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CFPB Creates HMDA and ECOA Safe Harbor for New Fannie/Freddie Application Form
On September 29, the CFPB published an Approval Action in the Federal Register that provides a safe harbor under the Equal Credit Opportunity Act (ECOA) and Regulation B for lenders who use the revised Uniform Residential Loan Application (URLA) form issued by Fannie Mae and Freddie Mac in August 2016. The Bureau’s Approval Action states that it has “determined that the relevant language in the 2016 URLA is in compliance with” Regulation B’s requirements for whether, and how, a creditor may seek information about an applicant’s race, color, religion, national origin, sex, marital status, and income sources, and information about an applicant’s spouse or former spouse.
The Bureau’s Approval Action also offers flexibility for lenders who must collect and report information about mortgage applicants’ ethnicity and race under the Home Mortgage Disclosure Act (HMDA), implemented by Regulation C. On October 28, 2015, the Bureau amended Regulation C to require covered lenders to offer applicants the opportunity to self-identify using disaggregated categories of ethnicity and race, effective January 1, 2018. The CFPB notes in the Federal Register notice that before January 1, 2108, asking applicants to self-identify using the disaggregated categories would not have been allowed under Regulation B’s restrictions on seeking information about an applicant’s ethnicity, race and other characteristics. The Approval Action gives lenders the option of using the disaggregated categories of ethnicity and race for applications taken in 2017 without violating Regulation B. It states that if a lender opts to collect information using the disaggregated categories in 2017, for applications that see final action before January 1, 2018, the lender must report the data to the Bureau using only the current aggregate categories for ethnicity and race. If a lender takes final action in 2018 or later on an application received in 2017, it may choose to report the data using either the current aggregate or the new disaggregated categories.
California Amends Finance Lenders Law and Residential Mortgage Lending Act
The California legislature amended the California Finance Lenders Law (CFLL) allowing persons to make one commercial loan in a 12-month period without obtaining a license. This change effectively reenacts a de minimis exemption that was repealed in 2014, and is effective January 1, 2017 through January 1, 2022.
Effective September 28, 2016, the implementing regulations to the CFLL and California Residential Mortgage Lending Act (CRMLA) were amended such that subsidiaries and affiliates of exempt institutions are no longer exempt, by nature of this association, from the licensing requirements with respect to consumer and residential mortgage loans. The Department of Business Oversight filed the action to reverse through regulation previous Commissioner opinions that interpreted licensing exemptions under the CFLL and CRMLA to apply broadly to include subsidiaries of exempt financial institutions.
The definition of a lender under the CRMLA was also amended and now includes a person, other than a natural person, and a natural person who is also an independent contractor, who engages in the activities of a loan processor or underwriter for residential mortgage loans, but does not solicit loan applicants, originate mortgage loans, or fund mortgage loans. Further, the Commissioner may require a licensee who is engaged in the processing or underwriting of residential mortgage loans to continuously maintain a minimum tangible net worth in an amount that is greater than $250,000, but that does not exceed the net worth required of an approved lender under the Federal Housing Administration.
FTC Announces $1.3 Billion Judgment Against Payday Lenders
On October 4, the FTC announced a $1.3 billion judgment against defendants responsible for operating an allegedly deceptive payday lending scheme. The judgment is the result of 2012 complaint in which the FTC alleged that the defendants engaged in deceptive acts or practices in violation of Section 5(a) of the FTC Act by making false and misleading representations about costs and payment of the loans. According to the FTC, the defendants claimed that they would charge consumers the loan amount and a one-time finance fee. However, the court found that the defendants “made multiple withdrawals from consumers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan.” The $1.3 billion order is the largest litigated judgment the FTC has obtained to date.
CFPB Settles With Online Lender
On September 27, the CFPB entered into a consent agreement with a California-based online lender for allegedly misrepresenting, among other things, the fees charged, the loan products that were available to consumers, and whether the loans would be reported to credit reporting companies. As part of the agreement, the CFPB indicated that the lender would be required to include the correct finance charge and annual percentage rate in all of its online disclosures, and must test those disclosures annually to ensure accuracy and compliance with the Truth in Lending Act. As a result, the lender will be required to pay $1.83 million in consumer redress as well as $1.8 million as a civil penalty.
CFPB Reaches Agreement With Title Lender
On September 26, the CFPB entered into a consent agreement with a Georgia-based automobile-title lender and its affiliates, based on allegations that the lender violated the Unfair and Abusive prongs of the Consumer Financial Protection Act. The CFPB alleged that the lender “lur[ed] consumers into costly loan renewals by presenting them with misleading information about the deals’ terms and costs.” The CFPB specifically indicated the lender’s use of a “Payback Guide” that focused the consumer’s attention on the monthly payment, and not on the total cost of the transaction, including the costs to roll over the loan to an additional period, materially interferes with the consumer’s ability to understand the terms of the transaction. The CFPB also alleged that the lender committed unfair debt-collection practices by visiting consumers’ homes, references, and places of employment, and revealing information about past-due debt to third parties, including neighbors, roommates, family members, supervisors, and co-workers. Under the terms of the consent order, the lender is prohibited from using the Payback Guide and from encouraging consumers to exceed the original term of repayment. The order also prohibits the lender from making in-person visits to collect payments. Under the agreement, the lender must pay $9 million as a civil penalty to the CFPB.
CFPB Sues Credit Repair Company in Federal Court
On September 22, the CFPB filed a complaint in federal district court against a credit repair company, claiming that the company charged consumers a series of illegal fees, including a fee to access the consumer’s credit report, a fee to set up the consumer’s account, and a monthly fee that continues to accrue until the consumer affirmatively cancels the service. The CFPB also alleged that the company misrepresented the cost and effectiveness of its services, stating that it could “remove virtually any negative information from a consumer’s credit report,” and that it raises customer’s credit scores by an average of more than 100 points, without proper substantiation for either claim. The CFPB alleged that the company’s actions violate the Telephone Sales Rule, and the deceptive prong of the Consumer Financial Protection Act.
Revised MLA Examination Procedures Released
On September 29, the Federal Reserve released the interagency examination procedures for the DOD’s Military Lending Act (MLA) final rule published in July of 2015. Also on September 29, the CFPB released its own examination procedures under the final rule, providing guidance as to how the CFPB will conduct reviews under what will be a broader scope of coverage under the MLA, including credit cards, deposit advance products, overdraft lines of credit (not traditional overdraft services), and certain types of installment loans. The final rule goes into effect on Monday, October 3 for most extensions of consumer credit to active duty servicemembers and their dependents.
Fed Proposal Would Modify Stress Tests for Large, Noncomplex Bank Holding Companies
On September 26, the Federal Reserve released a proposed rule that would essentially remove bank holding companies defined to be “large and noncomplex” from the qualitative portion of annual Comprehensive Capital Analysis and Review (CCAR) assessment process (“stress tests”). Under the proposed rule, large and noncomplex bank holding companies are those with total consolidated assets of at least $50 billion, but less than $250 billion, less than $10 billion in foreign exposure, and less than $75 billion in average nonbank assets. Currently, the Fed applies the CCAR process to bank holding companies with more than $50 billion in total consolidated assets. Fed Governor Daniel Tarullo indicated that the Fed was also considering adoption of a “stress capital buffer” approach for larger, global systemically important banks (GSIB). The new approach would replace the uniform 2.5-percent capital conservation buffer, and would instead require GSIBs to retain capital “equal to the maximum decline in a firm's common equity tier 1 capital ratio under the severely adverse scenario of the supervisory stress test before the inclusion of the firm's planned capital distributions.”
DOJ and OCC Reach Consent Agreement With Bank Over Alleged SCRA Violations
On September 29, the DOJ and OCC announced separate settlement agreements with a major U.S. bank regarding alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ’s complaint alleged that the bank repossessed vehicles owned by active duty servicemembers without the required court orders. Under the DOJ consent order, the bank agreed to pay $10,000 to each affected servicemembers whose vehicles were repossessed between from January 2008 to July 2015 not in compliance with SCRA, plus any lost equity in the repossessed vehicle, with interest. The DOJ identified 413 affected servicemembers and the bank agreed to set aside $4,130,000 (or more if needed) to pay the required compensation. The bank also agreed to pay a $60,000 civil penalty. The DOJ acknowledged that the bank had in 2014, prior to the investigation, taken steps to ensure SCRA compliance with a full-scale review of its portfolio to identify servicemembers for SCRA protection, and had previously and voluntarily commenced efforts to compensate any affected borrowers. In the OCC consent order, the OCC found errors and deficiencies by the bank in four areas: (i) applying the 6% interest rate cap; (ii) filing accurate military status affidavits; (iii) repossessing servicemembers automobiles while they were on active duty; and (iv) implementing its SCRA compliance program. Under the consent order for a civil money penalty, the bank agreed to pay a civil money penalty of $20 million, to create a remediation plan for affected servicemembers, and to bolster its SCRA-related policies and procedures.
OCC Hints At AML Guidelines to Come
On September 28, OCC Comptroller Thomas J. Curry announced Wednesday during a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference that the OCC is developing guidance for banks to manage AML/BSA risks in their foreign correspondent banking relationships.