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FHA seeks feedback on changing reconsideration of valuation requests
Recently, FHA published a draft mortgagee letter (ML) proposing policy changes to its requirements for processing and documenting reconsideration of valuation (ROV) requests, specifically when requests are initiated by a borrower for the review of appraisal results. According to the ML, FHA provided proposed guidance to improve the process when prospective borrowers applying for FHA-insured Title II forward or Home Equity Conversion Mortgages (HECM) request an ROV on a property if the initial valuation is lower than expected, or that there is indication of illegal bias, that Fair Housing regulations have been violated, or that there may be unlawful discrimination. The draft also proposed updated appraisal review standards, which are intended to provide mortgagees and appraisers with clarifying guidance on the quality of an appraisal report and the ROV process and responsibilities. Public comments are due by February 2.
CFPB and New York say auto lender misled consumers
On January 4, the CFPB and New York attorney general filed a complaint against a Michigan-based auto finance company accused of allegedly misrepresenting the cost of credit and deceiving low-income consumers into taking out high-interest loans on used vehicles. (See also AG’s press release here.) The joint complaint alleges, among other things, that the defendant based the price of a loan (and then artificially inflated the principal amount) and the payment to the dealer on the projected amount that may be collected from the consumer during the life of the loan (without factoring in whether consumers could actually afford the loan).
The Bureau and AG further argued that the true cost of credit is hidden in inflated principal balances in order to evade state interest rate caps. An investigation conducted by the AG found that while the defendant’s loan agreements in New York claimed an APR of 22.99 percent or 23.99 percent (just below the 25 percent usury cap), the defendant actually charged on average more than 38 percent (and on many occasions charged an APR in excess of 100 percent). These high-interest loans, the AG claimed, often caused consumers to accrue additional fees and become delinquent on their loans.
The complaint also alleged the defendant failed to consider consumers’ ability to repay their loans in full, engaged in aggressive debt collection tactics, and created financial incentives for dealers to add on extra products, such as vehicle service contracts. Add-on products generated roughly $250 million in revenue for the defendant in 2020, the complaint said, adding that these alleged deceptive lending practices lowered consumers’ credit scores and cost borrowers millions of dollars. The complaint further maintained that the defendant packaged the consumer loans into securities that were sold to investors on the premise that the underlying loans complied with applicable law. These alleged false representations, the complaint said, constituted securities fraud under New York’s Martin Act.
The complaint — which also alleges violations of the Consumer Financial Protection Act’s prohibition against deceptive and abusive acts or practices, New York usury limits, and other state consumer and investor protection laws — seeks, among other things, injunctive relief, monetary relief, disgorgement, and civil money penalties of $1,000,000 for each day of violations.
The defendant was previously targeted for violating consumer protection laws in 2021 by the Massachusetts attorney general, who announced a $27.2 million settlement to resolve allegations of predatory lending and deceptive debt collection practices. (Covered by InfoBytes here.)
Agencies warn banks of crypto-asset risks
On January 3, the FDIC, Federal Reserve Board, and OCC issued a joint interagency statement highlighting key risks banks should consider when choosing to engage in cryptocurrency-related services. Risks flagged by the agencies include: (i) the possibility of fraud and scams among crypto-asset sector participants; (ii) legal uncertainties related to custody practices, redemptions, and ownership rights; (iii) misleading disclosures made by crypto firms that may be unfair, deceptive, or abusive; (iv) volatility in crypto-asset markets, including the susceptibility of stablecoins to run risk, which could impact deposit flows; (v) contagion risks resulting from interconnections among crypto-asset participants that may present concentration risks for banks with exposure to the crypto-asset sector; (vi) lack of maturity in risk management and governance practices within the crypto-asset sector; and (vii) elevated risks associated with open, public, and/or decentralized networks.
The agencies commented that while they will continue to take a cautious approach to current or proposed crypto-asset-related activities (and are not prohibiting nor discouraging banks from providing crypto services to customers, as permitted by law or regulation), they currently “believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe-and-sound banking practices.” Moreover, the agencies expressed “significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector.” Agencies have developed processes for banks to engage in robust supervisory discussions with their supervisory office about any proposed or existing crypto-asset-related activities, the agencies advised, adding that before launching any activities, banks should take appropriate risk management measures and assess whether the activity can be performed in a safe and sound manner, is legally permissible, and complies with applicable laws and regulations. Additional statements will be released in the future by the agencies.
“The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector,” the agencies said as they stressed the importance of keeping crypto-asset risks that cannot be mitigated or controlled from migrating to the banking system.
The OCC separately issued a bulletin advising supervised banks to follow processes outlined in OCC Interpretive Letter 1179 (covered by InfoBytes here) before engaging in certain crypto-asset-related activities.
FDIC issues November enforcement actions
On December 30, the FDIC released a list of orders of administrative enforcement actions taken against banks and individuals in November. The FDIC made public nine orders consisting of “two consent orders; two orders terminating deposit insurance; three orders to pay civil money penalties; one order terminating consent order; and one Section 19 order.” Among the orders is a civil money penalty against a Wisconsin-based bank related to violations of the Flood Disaster Protection Act. The FDIC determined that the bank had engaged in a pattern or practice of violations that included the bank’s failure to: (i) obtain adequate flood insurance on the building securing a designated loan at the time of loan origination; (ii) obtain adequate flood insurance at the time of the origination; (iii) notify borrowers that the borrower should obtain flood insurance where a determination had been made that flood insurance had lapsed or a loan was not covered with the required amount of insurance; (iv) provide borrowers with a Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance when making, increasing, extending or renewing a loan; and (v) provide borrowers with a Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance within a reasonable time before the completion of the transaction. The order requires the payment of a $39,000 civil money penalty.
The FDIC also issued a civil money penalty against an Oregon-based bank for allegedly violating Section 8(a) of RESPA “by entering into mortgage lead generation arrangements with the operator of a real estate website and the operator of an online loan marketplace that were used to facilitate and disguise referral payments for mortgage business.” The FDIC also determined that the bank violated the FTC Act “by making deceptive and misleading representations in three of the bank’s prescreened offers of credit” and violated the FCRA “by obtaining the consumer reports of former loan clients with recent credit inquiries without a legally permissible purpose.” The order requires the payment of a $425,000 civil money penalty.
Additionally, the FDIC issued a consent order against a Tennessee-based bank alleging the bank engaged in “unsafe or unsound banking practices relating to weaknesses in capital, asset quality, liquidity, and earnings.” The bank neither admitted nor denied the allegations but agreed, among other things, that its board would “increase its participation in the affairs of the bank by assuming full responsibility for the approval of the bank’s policies and objectives and for the supervision of the bank’s management, including all the bank’s activities.” The bank also agreed to maintain a Tier 1 Leverage Capital ratio equal to or greater than 8.50 percent and a Total Capital ratio equal to or greater than 11.50 percent. The FDIC also issued a consent order against a New Jersey-based bank claiming the bank engaged in “unsafe or unsound banking practices relating to, among other things, management supervision, Board oversight, weaknesses in internal controls, interest rate sensitivity, and earnings.” The bank neither admitted nor denied the allegations but agreed, among other things, that it would retain a third-party consultant “to develop a written analysis and assessment of the bank’s board and management needs (Board and Management Report) for the purpose of ensuring appropriate director oversight and providing qualified management for the bank.”
FCC proposes $300 million fine against auto warranty scam robocaller
On December 21, the FCC announced a nearly $300 million fine against an auto warranty scam robocall campaign for TCPA and Truth in Caller ID Act violations, “which is the largest robocall operation the FCC has ever investigated.” According to the announcement, the two individuals in charge of the operation ran a complex robocall sales lead generation scheme, which was designed to sell vehicle service contracts that were deceptively marketed as car warranties. This “scheme made more than 5 billion robocalls to more than half a billion phone numbers during a three-month span in 2021, using pre-recorded voice calls to press consumers to speak to a ‘warranty specialist’ about extending or reinstating their car’s warranty.” As previously covered by InfoBytes, in July, the FCC took initial action by ordering “phone companies to stop carrying traffic regarding a known robocall scam marketing auto warranties.” The FCC noted that the operation is also the target of an ongoing investigation by the FCC’s Enforcement Bureau and a lawsuit by the Ohio attorney general. The Ohio AG filed a complaint against multiple companies for participating in an alleged unwanted car warranty call operation (covered by InfoBytes here). The complaint, filed in the U.S. District Court for the Southern District of Ohio, alleged that the 22 named defendants “participated in an unlawful robocall operation that bombarded American consumers with billions of robocalls.” In addition to the fine, among other things, the individuals who allegedly ran the operations are prohibited from making telemarketing calls pursuant to FCC actions.
FTC orders card company to let merchants use other debit networks
On December 23, the FTC ordered a payment card company to stop blocking merchants from using competing debit payment networks. According to an agency investigation, the company allegedly violated provisions of the Durbin Amendment, which requires “banks to enable at least two unaffiliated networks on every debit card, thereby giving merchants a choice of which network to use for a given debit transaction,” and “bars payment card networks from inhibiting merchants from using other networks.” The FTC claimed that the company’s policy requires the use of a token when a cardholder loads a company-branded debit card into an ewallet. Ewallets are used to make online and in-app transactions, the FTC explained, adding that because competing networks cannot access the company’s token vault, merchants are dependent on the company to convert the token to process ewallet transactions using company-branded debit cards. Moreover, since the company allegedly did not provide conversion services to competing networks for remote ewallet debit transactions, the FTC asserted that it is impossible for merchants to route their ewallet transactions on other payment networks.
Under the terms of the proposed order, the company will be required to (i) provide other payment networks with customer account information in order to process ecommerce debit payments, and prohibit any efforts that may prevent other networks from serving as token service providers; (ii) provide notice to affected persons; (iii) provide 60-days advance written notice to the FTC before launching any pilot programs or new debit products that would require merchants to route electronic debit transactions only to the company; (iv) file regular compliance reports with the FTC; and (v) notify the FTC of any events that may affect compliance with the order.
CFPB adjusts annual dollar amount thresholds under TILA, HMDA regulations
On December 21, 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, 2022. The following thresholds are effective January 1, 2023:
- For open-end consumer credit plans under TILA, the threshold for disclosing an interest charge will remain unchanged at $1.00;
- For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $24,866, and the adjusted points-and-fees dollar trigger for high-cost mortgages will be $1,243;
- 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 $124,331; 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $74,599 but less than $124,331; 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $74,599; 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $124,331; 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $74,599; or 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $74,599”; 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 $124,331; $3,730 for a loan amount greater than or equal to $74,599 but less than $124,331; 5 percent of the total loan amount for a loan greater than or equal to $24,866 but less than $74,599; $1,243 for a loan amount greater than or equal to $15,541 but less than $24,866; and 8 percent of the total loan amount for a loan amount less than $15,541.”
With respect to credit card annual adjustments, the Bureau noted that its 2023 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”).
The Bureau also issued a final rule adjusting the asset-size threshold under HMDA (Regulation C). Under HMDA, institutions with assets below certain dollar thresholds are exempt from collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $50 million to $54 million, thereby exempting institutions with assets of $54 million or less as of December 31, 2022, from collecting HMDA data in 2023.
CFPB discusses mortgage financing risk options in current environment
On December 21, the CFPB reported that higher mortgage interest rates have led to increased monthly payments and higher debt-to-income ratios for borrowers. According to a recent Bureau analysis of quarterly HMDA data, some interest rates on 30-year fixed-rate mortgages have risen as high as seven percent and are at levels higher than what has been seen for nearly 20 years. The Bureau reported that in response to increasing interest rates, financial service providers are offering alternative financing options to provide opportunities for consumers to access lower rates, including adjustable-rate mortgages, temporary buydowns, home equity lines of credit and loans, and loan assumptions where a homebuyer assumes responsibility for the remaining balance of a home seller’s mortgage with the original loan terms. Explaining the various risks associated with these offerings, the Bureau warned consumers that they should understand the costs associated with cash-out refinances and risks related to alternative sales transactions (e.g., contract-for-deeds or land contracts, rent-to-own arrangements, and equity-sharing arrangements), which may sound appealing in a higher interest rate market but may “lack the protections of traditional mortgages, including the ability to build and access home equity, foreclosure protections, or even basic disclosures that allow for comparison shopping.”
VA to update appraisal requirements and guidance for guaranteed housing loans
On December 27, President Biden signed H.R. 7735, the Improving Access to the VA Home Loan Benefit Act of 2022, which requires the Department of Veterans Affairs to update its regulations, requirements, and guidance related to appraisals for housing loans guaranteed by the agency. The regulations and requirements must specify when an appraisal is required, how an appraisal is to be conducted, and who is eligible to conduct an appraisal for such loans. The Act also requires the VA to submit recommendations to Congress no later than 90 days after the date of enactment for improving appraisal delivery times for VA loans. The agency must consider these recommendations when it prescribes its updated regulations and requirements. Additionally, the VA must provide guidance for desktop appraisals, taking into account situations where a desktop appraisal could provide cost savings for borrowers whereas “a traditional appraisal requirement could cause time delays and jeopardize the completion of a transaction.”
FCC affirms three-call limit but permits oral consent
On December 21, the FCC issued an order on reconsideration and declaratory ruling under the TCPA, affirming a three-call limit and opt-out requirements for exempted residential calls. According to the FCC, the ruling is in response to requests from industry trade groups related to a 2020 order implementing portions of the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act). The ruling upheld the three-call-limit for exempt calls made using automated telephone dialing systems to residential lines but revised the 2020 order’s requirement for “prior express written consent” to allow callers to obtain consent orally or in writing if they wish to make more calls than allowed. The FCC also granted a request to confirm that “prior express consent” for calls made by utility companies to wireless phones applies equally to residential landlines. The FCC noted that “limiting the number of calls that can be made to a particular residential line to three artificial or prerecorded voice calls within any consecutive thirty-day period strikes the appropriate balance between these callers reaching consumers with valuable information and reducing the number of unexpected and unwanted calls consumers currently receive.”