updates from nonbank mortgage servicers. Moreover, CSBS discusses the efforts made in response to the CARES Act, including consumer and servicer guidance issued in conjunction with the CFPB (covered by InfoBytes here and here), as well as examination procedure guidance. Lastly, the letter highlights the organization’s recent release of proposed regulatory prudential standards for nonbank mortgage servicers. As previously covered by InfoBytes, the proposal includes baseline standards that would apply to all covered servicers and enhanced standards—covering capital, liquidity, stress testing, and living will/recovery and resolution planning—that would apply to certain larger servicers. CSBS concludes the letter with a commitment for “continued coordination and information exchange with federal agencies.”
On July 29, CFPB Director Kathy Kraninger testified at a hearing held by the Senate Banking Committee on the CFPB’s Semi-Annual Report to Congress, which covers the Bureau’s work from October 1, 2019, through March 31, 2020. (Covered by InfoBytes here.) Kraninger’s testimony identified four key areas of focus for the Bureau: (i) providing financial education resources to prevent consumer harm; (ii) implementing “clear rules of the road” to encourage “competition, increase transparency, and preserve fair markets for financial products and services”; (iii) ensuring a “culture of compliance” through supervision; and (iv) following a consistent, purposeful enforcement regime. Kraninger also highlighted Bureau efforts to address discrimination, consumer confusion regarding forbearance options under the CARES Act, and a legislative proposal that would authorize the Bureau to award whistleblowers who report federal consumer financial law violations.
During the hearing, committee members focused on, among other things, the Bureau’s response to the Covid-19 pandemic and the agency’s recent repeal of certain underwriting provisions of its 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (covered by InfoBytes here). In response to Democratic criticism regarding the repeal of the underwriting provisions, Kraninger reiterated that a Bureau analysis of the provisions in the 2017 final rule revealed it would reduce the availability of small-dollar credit “by at least 70 percent,” and denied claims that the rulemaking process had been impacted by political appointees at the agency. Additionally, Kraninger said she intends to move ahead with putting the payment provisions of the payday rule into effect and is currently “working through” a pending legal challenge to the provisions.
Democratic committee members also questioned Kraninger regarding temporary regulatory relief to mortgage servicers and other financial services companies (covered by InfoBytes here) and the Bureau’s policy statement providing Fair Credit Reporting Act and Regulation V compliance flexibility for consumer reporting agencies and furnishers during the pandemic (covered by InfoBytes here). With regard to the U.S. Supreme Court’s June ruling in Seila Law v. CFPB (covered by a Buckley Special Alert), Committee Chairman Mike Crapo (R-ID) noted he is still advocating for “a bipartisan board of directors to oversee the CFPB” and for subjecting the Bureau to the annual appropriations process.
The next day, Kraninger appeared before the House Financial Services Committee’s hearing to discuss the semi-annual report. Similar to the Senate hearing, committee members questioned Kraninger on the payday rule, the revision to the HMDA rule, the Bureau’s pandemic-related initiatives for consumers, and on ways the Bureau is protecting struggling consumers during the pandemic, particularly with respect to the agency’s supervisory and enforcement work.
On July 16, the House Financial Services Committee’s Subcommittee on Oversight and Investigations held a hearing entitled “Protecting Homeowners During the Pandemic: Oversight of Mortgage Servicers’ Implementation of the CARES Act.” The subcommittee’s memorandum regarding the hearing discussed, among other things, the HUD Office of Inspector General’s report of its review of the type of forbearance information accessible to borrowers on the top 30 mortgage servicers’ websites. The report highlighted concerns that 10 of the servicers failed to have forbearance information “‘readily available’ on their websites,” 14 servicers’ websites did not provide information about the length of the forbearance period to which borrowers are entitled under the CARES Act, and certain servicers “included information giving the impression that lump sum payments were required at the end of the forbearance period.”
Witnesses discussed widespread issues in CARES Act-related mortgage servicing, with several witnesses and lawmakers highlighting how preexisting inequalities have especially imperiled black and Latinx home ownership during the Covid-19 pandemic. One witness suggested that servicers should be required to provide written notice to borrowers of their options and rights under the CARES Act and should be held accountable for failing to provide consistent, accurate forbearance information to borrowers in a timely manner. Another witness noted that housing counselors have reported servicers providing misinformation on payment and deferral options, and stressed the need for coordinated efforts between the CFPB, FHFA, and HUD, in addition to strong supervisory and enforcement activity.
Other topics discussed during the hearing included (i) the importance of providing clear guidance for borrowers, as well as the importance of loan modifications, loss mitigation options, and long term solutions once forbearance has ended; (ii) understanding what servicers of non-federally backed mortgages not covered by the CARES Act are doing to assist borrowers, and whether there should be a safe harbor for these mortgage servicers from investor liability; and (iii) the CFPB’s responsibility for overseeing servicers. One of the witnesses noted during the hearing, however, that many mortgage servicers offered homeowners forbearance options before the CARES Act, provided forbearance to homeowners with non-federally backed mortgages, and have responded to “an evolving series of program and regulatory announcements from various programs and agencies.”
- Jeffrey P. Naimon to provide “Fair lending update” at the Colorado Mortgage Lenders Association Operational and Compliance Forum
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- APPROVED Webcast: Strategy & Technology: A dynamic duo for successful regulatory exams
- Daniel R. Alonso to discuss “Primer on cross-border prosecutions in Argentina, Brazil, Colombia, and Mexico for U.S. criminal lawyers” at a New York City Bar Association webinar
- Jonice Gray Tucker to discuss "Fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss “State law regulatory and enforcement trends” at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute