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CFPB and Arkansas AG settle with company for failing to provide risk-based pricing notices
On December 11, the CFPB and the Arkansas attorney general announced a proposed settlement with a Utah-based home-security and alarm company for allegedly failing to provide proper notices under the FCRA. According to the complaint filed in the U.S. District Court for the Eastern District of Arkansas, the company allows consumers to defer payment for the alarm and security-system equipment over the life of a long-term contract, and therefore extends credit to its customers. The company—in extending credit to its customers—allegedly obtained and used consumers’ credit scores to determine the amount of activation fees it would charge for its products and services, and then charged consumers who had lower credit scores higher fees without providing those consumers with required risk-based pricing notices. Under the FCRA and implementing regulation, Regulation V, companies are required to provide notice to consumers if a consumer receives less favorable credit terms based on a review of his or her credit report. Under the proposed settlement, the company is required to pay a $600,000 civil money penalty, of which $100,000 will be offset provided the company pays that amount to settle related litigation with the State of Arkansas that is currently pending in state court. The company will also be required to provide proper risk-based pricing notices under the FCRA.
Senate passes NDAA with significant AML provisions
On December 11, the U.S. Senate passed the National Defense Authorization Act (NDAA) for Fiscal Year 2021 in a 84-13 vote, which was passed by the U.S. House of Representatives earlier in the week. As previously covered by InfoBytes, the NDAA includes a number of anti-money laundering provisions, such as (i) establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”; (ii) expanding the declaration of purpose of the Bank Secrecy Act (BSA) and establishing national examinations and supervision priorities; (iii) requiring streamlined, real-time reporting of Suspicious Activity Reports; (iv) expanding the definition of financial institution under the BSA to include dealers in antiquities; and (v) including digital currency in the AML-CFT enforcement regime by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.” The NDAA has been sent to President Trump, who has publicly threatened to veto the measure; however, the legislation passed both the Senate and the House with majorities large enough to override a veto.
FTC settles with payment processor for fraud
On December 10, the FTC announced a settlement with a payment processor and its former CEO (collectively, “defendants”) for allegedly processing consumer credit card payments for certain entities “when they knew or should have known that the schemes were defrauding consumers,” in violation of the FTC Act. According to the complaint, the defendants allegedly arranged for merchants engaged in fraud to obtain merchant accounts with acquiring banks in order to process “unlawful credit and debit card payments through the card networks” totaling more than $93 million in consumer charges. The FTC alleges the defendants knew or should have known that the merchant accounts were being used by third parties that the defendants had not underwritten or being used by merchants to sell products that the defendants had not underwritten. Specifically, the FTC argues that the defendants ignored “clear red flags” that the merchants were operating fraudulent schemes, including high rates of consumer chargebacks and the use of multiple accounts to artificially reduce the number of chargebacks. The FTC notes that a number of the merchants the defendants contracted with were shut down by federal law enforcement.
The proposed order requires the defendants to pay $1.5 million to provide redress to affected consumers, and permanently bans the defendants from (i) acting as a payment processor for any companies providing free trial offers for nutraceutical products; (ii) engaging in credit card laundering; and (iii) assisting companies in the evasion of financial institutions’ fraud monitoring. Additionally, the defendants must conduct enhanced screening and monitoring of merchant clients.
Special Alert: CFPB redefines Qualified Mortgage; “GSE Patch” to expire
The Consumer Financial Protection Bureau last week released two final rules further defining what types of loans can be a “qualified mortgage loan” for purposes of the bureau’s Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule). The General QM Final Rule substantially revamps the general rules defining what constitutes a General QM and removes the existing debt-to-income threshold over which a loan cannot be considered a General QM. The Seasoned QM Final Rule creates a new class of QM that allows certain rebuttable presumption QMs and non-QMs to achieve “safe harbor” QM status three years after origination provided the consumer has strong repayment history.
Importantly, the “GSE Patch,” which provides QM status to loans qualifying for sale to Fannie Mae or Freddie Mac, expires for applications submitted before July 1, 2021, at which point the General QM Rule will take effect (although compliance with both rules is permitted 60 days after publication in the Federal Register).
Nevada governor issues an emergency directive regarding evictions
On December 14, the governor of Nevada issued Declaration of Emergency Directive 036, relating to the implementation of Senate Bill 1 (previously covered here). The directive provides that, effective December 15 through March 31, 2021, certain residential unlawful detainer or summary eviction actions against covered persons are stayed. Emergency Directives 008, 025, and 031 (covered here, here, and here) had previously prohibited such evictions through October 14.
Bipartisan Covid-19 legislation includes new PPP funding
On December 14, congressional lawmakers released the details of bipartisan Covid-19 relief legislation (and accompanying memorandum), titled “the Emergency Coronavirus Relief Act of 2020,” which would provide $300 billion to the U.S. Small Business Administration to allow for second forgivable Paycheck Protection Program (PPP) loans to certain businesses after the program’s lending expired in August (covered by InfoBytes here). In addition to capping the maximum PPP loan amount at $2 million, the proposed legislation would limit eligibility of new PPP loans to (i) businesses with 300 or fewer employees that have sustained a 30 percent revenue loss in any quarter of 2020; and (ii) non-lobbying, tax-exempt organizations that have 150 employees or fewer. Additionally, the legislation clarifies that business expenses paid for with the proceeds of PPP loans are tax deductible, and simplifies the loan forgiveness process for loans $150,000 or less. Lastly, the legislation includes set-asides for (i) small businesses with 10 or fewer employees; (ii) loans made by small community lenders, including Community Development Financial Institutions, credit unions, Minority Depository Institutions; and (iii) the Minority Business Development Agency.
Illinois reissues and extends several Covid-19 executive orders
On December 11, the governor of Illinois issued Executive Order 2020-74, which extends several executive orders through January 9, 2021 (previously covered here, here, here, and here). Among other things, the order extends: (i) Executive Order 2020-07 regarding in-person meeting requirements, (ii) Executive Order 2020-23 regarding actions by individuals licensed by the Illinois Department of Financial and Professional Regulation engaged in disaster response, (iii) Executive Order 2020-25 regarding garnishment and wage deductions (previously covered here), (iv) Executive Order 2020-30 regarding residential evictions (previously covered here and here), and (v) Executive Order 2020-72 regarding the residential eviction moratorium (previously covered here, here, here, and here).
CFPB amends General QM loan definition, creates definition for Seasoned QMs
On December 10, the CFPB issued two final rules related to qualified mortgage (QM) loans. The first of the two final rules, the General QM Final Rule, amends Regulation Z and revises the definition of a General QM by eliminating the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replacing it with bright-line price-based thresholds. The General QM Final Rule also eliminates QM status resulting solely from loans meeting qualifications for sale to Fannie or Freddie Mac (GSEs), known as the so-called “GSE Patch.” The Bureau’s second final rule, the Seasoned QM Final Rule, creates a new category of safe-harbor QMs applicable to first-lien, fixed-rate mortgages that are held in portfolio by the originating creditor or first purchaser for a 36-month period while meeting certain performance requirements, and comply with general restrictions on product features and points and fees.
Both final rules become effective 60 days after publication in the Federal Register. The mandatory compliance date for the General QM Final Rule is July 1, 2021; however, the Bureau notes that, between the effective date and the mandatory compliance date, there will be an optional early compliance period during which creditors will be able to use either the current General QM definition or the revised General QM definition. In addition, the GSE Patch will be available only for transactions where the creditor receives the consumer’s application before July 1, 2021 (or earlier if the GSEs exit conservatorship). Further, the Seasoned QM Final Rule applies to covered transactions for which creditors receive an application on or after the effective date, but will not apply retroactively to loans already in a lender’s portfolio.
Buckley will follow up with a more detailed summary of the final rules soon.
California proposes modifying CCPA regs again
On December 10, the California Department of Justice (Department) released a fourth set of proposed modifications to the regulations implementing the California Consumer Privacy Act (CCPA). As previously covered by InfoBytes, on October 12, the Department released a third set of proposed modifications to the regulations that went into effect on August 14. The Department noted that it received around 20 comments in response to the third set of proposed modifications and the fourth set of proposed modifications is to address those comments and/or to clarify and conform the proposed regulations to existing law. Highlights of the proposed modifications include:
- Amending Section 999.306, subd. (b)(3), to clarify that a business that sells (previously proposed as “collects”) personal information collected from consumers in the course of interacting with them offline shall inform consumers of their right to opt-out of the sale of their personal information by an offline method.
- The addition of Section 999.315, subd. (f), which identifies a uniform “opt-out button” to be used in addition to posting the notice of right to opt-out or used in conjunction with a “Do Not Sell My Personal Information” link.
Additionally, the Department provided notice that it added new documents and information to the rulemaking file, which was relied upon when adopting the proposed regulations.
Comments on the proposed modifications are due on December 28 by 5:00 p.m.
CFPB releases fall 2020 rulemaking agenda
On December 11, the CFPB released its fall 2020 rulemaking agenda. According to a Bureau announcement, the information details the regulatory matters that the Bureau “expect[s] to focus on” between November 2020 and November 2021. The announcement notes that the Bureau will also continue to monitor the need for further actions related to the ongoing Covid-19 emergency. In addition to the rulemaking activities already completed by the Bureau this fall, the agenda highlights other regulatory activities planned, including:
- Debt Collection. The Bureau notes that it expects to issue a final rule in December 2020 addressing, among other things, disclosures related to validation notices and time-barred debt (proposal covered by a Buckley Special Alert here).
- LIBOR Transition. The Bureau notes that it anticipates publishing the final rulemaking (proposal covered by InfoBytes here) on the LIBOR transition later than the original January 2021 target identified in the Unified Agenda, due to the November 30 announcement by UK regulatory authorities that they are considering extending the availability of US$ LIBOR for legacy loan contracts until June 2023, instead of the end of 2021.
- FIRREA. The Bureau notes that, together with the Federal Reserve Board, OCC, FDIC, NCUA, and FHFA, it will continue to develop a proposed rule to implement the automated valuation model (AVM) amendments made by the Dodd-Frank Act to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals.
- Mortgage Servicing. The Bureau notes that it intends to issue an NPRM in spring 2021 to consider amendments to the Bureau’s mortgage servicing rules to address actions required of servicers working with borrowers affected by natural disasters or other emergencies. The Bureau notes that comments to the interim final rule issued in June 2020, amending aspects of the mortgage servicing rules to address the exigencies of Covid-19 (covered by InfoBytes here), suggest that the rules may need additional updates to address natural disasters or other emergencies.
- HMDA. The Bureau states that two rulemakings are planned, including (i) a proposed rule that follows up on a May 2019 advanced notice of proposed rulemaking, which sought information on the costs and benefits of reporting certain data points under HMDA and coverage of certain business or commercial purpose loans (covered by InfoBytes here); and (ii) a proposed rule addressing the public disclosure of HMDA data.