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CFPB report reveals high credit card costs, growing debt, and digital shifts led to consumers’ revolving debts in 2022
On October 25, the CFPB released a report on credit card interest rates and fees in 2022 highlighting the impact of the cost to consumers. The report found that credit card companies charged consumers more than $105 billion in interest and $25 billion in fees, with the bulk of the fees being late fees.
According to the 175-page report, consumers are rolling balances month-to-month, falling into debt, while credit card companies’ profit margins remain high. The CFPB highlighted additional trends, including how (i) the profits of major credit card companies have increased, surpassing pre-pandemic levels, which could indicate a lack of competition in the industry, with a few dominant players; (ii) Annual Percentage Rates (APRs) for credit cards continue to rise above the cost of offering credit (meaning cardholders are paying more in interest); (iii) many cardholders with subprime credit scores paid a significant percentage of their average balance in interest and fees; (iv) late fees charged to cardholders have risen to pre-pandemic levels, and more consumers are delinquent; (v) credit card debt reached a record $1 trillion by the end of 2022, and annual spending on credit cards increased, returning to pre-pandemic levels; and (vi) consumers who roll debt from month to month are paying a significant portion of interest and fees but earning only a small percentage of rewards. The report also notes a rise in digital communication—around 80 percent of cardholders, especially those under 65, use mobile apps for card management, which exhibits a shift in how consumers and financial institutions interact in the credit card industry.
Agencies issue final rule to modernize Community Reinvestment Act regulations
On October 24, the Fed, FDIC, and OCC issued an interagency announcement regarding the modernization of their rules under the Community Reinvestment Act (CRA), a law enacted in 1977 to encourage banks to help meet the credit needs of their communities, especially low- and moderate-income (LMI) neighborhoods, in a safe and sound manner. The new rule overhauls the existing regulatory scheme that was first implemented in the mid-1990s.
For banks with assets of at least $2 billion (Large Banks), the final rule adds a new category of assessment area to the existing facility based assessment area (FBAA). Large Banks that do more than 20 percent of their CRA-related lending outside their FBAAs will have that lending evaluated in retail lending assessment areas, i.e., MSAs or states where it originated at least 150 closed-end home mortgage loans or 400 small business loans in both of the previous two years. All Large Banks will be subject to two new lending and two new community development tests, with lending and community development activities each counting for half a bank’s overall CRA rating. Banks with assets between $600 million and $2 billion will be subject to a new lending test. Large Banks with assets greater than $10 billion will also have special reporting requirements.
Additionally, the rule (i) implements a standardized scoring system for performance ratings; (ii) revises community development definitions and creates a list of community development activities eligible for CRA consideration, regardless of location; (iii) permits regulators to evaluate “impact and responsiveness factors” of community development activities; (iii) continues to make strategic plans available as an alternative option for evaluation; (iv) revises the definition of limited purpose bank so that it includes both existing limited purpose and wholesale banks and subjects those banks to a new community development financing test; and (v) considers online banking in the bank’s evaluations.
Most of the rule’s requirements will be effective January 1, 2026. The remaining requirements, including the data reporting requirements, will apply on January 1, 2027.
CFPB releases education ombudsman’s annual report
On October 20, the CFPB Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2022, and August 31, 2023. The report is based on approximately 9,284 student loan complaints received by CFPB regarding federal and private student loans. Roughly 75 percent of complaints were related to federal student loans while the remaining 25 percent concerned private student loans. Overall, the report found underlying issues in student loan servicing that threaten borrowers’ ability to make payments, achieve loan cancellation, or receive other protections to which they are entitled under federal law. The report indicated that challenges and risks facing federal student loan borrowers include customer service problems, errors related to basic loan administration, and problems accessing loan cancellation programs. Similarly, private borrowers face issues accessing loan cancellation options, misleading origination tactics, and coercive debt collection practices related to private student loans.
The Ombudsman’s report advised policymakers, law enforcement, and industry participants to consider several recommendations: (i) ensuring that federal student loan borrowers can access all protections intended for them under the law; (ii) ensuring that loan holders and servicers of private student loans do not collect debt where it may no longer be legally owed or previously discharged; and (iii) using consumer complaints to develop policies and procedures when they reveal systemic problems.
CSBS offers guidance for licensees to prepare for NMLS renewal
On October 24, CSBS released tips for licensees to prepare for NMLS renewal. As previously covered by InfoBytes, NMLS announced it will be rolling out a new version of its mortgage call report which will include new requirements for many licensees. Kelly O'Sullivan, the chair of the NMLS Policy Committee and deputy commissioner of the Montana Division of Banking and Financial Institutions, advises licensees to proactively update their information in NMLS and make use of available training and resources to address their queries before the renewal period begins. This is particularly crucial for those individuals who typically only engage with NMLS during the license renewal phase.
CSBS recommended five essential tips for licensees:
- Licensees should log into NMLS and thoroughly review and update their profile record to ensure accuracy;
- Licensees should reset their NMLS password in advance to have a current password ready for accessing NMLS when needed;
- Licensees should provide and maintain a current email address to receive essential updates from NMLS during the renewal process;
- Licensees should review state-specific renewal requirements, as state agencies typically begin publishing details, including deadlines and fees, in September;
- Licensees are encouraged to take advantage of the free, on-demand renewal training resources provided by CSBS to become familiar with the renewal process.
CSBS announces release of NMLS MCR Version 6 in Q1 2024
On October 13, 2023, the Conference of State Bank Supervisors (CSBS) announced the Nationwide Multistate Licensing System & Registry (NMLS) will be rolling out a new version of its Mortgage Call Report (MCR). In an effort to standardize mortgage company data at the state level, and minimize the amount of reporting outside the system, NMLS will be launching an updated version of the MCR, Version 6 (FV6) on March 16, 2024.
Licensees will see three main improvements in Version 6:
- FV6 eliminates standard and expanded forms and consolidates them into one form. All servicers will complete the servicer schedule and all lenders will complete the lender schedule. Lenders and servicers will file financials quarterly, and brokers will file financials annually.
- Commercial and consumer lending licensees will complete a separate state-specific form, removing the obligation to report mortgage information.
- The revision of line-item definitions will improve the overall quality of the data and help implement more completeness and accuracy checks.
FV6 will go into effect for all data collected on transactions dated on and after January 1, 2024. Additionally, NMLS will provide companies with the XML specifications no later than October 23. CSBS estimates that approximately 24,000 brokers, lenders, and servicers will experience reduced requirements, and approximately 3,100 lenders will have additional filing requirements.
The Mortgage Bankers Association sent a letter to CSBS in July, raising concerns with the new version, including (i) the lack of technical specifications needed for full consideration of the proposal and its implementation; and (ii) the significant expansion and burden of reporting requirements on smaller filers resulting from the replacement of standard and expanded forms in favor of the new and more detailed FV6. CSBS noted mortgage industry concerns surrounding the timing of the rollout of FV6 ahead of Q1 2024, and shared that details for leniency to the filing deadline will be provided in future communications. NMLS will provide regular updates on the Mortgage Call Report page, targeted learning opportunities and Q&A sessions.
Visit here for additional guidance on FV6 from APPROVED.
FHFA revises policies for Covid-19 forbearance on GSE mortgages
On October 16, the Federal Housing Finance Agency (FHFA) announced it will revise how Fannie Mae and Freddie Mac (GSE) single-family mortgages are treated for borrowers who have entered Covid-19 forbearance under the GSEs’ representations and warranties framework. Under the revised policies, loans for which borrowers elected Covid-19 forbearance will be treated similarly to loans for which borrowers obtained forbearance due to a natural disaster. The GSEs’ current representations and warranties framework for natural disaster forbearance allows for consideration of the period during which a borrower is in forbearance as part of their demonstrated satisfactory payment history for the initial 36 months after the loan's origination. This framework will now be extended to loans with Covid-19 forbearance. FHFA Director Sandra L. Thompson said, "Servicers went to great lengths to implement forbearance quickly amid a national emergency, and the loans they service should not be subject to greater repurchase risk simply because a borrower was impacted by the pandemic."
The updates will be effective on October 31.
CFPB sues nonbank mortgage lender for alleged HMDA and CFPA violations
On October 10, the CFPB filed a lawsuit against a Florida-based nonbank mortgage originator for allegedly failing to accurately report mortgage data in violation of the Home Mortgage Disclosure Act (HMDA). According to the complaint, in 2019 the Bureau found that the lender violated HDMA by intentionally misreporting data regarding applicants’ race, ethnicity and gender from 2014-2017, which resulted in the lender paying a civil money penalty and taking corrective action. In this action, the Bureau alleges that during its supervision process, it found the lender submitted HMDA data for 2020 contained “widespread errors across multiple data fields” including 51 errors in 159 files and the lender violated a 2019 consent order condition that required it to improve its data practices. The alleged errors include (i) mistakes in inputting data concerning subordinate lien loans and acquired loans; (ii) inclusion of loans in HMDA reporting that did not meet the HMDA criteria for reportable applications; (iii) incorrect characterization of purchaser type for tens of thousands of loans; (iv) erroneous rate spread calculations, leading to errors in interconnected fields; (iv) inaccurate data related to lender credits; and (v) incorrect categorization of specific loan applications as “approved but not accepted” when they were, in fact, withdrawn, resulting in discrepancies in associated fields. Along with the HDMA violations and the violations of the 2019 consent order, the CFPB also alleges violations of the CFPA and requests that the court permanently enjoin the lender from committing future violations of HMDA, require the lender to take corrective action to prevent further violations of HMDA, injunctive relief, and the imposition of a civil money penalty.
HUD expands access to mortgages with ADUs
On October 16, HUD introduced a new policy that aims to make it easier for borrowers to finance Accessory Dwelling Units (ADUs) in their primary residences. ADUs are small living units built inside, attached to, or on the same property as, the main home. This policy change allows lenders to consider ADU rental income when assessing a borrower's eligibility for an FHA mortgage.
The new policies provide:
- Income Flexibility: Borrowers with limited incomes can use 75% of their estimated ADU rental income to qualify for an FHA-insured mortgage for properties with existing ADUs.
- New ADUs: For new ADUs that borrowers plan to attach to an existing structure, such as a garage or basement conversion, 50% of the estimated rental income can be used for qualification under FHA's Standard 203(k) Rehabilitation Mortgage Insurance Program.
- Appraisal Requirements: The policy includes ADU-specific appraisal guidelines to accurately assess the market value of properties with ADUs, making it easier for appraisers to report on ADU characteristics and expected rental generation.
- New Construction: The policy also allows FHA mortgages to finance new homes built with ADUs, expanding ADU production beyond the rehabilitation of existing structures.
The White House concurrently released a statement on the policy, noting that it is allowing rental income from ADUs to qualify for FHA-insured mortgages. HUD added that FHA-approved lenders can start offering borrowers mortgages on properties with ADUs under the new policies effective immediately.
California enacts law to extend commercial financing cost disclosure requirement
On October 7, the California governor signed SB 33 to, among other things, continue to require covered providers offering commercial loans to disclose the total cost of financing expressed as an annualized rate indefinitely. Existing law currently required this disclosure only until January 1, 2024.
SB 33 is effective January 1, 2024.
Automotive management company settles with DOJ to resolve False Claims Act allegations
On October 11, an automotive management company settled claims by the Department of Justice alleging that the company had violated the False Claims Act by knowingly providing false information in support of its Paycheck Protection Program (PPP) loan forgiveness application.
According to the DOJ’s allegations, the automotive management company certified it was a small business with fewer than 500 employees when in fact it shared common operational control with dozens of automobile dealerships with more than 3,000 employees in total.