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CFPB’s Supervisory Highlights targets student loan servicers
On September 29, the CFPB released a special edition of its Supervisory Highlights focusing on recent examination findings related to practices by student loan servicers and schools that directly lend to students. Highlights of the supervisory findings include:
- Transcript withholding. The Bureau found several instances where in-house lenders (i.e., where the schools themselves are the lender) are withholding transcripts as a debt collection practice. According to the Bureau, many post-secondary institutions choose to withhold official transcripts from borrowers as an attempt to collect education-related debts. The Supervisory Highlights states the position that the blanket withholding of transcripts to coerce borrowers into making payments is an “abusive” practice under the Consumer Financial Protection Act.
- Supervision of federal student loan transfers. The Bureau identified certain consumer risks linked to the transfer of nine million borrower account records to different servicers after two student loan servicers ended their contracts with the Department of Education (DOE). The review, which was handled in partnership with the DOE and other state regulators, identified several concerns, such as (i) the information received during the transfer was insufficient to accurately service the loan; (ii) transferee and transferor servicers reported different numbers of total payments that count toward income-driven repayment forgiveness for some borrowers; (iii) information inaccurately stated the borrower’s next due date; (iv) certain accounts were placed into transfer-related forbearances following the transfer, instead of in more advantageous CARES Act forbearances; and (v) multiple servicers experienced significant operational challenges.
- Payment relief programs. The Bureau found occurrences where federal student loan servicers allegedly engaged in unfair acts or practices when they improperly denied a borrower’s application for loan cancellation through Teacher Loan Forgiveness or Public Service Loan Forgiveness. The Bureau claimed that many servicers “illegally misrepresented borrowers’ eligibility dates and the number of payments the borrower needed to make to qualify for relief,” and “provided misinformation about borrowers’ entitlement to progress toward loan forgiveness during the pandemic payment suspension.” The Bureau said it will continue to monitor servicers’ practices to ensure borrowers receive the relief for which they are entitled, and directed servicers to address consumer harm caused by these actions.
The Bureau issued a reminder that it will continue to supervise student loan servicers and lenders within its supervisory jurisdiction regardless of institution type. Student loan servicers, originators, and loan holders are advised to review the supervisory findings and take any necessary measures to ensure their operations address these risks.
DOJ amends SCRA settlement with auto loan provider
On September 28, the DOJ announced an amended settlement with an auto loan provider resolving allegations that it failed to fully provide qualified servicemembers with interest rate benefits afforded to them under the Servicemembers Civil Relief Act (SCRA). According to the DOJ, while monitoring the auto lender’s compliance with the original DOJ settlement, the DOJ found that the auto loan provider was failing to apply interest rate benefits back to the date orders were issued calling the servicemember to active duty, and that it had improperly delayed the approval of interest rate benefits to some servicemembers. Under this amended settlement agreement, the auto loan provider agreed to pay an additional $185,460 to 250 servicemembers who did not receive proper interest rate benefits. The DOJ also noted that each servicemember who did not receive interest rate benefits back to the date their orders were issued will receive a refund of any excess interest they paid, as well as an additional payment of three times the overpayment or $100, whichever is higher. The auto loan provider is required to pay an additional $40,000 civil penalty to the U.S. and must revise its SCRA policies and training regarding interest rate benefits for servicemembers.
CFPB sues online lender to servicemembers
On September 29, the CFPB filed a complaint against a New York-based online lender and 38 of its subsidiaries for allegedly violating the Military Lending Act (MLA) and the Consumer Financial Protection Act by imposing excessive charges on loans to servicemembers and their dependents. The Bureau alleges that the defendants required consumers to join its membership program and pay monthly membership fees ranging from $19.99 to $29 to access certain “low-APR” installment loans. The complaint says that when the membership fees are combined with loan-interest-rate charges, the total fees exceed the MLA’s allowable rate cap, contending that the MLA serves to protect active duty servicemembers and their dependents by limiting the APR applicable to extensions of credit to 36 percent. The Bureau further claims that the defendants deceived consumers by representing that they owed loan payments and fees that were actually void under the MLA. In addition, the Bureau claims that the defendants refused to allow customers to cancel their memberships and stop paying monthly fees until their loans were paid, despite leading many consumers to believe they could cancel their memberships for any reason at any time, thereby “avoid[ing] such automatic renewals and associated membership fees.” In certain cases, the defendants refused to cancel memberships if a consumer had unpaid membership fees even if the loan was paid off, the Bureau says. The Bureau is seeking permanent injunctive relief, damages, restitution, disgorgement, civil money penalties, and other relief.
Fed takes action against bank for flood insurance violations
On September 27, the Federal Reserve Board announced a civil money penalty against a Pennsylvania-based bank. In the order, the Fed alleged that the bank violated the National Flood Insurance Act (NFIA) and Regulation H. The order assesses a $41,500 penalty against the bank for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,392 per violation.
Senators express support for ILC in letter to FDIC
On September 15, five Republican Senators and four Democrats sent a letter to FDIC acting Chairman Martin Gruenberg expressing their support for the industrial loan company (ILC) charter. The Senators also expressed their opposition to regulatory actions that could “target the ILC charter in a manner not consistent with the laws Congress has passed.” The Senators noted that “the safety and soundness of the ILC charter has been broadly successful when historically compared to the rest of the banking industry,” and further explained that the ILC charter will allow “new and expanded opportunities in the regulated banking sector.” The Senators stated that they support more competition in financial services and encourage regulators “to ensure that new competition is kept under the confines of the regulated banking system, which ultimately protects consumers and our constituents.”
CFPB rescinds no-action letter and sandbox policies
On September 27, the CFPB issued a statement in the Federal Register rescinding its No-Action Letter Policy and its Compliance Assistance Sandbox Policy. As previously covered by InfoBytes, in September 2019, the CFPB issued three final innovation policies: the No-Action Letter (NAL) Policy, Compliance Assistance Sandbox (CAS) Policy, and Trial Disclosure Program (TDP) Policy. The NAL policy provided a NAL recipient assurance that the Bureau will not bring a supervisory or enforcement action against the company for providing a product or service under the covered facts and circumstances. The CAS policy evaluated a product or service for compliance with relevant laws and offered approved applicants a “safe harbor” from liability for certain covered conduct during the testing period under TILA, ECOA, or the EFTA. Following the rescission, the statement noted that the Bureau will no longer accept NAL or CAS applications by September 30, but will continue to accept and process requests under the TDP. Entities that have made submissions under the NAL or CAS policies will be notified if the Bureau intends to take additional steps on their submissions. According to the statement, the Bureau “determined that the Policies do not advance their stated objective of facilitating consumer-beneficial innovation” and “that the existing Policies failed to meet appropriate standards for transparency and stakeholder participation.”
FHA will consider first-time homebuyer’s positive rental history in mortgage eligibility
On September 27, HUD announced that FHA will consider a first-time homebuyer’s positive rental payment history as an additional factor in determining eligibility for an FHA-insured mortgage. HUD emphasized that adding a positive rental history indicator to FHA’s Technology Open to Approved Lenders (TOTAL) Mortgage Scorecard enables the credit evaluation to be more comprehensive and equitable. “If you’re regularly paying your rent on time, that’s a good indication you will also pay your mortgage on time,” FHA Commissioner Julia Gordon said. “We hope that adding this positive factor to all of the characteristics currently considered in an FHA credit evaluation will increase access to affordable FHA-insured mortgages for first-time homebuyers.” According to FHA’s Mortgagee Letter 2022-17, “positive rental payment history refers to the on time payment by a borrower of all rental payments in the previous 12 months.” Lenders may begin indicating a borrower’s positive rental payment history in the TOTAL Mortgage Scorecard for scoring events on or after October 30, and for case numbers assigned on or after September 20, 2021.
Ranking House members seek information from the CFPB
On September 20, House Financial Services Committee Ranking Member Patrick McHenry (R-NC) and House Oversight and Reform Committee Ranking Member James Comer (R-KY) sent a letter to CFPB Director Rohit Chopra asking him to provide information to Congress regarding the authorities delegated to the Bureau that justify its current and upcoming regulatory actions. According to the letter, McHenry and Comer point to the U.S. Supreme Court’s decision in West Virginia vs. EPA, which “invoked the ‘major questions doctrine’ to reject an attempt by the EPA to exceed its statutory authority.” The letter further explained that “[u]nder this doctrine, an agency must point to ‘clear congressional authorization for the authority it claims.’” The EPA could not identify such an authorization, according to McHenry and Comer, and the court further rejected the EPA’s attempt to exceed its statutory authority. The letter stated that “clear delegation of authority contemplated by the Court is not limited to just rulemaking but extends to other agency actions.” McHenry and Comer proceeded to list director-driven “initiatives” that they claim, “circumvent not only Congressional intent, but the Administrative Procedure Act.” They further requested that the Bureau provide a list of all actions that CFPB intends to take during the remainder of 2022, and “[a] list of all expected actions, including but not limited to major rulemaking, staff guidance, advisory opinions, interpretive rules, and the specific Congressional authority for each rulemaking,” by September 30. McHenry and Comer concluded the letter by noting that both committees intend to exercise “robust investigative and legislative powers,” and seek to assert Congress’ Article I responsibilities to ensure that neither the director nor the Biden administration “continue to exceed Congressional authorizations.”
Treasury discusses future of digital assets, says CBDC may take years
On September 23, the U.S. Treasury Department’s Under Secretary for Domestic Finance Nellie Liang discussed ways in which digital assets could alter the future of money and payments in the U.S. Speaking at the Brookings Institution, Liang highlighted recommendations presented in an agency report released earlier in September as part of President Biden’s Executive Order on Ensuring Responsible Development in Digital Assets (covered by InfoBytes here). The report, Crypto-assets: Implications for Consumers, Investors, and Businesses, outlined several significant areas of concern, including “frequent instances of operational failures, market manipulation, frauds, thefts, and scams.” The report advised federal agencies, including the CFPB, SEC, CFTC, and DOJ, to (i) continue to aggressively pursue enforcement actions focused on the crypto-asset sector; (ii) clarify existing authorities to ensure they are appropriately applied to crypto-assets; (iii) coordinate efforts to increase compliance; and (iv) take collaborative measures to improve the quality of information about crypto-assets for consumers, investors, and businesses.
Liang also commented on the potential benefits of adopting a U.S. central bank digital currency (CBDC), “such as preserving the uniformity of the currency, or providing a base for further innovation,” but warned that further research and development on the technology needed to support such a currency may take years. “There are many important design choices that would require additional consideration,” Liang said, stating, for example, “a retail CBDC would be broadly available to the public, while a wholesale CBDC would be limited to banks and other financial institutions.” Liang said Treasury plans to lead an inter-agency working group to advance further work on a possible CBDC and “consider the implications of CBDC in areas such as financial inclusion, national security and privacy.”
Liang also discussed other recommendations made in the report related to the possible establishment of a federal regulatory framework for nonbank providers of payment services. “A federal framework could provide a common floor for minimum financial resource requirements and other standards that may exist at the state level,” Liang pointed out. “It also would complement existing federal [anti-money laundering/combating the financing of terrorism] obligations and consumer protection requirements that apply to nonbank payment providers,” and “could work in conjunction with a U.S. CBDC or with instant payment systems.” She also commented on Treasury’s work to develop a faster, cheaper cross-border international payment system and noted the agency will consider potential risks, such as privacy and human rights considerations.
Chopra highlights CFPB efforts on competitive consumer financial markets
On September 21, CFPB Director Rohit Chopra discussed Bureau efforts to ensure markets for consumer financial products and services are “fair, transparent, and competitive.” Speaking during the Exchequer Club Fireside Chat, Chopra explained that the agency’s authorizing statute specifically directs the Bureau to promote competition by consistently enforcing the law regardless of whether an entity takes deposits. He clarified that there should not be different standards for assessing when a firm violates the law, and highlighted several ways that the Bureau is working to fulfill its mandate to ensure competitive markets. One example Chopra provided relates to reshaping the Bureau’s approach to promoting new products and offerings, especially as they relate to refinancing options. He pointed to Bureau efforts to ensure both banks and nonbanks could launch products to save private student loan borrowers money as an example of making sure all potential market entrants could benefit. Chopra stated that the Bureau is also requesting feedback from investors, lenders, and the public on topics related to improving mortgage refinancing options (covered by InfoBytes here), and is working on ways to stimulate more credit card and auto loan refinancing. Additionally, Chopra touched on other areas of focus, including consumer finance offerings that rely on emerging technologies such as banking in augmented reality and the metaverse, nonbank supervision and oversight, bright-line regulatory approaches, competitive pricing and back-end fees, regulatory arbitrage, and personal financial data rights.