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Fannie releases selling guide
On August 3, Fannie Mae issued its Selling Guide for Single Families. According to the guide, Fannie Mae will begin to buy mortgage loans with lender-funded grants, including down payment assistance, closing costs, or financial reserves. Specifically, the guidance noted that: (i) the loan must be a HomeReady loan used for a purchase transaction; (ii) “[t]he borrower(s) must make a 3% contribution from their own funds, other eligible sources of funds as described in Chapter B3-4, Asset Assessment, or through a Community Seconds loan”; and (iii) “[t]he lender must have a documented program that provides grants for low- to moderate-income borrowers, community development, equitable housing initiatives, or similar initiatives.”
CFPB receives rulemaking petition seeking validation of credit score models for credit unions
Recently, the CFPB received a rulemaking petition seeking validation of credit score models for credit unions. The petition, which seeks “a rule governing the requirement to periodically validate credit scores for all lending or financing entities,” argues that validation is necessary to measure the effectiveness of credit scores being used to measure credit risk. Claiming that general letters of compliance from credit reporting agencies are inadequate, the petitioner explains that these letters do not “address the misapplication of credit scores by banks, credit card issuers, auto financing groups or individual credit unions that are the primary cause of errors and financial exclusion.” According to the petitioner, “[o]nly a statistically valid empirically derived study based on funded and declined loans will resolve many of the issues in consumer lending today.” The petitioner points out that validation reports “provide the information necessary to measure the efficiency of the credit score being used to measure credit risk,” and that “[d]emographic comparisons of funded and declined applicants can also be used to identify if the underwriting guidelines used in the application of credit scores result in acceptable percentages of financial inclusion for minorities or protected consumer groups.”
CFPB highlights risks associated with BNPL products
On August 4, the CFPB released a report highlighting risks associated with new product offerings that the agency claimed blur the line between payments and commerce. The report examined the development of new capabilities—like “super apps,” buy now, pay later (BNPL), and embedded commerce—that have the potential to streamline payments, facilitate commerce, and enhance user experience, but may also create opportunities for companies to aggregate and monetize consumer financial data. With respect to “super apps,” the Bureau warned that these services have “morphed” into a “bank in an app” model, providing a “wide array of financial, payment and commerce functions within a single app.” These financial services super apps may seem to be more convenient than having multiple relationships with different organizations, the Bureau said, but cautioned that using these products may limit consumer product and service choice. “While consumers can opt to use a payment offering outside an app, such super apps create the potential for providers to steer consumers to specific solutions and/or limit access to some products.”
The report also raised concerns about tech firms offering their own lending or BNPL products. The Bureau pointed out that BNPL options, which provide unsecured short-term credit allowing consumers to split purchases into four equal interest-free payments at the point of sale, have “soared in recent years” as a popular alternative to credit cards. The Bureau noted it is “carefully focused on the shift toward real-time payments in the United States,” and is “seeking to mitigate the potential consequences of large technology firms moving into this space.”
The Bureau further stressed it is “carefully monitoring the payments ecosystem as part of a multifaceted effort to promote fair, transparent, and competitive markets for consumer financial services,” and said it is currently working on Dodd-Frank Act rules that would give consumers more control over the personal financial data that they choose to share with finance and payment apps. The Bureau also stated that it is “assessing new models of lending integrated with payments and ecommerce, such as BNPL,” and plans to issue a report on its findings and make a determination as to whether any regulatory interventions are appropriate. Last year, the Bureau issued a series of orders to five companies seeking information regarding the risks and benefits of the BNPL credit model (covered by InfoBytes here).
FDIC, OCC announce disaster relief
On August 3, the FDIC issued FIL-38-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Kentucky affected by severe storms, flooding, landslides and mudslides that began July 26 and is ongoing. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” The FDIC noted that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The agency will also consider relief from certain reporting and publishing requirements.
The same week the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by flooding in Kentucky “for as long as deemed necessary for bank operation or public safety.” The proclamation directed institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
CFPB ombudsman releases mid-year update
The CFPB Ombudsman’s Office issued its midyear update for 2022, which “provides an independent, impartial, and confidential resource to informally assist individuals, companies, consumer and trade groups, and others in resolving issues with the CFPB.” The Ombudsman received 1,108 individual inquiries—the most it has received in a six-month period for the past ten years. The Ombudsman noted that the CFPB had processed certain incoming consumer correspondence as inquiries rather than as consumer complaints, and as a result, they were not forwarded for company response. Based on the feedback, the Bureau added FAQs to the “Submit a complaint” webpage. In addition, later this year the Ombudsman plans to provide a summary of the feedback and recommendations from its post-examination survey of supervised entities, along with a further summary of the findings in its annual report. The update also discussed suggestions on draft CFPB materials, noting that “some of our feedback centered around clarity for the public as well as consideration of the public’s expectations in engaging with the CFPB.” Finally, the update noted that the Ombudsman’s Office intends to host a virtual Ombudsman Forum with organizations assisting consumers in the Midwest region. Feedback will be summarized in its annual report.
CFPB gets $29.2 million judgment in mortgage relief suit
On August 1, the U.S District Court for the Western District of Wisconsin granted over $29.2 million to the CFPB, revising a $59 million judgment that was thrown out by the U.S. Court of Appeals for the Seventh Circuit last year. As previously covered by InfoBytes, in July 2021, the 7th Circuit vacated a 2019 restitution award in an action brought by the CFPB against two former mortgage-assistance relief companies and their principals (collectively, “defendants”) for violations of Regulation O. In 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, including the defendants, alleging they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees (covered by InfoBytes here). The district court’s 2019 order (covered by InfoBytes here) held one company and its principals jointly and severally liable for over $18 million in restitution, while another company and its principals were held jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.
According to the recent opinion and order, the district court concluded that it would be “appropriate” to characterize the redress as legal restitution because the “plaintiff’s claim is against defendants generally and not one, identifiable fund or asset,” calling it “valid and necessary” for consumers to be compensated for the advance fees they paid. Instead of ordering “complete restitution,” the district court noted it would require the defendants to “refund 50% of the moneys paid, which plaintiff shall return directly to the injured parties to the extent practical,” because the 7th Circuit “found that defendants' conduct was not the product of reckless disregard of the CFPA, but rather a failure to fit themselves under an exception for the delivery of legal services.”
States request extension of PSLF forgiveness waiver
On July 29, a coalition of state attorneys general sent a letter to President Biden and Department of Education Secretary Miguel Cardona, requesting the extension of the deadline for individuals to file claims under the Public Service Loan Forgiveness (PSLF) program. As previously covered by InfoBytes, in October 2021, the Department announced several significant changes to its PSLF program, including that approximately 22,000 borrowers with consolidated loans (including loans previously ineligible) may be immediately eligible to have their loans forgiven automatically, and another 27,000 borrowers could have their balances forgiven if they are able to certify additional periods of public service employment. According to the AGs, “it is critically important to extend the waiver at least until new PSLF regulations take effect and to grandfather in waiver benefits for borrowers who miss administrative deadlines.” The AGs also asked the Biden administration to count all forbearance periods toward loan forgiveness, rather than making exceptions for servicemembers and longer periods of forbearance for everyone else. The letter stated that “[f]ailure to automatically count periods of forbearance toward loan forgiveness ignores pervasive and well-established servicing problems and inappropriately shifts the burden to borrowers to identify and prove that they were victims of servicer misconduct.” The AGs urged the Biden administration “to exercise its authority to synchronize the One-Time Adjustment and Limited PSLF Waiver into a unified adjustment policy.” The letter specifically stated that the “simplest way of doing so may be to incorporate certain critical aspects of the waiver into the One-Time Adjustment, including that qualifying employment at the time of forgiveness is not necessary and that consolidations (whether of FFEL or Direct Loans) occurring prior to the completion of the One-Time Adjustment do not negate past qualifying employment periods for PSLF.”
CFPB reports on potential impacts of medical debt
On July 27, the CFPB issued a report analyzing how actions announced by three national consumer reporting companies affect people who have allegedly unpaid medical debt on their credit reports. The report is a part of a CFPB series that examines consumer credit trends using a longitudinal sample of approximately five million de-identified credit records maintained by one of the three nationwide consumer reporting agencies. According to the report, in March, the credit reporting companies announced voluntarily that they would no longer report certain medical collections. Specifically, starting July 1, 2022, the time before unpaid medical collections can appear on a consumer’s report will increase from 180 days to one year and paid medical collections will no longer appear at all. In addition, sometime in 2023, medical collections with balances below a threshold of “at least” $500 will not appear on a consumer’s report. The Bureau’s report stated that “[t]hese changes have the potential to reduce the amount of medical debt reported on consumer credit reports and to benefit some consumers.” The report describes the characteristics of consumers with reported medical collections currently and provides a state-by-state breakout of how the credit reporting changes will impact consumers’ credit reports. Highlights of the report include: (i) consumers in Northern and Eastern states have higher concentrations of medical debt that are likely to be removed; (ii) consumers with medical debt are significantly more likely to reside in neighborhoods that majority Black or Hispanic and have lower median income, but consumers likely to have all their medical debt removed by the change are slightly more likely to live in neighborhoods that are majority white and higher income; and (iii) eliminating paid collections is less likely to have a substantial effect, as very few medical collection tradelines are ever marked paid. The CFPB also noted that, due to the nature of the data, the report does not examine the impact of the extension of the time between referral of the medical bill for collections and the reporting of the bill from 180 days to one year.”
CFPB updates debt collection FAQs
On July 27 the CFPB added a new section to the Debt Collection Rule Frequently Asked Questions (FAQs), which address questions related to the electronic communication and unusual or inconvenient time and place provisions in the Debt Collection Rule.
CFPB, DOJ take action against mortgage lender
On July 27, the CFPB and the DOJ jointly filed a lawsuit against a Delaware-based mortgage lender for engaging in unlawful discrimination. The complaint, filed in the U.S. District Court for the Eastern District of Pennsylvania, alleges that the defendant violated the Equal Credit Opportunity Act (ECOA) and its implementing Regulation B and the Consumer Financial Protection Act (CFPA) by, among other things, engaging in unlawful discrimination on the basis of race, color, or national origin against applicants and prospective applicants, including by redlining majority-minority neighborhoods, and by engaging in acts and practices directed at prospective applicants that would discourage prospective applicants from applying for credit. The DOJ also alleged a violation of the Fair Housing Act, including the “making unavailable or denial of dwellings to persons because of race, color, and national origin,” among other things.
The proposed consent order, if entered by the court, would be Bureau’s first nonbank mortgage redlining resolution. It would require the defendant, among other things, to: (i) deposit $18.4 million into a loan subsidy program; (ii) pay a $4 million penalty to the Bureau; and (iii) pay $2 million to fund advertising to generate applications in redlined areas. The proposed order also notes the defendant neither admits nor denies the allegations in the complaint. According to a statement released by CFPB Director Rohit Chopra, the Bureau “will continue to seek new remedies to ensure all lenders meet and fulfill their responsibilities and obligations and the CFPB continues to be on the lookout for emerging digital redlining to ensure that discrimination cannot be disguised by an algorithm.”