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CFPB revises APOR methodology
On April 14, the CPFB announced a revised version of its Methodology for Determining Average Prime Offer Rates (APORs). APORs are a series of benchmark APRs derived from the average interest rates and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage loans with low-risk pricing characteristics. APORs are used to determine whether a particular loan is a “Qualified Mortgage” or a “Higher-Priced Mortgage Loan,” which determines the treatment of that loan under various consumer protection laws.
The methodology statement has been revised to address the imminent unavailability of certain data the CFPB previously relied on to calculate APORs. Specifically, Freddie Mac recently made changes to its Primary Mortgage Market Survey (PMMS) used to calculate APORs for three types of loans. These changes make the PMMS unsuitable to be used in the APOR calculations. The CFPB is replacing data from the PMMS with data from ICE Mortgage Technology. This change also requires the CFPB to change certain of the product types for which APORs are produced. The CFPB will begin using ICE Mortgage Technology data and the revised methodology to calculate APORs on April 21, 2023.
We note that the CFPB is not changing the frequency of the APOR calculations, which will still be calculated on a weekly basis. These changes will therefore not address industry concerns that the APORs can be as much as seven days old, which can result in the APORs being significantly different than the actual market rates on a given day. This dissonance can lead to significant issues during periods where interest rates rise rapidly as we saw during much of 2022.
CFPB reports on Section 1033 rulemaking
The CFPB recently released a final report issued by the Small Business Review Panel (Panel), which examines the impact of the Bureau’s proposals to address consumers’ personal financial data rights. Section 1033 of Dodd-Frank generally provides that covered entities, such as banks, must make available to consumers, upon request, transaction data and other information concerning consumer financial products or services that the consumer obtains from the covered entity. Over the past several years, the Bureau has engaged in a series of rulemaking steps to prescribe standards for this requirement, including the release of a 71-page outline of proposals and alternatives in advance of convening a panel under the Small Business Regulatory Enforcement Fairness Act. The outline presents items under consideration that “would specify rules requiring certain covered persons that are data providers to make consumer financial information available to a consumer directly and to those third parties the consumer authorizes to access such information on the consumer’s behalf, such as a data aggregator or data recipient (authorized third parties).” (Covered by InfoBytes here.)
While the Panel’s final report reflects its review of the Bureau’s proposals and the feedback received from small entity representatives that likely would be subject to the rule, it may not reflect updated findings uncovered during the process of producing a notice of proposed rulemaking because the report is drafted at the preliminary stage of the Bureau’s required rulemaking process.
The report includes an overview of proposals and alternatives under consideration for the use of two existing definitions to establish data provider coverage: “financial institution” as defined by Regulation E (i.e. “depository and nondepository financial institutions that provide consumer funds-holding accounts or that otherwise meet the Regulation E definition of financial institution”), and “card issuer” as defined by Regulation Z (i.e. “depository and nondepository institutions that provide credit cards or otherwise meet the Regulation Z definition of card issuer”). Entities that meet the definition of a “card issuer” would include both the person that issues a credit card and the person’s agents with respect to the card.
The report analyzes numerous topics, including proposals covering asset accounts and credit card accounts, potential exemptions for certain covered data providers, the process for making information available to consumers and to third parties (including third-party commitments to data security, data accuracy and limitations, and disclosure compliance), record retention obligations, and the potential impact on small entities. The report includes a thorough breakdown of panel findings and recommendations.
FTC, Florida AG sue “chargeback mitigation” company
On April 12, the FTC and the Florida attorney general filed a complaint in the U.S. District Court for the Middle District of Florida alleging a “chargeback mitigation” company and its owners (collectively, “defendants”) used numerous unfair tactics to thwart consumers trying to dispute credit card charges through the chargeback process. The chargeback process allows consumers to contest unwanted, fraudulent, or incorrect credit card charges with their credit card companies. According to the complaint, the defendants regularly sent screenshots and statements on behalf of company clients to credit card companies allegedly showing that consumers had agreed to the disputed charges. However, the FTC claimed that in many instances, the misleading screenshots did not come from the merchant’s website where the consumer made the disputed purchase. The complaint further alleged that the defendants used a system that allowed company clients to run numerous small-value transactions via prepaid debit cards in order to raise the number of transactions, thus lowering the percentage of charges that were disputed by consumers. The service, the FTC maintained, “enabled fraudulent merchants to evade or delay chargeback monitoring programs, fines, and account terminations designed to protect consumers from fraud.”
The FTC noted that three of the defendants’ major clients (for which the defendants disputed tens of thousands of chargebacks on behalf of each of the companies) were previously sued by the FTC for engaging in deceptive negative-option marketing practices. The complaint accused the defendants of ignoring clear warning signs that the screenshots were misleading, including instances where the name of the product referenced in the screenshot did not match the product in the disputed purchase. The defendants also allegedly often overlooked company clients that opened and used a large number of different merchant accounts to process charges. Asserting violations of the FTC Act and the Florida Unfair and Deceptive Trade Practices Act, the complaint seeks permanent injunctive relief, restitution, and civil penalties.
District Court dismisses RESPA claims that servicer failed on QWRs
The U.S. District Court for the Western District of Washington recently ruled on a loan servicer’s motion for summary judgment concerning claims that the servicer violated RESPA when it failed to respond to multiple qualified written requests (QWR) alleging account errors and improperly reported alleged delinquencies to credit reporting agencies (CRAs). Plaintiffs executed a promissory note and deed of trust, and later entered into a Chapter 11 bankruptcy plan to modify the terms of the loan. Plaintiffs sued, asserting violations of RESPA and various state laws, claiming, among other things, that the servicer failed to timely respond to their QWRs, provided false information to CRAs, and failed to adjust the loan to reflect the modified payment schedule from the bankruptcy plan.
The court granted summary judgment in favor of the servicer. On the QWR-related allegations, the court found that, “while the [plaintiffs] say that [the servicer] did not address the issues raised in the QWRs, their brief does not identify a single issue that went unaddressed. . . Their brief does not, for example, point to a request in any QWR that went unanswered in [the servicer’s] corresponding response. Merely providing a laundry list of documents—without specifically identifying how [the servicer’s] responses were incomplete—is insufficient.” The court also found that the plaintiffs failed to show that the servicer’s responses were misleading, confusing, or incorrect. Though the plaintiffs provided a list of statements made by the servicer when responding to the QWRs, plaintiffs failed to explain what exactly was inaccurate or confusing about the servicer’s responses, the court said.
While the court flagged one possible inconsistency in at least one of the servicer’s responses (where the servicer incorrectly stated the monthly principal amount due but corrected the mistake less than a month later), the court determined that “this alone does not suffice under RESPA.”
With respect to plaintiffs’ allegations of false credit reporting, the court concluded that there was no evidence that the servicer submitted negative information about plaintiffs to a CRA, nor did the plaintiffs demonstrate how any such reports hurt their credit or identify whether the reports were filed within RESPA’s 60-day non-reporting period. Under RESPA, a servicer is prohibited from providing certain information regarding “any overdue payment, owed by such borrower and relating to such period or qualified written request, to any consumer reporting agency” during the 60-day period beginning on the date the servicer receives a QWR. The court further noted that the plaintiffs failed to show that they suffered actual damages “flowing from” the alleged RESPA violations, which is a requirement of the statute.
The court granted summary judgment on the RESPA claims in favor of the servicer and remanded the remaining state-law claims to state court.
Treasury awards $1.7 billion in CDFI grants
On April 10, Vice President Kamala Harris and Deputy Secretary of the Treasury Wally Adeyemo announced that the U.S. Treasury Department’s Community Development Financial Institutions (CDFIs) Fund has awarded more than $1.73 billion in grants to 603 CDFIs to help low- and moderate-income communities recover from the Covid-19 pandemic. Financial institutions that received grants through the CDFI Equitable Recovery Program include banks, holding companies, and credit unions, as well as CDFI-designated non-depository loan funds and venture funds. Treasury noted that the recipients of the grants are “mission-driven financial institutions [that] specialize in delivering responsible capital, credit, and financial services to underserved communities.” The CDFI grants “may be used to support lending related to small businesses and microenterprises, community facilities, affordable housing, commercial real estate, and intermediary lending to nonprofits and CDFIs,” Treasury explained, adding that funds may also go towards financial and developmental services to support borrowers, as well as operational support for grant recipients.
HUD extends Covid-19 forbearance through May
On April 7, HUD issued Mortgagee Letter 2023-08, which extends through May 31 the final date for borrowers to request Covid-19 forbearance and home equity conversion mortgage (HECM) extensions. The extension is intended to allow ample time for affected borrowers to submit requests and for mortgagees to offer and process the requests in the event that the presidentially-declared national emergency ends earlier than originally expected. As stated in the letter, HUD determined that providing a short period beyond the expiration of the national emergency will be beneficial to both FHA borrowers and mortgagees. The extension will also align Covid-19 forbearance and HECM extension requests with the monthly billing cycle. The letter stated that no Covid-19 forbearance period may extend beyond November 30.
HUD announces Arkansas disaster relief
On April 5, HUD announced disaster assistance for areas in Arkansas impacted by severe storms and tornadoes on March 31. The disaster assistance follows President Biden’s major disaster declaration on April 2. According to the announcement, HUD is providing immediate foreclosure relief, making FHA mortgage insurance available to disaster victims, and providing information on housing providers, as well as HUD-approved housing counseling agencies, among other measures. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties, as well as an automatic 90-day extension for home equity conversion mortgages, effective April 2. It is also making various FHA insurance options available to victims whose homes require repairs or were destroyed. HUD’s Section 203(h) program allows borrowers from participating FHA-approved lenders to obtain 100 percent financing, including closing costs, for homes that require “reconstruction or complete replacement.” HUD’s Section 203(k) loan program enables individuals to finance the repair of their existing homes or to include repair costs in the financing of a home purchase or a refinancing of a home through a single mortgage. HUD is also allowing administrative flexibilities for community planning and development grantees, as well as to public housing agencies and Tribes. Additionally, HUD is advising consumers who believe they have experienced housing discrimination as a result of the disaster to reach out to the agency’s Office of Fair Housing and Equal Opportunity.
FHFA updates GSE equitable housing finance plans
On April 5, FHFA announced updates to Fannie Mae and Freddie Mac’s (GSEs) equitable housing finance plans for 2023. (See plans here and here.) The updates include adjustments to plans first announced last year (covered by InfoBytes here), which faced pushback from several Republican senators who argued that the plans raised “significant legal concerns” and that “no law authorizes FHFA to use a GSE’s assets to pursue affirmative action in housing.” (Covered by InfoBytes here.) The senators also argued that the Biden administration was “conscripting the GSEs as instrumentalities of its progressive racial equity agenda to achieve outcomes it cannot achieve legislatively or even legally.”
According to FHA’s announcement, the updated plans provide the GSEs with a three-year roadmap to address barriers to sustainable housing opportunities. Updates include (i) taking actions to remove barriers faced by Latino renters and homeowners in Fannie Mae’s plan; (ii) an improved focus on ensuring existing borrowers are able to receive fair loss mitigation support and outcomes through monitoring and developing strategies to close gaps; (iii) providing financial capabilities coaching to build credit and savings; (iv) supporting locally-owned modular construction facilities in communities of color; and (v) increasing the reach of GSE special purpose credit programs to support homeownership attainment and housing sustainability in underserved communities.
FDIC issues 2023 Consumer Compliance Supervisory Highlights
On April 5, the FDIC released the March 2023 edition of the Consumer Compliance Supervisory Highlights, which is intended to “enhance transparency regarding the FDIC’s consumer compliance supervisory activities and to provide a high-level overview of consumer compliance issues identified in 2022 through the FDIC’s supervision of state non-member banks and thrifts.” In 2022, the FDIC conducted approximately 1,000 consumer compliance examinations and noted that “[o]verall, supervised institutions demonstrated effective management of their consumer compliance responsibilities.” The agency also initiated 21 formal enforcement actions and 10 informal enforcement actions addressing consumer compliance examination observations and issued civil money penalties totaling $1.3 million against institutions to address violations of the Flood Disaster Protection Act (FDPA), RESPA Section 8, FCRA, and Section 5 of the FTC Act, with an additional $13.6 million in voluntary restitutions to consumers. Additionally, the FDIC referred 12 fair lending matters to the DOJ in 2022. Covered topics include:
- An overview of the most frequently cited violations, with approximately 73 percent of total violations involving TILA, Reg Z, Section 5 of the FTC Act, the FDPA, EFTA, and the Truth in Savings Act, with violations of Section 5 of the FTC (which prohibits unfair or deceptive acts or practices) moving up as a top-five violation.
- An overview of issues found during examinations involving institutions that purchased “trigger leads” but did not provide consumers with a firm offer of credit. Among other things, examiners identified occurrences where representatives failed to comply with FCRA disclosure requirements during sales calls by not communicating, among other things, that an offer of credit was being made.
- Findings where institutions “unilaterally applied excess interest to the servicemember’s principal loan balance without giving the servicemember an option of how to receive the funds”—a violation of the SCRA’s anti-acceleration provision.
- Information on regulatory developments, including recent FDIC actions and efforts to (i) address appraisal bias; (ii) modernize the Community Reinvestment Act; (iii) remind creditors that they may establish special purpose credit programs under ECOA to meet the credit needs of certain classes of persons; (iv) implement a supervisory approach, consistent with the CFPB’s approach, for FDIC-supervised institutions with respect to reporting HMDA data; (v) provide revised information on flood insurance compliance responsibilities; (vi) address occurrences where persons misuse the FDIC’s name or logo, or make false or misleading representations about deposit insurance; (vii) assess crypto-asset-related activities; (viii) adopt revised guidelines for appeals of material supervisory determinations; and (ix) address compliance risks associated with multiple re-presentment of NSF fees.
- A summary of consumer compliance resources available to financial institutions.
- An overview of consumer complaint trends.
Colorado restricts vehicle value protection agreements
On March 23, the Colorado governor signed SB 23-015, which prohibits placing conditions on the terms of a vehicle sale, lease, or the extension or terms of credit, upon the purchase of a vehicle value protection agreement. In addition, the bill requires, among other things, that such agreements must outline eligibility requirements, coverage conditions or exclusions, provide certain consumer notices, and must benefit the consumer “upon the trade-in, total loss, or unrecovered theft of a covered vehicle.” Providers of such agreements must also obtain a contractual liability insurance policy that guarantees their obligations under the agreement. Finally, the act establishes that value protection agreements themselves are not insurance and are exempt from state insurance regulations.