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DOJ Civil Rights Division Issues Annual Report to Congress
In September, the DOJ Civil Rights Division issued its Annual Report to Congress regarding its 2016 activities related to the Equal Credit Opportunity Act (ECOA), the Fair Housing Act (FHA), and the Servicemembers Civil Relief Act (SCRA). Highlights include:
- Fair lending: The DOJ opened 18 fair lending investigations; filed seven lawsuits and settled six of them; and obtained almost $37 million in relief. At the end of 2016, the DOJ had 33 open fair lending investigations.
- Servicemembers Civil Relief Act: In November 2016, the DOJ announced a new pilot program funding additional attorneys and resources to support enforcement efforts related to the SCRA. In addition, the DOJ entered into two SCRA settlements, initiated a new lawsuit (subsequently settled in 2017), and continued to support distribution of compensation under the National Mortgage Settlement.
- ECOA/FHA Referrals: The DOJ received 22 ECOA and FHA referrals in 2016; opened eight investigations from these referrals; and noted that all but one of the lawsuits filed by the Civil Rights Division in 2016 were based in part on referrals.
Fannie Mae Updates Servicing Guidelines for Multifamily Residences
On September 29, Fannie Mae released updates to its servicing guidelines for multifamily residences, effective October 2. Fannie Mae is updating provisions concerning Asset Management and Watchlist Management. Changes include:
- removing color descriptions that previously corresponded to defined Mortgage Loan rating classifications;
- updating the rating classification descriptions and/or characteristics to conform to regulatory definitions for Pass/Watch and Special Mention Assets; and
- requiring Servicers provide an explanation and status of the issues causing an Asset to be reported on the Servicer Watchlist.
Trade Groups Lobby for Exemption of Small Independent Mortgage Lenders from CFPB Examinations
On September 18, the Community Home Lenders Association and the Community Mortgage Lenders of America sent a joint letter to Treasury Secretary Mnuchin urging relief for smaller independent mortgage bankers from CFPB supervision, enforcement, and vender management audits. Specifically, the trade groups requested support for legislation that would help eliminate the risk of enforcement actions from the CFPB for smaller nonbanks. The letter cites the conclusions drawn in the Treasury Report on financial regulations, released in June (this report was a product of the February Executive Order, covered by a Buckley Sandler Special Alert). Of particular interest from the trade groups was the report’s conclusion that Congress should repeal the CFPB’s supervisory authority and return the supervision of nonbanks to state regulators.
FHFA Director Provides Update on GSE Conservatorship to House Financial Services Committee
On October 3, the Director of the Federal Housing Finance Agency (FHFA), Melvin L. Watt, testified at a hearing before the House Financial Services Committee. The testimony provided an update on FHFA’s conservatorship of Fannie Mae and Freddie Mac (GSEs) and Watt’s views on housing financing reform. In his prepared remarks, Watt informed the Committee that the GSEs’ financial performance has improved significantly over the course of the FHA’s conservatorship and that the GSEs continue to provide liquidity to the housing finance market. Nonetheless, Watt stressed that in less than three months, both Fannie Mae and Freddie Mac’s taxpayer-financed capital buffer will run out, and any loss the GSEs experience after that would require additional money from taxpayers. Watt warned that any additional draw of taxpayer support could erode investor confidence in the GSEs, which could result in reduced liquidity in the mortgage-backed securities market and increase the cost of credit for borrowers.
Senate Special Committee Hearing Focuses on Continuing Efforts to Combat Illegal Robocalls
On October 4, the Senate Special Committee on Aging (Committee) held a hearing entitled “Still Ringing Off the Hook: An Update on Efforts to Combat Robocalls” to discuss efforts to combat illegal robocalls. Committee Chairman Susan M. Collins (R-Me.) opened the hearing by reinforcing the importance of utilizing technology not only to block robocalls but to better understand the scams that continue to impact consumers. Sen. Collins also stressed the positive impact “aggressive law enforcement” has had on these efforts.
According to a hearing-related press release issued by the FTC, the Commission received more than 3.4 million robocall complaints from consumers in 2016 and at least another 3.5 million complaints between January and August 2017. The FTC’s ongoing efforts to address these complaints include: (i) initiating enforcement actions targeting robocall violators; (ii) cooperating with law enforcement at the state, federal, and international level to develop solutions to prevent and detect calls; and (iii) as previously discussed in InfoBytes, publicly posting robocall numbers received from consumer complaints to help enable industry groups develop call-blocking solutions. The following four witnesses offered testimony on industry and state efforts to protect consumers from scams and increase education efforts.
- Ms. Lois C. Greismann, Associate Director of the Division of Marketing Practices, Bureau of Consumer Protection, FTC (testimony);
- The Honorable Josh Shapiro, Pennsylvania Attorney General (testimony);
- Mr. Kevin Rupy, Vice President for Law and Public Policy, USTelecom (testimony); and
- Ms. Genie Barton, President, BBB Institute for Marketplace Trust (testimony).
California Bans Use of Arbitration Clauses in Fraudulently Created Financial Contracts
On October 4, Governor Jerry Brown signed into law amendments to the state’s code of civil procedure that essentially eliminates the use of forced arbitration in cases of fraudulently created accounts. SB 33 prevents state or federally chartered depository institutions from enforcing arbitration agreements in existing consumer contracts to compel California customers to arbitrate disputes regarding other contracts created “fraudulently without the consumer’s consent or by unlawfully using the consumer’s personal identifying information.”
The law comes at a time when, as previously discussed in InfoBytes, several financial industry groups issued a joint lawsuit challenging the Bureau’s arbitration rule, which prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. The amendments take effect January 1, 2018.
FTC, Department of Education Announce Education Technology Workshop to Explore Privacy Issues
On October 4, the FTC and the Department of Education issued a notice announcing a joint Ed Tech (education technology) workshop to examine the challenges concerning privacy implications as more schools are using school-issued personal computing devices. The workshop will discuss issues surrounding the FTC’s Children’s Online Privacy Protection Act Rule (COPPA) as it applies to schools and how it intersects with the Department of Education’s Family Educational Rights and Privacy Act, which is designed to protect the privacy of students’ education records. The workshop, which is open to the public, will be held in Washington, D.C., on December 1.
As previously covered in InfoBytes, the FTC made modifications to COPPA’s safe harbor program this past July that now require all participants to conduct a comprehensive annual internal assessment of any third-party or service provider that collects personal information from children on their websites or through online services, in addition to issuing updates in June regarding resources companies can use to ensure COPPA compliance.
South Korean Earthquake Research Official Sentenced for Laundering Bribes
On October 2, the former director of the earthquake research center of South Korea’s Institute of Geoscience and Mineral Resources was reportedly sentenced in U.S. federal court to 14 months in prison for laundering bribes he had received in South Korea from seismology companies. Prosecutors argued to the federal jury, which convicted him in July, that he had demanded and received more than $1 million in bribes from two seismological companies in exchange for providing them with insider information and directed some of the funds to be transferred to his personal bank account in California.
The former director has not been charged in South Korea, and his conviction and sentencing in the United States illustrate the US DOJ’s continued focus on targeting foreign officials who receive bribes and then travel to the US or use its financial system.
Additional Charges for Retired U.S. Army Colonel
On October 4, the Department of Justice expanded the scope of its indictment against a retired U.S. Army colonel. On August 29, he was charged with conspiracy to violate the Foreign Corrupt Practices Act after he allegedly solicited bribes from undercover agents who posed as potential investors for infrastructure projects in Haiti. The expanded charges include conspiracy to launder money and violate the Federal Travel Act. Prior FCPA Scorecard coverage of the initial indictment and the related FCPA sting operation can be found here.
CFPB Issues Final Rule Regarding Payday, Title, Deposit Advance, and Other Installment Loans
On October 5, the CFPB published its final rule (Rule) addressing payday loans, vehicle title loans, deposit advance products, and longer-term balloon loans (collectively, “covered loans”). The CFPB previously announced the proposed rule in June 2016 (covered by a Buckley Sandler Special Alert). The final rule makes it an abusive and unfair practice for lenders to make a covered short-term loan or covered longer-term balloon loan without determining upfront that the borrower has the ability to repay (known as the “full-payment test”). The full-payment test varies depending on the covered loan, but in essence, requires the lender to reasonably determine that the borrower can meet basic living expenses and major financial obligations and still afford their highest monthly payment(s). The Rule puts a limitation of three on the number of loans that can be made in quick succession (within 30 days of each other).
Lenders may avoid the requirement of a “full-payment test” with covered loans by offering small-dollar, short-term loans that allow the borrower to pay down the principal more gradually or are determined to pose less financial risk to the borrower. In addition, loans that meet the parameters of “payday alternative loans” authorized by the National Credit Union Administration are excluded, as are no-cost advances and wage advance programs that meet certain conditions, though the Rule does impose restrictions on using these exceptions based on the borrower’s loan history.
In addition to requirements surrounding the borrower’s ability to repay, the CFPB also finalized rules regarding payment withdrawals and reporting requirements. The Rule prevents lenders from attempting to withdraw a payment from a borrower’s account after two consecutive withdrawal attempts have failed, unless the borrower has given specific authorization to do so. This restriction applies to covered loans as well as longer-term loans with account access and an APR above 36 percent. The Rule requires lenders to use Bureau-registered credit reporting systems to report and obtain information about loans made under the full-payment test or the principal payoff option.
The provision regarding the registration information systems takes effect 60 days after publication in the Federal Register. The rest of the Rule takes effect 21 months after publication in the Federal Register.
Buckley Sandler will follow up with a more detailed summary of the CFPB’s final rule.