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FTC shares 2019 enforcement report with CFPB
On June 4, the FTC announced that it submitted its 2019 Annual Financial Acts Enforcement Report to the CFPB. The report covers the FTC’s enforcement activities regarding the Truth in Lending Act (TILA), the Consumer Leasing Act (CLA), and the Electronic Fund Transfer Act (EFTA). Highlights of the enforcement matters covered in the report include:
- TILA and CLA. FTC enforcement actions concerning TILA/Regulation Z and CLA/Regulation M include: (i) efforts to combat deceptive automobile dealer practices; (ii) a payday lending action involving undisclosed, inflated fees; (iii) credit repair and debt relief schemes, including the failure to make clear, conspicuous written disclosures for closed-end financing; and (iv) consumer electronics financing.
- EFTA. The FTC reported 12 new or ongoing cases related to EFTA/Regulation E. These include: (i) negative option plans involving, among other things, companies applying recurring charges to consumers’ debit or credit card numbers for goods or services without obtaining proper written authorization; and (ii) unfair loan servicing practices.
Additionally, the report addresses the FTC’s research and policy efforts related to truth in lending and leasing, and electronic fund transfer issues, including (i) a study of consumers’ experiences in buying and financing automobiles at dealerships; (ii) a small business financing forum to examine “trends and consumer protection issues in the small business marketplace, including. . .online loans and alternative financing products”; and (iii) the FTC’s Military Task Force’s work on military consumer protection issues. The report also outlines the FTC’s consumer and business education efforts, which include several blog posts warning of new scams and practices.
Federal Reserve Bank of New York updates FAQs and forms relating to loan facility program
On June 8, the Federal Reserve Bank of New York updated its frequently asked questions (previously covered here and here) regarding the Term Asset-Backed Securities Loan Facility (TALF). Among other things, the changes clarify (i) who qualifies as a “material investor,” (ii) when asset-backed securities (ABS) are eligible to secure a TALF loan, (iii) the documentation required for ABS issued during a specific period in order for the ABS to be eligible collateral for a TALF loan, and (iv) for newly-issued ABS to be considered for a subscription date, when the issuer must price such ABS. The Federal Reserve Bank of New York also updated several TALF-related forms.
Fed expands Main Street Lending Program
On June 8, the Federal Reserve Board (Fed) announced an expansion to its Main Street Lending Program in order to assist more small and medium-sized businesses. The Fed notes that small and medium-sized businesses’ needs “vary widely,” and after seeking feedback, revised the program to, among other things, (i) lower the minimum loan size for certain loans to $250,000 from $500,000; (ii) increase the maximum loan size for all facilities; (iii) increase the term option to five years, from four years; (iv) delay principal payments for two years, rather than one; and (v) raise the purchase rate to 95 percent of each eligible loan. The announcement notes that the Fed expects the program to be open for lender registration “soon” and will be “actively buying loans shortly afterwards.” The program will continue to accept loans that were originated under previous terms if the loans are funded before June 10 (see InfoBytes here on the program’s previous terms).
The Fed’s announcement also contains a chart covering the detailed changes and term sheets for the program’s New Loan Facility, Priority Loan Facility, and Expanded Loan Facility.
SBA, Treasury address PPP amendments, rules and guidance forthcoming
On June 8, Small Business Administration (SBA) Administrator Jovita Carranza and U.S. Treasury Secretary Steven T. Mnuchin issued a joint statement on the enactment of the Paycheck Protection Program Flexibility Act (Flexibility Act). As previously covered by InfoBytes, the Flexibility Act—which took effect June 5—amends provisions of the CARES Act and the Small Business Act to provide Paycheck Protection Program (PPP) borrowers greater flexibility and more time to make qualifying expenditures for loan forgiveness. Among other things, the Flexibility Act (i) extends the maturity period for PPP loans with remaining balances after applying for forgiveness to five years; (ii) extends the covered period from eight weeks to the earlier of 24 weeks after origination or December 31, 2020; (iii) sets the minimum amount that businesses must spend on payroll to receive forgiveness at 60 percent (rather than 75 percent); (iv) allows borrowers to defer principal and interest payments on PPP loans until the SBA remits the amount of determined forgiveness to the lender, instead of the original six-month deferral period; and (v) confirms that June 30, 2020 will be the last date on which a PPP loan application can be approved.
SBA, in consultation with Treasury, will promptly issue rules and guidance, along with a modified borrower application form and loan forgiveness application to implement the Flexibility Act’s amendments to the PPP. The forthcoming rules and guidance will also establish various safe harbors from reductions in loan forgiveness based on reductions in full-time equivalent employees, as well as for businesses that document their inability to rehire workers employed as of February 15, and their inability to find similarly qualified workers by the end of the year.
Paycheck Protection Program Flexibility Act of 2020 provides more options for borrowers
On June 5, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which amends provisions of the CARES Act (covered by a Buckley Special Alert) and the Small Business Act to provide Paycheck Protection Program (PPP) borrowers greater flexibility and more time to make qualifying expenditures for loan forgiveness. Among other things, the Act (i) extends the maturity period for PPP loans with remaining balances after applying for forgiveness to five years; (ii) extends the covered period to the earlier of 24 weeks after origination or December 31, 2020, rather than the current eight weeks; (ii) maintains forgiveness amounts for businesses that document their inability to rehire workers employed as of February 15, and their inability to find similarly qualified workers by the end of the year; (iv) sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness; (v) allows borrowers to defer principal and interest payments on PPP loans until the Small Business Administration remits the amount of determined forgiveness to the lender, instead of the current six-month deferral period (borrowers that do not apply for forgiveness will be given at least 10 months after the program expires to begin making payments); and (vi) allows businesses with forgiven loans to defer payroll taxes. The Act takes effect immediately.
Office of the Inspector General issues statement on Coronavirus oversight challenges
The Office of the Inspector General of the Federal Reserve Board, which provides independent oversight of both the Consumer Financial Protection Bureau and the Federal Reserve Board, issued a statement on Coronavirus pandemic oversight challenges. The statement identifies areas of focus for the OIG, including coordination between the Reserve Banks, data aggregation, and monitoring and tracing the unique features associated with specific programs (e.g., the Paycheck Protection Program). The OIG is also actively monitoring, among other things, measures taken to encourage financial institutions to lend consistent with specific lending programs and the extent to which pandemic response lending efforts reach intended recipients and communities. The OIG has also expanded testing of critical information technology systems and has broadened the scope of security reviews.
CSBS, state regulators express concerns with CFPB taskforce RFI
On June 1, the Conference of State Bank Supervisors (CSBS) submitted a comment letter in response to the CFPB’s Taskforce on Federal Consumer Financial Law’s request for information (RFI). As previously covered by InfoBytes, the taskforce issued the RFI in March seeking input on consumer protection areas for the taskforce to focus its research and analysis, and requesting suggestions for “harmonizing, modernizing, and updating the federal consumer financial laws.” In the letter, CSBS expresses significant concerns regarding the timing of the RFI due to the Covid-19 pandemic, as well as the content of the RFI itself. The letter conveys state regulator concerns over the RFI’s “inclusion of inquiries soliciting input on whether additional preemption of state laws and state regulatory authority is warranted” and highlights the absence of questions asking whether less federal preemption is warranted. According to the letter, “the inclusion of outcome-oriented questions focused on expanding preemption of state authority raises serious questions regarding the objectivity and mission of the Taskforce.” The letter also notes that state regulators and the CFPB have exercised “concurrent regulatory, supervisory, and enforcement authority,” while retaining independent authority, and that coordinated efforts have “fostered a more efficient and effective regulatory system.” The fact that former state regulators are not represented on the taskforce raises several concerns for the state regulators: “This spirit of coordination and collaboration does not seem to be reflected in the timing or content of the request for information, and we fear, the future work of the Taskforce,” the letter states.
CFPB settles with short-term lenders for $2 million
On June 2, the CFPB announced a settlement with a payday and auto title loan lender and its subsidiaries (collectively, “lender”) resolving allegations that the lender violated the Consumer Financial Protection Act (CFPA) and TILA. Specifically, the Bureau asserts that the lender—which is based in Cleveland, Tennessee and operates 156 stores in eight states—violated the CFPA and TILA by (i) disclosing finance charges that were substantially lower than what the consumer would actually incur if repaid according to the amortization schedules; (ii) delayed refunds of consumer credit balances for months; (iii) made repeated debt collection calls to third-parties, including workplaces after being told to stop; and (iv) improperly disclosed, or risked disclosure, of consumer debt information to third parties. The Bureau alleges that the lender received over $3.5 million in finance charges that exceeded the amount stated in required TILA disclosures.
The consent order requires the lender to pay $2 million of the $3.5 million in consumer redress and $1 civil money penalty, based on a demonstrated inability to pay. The consent order also prohibits the lender from misrepresenting finance charges or engaging in unlawful collection practices and requires certain compliance and reporting measures to be undertaken.
HUD will allow mortgages to be endorsed despite forbearance
On June 4, HUD announced new, temporary guidance (see FHA Info #20-36 and HUD Mortgagee Letter 2020-16), which, among other things, grants mortgagees the ability to submit a mortgage for insurance endorsement involving a borrower who is experiencing financial hardships due to the Covid-19 pandemic, provided the mortgagee “executes a two-year partial indemnification agreement.” The temporary guidance sets the initial amount of partial indemnification at 20 percent of the original loan amount, which will only become payable if the mortgage goes into foreclosure and results in a claim to the FHA Mutual Mortgage Insurance Fund. Mortgagees may access the new agreement and instructions for endorsing these loans here. The guidance also provides for a temporary certification amendment to HUD 92900-A, which allows mortgagees to submit a separate addendum to a mortgagee’s certification addressing a mortgagee’s knowledge of changes in a borrower’s employment status and ability to make payments as a result of Covid-19 after the closing of a mortgage. HUD will also “continue to monitor the impacts to the market as well as implications to the Mutual Mortgage Insurance Fund and may adjust the level of partial indemnification for future indemnification contracts accordingly.”
CFPB, CSBS issue CARES Act forbearance guidance
On June 4, the CFPB and the Conference of State Bank Supervisors (CSBS) issued joint guidance to assist mortgage servicers in complying with the CARES Act provisions granting a right to forbearance to consumers impacted by the Covid-19 pandemic. In addition to providing a statutory overview of the CARES Act protections related to forbearance and additional resources on how the CARES Act impacts other rules and regulations, the guidance contains specific FAQs based on observed or anticipated actions of mortgage servicers related to forbearance. Specifically, the FAQs address the following:
- Servicers are able to grant CARES Act forbearance periods for less than 180-days at a borrower’s request or if the borrower has provided consent. In situations where a borrower and a servicer cannot agree on the length of the forbearance, or where a servicer cannot communicate with the requesting borrower under certain circumstances, servicers are required to default to the term requested by the borrower, which cannot exceed 180 days.
- Servicers may not request information from borrowers supporting the need for forbearance. Borrowers do not need to prove hardship—an attestation of hardship due to Covid-19 is the only requirement established by the CARES Act for forbearance. Servicers must also grant forbearance to any requesting borrower with a federally-backed mortgage regardless of delinquency status.
- Servicers, depending on the facts and circumstances, may be at risk of legal violation or causing consumer harm if they offer “limited repayment options when others are reasonably available.”
- Examiners will evaluate originators’ communications with borrowers for legal compliance or to determine if consumer harm has occurred. Originators that mislead borrowers by using “loan closing attestations, notices or other communications to discourage borrowers from seeking forbearance” may be at risk of legal violation or causing consumer harm.