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CFPB adjusts annual dollar amount thresholds under TILA, HMDA regulations
On December 21, the CFPB released a final rule revising the dollar amounts for provisions implementing TILA and its amendments that impact loans under the Home Ownership and Equity Protection Act of 1994 (HOEPA) and qualified mortgages (QM). The Bureau is required to make annual adjustments to dollar amounts in certain provisions in Regulation Z, and has based the adjustments on the annual percentage change reflected in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in effect on June 1, 2022. The following thresholds are effective January 1, 2023:
- For open-end consumer credit plans under TILA, the threshold for disclosing an interest charge will remain unchanged at $1.00;
- For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $24,866, and the adjusted points-and-fees dollar trigger for high-cost mortgages will be $1,243;
- For qualified mortgages under the General QM loan definition, the thresholds for the spread between the annual percentage rate and the average prime offer rate will be: “2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $124,331; 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $74,599 but less than $124,331; 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $74,599; 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $124,331; 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $74,599; or 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $74,599”; and
- For all QM categories, the adjusted thresholds for total points and fees will be “3 percent of the total loan amount for a loan greater than or equal to $124,331; $3,730 for a loan amount greater than or equal to $74,599 but less than $124,331; 5 percent of the total loan amount for a loan greater than or equal to $24,866 but less than $74,599; $1,243 for a loan amount greater than or equal to $15,541 but less than $24,866; and 8 percent of the total loan amount for a loan amount less than $15,541.”
With respect to credit card annual adjustments, the Bureau noted that its 2023 annual adjustment analysis on the CPI-W in effect on June 1, did not result in an increase to the current minimum interest charge threshold (which requires “creditors to disclose any minimum interest charge exceeding $1.00 that could be imposed during a billing cycle”).
The Bureau also issued a final rule adjusting the asset-size threshold under HMDA (Regulation C). Under HMDA, institutions with assets below certain dollar thresholds are exempt from collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $50 million to $54 million, thereby exempting institutions with assets of $54 million or less as of December 31, 2022, from collecting HMDA data in 2023.
CFPB discusses mortgage financing risk options in current environment
On December 21, the CFPB reported that higher mortgage interest rates have led to increased monthly payments and higher debt-to-income ratios for borrowers. According to a recent Bureau analysis of quarterly HMDA data, some interest rates on 30-year fixed-rate mortgages have risen as high as seven percent and are at levels higher than what has been seen for nearly 20 years. The Bureau reported that in response to increasing interest rates, financial service providers are offering alternative financing options to provide opportunities for consumers to access lower rates, including adjustable-rate mortgages, temporary buydowns, home equity lines of credit and loans, and loan assumptions where a homebuyer assumes responsibility for the remaining balance of a home seller’s mortgage with the original loan terms. Explaining the various risks associated with these offerings, the Bureau warned consumers that they should understand the costs associated with cash-out refinances and risks related to alternative sales transactions (e.g., contract-for-deeds or land contracts, rent-to-own arrangements, and equity-sharing arrangements), which may sound appealing in a higher interest rate market but may “lack the protections of traditional mortgages, including the ability to build and access home equity, foreclosure protections, or even basic disclosures that allow for comparison shopping.”
VA to update appraisal requirements and guidance for guaranteed housing loans
On December 27, President Biden signed H.R. 7735, the Improving Access to the VA Home Loan Benefit Act of 2022, which requires the Department of Veterans Affairs to update its regulations, requirements, and guidance related to appraisals for housing loans guaranteed by the agency. The regulations and requirements must specify when an appraisal is required, how an appraisal is to be conducted, and who is eligible to conduct an appraisal for such loans. The Act also requires the VA to submit recommendations to Congress no later than 90 days after the date of enactment for improving appraisal delivery times for VA loans. The agency must consider these recommendations when it prescribes its updated regulations and requirements. Additionally, the VA must provide guidance for desktop appraisals, taking into account situations where a desktop appraisal could provide cost savings for borrowers whereas “a traditional appraisal requirement could cause time delays and jeopardize the completion of a transaction.”
FCC affirms three-call limit but permits oral consent
On December 21, the FCC issued an order on reconsideration and declaratory ruling under the TCPA, affirming a three-call limit and opt-out requirements for exempted residential calls. According to the FCC, the ruling is in response to requests from industry trade groups related to a 2020 order implementing portions of the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act). The ruling upheld the three-call-limit for exempt calls made using automated telephone dialing systems to residential lines but revised the 2020 order’s requirement for “prior express written consent” to allow callers to obtain consent orally or in writing if they wish to make more calls than allowed. The FCC also granted a request to confirm that “prior express consent” for calls made by utility companies to wireless phones applies equally to residential landlines. The FCC noted that “limiting the number of calls that can be made to a particular residential line to three artificial or prerecorded voice calls within any consecutive thirty-day period strikes the appropriate balance between these callers reaching consumers with valuable information and reducing the number of unexpected and unwanted calls consumers currently receive.”
CFPB reports on consumers’ financial well-being
On December 21, the CFPB released a report discussing the results of its Making Ends Meet survey conducted from January through March 2022, which examined the financial health of U.S. households. Using the results from the survey as well as credit bureau data, the Bureau found that the average financial well-being of U.S. consumers returned to its pre-pandemic level, with increases in income variability and use of high-cost credit products, after a substantial drop in 2021, notwithstanding sharp decreases in average credit debt that generally remained through September 2022. The report also determined that approximately one-third of consumers experienced a “major” medical or dental expense in the preceding year, while similar numbers experienced a major vehicle repair or replacement, a major house or appliance repair, or a cell phone or computer repair or replacement. Additionally, a significant number of consumers experienced reductions in income most often due to unemployment or a drop in hours. The report cautioned that “should an increase in unemployment occur, many households are unprepared for even a relatively brief period of low income.”
Fannie, Freddie announce LIBOR transition plans
On December 22, GSEs Fannie Mae and Freddie Mac announced replacement indices based on the Secured Overnight Financing Rate (SOFR) for their legacy LIBOR indexed loans and securities (see here and here). The announcement follows the Federal Reserve Board’s final rule setting forth recommended replacement rates for financial contracts based on LIBOR (covered by InfoBytes here). For single-family mortgage loans and related mortgage-backed securities, the GSEs selected the relevant tenor of CME Term SOFR plus the applicable tenor spread adjustment, as published and provided by Refinitiv Limited (also known as “USD IBOR Cash Fallbacks” for “Consumer” products). The transition to the replacement indices will occur the day after June 30, 2023, which is the last date on which the Intercontinental Exchange, Inc. Benchmark Administration Limited will publish a representative rate for all remaining tenors of U.S. dollar LIBOR. The GSEs also published replacement indices for multifamily mortgage loans and related mortgage-backed securities, single family and multifamily collateralized mortgage obligations and credit risk transfer securities, and derivatives.
NCUA proposal looks to promote CU-fintech partnerships
On December 15, the NCUA issued a proposed rule seeking input on amendments to the agency’s regulations on the purchase of loan participations and the purchase, sale, and pledge of eligible obligations and other loans, including notes of liquidating credit unions. Among other things, the proposed rule would remove certain prescriptive limitations and other qualifying requirements to provide federal credit unions with additional flexibility to purchase eligible obligations of their members and engage with advanced technologies and other opportunities presented by fintechs. Improved flexibility and individual autonomy will allow federal credit unions “to establish their own risk tolerance limits and governance policies for these activities, while codifying due diligence, risk assessment, compliance and other management processes that are consistent with the Board’s long-standing expectations for safe, sound, fair and affordable lending practices,” the NCUA said. Comments on the proposed rule are due 60 days after publication in the Federal Register.
“As I have emphasized before, credit unions should recognize and harness the potential opportunities fintechs may offer them,” NCUA Chairman Todd Harper said. “However, we must also acknowledge the potential risks they pose to credit unions, their members, and the system and develop appropriate guardrails. This proposed rule strikes that balance. It provides flexibility, safety, and tailored relief to credit unions while fostering greater innovation.”
CFPB says remittance provider violated EFTA
On December 22, the CFPB announced a consent order against an international remittance company for multiple alleged violations of the requirements governing electronic money transfers. According to the Bureau, the company allegedly failed to comply with many requirements of the Electronic Fund Transfer Act, including failing to provide refunds to customers after the company made money transfer errors. The Bureau also alleged that the company violated the Remittance Rule by failing to develop and maintain required written policies and procedures for error resolution, and claimed the company violated Regulation E by failing to retain evidence demonstrating compliance with the Remittance Rule’s error-resolution requirements. Under the terms of the consent order, the company is required to provide consumer redress of approximately $30,000 to harmed customers and pay a $700,000 civil money penalty to the Bureau. The company is also required to update disclosure and key transfer information that is provided to customers, as well as its error-resolution policies and procedures.
FHA extends some pandemic-related waivers
On December 20, FHA published FHA INFO 2022-107, which extends temporary regulatory and Single Family Housing Policy Handbook 4000.1 waivers, and permits mortgagees to use alternative methods for conducting face-to-face interviews with borrowers in accordance with FHA’s early default intervention requirements. FHA initially published temporary partial waivers of these requirements on March 13, 2020, and previously extended them through December 31, 2022, in response to the Covid-19 pandemic. FHA is further extending the waivers due to the Covid-19 pandemic, the spread of the Respiratory Syncytial Virus and seasonal flu, and current staffing and resource constraints affecting mortgage servicers. The waivers are now effective through December 31, 2023.
CFPB fines bank over auto loan, mortgage, and deposit account allegations
On December 20, the CFPB announced a consent order against a national bank for allegedly mismanaging auto loans, mortgages, and deposit accounts. According to the Bureau, the bank allegedly engaged in deceptive or unfair acts or practices in violation of the CFPA by, among other things: (i) incorrectly processing auto-loan payments; (ii) assessing borrowers erroneous fees and interest due to technology, audit, and compliance failures; (iii) incorrectly denying mortgage loan modification applications; (iv) failing to ensure that unearned Guaranteed Asset Protection fees were refunded to borrowers who paid off their loans; (v) incorrectly denying mortgage loan modification applications and miscalculated fees; and (vi) charging “surprise” overdraft fees on debit card transactions and ATM withdrawals because, according to the Bureau, consumers “believed that if they had enough money to cover the relevant transaction when it was authorized they would not incur an [o]verdraft fee.”
Under the terms of the consent order, the bank is required to pay redress totaling more than $2 billion to allegedly harmed customers. Specifically, the bank is ordered to pay approximately: (i) $1.3 billion in consumer redress for affected auto lending accounts; (ii) $500 million in consumer redress for affected deposit accounts, including $205 million for illegal surprise overdraft fees; and (iii) nearly $200 million in consumer redress for affected mortgage servicing accounts. Among other things, the bank is prohibited from charging overdraft fees for deposit accounts when the consumer had available funds at the time of a purchase or other debit transaction, but then subsequently had a negative balance once the transaction settled. The bank is also ordered to pay a $1.7 billion civil penalty to the Bureau. CFPB Director Rohit Chopra released a statement following the announcement saying the order does not provide immunity for any individuals nor does it release claims for any ongoing illegal acts or practices.
The bank issued a press release stating that “[c]urrent leadership has made significant progress to transform the bank,” and noting that “the CFPB recognized that since 2020, the company has accelerated corrective actions and remediation, including to address the matters covered by today’s settlement.”