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Financial Services Law Insights and Observations

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  • CFPB delivers 2020 fair lending report to Congress

    Federal Issues

    On April 14, the CFPB issued its annual fair lending report to Congress, which outlines the Bureau’s efforts in 2020 to fulfill its fair lending mandate, while protecting consumers against the resulting economic consequences of the Covid-19 pandemic. According to the report, the Bureau continued to focus on promoting fair, equitable, and nondiscriminatory access to credit, highlighting several fair lending priorities that continued from years past such as mortgage origination, small business lending, and student loan origination. The report also discusses new policy areas and programs for fair lending examinations or investigations, including (i) the Fair Lending Help Desks; (ii) amendments concerning Regulation C, which will increase the permanent threshold for collecting, recording, and reporting data about open-end lines of credit from 100 to 200; and (iii) two HMDA data point articles. Additionally, the report discusses the Bureau’s efforts in expanding access to credit for underserved or underbanked populations, including: (i) hosting the first “Tech Sprint” (covered by InfoBytes here) to encourage regulatory innovation and stakeholder collaboration; (ii) continuing to examine and investigate institutions for compliance with HMDA and ECOA; (iii) engaging with stakeholders to discuss fair lending compliance, issues related to credit access, and policy decisions; and (iv) issuing Supervisory Recommendations relating to weak or nonexistent fair lending policies and procedures, risk assessments, and fair lending training. The report also provides information related to regulation, supervision, enforcement, and education efforts.

    Federal Issues Agency Rule-Making & Guidance Fair Lending CFPB Mortgages HMDA ECOA Regulation C Consumer Finance Covid-19

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  • CFPB action against debt settlement firm targets abusive acts

    Federal Issues

    On April 13, the CFPB entered into a preliminary settlement with an online debt-settlement company for allegedly violating the CFPA’s prohibition on abusive acts or practices and failing to clearly and conspicuously disclose total cost under the Telemarketing Sales Rule. The complaint alleges that the company took “unreasonable advantage of consumers’ reasonable reliance that [it] would protect their interests in negotiating their debts” by failing to disclose its relationship to certain creditors and steering consumers into high-cost loans offered by affiliated lenders. The CFPB alleges that the company regularly prioritized creditors with which it had undisclosed relationships in settlements of consumers’ debts. Under the terms of the proposed stipulated final judgment and order, the CFPB is seeking restitution, damages, disgorgement, and civil money penalties.

    In the Bureau’s announcement, acting Director David Uejio states that “[t]he CFPB will not tolerate companies that purport to represent consumers, but instead abuse their trust in a self-dealing scheme. This case provides a clear example of what Congress intended to prohibit when it created the CFPB and gave it authority to prevent abusive practices.”

    Federal Issues CFPB Abusive UDAAP Consumer Finance Settlement Enforcement Debt Collection Debt Settlement TSR CFPA

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  • CFPB settles with California-based company for debt collection violations

    Federal Issues

    On April 6, the CFPB announced a consent order against a California-based debt collector and its former owner for allegedly harassing consumers and threatening to take legal action if they did not pay their debts. According to the CFPB, the respondents violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by mailing letters to consumers printed with “Litigation Notice” that threatened recipients with legal action if they did not repay their debts. However, the Bureau stated that the respondents did not file lawsuits against the consumers, nor did they hire law firms or lawyers to obtain any judgments or collect on any such judgments. Under the terms of the consent order, the respondents are permanently banned from the debt collection industry and are ordered to pay $860,000 in redress to its victims, which has been suspended due to an inability to pay, as well as a $2,200 civil money penalty. This is the CFPB’s latest action taken against debt collectors that have used false threats to collect debts. As previously covered in InfoBytes, in 2019 the CFPB and New York attorney general announced proposed settlements with a network of New York-based debt collectors to resolve allegations that the defendants engaged in improper debt collection tactics in violation of the CFPA, the FDCPA, and various New York laws. Also, in 2018, the CFPB announced a settlement with a Kansas-based company and its former CEO and part-owner that allegedly engaged in improper debt collection tactics in violation of the CFPB’s prohibitions on engaging in unfair, deceptive, or abusive acts or practices (covered by InfoBytes here).

    Federal Issues Consumer Finance CFPB Settlement Enforcement Debt Collection CFPA FDCPA UDAAP Deceptive

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  • CFPB proposes delaying effective date for recent debt collection rules

    Agency Rule-Making & Guidance

    On April 7, the CFPB proposed to extend the effective date of two recent debt collection rules to allow affected parties additional time to comply due to the ongoing Covid-19 pandemic. The Notice of Proposed Rulemaking (NPRM) delays the effective date by 60 days of the two final rules issued under the FDCPA, which were scheduled to take effect on November 30 but are now proposed to take effect January 29, 2022. The proposed delay would give stakeholders affected by the pandemic more time to examine and implement the rules. As previously covered by InfoBytes, the first debt collection rule, issued in October 2020, addressed debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The second debt collection rule, issued in December 2020, clarified the information debt collectors must provide to consumers at the outset of collection communications and provided a model validation notice containing such information (covered by InfoBytes here).

    Agency Rule-Making & Guidance CFPB Debt Collection Covid-19

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  • Special Alert: CFPB proposes to halt foreclosure starts from August 31 until 2022 and create new loss mitigation requirements for servicers

    Federal Issues

    The Consumer Financial Protection Bureau on Monday issued a proposal that would broadly halt foreclosure initiations on principal residences from August 31, 2021 until 2022, and change servicing rules to promote consumer awareness and processing of Covid-relief loss mitigation options. Although the proposal would give servicers some flexibility in streamlining the modification process, most already have been offering many of these types of modifications since the early days of the pandemic. The proposal also would create new and detailed obligations for communicating with borrowers to ensure they are aware of their loss mitigation options for pandemic-related hardships.

    The CFPB indicated that a final rule implementing the proposal will take effect Aug. 31 — a tight timeline to address public comments, which are due May 10. The proposal comes as the housing market is strengthening, loans in Covid-related forbearance are dropping, the unemployment rate is ticking down, and the nation’s vaccination program is gathering momentum.

    Restrictions on foreclosure initiation through Dec. 31 for principal residences

    The CFPB proposes prohibiting servicers from making the first notice or filing for foreclosure from the effective date on Aug. 31, 2021 until after Dec. 31, 2021, on all principal residences, regardless of whether the loan default was related in any way to the Covid-19 pandemic. Regulation X currently requires a servicer to generally refrain from making the first notice or filing to initiate foreclosure until the borrower reaches the 120th day of delinquency. Although the CFPB has previously taken the position that a borrower generally is not obligated to make a lump sum payment upon expiration of the forbearance period (See for example: Slides - Housing Counseling Webinar Forbearance Options and Resources - March 22, 2021 (hudexchange.info)), the proposal acknowledges that borrowers who enter forbearance programs and do not make payments during the forbearance period become increasingly delinquent on their mortgage obligation. As a result, without additional action, servicers likely would have a right under Regulation X to initiate foreclosure in the event a borrower comes off of a forbearance plan and does not cure the delinquency through reinstatement, deferral, or some other loss mitigation alternative to foreclosure. The proposal said a temporary foreclosure prohibition would address this concern.

    The CFPB indicated it is considering creating exemptions from this restriction that would allow for the commencement of foreclosure proceedings if the borrower is not eligible for any nonforeclosure loss mitigation options or has failed to respond to servicer outreach.

    It is possible that loan investors who had expected to instruct servicers to foreclose on defaulted loans will raise a legal challenge to the broad proposed foreclosure restriction, which appears to be principally based upon the CFPB’s authority to issue regulations creating mortgage servicer obligations as “appropriate to carry out [the Real Estate Settlement Procedures Act’s] consumer protection purposes.” It is an open question whether a blanket prohibition on foreclosures — including those unrelated to the pandemic — and applicable to all mortgage servicers is within the CFPB’s statutory authority under RESPA or the Dodd-Frank Act

    Modifications based on evaluation of an incomplete loss mitigation application

    The proposal also would allow servicers to offer borrowers with a Covid-19 related hardship a loan modification based on an incomplete application, as long as the modification met the following criteria:

    1. Term and payment limitations: The modification may not cause the borrower’s principal and interest payment to increase and may not extend the term of the loan by more than 480 months from the date of the modification.
    2. Non-interest-bearing deferred amounts: Any amounts that the borrower may delay paying until the loan is refinanced, the property is sold, or the loan modification matures, must not accrue interest.
    3. Fee restrictions: No fees may be charged for the loan modification and all existing late charges, penalties, stop-payment fees, and similar charges must be waived upon acceptance (the CFPB said it was aware that certain agencies, including the Federal Housing Administration, only require waiver of fees incurred after the beginning of the pandemic, and that such modifications would not fall within this safe harbor).
    4. Covid-related hardship: The loan modification is made available to borrowers experiencing a Covid-19-related hardship, which is very broadly defined in the regulation as “a financial hardship due, directly or indirectly, to the Covid-19 emergency.”
    5. Delinquency cure: The modification must be designed to end any preexisting delinquency.

    Interestingly, investors and agencies have largely eliminated documentation requirements in response to the pandemic, and servicers have been successfully offering streamlined loan modifications under Regulation X’s current requirements. The lack of documentation requirements has seemingly blurred the lines of what constitutes a complete loss mitigation application.

    Additional borrower outreach required

    The proposed rule would require servicers, for one year after the effective date, to give borrowers Covid-forbearance-related information regarding the current Regulation X early intervention requirements, as follows:

    • For borrowers not currently in forbearance, when live contact is made with the borrower, and the investor makes available to that borrower a Covid--related forbearance program, the servicer must inquire whether the borrower has a Covid-related hardship, then list and briefly describe available programs and actions the borrower must take to be evaluated for them. The CFPB noted that this could include listing federal, state, and/or investor-specific options.
    • If the borrower is on forbearance, during the last live contact made pursuant to the early intervention rules prior to the program’s expiration, the servicer must inform the borrower of the date on which the current forbearance period ends and each type of post-forbearance option that is available to the borrower to resolve the post-forbearance delinquency, along with the actions that must be taken to be evaluated for such options. Importantly, this list would include all available loss mitigation options—not simply Covid-specific options.

    The proposed rule would also require a servicer to contact the borrower no later than 30 days before the end of the forbearance period to determine if the borrower wishes to complete the loss mitigation application and proceed with a full loss mitigation evaluation. If the borrower requests further assistance, the servicer must exercise reasonable diligence to complete the application before the end of the forbearance program period.

    The compliance requirements the proposal contemplates seems likely to present additional complexity and liability for mortgage servicers as they gear up to address the upcoming wave of delinquent borrowers who will be coming out of Covid-related forbearances.  

    If you have any questions regarding the CFPB’s proposal, please visit our Mortgages practice page or our Covid-19 Legal Resources & Capabilities page or contact a Buckley attorney with whom you have worked in the past.

    Federal Issues CFPB Mortgages Foreclosure Loss Mitigation Mortgage Servicing Special Alerts

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  • CFPB urges servicers to stave off foreclosure wave

    Agency Rule-Making & Guidance

    On April 1, the CFPB urged mortgage servicers “to take all necessary steps to prevent a wave of avoidable foreclosures this fall.” Citing to the millions of homeowners currently in forbearance due to the Covid-19 pandemic, the Bureau’s compliance bulletin warns servicers that consumers will need assistance when pandemic-related federal emergency mortgage protections begin to expire later this year. The Bureau notes that it “will closely monitor how servicers engage with borrowers, respond to borrower requests, and process applications for loss mitigation,” and “will consider a servicer’s overall effectiveness in helping consumers when using its discretion to address compliance issues that arise.” According to the Bureau, industry data suggests that almost 1.7 million borrowers will exit forbearance programs starting in September, many of whom will be a year or more behind on mortgage payments. The Bureau cautions servicers to take proactive measures to prevent avoidable foreclosures, including by (i) contacting borrowers before the end of the forbearance period; (ii) working with borrowers to ensure they obtain all necessary information; (iii) addressing language access and maintaining compliance with ECOA and other applicable laws; (iv) evaluating income fairly when determining loss mitigation options; (v) handling inquiries promptly; and (vi) preventing avoidable foreclosures through compliance with foreclosure restrictions under Regulation X and other federal and state restrictions.

    Agency Rule-Making & Guidance CFPB Compliance Mortgages Mortgage Servicing Foreclosure Forbearance

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  • CFPB rolls back last year’s Covid-19 flexibilities

    Federal Issues

    On March 31, the CFPB rescinded, effective April 1, the following policy statements, which provided temporary regulatory flexibility measures to help financial institutions work with consumers affected by the Covid-19 pandemic:

    • A March 26, 2020, statement addressing the Bureau’s commitment to taking into account staffing and related resource challenges facing financial institutions related to supervision and enforcement activities.
    • A March 26, 2020, statement postponing quarterly HMDA reporting requirements. (Covered by InfoBytes here.)
    • A March 26, 2020, statement postponing annual data submission requirements related to credit card and prepaid accounts required under TILA, Regulation Z and Regulation E. (Covered by InfoBytes here.)
    • An April 1, 2020, statement on credit reporting agencies and furnishers’ credit reporting obligations under the Fair Credit Reporting Act and Regulation V during the Covid-19 pandemic. The Bureau notes that the rescission “leaves intact the section entitled “Furnishing Consumer Information Impacted by COVID-19” which articulates the CFPB’s support for furnishers’ voluntary efforts to provide payment relief and that the CFPB does not intend to cite in examinations or take enforcement actions against those who furnish information to consumer reporting agencies that accurately reflect the payment relief measures they are employing.” (Covered by InfoBytes here.)
    • An April 27, 2020, statement affirming that the Bureau would not take supervisory or enforcement action against land developers subject to the Interstate Land Sales Full Disclosure Act and Regulation J for delays in filing financial statements and annual reports of activity. (Covered by InfoBytes here.)
    • A May 13, 2020, statement providing supervision and enforcement flexibility for creditors to resolve billing errors during the pandemic. (Covered by InfoBytes here.)
    • A June 3, 2020, statement providing temporary flexibility for credit card issuers regarding electronic provision of certain disclosures during the Covid-19 pandemic in accordance with the E-Sign Act and Regulation Z. (Covered by InfoBytes here.)

    The rescission also withdraws the Bureau as a signatory to the April 7, 2020, Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (covered by InfoBytes here), and the April 14, 2020, Interagency Statement on Appraisals and Evaluations for Real Estate Related Financial Transactions Affected by the Coronavirus (covered by InfoBytes here).

    Additionally, the Bureau issued Bulletin 2021-01 announcing changes to how it communicates supervisory expectations to institutions. Bulletin 2021-01 replaces Bulletin 2018-01 (covered by InfoBytes here), which previously created two categories of findings conveying supervisory expectations: Matters Requiring Attention (MRAs) and Supervisory Recommendations (SRs). Under the revised Bulletin, the Bureau notes that examiners “will continue to rely on [MRAs] to convey supervisory expectations” but will no longer issue formal written SRs, as the agency believes that MRAs will more effectively convey its supervisory expectations. The Bulletin further states that “Bureau examiners may issue MRAs with or without a related supervisory finding that a supervised entity has violated a Federal consumer financial law.”

    Federal Issues CFPB Covid-19 Agency Rule-Making & Guidance Data Collection / Aggregation Mortgages HMDA Credit Cards Prepaid Cards TILA Examination Supervision Consumer Finance

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  • FFIEC releases 2020 HMDA data

    Federal Issues

    On March 31, the CFPB announced the release of the 2020 HMDA loan application register (LAR) data. The LAR data, available on the Federal Financial Institutions Examination Council’s HMDA Platform, contains modified loan-level information on approximately 4,400 HMDA filers. The Bureau also announced plans to produce the 2020 HMDA data “in other forms to provide users insights into the data, including a nationwide loan-level dataset,” which “will provide all publicly available data from all HMDA reporters, aggregate and disclosure reports with summary information by geography and lender,” and allow users to create custom datasets and reports. The Bureau also stated that it will publish a Data Point article highlighting key trends in the annual data.

    Federal Issues CFPB HMDA Mortgages FFIEC

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  • FFIEC releases 2021 HMDA reporting guide

    Agency Rule-Making & Guidance

    On March 30, the FDIC issued FIL-21-2021 announcing the Federal Financial Institutions Examinations Council’s issuance of the 2021 edition of the “Guide to HMDA Reporting: Getting It Right!” The guide applies to HMDA data collected in 2021 that will be reported to supervisory agencies by March 1, 2022, and includes (i) a summary of responsibilities and requirements; (ii) directions for assembling the necessary tools; and (iii) instructions for reporting HMDA data. According to the announcement, the 2021 edition provides information to assist with HMDA compliance in the event of a merger or acquisition, as well as updates to the appendices that reflect amendments to Regulation C made by a CFPB final rule published last year (covered by InfoBytes here). The final rule increased the permanent threshold from 25 to 100 loans starting July 1, 2020, for both depository and nondepository institutions, and also increased the permanent threshold for collecting and reporting data about open-end lines of credit from 100 to 200. The latter change, however, will not take effect until January 1, 2022, when the current temporary threshold of 500 open-end lines of credit expires.

    Agency Rule-Making & Guidance FDIC FFIEC HMDA CFPB Regulation C Mortgages

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  • Prudential regulators exploring how institutions use AI

    Agency Rule-Making & Guidance

    On March 29, the FDIC, Fed, OCC, CFPB, and NCUA issued a request for information (RFI) seeking input on financial institutions’ use of artificial intelligence (AI), which may include AI-based tools and models used for (i) fraud prevention to identify unusual transactions for Bank Secrecy Act/anti-money laundering investigations; (ii) personalization of customer services; (iii) credit underwriting; (iv) risk management; (v) textual analysis; and (vi) cybersecurity. The RFI also solicits information on challenges financial institutions face in developing, adopting, and managing AI, as well as on appropriate governance, risk management, and controls over AI when providing services to customers. Additionally, the agencies seek input on whether it would be helpful to provide additional clarification on using AI in a safe and sound manner and in compliance with applicable laws and regulations. According to FDIC FIL-20-2021, while the agencies support responsible innovation by financial institutions and believe that new technologies, including AI, have “the potential to augment decision-making and enhance services available to consumers and businesses, . . . identifying and managing risks are key.” Comments on the RFI are due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues Artificial Intelligence Federal Reserve FDIC OCC CFPB NCUA Fintech

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