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CFPB settles with ninth lender on misleading VA advertising
On October 26, the CFPB announced a settlement with a ninth mortgage lender for mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, the lender allegedly sent false, misleading, and inaccurate direct-mail advertisements for VA guaranteed mortgage loans to servicemembers and veterans in violation of the CFPA, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. Among other things, the Bureau alleged the advertisements (i) stated credit terms that the lender was not actually prepared to offer, such as the interest rate and annual percentage rate applicable to the advertised mortgage; (ii) made misrepresentations about “the existence, nature, or amount of cash or credit available to the consumer in connection with the mortgage”; (iii) failed to include required disclosures; (iv) gave the false impression that the mortgage products would help eliminate or reduce debt; and (v) made misleading comparisons in advertisements involving actual or hypothetical loan terms.
The settlement imposes a civil money penalty of $1.8 million and bans the lender from future advertising misrepresentations similar to those identified by the Bureau. Additionally, the settlement requires the lender to use a compliance official to review mortgage advertisements for compliance with consumer protection laws, and to comply with certain enhanced disclosure requirements.
The latest enforcement action is part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. Previously, the Bureau issued consent orders against eight other mortgage lenders for similar violations, covered by InfoBytes here, here, here, and here.
DOJ reaches $25 million settlement with mortgage lender to resolve false claims allegations
On October 20, the DOJ announced a nearly $25 million settlement with a California-based mortgage lender in connection with alleged violations of the False Claims Act (FCA) related to originating and underwriting mortgages insured by the Federal Housing Administration (FHA). According to the DOJ, the lender “knowingly approved ineligible loans that later defaulted and resulted in claims to FHA for mortgage insurance,” failed to comply with material program rules requiring lenders to maintain quality control programs to prevent underwriting deficiencies, and failed to self-report identified materially deficient loans. The mortgage lender agreed to pay the DOJ $24.9 million to resolve the FCA claims. In addition, a whistleblower will receive nearly $5 million under the settlement. The DOJ’s press release noted that the claims “are allegations only, and [that] there has been no determination of liability.”
OCC says banks affected by Hurricane Zeta may close
On October 27, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by Hurricane Zeta “for as long as deemed necessary for bank operation or public safety.” The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
Find continuing InfoBytes coverage on disaster relief here.
CFPB settles with bank for HMDA filing errors
On October 27, the CFPB announced a settlement with a national bank, resolving allegations that the bank reported inaccurate HMDA data for 2016 and 2017 mortgage transactions. According to the consent order, the bank allegedly violated HMDA, Regulation C, and the Consumer Financial Protection Act by failing to report accurate data among the 7,000 mortgage applications reported in 2016 and 2017. Specifically, the Bureau alleged that the submissions contained “significant errors,” with an internal audit of the 2016 filing identifying a 40 percent error rate and the Bureau’s review of the 2017 filing identifying a 16 percent error rate. The Bureau asserted that the 2016 errors were caused by “a lack of appropriate staff, insufficient staff training, and ineffective quality control,” while the 2017 errors were “directly related to weaknesses in [the bank]’s compliance-management system (CMS).” In 2013, the bank entered into a consent order with the Bureau for similar issues; thus, the Bureau concluded the 2016 and 2017 errors were “intentional and not bona fide” as the bank allegedly failed to maintain a “CMS with procedures reasonably adapted to avoid” the errors since the previous order.
The consent order requires the bank to, among other things, pay a $200,000 civil money penalty and develop a HMDA compliance-management system that includes policies, procedures, and an internal audit program that regularly tests the HMDA data integrity.
FHA issues mortgagee letter extending guidance on employment reverification and appraisals
On October 28, FHA issued Mortgagee Letter 2020-37, which re-extends the effective date of the employment reverification guidance in Mortgagee Letter 2020-05, previously covered here, here, here, and here. The Mortgagee Letter also updates the appraisal scope of work inspection option providing for exterior-only appraisals, which limits face-to-face contact for certain transactions affected by Covid-19. The updated appraisal guidance is effective on November 1, 2020 and is applicable to appraisals with an effective date on or before December 31, 2020. The extension of the employment reverification guidance is effective immediately for cases closed on or before December 31, 2020.
CFPB releases education ombudsman’s annual report
On October 28, the CFPB Private Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2019 and August 31, 2020. The report is based on approximately 7,000 complaints received by the Bureau relating to federal and private student loans. Of these complaints, roughly 1,700 were related to debt collection, while approximately 500 mentioned Covid-19. The Bureau’s press release notes that the continued decrease in both federal and private student loan complaints may be attributed to factors such as “borrower education and outreach by federal and state agencies and regulators; borrower education and outreach by consumer advocates; and continued maturation of some industry participants’ compliance management systems, complaint monitoring systems, and their internal consumer advocate and ombudsman offices.” Topics discussed within the report include (i) an analysis of socio-economic and racial gaps in the student loan market; (ii) supervisory examinations and prioritized assessments of federal student loan servicers; (iii) enforcement actions taken against student loan debt relief companies and a student loan trust; (iv) borrower education and outreach; and (v) the impact of Covid-19 on student loan borrowers, including CARES Act relief for federally held federal student loans. The report also discusses a Memorandum of Understanding reached with the Department of Education at the beginning of the year, which clarifies the roles and responsibilities for each agency and permits the sharing of student loan complaint data and other information and recommendations (covered by InfoBytes here).
The report provides several recommendations, including that policymakers—when addressing near-term and long-term repayment issues—“may wish to consider simplifying the various loan repayment plans and the various forgiveness, discharge, and cancellation programs,” as well as examine ways to (i) enhance data sharing between federal agencies; (ii) enroll debtors who file for bankruptcy in income driven repayment plans; (iii) revisit the undue hardship bankruptcy test; (iv) assess socio-economic and racial gaps in student loan debt load and degree attainment; and (v) pursue student loan debt relief scams.
Fed targets flood insurance violations
On October 15, the Federal Reserve Board announced an enforcement action against a New York-based bank for alleged violation of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assessed a $546,000 penalty against the bank for an alleged pattern or practice of violations of Regulation H, but did not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,000 per violation.
FDIC announces hurricane and wildfire relief
On October 23, the FDIC issued FIL-100-2020 and FIL-101-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Louisiana and California. Specifically, FIL-100-2020 outlines relief for areas of Louisiana affected by Hurricane Delta from October 6 through October 10, and FIL-101-2020 provides relief for areas of California affected by wildfires since September 4 .
The guidance notes that the FDIC will consider the unusual circumstances faced by institutions affected by the hurricane and wildfires. The guidance suggests that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are “done in a manner consistent with sound banking practices.” Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC states it will also consider relief from certain reporting and publishing requirements.
Federal agencies will not recommend specific LIBOR replacement rate
On October 21, a group of U.S. financial agencies wrote to the executives of financial institutions that participated in the Credit Sensitivity Group workshops, stating that the agencies do not intend to recommend a specific credit-sensitive rate for use in commercial lending products in place of LIBOR. The letter states that “[t]he transition away from LIBOR is a significant and complex undertaking,” and there are multiple suitable alternative reference rates to replace LIBOR. The letter acknowledges that the use of the Secured Overnight Financial Rate (SOFR), which is recommended by the Alternative Reference Rates Committee is “voluntary.” After participating in the workshops, the agencies concluded that they are “not well positioned to adjudicate the selection of a reference rate between banks and their commercial customers” due to various business needs and terms of commercial loans that are based on the negotiation of banks and borrowing parties. Thus, the letter states, the agencies will continue to convene additional working sessions to highlight innovation in the credit-sensitive rates and explore implementing solutions for commercial loans transitioning away from LIBOR.
For continuing InfoBytes covering on the LIBOR transition see here.
Senator Brown objects to Bureau’s SEFL reorganization proposal
On October 21, Senator Sherrod Brown (D-OH) asked CFPB Director Kathy Kraninger to delay the implementation of a proposed reorganization of the Bureau’s Division of Supervision, Enforcement, and Fair Lending (SEFL) until after the election and a determination is made as to whether Kraninger will continue as Director. According to Brown, the proposed SEFL reorganization would remove the Office of Enforcement’s (Enforcement) “voice and role in critical SEFL decisionmaking processes,” and “introduces inefficiency and confusion.” Brown addressed several concerns, including that the proposed reorganization would (i) disband Enforcement’s Policy and Strategy Team, whose duties include determining overall priorities and strategies; (ii) strip “Enforcement of its seat at the table and vote to determine whether potential violations of federal consumer financial law should be resolved through supervisory examinations or through an enforcement action”; (iii) strip “Enforcement of its authority to open new research matters (precursors to investigations) or new investigations of potential violations of federal consumer financial laws”; (iv) strip “Enforcement of its E-Litigation Team, which provides specialized technology expertise and manages electronic data discovery from initial Enforcement investigations through trial”; and (v) strip “Enforcement of its representation in the ‘Clearance’ process, which will exclude Enforcement from sharing its views and potential concerns with other Bureau offices regarding proposed rules, regulations, guidance, advisory opinions, or other public Bureau statements.” Brown cautioned that while establishing a “consistent and unified SEFL approach to policy and strategic planning” may have merit, the manner in which this objective is achieved must be addressed.