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House Financial Services Committee reauthorizes fintech, AI task forces
On April 30, the House Financial Services Committee announced the reauthorization of the Task Forces on Financial Technology and Artificial Intelligence. According to Chairwoman Maxine Waters (D-CA), the “Task Forces will investigate whether these technologies are serving the needs of consumers, investors, small businesses, and the American public, which is needed especially as we recover from the COVID-19 pandemic.” Representative Stephen Lynch (D-MA) will chair the Task Force on Financial Technology, which will continue to monitor the opportunities and challenges posed by fintech applications for lending, payments, and money management and offer insight on how Congress can ensure Americans’ data and privacy is protected. Representative Bill Foster (D-IL) will chair the Task Force on Artificial Intelligence, which will examine how AI is impacting the way Americans operate in the marketplace, how to think about identity security, and how to interact with financial institutions. The task forces will also examine issues related to algorithms, digital identities, and combatting fraud. As previously covered by InfoBytes, these task forces were set to expire in December 2019.
House GOP members also released a report that highlights efforts of the Task Forces on Financial Technology and on Artificial Intelligence and includes recommendations on how to utilize innovation. According to the report, the two “key takeaways” are that “Congress must (1) promote greater financial inclusion and expanded access to financial services, and (2) ensure that the federal government does not hinder the United States’ role as a global leader in financial services innovation.” The report also includes recommendations for policy regulators and Congress to: (i) decide how to assist innovation, especially in the private sector; (ii) use the power of data and machine learning to fight fraud, streamline compliance, and make better underwriting decisions; and (iii) “keep up with technology to better protect consumers.”
Treasury announces climate policy strategy
On April 19, the U.S. Treasury Department 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.” Efforts will focus on issues related to climate transition finance, climate-related economic and tax policy, and climate-related financial risks, and will support engagement with other stakeholders, agencies, and regulators. Additionally, Treasury plans to create a new Climate Hub to coordinate existing climate-related efforts.
FTC provides AI guidance
On April 19, the FTC’s Bureau of Consumer Protection wrote a blog post identifying lessons learned to manage the consumer protection risks of artificial intelligence (AI) technology and algorithms. According to the FTC, over the years the Commission has addressed the challenges presented by the use of AI and algorithms to make decisions about consumers, and has taken many enforcement actions against companies for allegedly violating laws such as the FTC Act, FCRA, and ECOA when using AI and machine learning technology. The FTC stated that it has used its expertise with these laws to: (i) report on big data analytics and machine learning; (ii) conduct a hearing on algorithms, AI, and predictive analytics; and (iii) issue business guidance on AI and algorithms. To assist companies navigating AI, the FTC has provided the following guidance:
- Start with the right foundation. From the beginning, companies should consider ways to enhance data sets, design models to account for data gaps, and confine where or how models are used. The FTC advised that if a “data set is missing information from particular populations, using that data to build an AI model may yield results that are unfair or inequitable to legally protected groups.”
- Watch out for discriminatory outcomes. It is vital for companies to test algorithms—both prior to use and periodically after that—to prevent discrimination based on race, gender, or other protected classes.
- Embrace transparency and independence. Companies should consider how to embrace transparency and independence, such as “by using transparency frameworks and independent standards, by conducting and publishing the results of independent audits, and by opening. . . data or source code to outside inspection.”
- Don’t exaggerate what your algorithm can do or whether it can deliver fair or unbiased results. Under the FTC Act, company “statements to business customers and consumers alike must be truthful, non-deceptive, and backed up by evidence.”
- Data transparency. In the FTC guidance on AI last year, as previously covered by InfoBytes, an advisory warned companies to be careful about how they get the data that powers their models.
- Do more good than harm. Companies are warned that if their models cause “more harm than good—that is, in Section 5 parlance, if it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers and not outweighed by countervailing benefits to consumers or to competition—the FTC can challenge the use of that model as unfair.”
- Importance of accountability. The FTC warns of the importance of being transparent and independent and cautions companies to hold themselves accountable or the FTC may do it for them.
SBA announces $5 billion in Covid-19 aid for small businesses
On April 23, the Small Business Administration (SBA) announced a new round of Economic Injury Disaster Loan (EIDL) assistance to provide $5 billion in additional assistance to small businesses and nonprofit organizations with 10 employees or fewer that have been severely affected by the Covid-19 pandemic. The Supplemental Targeted Advance program is the latest SBA relief program and follows recent SBA actions taken to increase EIDL assistance. As previously covered by InfoBytes, last month SBA raised the loan limit for Covid-19 disaster loans “from 6-months of economic injury with a maximum loan amount of $150,000 to up to 24-months of economic injury with a maximum loan amount of $500,000,” and extended the deferment period for all disaster loans, including Covid-19 EIDLs, until 2022 (covered by InfoBytes here).
CFPB updates debt collection small entity compliance guide
On April 16, the CFPB updated its small entity compliance guide to incorporate amendments in the December 2020 debt collection rule (covered by InfoBytes here). Updates to the guide, originally issued in January (covered by InfoBytes here), include: (i) a new section discussing the prohibition against legal action and threats of legal action to collect time-barred debt; (ii) a new section discussing the prohibition on passive collection; (iii) the incorporation of requirements and guidance on providing validation information; (iv) an updated discussion of the prohibition against overshadowing consumer rights to incorporate reference to the safe harbor; (v) an updated discussion of requests for original-creditor information to include reference to applicable requirements if the current creditor and the original creditor are the same; and (vi) a new annotated version of the model validation notice in Appendix B of the December 2020 Rule. Miscellaneous administrative changes have been made throughout the guide as well.
OCC releases recent enforcement actions
On April 15, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included among the actions is a March consent order against a Colorado-based bank, which requires the bank to waive any and all rights to the issuance of a Notice of Charges. According to the order, the Bank entered into a Formal Agreement in May 2016 for engaging in “certain unsafe and unsound practices related to the Bank’s capital, strategic planning, corporate governance, credit administration, trust administration, and Bank Secrecy Act/Anti-Money Laundering compliance program.” In addition, as a result of this order, the Bank is in “troubled condition,” as set forth in 12 C.F.R. § 5.51(c)(7)(ii), unless otherwise informed in writing by the OCC.
OCC releases new Allowances for Credit Losses booklet
On April 15, the OCC released the “Allowances for Credit Losses” (ACL) booklet to update, consolidate, and rescind various booklets in the Comptroller’s Handbook. The booklet highlights (i) the current expected credit losses methodology’s scope, risks associated with ACLs, and seven primary components used to estimate ACLs; (ii) documentation and considerations for expected credit losses, estimation processes, the maintenance of appropriate ACLs, the responsibilities of boards of directors and management, and examiner reviews of ACLs; and (iii) procedures to aid examiners when assessing appropriateness of a bank’s ACL methodologies and balances. In addition, the booklet is consistent with the “Interagency Policy Statement on Allowances for Credit Losses” included in OCC Bulletin 2020-49 and “Frequently Asked Questions on the New Accounting Standard on Financial Instruments—Credit Losses” conveyed by OCC Bulletin 2019-17.
FTC brings first action under Covid-19 Consumer Protection Act
On April 15, the FTC announced a civil complaint filed by the DOJ on its behalf, against a St. Louis-based company and its owner for violating the Covid-19 Consumer Protection Act and the FTC Act by making deceptive marketing health claims about their products. (See also DOJ press release here.) This is the first action the FTC has brought under the new law, which makes it unlawful under Section 5 of the FTC Act “for any person, partnership, or corporation to engage in a deceptive act or practice in or affecting commerce . . . that is associated with the treatment, cure, prevention, mitigation, or diagnosis of COVID–19” or “a government benefit related to COVID–19.” The FTC’s complaint alleges that the defendants deceptively marketed their products as being an effective treatment for Covid-19 based on the results of certain scientific studies, even though they “lacked any reasonable bases” for their claims. According to the FTC’s announcement, the defendants also allegedly advertised—without scientific support—that their products were equally, or more, effective than the currently available vaccines. The FTC seeks an injunction against the defendants, along with monetary penalties and other civil remedies to prevent harm caused by the defendants’ misrepresentations.
DOJ charges unlicensed money service business with AML violations
On April 14, the DOJ unsealed an indictment charging two defendants with allegedly failing to maintain anti-money laundering (AML) controls, failing to file suspicious activity reports (SARs) with the Department of Treasury, and owning and operating an unlicensed, unregistered money transmitting business in violation of the Bank Secrecy Act (BSA). According to the DOJ, the defendants allegedly conducted high-risk transactions through their unlicensed money transmitting and money service business via a New York credit union, “caus[ing] the transfer of more than $1 billion in high-risk transactions, including hundreds of millions of dollars originating from foreign jurisdictions.” The DOJ alleged that while the defendants represented to financial institutions that they were aware of the risks associated with the high-risk business and would conduct the required, appropriate BSA/AML oversight, one of the defendants “willfully failed to implement and maintain the requisite [AML] programs or conduct oversight required to detect, identify, and report suspicious transactions.” The defendants have been charged with failure to maintain an AML program, failure to file SARs, and operating an unlicensed money transmitting business. The indictment seeks forfeiture of any property constituting, or derived from, proceeds obtained directly or indirectly as a result of the alleged offenses.
FHFA announces final extension of Covid-19 flexibilities through May 31
On April 21, the FHFA announced a final extension of certain loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, the FHFA extended until May 31 existing guidelines related to: (i) alternative appraisal requirements on purchase and rate term refinance loans; (ii) completion report flexibilities; and (iii) Freddie Mac’s CHOICERenovation Mortgage flexibilities. The extensions are implemented in updates to Fannie Mae Lender Letter LL-2021-04 and Freddie Mac Guide Bulletin 2021-15. FHFA stated, however, that other temporary flexibilities will expire as scheduled on April 30, including alternative methods for employment verification, condominium project reviews, and expanded power of attorney.