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HUD charges homeowner association with Fair Housing Act violations
On September 3, HUD announced a Charge of Discrimination against a Florida-based homeowner association (respondent) for allegedly violating the Fair Housing Act by discriminating against residents with disabilities. According to HUD, the complainants alleged that the respondents refused to accommodate their request to leave their shoes outside of their units to prevent tracking contaminants inside and exacerbating a respiratory disability. In addition, the complainant allegedly provided medical documentation from a physician, which advised the need to keep their home free from outdoor allergens, chemicals, or pollutants. HUD determined that a disability under the Act existed, and that the respondents refused to grant a reasonable accommodation. The charge will be heard by a United States Administrative Law Judge unless a party elects to have the case heard in federal district court.
CFPB denies debt collection company’s petition to set aside CID
On August 18, the CFPB denied a petition by a debt collection company to set aside a civil investigative demand (CID) issued by the Bureau in May. The CID requested information regarding whether debt buyers, debt collectors or persons associated with selling or collecting debt, have “made false or misleading representations to consumers or third parties in a manner that is unfair, deceptive, or abusive,” in violation of the CFPA, among other things. The company petitioned the Bureau on May 26 to set aside the CID, arguing, among other things, that the CID (i) “fails to identify sufficiently the nature of the conduct under investigation”; (ii) “fails to provide [the company] with any notice whatsoever of any potential witnesses or participants who may be necessary to respond to the CID”; and (iii) is overbroad and unduly burdensome.
In rejecting the company’s arguments described above, the Bureau found that: (i) “the Bureau’s notification of purpose identifies the nature of the conduct under investigation and is therefore not ‘too indefinite’”; (ii) it is not required that the Bureau provide any notice any potential witnesses or participants who may be necessary to respond to the CID; and (iii) the CFPB holds “broad authority to seek information which may be relevant to its investigations.”
FHA announces temporary partial waivers to HECM policies
On September 2, the FHA announced FHA INFO 2021-70, which issues the following temporary partial waivers to its Home Equity Conversion Mortgage (HECM) policies for those impacted by the Covid-19 pandemic: (i) the temporary partial waiver of Mortgagee Letter 2015-11, which allows mortgagees to offer repayment plans to HECM borrowers with unpaid property charges regardless of their total outstanding arrearage; and (ii) the temporary partial waiver of Mortgagee Letter 2016-07, which permits mortgagees to seek assignment of a HECM immediately after utilizing their own funds to pay property taxes and insurance on or after March 1, 2020, in addition to it eliminating the three-year waiting period for such assignments. Both waivers are effective through June 30, 2022.
The same day, the agency announced in FHA INFO 2021-71 the availability of the new COVID-19 Recovery Loss Mitigation Options training webinar, initially previewed in FHA INFO 21-61 (previously covered by InfoBytes here). The webinar is designed to help mortgage servicers and other stakeholders better understand the details of the new COVID-19 Recovery Loss Mitigation Options.
Special Alert: CFPB proposes small business loan data collection regime
Over a decade ago, Congress enacted an amendment to the Equal Credit Opportunity Act that directed the Consumer Financial Protection Bureau to implement a new regime for small business loan data collection similar to the regime that exists in the mortgage industry. Last week, a month before a court-imposed deadline, the Bureau issued its long-awaited proposed rule. The proposal was largely consistent with prior Bureau statements regarding its approach, but nonetheless contained some surprises that reflect the change in leadership at the CFPB. Lenders will need to carefully assess the impact of the proposed rule on their business.
The proposed rule, which is mandated under Section 1071 of the Dodd-Frank Act, would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. This information would be reported annually to the Bureau, and eventually published by the Bureau on its website, with some potential modifications.
The statute’s stated intent is to “facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.” CFPB Acting Director Dave Uejio echoed these themes in prepared remarks, suggesting that the proposal was a step towards “a fairer, more transparent small business lending market.” But the Bureau itself acknowledges that it is engaged in a balancing exercise, weighing the intended benefits of the rule against the cost imposed on lenders (and by extension, borrowers), the risk to privacy interests, and the risk of unintended consequences that accompany any major regulatory intervention. The public, including lenders potentially subject to the rule, have 90 days to submit comments on whether the Bureau got the balance right.
The proposed rule would cover most of the small business lending market
By its terms, the statute would apply broadly to any “financial institution” that extended credit to any women-owned, minority-owned, or small business. But the statute also allowed the Bureau to exempt any “class of financial institutions” from its requirements. Last fall, as part of a process required under the Small Business Regulatory Enforcement Fairness Act (SBREFA), the Bureau suggested that it might exempt lenders based on their size (i.e., those beneath thresholds of $100 million or $200 million in assets), their loan activity (i.e., those making 25, 50, or 100 or fewer loans annually), or based on either threshold. The proposed rule lands at the broadest end of this possible spectrum, abandoning any exemptions based on size altogether and adopting the lowest of the proposed activity levels. Any financial institution that originates at least 25 “covered credit transactions” for “small businesses” in each of the two preceding years would be subject to the rule.
Any loan, line of credit, credit card, or merchant cash advance, including agricultural-purpose credit and those that are also covered by HMDA, would be considered a “covered credit transaction.”[1] Notably, the Bureau suggested in its SBREFA Outline that it would exclude merchant cash advances, but declined to do so in the proposal, concluding that the segment is growing and presents unique fair lending risk.
Just as it did in its SBREFA Outline, the Bureau would adopt the Small Business Administration’s definition of “small business,” except that the Bureau’s definition would use a simplified size threshold of $5 million or less in gross annual revenue. This divergence will require SBA approval, which Uejio expressed confidence in getting.
The proposal’s collection requirements are triggered whenever a lender subject to the rule under the activity threshold receives a “covered credit application.” This term is defined broadly to include “any oral or written request for a covered credit transaction that is made in accordance with procedures used by [the] financial institution for the type of credit requested.” Reevaluation requests, extension requests, and renewal requests would not be considered applications (unless the request seeks additional credit amounts), nor would inquiries and prequalification requests.
The rule would require the collection of 21 data points
The statute sets forth thirteen specific data points to be collected by lenders that the Bureau refers to as “mandatory data points:”
- Whether the applicant is minority-owned
- Whether the applicant is women-owned
- Unique identifier for each application
- Application date
- Loan type (i.e., product type, guarantees, and term)
- Loan purpose
- Amount applied for
- Amount approved or extended
- The action on the application (i.e., originated, approved but not accepted, denied, withdrawn, or incomplete)
- Action date
- Census tract
- Gross annual revenue
- Race, sex, and ethnicity of the principal owners
The collection of information about the principal owner’s[2] race, sex, and ethnicity is a major change from the SBREFA Outline, which suggested that the Bureau would likely propose the collection of such information solely based on applicant self-reporting. As the Bureau recognized at the time, “requiring reporting based on visual observation or surname could create unwarranted compliance burdens in the context of small business lending.” The proposal reverses course, and would require lenders who meet with any principal owner to determine the ethnicity and race of the principal owner if the applicant declines to provide that information. As the statute requires, the data collected regarding the principal owners’ race, sex, and ethnicity—as well as whether the business is minority-owned or women-owned—must not be shared with underwriters, unless restricting access is not feasible.[3]
The statute also authorized the Bureau to require additional data that would advance the purposes of the statute (so-called “discretionary data points”). The CFPB’s proposed discretionary data points are consistent with this administration’s prioritization of fair lending enforcement:
- Pricing
- Time in business
- NAICS Code
- Number of employees
- Application method (e.g., in-person, phone, mail, online)
- Application recipient (e.g., direct or through a third party)
- Reasons for denial (providing nine specific reasons and a text box for any other reason)
- Number of principal owners (i.e., 0-4)
The SBREFA Outline envisioned the first four above; the last four were introduced in the proposal. Of particular note, pricing data is granular: for fixed-rate loans, the rate; for variable-rate loans, the margin, index value, and index name; for merchant cash advances and similar products, the difference between the amount advanced and the amount paid; and for all transactions, origination charges, broker fees, whether the fees were paid directly to the broker or to the financial institution for delivery to the broker, noninterest charges imposed over the first year, whether the financial institution could have included a prepayment penalty under its policies, and whether it did impose a prepayment penalty.
Will everything be published?
Lenders must collect and report to the Bureau annually, which will publish the data on its website — subject to modifications or deletions that it determines advance a privacy interest. The Bureau has not yet proposed modifications or deletions, but intends to issue a policy statement on its approach after it has received one full year of data.
In the meantime, however, the Bureau has made clear that it will disclose the identity of financial institutions and is generally not persuaded that competitive or reputational harms to financial institutions or increased litigation are a basis to withhold publication of data. Instead, the Bureau has indicated that its principal concern is avoiding the risk that an applicant could be re-identified through specific data points.
How will the rule impact small business lending?
The proposal would apply to thousands of small business lenders offering a wide range of products. The Bureau acknowledges the collection and reporting of this information will impose costs on lenders, some of which it expects to be passed along to borrowers.
But the most significant impact of the rule will be the Bureau’s eventual publication of the data. In its view, publication of granular data on specific lending decisions will advance the statutory goals of facilitating fair lending enforcement and business and community development. But concerns over reputational harms and increased fair lending scrutiny may also cause lenders to eliminate subjective elements of underwriting that are a traditional, and often appropriate, feature of small business underwriting. If the eventual effect of the rule is to, as one commenter put it, “artificially flatten prices,” the rule could lead to a small business lending market that is less innovative and less sensitive to actual credit risk than the market that exists today.
The public has 90 days to submit comments regarding the CFPB’s proposal.
If you have any questions regarding the CFPB’s proposed rule, please visit our Fair Lending and Fair Servicing page or contact a Buckley attorney with whom you have worked in the past.
[1] The proposal would exclude certain other types of credit, including trade credit, public utilities credit, securities credit, and incidental credit. The rule would also not cover factoring, leases, consumer-designated credit used for business purposes, and credit secured by certain investment properties (specifically 1-4 individual dwelling units).
[2] A principal owner is any individual who owns 25% or more of the small business.
[3] If not feasible, the institution must provide notice to the applicant of its intention to share this information.
HUD announces Hurricane Ida disaster relief
On September 1, HUD announced disaster assistance for certain Louisiana parishes impacted by Hurricane Ida, providing foreclosure relief and other assistance to affected homeowners. This followed President Biden’s major disaster declaration for the same parishes issued on August 29. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to those victims whose homes were destroyed or severely damaged such that “reconstruction or replacement is necessary[.]” Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house and the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes. Flexibility measures for state and local governments, public housing authorities, tribes, and tribally designated house entities are also discussed.
CFPB proposes collection of small business lending data
On September 1, the CFPB released a notice of proposed rulemaking (NPRM) and request for public comment on a proposed rule to implement Section 1071 of the Dodd-Frank Act, which requires the agency to collect and disclose data on lending to women and minority-owned small businesses. The NPRM would create a new subpart B to existing Regulation B, the implementing regulation for ECOA, in order to increase transparency in the lending marketplace. Covered financial institutions would be required to collect and report to the Bureau a broad set of data points relating to applications for several small business credit products with the stated goal of facilitating the enforcement of fair lending laws and enabling the identification of business and community development needs and opportunities for women-owned, minority-owned, and other small businesses.
The NPRM defines a covered “financial institution” as an entity that meets a specific origination threshold where at least 25 “covered credit transactions” are originated to small businesses in each of the two preceding calendar years. A “covered credit transaction” under the NPRM would include transactions that meet the definition of business credit under Regulation B, as well as loans, lines of credit, credit cards, merchant cash advances, credit transactions for agricultural purposes, and transactions covered by HMDA. The definition of a small business would be one that had less than $5 million in gross annual revenue for the preceding fiscal year. Additionally, the NPRM defines a “covered application” as “an oral or written request for a covered credit transaction that is made in accordance with procedures used by a financial institution for the type of credit requested.” Data points that covered financial institutions would be required to collect on a calendar-year basis to be reported by June 1 of the following year are also provided.
The Bureau proposes that an eventual final rule would become effective 90 days after publication in the Federal Register; however, compliance would not be required until approximately 18 months after publication. Additionally, the Bureau proposes certain transitional provisions that would allow covered financial institutions to begin collecting data prior to the compliance date and would permit covered financial institutions to “use either the two calendar years immediately preceding the effective date or the second and third years preceding the compliance date to determine coverage.” (See also the Bureau’s summary on the NPRM here.) Comments on the NPRM will be received for 90 days following publication in the Federal Register.
“This data will be used to support business and community development and foster fair lending,” acting Director Dave Uejio noted in a statement following the announcement of the NPRM. He added that the “rule is about providing greater transparency into which small businesses get credit and which ones do not.”
A Buckley Special Alert is forthcoming.
FTC bans respondents from surveillance business
On September 1, the FTC announced that a data monitoring application and its CEO (collectively, “respondents”) will be permanently banned from the surveillance industry for failing to provide reasonable data security for consumers’ personal information by allegedly “secretly harvesting and sharing data on people’s live location, web use, and online activities through their product’s hidden device hack.” The respondents allegedly sold real-time access to their surveillance system, which allowed stalkers and domestic abusers to “stealthily track” unknowing victims.
According to the complaint, the respondents violated Section 5 of the FTC Act by committing unfair or deceptive business practices in using unauthorized personal information and failing to secure such data in which “victims continue to experience substantial harm, including injury in the form of depression, anxiety, and ongoing fear for one’s safety,” even after the stalking or domestic abuse ended. The complaint detailed the covert monitoring products and services offered by respondents once their application is installed, including capturing and logging: email, SMS messages, call history, GPS location and live location, web history, contacts, pictures, calendar, video chats, files downloaded on the device, notifications, among other functions depending on cost.
Under the terms of the proposed settlement, the respondents are: (i) banned from offering, promoting, selling, or advertising any surveillance app, service, or business; (ii) required to delete any information illegally collected from their apps; and (iii) required to notify owners of devices that their devices might have been monitored and the devices may not be secure. This is the agency’s second case “brought against stalkerware apps, and the first where the FTC is obtaining a ban.” According to a statement released by FTC Commissioner Rohit Chopra, the agency is also “seeking public comment on banning [the defendants] from licensing, marketing, or offering for sale surveillance products,” which is “a significant change from the agency’s past approach.”
Agencies provide guidance on Hurricane Ida and California wildfires
Recently, the FDIC, Federal Reserve Board, NCUA, OCC, and the Conference of State Bank Supervisors issued joint statements covering supervisory practices for financial institutions affected by Hurricane Ida and the California wildfires (see here and here). Among other things, the agencies informed institutions facing operational challenges that the regulators will expedite requests for temporary facilities, noting that in most cases, “a telephone notice to the primary federal and/or state regulator will suffice initially to start the approval process, with necessary written notification being submitted shortly thereafter.” The agencies also called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by Hurricane Ida and the California wildfires.
Uejio says SPCPs may help economically disadvantaged homeowners
On September 1, CFPB acting Director Dave Uejio spoke before the National Fair Housing Alliance’s forum on special purpose credit programs (SPCPs) to address discrimination and inequity trends in homeownership and explore ways that SPCPs could be used to promote fair and equitable access to credit and mortgage markets. Uejio discussed a Bureau report detailing the “enormous toll” that the Covid-19 pandemic has had on minority homeowners and cautioned that Black and Hispanic homeowners will be disproportionately represented in foreclosure data once pandemic housing protections end. To address these issues, Uejio referred to a Bureau advisory opinion issued last December, which provided creditors additional guidance for complying with ECOA to ensure the development of compliant SPCPs. (Covered by InfoBytes here.) While ECOA and Regulation B prohibit discrimination on a prohibited basis in any aspect of a credit transaction, SPCP provisions under the statute and regulation provide specific means to allow creditors meet special social needs and benefit economically-disadvantaged groups. “The SPCP provision in ECOA is also a recognition that government alone cannot solve this problem,” Uejio stated. “All of us—regulators, policymakers, nonprofits, advocates, and mortgage lenders—must work together.”
CFPB examines pandemic effect on access to new credit
On August 26, the CFPB released findings regarding trends in credit cards, mortgages, and auto loans for consumers through the Covid-19 pandemic. The post—the fifth and final in a series documenting trends in consumer credit outcomes during the Covid-19 pandemic—examines how access to new credit and the amount of extended credit for new account holders have been impacted by the pandemic. An August 2020 Bureau report (covered by InfoBytes here and updated here) found that while credit limit increases seemed to have been halted for many consumers, there was not a pronounced reduction in available credit card credit since the start of the pandemic (the 2020 report did not discuss access to new credit trends). According to the Bureau’s most recent report, access to new credit declined for credit cards but increased for mortgages and auto loans during the Covid-19 pandemic. Among other things, the Bureau noted that early in the pandemic, the success rate of credit card inquiries declined from around 45 percent in January 2020 to just over 30 percent in May 2020—a “drop well beyond what could be expected from seasonal variation.” Additionally, the volume of credit card inquiries also dropped substantially and did not recover until March 2021, with credit card inquiry success rates also similarly declining “across credit score groups as well as across age groups and subgroups of consumers classified by their census tract or county characteristics.”
Although the report noted that there was “a small and transitory dip” for auto loans in March and April 2020, by February 2021, success rates for auto loan and mortgage inquiries were well above pre-pandemic levels. According to the Bureau, “[t]his result for auto loan and mortgages inquiries contrasts somewhat with responses to the Federal Reserve’s survey of bank loan officers, which indicate that large banks tightened lending standards on auto and mortgage loans during 2020, only loosening standards in 2021.”