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Federal Agencies Offer Consumer Relief Measures Following Recent Natural Disasters
On October 13, the Department of Veterans Affairs (VA) released two circulars (here and here) describing measures mortgagees may employ to provide relief to VA home loan borrowers affected by recent California wildfires and Hurricane Nate. Referencing the VA’s guidance on natural disasters, the VA’s recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
Separately, on October 17, the Federal Reserve Board, FDIC, National Credit Union Administration, and OCC released a joint notice under the Financial Institutions Reform, Recovery, and Enforcement Act that temporarily eases appraisal requirements for real estate-related financial transactions in areas impacted by recent hurricane disasters. The four agencies will allow appraisal exceptions, provided that financial institutions determine, and obtain documentation related to, the following: (i) the property involved is located in a major disaster area; (ii) there exists a binding commitment to fund the transaction within 36 months of the date the area was declared a major disaster; and (iii) “the value of the real property supports the institution’s decision to enter into the transaction.” The expiration date for exceptions in each area covered by the notice is three years after the date the President declared the area to be a major disaster area.
As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.
FDIC Chairman Discusses Role of Research in Preventing Consumer Harm
On October 13, FDIC Chairman Martin J. Gruenberg spoke at the Seventh Annual FDIC Consumer Research Symposium in Arlington, Virginia. In prepared remarks, Gruenberg discussed his views on the importance of engaging with the independent research community to better understand “consumers’ capabilities, knowledge, and preferences for financial services, as well as their experiences in the financial services market.” According to Gruenberg, the FDIC’s current supervisory approach focuses on methods to “identify, address, and mitigate the risk of consumer harm” at supervised financial institutions, and include the following: (i) an examination process to evaluate whether an institution minimizes the risk of consumer harm by having appropriate policies and procedures and other measures in place to ensure its products and services are compliant with applicable law; (ii) a process to identify how consumers use the information in the context of a given product when establishing which disclosures to prioritize in a risk-based exam; and (iii) a system to analyze data collected through Call Reports, HMDA, and the Community Reinvestment Act designed to identify potential areas of risk and gain insight into supervised institutions’ operations.
Additionally, Gruenberg noted that research helps the FDIC identify opportunities to expand consumers’ access to mainstream financial services. According to recent FDIC data, 7 percent of households are unbanked and an additional 19.9 percent are underbanked—in total, 90 million Americans, or about 27 percent of households. The data, Gruenberg emphasized, “is regularly cited by financial institutions, non-profit organizations, and public officials as providing a basis for understanding the scope of economic inclusion challenges in their communities and as a starting point for considering approaches that can enhance economic inclusion.”
Pennsylvania Issues Reminder to Fintech Companies of Licensing Requirements
On October 6, prompted by the “evolving technological innovations that impact the financial services sector” and the rise of “technology focused companies offering financial services via new delivery mechanisms,” the Pennsylvania Department of Banking and Securities (Department) issued a reminder of the Department’s “long-standing position” that all persons offering financial services to the consumers of the Commonwealth of Pennsylvania must be licensed by the Department and comply with consumer protection requirements before conducting business with Pennsylvania consumers. “The Department regulates financial transactions based upon the transaction offered or delivered, not the method of delivery,” and as a result, fintech companies must comply with all applicable statutes and regulations.
New York AG, Auto Dealers Reach Settlement Over Advance Fee Allegations That Triggered Inflated Vehicle Prices
On October 12, New York Attorney General Eric T. Schneiderman announced separate settlements (here and here) with two auto dealer groups to resolve allegations that they violated state and federal law by charging upfront fees for “after-sale” credit repair and identity theft protection services, which were provided by a third party, and bundling those fees into vehicle sale or lease prices. According to the settlements, the groups—which have neither admitted nor denied the allegations—are required to pay affected consumers more than $900,000 in restitution and pay a $135,000 fine to the state. The settlements also prohibit the groups from selling or marketing credit repair or identity theft protection services and require that consumers be informed—both orally and in writing—of any other “after-sale” products.
OCC Policy Outlines CRA Evaluation Process and Impact of Discriminatory Practices
On October 12, the OCC issued OCC Bulletin 2017-40 announcing the release of its Policies and Procedures Manual 5000-43 (PPM 5000-43), which outlines the OCC’s policy and framework for how the agency determines Community Reinvestment Act (CRA) ratings when there’s evidence of discriminatory or other illegal credit practices directly related to a supervised financial institution’s CRA lending activities. First, PPM 5000-43 requires a “logical nexus” between the assigned ratings and the evidence of discriminatory or other illegal practices to ensure that the CRA evaluation “does not penalize a bank for compliance deficiencies or illegal credit practices unrelated to its CRA lending activities.” Second, the OCC examiners will give “full consideration” to any remedial actions the institution has already taken to address such discriminatory or other illegal credit practices to ensure that the CRA rating “does not penalize a bank for compliance deficiencies or illegal credit practices that have been, or are substantially being, addressed by the bank.”
CFPB Takes Action Against Debt Relief Companies for Allegedly Violating the TSR and Claiming to be Affiliated With the Federal Government
On October 12, the CFPB announced the filing of a complaint in the U.S. District Court for the District of Maryland against two companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. According to the complaint, the defendants allegedly engaged in abusive and deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by purportedly (i) charging advance fees for debt-relief services before altering the terms of the consumers’ debts or achieving promised results; (ii) misrepresenting the abilities of their debt-relief and credit-repair services; (iii) failing to disclose to consumer that if they stopped making payments on debts enrolled in the service they may be subject to collections or lawsuits from creditors that could increase the overall amount of money owed due to fees and interest; and (iv) misrepresenting an affiliation, endorsement, or sponsorship with the federal government by using direct mailers designed to look like an official government notice.
Coalition of State Attorneys General Urge Credit Reporting Agencies to Offer No-Fee Credit Freeze
On October 10, a coalition of 37 state attorneys general sent letters (here and here) to the CEOs of two major credit reporting agencies (CRAs), urging them to stop charging fees to consumers seeking credit freezes as a measure to protect against identity theft in light of a third CRA’s massive data breach. On September 15, as previously reported in InfoBytes, 34 state attorneys general sent a letter to the breached CRA’s legal counsel requesting it disable fee-based credit monitoring services. The October 10 letters note that currently seven states prohibit CRAs from charging fees to consumers for credit freezes and at least two other states have proposed legislation that would require CRAs to offer free credit freezes.
OCC Rescinds Guidance on Deposit Advance Products, Cites Overlap With CFPB Payday Rule
On October 5, the OCC rescinded its 2013 Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products and accompanying Bulletin 2013-40, effective immediately. The rescission, announced so as to avoid “potentially inconsistent regulatory direction,” comes as a reaction to the CFPB’s final rule announced October 5 concerning payday loans, vehicle title loans, deposit advance products, and longer-term balloon loans. (See previous InfoBytes coverage here.) Acting Comptroller of the Currency, Keith A. Noreika, acknowledged that the changing regulatory and marketplace landscape has made it difficult for banks to serve the demand for short-term, small-dollar credit, and while the OCC may issue new guidance at a later date, it will continue to ensure that banks that choose to offer these types of products are compliant with the “basic principles of prudent underwriting and risk management as well as fair and inclusive treatment of customers.”
Buckley Sandler Special Alert: CFPB Issues Rule Regarding Payday, Title, Deposit Advance, and Certain Other Installment Loans
On October 5, 2017, the CFPB published its final rule (the “Rule”) addressing payday loans, vehicle title loans, and certain other extensions of credit (collectively, “covered loans”). Among the Rule’s key provisions, it requires lenders to determine a borrower’s ability to repay for “covered short-term loans” and “covered longer-term balloon-payment loans,” but not other covered loans. Thus, unlike the CFPB’s proposed rule, the Rule does not require an ability to repay determination for longer-term loans that are not balloon loans. For certain covered short-term loans, lenders may provide a principal payoff option in lieu of conducting a full ability-to-repay analysis. Like the CFPB’s proposed rule, the Rule caps at three the number of covered loans that may be made in quick succession. The Rule also limits certain payment collection practices for all covered loans, including non-balloon loans.
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Click here to read full special alert.If you have questions about the rule or other related issues, please visit our Consumer Financial Protection Bureau practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.
CFPB Issues Final Rule Regarding Payday, Title, Deposit Advance, and Other Installment Loans
On October 5, the CFPB published its final rule (Rule) addressing payday loans, vehicle title loans, deposit advance products, and longer-term balloon loans (collectively, “covered loans”). The CFPB previously announced the proposed rule in June 2016 (covered by a Buckley Sandler Special Alert). The final rule makes it an abusive and unfair practice for lenders to make a covered short-term loan or covered longer-term balloon loan without determining upfront that the borrower has the ability to repay (known as the “full-payment test”). The full-payment test varies depending on the covered loan, but in essence, requires the lender to reasonably determine that the borrower can meet basic living expenses and major financial obligations and still afford their highest monthly payment(s). The Rule puts a limitation of three on the number of loans that can be made in quick succession (within 30 days of each other).
Lenders may avoid the requirement of a “full-payment test” with covered loans by offering small-dollar, short-term loans that allow the borrower to pay down the principal more gradually or are determined to pose less financial risk to the borrower. In addition, loans that meet the parameters of “payday alternative loans” authorized by the National Credit Union Administration are excluded, as are no-cost advances and wage advance programs that meet certain conditions, though the Rule does impose restrictions on using these exceptions based on the borrower’s loan history.
In addition to requirements surrounding the borrower’s ability to repay, the CFPB also finalized rules regarding payment withdrawals and reporting requirements. The Rule prevents lenders from attempting to withdraw a payment from a borrower’s account after two consecutive withdrawal attempts have failed, unless the borrower has given specific authorization to do so. This restriction applies to covered loans as well as longer-term loans with account access and an APR above 36 percent. The Rule requires lenders to use Bureau-registered credit reporting systems to report and obtain information about loans made under the full-payment test or the principal payoff option.
The provision regarding the registration information systems takes effect 60 days after publication in the Federal Register. The rest of the Rule takes effect 21 months after publication in the Federal Register.
Buckley Sandler will follow up with a more detailed summary of the CFPB’s final rule.