(July 9, 2021) Landlords, consumer reporting agencies (CRAs), and others are reminded of their obligations to accurately report rental and eviction information in a compliance bulletin published by CFPB this week, highlighting the agency’s continuing concerns of an expected surge in evictions in the coming months.
The bureau’s compliance bulletin 2021-03 (“Consumer Reporting of Rental Information”) was issued amid soon-expiring COVID-19 pandemic-related protections for renters. The Centers for Disease Control and Prevention (CDC) had extended federal eviction protections implemented during the pandemic through July.
The CFPB states the bureau would be “paying particular attention” to CRAs’ and information furnishers’ compliance with accuracy and dispute obligations under the Fair Credit Reporting Act (FCRA) and Regulation V with respect to rental information.
“The Bureau will hold CRAs and furnishers accountable for failing to comply with the FCRA and Regulation V,” the CFPB wrote. “The economic recovery of renters and their ability to secure new rental housing should not be impeded by noncompliance with the law.”
The bulletin took effect upon its publication Wednesday in the Federal Register.
LINK:
(July 9, 2021) Consumer complaints about federal student loans fell off during the coronavirus crisis, but protests about overdraft fees on checking accounts surged due to financial institutions attempting to help consumers have access to economic impact payments (EIPs), according to the complaint bulletin issued late last week by CFPB.
The bureau’s bulletin looks at consumer complaints related to three actions taken by Congress in response to the coronavirus crisis. Those were: suspension of monthly payments for federal student loans, issuance of EIPs to eligible households; and promulgation of an interim final rule in support of the Center for Disease Control and Prevention (CDC)’s eviction moratorium.
The bulletin said the key takeaways from the bureau’s analysis of these actions showed:
- Federal student loan complaint volume decreased significantly following suspension of payments; however, borrowers reported issues with customer service and sometimes experienced delays in getting responses to their complaints.
- The customer service issues in student loan complaints raise concerns about servicers’ preparedness for student loan borrowers resuming payments, particularly borrowers who have experienced a decrease in income.
- Renters have submitted few complaints about third-party debt collectors, or attorneys, who are attempting to carry out an eviction; more often, renters described issues with collections for past evictions or expressed concerns about negative credit reporting.
- Consumers reported being charged overdraft fees on their checking accounts when funds advanced by their financial institutions—so consumers could have access to all of their EIP funds—were later reversed.
Regarding the overdraft fees, the bulleting notes that financial institutions – as a courtesy to consumers who had overdrawn deposit accounts – advanced to their members or customers an amount equal to the negative balance so those consumers could reap full advantage of the EIP. However, the bulletin notes, those advances were later reversed, typically 30 days after the advance.
According to the bulletin, a limited number of complaints were received that consumers did not realize that an advance was posted to their account. “Many of these consumers reported learning of the advance only after the funds were debited from their accounts several weeks later,” the bulletin asserts.
“In response to these complaints, several financial institutions reiterated the intention of the advance was so that consumers could make full use of their stimulus payments,” the bulletin states. “In some limited circumstances, financial institutions refunded overdraft fees charged to the consumers’ accounts, stating they were refunding the fees as a courtesy.” A breakdown of what sort of financial institution (credit union, bank or other) refunded the fees was not provided.
LINK:
CFPB Complaint Bulletin: COVID-19 issues described in consumer complaints
(July 9, 2021) A slow, methodical approach should be taken to determining the best regulatory scheme to address the use of the developing technology of artificial intelligence/machine learning (AI/ML) by financial institutions, the state system has advised NCUA and the CFPB in a comment letter submitted late last week.
In addition, NASCUS wrote in its comment letter to the agencies, that approach must also incorporate “close coordination and collaboration between federal and state regulators in addition to the continued collection of input from other stakeholders.”
In March, the agencies opened a 60-day comment period (which they later extended by 30 days) for Information about how financial institutions use AI in their activities, including fraud prevention, personalization of customer services, credit underwriting, and more.
NASCUS wrote that, in developing guidance and regulation, the agencies would need to provide “insight on important factors such as choosing appropriate data sets, transparency, explainability, accountability and appropriate assessment standards among other things.”
Noting that any guidance and regulation would need to be risk-based and flexible but not stifle innovation, NASCUS said it strongly encouraged the agencies to develop rules and guidelines that would accommodate the needs of all institutional asset sizes. “Guidance or regulation that is too inflexible or that makes AI/ML cost prohibitive may severely impact smaller institutions’ ability to utilize these tools, which may ultimately result in lost opportunities/advantages for impacted consumers,” NASCUS wrote.
The state system also recommended a common lexicon be developed for use of AI to establish a common understanding of just what the technology (and related concepts) constitutes. “An agreed-upon set of foundational definitions would likely go a long way toward avoiding future confusion among stakeholders related to divergent regulatory guidance and rules issued to address this area,” NASCUS advised.
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(July 2, 2021) Rules described as designed to help prevent a surge of foreclosures as federal protections expire were finalized this week – to become effective Aug. 31 – by the CFPB, effectively putting an end to an extension of a foreclosure moratorium by the agency at the end of this month.
The bureau said its amendments to federal mortgage servicing regulations would help protect mortgage borrowers from “unwelcome surprises” as they exit forbearance following the end of the federal foreclosure moratorium, set to end July 31. The rules cover loans on principal residences and generally exclude small servicers.
The protections only apply to first legal or first notice between the effective date of Aug. 31, 2021 and the sunset of Jan. 1, 2022.
Under the new rules, borrowers will have at least three options to bring mortgages current and avoid foreclosure: Resume regular mortgage payments; lower their monthly mortgage payments or; sell their homes, the bureau said.
The agency noted that the rules announced this week will establish “temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes.”
According to the bureau, the rules will:
- Give borrowers a meaningful opportunity to pursue loss mitigation options. “As borrowers exit forbearance, they need time to process their current options and consider next steps,” the agency stated. “As such, to ensure that borrowers can pursue foreclosure avoidance options, servicers must meet temporary special procedural safeguards before initiating foreclosures for certain mortgages through the end of the year.”
- Allow mortgage servicers to help borrowers faster. “Under the new temporary rule, servicers can offer streamlined loan modifications to borrowers with COVID-19-related hardships without making borrowers submit all the paperwork for every possible option,” the agency stated. “These streamlined loan modifications cannot increase borrowers’ payments and have other protections built into them. With this flexibility, servicers can get borrowers into affordable mortgage payment plans faster, with less paperwork for both the servicer and the borrower.”
- Tell borrowers their options. “Servicers will be required to increase their outreach to borrowers before initiating foreclosure and tell borrowers key information about their repayment or other options when they communicate with borrowers who are exiting forbearance or struggling to make mortgage payments,” CFPB said.
Not all foreclosures are avoidable, CFPB said, noting such action can start if the borrower: has abandoned the property; was more than 120 days behind on their mortgage before March 1, 2020; is more than 120 days behind on their mortgage payments and has not responded to specific required outreach from the mortgage servicer for 90 days; or has been evaluated for all options other than foreclosure and there are no available options to avoid foreclosure.
LINKS:
Final rule, federal mortgage servicing regulations
(July 2, 2021) Four types of violations during 2020 of federal consumer protection and anti-discrimination laws – including those involving student lending and mortgage lending disclosures — are branded “particularly concerning” in a report issued this week by the CFPB.
The bureau, in its summer 2021 Supervisory Highlights noted that the violations are generally from 2020. They reflect, the agency said, findings that arose in connection with exams of supervised entities (and resolved without specific enforcement action).
The findings, the CFPB said, are:
- Violations of mortgage servicing rules in Regulation X, including: instances of some servicers making the first notice or filing for foreclosure when it was prohibited (for example, filing before they had evaluated borrowers’ appeals; in some cases failing to notify their foreclosure counsel to stop all legal filings at the time that the servicer received a completed loss mitigation application). Examiners also found that some servicers engaged in a deceptive act or practice when they told borrowers foreclosure would not occur until a specific date but initiated foreclosures prior to that date.
- Servicers misleading consumers about the program to forgive the balance of certain federal student loans after 10 years of payments on a qualifying repayment plan if the consumer works in certain public service jobs (the Public Service Loan Forgiveness (PSLF)). CFPB said there are additional requirements consumers need to satisfy to access the program, and borrowers frequently request information from their servicers about their eligibility. Agency examiners reportedly found a number of ways that student loan servicers gave incorrect information to borrowers, resulting in missteps that could cost consumers thousands of dollars.
- Discouragement of people in minority neighborhoods from applying for credit was observed through, among other things, locating offices in almost exclusively majority-white neighborhoods, only using pictures of white people in direct mail marketing campaigns, and publishing loan officer headshots of almost exclusively white people. Examiners noted these practices lowered the number of applications from minority neighborhoods relative to other comparable lenders. (The bureau noted its lawsuit filed a year ago alleging redlining by Townstone Financial, Inc., specifically through violations of the Equal Credit Opportunity Act and Regulation B, which implements the act, and the Consumer Financial Protection Act.)
- Information accepted by consumer reporting companies from companies that furnish consumer data despite “ample signs” that these furnishers were unreliable. Examiners found that this violates the Fair Credit Reporting Act.
LINK:
CFPB Report Highlights Supervisory Findings of Wide-Ranging Violations of Law in 2020
(June 25, 2021) The timing of mortgage lenders’ compliance with federal disclosure rules may have been disrupted with the abrupt implementation of the new “Juneteenth” federal holiday late last week – perhaps even delaying mortgage closings – the CFPB said it was aware of concerns those disruptions have raised.
In a statement, bureau Acting Director Dave Uejio said the concerns revolved around mortgage lender compliance with Truth in Lending Act (TILA) and TILA-RESPA (Real Estate Settlements Protection Act) Integrated Disclosure (TRID) timing requirements. “The CFPB recognizes that some lenders did not have sufficient time after the Federal holiday declaration to consider whether and how to adjust closing timelines,” Uejio wrote. “The CFPB understands that some lenders may delay closings to accommodate the reissuance of disclosures adjusted for the new Federal holiday.”
Uejio said both TILA and TRID requirements generally protect creditors from liability for bona fide errors and permit redisclosure after closing to correct errors.
The acting CFPB director said any guidance ultimately issued by the CFPB would consider the limited implementation period before the holiday and would be issued after consultation with both federal and state financial institution regulators “to ensure consistency of interpretation for all regulated entities.”
(June 18, 2021) Collection, reporting, and public disclosure of data concerning credit applications made by women-owned, minority-owned, and small businesses will be the subject of a proposed rule by the CFPB later this summer, according to the agency’s spring 2021 agenda, published late last week.
This proposal and others to come are reviewed in a blog post by the bureau published on the agency’s website about its regulatory agenda, which is part of the “unified agenda” of rules across federal agencies and departments (including NCUA).
The small-business data proposal is planned for release in September, according to the agenda, and follows the outline of proposals issued about a year ago and a stakeholder panel report in December. The proposed rule would implement a section 1071 requirement in the Dodd-Frank Act requirement.
The blog post also hints that the bureau’s permanent director (nominee Rohit Chopra, who now sits on of the Federal Trade Commission) will be confirmed by the Senate in the coming months; it states that the permanent director’s changes to the current agenda will be reflected in the fall 2021 agenda.
Other rules ahead for the CFPB, according to the regulatory agenda, include:
- action on rulemaking over availability of consumer financial account data (the bureau is considering comments it has already received and assessing “next steps”).
- A final rule intended to facilitate the transition away from the LIBOR reference rate, which becomes defunct for new contracts in January. The bureau said it intends to release its final rule that same month. “Our work is designed to lessen the financial impact to consumers and facilitate creditor compliance by providing examples of replacement indices that meet Regulation Z requirements,” the bureau wrote in the blog post.
- Assessments of a rule implementing HMDA, which became effective in 2018. The bureau noted that, considering other rulemaking priorities, it is no longer pursuing two HMDA rulemakings that were listed in the proposed rule stage in previous agendas – one addressing the data points that lenders must report and another related to the public disclosure of HMDA data.
LINKS:
Unified Agenda – CFPB spring 2021 list
CFPB Spring 2021 Rulemaking Agenda
(June 18, 2021) Military Lending Act-related examinations will now resume by the CFPB, the agency said this week, asserting that the prior administration’s reasoning for discontinuing the reviews were not found persuasive.
In a release, the bureau said it has issued an interpretive rule explaining the basis for its authority to examine supervised financial institutions for risks to active duty servicemembers and dependents from conduct that violates the MLA. (The MLA, enacted in 2006, and implemented by the Department of Defense, applies to consumer credit offered to military service members and their dependents by, among other things, limiting the interest rates that may be charged on many types of consumer loans to no more than 36%.)
CFPB Acting Director Dave Uejio, in a statement, said through the bureau’s enforcement of the MLA, companies that harmed military borrowers have been ordered to pay millions of dollars in redress and civil penalties. “To fulfill its purpose and protect military borrowers we must supervise financial institutions and hold them accountable for endangering consumers,” Uejio said.
The agency noted in its release that in September 2013, it amended its supervisory procedures so examiners could review lenders’ records about MLA violations. Pointedly, the agency stated that for five years no companies disputed the bureau’s authority to review their MLA lending practices.
“In 2018, the CFPB’s leadership discontinued MLA-related examination activities, based on its stated belief that Congress did not specifically confer examination authority on the CFPB with respect to the MLA,” the bureau release stated. “The current CFPB leadership does not find those prior beliefs persuasive and the CFPB will now resume MLA-related examination activities,” the release concluded.
The summary for the interpretive rule (which becomes effective when it is published in the Federal Register) states outright that the bureau has “statutory authority to conduct examinations, at those institutions that it supervises, regarding the risks to active-duty servicemembers and their covered dependents that are presented by conduct that violates the Military Lending Act.”
“This interpretive rule explains the basis for that authority,” it states.
The CFPB’s interpretive rule also notes that the Consumer Financial Protection Act (CFPA) authorizes the bureau to conduct examinations of very large banks and credit unions for purposes of detecting and assessing “risks to consumers”that are associated with activities subject to federal consumer financial laws, such as the Truth in Lending Act (TILA) or the CFPA. The rule asserts that the activity of extending consumer credit under the MLA is a subset of the activity of extending consumer credit under TILA by the large credit unions and banks.
The bureau said it recognized the role of the prudential regulators in conducting MLA supervision, including examinations, at very large banks and credit unions. However, it also asserted that exams conducted by CFPB for MLA compliance are for a different purpose.
“Nothing in the CFPA or in this interpretive rule limits in any way, or should be deemed to limit in any way, the prudential regulators’ consumer compliance examinations of very large banks or credit unions, or their subsidiaries, for the purpose of assessing compliance with the MLA,” the rule states.
(June 11, 2021) Changes made during its reorganization have led to a loss of fair lending expertise at the CFPB, and other actions taken by the agency could lead to reduced transparency and difficulty in assessing progress toward fair lending goals, according to a report issued by the Government Accountability Office (GAO) this week.
GAO said that a reorganization by the bureau in 2018 shuffled its fair lending activities, resulting in expertise being reallocated throughout the agency. The congressional watchdog stated that, when the agency conducted the reorganization three years ago, it moved its fair lending office from the supervision, enforcement and fair lending division to the office of former Director Kathleen Kraninger reallocating some of the fair lending office’s responsibilities along the way.
More specifically, GAO said those key changes in the 2018 reshuffling were:
- Responsibility was moved from specialist attorneys in the fair lending office to generalist attorneys in its enforcement office.
- Subject matter expertise and exam support was shifted from dedicated fair lending office supervision staff to a new team in the office of supervision policy.
- Responsibility for selecting institutions for fair lending exams and identifying enforcement priorities was reassigned from the fair lending office to supervision offices and the office of enforcement at the bureau.
“As CFPB planned and implemented the reorganization, it did not substantially incorporate key practices for agency reform efforts GAO identified in prior work—such as using employee input for planning or monitoring implementation progress and outcomes,” the congressional watchdog stated.
The GAO also said that it identified “challenges related to the reorganization” that included loss of fair lending expertise and specialized data analysts. The agency indicated those losses may have “contributed to a decline in enforcement activity in 2018.”
In any event, the report stated, the bureau has not assessed how well the reorganization met its own goals or how it affected fair lending supervision and enforcement efforts.
LINK:
Fair Lending: CFPB Needs to Assess the Impact of Recent Changes to Its Fair Lending Activities
(June 4, 2021) Frequently asked questions (FAQs) about mortgage servicing were updated this week by the CFPB, concerning escrow account compliance under Regulations X and Z (RESPA and TILA, respectively). The new questions added 11 pages to the agency’s mortgage servicing queries list, covering an array of issues related to escrow accounts (including: a basic definition) … Written communication providing specific direction on use of alternative data at financial institutions – including credit unions — is required from regulators, the GAO indicated in reports it issued this week. Additionally, the GAO wrote, regulators should be collaborating on the specifics in that written communication. The GAO detailed an outstanding 2018 recommendation that has not yet been addressed by the Fed and the FDIC, asserting that “continued attention to this issue could improve (the agencies’) ability to more effectively oversee risks to consumers and the safety and soundness of the U.S. banking system.” The GAO did note that federal financial regulators (including NCUA) in late 2019 issued an interagency statement highlighting potential benefits and risks of using alternative data and encouraged financial firms to use it. However, GAO noted, that statement does not provide firms or banks with specific direction on the appropriate use of that data, including issues to consider when selecting types of alternative data to use.
LINKS:
Mortgage Servicing FAQs, last updated June 2, 2021.
Priority Open Recommendations: Federal Deposit Insurance Corporation
Priority Open Recommendations: Federal Reserve
(May 28, 2021) The delay to Oct. 1, 2022 of the mandatory compliance date of the general qualified mortgage (QM) final rule is the subject of a regulatory alert issued by NCUA this week and sent to all federally insured credit unions.
The letter details action taken by CFPB in late April, which moved compliance with the QM rule to Oct. 1 of next year from July 1 of this year. The bureau said in April that the delay was made to “help ensure access to responsible, affordable mortgage credit, and preserve flexibility for consumers affected by the COVID-19 pandemic and its economic effects.”
The final rule making the change was titled “April 2021 Amendments to the ATR/QM Rule” (ATR stands for “ability to repay”).
In its alert, NCUA notes the two categories that the compliance date delay affects: General QMs and temporary GSE QMs (referring to QMs issued by government-sponsored enterprises Fannie Mae and Freddie Mac).
The alert notes that, under the general GM category, a lender can use either the original underwriting process (with the 43 percent DTI limit) or the new underwriting process (with price-based thresholds) for applications received from March 1, 2021, to Sept. 30, 2022. Lenders must use the revised General QM loan definition for applications received on or after Oct. 1, 2022.
Under the GSE category, the Alert states, the temporary GSE QM loan definition expires upon the earlier of Oct. 1, 2022, or the date the applicable GSE exits federal conservatorship (rather than on the original mandatory compliance date of July 1, 2021, or the date the applicable GSE exits federal conservatorship).
(May 28, 2021) Consumers borrowing to buy manufactured homes face higher interest rates, and ultimately barriers to credit through limited refinancing options, CFPB contends in a report released Thursday, which it said is based on new information collected beginning in 2018 under the Home Mortgage Disclosure Act (HMDA).
The bureau claimed that manufactured housing is “one of the one of the most affordable types of housing available to low-income consumers” and makes up 13% of the housing stock in small towns and rural areas. However, the bureau said, the loans are often coupled with higher interest rates and limited opportunity to refinance.
For example, the bureau said less than 30% of manufactured home loan applications are approved, compared to more than 70% of loan approvals for “site-built” homes. The agency noted that around 42% of manufactured home purchase loans are “chattel” loans, which are secured by the home but not the land. In general, the bureau asserted, chattel loans have higher interest rates and fewer consumer protections than mortgages.
Less than 4% of chattel loan originations were for refinancing, the bureau said.
Hispanic, Black and African American, American Indian and Alaska Native, and elderly borrowers are more likely than other consumers to take out chattel loans, even after controlling for land ownership, CFPB said. Black and African American borrowers are the only racial group that are underrepresented in manufactured housing lending overall compared to site-built, the bureau said, but overrepresented in chattel lending compared to site-built.