InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Senate Banking Committee Leaders Seek Regulators' Views On Virtual Currencies
On May 19, the Senate Banking Committee’s chairman and ranking member, Senators Tim Johnson (D-SD) and Mike Crapo (R-ID), sent a letter to the leaders of the Treasury Department, the SEC, the CFTC, the OCC, the FDIC, and the Federal Reserve Board regarding recent developments in the use of virtual currencies and their interaction with the global payment system. The Senators ask the regulators a series of questions related to the role of virtual currencies in the U.S. banking system, payment system, and trading markets, and the current role of federal regulators in developing local, national, and international enforcement policies related to virtual currencies. The Senators also seek the agencies’ expectations on virtual currency firms’ BSA compliance, and ask whether an enhanced regulatory framework for virtual currencies is needed.
Senate Banking Committee Approves Housing Finance Reform Bill
On May 15, the Senate Banking Committee voted 13-9 to approve S. 1217, the Housing Finance Reform and Taxpayer Protection Act. A draft version of the bill, which generally would end the government’s conservatorship of Fannie Mae and Freddie Mac and reform the housing finance system, was first released in March. That draft built off of legislation introduced last year by several committee members. The draft was subsequently amended in advance of the committee vote, and during the committee’s session, a package of additional amendments was approved. Committee members indicated they will engage in further efforts to build support for the bill and a potential vote by the full Senate, though at this time such a vote is unlikely.
Senate Democrats Lobby CFPB On Forthcoming Payday Lending Proposal
On May 14, six Senate Democrats, including Senate Banking Committee Members Jeff Merkley (D-OR) and Elizabeth Warren (D-MA), sent a letter to CFPB Director Richard Cordray asking that the CFPB consider the proposals included in Senator Merkley’s SAFE Lending Act, S. 172, in developing the forthcoming payday lending proposed regulations. That legislation primarily attempts to address perceived gaps in the regulation of Internet and offshore small dollar lenders—including those lenders affiliated with Native American tribes—and lead generators. The letter also petitions the CFPB to adopt “strong” reforms—such as minimum loan terms, fee and renewal limitations, and a waiting period between loans—that cover all types of small dollar lending. The CFPB highlighted many of these potential reforms in a March 2014 report and field hearing.
Senator Durbin Presses Student Loan Servicers On SCRA; Consumer Group Wants More Student Borrower Information
On May 14, Senator Dick Durbin (D-IL) sent a letter to student loan servicers calling on them to voluntarily establish a liaison for servicemembers with student loan accounts to assist those servicemember with obtaining SCRA protections. On May 12, the National Consumer Law Center sent a letter to Education Secretary Arne Duncan complaining about the Department of Education’s alleged inadequate responses to NCLC inquiries seeking (i) information and data about why borrowers default and incidence of re-default; (ii) information about the Department’s commission and compensation system for servicers and collectors and performance evaluation metrics; (iii) copies of guidance to servicers and collectors; (iv) information about servicer performance broken down by percentage of loans in various stages of delinquency, percentage of borrowers enrolled in income-driven repayment (IDR), retention rates for those enrolled in IDR, re-default rates, and percentage of borrowers in deferments and forbearances; (v) information about collection and servicer complaint systems; and (vi) breakdown of accounts sent to the Department of Treasury for offset, including by type of benefit program and by demographic information including age. The letter also outlines NCLC’s operational concerns, including with regard to loan rehabilitation and affordable repayment, collection agency oversight, and servicing performance metrics.
HUD To Insure Reverse Mortgages Protecting Non-Borrowing Spouses; Senators Seek Protections For Surviving Heirs
On April 25, HUD issued Mortgagee Letter 2014-07, which states that effective August 4, 2014, HUD will apply an alternative interpretation of Subsection 255(j) of the National Housing Act, which HUD has interpreted to limit its reverse mortgage program (HECM) to insuring only those that contain a safeguard to defer repayment of the loan until the homeowner’s death and certain other circumstances. Going forward, HUD also will insure HECMs that contain a provision deferring the due and payable status in the event of the death of the last surviving mortgagor or the death of the last surviving non-borrowing spouse (including common law), if the spouse was identified at the time of closing. HUD states the change will obviate the need for non-borrowing spouses to refinance the loan upon the mortgagor’s death. HUD intends to publish a rule on this issue, but decided to take initial action through a mortgagee letter, as allowed under the Reverse Mortgage Stabilization Act of 2013.
On April 30, Senators Schumer (D-NY) and Boxer (D-CA) sent a letter to HUD Secretary Donovan following reported allegations that reverse mortgage companies are threatening heirs with foreclosure instead of following HUD’s rules and allowing them to satisfy the loan at 95% of current appraised value. The Senators' letter asks HUD to: (i) issue a mortgagee letter making clear that a matured reverse mortgage loan can be extinguished by the mortgagor, the mortgagor’s estate, or personal representative by paying 95% of the home’s market value; (ii) develop a letter that servicers can send to a borrower’s family members and heirs that outlines options for satisfying the loan; and (iii) enforce existing rules and require that any servicer that fails to offer this option within the required time allow a family member or heir to pay the lower of 95% of the home’s value at the time the loan became due or 95% of the home’s value at the time the error was corrected.
Senate Banking Leaders Release Draft Housing Finance Reform Bill
On March 16, Senate Banking Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) released long-awaited draft legislation to end the government’s conservatorship of Fannie Mae and Freddie Mac and reform the housing finance system. The Senators also released a summary of the proposal and a section-by-section analysis. The bill adopts many of the principles originally outlined in bipartisan legislation introduced last year by Senators Mark Warner (D-VA) and Bob Corker (R-TN). Like the Warner-Corker bill, the leadership proposal would create a Federal Mortgage Insurance Corporation (FMIC), modeled in part after the FDIC and intended to provide an explicit government backstop for certain MBS. The government backstop would sit behind private investors required to hold at least 10% capital on FMIC-issued securities. FMIC losses in turn would be backed by a reinsurance fund. The FMIC also would (i) oversee a new mortgage securitization platform; (ii) supervise guarantors, aggregators, servicers, and private mortgage insurers; and (iii) collect fees dedicated to support affordable housing and allocated among the Housing Trust Fund, the Capital Magnet Fund, and a new Market Access Fund. Under the bill servicers, aggregators, and others would be subject to capital requirements now only applicable to banks. The bill would establish a 5% down payment requirement for borrowers, 3.5% for first time borrowers. The bill also would create a jointly owned small lender mutual intended to provide small lenders access to the secondary market. The leadership’s small lender mutual would be open to more banks—any depository institution with up to $500 billion in assets—than the Warner-Corker plan would allow. The Committee is expected to markup the legislation in the coming weeks.
State Banking Associations Object To Senators' Request For Increased Bank Payment System Security Oversight
On March 5, 53 state bankers associations sent a letter to Federal Reserve Board Chair Janet Yellen defending banks’ efforts to secure consumer financial data and highlighting the responsibilities of other parties, in particular merchants, to do the same. The banking associations, representing bankers in every state and Puerto Rico, took issue with a letter Democratic Senators Dick Durbin (D-IL) and Al Franken (D-MN) sent last month to the Federal Reserve Board Chair seeking information about the Board’s oversight of card issuers’ fraud prevention policies and recommending that the Board do more to verify the effectiveness of such policies. The banking associations contend that the Senators’ letter is a “thinly veiled effort to once again advance the regulation of interchange under the guise of current concerns over data security,” and criticize the Senators for converting a discussion about security responsibilities into one about interchange fees.
Democratic Lawmakers Express Support for DOJ Payment Processor Investigations
On February 26, Senators Jeff Merkley (D-OR), Elizabeth Warren (D-MA), and other Democratic Senators, together with Representatives Elijah Cummings (D-MD), Maxine Waters (D-CA), and other Democratic House members, sent a letter to Attorney General Eric Holder encouraging the DOJ to “continue a vigorous review of potential payment fraud, anti-money-laundering violations, and other illegal conduct involving payments by banks and third-party payment processors.” The lawmakers highlighted a number of specific issues on which the DOJ should focus: (i) know-your-customer obligations, which they believe should include a review of whether a lender holds all required state licenses and follows state lending laws; (ii) use of lead generators, including those that auction consumer data; (iii) high rates of returned, contested, or otherwise failed debits or the regular use of remotely created checks, which they state may indicate payment fraud; and (iv) lenders’ failure to incorporate or maintain a business presence in the U.S., which they assert can be indicative of fraud and other payment system violations, including money-laundering.
Senate Report Urges DOJ Action Regarding Offshore Tax Evasion, Enforcement Against Swiss Banks
On February 27, the Senate Permanent Subcommittee on Investigations (PSI) issued a report and held a hearing related to its multi-year investigation of offshore tax evasion and the DOJ’s efforts to pursue Swiss banks who allegedly aid U.S. citizens in evading taxes. The hearing and report focused on one Swiss bank alleged to have facilitated tax evasion and criticized the DOJ for its supposedly “lax enforcement” approach towards numerous Swiss banks. The report states that U.S. law enforcement authorities have failed to prosecute more than a dozen Swiss banks the PSI staff believes facilitated U.S. tax evasion, and failed to take action against the thousands of U.S. citizens who have been revealed as tax evaders. The report also criticizes Swiss officials who the PSI alleges have worked to preserve Swiss bank secrecy by intervening in U.S. criminal investigations and hampering progress. The PSI report urges the DOJ to “use all available U.S. legal means” to obtain the names of alleged tax evaders, and to hold accountable “tax haven banks that aided and abetted” in the alleged evasion. The report also states that U.S. banking regulators should “institute a probationary period of increased reporting requirements for, or to limit the opening of new accounts by, tax haven banks that enter into deferred prosecution agreements, non-prosecution agreements, settlements, or other concluding actions with law enforcement for facilitating U.S. tax evasion, taking into consideration repetitive or cumulative misconduct.” Finally, the subcommittee recommended that the Senate promptly ratify a pending U.S.-Switzerland tax treaty that would allow for increased sharing of information by the Swiss.
Democratic Lawmakers Urge Federal Reserve Board To Increase Direct Role In Supervision And Enforcement
On February 11, Senator Elizabeth Warren (D-MA) and Representative Elijah Cummings (D-MD) sent a letter to newly appointed Federal Reserve Board Chairman Janet Yellen, asking that she reconsider the Board’s policy of delegating supervisory and enforcement powers to staff. The lawmakers cite a recent letter from former Federal Reserve Chairman Ben Bernanke, in which he explained that in the last 10 years, the Board of Governors voted on only 11 of nearly 1,000 enforcement actions, and that under current application of the Federal Reserve’s enforcement delegation policy, the Federal Reserve can enter into consent orders without ever receiving formal approval of senior staff. The letter asks for a change in policy that would require the Board to retain greater authority over the Federal Reserve’s enforcement and supervisory activities. Specifically, the lawmakers recommend that (i) the Board vote on any consent order that involves $1 million or more or that requires a bank officer to be removed and/or new management installed; (ii) staff formally notify the Board before entering into a consent order under delegated authority; (iii) each Board member be provided with the necessary staffing capacity to review and analyze pending enforcement actions; and (iv) all Board members receive a copy of all letters sent to the Chairman or another Board member by a committee or member of Congress.