InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
DOJ says court will oversee social media company’s housing ads into 2026
On January 9, the DOJ informed a New York federal judge that it had reached a follow-up agreement with a global social media company to ensure its compliance with a June 2022 settlement that required the company to stop using a tool that allowed advertisers to exclude certain users from seeing housing ads based on their sex and estimated race/ethnicity. Explaining that the tool violated the Fair Housing Act, the letter said the company agreed to allow the tool to expire and agreed to build a system to reduce variances in its housing ad delivery system related to sex and estimated race/ethnicity. A follow-up agreement reached between the parties on compliance targets established that the company will be subject to court oversight and regular compliance review through June 27, 2026. The company released a statement following the settlement announcing it is making changes “in part to address feedback we’ve heard from civil rights groups, policymakers and regulators about how our ad system delivers certain categories of personalized ads, especially when it comes to fairness.” The company further noted that “while HUD raised concerns about personalized housing ads specifically, we also plan to use this method for ads related to employment and credit. Discrimination in housing, employment and credit is a deep-rooted problem with a long history in the US, and we are committed to broadening opportunities for marginalized communities in these spaces and others.”
FDIC announces Florida disaster relief
On January 9, the FDIC issued FIL-02-2023 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Florida affected by Hurricane Nicole from November 7 to November 30. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and encouraged institutions to work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
DOJ, HUD say Fair Housing Act extends to algorithm-based tenant screening
On January 9, the DOJ and HUD announced they filed a joint statement of interest in a pending action alleging discrimination under the Fair Housing Act (FHA) against Black and Hispanic rental applicants based on the use of an algorithm-based tenant screening system. The lawsuit, filed in the U.S. District Court for the District of Massachusetts, alleged that Black and Hispanic rental applications who use housing vouchers to pay part of their rent were denied rental housing due to their “SafeRent Score,” which is derived from the defendants’ algorithm-based screening software. The plaintiffs claimed that the algorithm relies on factors that disproportionately disadvantage Black and Hispanic applicants, such as credit history and non-tenancy related debts, and fails to consider that the use of HUD-funded housing vouchers makes such tenants more likely to pay their rents. Through the statement of interest, the agencies seek to clarify two questions of law they claim the defendants erroneously represented in their motions to dismiss: (i) the appropriate standard for pleading disparate impact claims under the FHA; and (ii) the type of companies that fall under the FHA’s application.
The agencies first challenged that the defendants did not apply the proper pleading standard for a claim of disparate impact under the FHA. Explaining that in order to establish an FHA disparate impact claim, “plaintiffs must show ‘the occurrence of certain outwardly neutral practices’ and ‘a significantly adverse or disproportionate impact on persons of a particular type produced by the defendant’s facially neutral acts or practices,’” The agencies disagreed with the defendants’ assertion that the plaintiffs “must also allege specific facts establishing that the policy is ‘artificial, arbitrary, and unnecessary.” This contention, the agencies said, “conflates the burden-shifting framework for proving disparate impact claims with the pleading burden.” The agencies also rejected arguments that the plaintiffs must challenge the entire “formula” of the scoring system and not just one element in order to allege a statistical disparity, in addition to providing “statistical findings specific to the disparate impact of the scoring system.” According to the agencies, the plaintiffs adequately identified an “essential nexus” between the algorithm’s scoring system and the disproportionate effect on certain rental applicants based on race.
The agencies also explained that residential screening companies, including the defendants, fall under the FHA’s purview. While the defendants argued that the FHA does not apply to companies “that are not landlords and do not make housing decisions, but only offer services to assist those that do make housing decisions,” the agencies contended that this misconstrues the clear statutory language of the FHA and presented case law affirming that FHA liability reaches “a broad array of entities providing housing-related services.”
“Housing providers and tenant screening companies that use algorithms and data to screen tenants are not absolved from liability when their practices disproportionately deny people of color access to fair housing opportunities,” Assistant Attorney General Kristen Clarke of the DOJ’s Civil Rights Division stressed. “This filing demonstrates the Justice Department’s commitment to ensuring that the Fair Housing Act is appropriately applied in cases involving algorithms and tenant screening software.”
FCC chair asks Congress to act on robocalls
In December, FCC Chair Jessica Rosenworcel sent a letter to twelve senators in response to their June 2022 letter inquiring about combating robocalls. In the letter, Rosenworcel highlighted the FCC’s efforts to combat robocalls by discussing the agency’s “important” proposed rules, adopted in May, to ensure gateway providers that channel international call traffic comply with STIR/SHAKEN caller ID authentication protocols and validate the identity of the providers whose traffic they are routing to help weed out robocalls (covered by InfoBytes here). She also highlighted the FCC’s enforcement efforts, such as a December action where the FCC announced a nearly $300 million fine against an auto warranty scam robocall campaign for TCPA and Truth in Caller ID Act violations—“largest robocall operation the FCC has ever investigated” (covered by InfoBytes here).
Rosenworcel requested additional authority from Congress to combat robocalls and robotexts more effectively. Specifically, Rosenworcel asked the senators to “fix the definition of autodialer” – since robotexts are neither prerecorded nor artificial voice calls, the TCPA only provides consumers protection from robotexts if they are sent from autodialers. She further noted that the Supreme Court's decision in Facebook v. Duguid (covered by a Buckley Special Alert) narrowed the definition of autodialer under the TCPA, resulting in the law only covering equipment that generates numbers randomly and sequentially. She wrote that as a result, “equipment that simply uses lists to generate robotexts means that fewer robotexts may be subject to TCPA protections, and as a result, this decision may be responsible for the rise in robotexts.” Among other things, she also requested that Congress update the TCPA to permit for administrative subpoenas for all types of non-content customer records, and for Congress to grant the FCC the authority and resources to increase court enforcement of fines.
CFPB says exam manual and general supervisory findings are nonbinding
On January 9, the CFPB released a blog post, What new supervised institutions need to know about working with the CFPB, discussing what institutions can expect from a supervisory relationship with the Bureau. Among other things, the Bureau noted that it relies on a “prioritization” process that includes analyzing risk to consumers to determine which consumer financial markets and which entities to include in its supervisory work. Specifically, the Bureau noted that when conducting an examination, CFPB examiners generally, among other things: (i) collect and review available information from within the CFPB, other agencies, and public sources, consistent with statutory requirements; (ii) review documents and information obtained through information requests sent to supervised entities; and (iii) conduct portions of exams to observe, conduct interviews, review additional documents and information, transaction test, and assess compliance management.
The Bureau emphasized that examiners use the Supervision and Examination Manual as a resource when conducting exams and other supervisory activities. While supervised institutions are bound by statutes and regulations, and not by the manual, the CFPB makes its manual publicly available. The Bureau highlighted the disclaimer attached to the manual, which notes that it “should not be relied on as a legal reference.” The Bureau also stressed that legal discussions in the exam manual are not binding on examiners or other CFPB staff, and noted that at the end of an exam or other supervisory activities, examiners provide the supervised institution with their findings, which may include “matters requiring attention” (MRA). Examiners use MRAs to communicate specific goals to address violations of law, risk of such violations, or compliance management deficiencies.
Agencies highlight downpayment assistance, child privacy in regulatory agendas
Recently, the Office of Information and Regulatory Affairs released fall 2022 regulatory agendas for the FTC and HUD. With respect to an FTC review of the Children’s Online Privacy Protection Rule (COPPA) that was commenced in 2019 (covered by InfoBytes here), the Commission stated in its regulatory agenda that it is still reviewing comments. COPPA “prohibits unfair or deceptive acts or practices in connection with the collection, use and/or disclosure of personal information from and about children under the age of 13 on the internet,” and, among other things, “requires operators of commercial websites and online services, with certain exceptions, to obtain verifiable parental consent before collecting, using, or disclosing personal information from or about children.”
HUD stated in its regulatory agenda that it anticipates issuing a notice of proposed rulemaking in March that would address mortgage downpayment assistance programs. The Housing and Economic Recovery Act of 2018 amended the National Housing Act to add a clause that prohibits any portion of a borrower’s required minimum cash investment from being provided by: “(i) the seller or any other person or entity that financially benefits from the transaction, or (ii) any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).” According to the agenda, FHA continues to receive questions about prohibitions on persons or entities that may financially benefit from a mortgage transaction, including “whether down payment assistance programs operated by government entities are being operated in a fashion that would render such assistance prohibited.” A future NPRM would clarify the circumstances in which government entities are deriving a prohibited financial benefit.
CFPB releases regulatory agenda
Recently, the Office of Information and Regulatory Affairs released the CFPB’s fall 2022 regulatory agenda. Key rulemaking initiatives that the agency expects to initiate or continue include:
- Overdraft and NSF fees. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation Z with respect to special rules for determining whether overdraft fees are considered finance charges. According to the Bureau, the rules, which were created when Regulation Z was adopted in 1969, have remained largely unchanged despite the fact that the nature of overdraft services has significantly changed over the years. The Bureau is also considering whether to engage in pre-rulemaking activity in November regarding non-sufficient fund (NSF) fees. The Bureau commented that while NSF fees have been a significant source of fee revenue for depository institutions, recently some institutions have voluntarily stopped charging such fees.
- FCRA rulemaking. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation V, which implements the FCRA. As previously covered by InfoBytes, on January 3, the Bureau issued its annual report covering information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). CFPB Director Rohit Chopra noted that the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.”
- Section 1033 rulemaking. Section 1033 of Dodd-Frank 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 (SBREFA). 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.) The Bureau anticipates issuing a SBREFA report in February.
- Amendments to FIRREA concerning automated valuation models. The Bureau is participating in interagency rulemaking with the Fed, OCC, FDIC, NCUA, and FHFA to develop regulations to implement the amendments made by Dodd-Frank to FIRREA concerning appraisal automated valuation models (AVMs). The FIRREA amendments require implementing regulations for quality control standards for AVMs. The Bureau released a SBREFA outline and report in February and May 2022 respectively (covered by InfoBytes here), and estimates that the agencies will issue a notice of proposed rulemaking (NPRM) in March.
- Property Assessed Clean Energy (PACE) financing. The Bureau issued an advance notice of proposed rulemaking (ANPRM) in March 2019 to extend TILA’s ability-to-repay requirements to PACE transactions. (Covered by InfoBytes here.) The Bureau is working to develop a proposed rule to implement Economic Growth, Regulatory Relief, and Consumer Protection Act Section 307 in April.
- Nonbank registration. The Bureau issued an NPRM in December to enhance market monitoring and risk-based supervision efforts by including all final public written orders and judgments (including any consent and stipulated orders and judgments) obtained or issued by any federal, state, or local government agency for violation of certain consumer protection laws related to unfair, deceptive, or abusive acts or practices in a database of enforcement actions taken against certain nonbank covered entities. (Covered by InfoBytes here.) In a separate agenda item, the Bureau states that the NPRM would also require supervised nonbanks to register with the Bureau and provide information about their use of certain terms and conditions in standard-form contracts. The Bureau proposes “to collect information on standard terms used in contracts that are not subject to negotiating or that are not prominently advertised in marketing.”
- Credit card penalty fees. The Bureau issued an ANPRM last June to solicit information from credit card issuers, consumer groups, and the public regarding credit card late fees and late payments, and card issuers’ revenue and expenses. (Covered by InfoBytes here.) Under the CARD Act rules inherited by the Bureau from the Fed, credit card late fees must be “reasonable and proportional” to the costs incurred by the issuer as a result of a late payment. Calling the current credit card late fees “excessive,” the Bureau stated it intends to review the “immunity provision” to understand how banks that rely on this safe harbor set their fees and to examine whether banks are escaping enforcement scrutiny “if they set fees at a particular level, even if the fees were not necessary to deter a late payment and generated excess profits.” The Bureau is considering comments received on the ANPRM as it develops an NPRM that may be released this month.
- Small business rulemaking. Section 1071 of Dodd-Frank amended ECOA to require financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses, and directed the Bureau to promulgate rules for this reporting. An NPRM was issued in August 2021 (covered by InfoBytes here). The Bureau anticipates issuing a final rule later this month.
CFPB releases 2023 rural or underserved counties list
Recently, the CFPB released its annual lists of rural counties and rural or underserved counties for lenders to use when determining qualified exemptions to certain TILA regulatory requirements. In connection with these releases, the Bureau also directed lenders to use its web-based Rural or Underserved Areas Tool to assess whether a rural or underserved area qualifies for a safe harbor under Regulation Z.
Agencies extend Reg. O relief for some companies controlled by funds
On December 22, the Federal Reserve Board, FDIC, and OCC extended Regulation O relief for certain investment fund-controlled companies. The agencies issued a temporary no-action position in 2019 to allow time for the Federal Reserve, in consultation with the FDIC and OCC, “to consider whether to amend Regulation O to address concerns about unintended consequences of the application of Regulation O to companies that sponsor, manage, or advise investment funds and institutional accounts that invest in voting securities of banking organizations.” The interagency statement extends the no-action relief under Regulation O for another year to the sooner of either January 1, 2024, or the effective date of a final Federal Reserve rule revising Regulation O “that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of the bank.” Specifically, the agencies state that action will not be taken against banks extending credit to fund complex-controlled portfolio companies that would otherwise violate Regulation O, provided the company controls (directly or indirectly) less than 15 percent of the bank’s voting securities (or 20 percent under certain circumstances) and has not or does not plan to place representatives in the bank or seek to exercise a controlling influence over the bank. Extensions of credit to these companies must be on “substantially the same terms as those prevailing for comparable transactions with unaffiliated third parties” and may not “involve more than normal risk of repayment or present other unfavorable features,” the agencies explained, noting that the relief applies only to fund complex-controlled portfolio companies, not the fund complexes.
CFPB report on credit bureaus hints at rulemaking
On January 3, the CFPB released its annual report, pursuant to Section 611(e)(5) of the FCRA, on information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). According to the report, the Bureau received 488,000 consumer complaints about the CRAs from October 2021 through September 2022. The Bureau’s analysis revealed that 93 percent of consumers reported having previously attempted to fix their problem with the company. The report also noted that the use of problematic response types has decreased, and most complaints now receive “more substantive and tailored” responses. The report found that most responses from the CRAs describe the outcomes of consumers’ complaints. The Bureau highlighted areas that the CRAs should prioritize given the “challenges facing market participants and policy makers,” including: (i) considering consumer burden when implementing automated processes; (ii) recognizing how current processes will need to evolve in light of new technologies that can generate similar-sounding complaints that are in fact unique; and (iii) considering how to transition the market from control and surveillance to consumer participation. According to CFPB Director Rohit Chopra, the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.”