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CFPB urged to regulate fee-based EWA products as credit subject to TILA
On October 12, CFPB Director Rohit Chopra received a letter from “96 consumer, labor, civil rights, legal services, faith, community and financial organizations and academics,” which urged the Bureau to rescind its earned wage access (EWA) advisory opinion and sandbox approval, and requested that the Bureau regulate fee-based EWA products as credit subject to TILA. As previously covered by InfoBytes, last November the Bureau issued an advisory opinion on EWA products to address the uncertainty as to whether EWA providers that meet short-term liquidity needs that arise between paychecks “are offering or extending ‘credit’” under Regulation Z, which implements TILA. The advisory opinion stated that ““a Covered EWA Program does not involve the offering or extension of ‘credit,’” and noted that the “totality of circumstances of a Covered EWA Program supports that these programs differ in kind from products the Bureau would generally consider to be credit.” In December, the Bureau approved a compliance assistance sandbox application, which confirmed that a financial services company’s EWA program did not involve the offering or extension of “credit” as defined by section 1026.2(a)(14) of Regulation Z. The Bureau noted that various features often found in credit transactions were absent from the company’s program, and issued a two-year approval order, which provides the company a safe harbor from liability under TILA and Regulation Z, to the fullest extent permitted by section 130(f) as to any act done in good faith compliance with the order. (Covered by InfoBytes here).
The letter asserted that “[r]egardless of how they are structured, the essence of virtually all of these programs is that a third party advances funds to the consumer before the consumer’s regular payday and is repaid later in some fashion out of the paycheck. That is a loan. Methods to verify that the consumer has earned wages coming to them are simply a form of underwriting or security. . . . Similarly, the involvement of the employer or the use of payroll deduction does not mean that an advance is not a loan.” The letter raised several concerns, including that the Bureau’s position which views EWA products “as something other than loans leads to evasions of federal credit laws, such as [TILA], and of state laws, in particular usury laws.” Moreover, the letter stressed that this reasoning could have an impact on fair lending laws and “could be used in an attempt to weaken the scope of ECOA and its protections against discrimination against communities of color and other protected classes.” The letter stressed that asking for EWA products to be treated as credit does not mean they should not exist, but rather that the Bureau should examine fee-based EWA providers under its payday lending supervisory authority.
FSOC directs regulators to take measures to mitigate climate-related financial risks
On October 21, the Financial Stability Oversight Council (FSOC) released a new report in response to President Biden’s May executive order, which directed financial regulators to take steps to mitigate climate-related risk related to the financial system. The Report on Climate-Related Financial Risk (see also FSOC’s fact sheet) identified more than 30 specific recommendations for member agencies, including that members should: (i) expand capacity and efforts “to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability,” including through “investments in staffing, training, expertise, data, analytic and modeling methodologies, and monitoring”; (ii) promptly conduct an internal inventory of currently available data and develop plans for acquiring necessary additional data to fill climate-related data and methodological gaps; (iii) review existing public disclosure requirements and consider updating public reporting requirements in a way that would build on the work of the Task Force on Climate-Related Financial Disclosures; and (iv) continue to assess and mitigate climate-related risks to financial stability, including through scenario analysis, and evaluate whether revised or new regulations or guidance is necessary to clarify expectations for regulated or supervised institutions. The report also called for enhanced coordination across member agencies, and said a Climate-related Financial Risk Committee will be formed to “identify priority areas for assessing and mitigating climate-related risks to the financial system and serve as a coordinating body to share information, facilitate the development of common approaches and standards, and foster communication across FSOC members.” A Climate-related Financial Risk Advisory Committee will also be formed to help gather information and analysis from stakeholders on climate-related financial risks. Treasury Secretary Janet Yellen warned that FSOC has a responsibility under the Dodd-Frank Act “to respond to emerging threats to the stability of the United States financial system” and to “ensure the resilience of the financial system to the future impacts of climate change.”
Treasury highlights strategy to advance racial equity
On October 25, the U.S. Treasury Department released a blog post that highlights how the Department is focusing on advancing racial equity. Among other things, the blog noted that this focus has informed the Treasury’s decision to establish “a dedicated Office of Recovery Programs and has flowed through the policy and operational decisions [it has] made to implement the historic American Rescue Plan.” According to the blog, the Office of Recovery Programs addresses urgent needs and makes lasting investments to mitigate long-term disparities by making equity a foundational priority in the delivery of the program, which has improved the circumstances of vulnerable households and created opportunities for small businesses, cities, and states. In addition, Treasury announced the appointment of Janis Bowdler to be the Department’s first Counselor for Racial Equity. The blog also noted that Treasury’s “efforts go beyond [Treasury’s] diverse, dedicated political appointees,” because Treasury is “also deeply committed to improving diversity and inclusion among the broader career Treasury workforce, where we acknowledge much more work remains to be done.”
CFPB releases education ombudsman’s annual report
On October 26, the CFPB Private Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2020 and August 31, 2021. The report is based on approximately 5,300 complaints received by the Bureau regarding federal and private student loans. Of these complaints, roughly 900 were related to debt collection, while approximately 730 mentioned Covid-19. The Bureau’s press release noted that the overall decrease in both federal and private student loan complaints may be attributed to the CARES Act relief measures and administrative extensions that were extended through January 31, 2022. The Bureau stated, however, that the pandemic exacerbated socio-economic and racial disparities in the student lending space and caused heightened risk of borrower harm, particularly to vulnerable populations. Additionally, the Bureau warned that the risk of borrower harm may also increase as more than 32 million borrowers with federal loans resume payments in the first quarter of 2022, and, because four of nine federal student loan servicers have or will soon stop servicing federal student loans, over 16 million borrowers will transfer to different servicers. Findings in the report included topics related to student loan complaint trends, debt collection complaints, and supervisory findings related to student loan servicers, etc.
The report also advised policymakers to consider several recommendations, including: (i) considering metrics for sharing risks shouldered by borrowers with schools that fail to provide meaningful paths to repayment; (ii) accelerating efforts to incorporate qualitative and quantitative metrics to protect consumers into future federal student loan servicing contracts; (iii) requiring detailed disclosures provided with every student loan disbursement; (iv) considering various loan forgiveness programs; (v) examining return to repayment and servicer transitions; and (vi) identifying and prosecuting data aggregators and payment processors, as well as student loan debt relief scammers.
FTC says ISPs provide limited protections for consumer data
On October 21, the FTC reported that internet service providers (ISPs) are able to gather and share large pools of sensitive consumer data while providing limited privacy protections. According to an FTC staff report, ISPs’ data collection and use practices allow them to monitor and record their customers’ every online move, granting them the ability to collect large amounts of information without their customers’ knowledge. The FTC launched the internet privacy study in 2019 under Section 6(b) of the FTC Act and analyzed information from six major ISPs, which comprise roughly 98 percent of the mobile internet market. Three advertising affiliates associated with the ISPs were also asked to provide information on their data collection and use practices. The report found, among other things, that ISPs typically collect and share more customer information than is necessary to provide ISP services. According to the report, some ISPs collected personal information to market products and services, serve targeted ads on behalf of third parties, or share insights into customers’ behaviors with other businesses. The report also found that customers are often placed into categories by “race, ethnicity, sexual orientation, economic status, political affiliations, or religious beliefs,” and that ISPs often share real-time location data with third parties.
Additionally, the report found that while several ISPs tell customers their personal information will not be sold, the companies’ privacy notices obscure other ways personal data can be used, transferred, or monetized by other parties, and “often bury[] such disclosures in the fine print of their privacy policies.” The report further explained that many customers are often confused about how to opt-out of or limit ISPs’ data collection, adding that while several ISPs promise to retain data only for as long as needed for a business reason, the definition of what constitutes a “business reason” varies widely.
Chair Lina M. Khan issued separate remarks, emphasizing that the report’s finding are “striking” and “underscore deficiencies of the ‘notice-and-consent’ framework for privacy, especially in markets where users face highly limited choices among service providers.”
FTC settles with companies involved with alleged deceptive investment training company
On October 21, the FTC announced a proposed settlement with the funder and servicer (collectively, “defendants”) of payment plans utilized by consumers to pay for investment “trainings” from a professional trader education company (company). Under the proposed settlement, the funder is required to offer debt forgiveness to company consumers who have debt held by the funder. According to the complaint, the defendants allegedly violated the FTC Act by, among other things, facilitating the company’s deceptive scheme by underwriting, funding, and servicing its retail installment contracts. According to the announcement, in September 2020, the FTC settled with the company and, as part of that settlement, the company was required to offer debt forgiveness to consumers who owed it money. The settlement, however, did not cover consumers whose debt was held by the funder. The funder is also required to give these consumers notice of the offer of debt forgiveness and allow 45 days to request forgiveness from the funder. Additionally, the proposed settlement requires the defendants to utilize adequate due diligence when screening prospective covered clients, monitor covered clients, and investigate consumer complaints.
OCC issues semi-annual Interest Rate Risk Statistics Report
On October 20, the OCC published the fall 2021 edition of the Interest Rate Risk Statistics Report. The report presents interest rate risk data gathered during examinations of OCC-supervised midsize and community banks and federal savings associations with reported data by asset size, charter type, and minority depository institutions. The OCC’s supervisory process for the fall 2021 report reviewed banks’ reported data from September 30, 2019 to June 30, 2021, including exposures, risk limits, and non-maturity deposit assumptions. The OCC notes that the statistics presented within the report “are for informational purposes only and do not represent OCC-suggested limits or exposures.”
District Court approves order permanently banning defendants from making robocalls
On October 21, the U.S. District Court for the Middle District of Florida issued an order approving a permanent injunction and $6.4 million civil money penalty against the remaining participants in a cruise line telemarketing operation allegedly aimed at marketing free cruise packages to consumers. In January, the FTC filed a complaint against the defendants (two individuals and five companies they controlled, including the cruise line) for their alleged involvement in the telemarketing operation. As previously covered by InfoBytes, the complaint asserted violations of the FTC Act and the Telemarketing Sales Rule. The same day the complaint was filed, the FTC announced that it had entered into two settlement agreements—one with a call center and two individuals, and one with an additional individual—for their roles in the telemarketing operation. The court’s October order follows a recent FTC announcement (covered by InfoBytes here), indicating it had reached an agreement with the defendants who neither admitted nor denied the allegations. The court’s order requires the individual defendants to cooperate with any future FTC investigations and to disclose “the contents of their auto-dialed, telemarketing, or pre-recorded telephone communications and records or other information pertaining to [the] autodialed, telemarketing, or pre-recorded telephone communications.” The order also suspends the $6.4 million civil money penalty after the two individual defendants each pay $50,000 to the Treasury Department.
DOJ, CFPB, and OCC announce aggressive redlining initiative; take action against national bank for alleged lending discrimination
On October 22, the DOJ, in collaboration with the CFPB and the OCC, announced a new initiative to combat redlining and lending discrimination. The Combatting Redlining Initiative will be led by the DOJ’s Civil Rights Division’s Housing and Civil Enforcement Section in partnership with U.S. Attorney’s offices, and will, among other things, (i) “ensure that fair lending enforcement is informed by local expertise on housing markets and the credit needs of local communities of color”; (ii) “[e]xpand the department’s analyses of potential redlining to both depository and non-depository institutions” (the DOJ noted that non-depository lenders now make the majority of mortgages in the U.S.); (iii) strengthen financial regulator partnerships to ensure fair lending violations are identified and referred to the DOJ; and (iv) increase fair lending coordination with state attorneys general to identify potential violations. Attorney General Merrick Garland stated that the initiative will “address[] modern-day redlining by making far more robust use of our fair lending authorities,” and marks the DOJ’s “most aggressive, coordinated effort to address redlining.” Garland noted that several redlining investigations are currently ongoing and more are expected to be opened in the upcoming months.
In his remarks, CFPB Director Rohit Chopra also warned that the Bureau will be “closely watching for digital redlining, disguised through so-called ‘neutral algorithms, that may reinforce the biases that have long existed.’” He added that “the speed with which banks and lenders are turning lending and advertising decisions over to algorithms is concerning,” and cautioned against assuming that algorithms will be bias free.
In conjunction with the announcement of the multi-agency initiative, the DOJ, CFPB, and OCC, took action against a national bank for alleged redlining practices. According to the complaint, the bank violated the Fair Housing Act, ECOA, and the CFPA by deliberately engaging in conduct that discouraged consumers in majority-Black and Hispanic neighborhoods in the Memphis metropolitan area from seeking credit. The bank also allegedly established a limited number of branches in majority-Black and Hispanic communities, and did not provide mortgage-lending services to walk-in customers in these neighborhoods. The complaint further alleged, among other things, that the bank’s fair lending policies and procedures did not adequately ensure equal access to credit to majority-Black and Hispanic neighborhoods, and that internal governance and oversight committees to oversee fair lending were not established until after the OCC initiated a fair lending examination of the bank.
Under the terms of the proposed settlement, the bank will be required to pay a $5 million civil money penalty. The bank will also have to invest $3.85 million through a loan subsidy program to increase access to credit, and provide $400,000 to develop community partnerships to increase access to residential mortgage credit. The loan subsidy program will go towards closing cost assistance, down payment assistance, and payment of mortgage insurance premiums. Additionally, the bank must increase branches and outreach efforts in majority-Black and Hispanic neighborhoods, devote at least $200,000 in targeted advertising annually to generate applications for mortgages in these neighborhoods, and take remedial efforts to improve its fair lending compliance.
Fed governor discusses need for new banks
On October 22, Federal Reserve Governor Michelle W. Bowman spoke at the 2021 Community Bankers Symposium: Banking on the Future regarding why there have been so few de novo bank formations over the last decade and what can be done to encourage more de novo banks. Bowman discussed “the importance of community banks,” noting that they “provide critical financial services to their communities and to many customers who might have limited geographic access to banking services.” She pointed out that community banking has been declining in both rural and urban communities due in part to an increased need to hire experienced staff, which is challenging to attract and retain. To encourage more de novo banks, Bowman stated it is “crucial to provide a balanced, transparent, and effective regulatory framework that promotes a vibrant community bank sector.” She also emphasized that policymakers should “appropriately refine the regulatory and supervisory framework to minimize unnecessary compliance costs for smaller banks and address impediments to bank formations.”