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  • Department of Education revises student loan protections

    Federal Issues

    On August 30, the Department of Education issued final regulations revising protections for student borrowers that were significantly misled or defrauded by the higher education institution they attended. The final Institutional Accountability regulations—first proposed in July 2018 (previous InfoBytes coverage here)—establish standards for loan forgiveness applicable for “adjudicating borrower defenses to repayment claims for Federal student loans first disbursed on or after July 1, 2020.” Loans disbursed prior to July 1, 2020 remain subject to defenses under prior regulations issued in 2016. Provisions under the new regulations include:

    • Borrowers will be required to file their claims within three years of leaving an institution, and may assert defense to repayment claims regardless of whether a loan is in default or in collection proceedings.
    • The 2016 final regulation’s preponderance of the evidence standard for all borrower defense to repayment claims will be maintained. The Department also rejected the presumption against full relief, stating that financial harm will be determined by the Department as “the amount of monetary loss that a borrower incurs as a consequence of misrepresentation. . . . [but will] not include damages for nonmonetary loss.”
    • The pre-dispute arbitration and class action waiver ban contained within the 2016 final regulations will be eliminated. Institutions are permitted to choose their own internal dispute resolution process, including the use of mandatory pre-dispute arbitration agreements and class action waivers, provided the agreements are explained in plain language to enable students to make informed enrollment decisions.
    • The “closed school loan discharge” eligibility time period is extended from 120 days to 180 days for students who have left an institution prior to its closure. However, borrowers must submit applications, as automatic closed-school discharges are not allowed under the new regulations. Borrowers asserting false certification discharge must also submit applications. Additionally, borrowers will be allowed to choose between accepting a teach-out opportunity offered by an institution or submitting a closed school loan discharge to the Department.

    The Department notes that the regulations will take effect July 1, 2020. However, “regulations relating to financial responsibility will be available for immediate implementation.”

    Federal Issues Student Lending Department of Education

  • Video-sharing site reaches $170 million settlement with FTC and New York AG

    Federal Issues

    On September 4, the FTC and the New York Attorney General announced (see here and here) a combined $170 million proposed settlement with the world’s largest online search engine and its video-sharing site subsidiary concerning alleged violations of the Children’s Online Privacy Protection Act (COPPA). According to the complaint, the video-sharing site allegedly collected personal information in the form of “persistent identifiers” from viewers of child-directed channels without first obtaining verifiable parental consent. The persistent identifiers allegedly generated millions of dollars in revenue by delivering targeted ads to viewers. The FTC and New York AG allege, among other things, that the defendants knew the video-sharing site hosted numerous child-directed channels but told advertisers that the video-sharing site contains general audience content, even informing one advertising company that it did not have users younger than 13 on its platform and therefore channels on its platform did not need to comply with COPPA.

    Under COPPA, operators of websites and online services directed at children are prohibited from collecting personal information of children under the age of 13—including through the use of persistent identifiers for targeted advertising purposes—unless the company has explicit parental consent. Furthermore, third parties—such as advertising networks—must also comply with COPPA where they have actual knowledge that personal information is being collected directly from users of child-directed websites and online services.

    While neither admitting nor denying the allegations, except as specifically stated within the settlement, the defendants will, among other things, (i) pay a $136 million penalty to the FTC and a $34 million penalty to New York; (ii) change their business practices to comply with COPPA; (iii) maintain a system for channel owners to designate their child-directed content on the video-sharing site; and (iv) disclose their data collection practices and obtain verifiable parental consent prior to collecting personal information from children. According to the FTC, the $136 million penalty is “by far the largest amount the FTC has ever obtained in a COPPA case since Congress enacted the law in 1998.”

    Federal Issues FTC State Attorney General Enforcement Privacy/Cyber Risk & Data Security COPPA

  • FFIEC releases 2018 HMDA data; CFPB issues mortgage activity reports

    Federal Issues

    On August 30, the Federal Financial Institutions Examinations Council released the 2018 Home Mortgage Disclosure Act (HMDA) data on mortgage lending transactions covering information submitted by financial institutions on or before August 7. The data will not remain static, but instead will be updated on an on-going basis to reflect late submissions and resubmissions. The data currently includes information on 12.9 million home loan applications, 7.7 million of which resulted in loan originations, and 2 million purchased loans. Observations on the data include: (i) the total number of originated loans decreased by roughly 12.6 percent; (ii) refinance originations decreased by 23.1 percent; (iii) the share of refinance loans to low- and moderate-income borrowers increased from 22.9 percent to 30 percent; and (iv) nondepository, independent mortgage companies accounted for 57.2 percent of first-lien owner-occupied home purchase loans (up from 56.1 percent in 2017).

    On the same day, the CFPB also released two data point articles describing mortgage market activity based on data reported under HMDA. The first article presents a report providing a “first look” at mortgage application and origination trends within the 2018 HMDA data. The second article introduces a report introducing the “new and revised data points in the 2018 HMDA data” and discussing the Bureau’s initial observations on the mortgage market based upon those new or revised data points.

    Federal Issues HMDA FFIEC CFPB Mortgages

  • Agencies issue Hurricane Dorian guidance

    Federal Issues

    On August 29, Fannie Mae, Freddie Mac, and HUD issued disaster relief guidance related to Hurricane Dorian. Fannie Mae reminded servicers of available mortgage assistance options for homeowners impacted by the hurricane: (i) qualifying homeowners are eligible to stop making mortgage payments for up to 12 months without incurring late fees and without having delinquencies reported to the credit bureaus; (ii) servicers may immediately suspend or reduce mortgage payments for up to 90 days without any contact with homeowners believed to have been affected by a disaster; and (iii) foreclosures and other legal proceedings for homeowners believed to be impacted by a disaster are temporarily suspended. Freddie Mac similarly reminded servicers of these mortgage relief options.

    The same day, HUD released Mortgagee Letter ML 2019-14 (ML 2019-14), which updates Handbook 4000.1 and expands its “Disaster Standalone Partial Claim” loss mitigation option which “allow[s] borrowers in Presidentially Declared Major Disaster Areas (PDMDAs) with delinquent FHA-insured mortgages to bring their mortgages current without increasing their interest rates or principal and interest payments.” The mitigation option, introduced last year, “covers missed mortgage payments up to 30 percent of Unpaid Principal Balance” through an interest-free second loan on the mortgage without a required trial payment plan. The second loan will become payable only when the borrower sells the home or refinances. Additionally, the loss mitigation option will streamline income documentation and other requirements to expedite relief to eligible borrowers struggling to pay their mortgages while recovering from disasters.

    Separately on August 30, the OCC issued a proclamation permitting OCC-regulated institutions, to close offices affected by Hurricane Dorian’s severe weather conditions at their discretion “for as long as deemed necessary for bank operation or public safety.” In issuing the proclamation, the OCC noted that it expects that only those bank offices directly affected by potentially unsafe conditions will close and that they should make every effort to reopen as quickly as possible to address the banking needs of their customers. The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on natural disasters and other emergency conditions.

    Federal Issues Fannie Mae Freddie Mac Disaster Relief Mortgages Consumer Finance OCC HUD FHA

  • CFPB releases 2019 Card Report

    Federal Issues

    On August 27, the CFPB released its fourth biennial report on the state of the credit card market as required by Section 502 of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The 2019 report covers the credit card market for the 2017-2018 period. In opening remarks, CFPB Director Kathy Kraninger notes that with the passage of time, it has become “increasingly difficult to correlate the CARD Act with specific effects in the marketplace that have occurred since the issuance of the Bureau’s last biennial report, and, even more so, to demonstrate a causal relationship between the CARD Act and those effects,” and therefore, future reports will focus more on overall market conditions. Key findings of the report include, (i) total outstanding credit card balances continue to grow; (ii) total cost of credit stood at 18.7 percent at the end of 2018, which is the highest overall level observed by the Bureau in its biennial reports; (iii) total credit line across all consumer credit cards reached $4.3 trillion in 2018, which is largely due to the increase in unused credit lines held by superprime score consumers; and (iv) consumers are increasingly using their cards through digital portals, including those accessed via mobile devices.

    Regarding current trends, the report notes that over the last few years, the total amount of credit card spending has grown “much faster” than the total volume of balances carried on the cards. In addition, while cardholders with prime or superprime credit scores still account for most debt and spending, lower credit score consumers have been increasing their debt at a faster rate than cardholders with higher credit scores. Notably, delinquency and charge-off rates still remain lower than they were prior to the recession, even though they have slightly increased in recent years. Additionally, since the last report, issuers have lowered their daily limits on debt collection phone calls for delinquent accounts and average daily attempts remain “well below” stated limits. Issuers are also beginning to supplement communications for account servicing with email and text messages.

    Federal Issues CFPB Credit Cards CARD Act

  • CFPB settles with Illinois debt collector

    Federal Issues

    On August 28, the CFPB announced a settlement with an Illinois-based debt collection company to resolve allegations that the company engaged in improper debt collection tactics in violation of the Consumer Financial Protection Act and the FDCPA. Among other things, the company allegedly engaged in deceptive acts and practices by (i) threatening consumers with arrest, lawsuits, liens on their homes, and wage garnishment that the company did not plan on initiating; (ii) misrepresenting to consumers that company employees were attorneys; and (iii) informing consumers that their credit reports would be negatively affected if they failed to pay even though the company does not report consumer debts to credit-reporting agencies. While the company neither admitted nor denied the allegations, it has agreed to pay $36,878 in redress to harmed consumers and a $200,000 civil money penalty.

    Federal Issues CFPB Enforcement FDCPA Debt Collection UDAAP CFPA

  • FTC settles with lead generator

    Federal Issues

    On August 27, the FTC announced a settlement with an Illinois-based educational services company and its subsidiaries (defendants) to resolve deceptive marketing allegations in violation of the FTC Act and the Telemarketing Sales Rule. In the complaint, the FTC claimed the defendants used third-party lead generators that posed as military recruiters or job-finding services to encourage consumers to provide contact information via websites. The websites did not clearly inform the consumers that the personal information entered into online forms might be sold or used in training or educational programs. Rather, the FTC asserted that the lead generators falsely informed consumers that their information would not be shared. According to the FTC, the defendants then purchased these leads to call consumers in an attempt to enroll them in post-secondary schools, with many of these calls made to consumers on the National Do Not Call Registry. While the defendants did not carry out the deceptive practices to generate the leads, the FTC stated that the defendants established control over the marketing materials and reviewed telemarketing scripts that allegedly directed lead generators to falsely identify themselves as military recruiters. The FTC’s press release emphasized that “[t]his case demonstrates that the FTC will seek to hold advertisers liable for the deceptive or illegal practices of their affiliates, publishers, or other lead generators. We expect companies purchasing leads to implement strong vendor management programs and stay on the right side of the law.” Under the terms of the settlement, the defendants are: (i) ordered to pay $30 million; (ii) required to implement a system to review any marketing materials used by lead generators; (iii), prohibited from calling numbers on the National Do Not Call Registry without obtaining written consent; and (iv) banned from falsely stating that they represent the military or prospective employers.

    Federal Issues FTC Enforcement Lead Generation UDAP FTC Act Telemarketing Sales Rule

  • Waters and 101 representatives urge CFPB to reconsider payday compliance delay

    Federal Issues

    On August 23, House Financial Services Committee Chair, Maxine Waters (D-Calif) and 101 other members of Congress wrote to CFPB Director Kathy Kraninger to express concern over the Bureau’s recent amendment of and delay to certain ability-to-repay provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule), previously covered by InfoBytes here and here. Specifically, the letter opposes the CFPB’s decision to remove certain ability-to-repay requirements, as well as the Bureau’s June 2019 decision to delay the August 19 compliance date for the mandatory underwriting provisions of the Rule until November 19, 2020. The letter cites to an April 30 subcommittee hearing that examined the payday lending industry and argues that “payday and car-title lenders lack the incentive to make loans that borrowers have the ability to repay while still being able to afford basic necessities of life.” The agency, according to the letter, is betraying “its statutory purpose and objectives to put consumers, rather than lenders, first” by delaying the Rule’s implementation.

    Additionally, in the press release announcing the letter, Waters also expressed concern that the CFPB had not yet asked the U.S. District Court for the Western District of Texas to lift a stay of compliance so that the payment provisions of the Rule could be implemented. As previously covered by InfoBytes, two payday loan trade groups initiated the suit against the Bureau in April 2018, asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedures Act. The court recently ordered the stay of the full Rule’s compliance date to remain in full force and effect and requested another joint status report from the parties by December 6.

    Federal Issues U.S. House House Financial Services Committee CFPB Payday Rule

  • Waters previews committee priorities

    Federal Issues

    On August 23, House Financial Services Committee Chairwoman Maxine Waters released an overview of the Committee’s fall 2019 priorities and highlighted efforts undertaken during the 116th Congress so far. Upcoming areas of focus will include (i) holding hearings to examine the state of minority depository institutions, review stock buybacks, and analyze innovations for loan instruments; (ii) conducting an ongoing review of a social media company’s proposed cryptocurrency and digital wallet; (iii) continuing oversight of federal financial agencies through testimony from Treasury Secretary Steven T. Mnuchin, CFPB Director Kathy Kraninger, FHFA Director Mark Calabria, and Federal Reserve Vice Chairman Randal K. Quarles; (iv) examining the Terrorism Risk Insurance Program; (v) analyzing workforce diversity improvements; and (vi) increasing homeownership access through Federal Housing Administration improvements and housing finance reform. The Committee will also continue its task forces on data privacy, the use of artificial intelligence in the financial services market, and the evolution of payments and cash.

    Federal Issues House Financial Services Committee

  • President directs Ed to discharge disabled veterans’ student loan debt

    Federal Issues

    On August 21, President Trump issued a presidential memorandum to Secretary Betsy DeVos of the U.S. Department of Education directing the Department to implement a streamlined process to automatically discharge the federal student loan debt of totally and permanently disabled veterans (TPD discharge). The Higher Education Act currently allows veterans to seek a TPD discharge, but the “process has been overly complicated and difficult, and prevented too many [] veterans from receiving the relief for which they are eligible.” The memo notes “[o]nly half of the approximately 50,000 totally and permanently disabled veterans who currently qualify for the discharge” have availed themselves of the benefit. The memo defines “federal student loan debt” as Federal Family Education Loan Program loans, William D. Ford Federal Direct Loan Program loans, and Federal Perkins Loans, and requires the Department to create a policy to facilitate the swift and effective discharge of the applicable loan. The Department is required to implement the directive “as expeditiously as possible.”

    Federal Issues Executive Order Student Lending Military Lending Higher Education Act Department of Education

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