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CFPB Announces New Academic Council Members
On April 22, the CFPB announced two new members of its Academic Research Council (ARC)—Raphael Bostic from the University of Southern California and Melvin Stephens from the University of Michigan. Dr. Bostic previously served as HUD’s Assistant Secretary for Policy Development and Research. Dr. Stephens’ research intersects labor economics, household consumption behavior, and aging and retirement issues. The announcement also provided an agenda for ARC’s April 25 closed meeting. Without providing further details, the agenda indicates that the ARC discussed, among other things, “methodological advances around disclosure” and “measuring costs and benefits of consumer financial protection regulations for consumers.”
FDIC White Paper Assesses Use Of Mobile Financial Services To Reach Underserved
On April 24, the FDIC hosted a meeting of its Advisory Committee on Economic Conclusion, during which FDIC staff presented a white paper on the potential for mobile financial services (MFS) to reach unbanked and underbanked consumers. The Committee meeting also covered an update on the FDIC’s safe accounts project, and included panels on youth financial literacy and consumer demand for small dollar credit. The white paper concludes that, in the short run, “MFS is best positioned to have an economic inclusion impact through its ability to meet day‐to‐day financial services needs of underbanked consumers as well as consumers at risk of account closure,” while also helping “the underserved gain access to the banking system and grow their financial capability.” The white paper encourages banks, service providers, and regulators to (i) integrate MFS into broader economic inclusion strategies; (ii) integrate MFS with other delivery channels and incorporate one-on-one interactions; (iii) “fine-tune” risk management strategies to match MFS expansion and underbanked strategies; (iv) improve convenience and speed of MFS through infrastructure enhancements; (v) enable additional mobile functionalities; (vi) develop case studies to demonstrate profitable implementation of MFS for economic inclusion; and (vii) bridge MFS with traditional payment services.
Congressman Cummings Returns To Scrutiny Of Independent Foreclosure Reviews
On April 24, House Oversight Committee Ranking Member Elijah Cummings (D-MD) expressed renewed interest in the termination of the Independent Foreclosure Review (IFR). In a letter to Oversight Committee Chairman Darrell Issa (R-CA), Congressman Cummings requested a hearing on “the widespread foreclosure abuse and illegal activities engaged in by mortgage servicing companies” and to “examine why the [Fed] and the [OCC] appear to have prematurely ended the Independent Foreclosure Review” through revised consent orders issued in January 2013. The request is based on “new evidence” obtained by Congressman Cummings, including claims that outside consultants retained as part of the IFR “had identified very high error rates in several categories of review” at certain institutions just before the revised consent orders were announced. In addition to these concerns, Congressman Cummings raised questions about how regulators arrived at the compensation amounts servicers were required to pay under the settlements, and how regulators determined that the allegedly harmed borrowers would benefit more from the settlement than if the IFR had been completed. Last year, Congressman Cummings, together with Senator Elizabeth Warren (D-MA), raised similar concerns about the regulators’ decision to cease the IFR by entering into revised consent orders.
FinCEN Announces Enforcement Action Over MSB's Currency Transaction Reporting
On April 24, FinCEN released an assessment of civil money penalty against a Florida money services business (MSB) and its owner for failing to comply with the Bank Secrecy Act’s program, reporting, and recordkeeping requirements. FinCEN determined that since at least 2008, the MSB, which operated as both an independent check casher and as a foreign currency exchange dealer, willfully violated the BSA by failing to register with FinCEN and failing to develop and implement an effective AML program. Specifically, FinCEN found that the MSB lacked adequate AML programs to verify the identities of persons conducting transactions, to monitor for suspicious activities, to identify currency transactions exceeding $10,000, and to ensure that the MSB filed the required currency transaction reports (CTRs) in a timely manner. According to FinCEN, the MSB also failed to implement internal controls sufficient for creating and retaining adequate BSA records related to currency exchange, and its owner and compliance officer failed to conduct a BSA/AML risk assessment. As a result of the compliance deficiencies, FinCEN determined the MSB failed to file, or failed to timely file CTRs on $4.5 million worth of transactions. The MSB and its owner admitted to these determinations and agreed to pay a $10,000 penalty.
Democratic Lawmakers Urge Education Department To Alter School-Sponsored Debit Card Rules
On April 22, Senator Elizabeth Warren (D-MA), Congressman George Miller (D-CA) and 22 other lawmakers sent a letter to Department of Education (DOE) Secretary Arne Duncan, supporting the DOE’s ongoing efforts to revise its rules that govern the ways higher education institutions request, maintain, disburse, and otherwise manage federal student aid disbursements. The DOE is considering changes that would, among other things, clarify permissible disbursement practices and agreements between education institutions and entities that assist in disbursing student aid, and increase consumer protections governing the use of prepaid cards and other financial instruments. The lawmakers specifically called on the DOE to “mandate contract transparency, prohibit aggressive marketing, and ban high fees when colleges partner with banks to sponsor debit cards, prepaid cards, or other financial products used to disburse student aid” through rulemaking that would, among other things, (i) prohibit colleges from entering into preferred relationships with financial institutions to offer debit cards or other financial products that charge fees associated with the disbursement and use of federal student aid; (ii) ban revenue sharing deals between colleges and financial institutions; and (iii) require colleges to post agreements with banks on their websites and report them to the CFPB and other government agencies annually.
Freddie Mac Revises Miscellaneous Selling, Servicing Policies
On April 24, Freddie Mac issued Single-Family Seller/Servicer Guide Bulletin 2014-06, which notifies sellers and servicers of numerous miscellaneous policy updates. The Bulletin, among other things, (i) requires sellers and servicers to immediately notify Freddie Mac of a guilty plea indicating lack of integrity or upon being notified that law enforcement or another governmental authority is investigating or prosecuting a Seller/Servicer's board member, officer, employee or contractor for fraud; (ii) updates flood insurance requirements and updates related forms; and (iii) revises the process for requesting and obtaining physical or constructive possession of a note as well as related document custodial functions and duties. The Bulletin also (i) removes the requirement that a borrower maintain six month’s rent loss insurance for a 2- to 4-unit primary residence when using rental income as qualifying income; and (ii) clarifies selling requirements related to unemployment compensation as an eligible source of income for Relief Refinance Mortgages, and the applicability of certain resale restrictions.
Arizona Adjusts Allowable Loan Fees, Finance Charge Structure
On April 17, Arizona Governor Jan Brewer signed HB 2526, which amends certain permissible practices and limitations governing consumer lenders, which include lenders who make closed end or revolving consumer loans under $10,000. The bill (i) increases the maximum allowable loan origination fee on closed end or revolving consumer loans from $75 to $150; (ii) permits a consumer lender to give a borrower a prize, good, merchandise, or tangible property with an aggregate value of up to $25; and (iii) modifies the framework governing permissible finance charges for consumer loans by increasing the applicable original principal amount, credit limit, or outstanding balance thresholds from either $500 or $1,000 to $3,000. The bill also prohibits consumer lenders from (i) increasing the established rate on a loan that was issued prior to the effective date of the bill when modifying or restructuring smaller loans; and (ii) holding a person responsible for a loan that was extended under fraudulent pretenses. Finally, the bill requires a consumer lender to correct any derogatory credit information reported to a consumer reporting agency within 30 days after knowledge that the loan was a result of such theft or fraud. The changes take effect July 24, 2014.
Banking Agencies Issue Revised CRA Exam Procedures
On April 18, the OCC, FDIC, and Federal Reserve Board released revised Community Reinvestment Act (CRA) examination procedures applicable to institutions with total assets greater than $1.202 billion as of December 31 of either of the previous two calendar years. The procedures incorporate revisions to the CRA interagency questions and answers issued in November 2013. Those revisions generally were intended to: (i) clarify how the agencies consider community development activities that benefit a broader statewide or regional area that includes an institution’s assessment area; (ii) provide guidance related to CRA consideration of, and documentation associated with, investments in nationwide funds; (iii) clarify the consideration of certain community development services, such as service on a community development organization’s board of directors; (iv) address the treatment of loans or investments to organizations that, in turn, invest those funds and use only a portion of the income from their investment to support a community development purpose; and (v) clarify that community development lending performance is always a factor considered in a large institution’s lending test rating.
State Regulators Circulate Model Consumer Guidance On Virtual Currency
On April 23, the CSBS’s Emerging Payment Task Force, together with the North American Securities Administrators Association, released “Model State Consumer and Investor Guidance on Virtual Currency.” The model guidance provides basic background information on virtual currency, and tips for consumers considering buying, selling, transacting with, or investing in a virtual currency.
Federal Reserve Board Revises Guidance For Examiners On Loan Sampling
On April 18, the Federal Reserve Board issued SR 14-4 which updates the Federal Reserve’s loan sampling expectations for state member bank and credit extending nonbank subsidiaries of banking organizations with $10-$50 billion in total consolidated assets. Depending on the structure and size of subsidiary state member banks, the guidance permits examiners to apply the guidance applicable to smaller state member banks when a bank’s subsidiary’s total assets are below $10 billion. The guidance (i) details the loan sampling methodology to be employed by Reserve Banks during the supervisory process; (ii) calls for documentation of loan sample selection methods in scoping memoranda and in the confidential section of the report of examination; and (iii) outlines expectations for following up on examinations with adverse findings. The guidance supersedes the examiner loan sampling expectations described in SR 94-13, “Loan Review Requirements for On-site Examinations.”