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OIG releases CFPB and Fed list of open recommendations
On April 22, the OIG, which oversees the CFPB and the Fed, released two audit and evaluation reports that noted previously identified recommendations to improve or correct issues that remain open as of March 31, including some recommendations that have been open for more than six months. With respect to the CFPB, the OIG identified 18 recommendations that remain open; with respect to the Fed, the OIG identified 65 open recommendations. The open recommendations made to the CFPB stem from OIG reports on strengthening its offboarding process in 2018, auditing the Bureau’s information security program in 2018, 2022, and 2023, and technical testing results for the Bureau’s legal enclave in 2020. The open recommendations to the Fed stem from OIG reports relating to, among others (i) information security; (ii) cybersecurity; (iii) security control of the Fed’s public website; (iv) the Fed’s Financial Market Utility Supervision Program; and (v) enterprise risk management. Notably, a small subset of the recommendations that remain open are nonpublic.
CFPB publishes the mortgage servicer edition of its Supervisory Highlights
On April 24, the CFPB published its 33rd edition of its Supervisory Highlights which covers select examinations and violations regarding mortgage servicing from April 1, 2023, through December 31, 2023. This edition of Supervisory Highlights focused on alleged violations of law identified in CFPB examinations including (i) charging illegal junk fees including impermissible property inspection and late fees; (ii) UDAAP violations; and (iii) violations of Regulation X loss mitigation requirements. The Bureau made clear in its press release that it plans to continue its focus on combatting junk fees within and beyond the mortgage servicing space.
The CFPB highlighted several violations of law resulting from mortgage servicers’ payment processing practices including the charging of property inspection fees in connection with certain Fannie Mae loans in violation of investor guidelines. To rectify this, servicers addressed system errors causing the fees in question, enhanced oversight, and were instructed to compensate affected borrowers. Other payment processing-related violations identified by the Bureau included failure to adequately describe fees in periodic statements by using the term “service fee” to describe 18 different fee-types, and failure to make timely disbursements from escrow accounts in violation of Regulation X.
The Bureau also identified unfair practices relating to the charging of late fees in excess of the amount authorized in the loan agreement or after consumers had entered into loss mitigation agreements, which should have prevented late fees. Servicers identified as having engaged in such violations were required to refund the fees to consumers and improve internal processes in response to the findings.
The CFPB also identified violations of law relating to loss mitigation and loan modifications. Examiners noted that some servicers failed to provide a written notice confirming the receipt of loss mitigation applications and informing consumers of whether the application was complete or incomplete. Further, some servicers failed to provide timely and complete notices of loss mitigation options. Additionally, some servicers, in violation of Regulation X, failed wo waive existing fees after borrowers had accepted Covid-19 hardship loan modifications.
Examiners also found that certain servicers committed deceptive practices by sending out delinquency notices incorrectly stating that consumers had missed payments and needed to apply for loss mitigation when those consumers were actually up to date on their payments, enrolled in trial modification plans, or had inactive loans (such as those already paid off or in the process of a short sale).
Finally, the Bureau identified violations of law relating to (i) live contact and early intervention requirements in connection with delinquency and (ii) failure to retain adequate records.
Fed’s Bowman discusses risk management and bank supervision
On April 18, Fed governor Michelle Bowman delivered opening remarks at the Regional and Community Banking Conference in New York. During her speech, Bowman acknowledged the recent challenges that have impacted the U.S. banking system. She pointed out that recent events, including the pandemic, a rapid rise in inflation and interest rates, market uncertainties, and bank failures, have brought traditional risks, such as liquidity and interest rate risks, to the forefront, while other risks, like cybersecurity and third-party risks, “continue to evolve and pose new challenges.”
Bowman emphasized the importance of banks having robust risk management frameworks to identify and control both existing and emerging risks. She also stressed the need for banks to innovate responsibly and adapt their risk management as new products and services are introduced, while cautioning that regulators must balance supervision and regulation so as not to stifle responsible innovation. In light of the recent bank failures, Bowman also underscored the need for banks to have of contingency funding plans in place, which may include borrowing from the Federal Home Loan Banks or the Fed’s discount window. While regulators can encourage banks to maintain and test these plans, she noted that they should not overstep their role and interfere with management decisions.
Highlighting that these evolving risks can be exacerbated by inadequate bank supervision and acknowledging the need for a review and potential adjustments in supervision following the recent bank failures, Bowman stressed that supervision should remain commensurate to a bank’s size, complexity, and risk profile, and should focus on core and emerging risks so as not to impair the long-term viability of the banking system, including mid-sized and smaller banks.
Republican House Financial Services Committee members seek clarity on 1071 rule implementation timeline
On April 18, Republican members of the House Financial Services Committee sent a letter to CFPB Director Rohit Chopra to express concern over the lack of clarity regarding the implementation timeline of the CFPB’s small business data collection rule, referenced as the 1071 Rule. As previously covered by InfoBytes, in October of last year, a Texas District Court issued a preliminary injunction that required the CFPB to halt implementation of the 1071 Rule, and directed the Bureau to extend the rule’s compliance deadline “to compensate for the period stayed.” In the letter, republican lawmakers stress that the CFPB has been “reluctant” to confirm whether it will comply with the court order, which has led to confusion among regulated financial institutions regarding compliance timeframe with the 1071 Rule. The letter also highlights that some prudential regulators are reportedly advising institutions to prepare for compliance by October 1, despite the court order. Accordingly, Republican members urge the CFPB to provide clear guidance affirming compliance with the court order and extending deadlines accordingly, including with respect to the rule’s transition period for data collection and reporting requirements.
Director Thompson outlines FHFA’s efforts to promote housing access and affordability
On April 18, Sandra L. Thompson, Director of the FHFA, addressed the U.S. Senate Committee on Banking, Housing, and Urban Affairs, emphasizing FHFA’s role in promoting access to affordable housing for homebuyers and renters nationwide through the regulation and supervision of its regulated entities—Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System—to ensure they meet their housing mission. Acknowledging the reforms implemented by FHFA over the past 15 years, which have strengthened the financial conditions of regulated entities, and FHFA’s ongoing review of the FHLBank System, Thompson outlined the agency’s efforts to address barriers to affordable and sustainable housing. Her recommendations include amending the Bank Act to expand the range of member institutions eligible to pledge community financial institution (CFI) collateral in order to secure affordable FHLBank advances to include all Community Development Financial Institutions and credit union members, and increasing the statutorily required minimum funding contribution for the Affordable Housing Program from 10 percent to at least 20 percent of FHLBank net income from the previous year. Thompson further highlighted FHFA’s efforts to address appraisal bias and improve data to promote equitable valuations, reduce costs associated with title verification, and codify the requirements that Fannie Mae and Freddie Mac maintain Equitable Housing Finance Plans, among other initiatives. Thompson concluded her remarks by discussing FHFA’s ongoing credit score initiative, which seeks to transition Fannie Mae’s and Freddie Mac’s use of Classic FICO to the use of the more inclusive FICO 10T and VantageScore 4.0 models, alongside shifting from tri-merge to bi-merge credit reports.
CSBS and FHFA sign agreement to enhance information sharing on nonbank mortgage companies
On April 10, the Conference of State Bank Supervisors (CSBS) and the FHFA announced they have signed a memorandum of understanding (MOU) to enhance information sharing on nonbank mortgage companies. The MOU reportedly aimed to improve the ability to coordinate on market developments, identify and mitigate risks, and ultimately, further protect consumers, taxpayers, and the nation’s housing finance system. CSBS Board Chair, Lise Kruse, emphasized the value of collaboration between state and federal regulators to support a stable mortgage marketplace, given the distinct authority each supervisory agency maintained over the nonbank mortgage industry. According to the CSBS, state financial regulators primarily oversee nonbank mortgage companies, while the FHFA regulated significant entities like Fannie Mae and Freddie Mac, which served as important counterparties to the nonbank mortgage industry. According to FHFA Director, Sandra L. Thompson, the new information sharing protocols will enable both state and federal regulators to supervise the mortgage industry more effectively, leading to improved outcomes for all stakeholders.
FTC report to Congress suggests legislative enhancements on consumer protection
On April 10, the FTC issued a report addressed to Congress detailing its efforts to collaborate with state attorneys general (AGs) from across the U.S. on consumer protection law enforcement goals. The report, titled “Working Together to Protect Consumers: A Study and Recommendations on FTC Collaboration with the State Attorneys General,” was issued pursuant to the FTC Collaboration Act of 2021 and included legislative recommendations to enhance the FTC’s consumer protection efforts. The report followed a request for information issued by the FTC in June 2023, seeking public comments on how the FTC might improve collaboration with state AGs to protect consumers from fraud and ensure fairness in the marketplace.
The FTC's report was divided into three main sections:
- The first section outlined the existing collaborative practices between the FTC and state AGs, detailing their shared roles in combating frauds and scams, the respective law enforcement authority of the FTC and the AGs, and the ways federal and state enforcers can share the information they gather, including through networks such as the Consumer Sentinel Network consumer complaint database.
- The second section described best practices to ensure effective collaboration between the FTC and state AGs, including strong information-sharing practices and coordination of enforcement actions. It also suggested ways to expand the sharing of technical resources and expertise between federal and state agencies.
- The third section provided legislative recommendations aimed at improving collaboration efforts by providing the FTC with clearer authority to pursue legal actions. This section emphasized a request for Congress to restore the FTC’s authority to seek monetary refunds for consumers who have been defrauded, following a 2021 U.S. Supreme Court decision holding that such relief was not available to the Commission (covered by InfoBytes here). Additionally, this section suggested giving the FTC independent authority to seek civil penalties and clear authority to take legal action against facilitators of unfair or deceptive practices.
In its report to Congress, the FTC emphasized the importance of a collaborative approach to consumer protection among enforcement agencies and states, continuing to seek ways to strengthen its ties with state AGs to address future challenges.
Fannie Mae to issue RFP for Title Acceptance pilot
On April 12, the FHFA announced plans to test a pilot program that would permit lenders to forego a lender’s title insurance policy or an attorney opinion letter for some refinance loans sold to Fannie Mae, aiming to lower closing costs for borrowers. Since the announcement, Fannie Mae has been working with the FHFA to develop a Title Acceptance pilot framework and has received interest from title, settlement service, and technology providers to join the pilot. In light of this, Fannie Mae declared its intention to release a Request for Proposal (RFP) by the end of the second quarter to identify and assess potential suppliers to participate in the pilot.
CFPB supports Connecticut’s bill to ban medical debt on credit reports
On April 15, the CFPB released a letter written by Brian Shearer, the Assistant Director within the Office of Policy Planning and Strategy, throwing the Bureau’s support behind Connecticut’s new bill to bar medical debt on credit reports. The proposed bill, SB 395, has passed its committee in the first chamber. This legislation would align Connecticut with similar legislation in Colorado and New York, and the CFPB noted that the “preemption of state law is narrow under both the [FDCPA] and the [FCRA], and states may… limit the inclusion of information about a person’s allegedly unpaid medical bills on consumer reports.” The CFPB announced in September 2023 its NPRM to prohibit creditors from using medical bills in underwriting decisions (as covered by InfoBytes here). According to the letter, “[m]edical debt is categorically different from most types of consumer tradelines that typically appear on consumer reports. Consumers frequently incur medical bills in unique circumstances that differ from other forms of credit extension, and CFPB research has found that medical debt is less predictive of future consumer credit performance than other tradelines.”
CFPB’s Frotman speaks on medical debt collections and rental financial products
On April 11, the General Counsel of the CFPB, Seth Frotman, delivered a speech at the National Consumer Law Center/National Association of Consumer Advocates Spring Training, highlighting how the FDCPA and the FCRA cover often-overlooked sectors of consumer finance, including medical collections and landlord-tenant debts. As to medical billing, collections, and credit reporting, Frotman noted that the CFPB has received more than 15,000 complaints in the past two years, as explained previously in the CFPB’s most recent FDCPA annual report (covered by InfoBytes here). These complaints led to the CFPB initiating a rulemaking process to “remove medical bills from credit reports.” Frotman highlighted that many states have taken similar initiatives: Colorado and New York both enacted laws prohibiting the reporting of medical debt, and the CFPB encouraged more states to follow their lead; Connecticut recently introduced legislation banning medical debt in SB 395. Of interest, Frotman noted that when the CFPB contacted debt collectors about suspected bills, they often closed the account – suggesting that these collectors “do not have confidence that this money [was] actually owed,” indicating that collectors could be seeking to collect an invalid medical debt from consumers.
On rental collections and credit reporting, Frotman noted an increase in the “financialization” of the landlord and tenant relationship, such as products to finance security deposits or rent and offering rent-specific credit cards. Frotman also noted that corporate landlords, who have increased their share of the rental housing market, have increased the demand for “tenant screening” products that score prospective tenants. Frotman expressed concern that the algorithms relied on by these tenant screening products have been opaque and even discriminatory. The speech highlighted the CFPB’s focus on tenant screening as part of the Bureau’s increased attention toward debt collection and credit reporting companies generally in the rental industry. For instance, the CFPB noted that law firms that operate as “eviction mills” (i.e., firms that “rubber stamp” eviction actions without performing a meaningful review) could be held liable under the FDCPA.