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Financial Services Law Insights and Observations


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  • CFPB proposes rule for mortgage servicing and loss mitigation

    Agency Rule-Making & Guidance

    On July 10, the CFPB proposed a rule to amend RESPA regulations originally issued in 2013 regarding the responsibilities of mortgage servicers.

    The rule removes the definition of “loss mitigation application” and replaces it with “loss mitigation review cycle” and “request for loss mitigation assistance.” The CFPB proposes defining the “loss mitigation review cycle” as the period between a borrower’s loss mitigation assistance request and when the loan is brought current or the procedural safeguards in § 1024.41(f)(2)(i) or (ii) are met, so long as the request is made more than 37 days before a foreclosure sale. A “request for loss mitigation assistance” is defined as any oral or written communication where a borrower asks a servicer for mortgage relief. This can include a request for loss mitigation, an interested response to a servicer’s unsolicited offer of loss mitigation, or if the borrower “indicates” an experienced hardship and asks the servicer for assistance making payments, retaining their home, or avoiding foreclosure. The CFPB is also proposing that loss mitigation determinations be subjected to notice of error procedures, and to require servicers to retain records that document actions regarding a borrower’s mortgage loan account until one year after the date of the mortgage loan is discharged or transferred to another servicer.

    The Bureau further proposes to require servicers to make a “good faith effort[]” to  make live contact with a delinquent borrower to present loss mitigations options, if appropriate. Good faith efforts may include attempting to reach the borrower by phone more than once or sending written communication encouraging the borrower to establish live contact with the servicer. Servicers would be exempt from the live contact requirement if a borrower is in a forbearance but must resume good faith efforts if a forbearance ends. The proposal would also limit the fees a servicer can charge a borrower while the servicer is reviewing possible options to help the borrower. 

    Under the proposed rule, borrowers who received marketing materials in another language may request mortgage assistance communications in that same language, and servicers must provide the notices in English and Spanish to all borrowers, as well as make available oral interpretation services in telephone calls with borrowers.

    The proposed rule includes loss mitigation guidelines and would set forth procedures regarding (i) enforcement; (ii) loss mitigation determination notices; (iii) application denial due to missing documents or information not in the borrower’s control; (iv) unsolicited loss mitigation offers; and (v) appeal processes. “Under the proposal, servicers would have more flexibility to review borrowers for each option individually, potentially enabling quicker assistance,” the CFPB said in its press release. Finally, the proposed rule would set forth certain circumstances under which a servicer cannot make the first notice or filing required by law for any foreclosure process. Servicers would generally only be allowed to pursue foreclosure after all possibilities for assistance are exhausted or the borrower has stopped communicating with the servicer.

    The proposed rule would not apply to small servicers.

    Comments must be received by September 9, 2024

    Agency Rule-Making & Guidance Federal Issues CFPB Consumer Finance Mortgage Servicing Loss Mitigation RESPA Regulation X

  • House GOP writes to financial regulators on Loper Bright ruling

    Federal Issues

    On July 9 and 10, GOP congressional committee leaders wrote 40 letters to the heads of executive branch agencies to remind them of how Loper Bright has set limits on an agency’s authority. As previously covered by InfoBytes, Loper Bright overturned the so-called Chevron doctrine stipulating that courts cannot reference an agency’s interpretation of law they claim is ambiguous. The letters to the financial regulators claimed that the agency’s rules have been based on “aggressive interpretations” of statutes, which the GOP alleged to “undermine” our government and “overwhelm the founders’ system of checks and balances.”

    Each congressional committee wrote to the agency for which each maintains oversight; thus, House Financial Services Committee Chairman Patrick T. McHenry (R-NC) and House Oversight Committee Chairman James Comer (R-KY) both wrote to CFPB Director Rohit Chopra, FDIC Chairman Martin Gruenberg, Fed Chair Jerome Powell, NCUA Chairman Todd Harper, OCC Acting Director Michael Hsu, SEC Chair Gary Gensler, and Treasury Secretary Janet Yellen.

    In their letters, they reminded the financial regulators that they plan to “reassert forcefully” Congress’s Article I responsibilities and ensure the Biden administration respected the limits placed by the ruling. They requested information concerning the following proposed, initiated or completed actions during the Biden administration, no later than August 7: lists of all rulemaking legislative rules, adjudications, enforcement actions, interpretative rules, and judicial decisions that may be impacted by Loper Bright.

    Federal Issues Congress Financial Services Chevron

  • FTC and international networks reveal use of dark patterns in consumer apps and websites

    Federal Issues

    On July 10, the FTC and two international consumer protection networks announced the results of its review of the websites and apps that may use dark patterns to obtain privacy consent from consumers. The review covered 642 websites and mobile apps, revealing that a significant portion may use "dark patterns" — commercial techniques designed to manipulate consumers.

    Conducted by the International Consumer Protection and Enforcement Network (ICPEN) and the Global Privacy Enforcement Network, the review found nearly 76 percent of sites and apps employed at least one dark pattern, with 67 percent employing multiple. Common dark patterns included hiding information and interface interference. For example, a sneaking practice would be hiding or delaying important disclosure information, often related to costs, to influence consumer decisions. Examples include adding non-optional charges at the last minute (drip-pricing) and automatically renewing subscriptions after a free trial without consent (subscription traps). The most common sneaking practice found was preventing consumers from turning off auto-renewal during purchase, observed in 81 percent of traders with auto-renewal subscriptions. Other prevalent issues were the lack of cancellation steps (70 percent) and not providing a cancellation deadline (67 percent). Forced action practices require consumers to perform an action or provide information to access certain functionalities – the investigation found that at least 66 percent of the cases reviewed required forced action.

    While it was not determined if these practices violated laws, the findings highlighted potential impacts on consumer decisions and privacy. The announcement coincided with the FTC assuming the 2024-2025 ICPEN presidency.

    Federal Issues Privacy, Cyber Risk & Data Security FTC Dark Patterns Consumer Protection

  • NYDFS issues guidance on AI insurance discrimination

    State Issues

    On July 11, NYDFS issued Insurance Circular No. 7 to address the use of AI systems and External Consumer Data and Information Sources (ECDIS) in the underwriting and pricing of insurance policies in New York State. NYDFS outlined its expectations for insurers regarding the responsible and compliant use of the technologies, emphasizing the need to abide by existing laws and regulations that prohibit unfair discrimination.

    Key points in the circular included:

    • Definitions of AI systems and ECDIS, and insurers will be expected to understand that “traditional underwriting” does not include the use of these technologies.
    • Insurers must conduct proxy assessments to ensure ECDIS will not result in discrimination based on protected classes. The circular also clarified what the proxy assessment may entail.
    • NYDFS expected insurers to maintain robust governance and risk management practices, including board and senior management oversight, policies and procedures, and risk management frameworks.
    • Insurers will be responsible for the oversight of third-party vendors providing AI systems and ECDIS, ensuring compliance with laws and regulations.
    • NYDFS will not guarantee the confidentiality of submitted information, as it must comply with disclosure laws.
    • The circular emphasized transparency, requiring insurers to disclose the use of AI systems and ECDIS in underwriting and pricing decisions, and to provide reasons for any adverse decisions to consumers.
    • Insurers must keep up-to-date documentation and be prepared for NYDFS audits and reviews regarding the use of these technologies.

    State Issues NYDFS AI Insurance Consumer Protection Disclosures

  • District Court hears whether FINRA’s claims must be litigated in the courts


    On July 10, the U.S. District Court for the Eastern District of Pennsylvania received a complaint from a plaintiff suing FINRA for allegedly putting forth disciplinary hearings that took place “in an improper forum, before an arbitrator whose selection was made in blatant violation and disregard of [the individual’s] Seventh Amendment right to a trial before a jury in an Article III court.” The individual countersued after receiving a 2023 FINRA complaint for allegedly violating FINRA Rules 2010, 2111, and 4511, where FINRA initiated in-house proceedings. The plaintiff averred these allegations were assertions of common law fraud and should have been brought before an Article III court. The 2023 FINRA complaint alleged the plaintiff failed to file certain required documents, failed to ensure clients received benefits, and exercised improper discretion.

    In its complaint, plaintiff noted the recent U.S. Supreme Court decision, SEC v. Jarkesy, that the SEC may no longer pursue legal claims through in-house enforcement proceedings (covered by InfoBytes here). The complaint further noted that to receive Seventh Amendment protection pursuant to the Jarkesy holding, a two-part test from Granfinanciera v. Nordberg case must be applied. According to the plaintiff, this case met both the first and second parts of the Granfinanciera test, arguing that the plaintiff should receive the Seventh Amendment right to a jury trial, and as a second cause of action also request a permanent injunction.

    Courts FINRA Pennsylvania Dodd-Frank Securities Exchange Commission

  • FDIC, Fed, and OCC announce 2024 CRA-eligible distressed and underserved areas

    On July 12, the FDIC, Fed, and OCC released a list of distressed or underserved nonmetropolitan middle-income areas eligible for CRA credit. The list identified regions where banks’ revitalization or stabilization activities can receive CRA consideration, reflecting local economic conditions like unemployment, poverty and population changes. The designations will be valid for 12 months, with a one-year lag period for areas previously included in 2023, but not in the current list. Past lists and criteria for designating these areas can be found here

    Bank Regulatory FDIC Federal Reserve OCC CRA

  • Fed’s 2024 stress test results show a robust banking system

    Recently, the Fed released the 2024 Federal Reserve Stress Test Results and found that the tested banks have “sufficient capital” to absorb losses and weather a recession while staying above minimum capital requirements. The Fed tested 31 large banks this year and found those banks have enough capital to absorb a projected $685 billion in losses and remain above their minimum capital requirements. While the Fed found a 2.8 percent decline in the aggregate capital ratio (greater than last year’s decline of 2.5 percent), the decline was within the range of recent stress tests. The Fed attributed this 2024 change to three factors:

    1. The Fed projected greater credit card losses due to a substantial increase in banks’ credit card balances, along with higher delinquency rates. In the stress test, banks were projected to lose $175 billion on credit cards, which was 17.6 percent of credit card balances.
    2. The Fed projected higher corporate losses due to banks having riskier corporate credit portfolios.
    3. The Fed projected a decline in net revenue. The Fed found that noninterest expenses (compensation, real estate, etc.) continued to increase, while noninterest income sources (e.g., investment banking fees) declined significantly.

    Despite these factors, the Fed concluded that large banks could still lend to households and businesses while remaining “well above” minimum capital requirements.

    Bank Regulatory Stress Test Capital Requirements Credit Cards

  • HUD updates consultant fees for its mortgage insurance program

    Agency Rule-Making & Guidance

    On July 9, HUD released Mortgagee Letter 2024-13 which revised Section 203(k) of the Rehabilitation Mortgage Insurance Program and specifically updated the 203(k) Consultant Requirements and Fees among other changes. The FHA 203(k) Rehabilitation Mortgage Insurance Program provided mortgage insurance to purchase a home or refinance an existing home mortgage. These updates will be on minor remodeling and nonstructural repairs, and the rehabilitation costs for the rehabilitation mortgage must not exceed $75,000. The Mortgagee Letter also specified that a 203(k) Consultant will be required to obtain a standard 203(k) Rehabilitation Mortgage and provided a schedule of updated 203(k) Consultant fees:

    • Paid up to $1,000 for repairs less than $50,000.
    • Paid up to $1,200 for repairs between $50,001 and $85,000.
    • Paid up to $1,400 for repairs between $85,001 and $140,000.
    • Up to 1 percent of the repair costs or $2,000, whichever would be lower, for repairs over $140,000.

    Section 203(k) Consultants may also charge a maximum of $375 in draw inspection fees, $120 in change order fees, $225 in reinspection fees, and mileage fees subject to IRS limitations. This Mortgagee Letter will go into effect for FHA case numbers assigned on or after November 4.

    Agency Rule-Making & Guidance HUD FHA Mortgages

  • HUD proposes rule to govern the sale of FHA mortgage notes

    Agency Rule-Making & Guidance

    On July 17, HUD announced a rule to regulate the sale of seriously delinquent mortgage loans insured by FHA. According to HUD, the proposed rule would increase the availability of affordable homes and enhance the stability of communities.

    HUD proposed the merger of two existing demonstration programs, the Single Family Loan Sale Program (SFLS) and the HUD-held Vacant Loan Sales Program for Home Equity Conversion Mortgages (HLVS), into a single permanent program called the Single Family Sale Program. The new program will continue to sell forward and reverse mortgage loans separately, but it will be designed to provide FHA with the flexibility to maximize returns to the Mutual Mortgage Insurance Fund and manage defaulted loans more efficiently, including the sale of such loans.

    The proposed rule would codify the demonstration structure and process under SFLS and HVLS. Additionally, the proposal will include guidelines for servicers on borrower notifications regarding loan sales and establishes post-sale requirements, such as a “first-look” provision for certain entities when properties become owned after foreclosure.

    The proposed rule further set forth (i) HUD’s ability to reduce or reject claims that were filed late or remain in suspended status, (ii) mortgagees’ requirements to certify certain mortgages, (iii) what constitutes qualified participants in the Single Family Sale; (iv) requirements of Purchasers; (v) settlement procedures for a Single Family Sale; (vi) purchasing servicing requirements; (vii) disqualifications; and (viii) relevant definitions, among other things.

    HUD is seeking public comment on the proposed rule and comments must be received by September 16. 

    Agency Rule-Making & Guidance Federal Issues FHA HUD Mortgages

  • CFPB takes action against national bank for auto loan practices, unauthorized account openings

    Federal Issues

    On July 9, the CFPB issued a consent order against a national bank regarding its auto loans practices that allegedly violated the CFPA. According to the order, if borrowers failed to secure insurance for physical damage to their vehicles, the bank would impose its own physical-damage insurance on the vehicle, known as force-placed insurance. The CFPB alleged that from 2011 through 2019, the bank imposed insurance policies on borrowers who either consistently had their own insurance or secured required insurance within 30 days after their previous policy had lapsed. The Bureau determined that the bank’s practices of applying redundant force-placed insurance on auto loans, billing for premiums on force-placed insurance policies that had ended, and not adequately notifying consumers about the resulting increase in monthly payments due to force-placed insurance — all violated the CFPA.

    Furthermore, the Bureau alleged that the bank was deceptive in informing borrowers about the time it would take to cancel force-placed insurance policies and misrepresented the total amounts owed in right-to-cure notices, leading to wrongful delinquency fees. Additionally, the bank allegedly violated the FCRA by reporting incorrect information on repossessions to credit agencies. The bank allegedly failed to properly inform customers about increases in preauthorized electronic fund transfers caused by force-placed insurance, violating the EFTA and Regulation E. As a result of these findings, the bank was ordered to adjust its practices to legal standards, compensate affected consumers, and pay a $5 million civil penalty to the Bureau.

    The CFPB concurrently filed a proposed consent order in the U.S. District Court for the Southern District of Ohio to resolve allegations of the bank’s sales practices and opening fake accounts. According to the proposed order, the Bureau initiated a lawsuit against the bank in 2020 for alleged deceptive sales practices. The proposed settlement, pending the court’s approval, would mandate that the bank pay a $15 million civil penalty, provide and implement a redress plan for consumers, comply with the law, and eliminate employee incentives that encourage unauthorized account openings.

    Federal Issues CFPB Enforcement Consumer Finance Auto Finance Consumer Protection


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