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Acting director sets out CFPB priorities
On January 28, newly appointed CFPB acting Director, Dave Uejio, released a statement he sent to staff announcing his immediate priorities for the Bureau as: (i) relief for consumers facing hardship and economic crisis due to the Covid-19 pandemic, and (ii) racial equity. Acknowledging the recently released Covid-19 Supervisory Highlights (covered by InfoBytes here), Uejio stated he was “concerned” about the findings, which noted issues with mortgage servicing, auto loan servicing, student loan servicing, and small business lending (including banks' practice of only offering Paycheck Protection Program loans to pre-existing customers). Uejio stated that going forward, the Bureau will “take aggressive action to ensure that regulated companies follow the law and meet their obligations to assist consumers during the COVID-19 pandemic,” noting that companies will have already received or should expect to receive a letter dictating “remediat[ion] [to] all of those who are harmed” and should “change policies, procedures, and practices to address the root causes of harms.” Moreover, Uejio will be reversing policies put into place by the previous administration, including reinstating examinations of the Military Lending Act and rescinding “public statements conveying a relaxed approach to enforcement.”
Additionally, Uejio said fair lending enforcement is a “top priority,” calling it “time” for the CFPB to “take bold and swift action on racial equity.” Uejio noted plans to “elevate and expand existing investigations and exams,” as well as add new ones and focus broadly on “unlawful conduct that disproportionately impacts communities of color and other vulnerable populations.”
SBA issues Covid-19 guidance for various loans
On January 28, the Small Business Association (SBA) issued an information notice providing an update on the tax treatment of payments related to certain 7(a) loans, 504 loans, and microloans under Section 1112 of the CARES Act. As previously covered by InfoBytes, in December 2020, the SBA released a guidance document covering the issuances of 1099-MISC forms for 7(a) loans, 504 loans, and microloans. However, due to Section 278(c) of the Covid-related Tax Relief Act of 2020, the SBA now states that lenders “are no longer required to file Form 1099-MISC, Miscellaneous Income, with the IRS or furnish this form to the small businesses on whose behalf the SBA made Section 1112 payments.” Moreover, the SBA issued procedural notices covering the use of electronic signatures for 7(a) loans and 504 loans and microloans through April 30. Additionally, the SBA issued an extension on the temporary procedures for microloan closings through April 30.
OCC releases recent enforcement actions
On January 21, 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 is a civil money penalty order against a Texas-based bank, which requires the payment of $382,500 for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its regulations.
HUD issues Mortgagee Letter regarding temporary statutory authority to insure operating loss loans under Section 223(d)
On January 15, the U.S. Department of Housing and Urban Development issued Mortgagee Letter 2021-1 to implement its temporary statutory authority to insure operating loss loans under Section 223(d) of the National Housing Act in order to mitigate the Covid-related temporary reduction of revenue of healthcare facilities. The Mortgagee Letter sets forth requirements for the supplemental loans for hospitals and residential care facilities. The Mortgagee Letter is effective for applications for insurance submitted for which firm commitments are issued no later than September 30, 2021. HUD also is imposing an application receipt deadline of Monday, August 30, 2021 to account for statutory time constraints and processing times. HUD noted that additional guidance is forthcoming.
SBA addresses PPP loan review issues
On January 26, the Small Business Administration (SBA) announced that it is “taking steps to improve the First Draw Paycheck Protection Program [PPP] loan review” in order to give small businesses more time to access PPP funds. SBA acknowledged that it identified “anomalies” in approximately 4.7 percent of lender-submitted data for the first round of PPP loans, primarily data mismatches and eligibility issues. SBA is encouraging lenders and borrowers to work together to resolve the issues so that affected borrowers can access a second round of loans, and the SBA has stated its commitment to “automatically move favorable decisions to approval.” Moreover, the SBA is addressing issues with the Second Draw PPP loan applications by (i) briefing lenders on a national call with respect to the first draw loan review and the potential impacts on second draw application approvals; (ii) training the SBA’s lender relations specialists to support lenders and borrowers with issues; and (iii) providing additional guidance to PPP lenders on the review and resolution process.
CFPB issues Covid-19 supervisory highlights
On January 19, the CFPB released a special edition of Supervisory Highlights detailing the agency’s Covid-19 prioritized assessment (PA) observations. Since May 2020, the Bureau has conducted PAs in response to the pandemic in order to obtain real-time information from supervised entities operating in markets that pose an elevated risk of pandemic-related consumer harm. According to the Bureau, the PAs are not designed to identify federal consumer financial law violations, but are intended to spot and assess risks in order to prevent consumer harm. Targeted information requests were sent to entities seeking information on, among other things, ways entities are assisting and communicating with consumers, Covid-19-related institutional challenges, compliance management system changes made in response to the pandemic, and service provider data. Highlights of the Bureau’s findings include:
- Mortgage servicing. The CARES Act established certain forbearance protections for homeowners. The Bureau pointed out that many servicers faced significant challenges, including operational constraints, resource burdens, and service interruptions. Consumer risks were also present, with several servicers (i) providing incomplete or inaccurate information regarding CARES Act forbearances, failing to timely process forbearance requests, or enrolling borrowers in unwanted or automatic forbearances; (ii) sending collection and default notices, assessing late fees, and initiating foreclosures for borrowers in forbearance; (iii) inaccurately handling borrowers’ preauthorized electronic funds transfers; and (iv) failing to take appropriate loss mitigation steps.
- Auto loan servicing. The Bureau noted that many auto loan servicers provided insufficient information to borrowers about the impact of interest accrual during deferment periods, while other servicers continued to withdraw funds for monthly payments even after agreeing to deferments. Additionally, certain borrowers received repossession notices even though servicers had suspended repossession operations during this time.
- Student loan servicing. The CARES Act established protections for certain student loan borrowers, including reduced interest rates and suspended monthly payments for most federal loans owned by the Department of Education. Many private student loan holders also offered payment relief options. The Bureau noted however that servicers faced significant challenges in implementing these protections. For certain servicers, these challenges led to issues which raised the risk of consumer harm, including (i) provision of incorrect or incomplete payment relief options; (ii) failing to maintain regular call center hours; (iii) failing to respond to forbearance extension requests; and (iv) allowing certain payment allocation errors and preauthorized electronic funds transfers.
- Small business lending. The Bureau discussed the Small Business Administration’s Paycheck Protection Program (PPP), noting that when “implementing the PPP, multiple lenders adopted a policy that restricted access to PPP loans beyond the eligibility requirements of the CARES Act and rules and orders issued by the SBA.” The Bureau encouraged lenders to consider and address any fair lending risks associated with PPP lending.
The Supervisory Highlights also examined areas related to credit card accounts, consumer reporting and furnishing, debt collection, deposits, prepaid accounts, and small business lending.
Biden freezes regulations
On January 20, the Biden administration issued a memo directing the heads of executive departments and agencies across the federal government to “immediately withdraw” or delay action on any pending regulations not yet published in the Federal Register. The memo, among other things, directs departments and agencies to withdraw any new finalized rules that have not yet been published in the Federal Register in order to seek approval from a department or agency head appointed or designated by President Biden. Departments and agencies are also encouraged to “consider” 60-day postponements for published rules that have not taken effect yet to allow for 30-day public comment periods and to consider petitions for reconsideration. The memo, which does not specify which departments or agencies are covered, allows for exceptions in “emergency situations or other urgent circumstances relating to health, safety, environmental, financial, or national security matters, or otherwise.”
Kraninger resigns; Uejio to lead CFPB while Chopra awaits confirmation
On January 20, Kathy Kraninger resigned from her position as CFPB director and newly sworn-in President Biden announced that Dave Uejio would serve as acting director until permanent leadership is confirmed by the U.S. Senate. President Biden officially nominated Rohit Chopra as the permanent director of the Bureau.
Uejio has been with the Bureau since 2012, and prior to his appointment as acting director, he has served as the Bureau’s Chief Strategy Officer since 2015. Chopra, who is currently a Democratic Commissioner of the FTC, previously served as the Bureau’s first student loan ombudsman and assistant director of the Office for Students before leaving the Bureau in 2015.
Kraninger’s resignation is a notable departure from the Bureau’s original structure, as outlined in Dodd-Frank, which called for a single director, appointed to a five-year term and only removable by the president for cause (i.e., for “inefficiency, neglect of duty, or malfeasance in office”). As previously covered by a Buckley Special Alert, in June 2020, the Supreme Court, in a plurality opinion in Seila Law LLC v. CFPB, held that the CFPB’s statutory structure violates the constitutional separation of powers by restricting the president’s ability to remove the director. The Court remedied the constitutional violation by severing the “for cause” removal language from the remainder of the statute. When Kraninger submitted her resignation on President Biden’s Inauguration Day, she stated it was in “support of the Constitutional prerogative of the President to appoint senior officials within the government who support the President’s policy priorities…”
OCC settles with bank’s former GC on account openings
On January 15, the OCC announced a $3.5 million penalty against a national bank’s former general counsel for his role in the bank’s incentive compensation sales practices. As previously covered by InfoBytes, in January 2020, the OCC announced charges against the former general counsel and other executives, seeking a lifetime prohibition from participating in the banking industry, a personal cease and desist order, and/or civil money penalties. The January announcement included settlements with three of the executives, and the OCC settled with three others in September 2020 (covered by InfoBytes here).
In addition to the $3.5 million penalty, the consent order against the former general counsel includes a personal cease and desist, and a requirement to cooperate with the OCC in any investigation or proceeding related to the sales practices of the bank. The consent order does not prohibit the former general counsel from holding future executive positions within the industry.
FinCEN reaches $390 million settlement with bank for BSA violations
On January 15, the Financial Crimes Enforcement Network (FinCEN) announced a $390 million civil money penalty against a national bank for allegedly violating the Bank Secrecy Act and its implementing regulations. The settlement resolves an investigation into the bank’s alleged failure to maintain an effective anti-money laundering (AML) program. According to FinCEN, the bank’s check-cashing business unit failed to file thousands of suspicious activity reports (SARs) and currency transaction reports (CTR). As a result, suspicious transactions were not reported in a timely and accurate manner. FinCen noted that while the bank was allegedly aware of several compliance and money laundering risks associated with its check-cashing business unit, its process for investigating suspicious transactions was insufficient. The bank also allegedly failed to file SARs even though it had actual knowledge of criminal charges against specific customers and continued to process transactions for these customers’ businesses. In determining the penalty, FinCEN considered the bank’s significant remediation efforts—including taking remedial measures related to its SARs and CTR filing systems and enhancing its AML program over the past several years—as well as its cooperation with the agency’s investigation.