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  • OCC Policy Outlines CRA Evaluation Process and Impact of Discriminatory Practices

    Agency Rule-Making & Guidance

    On October 12, the OCC issued OCC Bulletin 2017-40 announcing the release of its Policies and Procedures Manual 5000-43 (PPM 5000-43), which outlines the OCC’s policy and framework for how the agency determines Community Reinvestment Act (CRA) ratings when there’s evidence of discriminatory or other illegal credit practices directly related to a supervised financial institution’s CRA lending activities. First, PPM 5000-43 requires a “logical nexus” between the assigned ratings and the evidence of discriminatory or other illegal practices to ensure that the CRA evaluation “does not penalize a bank for compliance deficiencies or illegal credit practices unrelated to its CRA lending activities.” Second, the OCC examiners will give “full consideration” to any remedial actions the institution has already taken to address such discriminatory or other illegal credit practices to ensure that the CRA rating “does not penalize a bank for compliance deficiencies or illegal credit practices that have been, or are substantially being, addressed by the bank.”

    Agency Rule-Making & Guidance OCC CRA Lending Consumer Finance Fair Lending

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  • CFPB’s Summer Edition of Supervisory Highlights Discloses Findings Across Many Financial Services Areas

    Consumer Finance

    On September 12, the CFPB released its summer 2017 Supervisory Highlights, which outlines its supervisory and oversight actions in areas such as auto loan servicing, credit card account management, debt collection, deposit account supervision, mortgage origination and servicing, remittances, service provider programs, short-term small-dollar lending, and fair lending. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in total restitution payments of approximately $14 million to more than 104,000 consumers during the review period” between January 2017 and June 2017.

    As examples, in the area of auto loan servicing, examiners discovered vehicles were being repossessed even though the repossession should have been cancelled. Coding errors, document mishandling, and failure to timely cancel the repossession order were cited causes. Regarding fair lending examination findings, the CFPB discovered, in general, “deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.” Examiners also conducted ECOA Baseline Reviews on mortgage servicers and discovered weaknesses in servicers’ fair lending compliance management systems. Findings in other areas include the following:

    • consumers were provided inaccurate information about when bank checking account service fees would be waived, and banks misrepresented overdraft protection;
    • debt collectors engaged in improper debt collection practices related to short-term, small-dollar loans, including attempts to collect debts owed by a different person or contacting third parties about consumers’ debts;
    • companies overcharged mortgage closing fees or wrongly charged application fees that are prohibited by the Bureau’s Know Before You Owe mortgage disclosure rules; and
    • borrowers were denied the opportunity to take full advantage of the mortgage loss mitigation options, and mortgage servicers failed to “exercise reasonable diligence in collecting information needed to complete the borrower’s application.”

    The Bureau also set forth new examination procedures for HMDA data collection and reporting requirements as well as student loan servicers, in addition to providing guidance for covered persons and service providers regarding pay-by-phone fee assessments.

    Consumer Finance CFPB Enforcement Auto Finance Credit Cards Debt Collection Fair Lending ECOA Compliance Mortgage Origination Mortgage Servicing HMDA Student Lending

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  • CFPB’s Project Catalyst Issues First “No-Action” Letter to Consumer Lending Firm

    Consumer Finance

    On September 14, the CFPB’s Project Catalyst initiative issued its first “no-action” letter to a consumer lending firm that provides an online lending platform that uses alternative data when making lending decisions. As previously discussed in InfoBytes, Project Catalyst explores innovation in the consumer financial services sector and examines the potential challenges facing consumers, entrepreneurs, and investors. With the issuance of the no-action letter—at the lender’s request—the CFPB indicated that it does not, at the present, intend to take enforcement action against the lender under the Equal Credit Opportunity Act. However, the letter does not waive the Bureau’s right to choose to “conduct supervisory activities or engage in an enforcement investigation” should the lender fail to comply with the outlined terms. Further, the letter stipulates that the Bureau has the right to evaluate other matters concerning the lender. According to a press release issued by the Bureau, the lender has agreed to “share certain information with the CFPB regarding the loan applications it receives, how it decides which loans to approve, and how it will mitigate risk to consumers, as well as information on how its model expands access to credit for traditionally underserved populations.”

    Earlier this year the CFPB issued a request for information seeking input about the use of alternative data, and it believes the information it will receive under the terms of the no-action letter will help to “further its understanding of how these types of practices impact access to credit generally and for traditionally underserved populations, as well as the application of compliance management systems for these emerging practices.” (See previous InfoBytes summary here.)

    Consumer Finance CFPB Alternative Data Credit Scores Fair Lending ECOA

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  • CFPB Consent Order to Banking Subsidiaries Resolves Discriminatory Credit Card Term Practices in Puerto Rico and U.S. Territories

    Consumer Finance

    On August 23, the CFPB announced it was taking action against two banking subsidiaries of a multi-bank holding corporation for violating the Equal Credit Opportunity Act (ECOA) by allegedly offering credit card products and services to consumers in Puerto Rico, the U.S. Virgin Islands, and other U.S. territories that were inferior to those offered to consumers in the 50 states and discriminating against certain consumers with Spanish-language preferences. The consent order alleges the pattern of discrimination started in January 2005 and continued through November 2015. In 2013, the subsidiaries began self-reporting to the Bureau differences between credit cards and charge cards offered to consumers in the territories versus those offered to consumers in the 50 states, including disparities in pricing, terms and conditions, underwriting, rebates, promotional offers, customer and account management services, credit score requirements, credit limits, and debt collection practices. During the course of the CFPB’s review, the subsidiaries provided monetary and non-monetary relief to more than 200,000 affected consumers, resulting in approximately $95 million of remediation broken into the following amounts paid or credited to consumers: (i) roughly $55.7 million towards pricing, rebates, and promotional offer differences; (ii) approximately $3.2 million towards disparities in underwriting; and (iii) $35.7 million towards customer service, account management, collections, debt mitigation, and line assignment differences. The order also states that the subsidiaries instituted enhancements to their policies and procedures and compliance management systems. Pursuant to the consent order, the subsidiaries must (i) pay at least a $1 million more in restitution to fully compensate affected consumers; and (ii) develop and implement a compliance plan to ensure credit and charge card provisions are handled in a non-discriminatory manner in compliance with ECOA, make any necessary changes to their compliance management systems based on an annual compliance audit program assessment of current business structure, and correct any identified deficiencies. The Bureau further notes that penalties were not assessed due to efforts undertaken by the subsidiaries to self-report deficiencies, self-initiate remediation, and cooperate with the CFPB’s investigation. Furthermore, the Bureau concluded through its review that the subsidiaries did not intentionally discriminate against the consumers, but that the differences occurred as a result of business units utilizing different card management structures in the territories versus in the states.

    Consumer Finance CFPB Credit Cards ECOA Fair Lending

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  • CFPB Issues Final Rule Amending 2015 HMDA Rule

    Agency Rule-Making & Guidance

    On August 24, the CFPB issued a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The changes are primarily for the purpose of clarifying the new data collection and reporting requirements published in October 2015, with most of the clarifications and revisions taking effect January 1, 2018. The CFPB released a proposed version of the clarifications  on April 13 (April Proposed Rule)—on which it solicited public comments—to address technical errors, ease the burden of certain reporting requirements, and clarify certain key terms. A detailed look at the April Proposed Rule was provided in an InfoBytes Special Alert earlier this year. An additional request for comments was issued July 14 on proposed amendments to ease the burden on community banks and credit unions by temporary raising the HMDA reporting threshold for open-end lines of credit. (See previous InfoBytes coverage here.) The CFPB adopted the April Proposed Rule and July amendments largely as written, however, a limited number of substantive changes were made. In order to assist filers, the CFPB released a comprehensive summary of the changes and reference charts to help institutions determine whether they are covered by Regulation C for 2017 or 2018 and beyond. The CFPB also released updated filing instruction guidelines for data collected in 2017 and 2018. The guidelines list changes to the reported data fields and valid values, and covers guidance for HMDA data collected in 2017 and thereafter that must be submitted to the CFPB on March 1 of each calendar year following the year of data collection.

    Highlights of changes made to the rule include:

    • Amendments to Regulation C that temporarily increase the threshold for the collection and reporting of data about open-end lines of credit, for a period of two years. Financial institutions originating fewer than 500 open-end lines of credit in either 2018 or 2019 will not be obligated to begin collecting such data until January 1, 2020. During this time, the Bureau will consider whether to make the increase permanent;     
    • Clarification to several aspects concerning the collecting and reporting of race and ethnicity information, including (i) that applicants are not required to select an aggregate race or ethnicity category as a precondition to selecting a race or ethnicity subcategories; (ii) that applicants may provide a particular “other” ethnicity or race in the free-form field, whether or not the applicant selects the “Other Hispanic or Latino,” “Other Asian,” or “Other Pacific Island” subcategory; and (iii) how financial institutions should report ethnicity—following the outlined methods—if an applicant selects more than five ethnicity categories and subcategories combined; and
    • Clarification to certain key terms defined in the 2015 HMDA Rule, including “temporary financing, automated underwriting system, multifamily dwelling, extension of credit, income, and mixed-use property.”

    Buckley Sandler will release a more comprehensive analysis of the rule and its impact on financial institutions next week.

    Agency Rule-Making & Guidance HMDA Mortgages Fair Lending CFPB

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  • Massachusetts Regulator Fines Auto Finance Companies for Violations of State Fair Lending Rules

    Lending

    On August 7, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulation (Division) announced it had entered into consent orders with several motor vehicle sales finance companies to address allegations of unlicensed and illegal auto lending practices uncovered during an investigation of approximately 200 car dealerships. According to a press release issued by the Division, the investigation resulted in “five enforcement actions, 135 cease directives, $170,000 in fines and penalties, and more than $200,000 in consumer reimbursements.” Violations include, among others, (i) pricing vehicles far above blue book value; (ii) charging interest rates that approach or are at, or exceed the state’s maximum level, which is set at 21 percent, including interest rate violations occurring as a result of the financing of debt cancellation (GAP) coverage premiums; (iii) assessing interest and/or late fees after repossession of a vehicle “on which a repossession of the collateral has been executed”; and (iv) failure to obtain a motor vehicle sales finance company license through the Division, failure to address license renewal application deficiencies, or operating without a valid license. According to one consent order, the company allegedly failed to provide consumers an opportunity to “cure a default” before using starter interrupt devices to shut down their cars. A different consent order ordered the company to identify borrowers for whom their finance charges were calculated incorrectly, or those who overpaid due to a total loss insurance claim, and reimburse borrowers the amount that was overcharged or overpaid. A third consent order was issued to a California-based auto lender who purchased finance contracts from Massachusetts auto dealers without being licensed through the Division and engaged in several of the aforementioned violations.

    None of the companies entering into the consent orders admitted to any of the allegations or the existence of any violation of state or federal law concerning their operations as motor vehicle sales finance companies.

    Lending Fair Lending Auto Finance Consumer Finance UDAAP

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  • Small Lenders Call for Restraint on Housing Finance Reform During Senate Banking Committee Hearing

    Federal Issues

    On July 20, the Senate Committee on Banking, Housing, and Urban Affairs (Committee) held a hearing entitled, “Housing Finance Reform: Maintaining Access for Small Lenders.” Frequent topics of discussion in the hearing included, among other things, housing finance reform, secondary market access, affordable housing, access to credit in rural areas, mortgage insurance, and mortgage backed securities issued by government-sponsored enterprises (GSEs), operating under conservatorship since 2008.

    Sen. Mike Crapo (R-Idaho), Chairman of the Committee, remarked in his opening statement that “small lenders play a critical role in the mortgage market,” and that a need exists to preserve access to the secondary market. However, Sen. Crapo asserted that although GSEs are currently earning profits, a risk exists for taxpayers if there is a market downturn. “A mortgage market dominated by two huge government-sponsored companies in conservatorship is not a long-term solution, and is not in the best interest of consumers, taxpayers, lenders, investors, or the broader economy,” Sen. Crapo stated.

    Sen. Sherrod Brown (D-Ohio), ranking member of the Committee, released an opening statement in which he stated, “[S]mall lenders are often the only lenders willing to go the extra mile to underwrite mortgages . . . in cities’ urban core and in rural communities. . . . As we continue to debate the role of the GSEs, private capital, and large financial institutions in providing access to affordable mortgages, we cannot create a system that allows the GSEs or new players to use a business model that serves only the largest lenders, the highest income borrowers, or the well-off pockets of our country.”

    The coalition of consumer groups and small lenders present at the hearing supported GSE reform, sought additional support for small lenders, and called for prompt government action relative to housing finance reform.

    The July 20 hearing—a video of which can be accessed here—included testimony from the following witnesses:

    • Ms. Brenda Hughes, Senior Vice President and Director of Mortgage and Retail Lending, First Federal Savings Bank of Twin Falls, on behalf of the American Bankers Association (testimony)
    • Mr. Tim Mislansky, Senior Vice President and Chief Lending Officer, Wright-Patt Credit Union and President and CEO, myCUmortgage, LLC on behalf of the Credit Union National Association (testimony)
    • Mr. Jack E. Hopkins, President and CEO, CorTrust Bank, N.A., on behalf of the Independent Community Bankers of America (testimony)
    • Mr. Charles M. Pruvis, President and CEO, Coastal Federal Credit Union, on behalf of the National Association of Federally-Insured Credit Unions (testimony)
    • Mr. Wes Hunt, President, Homestar Financial Corporation, on behalf of the Community Mortgage Lenders of America (testimony)
    • Mr. Bill Giambrone, President and CEO, Platinum Home Mortgage and President, Community Home Lenders Association (testimony)

    Federal Issues Lending Mortgages Fair Lending Fannie Mae Freddie Mac ABA CUNA ICBA NAFCU

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  • Appeal Denied in Los Angeles Fair Housing Suit

    Courts

    On May 26, the Ninth Circuit issued decisions affirming the District Court’s decisions to grant summary judgments in two separate lawsuits brought against two different national banks by the city of Los Angeles (city). (View the district court’s summary judgments here and here). In separate appeals, the city alleged that each of the banks violated the Fair Housing Act by engaging in discriminatory mortgage lending to minority borrowers. The city also asserted that this practice resulted in risky loans and increased foreclosures, which lowered the city’s property tax revenues.

    The appellate court disagreed with the city. In both decisions, the court observed that the city’s theory of liability was based on alleged “disparate impact,” which requires the city to demonstrate both the existence of a disparity and a facially neutral policy that caused the disparity.” The court noted that under established precedent a disparate impact claim, to succeed, must be supported by evidence of a robust causal connection between the disparity and the facially neutral policy. In the first case, the court held that the city failed to show such a robust causal connection, and in the second, it found “[t]he record does not reflect that the city raised a genuine issue of material fact as to a policy or policies with a robust casual connection to the racial disparity.” (View appellate memoranda for these cases here and here).

    Courts UDAAP Mortgages Fair Lending Litigation Fair Housing Appellate

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  • CFPB Monthly Complaint Snapshot Highlights Complaints from Older Consumers

    Consumer Finance

    On May 31, the CFPB released Vol. 23 of its Monthly Complaint Report. This month’s report highlights complaints from “older consumers” defined as those who voluntarily report their age as 62 or older. Since it began accepting complaints, the Bureau has received over 1 million complaints—more than 100,000 from older consumers. The report focuses on these complaints, with some of the most common in 2017 including:

    • Reverse mortgage servicing issues, which are unique to this group of consumers. Many of the complaints surround older consumers attempting to stay in their home after the death of the borrowing spouse, occasionally ending in foreclosure;
    • Financial scams and identity theft issues are often difficult to recover from—especially for consumers on fixed-incomes;
    • Credit card issues such as introductory offers may cause confusion for older consumers in understanding credit terms and conditions or the difference between zero interest and deferred interest. Additionally, many older consumers struggle with billing disputes, unwanted subscription services and credit monitoring; and
    • Escrow issues, especially when the consumer is trying to benefit from tax relief programs.

    The graph shown in a blog on the Bureau’s website compares complaints from consumers 62 and older with complaints from consumers under 62. Although both groups of consumers reported complaints for many of the same products, the graph shows that mortgages, debt collection and credit cards, in that order, are the top three products for those 62 and older—whereas debt collection, mortgages and credit reporting are the top three for those under 62. Additionally, the report reveals that almost a quarter of all complaints from older consumers came from residents of California, Texas, and Florida.

    Consumer Finance CFPB Mortgage Servicing Credit Cards Consumer Complaints Consumer Lending Fair Lending Privacy/Cyber Risk & Data Security

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  • National Fair Housing Alliance Settles Lending Discrimination Claims Brought Against National Bank

    Lending

    On May 19, the National Fair Housing Alliance (NFHA) announced it had reached an agreement with a major national bank (Bank) related to a housing discrimination complaint the NFHA filed with HUD in 2014. The complainant alleges that NFHA conducted a series of tests over a period of several months revealing a “pattern of discriminatory conduct.” Latino prospective qualified borrowers were often quoted higher monthly payment and closing costs and were denied opportunities to speak with loan officers. The complainants also cited data showing that the number of purchase loan applications received from Latinos had declined over the past few years. While the Bank denied all allegations in the complaint, it agreed to contribute more than $400,000 towards fair housing efforts in South Carolina and nationwide. Separately, the original complaint led to HUD filing charges against the Bank last December on behalf of the NFHA for lending discrimination—citing, in particular, that prospective Latino borrowers were treated less favorably than non-Latinos, in violation of the Fair Housing Act.

    Lending HUD Enforcement Fair Lending Mortgage Lenders

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