Feb. 17: CFPB Updates This Week

Appraisal standards must include federal prohibitions against discrimination

The CFPB and leaders from across the federal government submitted a joint letter to The Appraisal Foundation (TAF), the private, nongovernmental organization that sets appraisal standards. The letter urges TAF to revise its draft Ethics Rule for appraisers to include a detailed statement of federal prohibitions against discrimination that exist under the Fair Housing Act and Equal Credit Opportunity Act. We are concerned that some appraisers may be unaware of these prohibitions and, in particular, that the draft Ethics Rule emphasizes that “[a]n appraiser must not engage in unethical discrimination,” implying that appraisers may engage in “ethical” discrimination, a concept foreign to current law and practice.

The letter marks the second time we have raised these concerns with TAF. On February 4, 2022, we urged TAF to provide clear guidance on existing legal standards related to appraisal bias in response to a prior draft of its Ethics Rule included in the Uniform Standards of Professional Appraisal Practice. In a blog post released with the letter, the CFPB noted that we are deeply troubled by the discriminatory statements the Federal Housing Finance Agency identified in some home appraisals, and the appraisal disparities for communities and borrowers of color described in both Freddie Mac  and Fannie Mae  studies. Moreover, the CFPB continues to see reports of appraisers who fail to follow the law and who base their value judgments on biased, unfounded assumptions about borrowers and communities.

For more than 50 years, federal law has forbidden racial, religious, and other discrimination in home appraisals. It is imperative that TAF provide appraisers clear, detailed, and unambiguous warnings about the requirements of federal law covering appraisal standards.

CFPB Finds One-Third Decline in Collections Items on Consumer Credit Reports

The Consumer Financial Protection Bureau (CFPB) released a report examining trends in credit reporting of debt in collections from 2018 to 2022. The report found the total number of collections tradelines on credit reports declined by 33%, from 261 million tradelines in 2018 to 175 million tradelines in 2022. The share of consumers with a collection tradeline on their credit report decreased by 20% in the same timeframe. The CFPB also released today additional analysis examining factors that increase the likelihood of inaccurate medical collections reporting and may contribute to the decline in medical collections tradelines.

Collections tradelines are furnished to credit reporting companies by third-party debt collectors. Commonly reported collection items include medical, rental and leasing, credit card, and utility accounts. Some third-party collectors work on behalf of original creditors for a fee (“contingency-fee-based debt collectors”) and others purchase accounts outright from creditors (“debt buyers”).

Unlike most other tradelines, debt collection tradelines rarely report positive information like on-time payments, and result in reporting of collections tradelines being almost entirely harmful to consumers. Collections tradelines are visible to potential lenders, employers, landlords, and others who run credit inquiries or background checks. Collections tradelines can limit people’s access to jobs and housing, as well as decrease credit scores and increase the cost of credit. Given the potential damaging impacts of collections tradelines, reporting of inaccurate data is especially harmful.

This report is drawn from the CFPB’s Consumer Credit Panel, a nationally representative sample of approximately 5 million de-identified credit records maintained by one of the three nationwide credit reporting companies. Key findings of this report include:

  • The decline in collections tradelines was driven by fewer reports by contingency-fee-based debt collectors, who primarily collect on medical bills. Contingency-fee-based debt collectors reported 38% fewer collections tradelines from Q1 2018 to Q1 2022, while the number of collections reported by the subset of debt buyers increased by 9% over the same period. The number of unique contingency-fee-based debt collectors also declined by 18% (from 815 to 672). Medical bills account for 68.9% of furnished collections by contingency-fee-based debt collectors.
  • Concerns about data integrity and the associated costs that would come with furnishing disputed information may explain some of the decrease in collections tradelines on credit reports. CFPB market monitoring indicates that contingency-fee-based debt collectors are moving away from furnishing collections information to credit reporting companies in part due to their concerns about data integrity and their ability to comply with the Fair Credit Reporting Act, including dispute processing. CFPB’s analysis on medical debt reporting describes the difficulty of assuring the accuracy of medical bills, including the lack of timely access to healthcare providers’ billing and payment information.
  • Medical collections tradelines still constitute a majority of all collections on consumer credit reports. Despite the decline in collections reporting, medical collections tradelines still represent 57% of all collections items on credit reports. Upcoming changes to medical collections reporting, as previously announced by the nationwide consumer reporting companies, will remove small dollar (less than $500) and paid medical collection tradelines from consumer credit reports. While this will reduce the total number of medical collections tradelines, an estimated half of all consumers with medical collections tradelines will still have them on their credit reports, with the larger collection amounts (representing a majority of the outstanding dollar amount of medical collections) remaining on credit reports.

This report updates CFPB research published in 2019, which covered consumer credit records from 2004 to 2018. This report builds on prior work by the CFPB to analyze consumer credit reporting trends and to better understand the role of medical bills on credit reports.

Lael Brainard submitted her resignation February 14, 2023 as Vice Chair and a member of the Federal Reserve Board, effective on or around February 20, 2023. She has been a member of the Board since June 16, 2014, and Vice Chair of the Board since May 23, 2022.

“Lael has brought formidable talent and superb results to everything she has done at the Federal Reserve,” Chair Jerome H. Powell said. “That lengthy list includes her thought leadership on monetary policy and economic research, her stewardship of financial stability and the payments system, strengthening the financial system both domestically and globally, and helping to manage the immense operational agency challenges during the pandemic. My colleagues and I will truly miss her.”

Dr. Brainard was nominated to the Board by President Obama and then re-nominated as Vice Chair by President Biden. During her time at the Board, she chaired multiple committees, including the Committee on Financial Stability, the Committee on Economic and Monetary Affairs, the Committee on Payments, Clearing, and Settlement, and the Committee on Board Affairs, among others. She also served as chair of the Federal Open Market Committee’s communication subcommittee.

Dr. Brainard played a vital role during the response to the pandemic and has provided wise counsel on monetary policy, as well as contributing to the creation of the Fed Listens initiative. The Board published its first financial stability report under her leadership. She has led the interagency process to strengthen the Community Reinvestment Act, as well as the Board’s work to establish the FedNow real-time payments network.

Dr. Brainard has represented the Board internationally, including at the Bank for International Settlements, the Group of Seven, and the Financial Stability Board. While at the Fed, Dr. Brainard was chair of the Financial Stability Board’s Standing Committee on Assessment of Vulnerabilities and also chair of the Organization for Economic Co-operation and Development Working Party 3 committee. She will soon start as director of the National Economic Council, which advises the president on domestic and global economic policy.

Before her time at the Fed, she served as Under Secretary of the U.S. Department of the Treasury and counselor to the Secretary of the Treasury, where she received the Alexander Hamilton Award. Prior to that, Dr. Brainard was vice president and the founding director of the Global Economy and Development Program at the Brookings Institution. Before that, she served as the Deputy National Economic Adviser and Deputy Assistant to the President and G-7 Sherpa. From 1990 to 1996, Dr. Brainard was assistant and associate professor of applied economics at the Massachusetts Institute of Technology Sloan School of Management.

Dr. Brainard received a B.A. with university honors from Wesleyan University and an M.S. and a Ph.D. in economics from Harvard University, where she was awarded a National Science Foundation Fellowship. She is also the recipient of the Harvard Centennial Medal and the White House Fellowship.

Click here to see the release.

On February 26, the NCUA Board held its second open meeting of 2023. The Board unanimously approved two items. The items approved included a long-awaited final rule on cyber incident reporting requirements and a notice of proposed rulemaking to amend the NCUA’s federal credit union chartering and field-of-membership rules.

Final Rule, Part 748, Cyber-Incident Notification Requirements for Federally Insured Credit Unions

The final rule on cyber incident reporting remains largely unchanged from that of the proposed rule. Under the final rule, federally insured credit unions (FICUs) will be required to report a cyber incident that leads to a “substantial loss of confidentiality, integrity, or availability of a network or member information system as a result of the exposure of sensitive data, disruption of vital member services, or that has a serious impact on the safety and resiliency of operational systems and processes.”  Such cyber attacks must be reported to NCUA within 72 hours upon a credit union forming a reasonable belief that it has experienced a cyberattack.

The effective date of the final rule is September 1, 2023. NCUA will issue resources for credit unions in advance of the effective date.

Proposed Rule, Part 701, Chartering and Field of Membership

In an effort to provide greater opportunities for expanding fields of membership for Federal credit unions, the Board unanimously approved a proposed rule that would amend the chartering and field of membership rules with nine changes. The changes are intended to enhance consumer access to safe, fair, and affordable financial services, especially in underserved communities.

The proposed changes include:

  • Four changes to the rules for underserved areas that multiple common-bond federal credit unions may seek to add to their field of membership. The changes would streamline the current application requirements and clarify the role of data and criteria that other federal agencies provide relating to underserved areas, specifically the U.S. Treasury’s CDFI criteria.
  • Elimination of the business and marketing plan requirement for certain Federally Insured State Chartered credit unions that are seeking to convert to a federal charter while serving the same community field of membership.
  • Expanding the definition of community-based field of membership affinities – recognizing the growth of telecommuting and remote work for companies headquartered in a community.
  • A provision to allow all federal credit unions to better capture the ongoing bond between individuals within a field of membership and their immediate family members following the death of a member.
  • A technical clarification on the process by which NCUA reviews and approves the character and fitness of a prospective federal credit union’s management and officials.

Comments will be due 90 days following publication in the Federal Register. NASCUS will provide a summary of the proposed rule in the coming weeks.

Share Insurance Fund Equity Ratio Briefing

The Board was also briefed on the performance of the Share Insurance Fund and the status of the fund’s equity ratio. The fund ratio remained at 1.30 percent as of December 31, 2022. This was an increase from 1.26 percent at the end of June 30, 2022. The board once again discussed credit union failures and their impact on the equity ratio. In the 4th quarter of 2022, there were a total of six credit union failures. Five of the six failures were due to fraud.  The complete presentation of the board’s share insurance fund briefing can be found here.

Read the press release from the NCUA following the board meeting here.

The Federal Reserve Board on Thursday released the hypothetical scenarios for its annual stress test, which helps ensure that large banks are able to lend to households and businesses even in a severe recession. This year, 23 banks will be tested against a severe global recession with heightened stress in both commercial and residential real estate markets, as well as in corporate debt markets.

2023 Stress Test Scenarios (PDF)

The Board’s stress test evaluates the resilience of large banks by estimating losses, net revenue, and capital levels—which provide a cushion against losses—under hypothetical recession scenarios that extend two years into the future. The scenarios are not forecasts and should not be interpreted as predictions of future economic conditions.

In the 2023 stress test scenario, the U.S. unemployment rate rises nearly 6-1/2 percentage points, to a peak of 10 percent. The increase in the unemployment rate is accompanied by severe market volatility, a significant widening of corporate bond spreads, and a collapse in asset prices.

In addition to the hypothetical scenario, banks with large trading operations will be tested against a global market shock component that primarily stresses their trading positions. The global market shock component is a set of hypothetical shocks to a large set of risk factors reflecting market distress and heightened uncertainty.

For the first time, this year’s stress test will feature an additional exploratory market shock to the trading books of the largest and most complex banks, with firm-specific results released. This exploratory market shock will not contribute to the capital requirements set by this year’s stress test and will be used to expand the Board’s understanding of the largest banks’ resilience by considering more than a single hypothetical stress event. The Board also will use the results of the exploratory market shock to assess the potential of multiple scenarios to capture a wider array of risks in future stress test exercises.

Click here to read the entire release.

Today, the CFPB published the Regulatory and Reporting Overview Reference Chart for HMDA Data Collected in 2023. Resources to help industry understand, implement, and comply with the Home Mortgage Disclosure Act and Regulation C.

You can access the 2023 Reference Chart here: www.consumerfinance.gov/compliance/compliance-resources/mortgage-resources/hmda-reporting-requirements/.
PUBLISHED 
Data spotlight: Banks’ overdraft/NSF fee revenue declines significantly compared to pre-pandemic levels
Third quarter of 2022 is down more than 40% compared to third quarter of 2019, suggesting $5B reduction in fees on annual basis.

Since late 2021, several banks have announced changes to their overdraft programs that have been expected to reduce overdraft/non-sufficient fund (NSF) fee revenue. Our most recent analysis finds that bank overdraft/NSF fee revenue:

  • was 43% lower in the third quarter of 2022 than in the third quarter of 2019 before the COVID-19 pandemic onset – suggesting $5.1 billion less in fees on an annualized basis;
  • was 33% lower over the first three quarters of 2022 compared to the same period in 2019; and
  • has trended downward in each quarter since the fourth quarter of 2021.

At the same time, we have not observed correlating increases in other listed checking account fees, which suggests that banks are not replacing overdraft/NSF fee revenue with other fees on checking accounts.

This analysis of bank call report data follows our previous analyses of trends in checking account fee revenue published in December 2021 and July 2022.

PUBLISHED 

CFPB Issues Guidance to Protect Mortgage Borrowers from Pay-to-Play Digital Comparison-Shopping Platforms

The Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to protect Americans from double dealing on digital mortgage comparison-shopping platforms. Companies operating these digital platforms appear to shoppers as if they provide objective lender comparisons, but may illegally refer people to only those lenders paying referral fees. When shoppers use a lender that is not the best option for their needs, they may end up with a lower quality lender or paying thousands more in closing costs or interest. The advisory opinion outlines how companies violate the Real Estate Settlement Procedures Act (RESPA) when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information.

A Virtual Public Meeting of the CDFI Fund’s Advisory Board will be Held on February 28, 2023

The Community Development Financial Institutions Fund (CDFI Fund) is convening a meeting of the Community Development Advisory Board (the Advisory Board) from 2:00 to 4:00 p.m. Eastern Time on Tuesday, February 28, 2023. This meeting will be conducted virtually.

The function of the Advisory Board is to advise the Director of the CDFI Fund on the policies regarding the activities of the CDFI Fund. The Advisory Board does not advise the CDFI Fund on approving or declining any particular application for monetary or non-monetary awards.

Please use the following link to view the official meeting notice, which is being released in advance of its publication in the Federal Register on February 9, 2023.

Accessing the Virtual Meeting

This virtual meeting of the Advisory Board is open to the public and free of charge. Members of the public who wish to view this virtual meeting will be required to register upon entry into the virtual meeting.

Viewing this virtual meeting requires the use of WebEx. Please install the WebEx Event Manager prior to the meeting. To download the Event Manager, see the instructions on the Webex Downloads page.

Access Details:

Agenda

The Advisory Board meeting will include a report from the CDFI Fund Director on the activities of the CDFI Fund since the last Advisory Board meeting, particularly the status of the CDFI Certification Application review process. In addition, there will be a discussion regarding two newly formed subcommittees.

Questions

Any questions can be directed to Bill Luecht in the Office of Legislative and External Affairs by calling (202) 653-0322 or via e-mail at [email protected].