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Fed will resume HMDA quarterly reporting
On May 14, the Federal Reserve’s Division of Consumer and Community Affairs issued a letter informing supervised financial institutions that HMDA quarterly reporting will resume beginning with institutions’ 2021 first quarter data, due on or before May 31, 2021, for all covered loans and applications with a final action taken date between January 1 and March 31, 2021. As previously covered by InfoBytes, last year the Fed eased quarterly HMDA reporting requirements during the Covid-19 pandemic in order to provide supervised institutions with flexibility to reallocate resources to serving customers. The Fed’s newest letter, which supersedes previous guidance, notes that it “does not intend to cite in an examination or initiate an enforcement action against any entity that did not make the quarterly filing for data collected in 2020.”
Senate moves to repeal OCC’s “true lender” rule
On May 11, the U.S. Senate passed S.J. Res. 15 by a vote of 52 - 47 to invoke the Congressional Review Act and provide for congressional disapproval and invalidation of the OCC’s “true lender" rule. Issued last year, the final rule amended 12 CFR Part 7 to state that a bank makes a loan when, as of the date of origination, it either (i) is named as the lender in the loan agreement or (ii) funds the loan. The final rule also clarified that if “one bank is named as the lender in the loan agreement and another bank funds the loan, the bank that is named as the lender in the loan agreement makes the loan.” (Covered by InfoBytes here.) In applauding the passage of the resolution, Senator Chris Van Hollen (D-MD), who introduced S.J. Res. 15, stated that “strik[ing] down the ‘Rent-A-Bank’ rule will help prevent predatory lenders from ripping off consumers by charging loan-shark rates under deceptive terms.” He noted that the legislation has support from a broad array of stakeholder and consumer protection groups, including a bipartisan group of state attorneys generals and the Conference of State Bank Supervisors, as previously covered by InfoBytes here.
Ranking member of the Senate Banking Committee, Senator Pat Toomey (R-PA) countered, however, that “[w]ithout the rule, the secondary market for these loans would be disrupted, which, again, disproportionately harms lower-income borrowers.” He further added that “[v]oting in favor of the CRA is a direct assault on fintech. It will make it harder for Congress to legislate here. It will make it harder for regulators to issue guidance and rules that promote fintech. Courts will see it as Congress buying into the notion that fintechs are ‘predatory’ lending. And it will scare away state legislatures from promoting fintech.”
S.J. Res. 15 now heads to the House of Representatives for consideration.
CFPB denies lending agency’s petition to set aside CID
On April 26, the CFPB denied a petition by a title lending company to set aside a civil investigative demand (CID) issued by the Bureau in February. The CID requested information from the company to determine, among other things, whether “consumer-lending companies or title-loan companies, in connection with the extension of credit, servicing of loans, processing of payments, or collection of debt, have made false or misleading representations” to consumers. On February 25, the company had petitioned the Bureau to set aside the CID, arguing, in part, that (i) the Bureau failed to provide the company “‘with fair notice as to the nature of the Bureau’s investigation,” as required under section 1052(c)(2) of the Consumer Financial Protection Act (CFPA); (ii) the CID did not enable the company to adequately assess “the relevance or the burdensomeness of the individual requests”; and (iii) part of the Bureau’s investigation related to the company’s sale of non-filing insurance (NFI), which is a particular concern “because NFI is a topic that appears to be completely outside of the Bureau’s authority,” as the CFPA does not authorize the Bureau to regulate the business of insurance.
The Bureau rejected the company’s request to set aside or modify the CID, finding that: (i) the Bureau notified the company that it is investigating conduct in connection with the extension of credit, servicing of loans, processing of payments, or collection of debt’ as potential violations of §§ 1031 and 1036 of the CFPA, the Truth in Lending Act, the Military Lending Act, as well as a prior consent order to which the company is still subject; (ii) the company’s defenses are premature at the investigative stage, even if they “could be raised in defense against the potential legal claims contemplated by the CID”; (iii) although the company complained about the purported “vagueness of the description of the subjects of the investigation” and “whether all of the potential violations applied to the [c]ompany or only a portion,” the Bureau is not required to identify the subject of law enforcement investigations in its CIDs; and (iv) the notification at issue is “far more specific” than the notification of purpose in a different matter referenced by the company, and “identifies the precise conduct under investigation while expressly noting the conduct was committed ‘in connection with the extension of credit, servicing of loans, processing of payments, or collection of debt.’”
CFPB enters $34.1 million in judgments against debt-relief companies
On May 7, the U.S. District Court for the Central District of California entered two default judgments totaling more than $34.1 million in an action by the CFPB against a mortgage lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). Settlements have already been reached with the chief operating officer/part-owner of one of the defendant companies, as well as certain other defendants (covered by InfoBytes here, here, and here).
As previously covered by InfoBytes, the Bureau filed a complaint in 2020 claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt-relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt-relief services. The CFPB further claimed that the defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student-loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education.
The May 7 default judgment entered against the student loan debt-relief companies requires the collective payment of more than $19.6 million in consumer redress and more than $11.3 million in civil money penalties to the Bureau. The companies are also permanently enjoined from offering or providing debt-relief services or from using or obtaining consumer reports for any purpose. Moreover, the companies and any associated individuals may not disclose, use, or benefit from consumer information contained in or derived from prescreened consumer reports for use in marketing debt-relief services.
A second default judgment was entered the same day against one of the individual defendants. The judgment requires the individual defendant to pay a more than $3.2 million civil money penalty and permanently enjoins him from providing debt relief services or from using or obtaining prescreened consumer reports for any purpose.
FTC settles with photo app developer over its facial recognition technology
On May 7, the FTC announced a final settlement with the developer of a California-based photo app (defendant) for allegedly deceiving consumers concerning its use of facial recognition technology and its retention of the photos and videos of users who previously deactivated their accounts. The FTC filed a complaint in January claiming, among other things, that the defendant violated the FTC Act by misleading users about their ability to control the face recognition feature and remove photos after account deletion. According to the FTC’s complaint, the defendant automatically activated its face recognition feature for all mobile app users except those consumers who lived in Texas, Illinois, Washington and the European Union. The FTC alleged that the defendant also failed to keep its promise to delete the photos and videos of users who deactivated their accounts and instead retained them indefinitely. Under the terms of the stipulated final order, the defendant must “clearly and conspicuously disclose to the User from whom Respondent has collected the Biometric Information, separate and apart from any ’privacy policy,’ ’terms of use‘ page, or other similar document, all purposes for which Respondent will use, and to the extent applicable, share, the Biometric Information; and obtain the affirmative express consent of the User from whom Respondent collected the Biometric Information.” The settlement also calls for the deletion of all photos and videos that were collected from users who requested deactivation of their accounts.
CFPB Office of Servicemember Affairs releases annual report on servicemembers’ financial needs
On May 6, the CFPB’s Office of Servicemember Affairs (OSA) released its annual report, which provides an overview of OSA’s activities in fulfilling its statutory responsibilities for fiscal year 2020 and covers the period between January 1, 2020 to December 31, 2020. The report also addresses concerns raised by military consumers based on approximately 40,000 complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). Key takeaways from the report include the following:
- Financial help due to the Covid-19 pandemic. In response to Covid-19, the Bureau released an online resource “to highlight tools and information that consumers can use to protect themselves and manage their finances, including information on topics such as mortgage and housing assistance, student loans, and avoiding scams.” For servicemembers, the page connects to an OSA blog detailing resources that military personnel can use for immediate financial assistance and to sustain long-term financial well-being.
- Misadventures in Money Management (MiMM). MiMM serves as an online educational tool that provides young servicemembers with an important “baseline of financial education through the power of storytelling and gamification.”
- Consumer Financial Protection Week and Military Consumer Protection Month. OSA took part in a joint webinar with the CFPB’s Office of Older Americans and the Office of Community Affairs, which highlighted initiatives for vulnerable populations and emphasized the “importance of research in understanding the financial well-being of military consumers.” The webinar also unveiled the Bureau’s “first research report that studied how the credit records of young servicemembers coevolve with military service.”
- National Veterans and Military Families Month. During November 2020, OSA organized with other agencies and organizations to encourage the military community to leverage available resources to help improve their financial well-being. These initiatives included, among other things: (i) publishing OSA’s Debt and Delinquency after Military Service research report; (ii) participating in the Bureau’s Financial inTuition Repayment Podcast Series; and (iii) convening “a virtual military consumer webinar with partner agencies and organizations to discuss financial challenges facing servicemembers, veterans, and their families in the financial marketplace.”
- Education and empowerment. The Bureau also “deployed and amplif[ied] [its] financial education tools through partners, engaging servicemembers and military families at townhall-style listening sessions at military installations.”
DOJ files criminal charges against individual who operated bitcoin money laundering service
On April 28, the DOJ announced the arrest of a dual Russian-Swedish national on criminal charges related to his alleged operation of a bitcoin money laundering service on the darknet. The DOJ referred to the individual’s money-laundering service as the “longest-running cryptocurrency ‘mixer,’” stating that it moved over 1.2 million bitcoin valued at approximately $335 million at the time of transactions over the course of 10 years. According to the DOJ, the majority of the cryptocurrency came from darknet marketplaces tied to illegal narcotics, computer fraud, and abuse activities. The individual is charged with (i) money laundering; (ii) operating an unlicensed money transmitting business; and (iii) money transmission without obtaining a license in the District of Columbia.
CFPB reports on use of payday, auto title, and pawn loans
On May 5, the CFPB released a new report surveying the prevalence, persistence of use, and other credit sources accessible for consumers who utilize payday, auto title, and pawn loans. The report uses the first two rounds of the Bureau’s Making Ends Meet survey, which was conducted before the Covid-19 pandemic in June 2019, and offers a nationally representative assessment of consumers with credit records (covered by InfoBytes here). As such, the survey allows the possibility of combining a survey of the same consumers spanning over two years with credit record data to understand consumers’ decisions about debt. Report highlights include:
- “In June 2019, 4.4 percent of consumers had taken out a payday loan in the previous six months, 2.0 percent had taken out an auto title loan, and 2.5 percent had taken out a pawn loan.” These consumers are more concentrated in the age group between 40 and 61. The report discloses that “because the number of consumers using these loans in the survey is small, there is some survey uncertainty in these estimates.”
- “77 percent of consumers using alternative financial services experienced a shock and had difficulty paying a bill or expense during the same timeframe in which they also reported borrowing a payday, auto title, or pawn loan.”
- “Payday, auto title, and pawn users who experience difficulty paying a bill or expense tend to also use other available credit, suggesting that for some consumers, these loans might be part of a broader and more complicated debt portfolio to deal with difficulties.”
CFPB settles with additional debt-relief defendants
On May 4, two additional settlements were reached with defendants in an action by the CFPB against a lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in 2020 in the U.S. District Court for the Central District of California claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that the defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here and here).
The May 4 settlement reached with one of the defendant companies requires the payment of a $1 civil money penalty to the Bureau because of the defendant’s limited ability to pay. The defendant, who neither admits nor denies the allegations, is ordered to promptly take dissolution steps and is banned from offering or providing consumer financial products or services. The defendant is also prohibited from using or obtaining consumer reports for any purpose and must comply with reporting requirements.
A second settlement was reached the same day with one of the individual defendants. Under the terms of the settlement, the defendant also is required to pay a $1 civil money penalty, as well as $3,000 out of $7 million in consumer redress, of which full payment is suspended provided other obligations are fulfilled. The defendant, who neither admits nor denies the allegations, is permanently banned from providing debt relief services or telemarketing consumer financial products or services. The defendant is also prohibited from using or obtaining “prescreened consumer reports” for any purpose, and is further required to, among other things, comply with reporting requirements and fully cooperate with any other investigations.
Michael J. Hsu named acting Comptroller of the Currency
On May 7, Michael J. Hsu was designated acting Comptroller of the Currency, effective May 10. Previously, Hsu served as an associate director in the Federal Reserve’s Division of Supervision and Regulation where he led the Large Institution Supervision Coordinating Committee Program, which supervises global systemically important banking companies operating in the U.S. Hsu’s career over the past 19 years also included positions at the SEC, Treasury Department, and International Monetary Fund. In accepting the position, Hsu stated his focus “will be on solving urgent problems and addressing pressing issues until the 32nd Comptroller is confirmed.”
Hsu issued a statement to agency staff the same day outlining planned areas of focus including:
- Addressing the “disproportionate impact” of the Covid-19 pandemic on rural and minority communities;
- Confronting the risks and challenges of climate change, as well as the acceleration of technological development and digitization in the industry;
- Understanding how “complacency about risk-taking is of increasing supervisory concern as [the industry enters] a phase of growth and heightened competition”; and
- Reviewing key regulatory standards, as well as other matters pending before the agency, which will take into account both external and internal views.