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Biden announces key nominations
On June 24, President Biden announced his intent to nominate seven individuals to serve in key roles, including two nominations to positions in the Department of Housing and Urban Development. Among them is Dave Uejio, the current acting Director of the CFPB, as the nominee for Assistant Secretary for Fair Housing and Equal Opportunity, Department of Housing and Urban Development. As previously covered by Infobytes, Uejio has been with the CFPB since 2012, and from 2015 to his appointment as acting director to replace Kathy Kraninger, he served as the Bureau’s Chief Strategy Officer. According to the announcement, Uejio also co-chairs the Federal Innovation Council, “a leading federal government interagency body [driving] public sector innovation.” In January, President Biden officially nominated FTC Democratic Commissioner Rohit Chopra as the permanent director of the CFPB (covered by InfoBytes here). He is currently awaiting a Senate confirmation vote on his nomination to serve as the Bureau’s Director. President Biden also announced Julia Gordon, who is the National Community Stabilization Trust President, as the nominee for Assistant Secretary for Housing, Federal Housing Commissioner, Department of Housing and Urban Development.
Supreme Court says FHFA unconstitutionally structured, leaves net worth sweep intact
On June 23, the U.S. Supreme Court issued a split opinion in Collins v. Yellen (previously Collins v. Mnuchin), holding that FHFA’s leadership structure, which only allows the president to fire the FHFA director for cause, is unconstitutional. The Court’s determination follows its decision in Seila Law LLC v. CFPB (covered by a Buckley Special Alert), in which the Court held that a similar clause in the Dodd-Frank Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers. In Collins, the Court stated, “[a] straightforward application of our reasoning in Seila Law dictates the result here. The FHFA (like the CFPB) is an agency led by a single Director, and the [Housing and Economic Recovery Act of 2008 (Recovery Act)] (like the Dodd-Frank Act) restricts the President’s removal power.”
Last July, the Court agreed to review the U.S. Court of Appeals for the 5th Circuit’s en banc decision (covered by InfoBytes here) issued in a 2016 lawsuit brought by a group of Fannie Mae and Freddie Mac (GSEs) shareholders against the U.S. Treasury Department and FHFA. The shareholders claimed that the Recovery Act, which created the agency, violated the separation of powers principal because it only allowed the president to fire the FHFA director “for cause,” and that FHFA acted outside its statutory authority when it adopted a third amendment to the Senior Preferred Stock Purchase Agreements, which replaced a fixed-rate dividend formula with a variable one requiring the GSEs to pay quarterly dividends equal to their entire net worth minus a specified capital reserve amount to the Treasury Department (known as the “net worth sweep”). Following the en banc rehearing, the appellate court reaffirmed its earlier decision that FHFA’s structure violates the Constitution’s separation of powers requirements. However, the opinions differed on the appropriate remedy, with nine judges concluding that the remedy should be severance of the for-cause provision, not prospective relief invalidating the net worth sweep, stating that “the Shareholders’ ongoing injury, if indeed there is one, is remedied by a declaration that the “for cause” restriction is declared removed. We go no further.”
While the split Court agreed with the 5th Circuit that the agency’s structure violates the Constitution’s separation of powers, the justices left intact the net worth sweep. “Although the statute unconstitutionally limited the President’s authority to remove the confirmed Directors, there was no constitutional defect in the statutorily prescribed method of appointment to that office. As a result, there is no reason to regard any of the actions taken by the FHFA in relation to the third amendment as void,” Justice Samuel Alito wrote for the majority. “It is not necessary for us to decide—and we do not decide—whether the FHFA made the best, or even a particularly good, business decision when it adopted the third amendment,” the Court added. “[W]e conclude only that under the terms of the Recovery Act, the FHFA did not exceed its authority as a conservator, and therefore the anti-injunction clause bars the shareholders’ statutory claim.” The Court remanded the case to determine “what remedy, if any, the shareholders are entitled to receive on their constitutional claim.”
Various concurring and dissenting opinions were issued as well. While concurring, Justice Elena Kagan noted that “[s]tare decisis compels the conclusion that the FHFA’s for-cause removal provision violates the Constitution. But the majority’s opinion rests on faulty theoretical premises and goes further than it needs to.” Justice Sonia Sotomayor dissented, writing: “[t]he Court has proved far too eager in recent years to insert itself into questions of agency structure best left to Congress. In striking down the independence of the FHFA Director, the Court reaches further than ever before, refusing tenure protections to an Agency head who neither wields significant executive power nor regulates private individuals.”
Shortly after the ruling, President Biden appointed Sandra L. Thompson as acting FHFA Director, effective immediately. Thompson has served at FHFA since March 2013 as Deputy Director of the Division of Housing Mission and Goals where she oversaw FHFA’s housing and regulatory policy, capital policy, financial analysis, fair lending, as well as all mission activities for the GSEs and the Federal Home Loan Banks. Former Director Mark Calabria issued a statement noting his respect for the Court’s decision and the authority of the president to remove the FHFA director.
District Court stays CSBS’s fintech charter challenge while OCC reviews framework
On June 16, the U.S. District Court for the District of Columbia entered an order staying litigation in a lawsuit filed by the Conference of State Bank Supervisors (CSBS) challenging the OCC’s authority to issue Special Purpose National Bank Charters (SPNB). (Covered by InfoBytes here.) Earlier this year, the OCC responded to CSBS’s opposition to the agency’s alleged impending approval of an SPNB for a financial services provider (proposed bank), in which CSBS argued that the OCC was exceeding its chartering authority (covered by InfoBytes here). The OCC countered that the same fatal flaws that pervaded CSBS’s prior challenges, i.e., that its challenge is unripe and CSBS lacks standing, still remain (covered by InfoBytes here). Moreover, the agency argued, among other things, that the cited application (purportedly curing CSBS’s prior ripeness issues) is not for an SPNB (the proposed bank that has applied for the charter would conduct a full range of services, including deposit taking), but that even it if was an application for an SPNB charter, there are multiple additional steps that need to occur prior to the OCC issuing the charter, which made the challenge unripe.
According to CSBS’s unopposed motion to stay litigation, a “90-day stay would conserve the [p]arties’ and the [c]ourt’s resources by avoiding potentially unnecessary briefing and oral argument.” Further, in referring to acting Comptroller Michael Hsu’s testimony to the U.S. House of Representatives—in which he stated that “the OCC is currently reviewing various regulatory standards and pending actions, including the OCC’s framework for chartering national banks”—CSBS noted that the OCC has represented that it anticipates this review period will take approximately 90 days and that it does not intend to take any action towards granting a charter to the proposed bank during this period. Following the conclusion of the 90-day stay, the parties agreed to confer and submit to the court a joint status report on or before September 27 “addressing the status of the OCC’s plans with respect to processing applications for uninsured national bank charters, including the [proposed bank’s] charter application, and the [p]arties’ proposed schedule for proceeding with or resolving the present case.”
Certain FHA Covid-19 guidance to expire June 30
On June 22, FHA published an announcement with a reminder that certain relaxed Covid-19-related standards that had allowed for single-family lenders and servicers to limit face-to-face contact as part of the mortgage origination process for FHA loans would expire as intended on June 30. The temporary guidance, which was first announced last March to provide flexibility related to the re-verification of employment guidance and the exterior-only appraisal scope of work option, was extended several times during the pandemic (covered by InfoBytes here). FHA noted that due to low usage it believes that the expiration of the guidance will have minimal impact on the industry.
FTC settles with fertility-tracking app
On June 22, the FTC issued a decision and order against a company operating a fertility-tracking mobile app. The order resolved claims that the company shared user’s sensitive health data with various marketing and analytics service providers to the company. The FTC filed a complaint in January claiming, among other things, that the company repeatedly promised to protect users’ personal health data but instead disclosed the data to third parties for years and did not contractually limit how those third parties could use the data. These actions, the FTC claimed, violated the FTC Act as well as frameworks under the EU-U.S. Privacy Shield and Swiss-U.S. Privacy Shield, which the company represented to users that it participated in, and require companies to provide notice, choice, and accountability for the transfer of personal data to third parties. Under the terms of the decision and order, the company is required to provide notice to users about the disclosure of their health data, obtain users’ affirmative express consent to share the information, and instruct any third party that received users’ health information to destroy the data. Additionally, the company is prohibited from misrepresenting: (i) the purposes for which it (or any entity to whom it discloses personal data) collects, maintains, uses, or discloses the data; (ii) the extent to which consumers can control the use of the data; (iii) its adherence to any privacy, security, or compliance program; and (iv) the extent to which it “collects, maintains, uses, discloses, deletes, or permits or denies access to any” users’ personal information. The FTC further noted in its announcement that it is “currently undertaking a review of the Health Breach Notification Rule and is actively considering public comments regarding the application of the Rule to mobile applications and other direct-to-consumer technologies that handle consumers’ sensitive health information.”
Waters urges foreclosure moratoria extension
On June 21, Chairwoman of the House Financial Services Committee Maxine Waters (D-CA) sent a letter to several federal agencies “urging them to administratively extend their moratoria on foreclosures at least until the CFPB is able to finalize and implement its pandemic recovery mortgage servicing rule.” As previously covered by a Buckley Special Alert, the Bureau issued a proposed rule in April that would broadly halt foreclosure initiations on principal residences from August 31, 2021 until 2022, and change servicing rules to promote consumer awareness and processing of Covid-relief loss mitigation options. The proposed rule also would create new and detailed obligations for communicating with borrowers to ensure they are aware of their loss mitigation options for pandemic-related hardships.
The letter, which was sent to the secretaries of HUD, the Department of Agriculture, the Department of Veterans Affairs, as well as the director of FHFA and the acting director of the CFPB, stresses that many homeowners will face the risk of foreclosure when the emergency federal foreclosure mortarium expires on June 30, as the Bureau’s proposed rule is not expected to take effect until August. This gap in critical protections, Waters cautions, “could result in servicers expediting efforts to initiate foreclosures before a final rule takes effect, especially for borrowers who have not been able to access forbearance options during the pandemic[.]” The letter requests not only an extension of the current foreclosure moratoriums but also urges the Bureau to finalize the rule (or issue an interim final rule if necessary) as soon as possible to prevent unnecessary foreclosures and ensure homeowners have the opportunity to finalize affordable loan modifications. Additionally, Waters urges the Bureau to alert servicers of the consequences should they, among other things, fail to notify homeowners about their post-forbearance options, unnecessarily delay reviewing loan modification applications, engage in improper foreclosure-related activity, unlawfully discriminate against borrowers, or provide inaccurate, adverse information to credit reporting agencies.
FHFA further extends foreclosure moratorium
On June 24, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until July 31. The current moratoriums were set to expire June 30. The foreclosure moratorium applies only to homeowners with a GSE-backed, single-family mortgage, and the REO eviction moratorium applies only to properties that have been acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions. Additional details on Covid-19 forbearance plan terms and payment deferrals are covered by InfoBytes here and here. The extensions are implemented in Fannie Mae Lender Letter LL-2021-02 and Freddie Mac Guide Bulletin 2021-23. The same day, the CDC also announced an extension of its current moratorium on residential evictions for non-payment of rent through July 31, also stating in the announcement that “this is intended to be the final extension of the moratorium.”
CFPB provides update on housing insecurity during pandemic
On June 22, the CFPB issued a release with data updating its March report on the effects of the Covid-19 pandemic on housing insecurity, finding some improvement but still elevated risks for borrowers relative to prior periods. The report summarized data and research regarding the impact of the pandemic on the rental and mortgage market, and specifically its effects on low income and minority households. According to the report, as of December 2020, 11 million renter and homeowner households were significantly overdue on their regular housing payments, which placed them, especially Black and Hispanic households, at a heightened risk of their homes being subjected to foreclosure or eviction. The report also indicated that as of January 2021, there were 2.7 million borrowers in active forbearance. As of June 2021, 600,000 fewer consumers were in mortgage forbearance than in January 2021, with forbearance rates significantly decreasing in April when many borrowers exited forbearance after reaching 12 months. According to the CFPB, this was a positive indication because many of these borrowers would have qualified for longer extensions of total forbearance. The release also notes, however, that for borrowers who have exited forbearance, payment deferrals or partial claims were the most common repayment option, and that “[o]f the borrowers still in forbearance, many may face a precarious financial situation upon exiting.” Additionally, while indicating that foreclosure rates remained at historic lows during the first quarter of 2021, with 0.54 percent of mortgages in foreclosure, the release also notes that the CARES Act and direction from Fannie Mae and Freddie Mac (GSEs), FHA, VA, and USDA “have prohibited lenders and servicers of GSE and federally-backed loans from beginning or proceeding with foreclosures.” Seriously delinquent mortgage borrowers remain approximately three times higher than before the pandemic, with 1.9 million mortgage borrowers over three months behind on mortgage payments or in active foreclosure, with more than one in 10 borrowers with an FHA loan remaining seriously delinquent on their mortgage, a rate higher than the peak during the Great Recession. The release also notes that during the pandemic, mortgage forbearance and delinquency have been significantly more common in communities of color and lower-income communities (covered by Infobytes here).
Department of Education discharges roughly $500 million in student loan debt
On June 16, the Department of Education announced the approval of 18,000 borrower defense to repayment claims for individuals who attended a now-defunct for-profit educational institution, providing borrowers with 100 percent loan discharges and providing approximately $500 million in relief. The educational institution has been subject to several investigations and settlements related to its private student loan origination practices, including allegations brought by the CFPB claiming the educational institution forced borrowers into “high-interest, high-fee” private student loans knowing that borrowers could not afford them. (See InfoBytes coverage on matters related to the educational institution here and here.) According to the Department’s announcement, the approvals cover two categories of borrower claims related to employment prospects and the ability to transfer credits, and mark “the first approval of a new category of borrower defense claims by the Department since January 2017.” Among other things, the Department found that borrowers’ “job prospects were not improved by attending” the educational institution and that credits from the educational institution rarely transferred.
Waters establishes Digital Assets Working Group
On June 16, Chairwoman of the House Financial Services Committee Maxine Waters (D-CA) announced the organization of the “Digital Assets Working Group of Democratic Members” to develop “legislation and policy solutions” on issues emerging in the digital asset space, including those related to (i) the regulation of cryptocurrency; (ii) the use of blockchain and distributed ledger technology; and (iii) the potential development of a U.S. central bank digital currency (see InfoBytes coverage on matters related to a CBDC here). During the first hearing held by the Task Force on Financial Technology, Waters stated that the working group will “focus on making sure there is responsible innovation in the cryptocurrency and digital asset space,” noting that “[a]s cryptocurrencies, central bank digital currencies and other digital assets enter the mainstream, the Committee will look at how digital assets have begun to enter many aspects of our lives—from payments to investments to remittances—and consider how to devise legislation to support responsible innovation that protects consumers and investors while promoting greater financial inclusion.”