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On February 1, Federal Reserve Governor Lael Brainard spoke at the “Research Symposium on the Community Reinvestment Act” hosted by the Federal Reserve Bank of Philadelphia to discuss the need to update Community Reinvestment Act (CRA) regulations. Brainard summarized comment letters received in response to the OCC’s Advance Notice of Proposed Rulemaking (ANPR) published last August (previously covered by InfoBytes) seeking input on ways to transform or modernize the CRA regulatory framework, and discussed the following six key takeaways:
- There is broad support for the CRA among commenters—including academics, financial institutions, banking trade associations, community organizations, consumer groups, and citizens—who, among other things, applaud the volume of CRA loans and investments that support low-and-moderate income households and communities.
- There is general agreement among commenters for the need to modernize—but not completely overhaul—CRA assessment areas, while retaining its core focus.
- Commenters support different performance tests for different types of banks. According to Brainard, there is broad agreement that “CRA regulations cannot be one-size-fits-all” and should be tailored to banks of different sizes, as well as different business models.
- CRA modernization should keep the focus on underserved areas. Commenters discussed concerns about “CRA hotspots and credit deserts,” and the need for incentives to ensure CRA capital can reach underserved communities has been a common theme at regional roundtables.
- Commenters offered recommendations on how to increase the “consistency and predictability of CRA evaluations and ratings.”
- Roundtable discussions as well as commenters have emphasized the “historical context of the CRA as it relates to redlining practices,” and demonstrated strong support for the CRA to retain its underlying focus of reaching all underserved borrowers, including low-income communities and communities of color.
On February 1, the FTC announced that the U.S. Bankruptcy Court for the Southern District of Florida ruled that the operator of a computer-financing scheme cannot use his bankruptcy to discharge a $13.4 million judgment entered in 2016 for violating a 2008 FTC order. The FTC alleged that the defendant and his affiliated companies collected more than $14 million from consumers based on promises that they would finance the purchase of new computers but failed to actually deliver the computers. The court determined that the contempt judgment issued in 2016 could not be discharged because it resulted from the defendant’s fraudulent conduct “based on both misrepresentation and concealment.” In a press release describing the ruling, the FTC stated that the defendant’s attempt to shield himself from complying with the order by filing for bankruptcy was an attempt to “avoid justice.”
CFPB files proposed consent order banning certain Canadian and Maltese payday lenders from U.S. consumer lending
On February 1, the CFPB and a group of payday lenders, including individuals and corporate officials based in Canada and Malta (collectively, “defendants”), filed a proposed consent order with the U.S. District Court for the Southern District of New York that would resolve allegations that the defendants violated the Consumer Financial Protection Act. According to the Bureau’s press release, the defendants allegedly (i) misrepresented to consumers an obligation to repay loan amounts that were voided because the loan violated state licensing or usury laws; (ii) misrepresented that loan agreements were not subject to federal or state laws; (iii) misrepresented that non-payment would result in lawsuits, arrests, imprisonment, or wage garnishment; and (iv) conditioned loan agreements upon irrevocable wage assignment clauses. Under the terms of the proposed order, the defendants would be, among other things, (i) permanently banned from consumer lending in the U.S.; (ii) permanently restrained from the collection or sale of existing U.S. consumer debts; and (iii) subject to certain reporting and recordkeeping requirements. The proposed order does not impose a fine on the defendants.
On January 29, the CFPB released a report on mortgage complaints, and a corresponding blog post, which provide a high-level overview of the mortgage complaints received by the Bureau during the last 24 months. According to the report, mortgage complaints accounted for 11 percent, or approximately 71,000 complaints, of the total complaints the Bureau received from November 2016 through October 2018. An analysis of the complaints indicated that 42 percent of them had to do with issues concerning the payment process, while 36 percent had to do with difficulties in paying off the mortgage. Consumer complaints regarding payment process problems describe a variety of issues, including misapplied payments and escrow analysis inaccuracies. The CFPB notes that complaints from consumers struggling to pay their mortgages often state they have difficulty receiving assistance after a financial hardship, illness, or a natural disaster.
Additional highlights of the report include: (i) the number of mortgage complaints received between August 2018 and October 2018 was 15 percent lower than the number of mortgage complaints received during the same time period in 2017; (iii) 50 percent of mortgage complaints relate to conventional mortgages; and (iii) adjusted for population, the largest mortgage complaint volumes came from the District of Columbia, Maryland and New Jersey.
On January 30, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by severe winter weather in the Midwest and Northeast regions of the United States “for as long as deemed necessary for bank operation or public safety.” In issuing the proclamation, the OCC noted that it expects that only those bank offices directly affected by potentially unsafe conditions will close and that institutions should make every effort to reopen as quickly as possible to address the banking needs of their customers. The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on natural disasters and other emergency conditions.
On January 31, the CFPB published a request for information (RFI) on the consumer credit card market. Section 502 of the Credit Card Accountability and Responsibility Disclosure Act (CARD Act) of 2009 requires the Bureau to conduct a review of the consumer credit card market every two years and to seek public comment to assist in that review. While the Bureau seeks feedback on all aspects of the consumer credit card market, the RFI specifically seeks comments related to, among other things, (i) the terms of credit card agreements and the practices, such as collection efforts, of credit card issuers; (ii) the effectiveness of disclosures related to rates, fees, and other cost terms; (iii) prevalence of unfair, deceptive, or abusive acts or practices in the market; and (iv) credit card product innovation. Comments must be received by May 1, 2019.
On January 29, the Chairman of the Senate Banking, Housing, and Urban Affairs Committee, Mike Crapo (R-ID), outlined his upcoming committee agenda, which prioritized housing finance. Specifically, Crapo stated “housing finance reform is the last piece of unaddressed business from the financial crisis,” emphasizing that the continued conservatorship of Fannie Mae and Freddie Mac should be addressed with bipartisan legislation to establish better taxpayer protection and increase competition among mortgage guarantors. Crapo also highlighted, among other things, potential legislative needs for (i) capital markets, specifically legislation that would encourage capital formation and reduce burdens for smaller businesses; (ii) data breaches and solutions to provide consumers greater control over their financial data; (iii) credit bureau reform to make it easier for consumers to interface with credit bureaus generally and dispute inaccuracies; and (iv) improvements in the regulatory landscape covering fintech innovation. Crapo also acknowledged the upcoming expiration of the National Flood Insurance Program in May, noting that the program was extended ten times last Congress, and any significant reforms need to balance taxpayer interest with the assistance of consumers.
The Committee will continue to provide ongoing oversight over the federal financial regulatory agencies, including whether the regulations, guidance and supervisory expectations are consistent with the intent of the sponsors of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Additionally, the Committee will (i) continue its review of the “benefits of agencies that have a bipartisan commission, rather than a single director; a Congressional funding mechanism; and a safety and soundness focus,” and (ii) conduct oversight into financial companies’ actions with regard to access to credit, including whether companies withhold access to customers and industries they disfavor.
On January 25, the FDIC announced a list of administrative enforcement actions taken against banks and individuals in December. The 15 orders include “two Section 19 orders; one civil money penalty; three removal and prohibition orders; four consent orders; one prompt corrective order; three terminations of consent orders; and one notice.” The FDIC assessed a civil money penalty against an Illinois-based bank for alleged violations of the Flood Disaster Protection Act (FDPA) and the National Flood Insurance Act (NFIA) including failing to (i) obtain flood insurance coverage on loans at origination; (ii) maintain flood insurance; and (iii) “properly force place flood insurance.”
A second civil money penalty was assessed against a Wisconsin-based bank for allegedly engaging in a pattern of violating the FDPA and the NFIA, including failing to (i) follow force placed flood insurance procedures, including notifying a borrower of a lapse in flood insurance coverage and force placing the necessary insurance in a timely fashion; (ii) obtain adequate flood insurance coverage on a loan at origination; and (iii) provide notice to a borrower concerning whether flood insurance under the NFIA was available for the collateral securing a loan.
There are no administrative hearings scheduled for February 2019. The FDIC database containing all 15 enforcement decisions and orders may be accessed here.
Waters announces subcommittee chairs, including newly formed Subcommittee on Diversity and Inclusion
On January 24, Chair of the House Financial Services Committee, Maxine Waters, announced that Joyce Beatty (D-OH) will serve as the first Chair of the newly formed Subcommittee on Diversity and Inclusion. According to Waters’ policy speech on January 17, the new Subcommittee will be “dedicated to looking at diversity and inclusion issues under the Committee’s jurisdiction.” Specifically, Waters cited to low representation of minorities and women in the financial services industry, particularly at the management level, as a reason for the creation of the subcommittee. Using the Offices of Minority and Women Inclusion of the federal financial services regulators as an example, Waters suggested that the subcommittee be responsible for overseeing diversity in management, employment, and business activities in the financial industry. In addition to diversity and inclusion, Waters noted that, among other things, fair housing, including conducting “robust oversight” of HUD, and fintech would be top priorities for the subcommittee.
On January 25, top Democratic Congressional leaders, Maxine Waters and Sherrod Brown, wrote to acting Director of the FHFA, Joseph Otting, requesting that he clarify and expand on his reported remarks concerning the administration’s plan to move Fannie Mae and Freddie Mac (collectively, “GSEs”) out of conservatorship. Specifically, Otting reportedly told FHFA employees that he would soon announce a plan to move the GSEs out from under government control and that he was given a “clear mission” outlined by Treasury and the White House of “what they want to accomplish” with the agency. Waters and Brown expressed concern about Otting’s ability to lead the agency independently based on these comments, as well as a recent filing of the agency with the U.S. Court of Appeals for the 5th Circuit stating that the agency would no longer defend the constitutionality of the FHFA’s structure. (Covered by InfoBytes here.) Waters and Brown also requested that Otting submit by February 1 a copy of the “mission that Treasury and the White House have outlined.” In response, Otting stated that he appreciated the Democratic leaders’ interest in housing finance, outlined the statutory duties of the FHFA, and welcomed input as they “begin the journey of evaluating the Enterprises and developing a framework for ending conservatorship.”
As previously covered by InfoBytes, in June 2018, the White House announced a government reorganization plan titled, “Delivering Government Solutions in the 21st Century: Reform Plan and Reorganization Recommendations.” The plan covers a wide-range of government reorganization proposals, including a proposal to end the conservatorship of the GSEs and fully privatize the companies.
- Jeffrey S. Hydrick to discuss "State legislative update" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to speak at the "Business model primer" at the NMLS Annual Conference & Training
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program