InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FTC Settles With Dallas Auto Dealer for Alleged Deceptive Advertisements
On December 1, the FTC announced a proposed order to settle with a Dallas, Texas auto dealership for alleged deceptive advertisements containing loan and lease terms in Spanish-language newspapers. According to the FTC, the dealership violated the FTC Act by prominently displaying advantageous loan and lease terms in Spanish and qualifying those terms in smaller-print English at the bottom of the page. The FTC alleges the dealership misrepresented (i) the total cost of purchasing or leasing; (ii) the underwriting restrictions for the advertised loan or lease; and (iii) the availability of the inventory advertised. Additionally, the FTC alleged that the dealership violated Truth in Lending Act and the Consumer Leasing Act by failing to “clearly and conspicuously” disclose credit and lease terms. The proposal requires the dealership to cease the allegedly deceptive conduct and comply with all applicable advertisement regulations in the future. The proposal is published in the Federal Register and is open for public comment until January 2, 2018.
CFPB Fines Large Bank for Alleged Student Loan Servicing Issues
On November 21, the CFPB announced it had entered into a consent order with a large national bank over allegations that the bank engaged in unfair and deceptive practices in violation of the Consumer Financial Protection Act of 2010 (CFPA) related to its student loan servicing activities. The order, which the bank consented to without admitting or denying the findings, asserts that for the student loan accounts it was servicing, the bank (i) misrepresented information to borrowers about tax benefits; (ii) failed to refund interest and fees inaccurately charged; (iii) misstated minimum monthly payment amounts in bills; and (iv) failed to provide required information when denying co-signer release requests. In addition to imposing a civil money penalty, the CFPB’s order requires the bank to pay restitution to certain consumers and implement certain policies.
House Financial Services Committee Passes Bill That Would Pre-empt State Usury Laws
On November 15, the House Financial Services Committee (Committee) announced the passage of H.R. 3299, “Protecting Consumers Access to Credit Act of 2017,” which would amend the “Revised Statues and the Federal Deposit Insurance Act” to explain that bank loans that were valid as to their maximum rate of interest in accordance with federal law at the time the loan was made shall remain valid with respect to that rate, regardless of whether the bank subsequently sells or assigns the loan to a third party. This would have the effect of preempting contrary state usury laws and effectively overturn the 2015 decision in Madden v. Midland Funding, LLC.
The bill passed Committee 42-17.
InfoBytes previously covered the bill’s introduction and also, a similar measure introduced in the Senate.
Freddie Mac Announces Guide Bulletin 2017-26 Covering Changes to Eligibility for Certain Mortgage Products
On November 15, Freddie Mac announced the issuance of Guide Bulletin 2017-26 (Bulletin), which, among other things, expands borrower options for mortgage financing, eases certain underwriting requirements, and adds non-discrimination language. Specifically, the Bulletin announces the availability of 5-year ARMs as a newly eligible product under “Home Possible,” “Freddie Mac Relief Refinance,” and “Financed Permanent Buydown” mortgage programs. Freddie Mac is also removing the requirement that all income reported on Home Possible Mortgage applications must be verified. Additionally, effective March 15, 2018, consistent with the FHFA Minority and Women Inclusion Amendments Final Rule, all covered sellers “must not discriminate on the basis of race, color, religion, sex, age, marital status, disability, veteran status, genetic information (including family medical history), pregnancy, parental status, familial status, national origin, ethnicity, sexual orientation, gender identity or other characteristics protected by law.”
DOJ Announces $5.4 Million in Additional Relief for Servicemembers Impacted by Bank’s Alleged SCRA Violations
On November 14, the DOJ announced it had secured an additional $5.4 million from a major U.S. bank related to a September 2016 settlement (previously covered by InfoBytes) resolving allegations that between January 2008 and July 2015 the bank repossessed vehicles owned by active duty servicemembers without required court orders in violation of the Servicemembers Civil Relief Act. The original consent order with the DOJ required the bank to pay $10,000, plus lost equity, to each of the 413 affected servicemembers whose cars were found to be unlawfully seized and further stipulated the bank could be required to compensate additional servicemembers. Since entering into the 2016 settlement with the DOJ, the bank announced it had uncovered another 450 qualifying servicemembers, bringing the combined affected total to 863, with compensatory payouts of more than $10 million.
Federal Reserve Releases Survey on Bank Lending Practices
On November 6, the Federal Reserve Board (Fed) released its October 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices. Responses came from both domestic banks and U.S. branches and agencies of foreign banks, and focused on bank loans made to businesses and households over the past three months. The October survey results indicated that over the third quarter of 2017, on balance, lenders eased their standards on commercial and industrial loans with demand for such loans decreasing. However, lenders left their standards on commercial real estate (CRE) loans unchanged and reported that demand for CRE loans weakened. As to loans to households, banks reported that standards for all categories of residential real estate (RRE) lending “either eased or remained basically unchanged,” and that the demand for RRE loans also weakened.
The survey also included two sets of special questions addressing changes in household lending conditions.
The first set of these special questions asked banks to specify the reasons for changing this year their credit policies on credit card and auto loans to prime and subprime borrowers. Respondents’ most reported reasons for tightening standards or terms on these types of loans were (i) “a less favorable or more uncertain economic outlook”; (ii) “a deterioration or expected deterioration in the quality of their existing loan portfolio”; and (iii) “a reduced tolerance for risk.” Auto loan reasons also focused on “less favorable or more uncertain expectations regarding collateral values.”
The second set of these special questions asked banks for their views as to why they have experienced stronger or weaker demand for credit card and auto loans over this year. Respondents’ reported that a strengthening of demand for credit card and auto loans from prime borrowers could be attributed to customers’ confidence as well as their improved ability to manage debt service burdens. The most reported reasons for weakened demand for credit card and auto loans from prime borrowers were an increase in interest rates and a shift in customers’ borrowing “from their bank to other bank or nonbank sources.”
For additional details see:
FTC Fines California Auto Dealer for Violating Order About Disclosures
On November 6, the FTC announced a settlement of $1.4 million with a Southern California auto dealership for violating a 2014 administrative order (Order). The Order prohibited the dealership from misrepresenting the cost to finance or lease a vehicle. In issuing the Order, the FTC alleged that the dealership had violated the FTC Act by using advertisements that deceptively stated a $0 up-front lease option while excluding other fees and costs, and also that the dealership’s advertisements violated disclosure requirements of the Consumer Leasing Act (CLA) and TILA.
The new settlement resolves a complaint in which the FTC alleged the auto dealership “routinely violated” the Order requiring the dealership to, among other things, (i) accurately represent costs and terms of financing or leasing vehicles; (ii) conform its advertisements to the requirements of the CLA and TILA; and (iv) maintain necessary records and make those records available to the agency. In addition to the monetary penalty and the prohibition of similar practices, the settlement also subjects the dealership to strong compliance and reporting requirements.
Acting Comptroller Discusses Efforts to Promote Lending and Investment in Distressed Communities
On November 2, Acting Comptroller of the Currency Keith A. Noreika addressed the National Association of Affordable Home Lenders to emphasize the OCC’s efforts to support depository institution lending and investment in distressed communities. In his speech, Noreika discussed the guidance issued by the OCC in August (previously covered by InfoBytes), which covers owner-occupied residential mortgage originations with loan-to-value (LTV) ratios greater than 100 percent. The guidance is intended to aid in the revitalization of certain areas around the country and provide a framework for the OCC’s monitoring of these programs for safe and sound lending practices. Noreika concluded that since August “the guidance and the programs being established…are beginning to make differences in the communities that need reinvestment the most” and encouraged their continued use by reminding the conference that these programs can also provide banks credit under the Community Reinvestment Act (CRA).
Fannie Mae Updates Selling Guide
On October 31, Fannie Mae issued Announcement SEL-2017-09, highlighting recent updates to its Selling Guide, that generally affirm the ability to conduct activity using electronic records. Among other things, the update (i) confirms that sellers and servicers are authorized to originate, service, and modify loans using electronic records; (ii) requires that validation and security measures be put in place for systems generating electronic records; (iii) specifies that recorded mortgages and deeds of trust are not required to be maintained in paper form; and (iv) clarifies that all electronic signatures must comply with ESIGN, the Uniform Electronic Transactions Act (UETA), and other applicable laws. The updates are effective immediately.
Additional changes address the (i) introduction of Fannie Mae’s Servicing Execution Tool and Servicing Marketplace, which are designed to improve transfers of servicing; (ii) clarification that property owned by inter vivos revocable trusts qualify as eligible collateral; and (iii) updates to policies related to mortgage debts paid by parties other than the borrower.
New York Enters Second Stage in Use of Nationwide Licensing System
On November 1, the New York Department of Financial Services (NYDFS) announced that it will transition licensed lenders and sales finance companies to the Nationwide Multistate Licensing System (NMLS). NMLS allows companies to apply for, update, and renew licenses in one or more states online. According to the announcement, transitioning to NMLS will allow NYDFS to link with other states and thus provide enhanced supervision of nondepository institutions. As previously covered by InfoBytes, in July, NYDFS began its initiative to manage the licensing and regulation of all nondepository financial institutions operating in the state by transitioning money transmitters to the web-based system.