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HUD and FHFA clarify Freddie Mac policies on purchasing group-home mortgages
On September 22, HUD and FHFA announced policy clarifications concerning Freddie Mac’s purchase of mortgages secured by property owned by an individual that is occupied by people with disabilities. According to HUD and FHFA, the assurance that Freddie Mac will purchase mortgages secured by group homes (which are protected under the Fair Housing Act) “should encourage lenders in extending credit for such mortgages, thus providing more community-based living opportunities for persons with disabilities.” These clarifications were included in a Freddie Mac update earlier this month to its seller/servicer guide. The announcement follows a HUD investigation of a mortgage lender who allegedly denied a consumer’s loan for a group home based on the incorrect premise that Freddie Mac would not agree to buy the mortgage. (Covered by InfoBytes here.) After HUD reported the misunderstanding to Freddie Mac and FHFA, Freddie Mac agreed to revise its policies to clarify that it has always been willing to buy mortgages secured by a group home.
Biden announces Comptroller of the Currency nominee
On September 22, President Biden officially nominated Saule Omarova for Comptroller of the Currency. If confirmed, Omarova would be the first woman and person of color to serve as Comptroller. Currently Omarova is a professor of law at Cornell University and serves as Director of the Program on the Law and Regulation of Financial Institutions and Markets at Cornell’s Jack Clarke Institute for the Study and Practice of Business Law. Omarova’s academic expertise includes an expertise in issues related to the regulation of systemic risk and structural trends in financial markets. Prior to joining academia, Omarova also, among other things, served at the U.S. Department of Treasury as a Special Advisor for Regulatory Policy to the Under Secretary for Domestic Finance.
OCC issues cease and desist order against bank
On September 20, the OCC announced a cease and desist order issued against a bank for alleged “unsafe or unsound practices” related to “technology and operational risk management,” in addition to the bank’s noncompliance with the OCC’s Interagency Guidelines Establishing Information Security Standards contained in Appendix B to 12 CFR Part 30. Without admitting to or denying the claims, the bank is required by the order to improve information technology and operational risk governance, technology risk assessments, internal controls, and staffing deficiencies. Specifically, the bank must develop an acceptable, written action plan outlining the remedial actions necessary to achieve compliance with the order by addressing the alleged unsafe or unsound practices and noncompliance, which must specify, among other things, a description of the corrective actions, reasonable and well-supported timelines, and those responsible for completing the actions. The order provides that the bank must also establish a Compliance Committee to quarterly submit: (i) “a description of the corrective actions needed to achieve compliance with each Article of the order”; (ii) the specific corrective actions undertaken to comply with each Article of the Order”; and (iii) “the results and status of the corrective actions.”
FTC reaches $6.4 million settlement with remaining defendants in robocalling suit
On September 20, the FTC announced a proposed settlement order resolving charges against the remaining participants in a cruise line telemarketing operation allegedly aimed at marketing free cruise packages to consumers. The FTC alleged the defendants participated in unfair acts or practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, placing illegal telemarketing robocalls, calling phone numbers on the FTC’s Do No Call Registry, calling consumers who asked not to be called, and transmitting false caller ID information. Under the proposed order, the defendants are permanently banned from engaging in or making telemarketing robocalls, and are also banned from engaging in abusive telemarketing, calling numbers on the Do Not Call Registry (unless express consent is given or other conditions are met), blocking or misrepresenting caller ID information, and violating the TSR. The order also imposes a $6.4 million civil money penalty against the defendants, which will be partially waived once the two individual defendants who controlled four of the corporations involved in the operation each pay a $50,000 civil money penalty. Two other settlement agreements were reached in 2020 with the other defendants (covered by InfoBytes here).
CFPB sues software company for encouraging TSR violations
On September 20, the CFPB filed a complaint against a California-based software company and its owner (collectively, “defendants”) for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act by substantially assisting or supporting credit-repair businesses that charge unlawful advance fees to consumers. According to the Bureau, the defendants—who market and sell credit-repair business software and other tools to individuals looking to start their own businesses—encouraged these businesses to “charge unlawful advance fees” even though, under the TSR, companies that telemarket their services are prohibited from requesting or receiving fees from consumers until the company has provided consumers with a credit report showing the promised results have been achieved. The TSR also requires that the credit report be issued more than six months after such results have been achieved. The Bureau seeks consumer restitution, disgorgement, injunctive relief, and civil money penalties.
SEC’s Gensler supports SOFR
On September 20, SEC Chair Gary Gensler issued remarks before the Alternative Reference Rates Committee (ARRC) regarding the transition from the London Interbank Offered Rate (LIBOR) to a “preferable” Secured Overnight Financing Rate (SOFR). Gensler expressed his concerns for the Bloomberg Short-Term Bank Yield Index (BSBY), citing that BSBY's flaws are similar to those of LIBOR, including that “[b]oth benchmarks are based upon unsecured, term, bank-to-bank lending.” He also pointed out that the BSBY term is “underpinned primarily by trades of commercial paper and certificates of deposit issued by 34 banks,” and “the median trading volume behind three-month BSBY is less than $10 billion per day.” In expressing his support for SOFR, Gensler stated that SOFR is based on an approximate trillion-dollar market.
DOJ settles SCRA violations with New Jersey student lending authority
On September 20, the DOJ announced a settlement with a New Jersey’s student lending authority, resolving allegations that the authority obtained unlawful court judgments in violation of the Servicemembers Civil Relief Act (SCRA) against two military servicemembers who co-signed student loans . According to the press release, the DOJ launched an investigation into the authority after receiving a report from the Coast Guard that the authority obtained a default judgment in 2019 against a Coast Guard petty officer who co-signed on behalf of the two student loans. The complaint, filed by the DOJ in the U.S. District Court for the District of New Jersey, states that the authority “obtained default judgments against two SCRA-protected servicemembers” by failing “to file true and accurate affidavits indicating the military status of [the two service servicemembers].” According to the DOJ, lenders can verify an individual’s military status by utilizing a defense data center’s free and public website, or by reviewing their files to confirm military status. The authority allegedly filed affidavits in state court that inaccurately stated that the servicemembers were not in military service, even though the authority had conducted searches in the defense data center’s website that confirmed that the individuals were active military servicemembers.
The settlement notes that the authority must pay $15,000 each to the two servicemembers who had default judgments entered against them, and must pay a $20,000 civil penalty. Among other things, the settlement also requires the authority to provide compliance training to its employees and to develop new policies and procedures consistent with the SCRA. The settlement also notes that the authority, since the opening of the investigation, has been fully cooperative and has “taken steps to improve its compliance with the SCRA.”
FDIC announces Pennsylvania disaster relief
On September 16, the FDIC issued FIL-67-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Pennsylvania affected by Hurricane Ida. The FDIC acknowledged the unusual circumstances faced by institutions in affected areas, and suggested institutions take certain steps to meet the needs of their communities and keep the FDIC informed of business impacts. These steps include (i) working with borrowers to adjust or alter loan terms in a safe and sound manner; (ii) identifying potential community development activities to revitalize or stabilize the disaster area (which the FDIC noted may receive favorable CRA consideration); (iii) monitoring potentially impacted municipal securities and loans; (iv) notifying the FDIC of delays in meeting filing and publishing requirements, or in the event temporary banking facilities are needed; and (v) processing consumer requests under Regulation Z for a waiver or modification of the three-day rescission period for dwelling-secured loans in the event of a “bona fide personal financial emergency.”
New York Fed discusses LIBOR transition
On September 15, Michael Held, General Counsel and Executive Vice President of the Legal Group at the Federal Reserve Bank of New York, issued remarks at the ISDA Benchmark Strategies Forum regarding issues relating to the transition from U.S. LIBOR to other rates. As previously covered by InfoBytes, the Alternative Reference Rates Committee announced its recommendation of CME Group’s forward-looking Secured Overnight Financing Rate (SOFR) term rates, following the completion of key changes in trading conventions on July 26 under the SOFR First initiative. Held noted that the U.S. Treasury Department and the Federal Reserve, among others, warned of the “considerable operational, technological, accounting, tax, and legal challenges” that may impact the LIBOR transition speed and that slow progress is also a concern for the derivates market. The second transition issue Held noted is the importance of comparing rates, stating that “alternative rates should be appropriate for the bank’s funding model and customer needs.” Lastly, Held discussed that fallbacks are essential for all alternative options, and it is important for firms that are using credit-sensitive rates to have a complete understanding of their chosen rates.
OCC’s Hsu discusses priorities for safeguarding trust in banking
On September 15, acting Comptroller of the Currency Michael J. Hsu spoke before the Exchequer Club to discuss several agency priorities relating to reducing inequality, adapting to digitization, acting on climate change, and guarding against complacency. In prepared remarks, Hsu stressed the importance of safeguarding trust in banking. While he acknowledged the value of strong rules and regulations, Hsu cautioned that rules “are not adaptive to emerging risks” and “cannot perceive and respond to trends and developments that may erode or threaten trust.” He further emphasized that regulators must coordinate efforts to ensure stability and fairness, and pointed to the growth of cryptocurrency and decentralized finance as areas where it is imperative that regulators work together to ensure activities taking place within the banking system or those that are facilitated by banks are trustworthy. “Innovation is important, but safeguarding trust is paramount,” Hsu stressed. Additionally, Hsu noted that “coordination among all financial regulators will also be needed in the future to ensure a level playing field and limit regulatory arbitrage and to keep shadow banking at a safe distance from the regulated financial system. These goals cannot be achieved if the financial regulatory agencies, including state banking supervisors, do not work together. Public trust in bank regulators will rise or fall depending on our ability to do so.”