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  • CFPB releases consumer advisory for student borrowers notifying them of April deadline to cancel

    Federal Issues

    On March 11, the CFPB published a consumer advisory notifying student loan borrowers that they may have an opportunity to cancel or receive credits toward the cancellation of their student loans but some borrowers will need to consolidate their loans by April 30 in order to obtain the benefit. The Department of Education has implemented a “one-time adjustment” to help borrowers receive credit toward federal student loan cancellation. This adjustment is designed to enable the counting of more payments, including all payments made on federally managed loans since July 1, 1994, as well as certain periods of deferment, economic hardship, and forbearance. Generally, federal student loans are eligible for Income Driven Repayment (IDR) plans, which offer loan cancellation after 10, 20, or 25 years of qualifying payments, or after 10 years for those pursuing Public Service Loan Forgiveness (PSLF), provided other eligibility criteria are met. The Bureau also noted that consolidation is free, warning against scammers who would charge for that service.

     

    Federal Issues CFPB Consumer Finance Student Lending Department of Education Income-Driven Repayment

  • State Supreme Court vacates and remands TILA dispute

    Courts

    Recently, the Maine Supreme Judicial Court vacated a judgment in favor of a bank and remanded the decision to re-examine the nature of a loan and consider all relevant evidence to determine if the loan was for commercial purposes. The plaintiffs defaulted on a loan from the defendant, a bank, by securing the loan with a hunting cabin they owned, and a lease for the land on which they had built the cabin. The defendant successfully sued for recovery of the cabin. On appeal, the plaintiffs argued the bank failed to make the requisite disclosures under TILA and thus it was in error to decide in favor of the bank. The bank conceded that it did not make the required disclosures but countered that the credit transaction was not subject to TILA because the loan was for commercial purposes, and if the loan was secured by real property, it was not expected to be used as the principal dwelling of the consumer(s).

    First, the court found that it was an error not to consider extrinsic evidence when determining the purpose of the loan because the Official Staff Interpretations of Regulation Z outline factors to be considered in such a determination, which should be given great deference. Moreover, it found that most federal courts applied a holistic approach in determining the purpose of the loan. Because the Business and Consumer Docket court in Maine did not consider any extrinsic evidence, it decided to remand. Second, the court held that the TILA exemption for “credit transactions, other than those in which a security interest is or will be acquired in real property, or in personal property used or expected to be used as the principal dwelling of the consumer . . . in which the total amount financed exceeds $50,000” was inapplicable. Although the loan was for $378,698, the loan was secured by a leasehold. According to the court, the leasehold was an interest in real property, and the language in the exemption referencing “principal dwelling” only modified “personal property” and not “real property.”

     

    Courts TILA Maine Consumer Finance Real Estate Lending

  • Business groups sue the CFPB over credit card late fee rule

    Courts

    On March 7, several business groups (plaintiffs) sued the CFPB rule in the U.S. District Court for the Northern District of Texas over its announced credit card late fee rule. As previously covered by InfoBytes, the Bureau’s new final rule limited most credit card late fees to $8, among other actions, and was met immediately with criticism from banks and legislators.

    The plaintiffs’ complaint claimed the CFPB completed the rule hastily to implement a pledge made by President Biden around his State of the Union Address to reduce credit card late fees by 75 percent. The complaint further asserted the CFPB skipped necessary steps, made economic miscalculations, and otherwise breached the Administrative Procedure Act. As alleged, the Bureau likely understated “the volatility of card issuers’ cost-to-fee ratios pertaining to late fees” and improperly relied on data which does not allow for the recovery of a “reasonable and proportional” penalty fee. On the Bureau’s use of the Y-14M data, the complaint alleged the new rule ignored peer-reviewed studies and instead opted to base the rule on an internal study using confidential data that was not available for examination during the period allocated for public comment. The plaintiffs argued the final rule would incur “substantial compliance costs” by amending printed disclosures, using the cost-analysis provisions, and notifying consumers of changes in interest rates to recoup costs, among other problems. The complaint also cited TILA’s effective-date provisions and the Bureau’s embattled funding structure to support the argument that the final rule would cause irreparable harm.

    Courts Federal Issues CFPB Litigation Credit Cards Agency Rule-Making & Guidance Fees Consumer Finance Consumer Protection

  • State of the Union Address: President Biden addresses the banking industry

    Federal Issues

    On March 7, President Biden delivered his 2024 State of the Union Address, where he highlighted how his administration is actively working to reduce costs for consumers by addressing issues such as corporate price gouging and alleged “junk fees.” According to a related White House Fact Sheet, the Biden Administration was focusing on corporate practices that may contribute to high prices, urging companies to lower their prices in line with decreasing input costs and stabilize supply chains.  Biden highlighted the CFPB’s proposed rule on overdraft fees and the final rule on credit card late fees as progress in reducing alleged “junk fees.”

    Furthermore, the fact sheet highlighted the CFPB’s scrutiny of alleged practices by branded retailers and airline credit cards of devaluing points and miles and luring in consumers with misleading deferred interest products.

    Federal Issues Junk Fees CFPB Biden White House Credit Cards Consumer Finance

  • CFPB blog post tackles mortgage closing costs, seeks consumer feedback

    Federal Issues

    On March 8, the CFPB published a blog post seeking consumer input on experiences with the closing process of consumer mortgages, and in particular, closing costs. The blog post posited that closing costs significantly impact a borrower’s financial commitment and, potentially, monthly payments and identified a “noticeable increase” in closing costs, with median total loan expenses on home purchase loans increasing by 21.8 percent between 2021 and 2022. In particular, the Bureau singled out title insurance fees and credit reporting fees. It labeled title insurance as a fee that borrowers are charged and for which they have no control over the cost, alleging that “the amount that borrowers pay for lender’s title insurance is often much greater than the risk.” With respect to credit reports, the Bureau remarked that the highly concentrated industry dictates the price of credit reports, citing anecdotal evidence of cost increases of 25 to 400 percent.

    The blog post also indicated that borrowers with smaller mortgages, including those with lower incomes, first-time homebuyers, and individuals residing in Black and Hispanic communities, are often disproportionately affected by closing costs, because they are typically fixed costs and do not change based on the size of the loan. The Bureau requested that consumers provide input on their experience with mortgage or closing costs, signaling that it will continue to analyze and if necessary “issue rules and guidance to improve competition, choice, and affordability.”

    Federal Issues CFPB Junk Fees Mortgages Mortgage Origination Title Insurance Discount Points Fees Credit Report Competition Consumer Finance

  • SBA unveils enhanced Lender Match tool to connect small businesses with lenders

    Federal Issues

    On March 4, the SBA announced the launch of an online tool for small businesses to connect to capital through the SBA’s network of nearly 1,000 approved banks and private lenders. This Lender Match tool was designed to provide users with a more effective and user-friendly interface, including a mobile-friendly interface that allows small business entrepreneurs and enterprises seeking to grow businesses to more easily identify and compare potential lenders. The tool also included fraud-screening measures to ensure a smoother process for both parties. Small businesses that are unable to find a match through the tool will be directed to the SBA’s local advisors for additional support in becoming “capital-ready.” The SBA hopes to facilitate more connections for entrepreneurs looking for various financing options through the enhanced Lender Match platform including microloans and growth capital with competitive terms.

    Federal Issues SBA Consumer Finance Small Business

  • FHFA announces updates for implementation of GSE credit score requirements

    Federal Issues

    On February 29, FHFA announced updates related to the implementation of new credit score requirements for single-family loans acquired by Freddie Mac and Fannie Mae (GSEs). As previously covered by InfoBytes, FHFA released a two-phase plan for soliciting stakeholder input on the agency’s proposed process for updating credit score requirements. The new process, called the FICO 10T model, will, among other things, require two credit reports (a “bi-merge” credit report) from the national consumer reporting agencies, rather than the traditional three (covered by InfoBytes here). After considering stakeholder input, FHFA expects to transition from the Classic FICO credit score model to the bi-merge credit reporting requirement in Q1 2025. The GSEs will also move up the publication of VantageScore 4.0 historical data to Q3 2024 “to better support market participants” and provide pertinent historical data before the transition. FHFA will provide more details on the timing for FICO 10T implementation once this initial process is complete.

    Federal Issues Freddie Mac Fannie Mae GSEs Credit Scores Consumer Finance Agency Rule-Making & Guidance

  • Minnesota Attorney General settles with tribal company over high interest rates

    State Issues

    On February 21, the Minnesota Attorney General announced a settlement with a tribal economic development entity to resolve a 2023 federal lawsuit that alleged the entity’s lending subsidiaries were engaged in predatory lending and illegal interest rates, in violation of Minnesota and federal consumer lending laws. As previously covered by InfoBytes, the complaint claimed that the entity’s lending subsidiaries charged interest rates of up to 800 percent in violation of state statutory caps of eight percent, and led state residents to believe that the entity was exempt from state laws that protect against predatory lending.

    Under the terms of the settlement, the entity and its subsidiaries can no longer lend to Minnesota residents nor advertise or market those loans. The settlement also required any loan issued to consumers in Minnesota before the settlement is canceled, except to recover the original principal balance with all past payments to be attributed towards paying down the principal balance.

    State Issues Courts Minnesota Interest Rate Consumer Finance State Attorney General Settlement Enforcement Consumer Protection

  • New York Fed Bank analyzes BNPL usage

    On February 14, the Federal Reserve Bank of New York (NY Fed) published a blog post evaluating different households’ use of buy now pay later (BNPL) products, which it generally described as “loans that are payable in four or fewer installments and carry no finance charges.” To understand BNPL usage and its relationship with consumers’ financial situations, the NY Fed conducted a study which revealed distinct usage patterns between the financially fragile and the financially stable.

    The study revealed that financially fragile individuals, or individuals who have a credit score below 620, who have been declined for a credit application in the past year, or who have fallen 30 or more days delinquent on a loan in the past year, typically use BNPL to make frequent small purchases when compared to financial stable individuals. The study also found that using BNPL often leads to repeat transactions, indicating a potential trend towards repeat use of the product, particularly among those facing credit challenges.

    The study also found that consumers’ motivations for using BNPL differ. Financially stable individuals often cite zero interest as a key advantage, while the financially fragile prioritize ease of access and convenience. The NY Fed summarized that BNPL usage among financially fragile individuals resembles using a credit card for medium-size, out-of-budget purchases, while financially stable users tend to make fewer purchases with a focus of avoiding interest on high-priced items. The NY Fed noted, however, that there is evidence of misunderstanding among users, such as the belief that BNPL helps build credit, concluding that “those with this view may be better off using a credit card.” 

     

    Bank Regulatory Federal Issues Buy Now Pay Later Federal Reserve New York Consumer Finance

  • FFIEC releases statement on examination principles related to discrimination and bias in residential lending

    Federal Issues

    On February 12, the Federal Financial Institutions Examinations Council (FFIEC) released a statement on “Examination Principles Related to Valuation Discrimination and Bias in Residential Lending.” The statement outlined principles that examiners should use to evaluate an institution’s residential property appraisal and valuation practices to mitigate risks that stem from (i) discrimination “based on protected characteristics in the residential property valuation process, and (ii) bias, defined as “a preference or inclination that precludes an appraiser or other preparer of the valuation from reporting with impartiality, independence, or objectivity” as required by the Uniform Standards of Professional Appraisal Practice. Failure to have these internal controls to identify and address discrimination or bias can result in poor credit decisions, consumer harm, increased safety and soundness risk. The principles outlined by the statement are categorized into consumer compliance examination principles and safety and soundness principles. For consumer compliance, examiners should consider an institution’s (i) board and senior management oversight to determine if it is commensurate with the institution’s risk profile; and (ii) consumer compliance policies and procedures to identify and resolve potential discrimination. The principles during a safety and soundness examination should include reviewing the consumer protection issues, governance, collateral valuation program, third-party risk management, valuation review, credit risk review, and training programs. 

    Federal Issues FFIEC CFPB Consumer Finance Mortgages Discrimination

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