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  • 9th Circuit affirms district court’s ruling in FCRA dispute

    Courts

    On July 24, the U.S. Court of Appeals for the 9th Circuit affirmed a district court’s ruling that the FCRA did not require a consumer reporting agency (defendant) to examine disputed items on an individual’s credit report because the credit repair company—and not the individual—submitted the request to the defendant. Under the FCRA, consumer reporting agencies are required to assess disputed credit file items when a consumer notifies the agency directly. However, the court stated that the plaintiff did not play a part in drafting, finalizing, or sending the letters that the credit repair company sent to the defendant on his behalf, and therefore granted summary judgment in favor of the defendant, ruling that the defendant’s duty to reinvestigate the claims relied upon the plaintiff himself submitting the dispute notifications.

    On appeal, the 9th Circuit agreed with the district court that the defendant “did not act unreasonably” and was correct in entering summary judgment. “This case does not involve a letter sent to a consumer reporting agency by a consumer’s attorney,” the appellate court wrote in clarifying that the holding was limited to the facts of the specific case. “Nor does it involve one family member assisting another by sending a letter on the other’s behalf. It does not even involve a letter sent by a credit repair agency that a consumer reviewed and approved before it was submitted. We do not decide whether, in any of these circumstances, a consumer reporting agency would have a duty to reinvestigate. We only hold that, in this case, where [the plaintiff] played no role in preparing the letters and did not review them before they were sent, the letters sent by [the credit repair company] did not come directly from [the plaintiff].”

    Courts Ninth Circuit Appellate FCRA Credit Reporting Agency

  • OCC updates risk governance and audit booklets

    Agency Rule-Making & Guidance

    On July 25, the OCC announced the issuance of a fully revised “Corporate and Risk Governance” booklet for the Comptroller’s Handbook, as well as limited updates to the “Internal and External Audits” booklet for examiners completing core assessments affected by audit functions. Among other things, the revised  “Corporate and Risk Governance” booklet is intended to provide examiners with a summary of corporate and risk governance, related risks, the board’s role and responsibilities in corporate and risk governance, strategic planning, and examination procedures. The revised booklet identifies the following as the primary risk categories associated with corporate and risk governance: (i) strategic; (ii) reputation; (iii) compliance; and (iv) operational. Updates to both booklets incorporate references to relevant OCC issuances and auditing standards published since the booklets were last issued, reflect the integration of federal savings associations into certain regulations, and make clarifying edits regarding supervisory guidance, sound risk management practices, legal language, and the roles of the bank’s board and management.

    Agency Rule-Making & Guidance OCC Examination Comptroller's Handbook

  • HUD approves settlement resolving Fair Housing Act violations

    Federal Issues

    On July 23, HUD released a Conciliation Agreement with a real estate group and a mortgage company and its agents (collectively, the “respondents”) who allegedly discriminated against African-American home seekers. The complaint, brought by the Fair Housing Council of Riverside County (FHCRC), claims the respondents violated the Fair Housing Act during a series of FHCRC fair housing tests whereby African-American “testers” were falsely informed that there were no available homes and were subject to tougher pre-qualification requirements than white testers. While the respondents deny having engaged in any discriminatory behavior, they have agreed to pay $10,000 in relief and provide fair housing training to their agents.

    Federal Issues HUD Fair Lending Fair Housing Act

  • HUD suspends downpayment assistance mortgagee letter following injunction

    Federal Issues

    On July 23, HUD issued Mortgagee Letter 2019-10, announcing the official suspension of the effective date of the agency’s April guidance (Mortgagee Letter 2019-06), which changed the downpayment assistance (DPA) guidelines. The suspension comes just a week after the U.S. District Court for the District of Utah granted an American Indian band and its mortgage company (collectively, “plaintiffs”) a preliminary injunction halting the enforcement of the April changes, and ordering that HUD “shall not deny insurance nor cause insurance to be denied based on non-compliance with Mortgagee Letter 19-06 and shall provide public notice that the effective date of Mortgagee Letter 19-06 is suspended until after a final determination on the merits of the case.” Buckley is co-counsel in the pending litigation.

    The suspended guidance, Mortgagee Letter 2019-06 (Mortgagee Letter), issued on April 18, imposed new documentation requirements purportedly aimed at confirming that Governmental Entities operate their DPA programs within the scope of their governmental capacity when providing any portion of a borrower’s Minimum Required Investment (MRI). The letter updated Handbook 4000.1 to specify that when any portion of a borrower’s MRI comes from a Governmental Entity, a mortgagee must obtain the following documentation: (i) proof that the Governmental Entity has authority to operate in the jurisdiction where the property is located; (ii) a legal opinion from the Governmental Entity’s attorneys, signed and dated within two years of closing, establishing the Governmental Entity’s authority to operate in the jurisdiction where the property is located, which in the case of a federally recognized Indian Tribe means the entity is operating on tribal land in which the property is located, or offering DPA to enrolled members of the tribe; and (iii) evidence that the Governmental Entity is providing DPA and is doing so in its governmental capacity. The Mortgagee Letter went on to require documentation indicating that the provision of DPA is not contingent upon the future transfer of the insured mortgage to a specific entity.

    The plaintiffs filed suit against HUD on April 22 arguing that the Mortgagee Letter was unlawful and discriminatory, and unfairly targeted American Indian tribes by “requiring them, for the first time, to confine their DPA programs to the geographic boundaries of their reservations and to enrolled members of the tribes, literally driving them out of the national marketplace and back onto the reservation.” Additionally, the complaint argued that HUD failed to execute these changes in accordance with the protections of the Administrative Procedures Act (APA) by providing a notice and comment period—purporting the Mortgagee Letter to be an “informal ‘guidance’ document that merely ‘clarifies’ existing law.” The decision to grant the preliminary injunction was announced by the court at the conclusion of a July 16 hearing. In the written order released the following week, the court concluded that the plaintiffs were likely to succeed on claims that the agency violated the APA because the Mortgagee Letter was actually a legislative rule with the force and effect of the law, not merely an interpretive rule. Moreover, the court rejected HUD’s argument that the Mortgagee Letter merely reiterates jurisdictional limitations that were already present, and stated the plaintiffs sufficiently demonstrated irreparable harm caused by the new jurisdictional limitations in the Mortgagee Letter.

    Federal Issues Courts Agency Rule-Making & Guidance HUD Downpayment Assistance Preliminary Injunction

  • OCC releases asset dissipation underwriting guidance

    Agency Rule-Making & Guidance

    On July 23, the OCC issued Bulletin 2019-36 reminding banks to follow safety and soundness standards and guidelines when using asset dissipation underwriting (ADU)—also known as “asset depletion underwriting or asset amortization underwriting”—to originate mortgage loans. Specifically, the OCC states banks should develop and implement policies and processes for ADU in a manner consistent with existing regulatory real estate and mortgage lending standards and guidelines. Banks should also align ADU activities with their overall business plans and strategies, including “working with consumers who have a capacity to repay a mortgage loan even though they do not meet traditional income-based underwriting repayment standards.” The OCC additionally expects bank management to “develop and maintain risk governance processes that are commensurate with the credit risk of ADU, particularly if the offering constitutes a deviation from the bank’s existing mortgage lending business activities.” With regard to Fannie Mae and Freddie Mac loans, the OCC states that lenders may use ADU to underwrite mortgage loans based on certain assets, including employment-related retirement assets, for applicants who are near retirement.

    Agency Rule-Making & Guidance OCC Mortgages Underwriting

  • CFPB reports on “credit invisibility” symposium

    Federal Issues

    On July 19, the CFPB released a report titled, “Building a Bridge to Credit Invisibility,” which covers the Bureau’s September 2018 fair lending symposium of the same name. The symposium was a day-long event that explored the challenges consumers face in accessing credit. The Bureau uses the term “credit invisible” to describe consumers who do not have a credit record maintained by a national credit reporting agency, or who have a credit record that is deemed to have too little or too old information to be treated as “scorable” by widely used credit scoring models. (Coverage of a previous Bureau report on credit invisibility available here.) The symposium report includes summaries of each of the panel discussions: (i) several short talks on issues such as credit invisibility, lending deserts, and innovation to expand access to credit; (ii) Bridging to Credit Visibility Using Innovative Products; (iii) Credit Products and Services for Microenterprise; and (iv) Alternative Data: Innovative Products and Solutions. The report also highlights key themes from the symposium, noting that many panelists believe work needs to be done to make products for the credit invisible more profitable and sustainable for large financial service providers. Additionally, panelists noted the need for responsible innovation while ensuring that access to credit is facilitated in a way that is “safe, affordable, and non-discriminatory.”

    Federal Issues CFPB Fair Lending Consumer Finance Fintech

  • Senators request explanation for delay in reestablishing CFPB/Department of Education MOU

    Federal Issues

    On July 18, Senators Patty Murray (D-WA) and Sherrod Brown (D-Ohio) sent a letter to CFPB Director Kathy Kraninger and U.S. Department of Education (Department) Secretary Betsy DeVos requesting an explanation as to why a statutorily required Memorandum of Understanding (MOU) terminated by the Department in 2017 has not been reestablished. As previously covered by InfoBytes, the terminated MOU allowed the sharing of information connected with the oversight of federal student loans. The Senators’ letter raises questions concerning the disagreement between the agencies over why the MOU was terminated, as well as “conflicting explanations” provided to Congress regarding the delay in reestablishing the MOU. According to the Senators, Kraninger previously commented in April that creating a new MOU with the Department was a priority for the Bureau (see InfoBytes coverage here). However, the Senators note that this statement conflicts with formal responses from the Department for a hearing record received three weeks after Kraninger’s comments, in which the Department claimed the Bureau “has not formally attempted to reestablish an MOU.” The Senators asked the agencies to provide a written explanation addressing (i) the basis for terminating the MOU; (ii) whether an attempt to reestablish the MOU has been made; (iii) any outstanding unresolved issues preventing reestablishment of the MOU; and (iv) an expected timeline for reestablishing the MOU. The Senators strongly encouraged the agencies “to reestablish the MOU immediately.”

    Federal Issues CFPB Department of Education MOUs Student Lending

  • Housing discrimination lawsuit against national bank can proceed

    Courts

    On July 18, the U.S. District Court for the District of Maryland denied defendants’ motion to dismiss claims that they violated the Fair Housing Act’s anti-discrimination provisions by allegedly failing to properly maintain bank-owned properties in African American and Latino neighborhoods. According to the plaintiffs—a group of private fair housing organizations along with three individual homeowners—the bank and its maintenance contractor regularly maintained similar bank-owned properties in white neighborhoods, while properties in minority neighborhoods were allowed to fall into disrepair. The plaintiffs cited claims for discrimination under both disparate treatment and disparate impact theories, and asserted that the conduct allegedly depreciated the property values of current residents, discouraged buyers from purchasing homes in a particular neighborhood, and limited available housing. The defendants argued, however, that the fair housing organizations do not have standing to sue because they failed to trace their alleged injury to the conduct at issue or to sufficiently demonstrate they were harmed by the alleged conduct. Moreover, the defendants asserted that the Maryland court does not have jurisdiction over the dispute and that the claims were untimely.

    The court found that the plaintiffs did sufficiently plead an injury-in-fact, stating, “[h]ere the scope and specificity of the plaintiffs’ investigation and the alleged precision with which its proffered regression analysis can attribute the plaintiffs’ injuries to the defendants’ actions, provide plausible proximate cause.” The court also reasoned that it had jurisdictional authority because, even though none of the fair housing organizations are Maryland entities, some of the alleged conduct has occurred in Maryland and state residents have alleged harm. As to the question of timeliness, the court noted that the statute of limitations concerns are “obviated by the continuing violation doctrine.”

    Courts Fair Housing Act Disparate Impact

  • OCC releases June enforcement actions

    Federal Issues

    On July 18, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include personal cease-and-desist orders, civil money penalties, formal agreements, prompt corrective action directives, removal and prohibition orders, and terminations of existing enforcement actions. Included in the list is a formal agreement issued against a Texas-based bank on June 20 for alleged unsafe or unsound practices related to, among other things, compliance risk management and violations of laws and regulations concerning the Flood Disaster Protection Act (FDPA), Bank Secrecy Act, TILA, RESPA, and the Expedited Funds Availability Act. Among other things, the agreement requires the bank to (i) appoint a compliance committee responsible for submitting a written progress report detailing specific corrective actions; (ii) ensure that it has “sufficient and competent management”; (iii) prepare a risk-based consumer compliance program, which must include revised policies and procedures related to the Servicemembers’ Civil Relief Act, TILA-RESPA Integrated Disclosure rule, and the FDPA; and (iv) take measures to “ensure that current and satisfactory credit and proper collateral information is maintained on all loans.”

    Federal Issues OCC Enforcement Bank Compliance Flood Disaster Protection Act Bank Secrecy Act TILA RESPA SCRA

  • Rhode Island says service contracts are not insurance

    State Issues

    On July 15, the Rhode Island governor signed H 5674, which clarifies that service contracts, vehicle theft protection product warranties, and vehicle maintenance agreements are not considered insurance and are therefore exempt from the state’s insurance code. The bill also amends definitions under the law’s chapter relating to service contracts. The amendments take effect January 1, 2020.

    State Issues State Legislation Service Contracts Insurance

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