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District Court dismisses suit challenging Biden’s student debt relief plan
On August 14, the U.S. District Court for the Eastern District of Michigan dismissed without prejudice a lawsuit filed against the federal government aimed at blocking the Biden administration’s effort to provide debt relief to student borrowers (covered by InfoBytes here). U.S. District Judge Thomas L. Ludington held that the plaintiffs lacked standing because they failed to plausibly demonstrate how the government’s plans would impact their efforts to recruit participants as qualified employers under the Public Service Loan Forgiveness program. The court detailed that “[Plaintiffs] merely make vague and conclusory statements that some ‘undisclosed’ number of borrowers will receive credit toward loan forgiveness for some periods of forbearance” but “do not allege that any current employee received Adjustment credit.” Furthermore, any such “hypothetical injur[y]” would be traceable to “Plaintiffs’ own employees or prospective employees, not the Adjustment.” Because there was no standing, the court dismissed the complaint without prejudice and denied the plaintiffs’ motion for a temporary restraining order and preliminary injunction as moot.
FDIC announces Mississippi disaster relief
On August 15, the FDIC issued FIL-36-2023 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Mississippi affected by severe storms, straight-line winds, and tornadoes from June 14 - June 19. The FDIC acknowledged the serious impact of the inclement weather faced by affected institutions and encouraged those institutions to work with impacted borrowers to adjust and alter terms on existing loans, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements and instructed institutions to contact the Dallas Regional Office if they expect delays in making filings or are experiencing difficulties in complying with publishing or other requirements.
OCC updates bank accounting guidance
On August 15, the OCC released an annual update to its Bank Accounting Advisory Series (BAAS) which is intended to address a variety of accounting topics and promote consistent application of accounting standards and regulatory reporting among OCC-supervised banks. The BAAS reflects updates to clarify the accounting standards issued by the Financial Accounting Standards Board related to, among other things, the elimination of recognition and the measurement of troubled debt restructurings by creditors, loan modifications, and credit losses. The August 2023 edition also includes answers to frequently asked questions from industry and bank examiners. Additionally, the OCC notes that the BAAS does not represent OCC rules or regulations but rather “represents the Office of the Chief Accountant’s interpretations of generally accepted accounting principles and regulatory guidance based on the facts and circumstances presented.”
Chopra announces rulemaking for data brokers
On August 15, CFPB Director Rohit Chopra delivered remarks at the White House Roundtable on the harms of data broker practices. Referencing the prevalence of artificial intelligence in data surveillance, Chopra highlighted a common practice employed by companies: the gathering, leveraging, and sharing of data concerning consumers, including individual pieces of data or consumer profiles, without consumers’ awareness with third parties that employ AI to formulate forecasts and decisions. These detailed data sets can also easily be exploited by bad actors, Chopra warned. Chopra announced that after conducting an inquiry into data broker practices, the Bureau will endeavor to make rules regulating data broker surveillance to ensure sensitive data is not misused and on par with FCRA requirements.
Two proposals are being considered: the first proposal would define the term “consumer reporting agency” to include a data broker that sells certain types of consumer data, thereby triggering requirements to ensure accuracy and to govern disputes concerning the reporting of inaccurate information. The second proposal will address existing confusion by clarifying the existing confusion concerning “the extent to which credit header data constitutes a consumer report, [and] reducing the ability of credit reporting companies to impermissibly disclose sensitive contact information that can be used to identify people who don’t wish to be contacted, such as domestic violence survivors.” The rulemaking will also complement efforts put forth by the FTC.
OCC allows Hawaii institutions to temporarily close, SBA offers loans
On August 10, the OCC issued a proclamation permitting OCC-regulated institutions to close offices in areas affected by the wildfires in Hawaii. In issuing the proclamation, the OCC noted that only bank offices directly affected by potentially unsafe conditions should close, and that institutions should make every effort to reopen as quickly as possible to address customers’ banking needs. The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions.
In addition, the Small Business Association (SBA) announced that it is offering low-interest federal disaster loans to Hawaii businesses and residents and California businesses and residents affected by the severe winter storms, straight-line winds, flooding, landslides and mudslides that occurred February 21 – July 10.
Interest rates for these loans can be as low as 4% for businesses, 2.375% for private nonprofit organizations and 2.375% (2.5% for Hawaii) for homeowners and renters with terms up to 30 years. Loan amounts and terms are set by SBA and are based on each applicant’s financial condition, with loans up to $500,000 for homeowners to repair or replace damaged or destroyed real estate and $100,000 to repair or replace damaged or destroyed personal property, including personal vehicles. The loans are part of the SBA’s commitment to “providing federal disaster loans swiftly and efficiently, with a customer-centric approach to help businesses and communities recover and rebuild.”
Find continuing InfoBytes coverage on disaster relief here.
FDIC announces Hawaii disaster relief
On August 11, the FDIC issued FIL-41-2023 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Hawaii affected by wildfires from August 8 and continuing. The FDIC acknowledged the unusual circumstances faced by affected institutions and encouraged those institutions to work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements and instructed institutions to contact the San Francisco Regional Office if they expect a delay in making filings or are experiencing difficulties in complying with publishing or other requirements.
FDIC releases operational risks in 2023 Risk Review
On August 14, the FDIC released its 2023 Risk Review, summarizing emerging risks in the U.S. banking system observed during 2022 and early 2023 in five broad categories: (i) credit risk; (ii) market risk; (iii) operational risk; (iv) crypto-asset risk; and (v) climate-related financial risk. According to the FDIC, the current risk review adds a new section relating to the FDIC’s approach to understanding and evaluating crypto-asset-related markets and activities. Monitoring these risks is among the agency’s top priorities, the FDIC said, and the “failure of three large banking institutions in March and May highlighted certain risks to the banking sector.” The FDIC stated that weaker economic conditions and higher interest rates in 2022 continued through early 2023, and “financial market conditions tightened considerably starting in 2022 on rising interest rates, high inflations, and concerns over a potential recession.” Overall, the FDIC said that “despite these challenges and the market stress in early 2023, the banking industry demonstrated resilience, but industry performance moderated from 2022.”
Fannie Mae, Freddie Mac annual stress tests results
On August 10, FHFA published the Dodd-Frank Act Stress Tests Results – Severely Adverse Scenario containing the results of the ninth annual stress tests conducted by Fannie Mae and Freddie Mac (GSEs) as required by the Dodd-Frank Act. Last year, FHFA published orders for the GSEs to conduct a stress test with specific scenarios to determine whether companies have the capital necessary to absorb losses as a result of severely adverse economic conditions (covered by InfoBytes here). According to the report, the total comprehensive income loss is between $8.4 billion and $9.9 billion depending on how deferred tax assets are treated. Notably, compared to last year, the severely adverse scenario includes a larger increase in the unemployment rate due to the lower unemployment rate at the beginning of the planning horizon. FHFA also expanded the scope of entities considered within the primary counterparty default component of the worldwide market shock. This expansion encompasses mortgage insurers, unsecured overnight deposits, providers of multifamily credit enhancements, nonbank servicers, and credit risk transfer reinsurance counterparties.
Plaintiffs file suit challenging Biden’s latest student debt relief plan
On August 4, two nonprofit entities filed a lawsuit against the federal government aimed at blocking the Biden administration’s recent effort to provide debt relief to student borrowers. The administration’s efforts were implemented in response to the Supreme Court’s June 30 decision striking down the DOE’s student loan debt relief program that would have canceled between $10,000 and $20,000 in debt for certain student borrowers (covered by InfoBytes here). The lawsuit, filed in the U.S. District Court for the Eastern District of Michigan, targets the administration’s efforts to credit borrowers participating in the Public Service Loan Forgiveness (PSLF) plan and Income-Driven Repayment (IDR) plan by providing credit for periods when loans were in forbearance or deferment, which would affect more than 804,000 borrowers, forgiving approximately $39 billion in loan payments, according to the DOE.
As an initial matter, plaintiffs assert that they are injured by the administration’s actions because, as 501(c)(3) nonprofit organizations, they benefit from the PSLF program by allowing them to “attract and retain borrower-employees who might otherwise choose higher-paying employment with non-qualifying employers in the private sector.” Thus, according to plaintiffs, cancellation of PSLF loans would reduce the incentive for borrowers to work at public service employers and the decision “unlawfully deprives [PSLF] employers of the full statutory benefit to which they are entitled under PSLF.”
Plaintiffs accuse the administration of putting the plan on an “accelerated schedule apparently designed to evade judicial review.” The plaintiffs assert that the DOE lacks authority to classify “non-payments as payments,” and that the statutes for the PSLF and IDR programs require actual payments to qualify for forgiveness under each plan. The suit brings four claims against the administration: (i) violation of the Appropriation Clause of the U.S. Constitution by canceling debt that Congress did not authorize; (ii) violation of the Administrative Procedure Act (APA) by issuing a final agency decision without appropriate statutory authority; (iii) violation of the APA by taking an arbitrary and capricious agency action by failing to “explain why [DOE] has changed its policy from not crediting non-payments during periods of loan forbearance to crediting such payments for purposes of PSLF and IDR forgiveness” and “entirely fail[ing] to consider the cost to taxpayers of crediting periods of forbearance toward PSLF and IDR forgiveness,” among other reasons; and (iv) violation of the APA by failing to undertake notice-and-comment procedures in implementing the changes.
Judge stays CFPB, NY AG lawsuit against auto lender
On August 7, the U.S. District Court for the Southern District of New York granted a defendant’s motion to stay a lawsuit against an alleged predatory auto lender until the Supreme Court determines the constitutionality of the CFPB’s funding in a separate lawsuit (CFSA Case; covered by InfoBytes here).
The CFPB and the New York Attorney General (AG) brought the complaint in January, accusing the lender of UDAAP and TILA violations that involved tricking consumers into loans financing used cars with high interest rates (typically above 22 percent) and add-on products they could not afford. The CFPB and AG alleged the dealers affiliated with the company (i) engaged in deceptive conduct; (ii) used high pressures sales tactics; (iii) pressured consumers into unaffordable auto loans; (iv) pressured family and friends to cosign the loans; (v) withheld prices of vehicles; and (vi) misrepresented key financial terms of the purchase, violating the CFPB, the Martin Act, and fraud and UDAP statutes, among other allegations.
In its decision, the district court reasoned that the stay awaiting the Supreme Court’s decision would (i) allow for clarity and guidance on the legal issues at hand and it may help the defendant avoid unnecessary litigation costs; and (ii) promote judicial efficiency and minimize the possibility of conflicts with other courts. Furthermore, the court determined that although it would be in the public interest to enforce consumer protection laws, the potential harm to the public caused by the stay is outweighed by the benefit to consumers “in proceeding in a streamlined fashion.” The order requires the parties to file a joint letter updating the court by the earlier of November 3 or one week after a major development in the CFSA case.