InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
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.
SBA updates deadlines for first-draw PPP loans
On April 19, the Small Business Administration (SBA) issued an updated procedural notice to lenders related to Paycheck Protection Program (PPP) deadlines following the enactment of the PPP Extension Act of 2021 (covered by InfoBytes here). SBA reiterates that under the PPP Extension Act, “from June 1, 2021 through June 30, 2021, SBA shall not accept new PPP Loan guaranty applications from Lenders and shall only process PPP Loan guaranty applications submitted by Lenders to SBA before June 1, 2021.” The updated procedural notice modifies a previously issued notice concerning First Draw PPP loan increases (covered by InfoBytes here), and addresses (i) requests for increased first draws on unforgiven PPP loans approved before August 8, 2020, for eligible partnerships, seasonal employers, and farmers or ranchers; (ii) reapplications by eligible borrowers that fully repaid a first-draw PPP loan prior to December 27, 2020; (iii) re-disbursements to eligible borrowers that returned part of a first-draw PPP loan prior to December 27, 2020; (iv) increases for eligible borrowers that did not accept the full amount of a first-draw PPP loan approved on or before August 8, 2020; and (v) hold codes for unresolved borrowers.
CFPB: Debt collectors must provide written notice for evictions
On April 19, the CFPB issued an interim final rule (IFR) to amend Regulation F, which implements the FDCPA, that will require debt collectors to provide tenants written notice alerting them of their rights under the CDC’s moratorium on evictions in response to the Covid-19 pandemic. Failure to provide notice will be considered a violation of the FDCPA, which may result in a private right of action as well as actual damages, statutory damages, and attorney’s fees. The Bureau noted in its press release that the IFR does not preempt more protective state laws. Additionally, debt collectors are prohibited from misrepresenting renters’ eligibility for temporary protection under the CDC’s moratorium. Sample disclosure language and a summary of the IFR have been provided by the Bureau as well.
The IFR will take effect May 3. Comments are due 15 days after publication in the Federal Register.
FTC highlights Covid-19 consumer protection efforts
On April 19, the FTC issued a staff report highlighting the Commission’s efforts to protect consumers during the continuing Covid-19 pandemic. The report addresses hardships consumers face during the pandemic and identifies the Commission’s priorities to tackle Covid-19-associated fraud and other consumer issues using “sophisticated targeting, aggressive law enforcement, and ongoing partnership and outreach.” The report highlights the FTC’s efforts through consumer and business education, including sending out consumer alerts about Covid-19 scams, reminding businesses about their responsibilities regarding honest advertising, and alerting companies about scams targeting them. The report also highlights the Commission’s efforts to protect consumers during the Covid-19 pandemic, including: (i) filing 13 enforcement actions against companies that, among other things, “made deceptive health or earnings claims”; (ii) ordering over 350 companies to remove deceptive Covid-19-related claims concerning treatments, potential earnings, and financial relief for small business and students, and warning companies that it is also illegal to facilitate deceptive Covid-19 calls; (iii) prioritizing privacy enforcement actions related to certain types of conduct “exacerbated in the transformation to digital work and schooling, including videoconferencing, ed-tech and health-tech”; (iv) collecting and tracking over 436,000 reports related to Covid-19 between January 2020 and April 2021 where consumers reported $399 million in fraud losses; and (v) issuing more than 100 Covid-19-related consumer and business alerts. In addition, the report notes that the Commission implemented systems to “track and alert the public to shifts in reports from consumers, launched a public dashboard providing information on reports associated with COVID-19, and used COVID-19-related reports to identify law enforcement targets.”
The FTC also briefed lawmakers on these efforts in testimony before the Senate Commerce Committee on April 20. During the testimony, the FTC highlighted its efforts to help consumers facing major challenges as a result of Covid-19 and requested that Congress “affirm the FTC’s authority to return money to consumers using Section 13(b) of the Federal Trade Commission.” The testimony noted that the FTC has issued enforcement actions against those who have communicated deceptive Covid-19 claims, engaged in consumer and business education and outreach, and collected millions of reports from the public on fraud, identity theft, and other consumer problems. The testimony also highlighted the FTC’s partnership with the CFPB to ensure renters are not subjected to unlawful eviction practices (covered by InfoBytes here).
Fed’s Small Business Credit Survey shows Covid-19 challenges
Recently, the Federal Reserve Banks released the 2021 Report on Employer Firms covering findings from their small business credit survey (SBCS), which gathered insights from nearly 10,000 small businesses with fewer than 500 employees on challenges resulting from the Covid-19 pandemic, as well as on business performance and credit conditions. SBCS findings showed that few small businesses were able to avoid negative impacts as a result of the pandemic, and notably revealed disparities in experiences and outcomes across business and owner demographics, including race and ethnicity, industry, and firm size. Key findings include:
- Small businesses’ financial conditions sharply declined between 2019 and 2020, with firms owned by people of color reporting greater challenges. Statistics include: (i) 78 percent of firms reported decreases in revenue; (ii) 79 percent, 77 percent, and 66 percent of Asian-owned, Black-owned, and Latinx-owned firms, respectively, “characterized their financial condition as ‘fair’ or ‘poor’” (in contrast to 54 percent of Non-Hispanic White); and (iii) the share of firms carrying more than $100,000 in debt increased from 31 percent in 2019 to 44 percent in 2020.
- 91 percent of small businesses applied for some type of emergency funding. The Paycheck Protection Program (PPP) was the most commonly used program, with 77 percent of PPP applicants receiving all of the funding they requested. Applications were most frequently submitted through large and small banks, with 95 and 83 percent of applicants having an existing relationship with either a large bank or small bank, respectively, prior to applying for a PPP loan.
- 64 percent of small businesses would apply for additional government-provided assistance if it were available, with 39 percent reporting that “they would be unlikely to survive until sales return to ‘normal’ (that is, 2019 levels) without further government assistance.”
- Approval rates on loans, lines of credit, and cash advances decreased. Prior to the start of the pandemic, 81 percent of small businesses were at least partially approved for funding. After March 1, only 70 percent received partial approval.
- Use of online lenders decreased during 2020, with 42 percent of small businesses applying for loans, lines of credit, or cash advances through a large bank (43 percent turned to a small bank). In contrast, the number of small businesses that applied to online lenders fell from 33 percent in 2019 to 20 percent in 2020. Notably, small businesses with lower credit scores applied to online lenders and nonbank finance companies more often than their higher credit score counterparts. Moreover, small businesses that received financing from online lenders reported a decline in net satisfaction.