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CFPB highlights problems with cash-benefit programs
On March 1, the CFPB released an Issue Spotlight exploring the challenges that recipients of public benefits programs offering cash assistance face when accessing funds through financial products or services. According to the report, financial products used to deliver public benefits, such as Social Security and unemployment compensation, are delivered through various methods—particularly prepaid cards—that may subject consumers to high fees and reduce the amount of funds the individual is able to receive.
The Bureau noted that some prepaid cards charge numerous fees that cut away at a consumer’s available funds. According to the Federal Reserve, $1.3 billion in transaction fees (including maintenance, balance inquiry, customer service, or ATM fees) were collected by prepaid card administrators in 2020. The report also found that due to significant variations in program structure and delivery at the state and county level, the amount and types of fees charged to access cash assistance vary. Additionally, inadequate and untimely customer service often prevents consumers from being able to correct problems with their accounts or access funds, the report said. Consumers highlighted concerns such as having inadequate protections against unauthorized transfers, paying high costs to replace a card, and experiencing insufficient or hypersensitive fraud filters that cause delays and account freezing. The report also flagged concerns about consumers being told to use a prepaid card issued by a particular financial institution, rather than being allowed to deposit funds into an account at an institution of their choice, thereby limiting competition.
The Bureau said it will continue to monitor and take action against entities who violate federal consumer financial protection laws and will share the report’s findings with federal and state agencies that administer public benefits programs.
DOJ announces $9 million redlining settlement with Ohio bank
On February 28, the DOJ announced a settlement with an Ohio-based bank to resolve allegations that the bank engaged in a pattern or practice of lending discrimination by engaging in “redlining” in the Columbus metropolitan area. The DOJ’s complaint claimed that from at least 2015 to 2021, the bank failed to provide mortgage lending services to Black and Hispanic neighborhoods in the Columbus area. The DOJ also alleged that all of the bank’s branches were concentrated in majority-white neighborhoods, and that the bank did not take meaningful measures to compensate for not having a physical presence in majority-Black and Hispanic communities.
Under the proposed consent order, the bank will, among other things, (i) invest a minimum of $7.75 million in a loan subsidy fund for majority-Black and Hispanic neighborhoods in the Columbus area to increase access to credit for home mortgage, improvement, and refinance loans, and home equity loans and lines of credit; (ii) invest $750,000 to go towards outreach, advertising, consumer financial education, and credit counseling initiatives; (iii) invest $500,000 to be spent in developing community partnerships to expand access to residential mortgage credit for Black and Hispanic consumers; (iv) establish one new branch and one new mortgage loan production office in majority-Black and Hispanic neighborhoods in the Columbus area (the bank must “ensure that a minimum of four mortgage lenders, at least one of whom is Spanish-speaking, are assigned to serve these neighborhoods” and employ a full-time community development officer to oversee lending in these neighborhoods); and (v) conduct a community credit needs assessment to identify financial services needs in majority-Black and Hispanic census tracts in the Columbus area. The announcement cited the bank’s cooperation with the DOJ to remedy the identified redlining concerns.
FTC, CFPB examine discriminatory background screenings
On February 28, the FTC and CFPB issued a request for information (RFI) on background screening issues affecting consumers seeking rental housing in the U.S., including ways criminal and eviction records and algorithms may lead to discriminatory screening outcomes. (See also CFPB blog post here.) According to the agencies, information used and collected in rental-screening checks may “unfairly prevent consumers from obtaining and retaining housing.” The announcement comes as part of an effort to identify practices that unfairly prevent applicants and tenants from accessing or staying in housing. As previously covered by InfoBytes, the Biden administration announced in January new actions for enhancing tenant protections and furthering fair housing principles. This marks the first time the FTC has issued an RFI that explores unfair practices in the rental market. Collected data will be used to inform enforcement and policy actions under each agency’s jurisdiction, the agencies said, adding that the FCRA (which both agencies enforce) also imposes requirements on several aspects of the tenant screening process.
Seeking feedback from current and prospective tenants, advocacy groups, landlords, and others who use or are subject to rental-screening checks, the RFI requests information covering a wide array of issues, including: (i) how housing decisions are impacted when criminal and eviction records (which may contain potential inaccuracies) are used; (ii) whether consumers are made aware of the criteria used in the screening process or notified about the reasons leading to a rejection; (iii) how application and screening fees are set; (iv) how the screening process uses algorithms, automated decision-making, artificial intelligence, or similar technology; and (v) ways the current screening process can be improved. Comments on the RFI are due May 30.
DFPI settles with student loan debt relief company
On February 28, the California Department of Financial Protection and Innovation (DFPI) announced a settlement with an unlicensed student debt relief company and its owner. The announcement is part of the DFPI’s continued crackdown on student loan debt relief companies found to have violated the California Consumer Financial Protection Law (CCFPL), the Student Loan Servicing Act (SLSA), and the Telemarketing Sales Rule (TSR). According to the settlement, a DFPI inquiry into the company’s practices found that since at least 2018, the company placed unsolicited phone calls to consumers advertising its student loan forgiveness and modification services. The company allegedly gave borrowers the impression that it was a part of, or affiliated with, an official government agency, and would act “as an intermediary between borrowers and the borrowers’ lenders or loan servicers with the goal of helping those consumers lower or eliminate their student loan debts.” The DFPI found that since 2018 at least 790 California consumers enrolled in the company’s debt relief program, whereby the company collected at least $713,000 through up-front servicing fees ranging from $116 to $2,449 from California consumers. By allegedly engaging in unlicensed student loan servicing activities, engaging in unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services, and by charging advance fees for debt relief services, the DFPI claimed the company violated the SLSA, CCFPL, and TSR.
Under the terms of the consent order, the company and owner must desist and refrain from engaging in the alleged conduct, rescind all debt relief, debt management, or debt consulting service agreements, and issue refunds to California consumers. The owner is also ordered to “desist and refrain from owning, managing, operating, or controlling any entity that services student loans, or which offers or provides any consumer financial products or services as defined by the CCFPL, unless and until he or the entity has the applicable approvals from the DFPI and is in compliance with the SLSA, CCFPL, TSR, and the Federal Trade Commission Act.”
CFPB asks for comments on alternative disclosures for construction loans
On February 27, the CFPB announced it is in the final stages of reviewing an application for alternative mortgage disclosures for construction loans submitted by a trade group representing small U.S. banks. The applicant maintains that it is not uncommon for first-time homebuyers in rural communities to build their home instead of purchasing an existing home due to the scarcity of “existing affordable ‘starter’ homes.” The applicant seeks to adjust existing mortgage disclosures to facilitate the offering of loans that finance both the construction phase and the permanent purchase of a home. According to the applicant, a consumer’s understanding of construction loans would be improved if disclosures are more specifically tailored to these types of transactions. The Bureau stated that should it approve this “template” application, individual lenders will be able to apply for enrollment in an in-market testing pilot. However, the Bureau noted that, as indicated in its Policy to Encourage Trial Disclosure Programs (covered by InfoBytes here), the mere approval of a template neither permits a lender to unilaterally conduct a trial disclosure program without further approval by the CFPB, nor does it “bind the CFPB to grant individual applications.”
The disclosure of the application comes as a result of efforts undertaken by the Bureau to be more open and transparent when adjusting regulations for new business models. The Bureau stated that in addition to publicly releasing the application, it is seeking input from stakeholders who have experience with construction loans. Comments will be accepted through March 29.
CFPB shutters mortgage lender, alleging deceptive advertising
On February 27, the CFPB entered a consent order against a California-based mortgage lender (respondent) for alleged repeat violations of the Consumer Financial Protection Act, TILA (Regulation Z), and the Mortgage Acts and Practices Advertising Rule (Regulation N), in relation to a 2015 consent order. As previously covered by InfoBytes, in 2015, the Bureau claimed the respondent (which is licensed in at least 30 states and Puerto Rico and originates consumer mortgages guaranteed by the Department of Veterans Affairs and mortgages insured by the FHA) allegedly led consumers to believe it was affiliated with the U.S. government. Specifically, respondent allegedly used the names and logos of the VA and FHA in its advertisements, described loan products as part of a “distinctive program offered by the U.S. government,” and instructed consumers to call the “VA Interest Rate Reduction Department” at a phone number belonging to the mortgage lender, thus implying that the mailings were sent by government agencies. The 2015 consent order required the respondent to abide by several prohibitions and imposed a $250,000 civil money penalty.
The Bureau contends, however, that after the 2015 consent order went into effect, the respondent continued to send millions of mortgage advertisements that allegedly made deceptive representations or contained inadequate or impermissible disclosures, including that the respondent was affiliated with the VA or the FHA. Additionally, the Bureau alleges that the respondent misrepresented interest rates, key terms, and the amount of monthly payments, and falsely represented that benefits available to qualifying borrowers were time limited. Many of these alleged misrepresentations, the Bureau claims, were expressly prohibited by the 2015 consent order.
The 2023 consent order permanently bans the respondent from engaging in any mortgage lending activities, or from “otherwise participating in or receiving remuneration from mortgage lending, or assisting others in doing so.” The respondent, which neither admits nor denies the allegations, is also required pay a $1 million civil money penalty.
FTC says fraud cost consumers $8.8 billion in 2022
On February 23, the FTC released data showing 2.4 million consumers reported losing a total of nearly $8.8 billion to fraud in 2022—a more than 30 percent increase from the prior year. Investment scam losses totaled more than $3.8 billion (the most of any category in 2022 and double the amount of investment scam losses reported in 2021). Imposter scam losses came in at $2.6 billion, up from $2.4 billion in 2021. The FTC reported receiving more than 5.1 million reports directly from consumers, federal, state, and local law enforcement agencies, the Better Business Bureau, industry members, and non-profit organizations. In addition to fraud reports, the FTC received identity theft reports and complaints related to issues concerning problems with credit bureaus, banks, and lenders. Reports received through the FTC’s database serve as the starting point for many of the FTC’s enforcement investigations, the agency said, adding that reports are also shared with federal, state, local, and international law enforcement professionals. Full coverage of the reports received in 2022 can be accessed here.
CFPB orders nonbank title lender to pay $15 million for numerous violations
On February 23, the CFPB entered a consent order against a Georgia-based nonbank auto title lender (respondent) for alleged violations of the Military Lending Act (MLA), the Truth in Lending Act, and the Consumer Financial Protection Act. According to the Bureau, the respondent allegedly charged nearly three times the MLA’s 36 percent annual interest rate cap on auto title loans made to military families. The respondent also allegedly changed military borrowers’ personal information in an attempt to hide their protected status, included mandatory arbitration clauses and unreasonable notice provisions in its loans, and charged fees for an insurance product that provided no benefit to the borrower. The Bureau noted that the respondent has been under a consent order since 2016 for allegedly engaging in unfair and abusive acts related to its lending and debt collection practices (covered by InfoBytes here). While neither admitting nor denying any of the allegations, the respondent has agreed to pay $5.05 million in consumer redress and a $10 million penalty. The respondent must also implement robust measures to prevent future violations.
FHA reduces mortgage insurance premiums to improve home affordability
On February 22, FHA announced a 30 basis point reduction in the annual premium charged to mortgage borrowers, resulting in mortgage insurance premiums of 0.55 percent for most borrowers seeking FHA-insured mortgages (down from 0.85 percent). (See also Mortgagee Letter 2023-05.) The reduction will apply to nearly all FHA-insured Single Family Title II forward mortgages, and is applicable to all eligible property types including single family homes, condominiums, and manufactured homes, all eligible loan-to-value ratios, and all eligible base loan amounts. According to the announcement, the reduction is intended to build on steps taken by the Biden administration to make homeownership more affordable and accessible, particularly for households of color, and could save an estimated 850,000 borrowers an average of $800 annually. As previously covered by InfoBytes, last September HUD modified FHA’s underwriting policies to allow lenders to consider a first-time homebuyer’s positive rental payment history as an additional factor in determining eligibility for an FHA-insured mortgage, and in March, the Property Appraisal and Valuation Equity Task Force outlined steps for addressing alleged racial bias in home appraisals (covered by InfoBytes here). Additional actions taken by HUD to improve homeownership accessibility can be found here.
VA reduces funding fee for certain loans
On February 14, the Department of Veterans Affairs announced a funding fee charge update for loans closed on or after April 7, 2023. According to Circular 26-23-06, funding fees are charged on VA transactions involving a home loan where a borrower does not qualify for a fee waiver. A reduced funding fee also applies to borrowers purchasing or constructing a home with a five or 10 percent down payment. The VA explained that lenders are to continue charging non-exempt veterans the current funding fee percentage for loans closed prior to April 7 (fee rates are listed here). For loans closed on or after April 7, lenders must charge the new funding fee percentage (fee rates are listed here).