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Chopra highlights CFPB efforts on competitive consumer financial markets
On September 21, CFPB Director Rohit Chopra discussed Bureau efforts to ensure markets for consumer financial products and services are “fair, transparent, and competitive.” Speaking during the Exchequer Club Fireside Chat, Chopra explained that the agency’s authorizing statute specifically directs the Bureau to promote competition by consistently enforcing the law regardless of whether an entity takes deposits. He clarified that there should not be different standards for assessing when a firm violates the law, and highlighted several ways that the Bureau is working to fulfill its mandate to ensure competitive markets. One example Chopra provided relates to reshaping the Bureau’s approach to promoting new products and offerings, especially as they relate to refinancing options. He pointed to Bureau efforts to ensure both banks and nonbanks could launch products to save private student loan borrowers money as an example of making sure all potential market entrants could benefit. Chopra stated that the Bureau is also requesting feedback from investors, lenders, and the public on topics related to improving mortgage refinancing options (covered by InfoBytes here), and is working on ways to stimulate more credit card and auto loan refinancing. Additionally, Chopra touched on other areas of focus, including consumer finance offerings that rely on emerging technologies such as banking in augmented reality and the metaverse, nonbank supervision and oversight, bright-line regulatory approaches, competitive pricing and back-end fees, regulatory arbitrage, and personal financial data rights.
FTC reports on use of "dark patterns"
On September 15, the FTC released a report, Bringing Dark Patterns to Light, examining how “dark patterns” can effect consumer choice and decision-making and could violate the law. The report stems from an April 2021 workshop that the Commission held to explore dark patterns. According to the FTC, the dark pattern tactics detailed in the report include disguising ads to appear like independent content, which makes “it difficult for consumers to cancel subscriptions or charges, burying key terms or junk fees, and tricking consumers into sharing their data.” The report highlighted the FTC’s efforts to combat the use of dark patterns in the marketplace and reiterated the Commission’s commitment to taking action against tactics designed to trick and trap consumers. Among other things, the report noted four common dark pattern tactics, which include design elements that: (i) induce false beliefs; (ii) hide or delay disclosure of material information; (iii) lead to unauthorized charges; and (iv) obscure or subvert privacy choices. The report also cited a 2017 case brought against a company as an example of past enforcement work, in which FTC fined the company $2.2 million for enabling default settings that allowed its smart TVs to collect and share consumers’ viewing activity with third parties, providing a brief notice to some consumers that the agency said could easily be missed.
CFPB seeks better refi, loss-mitigation options
On September 22, the CFPB issued a request for information (RFI) regarding ways to improve mortgage refinances for homeowners and how to support automatic short-term and long-term loss mitigation assistance for homeowners who experience financial disruptions. According to the Bureau, refinancing volume has decreased almost 70 percent from last year as interest rates have risen. Additionally, periods of economic turmoil, such as the Covid-19 pandemic, can pose significant challenges for mortgage borrowers, the Bureau noted. Throughout the pandemic, 8.2 million borrowers entered a forbearance program, and as of July 2022, 93 percent have exited. Of those who have exited forbearance, five percent are delinquent or in active foreclosure. The Bureau is interested in the features of pandemic-related forbearance programs that should be made more generally available to borrowers. Specifically, the RFI requests information regarding, among other things: (i) targeted and streamlined refinance programs; (ii) innovative refinancing products; and (iii) automatic forbearance and long-term loss mitigation assistance. Comments are due 60 days after publication in the Federal Register.
Biden announces nominees for FDIC board
On September 20, President Biden announced his intention to nominate two members of the FDIC Board of Directors. The nominees, if confirmed, would fill the two vacant seats on the five-member Board. Travis Hill was nominated as a Board member and as vice chair. During his tenure at the FDIC, Hill previously served as senior advisor to the chairman and deputy to the chairman for policy. Prior to that, Hill served as senior counsel at the Senate Committee on Banking, Housing, and Urban Affairs. Biden also nominated Jonathan McKernan as a Board member. McKernan is a senior counsel at the FHFA and currently is on detail from the agency to the Senate Committee on Banking, Housing, and Urban Affairs where he is counsel on the minority staff. Previously, McKernan served as a senior policy advisor at the U.S. Treasury Department.
CFPB releases 2021 HMDA data
On September 15, the CFPB released a Data Point report titled 2021 Mortgage Market Activity and Trends, which analyzes residential mortgage lending activity and trends for 2021. The 2021 HMDA data encompasses the fourth year of data that incorporates amendments to HMDA by Dodd-Frank. The changes include new data points, revisions to some existing data points, and authorizes the CFPB to require new data points. As covered by a Buckley Special Alert, the CFPB issued a final rule that implemented significant changes that reflected the needs of homeowners and the evolution in the mortgage market.
The Bureau previously reported a 66.8 percent increase in originations from 2019 to 2020, largely driven by refinances. However, most of the increase from 2020 to 2021 was a result of jumbo home purchase loans. Other highlighted trends in mortgage applications and originations found in the 2021 HMDA data point include, among other things:
- 4,332 financial institutions reported at least one closed-end record in 2021, down by 3.1 percent from 4,472 financial institutions who reported in 2020;
- At least one closed-end mortgage loan had been reported by 4,332 financial institutions, down by 3.1 percent from 4,472 financial institutions in 2020;
- Black borrowers’ share of home purchase loans increased from 7.3 percent in 2020 to 7.9 percent in 2021; and
- “The refinance boom, especially in non-cash-out refinance that dominated mortgage market activities in 2019 and 2020, peaked in March 2021.”
VA clarifies Covid-19 forbearance timeline
On September 19, the Department of Veterans Affairs issued a change to Circular 26-21-20 extending the rescission date to align with the end of Covid-19 pandemic, including conforming changes to VA’s expectation as to the completion of a forbearance period. As previously covered by InfoBytes, the VA issued Circular 26-21-20 in September 2021 to clarify timeline expectations for forbearance requests submitted by affected borrowers. The September 2021 Circular stated thar “[f]or borrowers who have not received a COVID-related forbearance as of the date of this Circular, servicers should approve requests from such borrowers provided that the borrower makes the request during the National Emergency Concerning the Novel Coronavirus Disease 2019 (COVID-19) Pandemic,” and that all Covid-19 related forbearances would end by September 30, 2022. However, Change 1 stated that “September 30, 2022” should be replaced with “six months after the end of the National Emergency Concerning the Novel COVID-19 Pandemic.” The circular is rescinded March 1, 2023.
FTC, DFPI shut down operation offering mortgage relief
On September 19, the FTC and the California Department of Financial Protection (DFPI) announced a lawsuit against several companies and owners for allegedly operating an illegal mortgage relief operation. (See also DFPI’s announcement here.) The filing marks the agencies’ first joint action, which alleges the defendants’ conduct violated the California Consumer Financial Protection Law, the FTC Act, the FTC’s Mortgage Assistance Relief Services Rule (the MARS Rule or Regulation O), the Telemarketing Sales Rule, and the Covid-19 Consumer Protection Act. The agencies claimed that the defendants preyed on distressed consumers with false promises of mortgage assistance relief. According to the complaint, the defendants made misleading claims during telemarketing calls to consumers, including those with numbers on the National Do Not Call Registry, as well as through text messages and in online ads. In certain cases, defendants represented they were affiliated with government agencies or were part of a Covid-19 pandemic assistance program. Among other things, defendants falsely claimed they were able to lower consumers’ interest rates or payments, and instructed consumers not to pay their mortgages, leading to late fees and significantly lower credit score. Defendants also allegedly told consumers not to communicate directly with their lenders, which caused consumers to miss default notices and face foreclosure. Additionally, defendants charged consumers illegal up-front fees ranging from $500 to $2,900 a month, and told consumers they were negotiating loan modifications that in most cases never happened.
The U.S. District Court for the Central District of California granted a restraining order temporarily shutting down the defendants’ operations. In freezing the defendants’ assets and ordering them to submit financial statements, the court noted that the agencies established a likelihood of success in showing that the defendants “have falsely, deceptively, and illegally marketed, advertised, and sold mortgage relief assistance services.”
Treasury seeks info on illicit finance, national security risks of digital assets
On September 19, the U.S. Treasury Department issued a request for comment (RFC) seeking feedback on illicit finance and national security risks posed by digital assets. The RFC, issued pursuant to Executive Order 14067 “Ensuring Responsible Development of Digital Assets” (covered by InfoBytes here), requests public input on illicit finance risks, anti-money laundering and combating the financing of terrorism (AML/CFT) regulation and supervision, global implementation of AML/CFT standards, private sector engagement, and central bank digital currencies. The RFC also seeks feedback on actions the U.S. government and Treasury should take to mitigate these risks, in addition to whether public-private collaboration may improve efforts to address risks. Comments on the RFC are due November 3.
“Without appropriate controls and enforcement of existing laws, digital assets can pose a significant risk to national security by facilitating illicit finance, such as money laundering, cybercrime and terrorist actions,” U.S. Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson said in the announcement. “As we work to implement the Illicit Finance Action Plan, hold bad actors accountable and identify potential gaps in existing enforcement, we look forward to receiving the public’s input on this urgent work.”
The RFC follows the September 16 release of Treasury’s Action Plan to Address Illicit Financing Risks of Digital Assets (covered by InfoBytes here).
OCC releases enforcement actions data
On September 15, 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 an August 29 formal agreement between the OCC and a Texas-based bank in connection with allegedly unsafe or unsound practices relating to strategic and capital planning, credit risk management, Allowance for Loan and Lease Losses (ALLL) methodology, corporate governance, and internal 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, among other things, the ALLL Program, the contingency funding plan and any amendments thereto, and the internal audit program and any amendments or revisions thereto.
White House presses regulators on framework for digital assets
On September 16, the White House published a comprehensive framework for the responsible development of digital assets, calling on federal regulators to “provide innovative U.S. firms developing new financial technologies with regulatory guidance, best-practices sharing, and technical assistance.” The framework follows an executive order (E.O.) issued by the Biden administration in March (covered by InfoBytes here), which outlined the first “whole-of-government” strategy for coordinating a comprehensive approach to ensuring responsible innovation in digital assets policy. Consistent with the E.O.’s deadline, nine reports have been submitted to President Biden to date that “call on agencies to promote innovation by kickstarting private-sector research and development and helping cutting-edge U.S. firms find footholds in global markets.” The reports also “call for measures to mitigate the downside risks, like increased enforcement of existing laws and the creation of commonsense efficiency standards for cryptocurrency mining.”
Among other things, the reports (i) direct the Federal Reserve Board to continue its research and experimentation on issuing a central bank digital currency, and request the creation of a U.S. Treasury Department-led interagency working group to support Fed efforts; (ii) encourage the SEC and CFTC to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space”; (iii) urge the CFPB and FTC to address consumer complaints related to unfair, deceptive, or abusive practices in the crypto space; (iv) encourage agencies to issue guidance and rules for addressing current and emergent risks in the digital asset ecosystem; (v) urge agencies and law enforcement to take joint measures to address digital asset risks impacting consumers, investors, and businesses; and (vi) encourage agencies to share data on consumers’ digital asset complaints. To promote access to safe and affordable financial services, the administration said it plans to explore how crypto-related technologies can bolster financial inclusion, and will encourage the adoption of instant payment systems, weigh recommendations for creating a federal framework for non-bank payment service oversight, and prioritize efforts to improve cross-border payment efficiency. Additionally, the administration said it is exploring the possibility of amending the Bank Secrecy Act and other related statutes to “explicitly” apply to digital asset exchanges and non-fungible token platforms, and is considering a legislative request to toughen penalties for unlicensed money transmitters and give the DOJ more jurisdictional digital asset prosecution authority.
The Treasury released three reports addressing the future of money and payment systems, consumer and investor protection, and illicit finance risks in response to the E.O. The reports, The Future of Money and Payments, Crypto-Assets: Implications for Consumers, Investors, and Businesses, and Action Plan to Address Illicit Financing Risks of Digital Assets call on regulators to mitigate crypto-related risks to consumers, investors, and businesses. “Innovation is one of the hallmarks of a vibrant financial system and economy,” Treasury Secretary Janet Yellen said. “But as we have learned painfully from the past, innovation without appropriately addressing the impact of these developments can result in significant disruptions and harm to the financial system and individuals, especially our more vulnerable populations.” The reports examine the future of digital assets and offer recommendations to address consumer and investor protection concerns, combat illicit finance risks, and improve the payments system to support a more competitive, efficient, and inclusive landscape.
The same day, the DOJ also released a report in response to the E.O. The Role Of Law Enforcement In Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets examines ways illicit actors exploit digital asset technologies and addresses challenges posed by digital assets to criminal investigations. The report provides recommendations to further enhance law enforcement’s ability to address digital asset crimes, such as strengthening criminal penalties and extending the statutes of limitations for crimes involving digital assets from five to ten years, and identifies three priorities: (i) “expanding to virtual asset service providers the laws preventing employees of financial institutions from tipping off suspects to ongoing investigations”; (ii) “strengthening the law criminalizing the operation of unlicensed money transmitting businesses”; and (iii) “extending the statute of limitations of certain statutes to account for the complexities of digital assets investigations.” The DOJ also launched the Digital Asset Coordinator Network, which will serve as the agency’s primary source for obtaining and disseminating information related to digital assets crimes.