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NYDFS permits depository institutions to hold remote meetings
On April 16, the New York State Department of Financial Services announced that it issued an order permitting state-chartered banks, credit unions, mutual savings and loan associations, and mutual savings banks to hold meetings virtually. These include stockholder, shareholder and accountholder meetings. The order also extends the timing requirement for annual stockholder meetings so that meetings may be held within seven months of the institution’s fiscal year end, instead of four months.
New York extends stay at home order
On April 16, the New York governor issued an executive order extending the state’s stay-at-home order and closure of schools and non-essential businesses until May 15, 2020.
Agencies to hold webinar for bankers on loan modifications and reporting
On April 16, the FDIC released FIL-46-2020, announcing a webinar to provide accounting and reporting guidance for bankers pursuant to Section 4013 of the CARES Act and the revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (covered by InfoBytes here). The webinar is scheduled for Friday, April 24 at 3:00 pm EDT and will be jointly hosted by the FDIC, the Federal Reserve, the OCC, and the NCUA. Participants are encouraged to email questions prior to the webinar to asktheregulators@stls.frb.org. To register for the webinar, click here.
9th Circuit: Trustees’ loan transaction is entitled to state and federal consumer disclosure protections
On April 14, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of claims under TILA, RESPA, and California’s Rosenthal Fair Debt Collection Act, holding that a loan transaction made by a borrower in her capacity as a trustee (appellant-borrower) remained a consumer credit transaction entitled to state and federal consumer disclosure protections. According to the opinion, the appellant-borrower obtained a loan to finance repairs to a personal residence that was occupied by her niece—the trust’s sole beneficiary. The appellant-borrower alleged that the lender’s (defendant-appellee) loan disclosures were materially inconsistent with the loan’s terms and filed a complaint alleging that “the due date disclosures did not accurately reflect the terms of the loan.” The complaint sought rescission of the loan under TILA, damages against the defendant-appellee under the Rosenthal Fair Debt Collection Act due to the alleged use of unfair means to collect her debt, and inaccurate disclosure damages and reimbursements for payments she claimed she was not obligated to make. Under TILA and RESPA, rescission and damage remedies are only available to consumer credit transactions, and the defendant-appellee moved to dismiss on the ground that a residential loan to a trust can only qualify as a consumer credit transaction where a trustee-borrower lives at the residence. The appellant-borrower countered that the CFPB’s Official Staff Commentary (Commentary) to Regulation Z, which implements TILA, explains “that ‘[c]redit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization.’” The district court agreed with the defendant-appellee’s position that the loan was not a consumer credit transaction and dismissed the complaint.
On appeal, the 9th Circuit noted that the Commentary states that “a loan for ‘personal, family, or household purposes’ of the beneficiary of this type of trust is a consumer credit transaction,” and that furthermore, “trusts should be considered natural persons under TILA, so long as the transaction was obtained for a consumer purpose, because, ‘in substance (if not form) consumer credit is being extended.” The appellate court rejected the defendant-appellee’s argument and concluded that the loan should be considered a consumer credit transaction under all three statutes. Holding that the district court erred in dismissing the complaint by construing the statutes too narrowly, it reversed and remanded for further proceedings.
CFPB to host conference call on Covid-19 financial issues
On April 16, the CFPB published notices in the Federal Register announcing that the Bureau’s four advisory boards will host a May 1 combined open conference call to address the Covid-19 pandemic’s effects on consumers. The first half of this public meeting, which is scheduled to begin at 2:00 pm EDT, will focus on Covid-19’s impact on consumers and the financial marketplace, and the second half will focus on the impacts on specific consumer groups, including older individuals, students, servicemembers, and underserved individuals. Participants may email questions to the advisory boards at least seven days prior to the call date here. RSVPs must be submitted by April 30 here.
For additional information, see the Federal Register notice for the Consumer Advisory Board here, for the Credit Union Advisory Council here, for the Community Bank Advisory Council here, and for the Academic Research Council here.
OFAC guidance addresses Covid-19 humanitarian assistance and trade
On April 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a Fact Sheet providing guidance to ensure humanitarian-related trade and assistance reaches at-risk populations through legitimate and transparent channels during the global Covid-19 pandemic. Specifically, the Fact Sheet highlights the most pertinent exemptions, exceptions, and authorizations for humanitarian assistance and trade under the Iran, Venezuela, North Korea, Syria, Cuba, and Ukraine/Russia-related sanctions programs. OFAC notes, however, that under certain sanctions program, entities may be required to obtain separate authorization from other U.S. government agencies. The Fact Sheet also provides guidance for persons seeking to export personal protective equipment from the U.S. Additional questions regarding the scope or applicability of any humanitarian-related authorizations can be directed to OFAC’s Sanction Compliance and Evaluation Division.
CFPB raises HMDA reporting thresholds
On April 16, the CFPB issued a final rule permanently raising coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. As previously covered by InfoBytes, these changes were first proposed by the Bureau last May. The final rule, which amends Regulation C, increases the permanent threshold from 25 to 100 loans starting July 1, 2020 and is applicable to both depository and nondepository institutions. The Bureau states in an executive summary that newly excluded institutions can stop collecting HMDA data on their closed-end mortgage loans beginning July 1, 2020; however, these institutions may still be obligated to collect home loan activity information required by other regulations. Under the final rule, newly excluded institutions are still required to record closed-end data for the first quarter of 2020; however because these institutions would not otherwise report the data until early 2021, the final rule relieves newly excluded institutions of the March 1, 2021 reporting obligation on data collected in 2020 (including closed-end mortgage loan data collected in 2020 prior to July 1, 2020). The Bureau notes that newly excluded institutions “may voluntarily report HMDA data on closed-end mortgage loans in 2021 as long as the institution reports data for the full calendar year 2020.”
The final rule also increases the permanent threshold for collecting and reporting data about open-end lines of credit from 100 to 200, however this change will not take effect until January 1, 2022, when the current temporary threshold of 500 open-end lines of credit expires (covered by InfoBytes here). Beginning in 2022, both depository and nondepository institutions that meet this threshold must report data on open-end lines of credit by March 1 of the following calendar year.
Additional resources, including a timeline of key dates and institutional/transactional coverage charts are available here. “The Bureau recognizes the operational challenges confronted by institutions due to the current COVID-19 pandemic,” the CFPB states in its press release. “The Bureau anticipates that this final rule, once effective, will reduce regulatory burden on smaller institutions to help those institutions to focus on responding to consumers in need now and in the longer term.”
Treasury and Small Business Administrator urge Congress to appropriate funds for Paycheck Protection Program
On April 15, the U.S. Treasury secretary and Small Business Administration administrator issued a statement urging Congress to appropriate additional funds for the Paycheck Protection Program to meet the high demand from small businesses for relief in response to Covid-19. The statement notes that “SBA will not be able to issue new loan approvals once the programs experiences a lapse in appropriations.”
Indiana regulator suspends notice requirements for branch closures, provides other relief
The Indiana Department of Financial Institutions, Depository Division announced that it has suspended nearly all examination activity. The division also suspended prior notice requirements for temporary branch or office closures, extended the deadline for submission of audits required for banks and corporate fiduciaries, and granted permission for institutions to make temporary changes to their bylaw requirements for annual meetings.
FTC provides guidance on managing consumer protection risks when using AI and algorithms
On April 8, the FTC’s Bureau of Consumer Protection wrote a blog post discussing ways for companies to manage the consumer protection risks of artificial intelligence (AI) technology and algorithms. According to the FTC, over the years the Commission has dealt with the challenges presented by the use of AI and algorithms to make decisions about consumers, and has taken many enforcement actions against companies for allegedly violating laws such as the FTC Act, FCRA, and ECOA when using AI and machine learning technology. Financial services companies have also been applying these laws to machine-based credit underwriting models, the FTC stated. To assist companies, the FTC has provided the following guidance:
- Be transparent. Companies should not mislead consumers about how automated tools will be used and should be transparent when collecting sensitive data to feed an algorithm. Companies that make automated eligibility decisions about “credit, employment, insurance, housing, or similar benefits and transactions” based on information provided by a third-party vendor are required to provide consumers with “adverse action” notices under the FCRA.
- Explain decisions to consumers. Companies should be specific when disclosing to consumers the reasons why a decision was made if AI or automated tools were used in the decision-making process.
- Ensure fairness. Companies should avoid discrimination based on protected classes and should consider both inputs and outcomes to manage consumer protection risks inherent in using AI and algorithmic tools. Companies should also provide consumers access and opportunity to dispute the accuracy of the information used to make a decision that may be adverse to the consumer’s interest.
- Ensure data and models are robust and sound. According to the FTC, companies that compile and sell consumer information for use in automated decision-making to determine a consumer’s eligibility for credit or other transactions (even if they are not a consumer reporting agency), may be subject to the FCRA and should “implement reasonable procedures to ensure maximum possible accuracy of consumer reports and provide consumers with access to their own information, along with the ability to correct any errors.” The AI models should also be validated to ensure they work correctly and do not illegally discriminate.
- Accountability. Companies should consider several factors before using AI or other automated tools, including the accuracy of the data set, predictions based on big data, and whether the data models account for biases or raise ethical or fairness concerns. Companies should also protect these tools from unauthorized use and consider what accountability mechanisms are being employed to ensure compliance.