InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Fed updates FOIA rules for CSI
On July 24, the Federal Reserve Board issued a final rule revising its “Rules Regarding Availability of Information,” to update and clarify the Board’s regulations implementing the Freedom of Information Act (FOIA) and the rules covering the disclosure of confidential supervisory information (CSI). The final rule, among other things, adopts standards consistent with the OCC’s rules, including (i) permitting supervised financial institutions to disclose CSI with their directors, officers, and employees “when necessary or appropriate for business purposes”; (ii) “permitting disclosures to the supervised financial institution’s outside legal counsel and auditors when the disclosures are ‘necessary or appropriate in connection with the provision of legal or auditing services’”; and (iii) “eliminat[ing] the requirement that supervised financial institutions obtain prior [Board] approval to disclose [CSI] to their other service providers, such as consultants, contractors, and contingent workers.” The final rule also updates definitions for expedited processing, clarifies terms, and helps users “more easily navigate the process of filing a FOIA request.” The final rule is effective 30 days after publication in the Federal Register.
HUD unveils new rule to replace 2015 AFFH rule
On July 23, HUD announced plans to ultimately terminate the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule, while proposing a new final rule titled “Preserving Community and Neighborhood Choice.” The new final rule includes a detailed history of the expansion of the AFFH concept and details concerns with the 2015 rule. According to HUD, the AFFH rule is, among other things, overly burdensome, costly, and ineffective. However, several senators argued against HUD’s originally proposed replacement (covered by InfoBytes here), contending that the proposed rule would reverse efforts to make access to housing fair and equitable and “relies on the faulty premise that simply increasing housing supply can address the problems of housing discrimination and segregation.” HUD stated that after reviewing comments on the proposed changes, the agency ultimately determined them to be “unworkable and ultimately a waste of time for localities to comply with,” and noted that it had instead established programs to bring capital into underserved communities where affordable housing is present but opportunities are not. The new final rule broadly defines “fair housing” to be “housing that, among other attributes, is affordable, safe, decent, free of unlawful discrimination, and accessible under civil rights laws,” and defines “affirmatively furthering fair housing” as “any action rationally related to promoting” any of the attributes of fair housing. Specifically, a grantee’s certification that it has affirmatively furthered fair housing would be deemed sufficient provided it proposed taking action to further fair housing policy during the relevant period. The new final rule will become effective 30 days after publication in the Federal Register.
FTC takes action against background check company for misleading practices
On July 27, the FTC announced the DOJ, on behalf of the FTC, filed a complaint in the U.S. District Court for the Central District of California alleging a background report company used misleading billing and marketing practices in violation of several consumer protection laws. According to the complaint, the background report company’s marketing practices included suggesting that individuals’ reports contained arrest, criminal, sexual offender, bankruptcy, and other records that the reports did not actually include. The complaint alleges the company used these practices to induce users to purchase subscriptions to access background reports. The complaint asserts the company’s practices violated the FTC Act by making false or misleading representations about the criminal records of searched individuals, and that the company violated the Telemarketing Sales Rule and the Restore Online Shoppers’ Confidence Act by materially misrepresenting the benefits of a company subscription; the refund and cancelation policies; and the negative-option features of the subscription.
Moreover, the complaint asserts the company qualifies as a consumer reporting agency under the FCRA, as it “regularly assembles and evaluates information on consumers into consumer reports that, for a fee, it then provides to customers online through interstate commerce.” The complaint argues the company violated the FCRA by failing to maintain reasonable procedures to (i) verify how its reports would be used; (ii) ensure the information was accurate; and (iii) make sure that the information it sold would be used only for legally permissible purposes.
The FTC is seeking a permanent injunction, restitution, and civil money penalties.
CFPB settles with two mortgage lenders for misleading VA loan advertisements
On July 24, the CFPB announced settlements with two mortgage lenders (here and here) for allegedly mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, both lenders offer and provide VA guaranteed mortgage loans, and allegedly disseminated direct-mail advertisements to servicemembers and veterans in violation of the Mortgage Acts and Practices – Advertising Rule (MAP Rule) and Regulation Z. Among other things, the Bureau alleges the advertisements (i) stated credit terms that the lenders were not actually prepared to offer; (ii) described introductory interest rates as “fixed,” when in fact, the rates were adjustable; (iii) gave the false impression the lenders were affiliated with the government; and (iv) used the name of the consumer’s current lender in a misleading way. Both consent orders impose bans on future advertising misrepresentations similar to those identified by the Bureau and require the companies to use a compliance official to review mortgage advertisements for compliance with consumer protection laws. The Bureau imposes a civil penalty of $460,000 against one lender and a civil penalty of $645,000 against the other.
FHFA postpones duty to serve adjustments
Recently, FHFA announced a postponement of Fannie Mae and Freddie Mac’s Duty to Serve (DTS) Underserved Markets Plan submissions for 2021-2023, due to the uncertainty caused by the Covid-19 pandemic. Specifically, FHFA is allowing unlimited modifications for the 2020 plan year, and is requiring the Enterprises to submit both 2020 modification requests and proposed 2021 activities and objectives by September 15. The 2021 activities and objectives will be structured as a one-year extension to the previous 2018-2020 plans. FHFA also released (i) a summary table indicating Evaluation Guidance provisions that apply in 2021; (ii) revised Evaluation Guidance 2020-4a, which includes special exceptions that will apply in 2020 and 2021; and (iii) special procedures the Enterprises will follow to submit their 2020 modifications and 2021 plans.
FHFA notes it will seek feedback on the proposed 2021 activities and select proposed 2020 modifications during a consolidated public comment period beginning in September.
California DBO: Pandemic caused sharp uptick in consumer complaints and inquiries
On July 29, the California Department of Business Oversight (DBO) announced a large uptick in consumer complaints and inquiries received since the beginning of the Covid-19 pandemic. From March through the end of June, the DBO states that consumer complaints increased more than 37 percent, email inquiries increased 86 percent, and consumer calls increased 22 percent. These sharp increases, DBO notes, are primarily due to Covid-19-related concerns about “mortgages, student loans, personal loans, questionable investments, and apparent fraudulent schemes.”
Kraninger discusses semi-annual report and pandemic response at congressional hearings
On July 29, CFPB Director Kathy Kraninger testified at a hearing held by the Senate Banking Committee on the CFPB’s Semi-Annual Report to Congress, which covers the Bureau’s work from October 1, 2019, through March 31, 2020. (Covered by InfoBytes here.) Kraninger’s testimony identified four key areas of focus for the Bureau: (i) providing financial education resources to prevent consumer harm; (ii) implementing “clear rules of the road” to encourage “competition, increase transparency, and preserve fair markets for financial products and services”; (iii) ensuring a “culture of compliance” through supervision; and (iv) following a consistent, purposeful enforcement regime. Kraninger also highlighted Bureau efforts to address discrimination, consumer confusion regarding forbearance options under the CARES Act, and a legislative proposal that would authorize the Bureau to award whistleblowers who report federal consumer financial law violations.
During the hearing, committee members focused on, among other things, the Bureau’s response to the Covid-19 pandemic and the agency’s recent repeal of certain underwriting provisions of its 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (covered by InfoBytes here). In response to Democratic criticism regarding the repeal of the underwriting provisions, Kraninger reiterated that a Bureau analysis of the provisions in the 2017 final rule revealed it would reduce the availability of small-dollar credit “by at least 70 percent,” and denied claims that the rulemaking process had been impacted by political appointees at the agency. Additionally, Kraninger said she intends to move ahead with putting the payment provisions of the payday rule into effect and is currently “working through” a pending legal challenge to the provisions.
Democratic committee members also questioned Kraninger regarding temporary regulatory relief to mortgage servicers and other financial services companies (covered by InfoBytes here) and the Bureau’s policy statement providing Fair Credit Reporting Act and Regulation V compliance flexibility for consumer reporting agencies and furnishers during the pandemic (covered by InfoBytes here). With regard to the U.S. Supreme Court’s June ruling in Seila Law v. CFPB (covered by a Buckley Special Alert), Committee Chairman Mike Crapo (R-ID) noted he is still advocating for “a bipartisan board of directors to oversee the CFPB” and for subjecting the Bureau to the annual appropriations process.
The next day, Kraninger appeared before the House Financial Services Committee’s hearing to discuss the semi-annual report. Similar to the Senate hearing, committee members questioned Kraninger on the payday rule, the revision to the HMDA rule, the Bureau’s pandemic-related initiatives for consumers, and on ways the Bureau is protecting struggling consumers during the pandemic, particularly with respect to the agency’s supervisory and enforcement work.
FHA mortgagee letter announces temporary guidance on self-employment and rental income and flexibility on disbursement of 203(k) rehabilitation escrow account funds
On July 28, FHA issued Mortgagee Letter 2020-23, which provides temporary guidance for self-employment income verification, rental income requirements, and approval of extension requests under the 203(k) rehabilitation mortgage insurance program. With respect to income verification, the guidance: (i) requires mortgagees relying on self-employment income to verify that the borrower’s business is open and operating within 10 calendars prior to the date of the note with one of the enumerated forms of evidence, and (ii) modifies the requirements for mortgagees to calculate and verify rental income. These changes are in effect for cases with note dates from July 28 through November. 30. The guidance also provides for temporary flexibility to allow 203(k) rehabilitation projects to continue where a borrower receives a Covid-19 forbearance under certain circumstances, effective immediately through November 30.
Fed extends several Covid-19 lending facilities through December 31
On July 28, the Federal Reserve Board announced the extension of several lending facilities designed to help the economy recover from the Covid-19 pandemic. The following facilities were previously set to expire on or around September 30 and are now extended through December 31: (i) the Primary Dealer Credit Facility; (ii) the Money Market Mutual Fund Liquidity Facility; (iii) the Primary Market Corporate Credit Facility; (iv) the Secondary Market Corporate Credit Facility; (v) the Term Asset-Backed Securities Loan Facility; (vi) the Paycheck Protection Program Liquidity Facility; and (vii) the Main Street Lending Program.
The Municipal Liquidity Facility was already set to expire on December 31 and the Commercial Paper Funding Facility is set to expire on March 17, 2021.
Louisiana Office of Financial Institutions issues emergency declaration to notification filers
On July 25, the Louisiana Office of Financial Institutions issued an emergency declaration to notification filers. The declaration waives the $50 late fee for notification filer renewal applications postmarked after April 16, 2020, and grants notification filers an extension to submit the renewal application and renewal fee until August 31, 2020.