InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB joins Census Bureau's tech sprint
On August 18, the CFPB announced that the Bureau will participate in the Census Bureau’s The Opportunity Project (TOP) “The World Post COVID-19” tech sprint program, comprised of six tech sprints that will focus on post-pandemic challenges. The CFPB is partnering with HUD to lead a tech sprint regarding post-pandemic housing challenges. According to the CFPB, participants will “develop innovative tools to raise the visibility of housing assistance resources” and connect individuals experiencing housing insecurity to such resources. The goal is for “housing assistance resources to land in the hands of landlords, particularly small ones, because, often, they are not prepared to weather significant financial hardships, such as tenants being unable to pay rent, and have fewer resources to manage the demands of running a business,” the CFPB stated.
SEC says digital asset trading company violated the Exchange Act
On August 9, the SEC announced charges against a digital asset trading company for operating an unregistered online digital asset exchange in connection with its operation of a trading platform that facilitated buying and selling of digital asset securities. According to the SEC’s order, the company operated a web-based trading platform that facilitated buying and selling digital assets, which included digital assets that were investment contracts and therefore securities. The order finds that, “[n]otwithstanding its operation of the [Company] Trading Platform, [the company] did not register as a national securities exchange nor did it operate pursuant to an exemption from registration at any time, and its failure to do so was a violation of Section 5 of the Exchange Act,” despite operating as a Rule 3b-16(a) system under the Exchange Act. The order, which the company consented to without admitting or denying the findings, imposes a disgorgement fee of $8,484,313, a prejudgment interest fee of $403,995, and a civil penalty of $1.5 million, for a total of $10,388,309. The order also provides that the company must cease and desist from committing or causing any future violations of the Exchange Act and establishes a fair fund for the benefit of victims.
FTC sues company for violating FTC Act
On August 11, the FTC filed an administrative complaint against a Georgia-based technology company and its CEO (collectively, “defendants”) for allegedly charging small business customers hundreds of millions of dollars in mystery fees associated with fuel cards. The FTC’s administrative complaint alleges that the defendants violated the FTC Act by falsely promising companies that they would save money, be protected from unauthorized charges, and have no set-up, transaction, or membership fees with the fuel cards. However, according to the defendant’s records, companies generally have not achieved the advertised fuel savings through utilization of the cards. In addition, the complaint alleges that the defendants, among other things: (i) falsely represented that the company’s fuel cards contained fraud controls to prevent unauthorized purchases; (ii) “billed consumers for fees, interest, and finance charges, and programs for which consumers have not provided express, informed consent”; and (iii) charged fees for set-up, transactions, or membership after claiming that they did not.
In December 2019, the FTC filed suit in federal court against the defendants, alleging that they charged hundreds of millions of dollars in hidden and undisclosed fees to customers after falsely claiming customers would save on fuel costs. However, in April, the Supreme Court ruled that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement” (covered by InfoBytes here). According to the FTC, “[i]n an effort to ensure that the agency’s case against the fuel card marketer is still able to recover money lost by consumers, the FTC has filed a new administrative complaint which alleges that [the defendants] violated section 5 of the FTC Act.”
Education Dept. rolls back state-law preemption on student loans
On August 9, the U.S. Department of Education published an interpretation, noting “that there is significant space for State laws and regulations relating to student loan servicing, to the extent that these laws and regulations are not preempted by the Higher Education Act of 1965, as amended (HEA), and other applicable Federal laws.” The interpretation clarifies the Department’s position on the legality of state laws and regulations regarding certain aspects of federal student loan servicing, such as preventing unfair or deceptive practices, correcting misapplied payments, or addressing refusals to communicate with borrowers. According to the interpretation, though federal law preempts state laws that conflict squarely on issues such as timelines, dispute resolution procedures, and collections, the Department believes that it does not preempt state laws regarding affirmative misrepresentations or other measures meant to address improper conduct that could occur in Federal Family Education Loan Program. The Department stated that “[s]tates may consider and adopt additional measures which protect borrowers and do not conflict with Federal law,” and that “such measures can be enforced by the States and the Department can and will work with State officials to root out all forms of fraud, falsehood, and improper conduct that may occur in the Federal student aid programs.” According to the Department, “[t]his action will help states enforce borrower bills of rights or other similar laws to address issues with servicing of federal student loans.” The new interpretation revokes and supersedes the interpretation published in March 2018, “Federal Preemption and State Regulation of the Department of Education’s Federal Student Loan Programs and Federal Student Loan Servicers” (covered by InfoBytes here). Comments are due 30 days after publication in the Federal Register.
CFPB examines pandemic effect on card limits
On August 11, the CFPB released findings regarding trends in credit card limits for consumers throughout the Covid-19 pandemic. The post—the fourth in a series documenting trends in consumer credit outcomes during the Covid-19 pandemic (the first covered by InfoBytes here)—examines whether “credit has tightened on existing credit card accounts” and if “financial institutions cut limits or closed accounts” during the pandemic. As previously covered by InfoBytes, last August, the Bureau issued a report examining trends through June 2020 in delinquency rates, payment assistance, credit access, and account balance measures, which showed that generally there was an overall decrease in delinquency rates since the start of the pandemic for auto loans, first-lien mortgages, student loans, and credit cards. According to the Bureau’s recent findings, starting in March 2020, credit limits for prime and near prime borrowers broke with their previous upward trend, largely flattened out, then began to grow more quickly for these groups in February 2021. Researchers also found that for subprime and deep subprime borrowers, there was nearly no change in credit limits, though the trend ticks upward toward the end of 2020. Additionally, the spike in accounts being closed early in the pandemic seems to have been short-lived because “[a]fter the spike in closures in May 2020, the total number of account closures declined through July and then returned to pre-COVID-19 levels through at least May of 2021.”
CFPB finds varying pandemic response among servicers
On August 10, the CFPB released an overview report of Covid-19 pandemic responses from 16 large mortgage servicers (servicers). The CFPB used supervisory data from the servicers to understand how they are interacting with homeowners throughout the pandemic and if those interactions are effective. The CFPB’s observations include the following:
- According to the report, most servicers reported abandonment rates, a measure of how many borrowers disconnected from servicing calls before completion, of less than 5 percent during the reporting period, while others exceeded 20 percent, and one peaked at 34 percent.
- Many servicers saw increased rates of borrowers who were delinquent upon exiting pandemic hardship forbearance programs in March and April 2021 compared to previous months. According to the report, these borrowers “may be at risk of harm from advanced delinquency, foreclosure and foreclosure-related costs, and negative credit reporting.”
- Delinquency rates ranged from about 1 percent to 26 percent for federally-backed and private loans. According to the report, “[d]elinquency rates increased sharply around March 2020 and remain elevated.”
- According to the CFPB, “[n]early half of servicers in the report clearly stated that they did not collect or maintain information about borrowers’ LEP [limited English proficiency] status, which may lead to borrowers not receiving needed language assistance. Some of the servicers also reported not maintaining data on borrowers’ race, which may raise the risk of fair lending violations.”
- The report found that denial rates for Covid-19 hardship forbearance requests were consistently low for both federally-backed loans and private loan forbearance programs.
According to the CFPB, the Bureau “will continue its oversight work through examinations and enforcement, and it will hold servicers accountable for complying with existing regulatory requirements, as well as the amended Mortgage Servicing Rules that take effect August 31, 2021.”
President Biden extends student loan moratorium
On August 6, President Biden announced the final extension of the moratorium on collecting student loans until January 31, 2022, which will “give the Department of Education and borrowers more time and more certainty as they prepare to restart student loan payments,” and will “ensure a smoother transition that minimizes loan defaults and delinquencies that hurt families and undermine our economic recovery.” In a statement issued by the Department of Education, Secretary of Education Miguel Cardona stated that it is the “Department’s priority to support students and borrowers during this transition and ensure they have the resources they need to access affordable, high quality higher education.” The moratorium was scheduled to expire on September 30.
Sen. Toomey sends letter to NEC regarding CFPB employees
On July 29, Ranking Member of the Senate Banking Committee Senator Pat Toomey (R-PA) sent a follow-up letter to the Chief of Staff at the National Economic Council, Leandra English, claiming the CFPB is “taking unusual and possibly unlawful actions” to replace civil servants at the CFPB. As previously covered by InfoBytes, Republican members of the Senate Banking Committee sent a follow-up letter to CFPB director nominee and FTC Commissioner Rohit Chopra in July, which referred to Ranking Member Toomey’s June 17 letter, asking Chopra whether he was aware of any alleged improper treatment of, or efforts to, “sideline” Bureau employees. The recent letter seeks, among other things, information regarding whether English is aware of whether the CFPB: (i) “has taken any steps between January 20, 2021, and the present to replace or encourage any career CFPB employees to leave their positions[?]”; (ii) “between January 20, 2021, and the present offered any career CFPB employees separation incentives to leave their positions[?]”; and (iii) “between January 20, 2021, and the present opened an investigation into any career CFPB employee at the Assistant Director level or above[?]”.
CFPB, Arkansas AG settle FCRA violations
On August 4, in an action brought by the CFPB and the Arkansas attorney general, the U.S. District Court for the Eastern District of Arkansas entered a stipulated final judgment and order against a Utah-based home-security and alarm company (defendant) for allegedly failing to provide proper notices under the FCRA. As previously covered by InfoBytes here, according to the complaint, the company extended credit to its customers by allowing them to defer payment for alarm and security-system equipment over the life of a long-term contract. In extending credit to its customers, the company allegedly obtained and used consumers’ credit scores to determine the amount of activation fees it would charge for its products and services and then charged higher fees to consumers who had lower credit scores, without providing those consumers with required risk-based pricing notices in accordance with the FCRA and Regulation V. Under the terms of the order, the company is required to submit a compliance plan and pay a $600,000 civil money penalty, of which $100,000 will be offset if it pays that amount to settle related litigation with the State of Arkansas that is pending in state court. The company will also be required to provide proper risk-based pricing notices as required under the FCRA.
Senate Democrats urge Treasury to assess climate change financial risk
On August 2, Senators Elizabeth Warren (D-MA), Kirsten Gillibrand (D-NY), and Chris Van Hollen (D-MD) wrote to John Morton, Climate Counselor of the Department of Treasury’s Climate Hub, urging the Department to address the threat to the country’s health, security, and financial system regarding the “climate crisis.” As previously covered by InfoBytes, Treasury announced a new coordinated climate policy strategy focusing on domestic and international policymaking to “leverag[e] finance and financial risk mitigation to confront the threat of climate change,” in addition to the formation of a new Climate Hub to coordinate existing climate-related efforts. The Senators’ letter seeks to gather information regarding the Climate Hub’s plan to fulfill its role, including coordinating a strategy in response to President Biden’s recent Executive Order (covered by InfoBytes here), which mandates financial regulators take steps to mitigate climate-related risk related to the financial system, including directing the Secretary of the Treasury to work with Financial Stability Oversight Council (FSOC) members to consider “assessing, in a detailed and comprehensive manner, the climate-related financial risk . . . to the financial stability of the federal government and the stability of the U.S. financial system,” and to facilitate climate-related risk information sharing between FSOC member agencies and other federal departments and agencies. The letter states that “it is imperative that you wield your leadership position in the Climate Hub to support FSOC’s efforts to align these financial regulators and implement strong guidelines to ensure that banks and financial institutions, which continue to finance risky fossil fuel investments, are adequately prepared for climate-related disruptions.”