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GAO Report: Regulatory Oversight of Nonbank Servicers Could Be Stronger
On April 11, the Government Accountability Office (GAO) released a report titled, “Nonbank Mortgage Servicers: Existing Regulatory Oversight Could Be Strengthened.” The report analyzes data on the mortgage servicing market from June 2006 through June 2015 from Fannie Mae and Freddie Mac (collectively, the Enterprises), the Federal Reserve, and Ginnie Mae, as well as academic studies and research conducted by industry organizations, federal agencies, and others since the financial crisis. The report focuses in particular on the role of nonbank servicers in servicing privately securitized nonprime loans. According to the report, the percentage of mortgage loans serviced by nonbank servicers – which, according to market participants, tend to service more delinquent loans than banks – increased significantly from the first quarter of 2012 through the second quarter of 2015, but still account for less than a quarter of the overall mortgage servicing market. Concerns regarding the regulatory oversight of nonbank servicers are highlighted in the report, which comments on (i) the CFPB’s direct role in overseeing nonbank servicers’ compliance with federal consumer financial laws; (ii) state regulators’ various prudential and operational requirements for nonbank servicers; and (iii) Ginnie Mae and the Enterprises’ monitoring of nonbank servicer activities to manage risk exposure. According to the report, issues related to nonbank servicers’ “aggressive growth and insufficient infrastructure have resulted in harm to consumers, have exposed counterparties to operational and reputational risks and ... complicated servicing transfers between institutions.” Based on the findings summarized in the report, the GAO recommends that (i) Congress consider giving FHFA the authority to examine third parties doing business with the Enterprises; and (ii) the CFPB collect additional data regarding the identity and number of nonbank servicers.
Alabama Bill Expands Definition of Vehicle Service Contract
On April 4, Alabama Governor Robert Bentley signed into law HB 7, which amends Section 8-32-2 of the Code of Alabama. Specifically, the bill defines road hazard and expands the definition of a vehicle service contract to include (i) certain damages caused by a road hazard; (ii) the replacement of an inoperable, lost, or stolen key or key fob; and (iii) other services approved by the Alabama Commissioner of Insurance.
Mississippi Revises State Mortgage Licensing Law
On April 6, Mississippi Governor Phil Bryant signed into law SB 2504, which reenacts and amends the Mississippi S.A.F.E. Mortgage Act. Among other things, the legislation (i) revises licensure and continuing education requirements for mortgage loan originators; (ii) modifies books, accounts, and records storage and filing requirements; (iii) ensures timely and accurate mortgage licensee reporting in the Nationwide Mortgage Licensing System and Registry (NMLS); and (iv) specifically provides that “[f]ailure to file accurate, timely, and complete reports on the [NMLS] may result in a violation of this chapter, resulting in a civil penalty.”
NYDFS Names Celeste Koeleveld General Counsel
On April 11, the NYDFS appointed Celeste Koeleveld as General Counsel. Koeleveld will be responsible for all legal matters in the Department. Prior to joining the NYDFS, Koeleveld held various public service positions, including Executive Assistant Corporation Counsel at the New York City Law Department, and positions as Chief of the Criminal Division and Chief Appellate Attorney at the U.S. Attorney’s Office for the Southern District of New York.
CFPB Monthly Complaint Snapshot Highlights Issues Related to Debt Collection
On March 29, the CFPB released its most recent complaint report focusing on complaints related to debt collection. According to the report, as of March 1, 2016, consumers have submitted approximately 834,400 complaints across all products, with debt collection complaints accounting for approximately 219,200 of the complaints. Debt collection complaints highlighted in the report include, but are not limited to: (i) first- and third-party debt collectors attempting to collect on debts that consumers claim they do not owe; (ii) consumers repeatedly receiving calls from debt collectors, sometimes early in their delinquency or during grace periods; (iii) consumers being contacted while at work, with some alleging that collectors made in-person visits to their workplace; (iv) debt collectors not honoring consumers’ requests to cease communications; and (v) debt collectors failing to provide sufficient information to verify debts. Similar to past CFPB-issued complaint snapshots, the report identifies the top 10 most-complained-about companies in regards to all financial products, as well as the top 20 most-complained-about companies for debt collection. Finally, the report identifies Florida as its geographical spotlight, noting that (i) Florida consumers have submitted more than 80,000 complaints as of March 1, 2016; (ii) mortgage-related complaints account for 30% of complaints received from Florida, exceeding the national average by 4%; and (iii) at 24%, debt collection-related complaints submitted by Florida consumers are 2% less than the national average.
CFPB Issues Consent Order against San Diego-Based Student Debt Loan Relief Company
On March 30, the CFPB filed a consent order against a San Diego-based student debt relief operation for alleged violations of the CFPA, the Telemarketing Sales Rule, and Regulation P. According to the CFPB, the company – marketing its services through outbound and inbound telemarketing and direct mail and falsely claiming to be affiliated with the Department of Education – charged consumers upfront fees up to $495 to enroll in federal student loan repayment programs, as well as a monthly maintenance fee of $39. The CFPB’s consent order requires the company to (i) cease all student debt relief operations; (ii) rescind all contracts entered into up to and including the date of the consent order and stop assessing fees pursuant such contracts; (iii) ensure that consumers enrolled in income-driven repayment or forgiveness plans with the Department of Education receive the paperwork necessary for annual recertification or renewal deadlines; and (iv) pay a civil money penalty of $50,000.
In light of the action, the CFPB reminded consumers of its December 2014 advisory notifying them to be mindful of companies “falsely claiming special expertise or a relationship with the Department of Education.”
CFPB Announces Community Bank Advisory Council Meeting, April 21
On Thursday, April 21, the CFPB will hold its next Community Bank Advisory Council meeting in Washington, DC. According to the April 5 Federal Register publication providing notice of the meeting, both the CFPB’s strategic outlook and elder financial abuse are discussion topics included in the agenda.
GAO Report Examines Effectiveness of the Financial Regulatory System
Recently, the Government Accountability Office (GAO) released a report on the effectiveness of the U.S. financial system’s existing regulatory structure. In examining the financial regulatory system, the GAO conducted a performance audit from April 2014 to February 2016, dividing the regulatory system into the following sectors based on the various agencies’ missions: (i) safety and soundness oversight of depository institutions; (ii) consumer protection oversight; (iii) securities and derivatives markets oversight; (iv) insurance oversight; and (v) systemic risk oversight. The GAO found that “[f]ragmentation and overlap have created inefficiencies in regulatory processes, inconsistencies in how regulators oversee similar types of institutions, and differences in the levels of protection afforded to consumers.” Based on its audit, the GAO concluded that the regulatory structure as it stands does not always guarantee (i) efficient and effective oversight; (ii) consistent financial oversight; and (iii) consistent consumer protections. The report further identified problems with the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR), which are regulatory groups created out of the Dodd-Frank Act to address gaps in systemic risk oversight. Specific problems highlighted in the GAO’s findings include: (i) potential missed opportunities and duplicative analyses as a result of the Federal Reserve’s and the OFR’s similar systemic risk monitoring goals but lack of key collaboration; (ii) a lack of reliance by FSOC on the Federal Reserve’s and the OFR’s systemic risk monitoring efforts; and (iii) limitations on FSOC’s authority to address broader systemic risks that are not specific to a particular entity. The GAO emphasized that, “[w]ithout congressional action it is unlikely that remaining fragmentation and overlap in the U.S. financial regulatory system can be reduced or that more effective and efficient oversight of financial institutions can be achieved.”
HUD Issues Guidance Regarding the Application of Fair Housing Act Standards to the Use of Criminal Records
On April 4, HUD issued guidance deploying a disparate impact analysis with respect to the Fair Housing Act’s application to the use of criminal history by those who come under the Fair Housing Act, and in particular by providers or operators of housing and real-estate related transactions. The guidance indicates that, because African Americans and Hispanics are arrested, convicted and incarcerated at rates disproportionate to their share of the general population, criminal records-based barriers to housing are likely to have a disproportionate impact on minority home seekers. HUD then walks through the three step burden-shifting disparate impact analysis to support its argument. To determine whether the use of criminal history has, on its face, a discriminatory effect, HUD looks at national statistics to demonstrate that incarceration rates are disproportionate for African Americans and Hispanics. HUD also notes that, while state or local statistics should be presented when available, national statistics may be used where state or local statistics are not readily available and there is no reason to believe they would differ markedly from the national statistics. HUD then moves to a discussion of whether the practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest. HUD warns that, while ensuring resident safety and protecting property may be considered substantial and legitimate interests, bald assertions based on generalizations or stereotypes that any individual with an arrest or conviction record poses a greater risk than any individual without such a record would be insufficient to satisfy the burden set by the second prong. For the final prong, regarding the availability of a less discriminatory alternative, HUD notes that the inquiry is fact specific, but suggests that individualized assessment of relevant mitigating information beyond that contained in an individual’s criminal record is likely to have a less discriminatory effect than a categorical exclusion that does not take additional information into account. The guidance also discusses the potential for intentional discrimination, and notes that a disparate treatment violation may be proven based on evidence that exceptions to a general disqualification based on criminal record are provided to white applicants, but not African American applicants.
OCC Lends Perspective on Responsible Innovation
Last week, the OCC published a whitepaper titled, “Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective.” The whitepaper reports on the OCC’s vision for responsible innovation in the federal banking system with emphasis on the concept that when managed appropriately “risk should not impede growth.” The paper provides a preliminary framework for how the OCC intends to improve its evaluation of innovative products, services, and processes identified as having potential associated risks and requiring regulatory approval. According to the paper, the rapid pace at which fintech companies are expanding provides both opportunities – with some banks investing in and partnering with leading fintech companies – and challenges for national banks and federal savings associations. The paper noted that, “[t]hrough strategic and prudent collaboration, banks can gain access to new technologies, and nonbank innovators can gain access to funding sources and large customer bases.” In order to guide the agency’s approach toward regulating and evaluating innovations within the financial services space, the OCC formulated the following eight principles: (i) support responsible innovation; (ii) foster an internal culture receptive to responsible innovation; (iii) leverage agency experience and expertise; (iv) encourage responsible innovation that provides fair access to financial services and fair treatment of consumers; (v) further safe and sound operations through effective risk management; (vi) encourage banks of all sizes to integrate responsible innovation into their strategic planning; (vii) promote ongoing dialogue through formal outreach; and (viii) collaborate with other regulators. The paper concludes with posing questions and soliciting feedback on its evolving framework for understanding and evaluating innovation. Comments on the paper are due by May 31, 2016 and should be sent to innovation@occ.treas.gov.