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OCC urges court to uphold valid-when-made rule
On January 14, the OCC moved for summary judgment in an action filed by the California, Illinois, and New York attorneys general (collectively, “states”) challenging the OCC’s valid-when-made rule, arguing that the challenge is without merit and that the agency “reasonably interprets the ‘gap’ in [12 U.S.C. § 85] concerning what happens when a national bank sells, assigns, or transfers a loan.” As previously covered by InfoBytes, the OCC’s final rule was designed to effectively reverse the Second Circuit’s 2015 Madden v. Midland Funding decision and provides that “[i]nterest on a loan that is permissible under [12 U.S.C. § 85 for national bank or 12 U.S.C. § 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.” The states challenged the rule, arguing that it is “contrary to the plain language” of section 85 (and section 1463(g)(1)) and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the states contend that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule, essentially enabling “‘rent-a-bank’ schemes.”
In response, the OCC argued that not only does the final rule reasonably interpret the “gap” in section 85, it is consistent with section 85’s “purpose of facilitating national banks’ ability to operate their nationwide lending programs.” Moreover, the agency asserts that 12 U.S.C. § 25b’s preemption standards do not apply to the final rule, because, among other things, the OCC “has not concluded that a state consumer financial law is being preempted.” The final rule “addresses only the ‘substantive [ ] meaning’ of § 85” and Congress “expressly exempted OCC’s interpretations of § 85 from § 25b’s requirements.” Lastly, the OCC argued that it made an “informed and reasoned decision,” including addressing issues raised during the public comment period. Thus, the court should uphold the final rule and affirm summary judgment for the agency.
CFPB finalizes Regulation Z HPML escrow exemptions
On January 19, the CFPB issued a final rule amending Regulation Z, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, to exempt certain insured depository institutions and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). Under the final rule, any loan made by an insured depository institution or credit union that is secured by a first lien on the principal dwelling of a consumer would be exempt from Regulation Z’s HPML escrow requirement if (i) the institution has assets of no more than $10 billion; (ii) “the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year”; and (iii) the institution meets certain existing HPML escrow exemption criteria. The final rule essentially adopts the proposed rule (covered by InfoBytes here) without change, except the end date for the exception to the prerequisite against maintaining escrows is finalized as 120 days after the date of publication in the Federal Register, instead of the 90 days as proposed.
CFPB finalizes rule stating supervisory guidance lacks force of law
On January 19, the CFPB issued a final rule codifying the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the CFPB, OCC, Federal Reserve Board, FDIC, and the NCUA on September 11, 2018 (2018 Statement). As previously covered by InfoBytes, the October 2018 joint proposal amended the 2018 Statement by (i) clarifying that references in the Statement limiting agency “criticisms” includes criticizing institutions “through the issuance of [matters requiring attention] MRAs and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations”; and (ii) adding that supervisory criticisms should be “specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.”
The Bureau notes that it chose to issue a final rule that is specific to the Bureau and Bureau-supervised institutions, rather than a joint version including the five agencies as it did with the proposal. However, the final rule adopts the proposed rule without substantive change. The final rule is effective 30 days after publication in the Federal Register.
Similar announcements were issued by the OCC, FDIC, and NCUA.
Online lender settles MLA violations for $1.25 million
On January 19, the CFPB announced a settlement with a California-based online lender resolving allegations that the company violated the Military Lending Act (MLA) when making installment loans. This settlement is part of “the Bureau’s broader sweep of investigations of multiple lenders that may be violating the MLA,” which provides protections connected to extensions of consumer credit for active-duty servicemembers and their dependents. As previously covered by InfoBytes, last month the Bureau filed a complaint in the U.S. District Court for the Northern District of California alleging that since October 2016 the lender, among other things, made more than 4,000 single-payment or installment loans to over 1,200 covered borrowers in violation of the MLA. These violations included (i) extending loans with Military Annual Percentage Rates (MAPR) exceeding the MLA’s 36 percent cap; (ii) requiring borrowers to submit to arbitration in loan agreements; and (iii) failing to make certain required loan disclosures, including a statement of the applicable MAPR, before or at the time of the transaction.
Under the terms of the settlement, the company is required to pay $300,000 in consumer redress and pay a $950,000 civil money penalty. The company is also be prohibited from committing future MLA violations and from “collecting on, selling, or assigning any debts arising from Void Loans.” Furthermore, the company is required to submit a compliance plan to ensure its extension of consumer credit complies with the MLA. This plan must include, among other things, a process for correcting information furnished to credit reporting agencies about affected consumers.
FHA extends Covid-19 foreclosure and eviction moratorium
On January 21, FHA announced the extension of its foreclosure and eviction moratorium through March 31. The moratorium applies to homeowners with FHA-insured Title II Single Family forward and Home Equity Conversion (reverse) mortgages, excluding legally vacant or abandoned properties, which were previously set to expire on February 28. Additionally, FHA has also extended the public and Indian Housing (PIH) eviction and foreclosure moratorium until March 31. The extensions are reflected in HUD’s Mortgagee Letter 2021-03.
Additionally, FHA announced that it extended the date by which borrowers must engage with their servicer to obtain an initial Covid-19 forbearance to March 31 (details on the Covid-19 forbearance covered by InfoBytes here), and requires that mortgage servicers provide up to 6 months of forbearance or an additional 6 month extension of the initial Covid-19 forbearance. The extension is reflected in HUD’s Mortgagee Letter 2021-04.
CFPB issue semi-annual report to Congress
On January 21, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from April 1 to September 30, 2020. The report, which is required by Dodd-Frank, addresses, among other things, the effects of the Covid-19 pandemic on consumer credit, significant rules and orders adopted by the Bureau, consumer complaints, and various supervisory and enforcement actions taken by the Bureau. In her opening letter, former Director Kathy Kraninger discusses the Bureau’s response to the Covid-19 pandemic, including measures taken to educate consumers on how to navigate relief options offered through the CARES Act and related pandemic-relief laws, as well as Paycheck Protection Program (PPP) guidance provided to small businesses. Kraninger also notes that in 2020, “the Bureau filed the second-highest number of actions in the Bureau’s history, secured approximately $875 million dollars in customer relief and penalties, and opened investigations of banks and nonbanks in all of the Bureau’s markets.”
Among other topics, the report highlights two reports published by the Bureau on the effects of Covid-19: one focusing on credit applications and credit inquires (covered by InfoBytes here), and another focusing on consumer credit outcomes (covered by InfoBytes here). Results from the Bureau’s Making Ends Meet Survey (conducted prior to the pandemic) are also discussed, as are the Bureau’s efforts to understand financial challenges facing older adults. In addition to these areas of focus, the report notes the issuance of several significant notices of proposed rulemaking related to remittance transfers, debt collection practices, the transition from LIBOR, and qualified mortgage definitions under TILA. Multiple final rules were also issued concerning HMDA reporting thresholds (of which there were two final rules); remittance transfers; and payday, vehicle, title, and certain high-cost installment loans. Several other rules and initiatives undertaken during the reporting period are also discussed.
New Jersey stops accepting temporary insurance producer applications
On January 21 the New Jersey Commissioner of Banking and Insurance issued Bulletin No. 21-02 declaring that the department will no longer accept temporary insurance producer applications after January 31 because remote producer examinations are now available. Temporary licenses previously issued will remain in force subject to certain conditions set forth in the bulletin.
Colorado enacts bill modifying limits on certain debt collection activity
On January 21, the Colorado governor signed SB 21-002, which modifies certain limitations on debt collection activity enacted in SB 20-211 (previously discussed here). Among other things, the bill extends, through June 1, 2021, the prohibition on a judgment creditor from initiating a new extraordinary collection action (i.e., a garnishment, attachment, levy, or execution to collect or enforce a judgment on a debt) unless and until specified requirements are met. These requirements include providing at least 10 days advance written notice to the debtor of their right to temporarily suspend the collection action if they are facing financial hardship due to the Covid-19 emergency.
CFPB files action against mortgage lender for unlawful practices
On January 15, the CFPB announced a complaint filed in the U.S. District Court for the District of Connecticut against a mortgage lender and four executives (collectively, “defendants”) alleging the defendants engaged in unlawful mortgage lending practices in violation of TILA, FCRA, ECOA, the Mortgage Acts and Practices—Advertising Rule (MAP Rule), and the CFPA. According to the complaint, from as early as 2015 until August 2019 (i) unlicensed sales people would take mortgage applications and offer and negotiate mortgage terms, in violation of TILA and Regulation Z; (ii) company policy regularly required consumers to submit documents for verification before receiving a Loan Estimate, in violation of TILA and Regulation Z; (iii) employees would deny consumers credit without issuing an adverse action notice, as required by the FCRA or ECOA; and (iv) defendants regularly made misrepresentations about, among other things, the availability and cost savings of a FHA streamlined refinance loan, in violation of the MAP Rule. The Bureau is seeking an injunction, as well as, damages, redress, disgorgement, and civil money penalties.
OFAC issues new general license and related FAQs involving Chinese military companies
On January 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License (GL) 2, “Authorizing Securities Exchanges Operated by U.S. Persons to Engage in Transactions Involving Securities of Communist Chinese Military Companies.” This license permits transactions and activities otherwise prohibited by Executive Order (E.O.) 13959 (which was recently amended) involving “publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities, of any entity that is listed on the [OFAC]’s Non-SDN Communist Chinese Military Companies List (NS-CCMC List).” OFAC also published several new frequently asked questions, 871, 872, 873, 874, related to E.O. 13959.