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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.
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.
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.
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.”
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.
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.
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.
On August 8, the OCC issued new guidance regarding the applicability of the legal lending limit (LLL) to purchased loans. The guidance clarifies that “all loans and extensions of credit made by banks are subject to the LLL” and explains that “[w]hether a loan that a bank purchases is attributable to the seller under the LLL regulation depends on specific facts and circumstances.” The OCC then further explains, that in evaluating purchased loans, loans will be attributed to a seller if the bank has direct or indirect recourse to the seller, which can be explicit or implied. Explicit recourse is established through a written agreement and implied recourse can be established though the bank’s course of dealing with the seller. For example, the OCC noted that if a seller routinely “substituted or repurchased loans or refilled or replenished a reserve account even when the contract did not require those actions” that would be sufficient to establish implied recourse.
On August 9, Senators Sherrod Brown (D-OH), Elizabeth Warren (D-MA), Jack Reed (D-RI), and John Fetterman (D-PA) wrote a letter to the Chair and Vice Chair of Supervision for the Board of Governors of the Federal Reserve System urging the Fed to “review and reconsider” its procedures for approving bank mergers. The letter cites the Dodd-Frank Act’s amendment to the Bank Merger Act, which mandates that federal banking regulators consider whether a proposed merger “would result in greater or more concentrated risks” to the stability of the banking or financial system. The senators also voiced concern that the Fed has “not issued any rules or guidance indicating the types of bank mergers that would implicate financial stability concerns” and criticized the process around the Fed’s approval of recent acquisitions.
On August 8, the CFTC issued an order simultaneously filing and settling charges against a California-based futures commission merchant, requiring it to pay $6 million. The CFTC claims that the respondent violated the Commodity Exchange Act and Commission Regulations by “failing to maintain, preserve, or produce records required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to its business as a CFTC registrant.” According to the order, respondent’s employees allegedly communicated through personal text messages regarding information required to be maintained under the CFTC-mandated recordkeeping requirements. The CFTC stated that if the information were to be requested, respondent would not be able to furnish the communications promptly. The CFTC further alleged that the use of unauthorized communication was also in violation of the respondent’s own policies and procedures. In addition to the $6 million civil money penalty, the order requires the respondent to cease and desist any further violations of the commission’s regulations that were previously violated. The CFTC noted that the SEC also announced an order filing and settling charges against the merchant for “related recordkeeping and supervision violations.”