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VA issues circular on loss mitigation options for CARES Act forbearance cases
On September 14, the Department of Veterans Affairs issued Circular 26-20-33, which clarifies whether, due to the impact of Covid-19, servicers may offer deferment as a Covid-19 loss mitigation option. Deferment may be used if the veteran is able to resume making monthly payment as scheduled under the loan contract after the conclusion of the forbearance period. However, for the VA’s purposes, servicers do not need to, and should not, enter into a modification agreement that modifies the terms of the existing loan for the purpose of applying a deferment. To accommodate the deferment option, the VA has temporarily waived the usual requirement that the final installment on any loan not be in excess of two times the average of the preceding installments. This waiver applies only where the servicer offers a deferment as a Covid-19 loss mitigation option to a borrower who requested CARES Act forbearance, among other conditions in the circular. The circular is rescinded October 1, 2021.
FTC settles with student debt relief operation for $835,000
On September 9, the FTC announced an $835,000 settlement with the operators of a student loan debt relief operation, resolving allegations against five individuals (collectively, “defendants”) whom the FTC claims engaged in deceptive marketing and charged illegal upfront fees. According to the November 2019 complaint, filed in the U.S. District Court for the Central District of California against the defendants and several others, the defendants allegedly used telemarketing calls, as well as media advertisements, to enroll consumers in student debt relief services in violation of the FTC Act and the Telemarketing Sales Rule. The defendants allegedly misrepresented that they were affiliated with the U.S. Department of Education and misrepresented “material aspects of their debt relief services,” including by promising to enroll consumers in repayment programs to reduce or eliminate payments and balances. Additionally, the defendants charged illegal upfront fees, and often placed the consumers’ loans into temporary forbearance or deferments with their student loan servicers, without the consumer’s authorization.
The settlement order includes a monetary judgment of over $43 million, which is partially suspended due to the defendants’ inability to pay. The defendants “will be required to surrender at least $835,000 and additional assets, which will be used for consumer redress.” Additionally, the defendants are prohibited from providing student debt relief services in the future and they must cooperate in the FTC’s pursuit of the case against the remaining defendants.
House hearing addresses diversity and inclusion accountability
On September 8, the House Financial Services Subcommittee on Diversity and Inclusion held a hearing entitled “Holding Financial Regulators Accountable for Diversity and Inclusion: Perspectives from the Offices of Minority and Women Inclusion.” Two panels consisting of Office of Minority and Women Inclusion directors and acting directors from the OCC, Federal Reserve Board, Federal Reserve Bank of New York, FDIC, NCUA, Treasury Department, SEC, FHFA, and CFPB answered questions posed by subcommittee members on strategies taken to promote diversity and inclusion (D&I) in the industries they regulate as well as within the agencies themselves. Panelists discussed in-house D&I areas of focus, such as improving minority recruitment and retention in the workforce and increasing diversity in leadership teams, vendor and contractor relationships, and hiring panels. Panelists also discussed efforts for mitigating unconscious bias. While the majority of the hearing focused on in-house strategies, some panelists also touched upon key steps their agencies are taking to promote D&I at regulated entities. For example, NCUA’s representative stated that it is committed to improving workforce diversity in the broader financial services sector and ensuring credit unions are offering products and services that reflect the communities they serve. FDIC’s representative noted that the agency is trying to get capital into the hands of minority small businesses, while Treasury’s representative discussed efforts taken during the Covid-19 pandemic to ensure minority depository institutions’ participation in the Paycheck Protection Program. Some of the panelists raised concerns about the low number of diversity self-assessments that lenders voluntarily provide to regulators, however they noted that there has been an increase in submissions over the past few years and that providing more information to the institutions has been beneficial. Subcommittee members also discussed proposed legislation to address D&I problems—including H.R 8160, the “Promoting Diversity and Inclusion in Banking Act,” which would require regulators to examine D&I at regulated entities to promote equality under the law.
CFPB alleges debt collection, debt buying companies violated 2015 consent order
On September 8, the CFPB filed a complaint against the largest U.S. debt collector and debt buyer and its subsidiaries (collectively, “defendants”) for allegedly violating the terms of a 2015 consent order related to their debt collection practices. As previously covered by InfoBytes, the defendants allegedly engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other illegal collection practices in violation of the Consumer Financial Protection Act (CFPA), FDCPA, and FCRA. According to the complaint, filed in the U.S. District Court for the Southern District of California, the defendants have collected more than $300 million from consumers using practices that did not comply with the 2015 consent order. Among other things, the complaint alleges that the defendants violated the terms of the consent order—and again violated the FDCPA and CFPA—by (i) filing lawsuits without possessing certain original account-level documentation (OALD) or first providing required disclosures; (ii) failing to provide consumers with OALD within 30 days of the consumer’s request; (iii) filing lawsuits to collect on time-barred debt; and (iv) failing to disclose that consumers may incur international-transaction fees when making payments to foreign countries, which “effectively den[ied] consumers the opportunity to make informed choices of their preferred payment methods.” The Bureau seeks injunctive relief, damages, consumer redress, disgorgement, and civil money penalties. In addition, the Bureau asks the court to permanently enjoin the defendants from committing future violations of the CFPA or FDCPA.
VA encourages mortgage relief after Hurricane Laura
On September 4, the Department of Veterans Affairs (VA) issued Circular 26-20-34 to encourage mortgagees to provide relief for VA borrowers affected by Hurricane Laura. The Circular encourages loan holders and servicers to (i) extend forbearance to distressed borrowers and to members of the National Guard assisting in the recovery efforts; (ii) establish a 90-day moratorium on initiating new foreclosures; (iii) waive late charges; and (iv) suspend credit reporting on affected loans. The Circular will be rescinded October 1, 2021. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
CFPB and New York AG take action against debt collection operation
On September 8, the CFPB and the New York attorney general jointly filed a lawsuit against a debt collection operation based near Buffalo, New York. The defendants include five companies, two of their owners, and two of their managers (collectively, “defendants”). According to the complaint, filed in the U.S. District Court for the Western District of New York, the defendants violated the Consumer Financial Protection Act, FDCPA, and various New York laws by using illegal tactics to induce consumer payments, such as (i) threatening arrest and imprisonment; (ii) claiming consumers owed more debt than they actually did; (iii) threatening to contact employers about the existence of the debt; (iv) harassing consumers and third parties by using “intimidating, menacing, or belittling language”; and (v) failing to provide debt verification notices.
The lawsuit seeks consumer redress, disgorgement, civil money penalties, and injunctive relief against the defendants.
FTC settles with auto dealers for falsifying consumer financial documents
On September 4, the FTC announced a settlement with group of auto dealers (defendants) with locations in Arizona and New Mexico near the Navajo Nation’s border, resolving allegations that the defendants advertised misleading discounts and incentives and falsely inflated consumers’ income and down payment information on certain financing applications. As previously covered by InfoBytes in August 2018, the FTC filed an action against the defendants alleging violations of the FTC Act, TILA, and the Consumer Leasing Act for submitting falsified consumer financing applications to make consumers appear more creditworthy, resulting in consumers—many of whom are members of the Navajo Nation—defaulting “at a higher rate than properly qualified buyers.”
The court-approved settlement requires the defendants to cease all business operations and includes a monetary judgment of over $7 million. Because the defendants are currently in Chapter 7 bankruptcy proceedings, the settlement will make the FTC an unsecured claimant in the bankruptcy proceedings. The settlement also prohibits the bankruptcy trustee from using or selling the consumer information obtained from the defendants’ business activities as part of the bankruptcy liquidation.
FHA issues underwriting guidelines on prior forbearances
On September 10, FHA released Mortgagee Letter 2020-30, which discusses FHA’s underwriting guidelines for mortgages involving borrowers who were previously granted a forbearance. The letter notes that FHA is “expanding its underwriting guidelines” to address situations in which borrowers are seeking new FHA insured financing after being granted a forbearance, due to either a Presidentially Declared major disaster or some other hardship, including the Covid-19 pandemic. The letter specifies that a borrower will be eligible for a new FHA insured mortgage after being granted a forbearance if, among other things, (i) the borrower continued to make regularly scheduled payments and the forbearance plan is terminated; or (ii) for cash-out refinances, the borrower has completed the forbearance and has subsequently made 12 consecutive monthly payments; or (iii) for purchases and no cash-out refinances, the borrower has completed the forbearance and has subsequently made at least three consecutive monthly payments; or (iv) for “Credit Qualifying Streamline” refinances, the borrower has completed the forbearance and has subsequently made less than three consecutive monthly payments; and (v) for all “Streamline refinance” transactions, the borrower has made at least six payments on the FHA insured mortgage being refinanced.
FHA requires the new underwriting guidelines be implemented for all case numbers assigned on or after November 9.
DOJ official discusses PPP fraud enforcement
On September 10, in remarks at the Paycheck Protection Program (PPP) Criminal Fraud Enforcement Action press conference, Acting Assistant Attorney General Brian Rabbitt provided an overview of recent PPP enforcement actions and noted that “[m]any financial institutions have been strong partners” in assisting the DOJ with “detecting and investigating potentially fraudulent activity in connection with the PPP.” In addition to partnerships with private institutions, Rabbitt emphasized the agency’s data analytics capabilities as a key component in their ability to bring PPP fraud cases quickly—within six months, the DOJ has charged 57 defendants in at least 19 federal judicial districts. Moreover, Rabbitt discussed commonalities among the cases, including the “defendants’ use of their stolen PPP funds for entirely illegitimate purposes” having nothing to do with the intended relief. In total, according to the DOJ, the current charges against the 57 defendants “involve attempts to steal over $175 million from the PPP” and over $70 million in “actual losses to the federal government.”
OCC updates OREO booklet
On September 2, the OCC issued Bulletin 2020-79 announcing the revision of the “Other Real Estate Owned” booklet of the Comptroller’s Handbook. Among other clarifying and technical changes the revised booklet reflects changes to the holding period requirements for federal savings associations under 12 CFR 34, subpart E. Additionally, the booklet has been updated to reflect changes to other regulations and other OCC issuances that have been published since the booklet was last updated in August 2018.