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New York blocks use of social networks in credit decisions
On November 25, the Governor of New York signed S2302, a measure which prohibits entities that are “licensed lenders” in New York, as well as consumer reporting agencies (CRAs), from including a consumer’s social network information in credit decisions. S2302 amends New York’s general business law and the banking law to prohibit licensed lenders and CRAs from considering “the credit worthiness, credit standing, or credit capacity of members of the consumer’s social network” or “the average credit worthiness, credit standing, or credit capacity of members of the consumer’s social network or any group score that is not the [consumer’s] own credit” information. Specifically, the amendment prohibits licensed lenders and CRAs from collecting, evaluating, reporting, or maintaining the information in a file. Additionally, the consumer’s internet viewing history also may not be factored into the licensed lender’s or agency’s “credit scoring formulas.”
FCRA allowable disclosure charge remains unchanged
On November 27, the CFPB announced that the ceiling on the maximum allowable charge for disclosures by a consumer reporting agency to a consumer pursuant to section 609 of the FCRA will remain unchanged at $12.50 for the 2020 calendar year. The final rule announcing the amount was published the same day in the Federal Register.
Democrats urge HUD to “immediately rescind” disparate impact proposal
On November 22, the Democratic members of the House Financial Services Committee sent a letter to Secretary of HUD Ben Carson, opposing the agency’s proposed rule amending its interpretation of the Fair Housing Act’s (FHA) disparate impact standard (also known as the “2013 Disparate Impact Regulation”). The letter argues that the proposed rule would “make it harder for everyday Americans who find themselves victims of housing discrimination to get justice.” As previously covered by InfoBytes, in August, HUD issued the proposed rule in order to bring the rule “into closer alignment with the analysis and guidance” provided in the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (covered by a Buckley Special Alert) and to codify HUD’s position that its rule is not intended to infringe on the states’ regulation of insurance. Specifically, the proposed rule codifies the burden-shifting framework outlined in Inclusive Communities, adding five elements that a plaintiff must plead to support allegations that a specific, identifiable policy or practice has a discriminatory effect. Moreover, the proposal provides methods for defendants to rebut a disparate impact claim.
The letter urges Secretary Carson to “immediately rescind” the proposed rule, calling the proposal a “huge departure from a standard and framework that has been expressly supported by HUD…[and] a deviation from decades of legal precedent, including a Supreme Court decision affirming the legitimacy of the disparate impact standard under the [FHA].” Moreover, the letter argues that “[i]n 2018, Black homeownership rates reached the lowest they had since before the [FHA] was passed,” and that HUD’s mission to build inclusive and sustainable communities will be “seriously compromised” with this proposed rule.
CFPB report compares large and small mortgage servicers
On November 21, the CFPB released a new Data Point report from the Office of Research titled, “Servicer Size in the Mortgage Market,” which examines the differences between large and small mortgage servicers in the mortgage market. The report considers mortgage servicers in three size categories, (i) “small servicers” that service 5,000 or fewer loans; (ii) “mid-sized servicers” that service between 5,000 and 30,000 loans; and (iii) “large servicers” that service more than 30,000 loans.” Key findings of the report include:
- Only five percent of loans at small servicers are insured by FHA or guaranteed by the VA, the Farm Service Agency, or the Rural Housing Service, whereas such loans account for about 25 percent of loans at mid-sized and large servicers.
- Less than one-third of conventional loans are serviced on behalf of Fannie Mae or Freddie Mac at small servicers, whereas at large servicers, over 75 percent of conventional loans are serviced for Fannie Mae or Freddie Mac.
- Small servicers service the majority of loans in a number of rural counties in the U.S., particularly in the Midwest.
- From 2012 to 2018, delinquency rates of loans at large and small servicers generally converged, as compared to mortgage crisis levels when delinquency rates for loans serviced by small services were much lower than at mid-sized and large servicers.
- In response to a survey, 74 percent of borrowers with mortgages at small servicers said having a branch or office nearby was important, compared to 44 percent of borrowers with mortgages at large servicers.
Special Alert: OCC and FDIC propose rules to override Madden
On November 18, 2019 the Office of the Comptroller of the Currency (“OCC”) issued a proposed rule to clarify that when a national bank or savings association sells, assigns, or otherwise transfers a loan, the interest permissible prior to the transfer continues to be permissible following the transfer. The very next day, the Federal Deposit Insurance Corporation (“FDIC”) followed suit with respect to state chartered banks. The proposals are intended to address problems created by the U.S. Court of Appeals for the Second Circuit in Madden v. Midland Funding, LLC, a decision that cast doubt, at least in the Second Circuit states, about the effect of a transfer or assignment on a bank loan’s stated interest rate that was nonusurious when made. Comments on these proposals are due 60 days following publication in the Federal Register, and as noted below, the case for robust banking industry comment is more compelling than is typically the case.
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Click here to read the full special alert.
If you have any questions about the alert or other related issues, please visit our Fintech practice page or contact a Buckley attorney with whom you have worked in the past.Georgia proposes temporary authority for MLOs
On November 18, the Georgia Department of Banking and Finance issued a notice of proposed rulemaking, which would require several state specific requirements for mortgage loan originators (MLO) seeking to utilize temporary authority (Temporary Authority) in the state of Georgia pursuant to Section 106 of the Economic Growth, Regulatory Relief, and Consumer Protection Act—which is set to take effect November 24. Specifically, the proposed rule outlines the following additional requirements:
- Disclosure requirements. Mortgage companies are required to provide additional written disclosures to consumers showing that the MLO is not licensed and may ultimately not be granted a license. This written disclosure shall be “made no later than the date the consumer signs an application or any disclosure, whichever event occurs first,” and must be maintained by the company. Additionally, the disclosure must state that the Department “may take administrative action against the [MLO] that may prevent such individual from acting as a [MLO]” before a loan is closed. The language in the rule must appear on the loan documentation in 10-point bold-face type.
- Education requirements. Any MLO who qualifies to utilize Temporary Authority must submit proof to the Department that they have enrolled in a class to satisfy education requirements and have registered to take the national MLO test. Both notifications must be submitted within 30 days of the MLO’s application submission.
- Advertising requirements. All advertisements must “clearly and conspicuously” indicate that MLOs operating under Temporary Authority are currently unlicensed and have pending applications with the Department. Moreover, the advertisement must state that the “Department may grant or deny the license application.”
- Transaction journal requirements. Mortgage companies must maintain a journal of mortgage loan transactions that clearly identifies when any MLO utilizes Temporary Authority at any point in the application or loan process. The transaction journal should also notate the outcome of the MLO’s license application as either “approved, withdrawn, or denied.”
- Signature requirements. Any MLO operating under temporary authority must indicate “TAO,” (temporary authority to operate) or use a substantially similar designation next to any signature on a loan document, including those that relate to the negotiation of terms or the offering of a loan.
- Administrative fines. Mortgage companies who employ a person who does not satisfy the federal Temporary Authority requirements but engages in licensable MLO activities under Georgia law will be subject to a fine of $1,000 per occurrence and the mortgage companies’ license shall be subject to suspension or revocation.
Comments on the proposed rule must be received by December 18.
Visit here for additional guidance on MLO temporary authority from APPROVED.
FinCEN director discusses CVC compliance requirements
On November 15, Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco delivered remarks at the Chainalysis Blockchain Symposium to discuss, among other things, the agency’s focus on convertible virtual currency (CVC) and remind attendees—particularly financial institutions—of their compliance obligations. Specifically, Blanco emphasized that FinCEN applies a “technology-neutral regulatory framework to any activity that provides the same functionality at the same level of risk, regardless of its label.” As such, money transmissions denominated in CVC, Blanco stated, are money transmissions. Blanco discussed guidance issued by FinCEN in May (previously covered by InfoBytes here) that reminded persons subject to the Bank Secrecy Act (BSA) how FinCEN regulations relating to money services businesses apply to certain business models involving money transmissions denominated in CVC. Blanco also highlighted the agency’s recent collaboration with the CFTC and the SEC to issue joint guidance on digital asset compliance obligations. (Previous InfoBytes coverage here.) Highlights of Blanco’s remarks include (i) suspicious activity reporting related to CVC has increased, including “filings from exchanges identifying potential unregistered, foreign-located money services businesses”; (ii) compliance with the “Funds Travel Rule” is mandatory and applies to CVC; (iii) for anti-money laundering/combating the funding of terrorism purposes, accepting and transmitting activity denominated in stablecoins falls within FinCEN's definition of “money transmission services” under the BSA; and (iv) administrators of stablecoins must register as money services businesses with FinCEN.
CFPB publishes fall 2019 rulemaking agenda
On November 20, the Office of Information and Regulatory Affairs released the CFPB’s fall 2019 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters it “reasonably anticipates having under consideration during the period from October 1, 2019, to September 30, 2020.”
Key rulemaking initiatives include:
- Property Assessed Clean Energy (PACE) Financing: As previously covered by InfoBytes, the Bureau published an Advanced Notice of Proposed Rulemaking (ANPR) in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA. The Bureau notes it is currently reviewing comments as it considers next steps.
- Small Business Rulemaking: On November 6, the Bureau held a symposium on small business lending to gather information for upcoming rulemaking (previously covered by InfoBytes here). The Bureau emphasized it will focus on rulemaking that would not impede small business access to credit by imposing unnecessary costs on financial institutions. According to the Bureau, materials will be released prior to convening a panel under the Small Business Regulatory Enforcement Fairness Act to consult with businesses that may be affected by future rulemaking.
- HMDA/Regulation C: The Bureau plans to finalize the permanent thresholds for reporting data on open-end lines of credit and closed-end mortgage loans in March 2020, and expects to issue a Notice of Proposed Rulemaking (NPRM) to govern the collection of HMDA data points and the disclosure of this data in July 2020. Both initiatives follow an NPRM and an ANPR issued by the Bureau in May (previously covered by InfoBytes here).
- Payday, Vehicle Title, and Certain High-Cost Installment Loans: As previously covered by InfoBytes, the Bureau published two NPRMs related to certain payday lending requirements under the final rule titled “Payday, Vehicle Title, and Certain High-Cost Installment Loans.” Specifically, the Bureau proposed to rescind the portion of the rule that would make it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay, and to delay the rule’s compliance date for mandatory underwriting provisions. The Bureau notes it is currently reviewing comments and expects to issue a final rule in April 2020.
- Debt Collection: Following an NPRM issued in May concerning debt collection communications, disclosures, and related practices (previously covered by InfoBytes here), the Bureau states it is currently “engaged in testing of consumer disclosures related to time-barred debt disclosure issues that were not addressed in the May 2019 proposal.” Once testing has concluded, the Bureau will assess the need for publishing a supplemental NPRM related to time-barred debt disclosures.
- Remittance Transfers: The Bureau expects in December to issue a proposed rule to address the July 2020 expiration of the Remittance Rule’s temporary exception for certain insured depository institutions from the rule’s disclosure requirements related to the estimation of fees and exchange rates. (Previously covered by InfoBytes here.)
- GSE Patch: The Bureau plans to address in December the so-called GSE patch, which confers Qualified Mortgage status for loans purchased or guaranteed by Fannie Mae and Freddie Mac while those entities operate under FHFA conservatorship. The patch is set to expire in January 2021, or when Fannie and Freddie exit their conservatorships, whichever comes first. (See Buckley Special Alert here.)
The Bureau further notes in its announcement the addition of entries to its long-term regulatory agenda “to address issues of concern in connection with loan originator compensation and to facilitate the use of electronic channels of communication in the origination and servicing of credit card accounts.”
CFPB seeks feedback on TRID
On November 20, the CFPB issued a request for information (RFI) regarding the TILA-RESPA Integrated Disclosures Rule (TRID Rule) assessment, which is required by Section 1022(d) of the Dodd-Frank Act. Section 1022(d) requires the Bureau to conduct an assessment of each “significant rule or order” no later than five years after its effective date. The Bureau issued the TRID Rule in November 2013, and the rule took effect on October 3, 2015. In addition to comments received on this RFI, the Bureau notes that it is also considering the approximately 63 comments already received regarding the TRID Rule from the 2018 series of RFIs issued on the adopted regulations and new rulemakings, as well as the inherited regulations (covered by InfoBytes here and here).
The RFI seeks public feedback on any information relevant to assessing the effectiveness of the TRID Rule, including (i) comments on the feasibility and effectiveness of the assessment plan; (ii) recommendations to improve the assessment plan; (iii) data and information about the benefits, costs, and effectiveness of the TRID Rule; and (iv) recommendations for modifying, expanding, or eliminating the TRID Rule.
Comments must be received within 60 days of publication in the Federal Register.
FDIC creates advisory committee for state regulators
On November 19, the FDIC announced a new advisory committee between the agency and state regulators to discuss issues related to the regulation and supervision of state-chartered financial institutions. The committee, titled the Advisory Committee of State Regulators (ACSR), will explore topics such as (i) safety and soundness; (ii) consumer protection issues; (iii) the creation of new banks; and (iv) financial system risks, including cyberattacks or money laundering. Members of the ACSR will be composed of state financial regulators, as well as other individuals “with expertise in the regulation of state-chartered financial institutions.”