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Financial Services Law Insights and Observations


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  • FHFA studies the evolution of mortgage risk

    Federal Issues

    On May 20, FHFA released a comprehensive dataset on ways mortgage risk has evolved over time. The revised staff working paper, “A Quarter Century of Mortgage Risk,” provides an account of the evolution of default risk for newly originated home mortgages over the past 25 years. As FHFA explained in its press release, reviewing a comprehensive dataset containing “aggregated results using more than 200 million purchase-money and refinance mortgages from 1990 to 2019” has led researchers to “challenge some long-held assumptions about the impetus of the 2008 financial crisis.” Key findings presented in the working paper include: (i) new data shows that increased mortgage risk in the 1990s “was a precursor to the market failing in 2008,” whereas “previous research could not identify the fact that a refinance boom from 2000-2003 masked the mortgage risk accumulation”; (ii) prior to the 2008 financial crisis, “mortgage risk accumulated across the full spectrum of borrowers, not just those with low credit scores as some have previously asserted”; (iii) “[m]ortgage rate spreads between ‘not risky loans’ and ‘very risky loans’” tightened for portfolio and private-label securities mortgages in the mid-2000s—an indication of expanded credit supply directly prior to the Great Recession; and (iv) during the current era, “sustained house price appreciation is leading mortgage risk to increase.”

    Federal Issues FHFA Mortgages Consumer Finance Fannie Mae Freddie Mac

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  • Fed highlights potential of central bank digital currencies

    Federal Issues

    On May 20, Federal Reserve Chairman Jerome Powell released a video message outlining the potential use of central bank digital currencies (CBDCs) in the U.S. payment system. Powell discussed how “the rise of distributed ledger technology, which offers a new approach to recording ownership of assets, has allowed for the creation of a range of new financial products and services—including cryptocurrencies,” which may carry potential risks to those users and to the broader financial system. Powell highlighted that the Fed is contemplating whether and how a U.S. CBDC would impact the domestic payments system, emphasizing that CBDCs “could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar.” Powell also noted that, as part of the Fed’s ongoing efforts in exploring the potential benefits and risks of CBDCs from a variety of angles, the Fed will begin broader consideration of the creation of a U.S. CBDC by issuing a discussion paper and requesting public comment on benefits and risks. Powell stated he expects the Fed to play a leading role in developing international standards for CBDCs by “engaging actively with central banks in other jurisdictions as well as regulators and supervisors here in the United States throughout that process.”

    Federal Issues Regulation Federal Reserve Central Bank Digital Cryptocurrency Bank Regulatory Fintech

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  • OCC releases enforcement actions and terminations

    Federal Issues

    On May 20, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included in the release is a formal agreement entered into with a Pennsylvania-based bank on April 20 in connection with alleged unsafe or unsound practices relating to oversight, internal controls, audit, and information technology controls. The agreement requires the bank to (i) establish a compliance committee to monitor the bank’s progress in complying with the agreement’s provisions; (ii) report such progress to the bank’s board on a quarterly basis; and (iii) develop, implement, and adhere to a written risk-based, internal information, technology audit program. The agreement further provides that the technology audit program must be performed by an independent and qualified party and must include fundamental elements of a sound audit program.

    Federal Issues Agency Rule-Making & Guidance Bank Compliance Enforcement OCC

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  • FTC seeks to restore Section 13(b) redress authority

    Federal Issues

    On May 19, acting FTC Chairwoman Rebecca Kelly Slaughter published a letter reaffirming the need to restore the Commission’s ability to return money to harmed consumers following the U.S. Supreme Court’s decision in FTC v. AMG Capital Management. As previously covered by InfoBytes, on April 22, the Court unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.” Last month, Slaughter testified before both House and Senate subcommittees on the need for Congressional action to clarify Section 13(b) and affirmatively confirm the FTC’s authority to seek permanent injunctions and other equitable relief for violations of any law under its enforcement authority (covered by InfoBytes here).

    Slaughter’s letter, directed to Senators Maria Cantwell (D-WA) and Roger Wicker (R-MS)—the chair and ranking member of the Senate Committee on Commerce, Science, and Transportation, respectively—addressed several issues raised by the U.S. Chamber of Commerce concerning recently introduce legislation (see H.R. 2668), which is intended to restore the FTC’s ability under Section 13(b) to seek consumer compensation in antitrust and consumer protection cases. Among other things, Slaughter disagreed with the Chamber’s position that Congress always intended for Section 13(b) to be used only in so-called “fraud cases.” She pointed to a 1994 action, in which Congress “directly ratified the FTC’s reliance on Section 13(b) in all manner of cases by expanding its venue and service of process provisions without placing any limitations on the types of cases to which Section 13(b) applies,” and noted that to date, the FTC has obtained billions of dollars of monetary relief for consumers, many of which were in non-fraud consumer protection cases. According to Slaughter, limiting the FTC’s ability to seek monetary relief to only “cases involving ‘egregious’ frauds” would allow companies and individuals “adjudicated to have engaged in unfair, deceptive, or anticompetitive practices” to keep money earned from unlawful conduct at the expense of harmed consumers.

    Slaughter also emphasized that limiting Section 13(b) to only ongoing or imminent conduct does not make sense. Waiting for violations to recur in order to obtain a federal court injunction, Slaughter argued, “creates weak incentives for compliance, and is an inefficient enforcement mechanism that will result only in more consumer harm.” In addressing the Chamber’s concern that statutory fix proposals lack a statute of limitations for monetary relief under Section 13(b), Slaughter emphasized that H.R. 2668 would provide a 10-year limit on monetary relief.

    Federal Issues FTC Enforcement FTC Act U.S. Supreme Court Consumer Redress Federal Legislation U.S. House U.S. Senate

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  • OCC examines effects of Covid-19 on federal banking system

    Federal Issues

    On May 18, the OCC released its Semiannual Risk Perspective for Spring 2021, which reports on key risk areas posing a threat to the safety and soundness of national banks and federal savings associations. While, overall, banks maintained sound capital and liquidity levels throughout 2020, the OCC noted that bank profitability remains stressed as a result of low interest rates and low loan demand.

    Key risk themes identified in the report include:

    • Credit risk. The OCC reported that credit risk is evolving a year into the Covid-19 pandemic, specifically as the economic downturn continues to affect some borrowers’ ability to service debts and government assistance programs start to expire.
    • Strategic risk. Strategic risk associated with how bank manage net interest margin compressions and earnings is elevated. The OCC suggested that banks attempting to improve earnings could implement various measures, including cost cutting and increasing credit risk.
    • Operational risk. Elevated operational risk can be attributed to complex operating environments and increased cybersecurity threats. A flexible, risk-based approach, including surveillance, reporting, and managing third-party risk, is important for banks to be operationally resilient, the OCC stated.
    • Compliance risk. Compliance risk is also elevated due to the expedited implementation of a number of Covid-19-related assistance programs, including the CARES Act Paycheck Protection Program and federal, state, and bank-initiated forbearance and deferred payment programs. These programs, the OCC noted, require “increased compliance responsibilities, high transaction volumes, and new fraud typologies, at a time when banks continue to respond to a changing operating environment.”

    Federal Issues OCC Covid-19 SBA Compliance Risk Management Fintech Net Interest Margin

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  • OCC finalizes CIF withdrawal period extensions

    Federal Issues

    On May 21, the OCC issued an interim final rule, which finalizes a rule applicable to national banks and federal savings associations administering a collective investment fund (CIF) invested primarily in real estate or other assets that are not readily marketable. Specifically, under the OCC’s fiduciary activities regulation (12 CFR 9.18), a bank that is administering a CIF invested “primarily in real estate or other assets that are not readily marketable” may require a prior notice period of up to one year for withdrawals. As previously covered by Infobytes, in August 2020, the OCC issued an interim final rule which clarified rules regarding account withdrawals from CIFs in response to the Covid-19 pandemic. The recently released interim final rule codifies the August rule by allowing banks to request to extend the one-year redemption period by another year due to “unanticipated and severe market conditions for specific assets held by the fund,” subject to meeting certain conditions.

    The interim final rule will be effective upon publication in the Federal Register.

    Federal Issues OCC Covid-19 Agency Rule-Making & Guidance

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  • OCC reconsiders CRA final rule

    Agency Rule-Making & Guidance

    On May 18, the OCC announced it will reconsider its 2020 final rule overhauling the Community Reinvestment Act (CRA). As previously covered by a Buckley Special Alert, the 2020 final rule, finalized last year, was intended to modernize the regulatory framework implementing the CRA by, among other things: (i) updating deposit-based assessment areas; (ii) mandating the inclusion of consumer loans in CRA evaluations; (iii) including quantitative metric-based benchmarks for determining a bank’s CRA rating; and (iv) including a non-exhaustive illustrative list of activities that qualify for CRA consideration.

    “While this reconsideration is ongoing, the OCC will not object to the suspension of the development of systems for, or other implementation of, provisions with a compliance date of January 1, 2023, or January 1, 2024, under the 2020 CRA rule,” the OCC stated. The agency further stressed that its decision to suspend compliance deadlines for the 2020 final rule “will provide for an orderly reconsideration of the June 2020 rule” and “provide the OCC with the opportunity to consider additional stakeholder input, to evaluate issues and questions that have been raised, to reassess the necessary data, and to take additional regulatory action, as appropriate.” The OCC also added that it does not plan to finalize a December 2020 proposed rule covering evaluation measure benchmarks, retail lending distribution test thresholds, and community development minimums under the new general performance standards outlined in the 2020 final rule (covered by InfoBytes here). Moreover, the agency will discontinue the CRA information collection published in the Federal Register last December.

    However, the OCC noted that it will continue to implement certain provisions of the 2020 final rule with a compliance date of October 1, 2020, as outlined in OCC Bulletin 2020-99 (covered by InfoBytes here), and reminded banks to “maintain appropriate documentation for CRA examination purposes” as specified in the bulletin.

    Agency Rule-Making & Guidance Federal Issues OCC CRA Bank Compliance

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  • FDIC seeks input on digital assets

    Agency Rule-Making & Guidance

    On May 17, the FDIC issued a notice and request for comments regarding information on insured depository institutions’ (IDIs) current and potential digital asset activities. The Request for Information (RFI) solicits input on digital asset use cases involving IDIs and their affiliates to help the agency “inform its understanding of the industry’s and consumers’ interests in this area.” According to the agency, there are “novel and unique considerations” connected to digital assets and “banks are increasingly exploring several roles in the emerging digital asset ecosystem, such as being custodians, reserve holders, issuers, and exchange or redemption agents; performing node functions; and holding digital asset issuers’ money deposits.” FDIC Chairman Jelena McWilliams states that digital asset areas have “seen rapid expansion and innovation in recent years” and that “[t]his RFI gives us an opportunity to gain additional insight into the market, and what role banks might play in the future.” The deadline for submitting comments for the RFI is July 16.

    Agency Rule-Making & Guidance FDIC Federal Issues Fintech Digital Assets

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  • FTC settles with remaining operators of student loan debt-relief scam

    Federal Issues

    On May 17, the FTC announced settlements to resolve litigation against the remaining defendants involved in a student loan debt-relief operation charged with allegedly engaging in deceptive and abusive practices by collecting advance fees and making false promises to consumers that they could lower or eliminate loan payments or balances. As previously covered by InfoBytes, the FTC filed complaints against two groups of defendants involved in the debt-relief operation claiming the defendants, among other things, charged consumers advance fees and enrolled consumers in a high-interest financing program without making required disclosures. These actions, the FTC, contended, violated the FTC Act, TILA, and the Telemarketing Sales Rule (TSR), and stipulated orders were entered against several of the defendants in 2019. The terms of the stipulated final orders reached with the remaining defendants (see here and here) prohibit the defendants from (i) engaging in transactions involving secured or unsecured debt relief products and services; (ii) making misrepresentations and unsubstantiated claims regarding any products and services; (iii) violating the TSR; and (iv) collecting any further payments from consumers who purchased debt-relief services prior to the entry of the order. Additionally, certain defendants are required to pay a more than $24.5 million monetary judgment, which will be partially suspended due to inability to pay. One of the defendants is also required to pay $11,500, which will go towards consumer redress.

    Federal Issues Courts FTC Enforcement Settlement UDAP FTC Act TILA Telemarketing Sales Rule Student Lending

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  • CFPB obtains new judgments against debt-relief defendants

    Federal Issues

    On May 11, the U.S. District Court for the Central District of California obtained two additional judgments in an action by the CFPB against a mortgage lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). These are the latest judgments reached with defendants in the ongoing litigation. (See InfoBytes coverage on previously announced settlements here, here, here, and here.)

    As previously covered by InfoBytes, the Bureau filed a complaint in January 2020 claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt-relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt-relief services. The CFPB further claimed that the defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student-loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education. 

    The May 11 stipulated final judgment entered against a group of corporate defendants, as well as an associated individual, requires the defendants to pay more than $18 million in consumer redress. Payment will be suspended, however, upon satisfaction of certain outlined obligations. The defendants, who neither admitted nor denied the allegations, are also obligated to pay a $125,000 civil money penalty to the Bureau, and are permanently enjoined from offering or providing debt-relief services or from using or obtaining consumer reports for any purpose. Additionally, the individual defendant is banned from using or obtaining benefit from consumer information contained in prescreened consumer reports.

    On the same day, a second stipulated final judgment was entered against one of the individual defendants. The judgment requires the individual defendant to pay more than $3.4 million in redress to affected consumers, which will be partially suspended upon satisfaction of certain outlined obligations, along with a $1 civil money penalty. The individual defendant, who also neither admitted nor denied the allegations, is permanently enjoined from offering or providing debt relief services, from participating or engaging in the telemarketing of any consumer financial product or service, or from using or obtaining prescreened consumer reports for any purpose.

    Federal Issues Courts CFPB Consumer Finance CFPA Telemarketing Sales Rule FCRA Enforcement Settlement

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