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Fannie Mae to Allow Home Owners to Swap Student Loan Debt for Mortgage Debt
On April 25, Fannie Mae issued updates to its Selling Guide allowing home owners to refinance their mortgages to pay off their student loan debt. The new policies will present opportunities for homeowners to (i) pay down student debt by refinancing their mortgage; (ii) no longer be required to include non-mortgage debt (credit cards, auto loans, and student loans) paid by others on loan applications; and (iii) increase the likelihood of qualifying for a mortgage loan while carrying student debt “by allowing lenders to accept student debt payments included on credit reports.” The updates also allow for debt to be excluded from the debt-to-income ratio if a lender can obtain documents showing that a non-mortgage debt has been paid by another party for at least 12 months. “These new policies provide . . . flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers,” stated Jonathan Lawless, Fannie Mae’s Vice President of Customer Solutions. The policy changes are effective immediately.
CFPB Sues Online Lenders Following Investigation into Debt Collection Practices
On April 27, the CFPB announced that it filed a suit against four online installment lenders for allegedly deceiving customers by collecting debts that were not legally owed. In a complaint filed in the United States District Court for the Northern District of Illinois, the Bureau claims, among other things, that the lenders engaged in unfair, abusive, and deceptive acts—a violation of Dodd-Frank—by collecting on installment loans that are partially or wholly void under state law. The Bureau further claims that lenders violated the TILA for failing to disclose the annual percentage rate for their loans when they were required to do so. The complaint alleges that the lenders originated, serviced, and collected high-cost, small-dollar installment loans. Since at least 2012, consumers could borrow between $300 and $1,200 with annual percentage rates from 440 percent up to 950 percent. These high-cost loans allegedly violate licensing requirements or usury limits in a least 17 states—thus rendering the loans void in whole or in part. The CFPB asserts that the lenders not only misrepresented that consumers were obligated to pay debts that were void, but also reinforced the misrepresentations through actions such as sending letters, making phone calls demanding payment, and originating ACH debit entries from consumers’ bank accounts.The complaint seeks a permanent injunction prohibiting the lenders from committing future violations of federal consumer financial law, as well as other legal and equitable relief including restitution to affected consumers, disgorgement of ill-gotten revenue, and civil money penalties.
Rep. Luetkemeyer Introduces CLEARR Act to Provide Regulatory Relief to Community Banks
On April 26, Rep. Blaine Luetkemeyer (R-Mo.) introduced the Community Lending Enhancement and Regulatory Relief Act of 2017 (CLEARR Act) (H.R. 2133) designed to provide community financial institutions with regulatory relief from certain burdensome federal requirements. Among other things, the CLEARR Act would limit the authority of the CFPB by raising the asset size threshold for CFPB supervision from $10 billion to $50 billion and amend Section 1031 of the Consumer Financial Protection Act of 2010 by removing the term “abusive” from the CFPB’s “unfair, deceptive, or abusive” acts or practices authority. The CLEARR Act would also provide relief in the mortgage lending area by exempting community banks from certain escrow requirements and amend the Truth in Lending Act by adding a safe harbor for qualified mortgage loans held in portfolio. Moreover, the CLEARR Act would repeal all regulations issued to implement the Basel III and NCUA capital requirements. It would also repeal the Dodd-Frank Act provision amending the Equal Credit Opportunity Act to require collection of small business and minority-owned business loan data, as well as prohibit federal banking agencies from requiring depository institutions to terminate a specific account or group of accounts unless the agency has a material reason not based solely on reputational risk.
Rep. Luetkemeyer—who is a senior member on the House Financial Services Committee and the Chairman of the Financial Institutions and Consumer Credit Subcommittee—also issued a statement after President Trump called for the Treasury Secretary to conduct reviews of the Orderly Liquidation Authority and Financial Stability Oversight Council: “As a former bank examiner, community banker, and Chairman of the Financial Institutions Subcommittee, I have long advocated for eliminating the OLA, because it puts taxpayers on the hook for bailouts, instead of putting private companies on the hook for bankruptcy. For years, I have also introduced legislation to change FSOC’s arbitrary designation processes, which lead to higher costs, fewer services, and less available credit for American consumers. The American people deserve financial independence and I look forward to working with President Trump and my colleagues to help them achieve it.”
AG Sessions Discusses Approach to Enforcement at Annual Ethics Conference
In prepared remarks delivered April 24 at the Ethics and Compliance Initiative Annual Conference, Attorney General Jeff Sessions discussed the DOJ’s anticipated approach to prosecuting corporate fraud and misconduct under his leadership. The Attorney General announced the Department of Justice’s (DOJ) commitment to “re-double” its efforts to combat violent crime, while continuing to investigate and prosecute “corporate fraud and misconduct.” Specifically, Mr. Sessions pledged that the DOJ will “continue to emphasize the importance of holding individuals accountable for corporate misconduct” and when making charging decisions, will account for “whether companies have good compliance programs; whether they cooperate and self-disclose their wrongdoing; and whether they take suitable steps to remediate problems.”
Notable among the many points made by Mr. Sessions during his speech, was his emphasis on the Foreign Corrupt Practices Act (“FCPA”). As explained by Mr. Sessions, “corruption harms free competition, distorts prices, and often leads to substandard products and services coming into this country” and, ultimately, “increases the cost of doing business, and hurts honest companies that don’t pay these bribes.” To this end, the Attorney General promised to “strongly enforce the FCPA and other anti-corruption laws.” As he put it, “[c]ompanies should succeed because they provide superior products and services, not because they have paid off the right people.” In closing, the Attorney General took a moment to remind the audience that “[o]ur economy, and indeed, our whole system of self-government, depends on people believing that those who choose to disregard the law will be caught and punished. This is ultimately the responsibility of the Justice Department.”
Fannie and Freddie Open Records Act of 2017 Passes House, Forwarded on to the Senate
On April 27, the House passed (by a vote of 425 to 0), the Fannie and Freddie Open Records Act of 2017 (H.R. 1694). The proposed measure—sponsored by House Oversight and Government Reform Committee Chairman Jason Chaffetz (R-UT)—would subject Fannie Mae and Freddie Mac to the transparency requirements applicable to federal agencies under the Freedom of Information Act (“FOIA”) for the duration of the time the enterprises remain under FHFA conservatorship. Pursuant to FOIA, the public has presumptive access to agency records unless the material falls within any of FOIA’s nine categories of exception. Having passed in the House, the bill was subsequently forwarded on to the Senate, where it has been assigned to the Senate Judiciary committee. An April 24 Committee Report on the bill provides some explanatory background on the issue addressed by the bill and the bill’s intentions.
FINRA Releases New Guidance on Rules Concerning Digital Communications
On April 25, FINRA issued new guidance on the application of its rules governing communications with the public concerning social media networking sites and online business communications. In 2010 and 2011, FINRA released Regulatory Notices 10-06 and 11-39 to provide initial guidance on these specific rules, and in 2013, “adopted amendments to Rule 2010 that codif[ied] guidance provided in the Notices with respect to the supervision of interactive social media posts by member firms.” In December 2014, FINRA issued its Respective Rule Review Report, which was designed to “assess whether the communications rules are meeting their intended investor protection objectives . . . and to take steps to maintain or improve the effectiveness of the rules.” FINRA Regulatory Notice 17-18 is the response to the report’s request for additional guidance and provides examples of how FINRA applies its rules to the following topics: text messaging, personal communications, hyperlinks and content sharing, native advertising, online testimonials and endorsements, correction of third-party content, and BrokerCheck. FINRA further notes that Regulatory Notice 17-18 is intended to deliver further guidance and does not alter principles previously provided in prior notices.
OFAC Updates: New Sanction Designations and Additions to Specially Designated Nationals List
In April, OFAC announced implementation of three new sanctions against several entities and individuals designated for, among others, materially assisting, sponsoring, or providing financial support to certain foreign entities. In addition, OFAC updated its list of Specially Designated Nationals (SDN) and Blocked Persons.
Libya-Based ISIS Financial Facilitators / Algerian ISIS Supporter and Arms Trafficker. On April 13, OFAC imposed sanctions against certain Libyan and Algerian financial facilitators for their roles in assisting ISIS’s financial operations in Libya. The designations block the individuals, one of whom was designated as engaging in actions through weapon trafficking, from the global financial system, and further state that “all property and interests in property . . . subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with” the identified individuals.
Syrian “Research Center” Accused of Developing Weapons. On April 24, OFAC announced it was taking action against 271 employees of a Syrian research center for “developing and producing non-conventional weapons and the means to deliver them.” The sanctions came as a reaction to the widely- reported April 4 sarin gas attack against civilians, and followed sanctions announced January 12 against 18 officials, five branches of the Syrian military, and associated entities for their participation in a chemical weapons program responsible for attacks in 2014 and 2015. The 271 named individuals are “designated for materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services in support of, and having acted or purported to act for or on behalf of, directly or indirectly, the Government of Syria.” The new sanctions block U.S. persons from dealing with these employees.
Foreign Narcotics Kingpin Sanctions. OFAC made additions to the Specially Designated Nationals (SDN) list, which designates individuals and companies who are prohibited from dealing with the U.S. and whose assets are blocked. Transactions are prohibited if they involve transferring, paying, exporting, or otherwise deal in the property or interest in property of an entity or individual on the SDN list. Additions to the list include Foreign Narcotics Kingpin Sanctions Regulations against two Mexican entities, and Global Terrorism Sanctions Regulations against a Saudi individual.
CFPB to Discuss Small Business Lending at May 10 Field Hearing
On May 10, the CFPB will hold a field hearing on small business lending in Los Angeles, CA. The announcement, which is posted on the Events page of the CFPB’s website, indicates that the hearing will feature “remarks from Director Cordray, as well as testimony from community groups, industry representatives, and members of the public.” Notably, “small business data collection” was among the topics covered by the Bureau in its latest fair lending report (See previous InfoBytes coverage here). Specifically, the CFPB noted in its report that Congress “expressed concern that women-owned and minority-owned businesses may experience discrimination when they apply for credit, and has required the CFPB to take steps to ensure their fair access to credit.” In response to this observation, the Bureau indicated in its report that its “[s]mall business lending supervisory activity will also help expand and enhance the Bureau’s knowledge in this area, including the credit process; existing data collection process; and the nature, extent, and management of fair lending risk.”
Online Lenders Alliance Expresses “Strong Opposition” to Proposed Rate Cap Legislation in California and Maryland
In an April 12 letter to California Assembly member Matthew Dababneh (who chairs the state Assembly’s Committee on Banking and Finance), the Online Lenders Alliance (OLA) expressed its “strong opposition” to legislation introduced in California that would impose an interest rate cap for consumer loans or lines of credit in those states. Specifically, the Alliance contended that the legislation (A.B. 1109) would “significantly impact a consumer’s ability to find credit.” The OLA also communicated similar concerns in a letter to Maryland Governor Larry Hogan requesting that he veto cross-filed legislation (SB 527/ HB 1270) passed by the Maryland General Assembly.
Washington State Enacts Law Defining Licensing Requirements for Transmitters of Money and Virtual Currency
On April 17, Washington Governor Jay Inslee signed into law a new piece of legislation (SSB 5031), which formally adds virtual currency to its money transmitter law. The legislation—introduced at the request of the Washington Department of Financial Institutions (DFI)—amends the definition of money transmission to include virtual currency, which is defined as “a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government.” The definition of virtual currency does not, however, include “the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange.” The new law requires that applicants for a money transmitter license with business models that store virtual currency on behalf of others must provide a third-party security audit of all electronic information and data systems acceptable to DFI. Furthermore, licensees transmitting virtual currencies must now hold “like-kind virtual currencies” of the same volume as that held by the licensee but which is obligated to consumers in lieu of permissible investments. Among other disclosures, virtual currency licensees must disclose to consumers a schedule of fees and charges, whether the product or service is insured, that the transfer is irrevocable, and the licensee's liability for mistakes. Among other provisions, the law:
- outlines new bond requirements for online currency exchange licensees;
- expands supervisory powers allowing DFI to participate in joint or concurrent examinations with other state or federal agencies;
- mandates that licensees report all licensee branch locations and all authorized delegates to the nationwide licensing system within 30 days of the contractual agreement with the licensee to provide money services in the state;
- makes civil penalties $100 per violation per day for each day a violation is outstanding; and
- excludes from its definition of “money transmission” the “provision solely of connection services to the internet, telecommunications services, or network access; units of value that are issued in affinity or rewards programs that cannot be redeemed for either money or virtual currencies; and units of value that are used solely within online gaming platforms that have no market or application outside of the gaming platforms.”
The law goes into effect July 23, 2017.