InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB releases 2022 HMDA data
On September 27, the CFPB released a data point report titled 2022 Mortgage Market Activity and Trends, which analyzes residential mortgage lending activity and trends for 2022. The 2022 HMDA data reflects the fifth year of data that incorporates amendments to HMDA made by Dodd-Frank.
The CFPB noted in its press release accompanying the report that “in 2022, mortgage applications and originations declined markedly from the prior year, while rates, fees, discount points, and other costs increased. Overall affordability declined significantly, with borrowers spending more of their income on mortgage payments and lenders more often denying applications for insufficient income.” They also noted that “as in years past, independent lenders continued to dominate home mortgage lending, with the exception of home equity lines of credit.” Specifically, Lenders previously reported a 2.4 percent increase in closed-end site-built single-family originations from 2020 to 2021. In 2022, lenders reported 6.7 million closed-end site-built single-family originations, a 50.9 percent decrease from 13.7 million in 2021. Other highlighted trends in mortgage applications and originations found in the 2021 HMDA data point include, among other things:
- The total number of applications dropped 38.6 percent, and originations decreased by 44.1 percent;
- Borrowers’ costs and fees for taking out mortgages rose 22 percent from 2021, and a higher percentage of borrowers paid discount points than any year since this type of data has been collected;
- Refinances were down by 73.2 percent from 2021, with most refinances being cash-out refinances, which the CFPB noted can increase the risk of foreclosure. The CFPB noted that “in a reversal of recent trends, the median credit score of refinance borrowers declined below the median credit score of purchase borrowers.” Home-equity refinances, however, rose in 2022, with depository institutions dominating the home-equity lines of credit;
- Black and Hispanic white borrowers, borrowers of low- or moderate-income, and borrowers taking out loans secured with properties in low- or moderate-income neighborhoods accounted for a large share of refinance loans;
- Due to a rise in mortgage interest rates, average monthly mortgage payments increased by more than 46 percent;
- Debt to income ratio became more likely to be reported as a denial reason for denied applications across racial/ethnic groups in 2022.
In CFPB Director Rohit Chopra’s statement regarding the results of the 2022 HMDA data, he stated, “The significant changes in the rate environment in 2022 are having considerable impacts on the mortgage market. I expect these trends will continue in 2023 given further increases in average mortgage interest rates.”
Senate Banking Committee debates AI in finance: balancing opportunities and risks
On September 20, the Senate Banking Committee held its first hearing on the use of artificial intelligence (AI) in the financial services space, further revealing a partisan divide regarding the utilities and risks associated with the technology. In his opening remarks, Committee Chairman Sherrod Brown cautioned that although AI technology promises new efficiencies and opportunities, it also carries unique risk of harm to consumers and workers in the financial services space, including the potential for discriminatory practices in lending and the reduction of job security and wages. He called for “rigorous testing and evaluation of AI models” before they are put to use by companies and other organizations in the financial services space. By contrast, Chairman Brown’s counterpart, Acting Ranking Member Mike Rounds touted the successes that similar technologies have brought to the financial services industry and stated that AI presents more upside than risk, particularly in the space of fraud detection and prevention. He urged Congress to take a “pro-innovative” role in regulating AI and warned that halting or slowing progress in this space will only allow competitors in other countries to develop more advanced technologies.
The Committee then heard from several witnesses working in the AI and machine learning (ML) space, including both industry professionals and professors. Overall, these witnesses championed the potentials of AI, explaining its potential for “greater efficiency, enhanced insight, expanded access, and lower costs” but cautioned that the utilization of AI and ML is not a “one size fits all” model and will require careful consideration and oversight to minimize the risks it could pose to consumers and the markets.
FCC updates rules to curb robocallers
On September 21, the FCC adopted rules that would strengthen and modernize the requirements that providers under the Voice over Internet Protocol (VoIP) need to abide by to obtain direct access to telephone numbers. The rules impose guardrails to make it more difficult for those who make illegal robocalls to access telephone numbers, which the FCC stated helps to protect national security and law enforcement, safeguard the nation’s finite numbering resources, reduce the opportunity for regulatory arbitrage, and further promote public safety. The FCC finalized the rules after the FCC sought comment in 2021 under the Telephone Robocall Abuse Criminal Enforcement and Deterrence (TRACED) Act, which directed the FCC to examine its rules regarding direct access to telephone numbers.
The rules require an applicant seeking direct access to telephone numbers to:
- Provide certifications regarding its compliance with FCC robocall rules, FCC interconnected VoIP provider rules, and timely filing of FCC Forms 477 and 499.
- Submit disclosures on and continue to update its ownership structure, including related foreign entities, to reduce the risk that U.S. numbering resources reach bad actors abroad.
- Comply with applicable business-related state laws and registration requirements.
The rules codify the FCC’s role in completing direct access application review and rejection and the authorization revocation process.
Additionally, the rules instruct the North American Numbering Council to study numbering use to inform the FCC’s future rulemaking. The rules also seek comments on a variety of topics, including further reforms on new direct access applications, duties of existing direct access authorization holders, and whether direct access applicants should disclose a list of states where they will provide initial services.
The rules will take effect 30 days after publication in the Federal Register.
FDIC's chairman addresses CRA rulemaking, unbanked households, and nonbank payment services
On September 20, FDIC Chairman Martin J. Gruenberg delivered prepared remarks at the Exchequer Club, discussing the risks posed by nonbank financial institutions (nonbanks) to the U.S. financial system. He noted that nonbanks hold a significant share of the financial sector, with assets totaling around $20.5 trillion in 2021, emphasizing their importance alongside traditional banks. Gruenberg highlighted the financial stability concerns associated with nonbanks, especially their limited regulation and supervision compared to traditional banks. He further mentioned the interconnectedness between nonbanks and banks, and the potential for nonbanks to transmit risk during market shocks, which underscores the need for attention to these issues. Specifically, Gruenberg stated that the “information about the risks undertaken by a variety of nonbanks is severely lacking”, and transparency about these issues will ensure a safer financial system. Gruenberg also pointed out that nonbanks are becoming increasingly active in mortgage finance, business lending, and consumer financial services. He discussed some risks associated with hedge funds and leveraged investment vehicles generally, such as their reliance on short-term funding, and their potential to disrupt the stability of financial markets. Gruenberg concluded by advocating for a comprehensive strategy to address the financial stability risks posed by nonbanks, emphasizing the importance of transparency, oversight, and prudential requirements for nonbank financial institutions.
CFPB announces consumer reporting rulemaking
On September 21, the CFPB announced the beginning of its anticipated rulemaking regarding consumer reporting, including a proposal to remove medical bills from credit reports. This announcement builds upon a hearing the CFPB held in July 2023 on medical billing and collections, highlighting its range of negative impact on marginalized communities (covered by InfoBytes here). In the CFPB’s announcement, Director Rohit Chopra emphasized the inconsequential “predictive value” of medical bills in credit reports despite their prevalence in American households, thus the agency's goal is to alleviate the burden on individuals facing medical debt. The Bureau’s press release highlighted components to its outline of proposals and alternatives under consideration, such as (i) prohibiting consumer reporting companies from including medical bills in consumers’ credit reports; (ii) prohibiting creditors from relying on medical bills for underwriting decisions; and (iii) prohibiting debt collectors from leveraging the credit reporting system to pressure consumers into paying their debts. The rule would not prevent creditors from accessing medical bill information, such as validating need for medical forbearances, or evaluating loan applications for paying medical debt.
In addition to the proposed removal of medical debt from consumer reports, the Bureau’s outline includes other notable proposals regarding consumer reports. The Bureau’s proposals include:
- As previously covered by InfoBytes, applying the FCRA to data brokers by altering the FCRA definitions of “consumer report” and “consumer reporting agency”, to “address whether and how the FCRA applies to newer actors and practices in the credit reporting marketplace, including questions such as coverage of data brokers and certain consumer reposting agency practices regarding marketing and advertising.” In particular, the Bureau is also considering a proposal that would provide that data brokers selling “consumer reports” containing consumers’ payment history, income, and criminal records would be considered a consumer reporting agency. The Bureau is also exploring clarifications on when data brokers qualify as consumer reporting agencies and furnish consumer reports.
- Clarifying whether “credit header data” qualifies as a consumer report, which could limit the disclosure or sale of credit header data without valid reasoning.
- Clarifying that certain targeted marketing activities that do not directly share information with a third party nevertheless are subject to the FCRA.
- Proposing a definition of the terms “assembling” and “evaluating” to include intermediaries or vendors that “transmit consumer data electronically between data sources and users.”
- Clarifying whether and when aggregated or anonymized consumer report information constitutes or does not constitute a consumer report. Specifically, the Bureau contemplates providing that a data broker’s sale of particular data points such as “payment history, income, and criminal records” would “generally be a consumer reports, regardless of the purpose for which the data was actually used or collected, or the expectations of that data broker
- Establishing the steps that a company must take to obtain a consumer’s written instructions to a obtain a consumer report.
- Addressing a consumer reporting agency’s obligation under the FCRA to protect consumer reports from a data breach or unauthorized access.
CFPB issues guidance on adverse action reasons by creditors using AI
On September 19, the CFPB issued guidance about legal requirements that creditors must follow when using artificial intelligence and other complex models.
In prior guidance, the agency stated that lenders must provide specific and accurate reasons for adverse actions against consumers. The latest guidance expanded upon that prior guidance to clarify that lenders cannot simply use CFPB sample adverse action forms and checklists when taking adverse actions against consumers, but must explain the reasons for such adverse actions to help improve consumers’ chances for future credit, and protect consumers from illegal discrimination.
In its announcement of the updated guidance, the CFPB discussed the potential that consumers may be denied credit as a result of the increased use of complex, predictive decision-making technologies to analyze large datasets that may include consumer surveillance data or other information that the consumer may not believe is relevant to their finances. The agency confirmed that creditors must disclose the specific reasons for adverse action, even if consumers may be surprised, upset, or angered to learn their credit applications were being graded on data that may not intuitively relate to their finances. According to the guidance, a creditor is not absolved from the requirement to specifically and accurately inform consumers of the reasons for adverse actions because the use of predictive decision-making technologies in their underwriting models makes it difficult to pinpoint the specific reasons for such adverse actions.
CFPB adjusts annual dollar amount thresholds under TILA, HMDA regulations
On September 18, the CFPB released a final rule revising the dollar amounts for provisions implementing TILA and its amendments that impact loans under the Home Ownership and Equity Protection Act of 1994 (HOEPA) and qualified mortgages (QM). The Bureau is required to make annual adjustments to dollar amounts in certain provisions in Regulation Z, and has based the adjustments on the annual percentage change reflected in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in effect on June 1, 2023. The following thresholds are effective January 1, 2024:
- For HOEPA loans the adjusted total loan amount threshold for high-cost mortgages will be $26,092, and the adjusted points-and-fees dollar trigger for high-cost mortgages will be $1,305;
- For qualified mortgages under the General QM loan definition, the thresholds for the spread between the annual percentage rate and the average prime offer rate will be: “2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $130,461; 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $78,277 but less than $130,461; 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $78,277; 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $130,461; 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $78,277; or 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $78,277”; and
- For all QM categories, the adjusted thresholds for total points and fees will be “3 percent of the total loan amount for a loan greater than or equal to $130,461; $3,914 for a loan amount greater than or equal to $78,277 but less than $130,461; 5 percent of the total loan amount for a loan greater than or equal to $26,092 but less than $78,277; $1,305 for a loan amount greater than or equal to $16,308 but less than $26,092; and 8 percent of the total loan amount for a loan amount less than $16,308.”
With respect to credit card annual adjustments, the Bureau noted that its 2024 annual adjustment analysis on the CPI-W in effect on June 1, did not result in an increase to the current minimum interest charge threshold (which requires “creditors to disclose any minimum interest charge exceeding $1.00 that could be imposed during a billing cycle”).
Ginnie Mae released the Social Impact and Sustainability Framework and supports broader access to mortgage financing
On September 14, Ginnie Mae announced the launch of its “Social Bond” label to indicate underlying collateral that is designed to support a positive social and affordable housing outcome, and released the Social Impact and Sustainability Framework.
The “Social Bonds” revision to Ginnie Mae’s standard forms of prospectus details attributes of Ginnie Mae MBS to provide transparency to investors. The insurance or guaranties extended under certain government programs reduce borrower credit risk, which promotes broader access to mortgage credit and/or less costly credit for borrowers, thereby expanding homeownership access and affordability among targeted populations (low-to-moderate income borrowers, veterans, senior citizens, rural communities, and/or tribal, Alaska Native, and Native Hawaiian communities).
The Social Impact and Sustainability Framework highlighted Ginnie Mae’s role in connecting the global capital markets to America’s housing financial system and providing liquidity to support access to affordable housing and lending for first first-time homebuyers, low-to-moderate income households, veterans, seniors, and members of urban, rural, and tribal communities from inception.
FTC fines two companies $6M for inaccurate background reports
The FTC fined two companies that sell consumer background reports through subscriptions for violations of the FTC Act and Fair Credit Reporting Act (“FCRA”). In addition to allegedly claiming, without substantiation, to have the most accurate reports available to the public, the complaint says two companies deceptively claimed individuals had criminal or arrest records when the individual did not; deceptively claimed consumers can remove information or flag it as inaccurate, and deceptively failed to disclose that third-party reviews were incentivized and biased.
The companies also furnished consumer reports to subscribers “without reason to believe those subscribers have permissible purposes to obtain such reports.”
The stipulated order requires the companies to pay a civil penalty of $5.8 million, prohibits them from advertising, marketing, promoting, or offering for sale certain reports including arrest records, bankruptcy records, and eviction records until the establish and implement a comprehensive monitoring program, and prohibits them from continuing any of the deceptive practices set forth in the complaint.
Risks in college tuition payment plans revealed in CFPB report
On September 14, the CFPB released a report highlighting risks associated with college tuition payment plans. Analyzing nearly 450 college websites, the report found that many plans lack clear disclosures and have confusing repayment terms, potentially causing students to miss payments and accumulate debt. Additionally, the CFPB noted that some institutions use transcript withholding as a debt collection tool, a practice deemed illegal and detrimental to students' career prospects.
Key findings include:
- Inconsistent and confusing disclosures in tuition payment plans.
- Substantial fees, including enrollment fees, returned payment fees, and late fees, leading to high costs for students.
- Intrusive debt collection practices, such as withholding transcripts, negatively impacting students' futures.
- High costs for missed payments and potential conversion of no-interest plans into interest-bearing loans.
- Contracts that may force students to waive legal rights and protections.
- Lack of standardized disclosure requirements, leading to inconsistency in how plans are presented on school websites.
The CFPB plans to continue monitoring tuition payment plans and school-based lending practices to protect consumers from potential violations of federal consumer financial laws.