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VA clarifies property inspection requirements for CARES forbearance cases
On June 4, the Department of Veterans Affairs issued Circular 26-20-21 to clarify inspection requirements for properties purchased with loans guaranteed by the VA, where the borrower has been negatively impacted by Covid-19. The VA temporarily suspended its requirement to conduct a property inspection before the 60th day of delinquency for borrowers whose loans are currently in forbearance and were current or had not reached the 60th day of delinquency when the borrower requested CARES Act forbearance. The circular sunsets on July 1, 2021.
Acting Comptroller Brooks will focus on responsible innovation, fintech charters
On May 29, Acting Comptroller of the Currency Brian P. Brooks issued a statement focusing on four priorities intended to help meet the challenges facing banks today. As previously covered by InfoBytes, Brooks was named Acting Comptroller following the departure of former Comptroller Joseph Otting. These priorities include building upon responsible innovation to provide regulatory certainty, flexible frameworks, and oversight that will allow banks to “evolve and capitalize on technology and innovation to deliver better products and services, to operate more efficiently, and to reduce risk in the system.” Brooks reiterated that the OCC has the authority to issue bank charters to companies engaged in “the business of banking on a national scale, including taking deposits, lending money, or paying checks,” and emphasized that the OCC will work to “clarify what true lender means, to underscore that the terms of a lawfully made contract remain valid for the duration of that contract even if it is sold by a bank to another investor, and to specify what the parameters of the ‘fintech charter’ and other special purpose charters should be.” The same day the OCC issued a final rule (covered by a Buckley Special Alert), which establishes that when a bank transfers a loan, the interest rate permissible before the transfer will still be valid after the transfer.
Among other topics, Brook also discussed the OCC’s recent issuance of a final rule to strengthen the Community Reinvestment Act (covered by a Buckley Special Alert), stating that the OCC will work to ensure that banks provide “fair access” to all customers and stressing that the agency “should not tolerate lawful entities being denied access to our federal banking system based on their popularity among a powerful few.”
Federal Reserve Board announces revised terms for Municipal Liquidity Funds
On June 3, the Federal Reserve Board announced an expansion in the number and type of entities that are eligible to directly use its Municipal Liquidity Facility (MLF). Under the revised terms, at least two cities or counties in each U.S. state will be eligible to directly issue notes to the MLF regardless of population. Additionally, each state governor will be able to designate two issuers in their jurisdictions whose revenues are generally derived from operating government activities to be eligible to directly use the facility. The FRB also issued an Appendix with limits per state and responses to frequently asked questions regarding the MLF.
FTC reaches settlement with payment processor
On June 1, the FTC announced a settlement with a payment processor that the FTC alleged had engaged in unfair acts or practices in violation of the FTC Act by ignoring warnings that its client was operating a scheme through which it persuaded consumers to pay thousands of dollars each for worthless business coaching and investment mentoring services. (See InfoBytes coverage on the affiliate marketer settlements here.) The FTC’s complaint provides that the company’s processing data, which showed a large number of charges and associated refunds and chargebacks, immediately raised red flags regarding the client’s business model. According to the FTC, the company failed to adequately investigate why the client “greatly exceeded its approved processing volumes and accrued significant chargebacks,” and that while some of the client’s accounts were terminated, the company continued to provide processing services for five other accounts. In addition, the FTC states that the company failed to monitor both the products sold and claims made by the client. The settlement imposes a monetary judgment of over $46.7 million, which is suspended due to the company’s inability to pay. The company is also required to surrender any claims to the client’s assets, which are being held in receivership in a separate action.
CFPB status report provides Section 1071 implementation updates
On May 26, the CFPB filed its first status report in the U.S. District Court for the Northern District of California as required under a stipulated settlement reached in February with a group of plaintiffs, including the California Reinvestment Coalition. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses. Under the settlement’s terms, the Bureau agreed to outline a proposal for collecting data and studying discrimination in small-business lending by September 15, and to create a Small Business Advocacy Review panel by October 15 in order to prepare a report on the proposal. The Bureau is also required to submit status reports, which must detail the Bureau’s progress and address whether it is on track to meet all relevant deadlines to the plaintiffs and the court every 90 days until the final rule is issued.
Updates on the following items are provided within the first status report: (i) the Bureau is continuing to work to resolve legal and policy issues in order to implement Section 1071; (ii) Bureau staff have begun drafting sections of the outline and started preliminary internal work to select small entity representatives who will consult with the panel; (iii) a survey seeking information from lenders on one-time costs for preparing and collecting data required by Section 1071 (covered by InfoBytes here) was postponed due to the Covid-19 pandemic, but the Bureau believes it can conduct the process without these results if necessary; (iv) the Bureau believes it is on track to meet the September and October deadlines, but notes that the Covid-19 pandemic may “introduce uncertainty with respect to the Bureau’s future ability to meet these deadlines,” and may also impact the Bureau’s ability to recruit small entity representatives to participate in the process; and (iv) the Bureau will notify the plaintiffs should it believe that a deadline extension is needed.
Fannie updates Covid-19 FAQs
On June 3, Fannie Mae updated its Covid-19 FAQs for sellers to reflect updates to the temporary purchase and refinance eligibility outlined in Lender Letter LL-2020-03. As previously covered by InfoBytes, Fannie Mae announced that borrowers are eligible to purchase a new home or refinance their mortgage if they are current on their mortgage—defined as having “made all mortgage payments due in the month prior to the note date of the new loan transaction by no later than the last business day of that month”—or if the mortgage is currently in a loss mitigation solution (the borrower must have made at least three timely payments as of the note date of the new transaction). The newly updated selling FAQs outline additional details of this policy, including (i) what is meant by “full payments” with regard to loss mitigation programs; (ii) whether the forbearance must be completed before a borrower can be eligible for a purchase or refinance transaction; and (iii) what sources of funds are eligible to be used to reinstate mortgages with missed payments.
CFPB provides E-Sign consent flexibility due to Covid-19
On June 3, the CFPB released a statement on temporary and targeted flexibility for credit card issuers regarding electronic provision of certain disclosures during the Covid-19 pandemic. The statement highlights that certain credit card issuers are receiving far more calls from consumers seeking relief as a result of the pandemic, but are unable to provide such relief without first providing certain written disclosures required by Regulation Z. Because such disclosures can only be provided electronically after consent sufficient under the Electronic Signatures in Global and National Commerce Act (E-Sign Act) is obtained, credit card issuers may be unable to move quickly to assist consumers. To address this issue, the statement provides that the CFPB “will take a flexible supervisory and enforcement approach during this pandemic regarding card issuers’ electronic provision of disclosures required to be in writing for account-opening disclosures and temporary rate or fee reduction disclosures mandated under provisions governing non-home secured, open-end credit.”
Specifically, the Bureau states that it does not intend to cite a violation in an examination or bring an enforcement action against an issuer that, during a phone call, does not obtain the formal E-Sign consent required by Regulation Z to receive electronic written disclosures, as long as the issuer obtains both (i) oral consent to electronic delivery of the written disclosures, and (ii) oral affirmation of the consumer’s ability to access and review the electronic written disclosures. The Bureau states that it expects issuers to take “reasonable steps during the phone call to verify consumers’ electronic contact information,” including verifying the accuracy of email addresses already on file.
Special Alert: OCC adopts final rule addressing Madden
On Acting Comptroller of the Currency Brian Brooks’ first day in that role, the OCC issued a final rule designed to effectively reverse the Second Circuit’s 2015 Madden v. Midland Funding decision.[1] As published in yesterday’s Federal Register, the rule, titled “Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred,” provides that “[i]nterest on a loan that is permissible under [12 U.S.C. 85 for national bank or 12 U.S.C 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.” This rule contrasts with the Madden decision’s conclusion that a purchaser of a loan originated by a national bank could not charge interest at the rate permissible for the bank if that rate would be impermissible under the lower usury cap applicable to the purchaser. More specifically, the Madden court found that subjecting assignees to state usury law under these circumstances does not “significantly interfere” with the exercise of national bank powers -- the general preemption standard set forth in the Dodd Frank Act.[2]
FDIC releases April enforcement actions
On May 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in April. The FDIC issued 23 orders and 2 notices of changes, which “consisted of 12 Section 19 orders, 3 orders of prohibition, 1 order to pay, 3 consent orders, 1 order to cease and desist, 4 orders terminating consent orders, and 1 order terminating an order of restitution.” Among the actions is a cease and desist order and civil money penalty issued against a Louisiana-based bank for allegedly violating the Bank Secrecy Act, EFTA, RESPA, TILA, the National Flood Insurance Program, and HMDA. The order follows the issuance of a 2019 recommended decision on remand by an FDIC administrative law judge (ALJ), who also found that the bank failed to comply with a majority of the provisions outlined in a 2011 memorandum of understanding entered into with the FDIC two years prior to the filing of this action. Specifically, the recommended decision found that the bank, among other things, “violated the independence requirement of the FDIC’s rules and regulations pertaining to appraisals by allowing a lending officer originating loans to appraise the collateral underlying the loan,” and “allow[ing] a high ranking officer to repeatedly overdraw his bank account without being charged overdraft fees” in violation of Regulation O of the Federal Reserve Board. Other violations included that the bank failed to: (i) conduct independent property evaluations and appraisals; (ii) disclose unauthorized fees or investigate reports of erroneous charges; (iii) assess flood insurance needs or inform borrowers of force-placed flood insurance rules; (iv) file suspicious activity reports and currency transaction reports; (v) implement a “meaningful compliance program” to ensure the bank did not engage in foreign financial transactions with prohibited persons identified by the Office of Foreign Assets Control; and (v) “conduct proper compliance training or maintain an effective audit program for consumer compliance matters.” The FDIC’s order affirmed the ALJ’s recommended decision to subject the bank to an order to cease and desist and pay a $500,000 civil money penalty.
Additionally, the FDIC entered a consent order against an Illinois-based bank relating to alleged weaknesses in its Bank Secrecy Act compliance program.
FHFA announces Fannie and Freddie LIBOR transition resources
On May 28, the FHFA announced the launch of new Fannie Mae and Freddie Mac (GSEs) websites (see here and here), which are designed to provide key resources for lenders and investors as the GSEs transition from LIBOR. The LIBOR Transition Playbook and frequently asked questions describe key transition milestones and recommended actions related to the GSEs’ transition from LIBOR to the Alternative Reference Rates Committee’s preferred Secured Overnight Financing Rate (SOFR) before the anticipated cessation of LIBOR at the end of 2021. The playbook provides resources related to, among other things, single-family adjustable-rate mortgages (ARMs) and mortgage-backed securities (MBS), as well as single-family credit risk transfer transactions, collateralized mortgage obligations, and multifamily ARMs, MBS and floating-rate loans, and credit risk transfers. The websites also provide details related to the transition of the GSEs’ Credit Risk Transfer (CRT) programs and their collateralized mortgage obligations.
Find continuing InfoBytes coverage on LIBOR here.