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Online lender settles MLA violations for $1.25 million
On January 19, the CFPB announced a settlement with a California-based online lender resolving allegations that the company violated the Military Lending Act (MLA) when making installment loans. This settlement is part of “the Bureau’s broader sweep of investigations of multiple lenders that may be violating the MLA,” which provides protections connected to extensions of consumer credit for active-duty servicemembers and their dependents. As previously covered by InfoBytes, last month the Bureau filed a complaint in the U.S. District Court for the Northern District of California alleging that since October 2016 the lender, among other things, made more than 4,000 single-payment or installment loans to over 1,200 covered borrowers in violation of the MLA. These violations included (i) extending loans with Military Annual Percentage Rates (MAPR) exceeding the MLA’s 36 percent cap; (ii) requiring borrowers to submit to arbitration in loan agreements; and (iii) failing to make certain required loan disclosures, including a statement of the applicable MAPR, before or at the time of the transaction.
Under the terms of the settlement, the company is required to pay $300,000 in consumer redress and pay a $950,000 civil money penalty. The company is also be prohibited from committing future MLA violations and from “collecting on, selling, or assigning any debts arising from Void Loans.” Furthermore, the company is required to submit a compliance plan to ensure its extension of consumer credit complies with the MLA. This plan must include, among other things, a process for correcting information furnished to credit reporting agencies about affected consumers.
FHA extends Covid-19 foreclosure and eviction moratorium
On January 21, FHA announced the extension of its foreclosure and eviction moratorium through March 31. The moratorium applies to homeowners with FHA-insured Title II Single Family forward and Home Equity Conversion (reverse) mortgages, excluding legally vacant or abandoned properties, which were previously set to expire on February 28. Additionally, FHA has also extended the public and Indian Housing (PIH) eviction and foreclosure moratorium until March 31. The extensions are reflected in HUD’s Mortgagee Letter 2021-03.
Additionally, FHA announced that it extended the date by which borrowers must engage with their servicer to obtain an initial Covid-19 forbearance to March 31 (details on the Covid-19 forbearance covered by InfoBytes here), and requires that mortgage servicers provide up to 6 months of forbearance or an additional 6 month extension of the initial Covid-19 forbearance. The extension is reflected in HUD’s Mortgagee Letter 2021-04.
CFPB issue semi-annual report to Congress
On January 21, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from April 1 to September 30, 2020. The report, which is required by Dodd-Frank, addresses, among other things, the effects of the Covid-19 pandemic on consumer credit, significant rules and orders adopted by the Bureau, consumer complaints, and various supervisory and enforcement actions taken by the Bureau. In her opening letter, former Director Kathy Kraninger discusses the Bureau’s response to the Covid-19 pandemic, including measures taken to educate consumers on how to navigate relief options offered through the CARES Act and related pandemic-relief laws, as well as Paycheck Protection Program (PPP) guidance provided to small businesses. Kraninger also notes that in 2020, “the Bureau filed the second-highest number of actions in the Bureau’s history, secured approximately $875 million dollars in customer relief and penalties, and opened investigations of banks and nonbanks in all of the Bureau’s markets.”
Among other topics, the report highlights two reports published by the Bureau on the effects of Covid-19: one focusing on credit applications and credit inquires (covered by InfoBytes here), and another focusing on consumer credit outcomes (covered by InfoBytes here). Results from the Bureau’s Making Ends Meet Survey (conducted prior to the pandemic) are also discussed, as are the Bureau’s efforts to understand financial challenges facing older adults. In addition to these areas of focus, the report notes the issuance of several significant notices of proposed rulemaking related to remittance transfers, debt collection practices, the transition from LIBOR, and qualified mortgage definitions under TILA. Multiple final rules were also issued concerning HMDA reporting thresholds (of which there were two final rules); remittance transfers; and payday, vehicle, title, and certain high-cost installment loans. Several other rules and initiatives undertaken during the reporting period are also discussed.
CFPB files action against mortgage lender for unlawful practices
On January 15, the CFPB announced a complaint filed in the U.S. District Court for the District of Connecticut against a mortgage lender and four executives (collectively, “defendants”) alleging the defendants engaged in unlawful mortgage lending practices in violation of TILA, FCRA, ECOA, the Mortgage Acts and Practices—Advertising Rule (MAP Rule), and the CFPA. According to the complaint, from as early as 2015 until August 2019 (i) unlicensed sales people would take mortgage applications and offer and negotiate mortgage terms, in violation of TILA and Regulation Z; (ii) company policy regularly required consumers to submit documents for verification before receiving a Loan Estimate, in violation of TILA and Regulation Z; (iii) employees would deny consumers credit without issuing an adverse action notice, as required by the FCRA or ECOA; and (iv) defendants regularly made misrepresentations about, among other things, the availability and cost savings of a FHA streamlined refinance loan, in violation of the MAP Rule. The Bureau is seeking an injunction, as well as, damages, redress, disgorgement, and civil money penalties.
CFPB and NCUA announce supervision MOU
On January 14, the CFPB announced a Memorandum of Understanding (MOU) with the NCUA, which is intended to improve supervision coordination of credit unions with over $10 billion in assets. According to the Bureau’s press release, the MOU covers (i) the sharing of the Covered Reports of Examination and final Reports of Examination for covered institutions, using secure, two-way electronic means; (ii) collaboration in semi-annual strategy planning sessions for examination coordination; (iii) information sharing on training activities and content; and (iv) information sharing related to potential enforcement actions.
FTC may seek civil penalties under Covid-19 Consumer Protection Act
Recently President Trump signed the Consolidated Appropriations Act, 2021—a funding measure which extends certain emergency authorities and temporary regulatory relief contained in the CARES Act (covered by InfoBytes here)—that includes a provision under Title XIV Covid-19 Consumer Protection Act, which allows the FTC to seek civil penalties for first-time violations of the FTC Act related to Covid-19 scams and deceptive practices. Specifically, the provision targets conduct “associated with—(1) the treatment, cure, prevention, mitigation, or diagnosis of COVID-19; or (2) a government benefit related to COVID-19.” Such a violation would be “treated as a violation of a rule defining an unfair or deceptive act or practice prescribed under section 18(a)(1)(B) of the Federal Trade Commission Act (15 U.S.C. 57a(a)(1)(B)),” with violators subject to civil penalties. This authority is granted to the FTC for the duration of the Covid-19 pandemic.
FHFA further extends foreclosure moratorium
On January 19, the FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until at least February 28 (which was set to expire on January 31, previously covered here). The foreclosure moratorium applies to homeowners with a GSE-backed, single-family mortgage, and the REO eviction moratorium applies to properties that were acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions.
SBA releases PPP guidance as portal reopens
On January 19, the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) loan portal re-opened to all participating lenders (covered by InfoBytes here). To assist lenders, the SBA released an interim final rule, consolidating prior rules related to PPP loan forgiveness and incorporating changes made by the Economic Aid Act. The interim final rule also addresses conflict of interest provisions and related disclosure requirements, and applies to PPP loans for which loan forgiveness payments have not been remitted by the SBA as of December 27, 2020. To assist lenders, the SBA also issued a set of frequently asked questions addressing how to calculate revenue reduction and maximum loan amounts for Second Draw PPP loans, as well as documents borrowers must provide to substantiate their calculations. The SBA reiterated that borrowers and lenders may rely on this guidance as the agency’s interpretation of the CARES Act, the Economic Aid Act and the PPP interim final rules (covered by InfoBytes here), emphasizing that the “government will not challenge lender PPP actions that conform to this guidance and to the PPP interim final rules and any subsequent rulemaking in effect at the time the action is taken.”
In preparation for the re-opening, the SBA also released guidance for lenders on calculating the maximum amount for First Draw PPP loans. The guidance outlines documentation requirements for different types of businesses, and advises lenders handling second-draw loans to make sure the loan number for a borrower’s first-draw PPP loan is included on the second-draw application. The SBA also released two procedural notices. The first notice informs PPP lenders of the process for borrower resubmission of loan forgiveness applications (see SBA Form 3508S, SBA Form 3508EZ, and PPP Loan Forgiveness Calculation Form, all revised January 19), as well as lender responsibilities for notifying borrowers of lender and SBA decisions to approve or deny forgiveness in full or in part. The notice also discusses the process for remitting any portion of the loan forgiveness amount by the SBA to the lender, along with offsets of remittances to lenders to cover a lender’s outstanding debts. The second notice addresses PPP excess loan amount errors, and clarifies that borrowers may not receive forgiveness for excess loan amounts, even if “the excess loan amount was caused by borrower error or lender error.”
CFPB lets QM cure provision expire
January 10 was the sunset date for the QM Rule’s provision allowing creditors to cure loans that exceed the rule’s limitation on points and fees. For transactions consummated prior to January 10, a creditor could cure any loan exceeding the (generally 3 percent) points and fees limit by refunding to the consumer the excess amount plus interest within 210 days of consummation (assuming the borrower had not notified the creditor of the error or become 60 days past due). The cure provision was originally added by the amendments to the ATR/QM Rule published in November 2014 and was always set to expire on January 10, 2021. The new QM rulemakings issued by the CFPB in December 2020 (covered by a Buckley Special Alert) do not extend it or replace the cure provision.
OCC conditionally approves conversion of digital bank
On January 13, the OCC announced it has conditionally approved a South Dakota non-depository public trust company’s application to convert to a national trust bank. The digital bank—which offers digital asset and cryptocurrency custody services in certain states—has entered into an operating agreement as an enforceable condition of approval, which specifies capital and liquidity requirements and risk management expectations. By receiving a national trust bank charter, the digital bank will be allowed to expand its digital asset custody services nationally and may perform the functions and “activities of a fiduciary, agency, or custodial nature, in the manner authorized by federal and state law” with oversight being conducted by the OCC. According to the OCC, this approval “demonstrates that the national bank charters provided under the National Bank Act are broad and flexible enough to accommodate evolving approaches to financial services in the 21st century.”