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CFPB issues Summer 2020 Supervisory Highlights
On September 4, the CFPB released its summer 2020 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of consumer reporting, debt collection, deposits, fair lending, mortgage servicing, and payday lending. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between September and December of 2019. Highlights of the examination findings include:
- Consumer Reporting. The Bureau cited violations of the FCRA’s requirement that lenders first establish a permissible purpose before they obtain a consumer credit report. Additionally, the report notes instances where furnishers failed to review account information and other documentation provided by consumers during direct and indirect disputes. The Bureau notes that “[i]nadequate staffing and high daily dispute resolution requirements contributed to the furnishers’ failure to conduct reasonable investigations.”
- Debt Collection. The report states that examiners found one or more debt collectors (i) falsely threatened consumers with illegal lawsuits; (ii) falsely implied that debts would be reported to credit reporting agencies (CRA); and (iii) falsely represented that they operated or were employed by a CRA.
- Deposits. The Bureau discusses violations related to Regulation E and Regulation DD, including requiring waivers of consumers’ error resolution and stop payment rights and failing to fulfill advertised bonus offers.
- Fair Lending. The report notes instances where examiners cited violations of ECOA, including intentionally redlining majority-minority neighborhoods and failing to consider public assistance income when determining a borrower’s eligibility for mortgage modification programs.
- Mortgage Servicing. The Bureau cited violations of Regulation Z and Regulation X, including (i) failing to provide periodic statements to consumers in bankruptcy; (ii) charging forced-placed insurance without a reasonable basis; and (iii) various errors after servicing transfers.
- Payday Lending. The report discusses violations of the Consumer Financial Protection Act for payday lenders, including (i) falsely representing that they would not run a credit check; (ii) falsely threatening lien placement or asset seizure; and (iii) failing to provide required advertising disclosures.
The report also highlights the Bureau’s recently issued rules and guidance, including the various responses to the CARES Act and the Covid-19 pandemic.
Agencies give guidance on working with borrowers affected by hurricane, wildfires
On September 1, the Federal Reserve Board, OCC, FDIC, NCUA, and the Conference of State Bank Supervisors (CSBS) issued a joint statement covering supervisory practices for financial institutions affected by Hurricane Laura and the California wildfires. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas.
Additionally, HUD announced it will make disaster assistance available to Louisiana, which will provide foreclosure relief and other assistance to homeowners living in parishes affected by Hurricane Laura. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house along with the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.
CFPB gives details on e-disclosure tech sprint
On September 1, the CFPB issued new details on its first Tech Sprint, which will cover innovative approaches to adverse action e-disclosures. As previously covered by InfoBytes, the CFPB announced in September 2019 its intention to use Tech Sprints—which had been used by the U.K.’s Financial Conduct Authority seven times since 2016 and resulted in a pilot project on digital regulatory reporting—to encourage regulatory innovation and requested comments from stakeholders on the plan.
The adverse action e-disclosure Tech Sprint will be held October 5-9, 2020 and will ask participating teams to focus on three goals to improve the notices: accuracy, anti-discrimination, and education. More details on the event are available in the CFPB’s problem statement. A link to an application to participate can be found in the problem statement and will be accepted between September 1 through September 11.
CFPB settles with three more lenders on misleading VA advertising
Recently, the CFPB announced settlements (see here, here, and here) with three mortgage lenders 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 lenders offer and provide VA guaranteed mortgage loans, and allegedly sent false, misleading, and inaccurate direct-mail advertisements to service members and veterans in violation of the CFPA, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. Among other things, the Bureau alleges the advertisements (i) failed to include required disclosures; (ii) stated credit terms that the lenders were not actually prepared to offer; (iii) made “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; and (iv) gave the false impression the lenders were affiliated with the government. Two of the lenders also allegedly used the name of the consumer’s current lender in a misleading way, and misrepresented that consumers would receive specific escrow refund amounts if they refinanced their mortgages, even though the advertised amounts “were calculated using a methodology that had no bearing on the actual escrow refund amount,” and consumers were often required to fund new escrow accounts upon generating new loans.
In addition, one of the lender’s advertisements represented to consumers that they could “‘[s]kip two payments’ or ‘miss’ two payments by refinancing with the company,” but failed to disclose, among other things, that the skipped or missed payments would be added to the loan’s principal balance.
The consent orders (see here, here and here) impose bans on future advertising misrepresentations similar to those identified by the Bureau, require the lenders to use a compliance official to review mortgage advertisements for compliance with consumer protection laws, and require compliance with certain enhanced disclosure requirements. The Bureau further imposes civil penalties of $225,000, $50,000, and $230,000 respectively against the lenders.
The latest enforcement actions are part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. In August and July, the Bureau issued consent orders against four other mortgage lenders for similar violations, covered by InfoBytes here and here.
Fannie and Freddie update Covid-19 Selling FAQs
On September 2, Fannie Mae updated its Covid-19 FAQs for sellers to reflect updates to FHFA’s temporary policy that allows Fannie Mae and Freddie Mac (GSEs) to purchase qualified single-family mortgages in forbearance that meet specific eligibility criteria due to the Covid-19 pandemic (covered by InfoBytes here), and to add a new question covering Covid-19 appraisal flexibilities. On August 27, Freddie Mac updated its Covid-19 selling-related FAQs to include substantially the same new question and response with respect to Covid-19 appraisal flexibilities.
CFPB examines early effects of Covid-19 on consumer credit
On August 31, the CFPB released a report on the early effects of the Covid-19 pandemic on consumer credit outcomes. The report analyzed a “nationally representative sample of approximately five million de-identified credit records maintained by one of the three nationwide consumer reporting agencies,” and examined trends in delinquency rates, payment assistance, credit access, and account balance measures. According to the report, trends showed that there was an overall decrease in delinquency rates since the start of the pandemic among auto loans, first-lien mortgages, student loans, and credit cards; however, the Bureau emphasized that the analysis takes a deeper dive “into measuring how these outcomes differed based on consumer and geographic characteristics compared to earlier work.” Highlights from the report include: (i) new delinquencies fell between March and June of 2020; (ii) borrower assistance appeared to be concentrated in areas that were more severely affected by the pandemic, with sharp increases in the number of accounts reporting zero payment due despite a positive balance; (iii) financial institutions closed existing lines of credit and halted credit limit increases for open accounts primarily for borrowers with high credit scores or for inactive cards; and (iv) credit card balances decreased by roughly 10 percent between March and June, which, according to the report, is consistent with other data that shows a decline in consumer spending.
CFPB says it will submit important research to peer review
On August 28, the CFPB announced a new external peer review process of its “important technical and scientific research” in order to ensure its quality. The Bureau noted it is following guidance from the Office of Management and Budget (OMB), which encourages federal agencies to seek peer review of “‘influential scientific information’ and ‘highly influential scientific assessments,’” specific terms defined by OMB in the guidance. The Bureau notes that it will use the Academic Research Council (ARC)—a panel of outside researchers with expertise in consumer finance—to conduct the peer reviews of its research. The Bureau has a dedicated webpage where it will post the original report, its peer review request, the ARC’s report, and if necessary, a revised report addressing the ARC’s review.
The first report subject to peer review is the Bureau’s February report titled, “Disclosure of Time-Barred Debt and Revival: Findings from the CFPB’s Quantitative Disclosure Testing.” A copy of the report and the ARC’s review report are now available on the Bureau’s webpage.
FDIC encourages regulatory relief for California borrowers affected by wildfires
On August 28, the FDIC issued FIL-85-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of California affected by wildfires that began on August 14. In the guidance, the FDIC notes that, in supervising institutions affected by the wildfires, the FDIC will consider the unusual circumstances those institutions face. 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 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.
Find continuing InfoBytes coverage on disaster relief guidance here.
CFPB releases more 2019 HMDA data
On August 27, the CFPB issued a new analysis of the 2019 Home Mortgage Disclosure Act (HMDA) data on mortgage lending transactions, which follows an initial release from the CFPB and the Federal Financial Institutions Examinations Council (FFIEC) earlier in June (covered by InfoBytes here). The newly released report groups the new and revised HMDA data points into seven major categories: (i) open-end and reverse mortgage flags; (ii) expanded or revised demographic information; (iii) property type; (iv) loan purpose and characteristics; (v) applicant/borrower characteristics and property characteristics; (vi) pricing outcomes and components; and (vii) miscellaneous data points. The report breaks down the data points in each category by providing a definition and basic reporting requirements, as well as a statistical overview of the reported information.
ARRC updates fallback language for bilateral business loans
On August 27, the Alternative Reference Rates Committee (ARRC) released updated recommended fallback language for market participants to use for new originations of LIBOR-referenced bilateral business loans. The proposed language is intended to align with revisions made to the recommended fallback language for syndicated loans (covered by InfoBytes here). The updated fallback language amends the previously proposed “hardwired” and the “hedged loan” approaches. ARRC emphasizes that “cash markets will benefit by adopting a more consistent, transparent and resilient approach to contractual fallback arrangements for new LIBOR products,” and reminds financial market participants that it does not recommend waiting “until a forward-looking term [Secured Overnight Financing Rate] SOFR exists to begin using SOFR in cash products.”