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Chopra testifies at congressional hearings
On December 14, CFPB Director Rohit Chopra testified at a hearing titled Consumers First: Semi-Annual Report of the Consumer Financial Protection Bureau held by the House Financial Services Committee on the CFPB’s most recent semi-annual report to Congress (covered by InfoBytes here). Chopra’s prepared statement focused on: (i) the current state of the economy and household finance; (ii) promoting an open, competitive, and a decentralized market; and (iii) actions by Congress where bipartisan support is expected. Chopra also cited concerns regarding the accuracy of medical debt credit reporting and noted that the CFPB is continuing “to examine how medical debt burdens are impacting household balance sheets.”
House Financial Services Chairwoman Maxine Waters (D-CA) praised Chopra’s leadership in her opening statement, stating that the Bureau has combated “redlining, housing discrimination, illegal evictions, and foreclosures, and has worked tirelessly to root out appraisal bias.” However, Ranking Member Patrick McHenry (R-PA) argued that the Bureau’s “lack of transparency is of grave concern.” McHenry discussed the CFPB’s six compliance bulletins, five advisory opinions, five interpretive rules, and seven circulars published this year, which he considers to have fostered “uncertainty” within the financial services industry. McHenry also warned Chopra that he can expect “much more thorough” oversight next year when Republicans take control of the House and when McHenry becomes the chair of the House Financial Services Committee.
During the hearing, Chopra acknowledged that the Bureau's Section 1071 Rulemaking “is on track to issue a final rule by March 31, 2023”—a deadline established by court order in July as a result of a stipulated settlement reached in February 2020 with a group of plaintiffs, including the California Reinvestment Coalition, related to the collection of small business lending data (covered by InfoBytes here). Chopra added that the Bureau wants to ensure it has “an implementation period that gives the smaller firms more time, and the ability to make sure it’s not duplicative with existing requirements under the Community Reinvestment Act.”
During the hearing, Republican committee members inquired about the agency’s creation and use of the term “junk fees” to describe, among other things, legal fees that banks charge for financial products and services. According to Rep. Blaine Luetkemeyer (R-MO) “there is no such word in financial services lexicon,” and the Bureau is “making up a word and then using it to go out and enforce something that doesn’t exist.” Republican committee members also inquired about the Bureau’s recent updates to its UDAAP exam manual. As previously covered by a Buckley Special Alert, in March, the CFPB announced significant revisions to its UDAAP exam manual, in particular highlighting the CFPB’s view that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service. Rep. Andy Barr (R-KY) commented that “this is not interpretive guidance,” and said Chopra is “trying to change the law.”
Chopra reiterated the Bureau’s priorities in his December 15 testimony before the Senate Banking Committee. During the hearing, Ranking Member Sherrod Brown (D-OH) noted that Republican lawmakers proposed legislation to subject the CFPB to appropriations and to change the CFPB's single-director structure to a commission. Chopra was also questioned by Ranking Member Patrick Toomey (R-PA) who raised concerns regarding the Bureau’s “overreach and pursuit of a politicized agenda.” He further argued that “the Dodd-Frank Act exempted the CFPB from appropriations,” and “empowers the CFPB to simply take funds from the Fed, which is itself also not subject to appropriation, thereby doubly insulating the CFPB from any congressional control.” Other topics discussed during the hearing included, among other things, military lending, credit cards, and overdraft fees.
FHA announces pandemic assistance on reverse mortgages
On December 15, FHA published Mortgagee Letter 2022-23, COVID-19 Home Equity Conversion Mortgage (HECM) Property Charge Repayment Plan, which provides requirements for a new property charge repayment plan option for senior homeowners with HECMs who have gotten behind on their property charge payments as a result of the Covid-19 pandemic. The eligibility policies of the new repayment plan include, among other things:
- Making the plan available to borrowers who have applied for Homeowner Assistance Fund (HAF) assistance, if the HAF funds combined with the borrower’s ability to repay will satisfy the servicer’s advances for the delinquent property charges;
- Permitting the Covid-19 HECM Repayment Plan regardless of whether the borrower has been unsuccessful on a prior repayment plan and whether the borrower owes over $5,000 in property charge advances; and
- Requiring a verbal attestation from the borrower that they have been impacted by Covid-19.
Additionally, borrowers may receive a repayment plan regardless of the dollar amount of property charge payments owed. Further, servicers can offer homeowners a repayment plan of up to five full years (60 months) regardless of whether a prior repayment plan has been used.
Mortgage lender agrees to pay $38.5 million to settle False Claims Act underwriting allegations
On December 14, the DOJ announced a $38.5 million settlement with a mortgage lender to resolve alleged False Claims Act (FCA) violations related to its origination and underwriting of mortgages insured by the Federal Housing Administration (FHA). According to the DOJ, a former underwriter filed a lawsuit under the FCA’s whistleblower provisions alleging the lender engaged in an underwriting process that allowed employees to disregard FHA rules and falsely certify compliance with underwriting requirements. These actions, the underwriter claimed, resulted in the government later paying insurance claims on loans that were improperly underwritten. Under the terms of the settlement, the lender will pay $38.5 million to the U.S., with the whistleblower receiving more than $11.5 million. Notably, not only did the DOJ not exercise its right to join the case and take over its prosecution, but also had sought unsuccessfully to have the case dismissed. The Supreme Court heard oral argument in United States, ex rel. Polansky v. Executive Health Resources, Inc. regarding whether and when the government has authority to force such a dismissal of a False Claims Act brought by a whistleblower.
CFTC, DOJ, SEC file charges in crypto fraud scheme
On December 13, the SEC filed a complaint against the former CEO/co-founder (defendant) of a collapsed crypto exchange for allegedly orchestrating a scheme to defraud equity investors. According to the SEC, from May 2019 to November 2022, the defendant raised over $1.8 billion from investors who bought an equity stake in his company in part because they believed his representations that the platform had “top-notch, sophisticated automated risk measures in place.” The complaint alleged, among other things, that the defendant orchestrated “a massive, years-long fraud” to conceal (i) the undisclosed diversion of customers’ funds to the defendant’s privately-held crypto hedge fund; (ii) the undisclosed special treatment afforded to the hedge fund on the company platform, including providing it with a virtually unlimited “line of credit” funded by the platform’s customers; and (iii) the undisclosed risk stemming from the company’s exposure to the hedge fund’s significant holdings of overvalued, illiquid assets, such as the platform-affiliated tokens. The complaint further alleged that the defendant used commingled funds at his hedge fund to make undisclosed venture investments, purchase lavish real estate purchases, and give large political donations. The SEC’s complaint charged the defendant with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC is seeking injunctions against future securities law violations; an injunction that prohibits the defendant from participating in the issuance, purchase, offer, or sale of any securities, except for his own personal account; disgorgement of his ill-gotten gains; a civil penalty; and an officer and director bar.
The defendant was also indicted by a grand jury in the U.S. District Court for the Southern District of New York on wire fraud, commodities fraud, securities fraud, money laundering, and campaign finance charges.
The CFTC also filed a complaint against the former CEO/co-founder, in addition to the collapsed crypto exchange and the hedge fund for making material misrepresentations in connection with the sale of digital commodities in interstate commerce. Specifically, the CFTC alleged that the exchange’s executives, at the former CEO’s direction, created a number of exceptions to benefit his hedge fund, including adding features in the underlying code to permit the hedge fund to “maintain an essentially unlimited line of credit” on the trading platform through an “allow negative flag,” which allowed the hedge fund to withdraw billions of dollars in customer assets from the company. The CFTC is seeking restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC regulations, as charged.
Later, on December 21, the SEC and CFTC filed charges (see here and here) against the former CEO of the hedge fund and the former chief technology officer of the collapsed crypto exchange for their roles in the scheme to defraud equity investors. The agencies stated that investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.
CFPB to issue $95 million in redress to victims of student loan debt relief operation
On December 13, the CFPB announced that it will distribute more than $95 million in redress to over 87,000 consumers harmed by a student loan debt relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the defendants for allegedly deceiving thousands of student loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21, 2019, and unsealed on October 29, 2019 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015, the defendants have violated the CFPA, the TSR, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. The CFPB also claimed that the defendants automatically put loans in forbearance and submitted false information to loan servicers to qualify customers for lower monthly payments.
CFPB and FHFA release updated loan-level mortgage data on borrowers’ pandemic experiences
On December 13, the CFPB and FHFA published updated loan-level data from the National Survey of Mortgage Originations. (See also FHFA announcement here.) The publicly available data highlights borrowers’ experiences when obtaining a mortgage during the Covid-19 pandemic. Key highlights from the updated data include: (i) in 2020 a higher percentage (48 percent) of borrowers reported that a paperless online mortgage process was important; (ii) 21 percent of borrowers reported that their mortgage closing did not occur as originally scheduled (up from 17 percent in 2019); (iii) an increased number of borrowers reported that they were very familiar with available interest rates, with 78 percent of borrowers (up from 67 percent in 2019) stating that they were very satisfied with the interest rate that they qualified for; and (iv) borrowers who refinanced in 2020 versus 2019 were better off financially, with 76 percent of borrowers who refinanced reporting that they were not concerned about qualifying for a mortgage in 2020.
“The data released today provide a clear view of borrower sentiment about the mortgage process during the COVID pandemic in 2020,” said Saty Patrabansh, FHFA Associate Director for the Office of Data and Statistics. “This data should be helpful to analysts and policymakers in understanding the complete experience of mortgage borrowers and identifying what challenges may still exist in mortgage lending.”
FDIC proposes signage amendments, issues revised guide on supervisory appeals process
On December 13, the FDIC held a meeting, during which board members approved a notice of proposed rulemaking (NPRM) to modernize and amend the rules “governing the use of the official FDIC sign and insured depository institutions’ (IDIs) advertising statements to reflect how depositors do business with IDIs today, including through digital and mobile channels.” According to the FDIC’s announcement, the NPRM would amend part 328 of its regulations by updating the requirements for when the FDIC’s official sign can be displayed. Institutions would also be required to use signs that differentiate insured deposits from non-deposit products across banking channels and provide disclosures to consumers alerting them to when certain financial products are not insured by the FDIC, are not considered deposits, and may lose value.
Acting Chairman Martin Gruenberg noted that there have not been major changes to these rules since 2006. FDIC board member and CFPB Director Rohit Chopra issued a statement in support of the NPRM, noting that the financial sector has evolved significantly since 2006, and “[b]anks increasingly offer uninsured products, physical branches look different, more than 65% of banked households primarily bank online or through their mobile phone, and convoluted bank-nonbank partnerships have proliferated.” He specifically highlighted several of the proposed changes, including: (i) requiring banks to physically segregate the parts of the branch used for accepting insured deposits from other areas where uninsured products are offered; (ii) requiring banks to display digital FDIC signs on their websites and mobile apps, including clear notifications on relevant pages where uninsured products are offered; (iii) requiring disclosures that deposit insurance does not protect against the failure of nonbanks and, if relevant, that pass-through deposit insurance coverage is not automatic or certain; and (iv) clarifying that crypto assets are uninsured, non-deposit products. Comments on the NPRM are due 60 days after publication in the Federal Register.
On the same day, the FDIC adopted proposed changes to the Guidelines for Appeals of Material Supervisory Determinations. The board solicited public comments in October on the proposed changes (covered by InfoBytes here). The revised Guidelines add the agency’s ombudsman to the Supervision Appeals Review Committee (SARC) as a non-voting member (the ombudsman will be responsible for monitoring the supervision process after a financial institution submits an appeal and must periodically report to the board on these matters). Materials under consideration by the SARC will have to be shared with both parties to the appeal (subject to applicable legal limitations on disclosure), while financial institutions will be allowed to request a stay of material supervisory determination during a pending appeal. Additionally, the division director is given the discretion to grant a stay or grant a stay subject to certain conditions, and institutions will be provided decisions in writing regarding a stay. The revised Guidelines take effect immediately.
FinCEN further extends FBAR filing deadline for certain individuals
On December 9, the Financial Crimes Enforcement Network (FinCEN) issued Notice 2022-1 to further extend the time for certain Report of Foreign Bank and Financial Accounts (FBAR) filings in light of the agency’s March 2016 notice of proposed rulemaking, which proposed to revise the Bank Secrecy Act’s implementing regulations regarding FBARs. (See previous InfoBytes coverage on the 2016 NPR here.) Specifically, one of the proposed amendments seeks to “expand and clarify the exemptions for certain U.S. persons with signature or other authority over foreign financial accounts,” but with no financial interest, as outlined in FinCEN Notice 2021-1 issued December 9, 2021. FinCEN noted that because the proposal has not been finalized, it is further extending the filing due date to April 15, 2024, for individuals who previously qualified for a filing due date extension under Notice 2021-1. All other individuals must submit FBAR filings by April 15, 2023.
CFPB proposes registry of nonbank repeat offenders
On December 12, the CFPB announced a proposed rule seeking to identify repeat financial law offenders by establishing a database of enforcement actions taken against certain nonbank covered entities. Specifically, the Bureau proposes 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 the database. Additionally, pursuant to Section 1024(b)(7) of the Consumer Financial Protection Act, the Bureau is also proposing that larger supervised nonbanks be required to submit annual written statements regarding compliance with each underlying order that is signed by an attesting executive with “knowledge of the entity’s relevant systems and procedures for achieving compliance and control over the entity’s compliance efforts.” Excluded from the registry will be insured depository institutions and credit unions, related persons, states, natural persons, and certain other entities.
Explaining that protecting American consumers is a shared effort spanning local, state, and federal authorities, CFPB Director Rohit Chopra stated that currently “readily accessible information is lacking about the identity of orders issued against nonbanks subject either to the CFPB’s market monitoring authority or to its supervisory authority across the various markets for consumer financial products and services.” The creation of a central repository of enforcement actions around the country for use in tracking and mitigating risks posed by repeat offenders and monitoring entities subject to agency and court orders will help the Bureau, the law enforcement community, and the public “limit the harms from repeat offenders,” the Bureau said in its announcement. The Bureau noted that it plans to share the database with other regulators and law enforcement agencies by making the registry public.
Comments on the proposal are due 60 days after publication in the Federal Register. The Bureau said the proposed registry would launch “no earlier than January 2024.”
CFPB issues HMDA technical amendment
On December 12, the CFPB issued a technical amendment to the HMDA Rule to reflect the closed-end mortgage loan reporting threshold of 25 mortgage loans in each of the two preceding calendar years. As previously covered by InfoBytes, in September, the U.S. District Court for the District of Columbia granted partial summary judgment to a group of consumer fair housing associations (collectively, “plaintiffs”) that challenged changes made in 2020 that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. The 2020 Rule, which amended Regulation C, permanently increased the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increased the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200 (covered by InfoBytes here). The plaintiffs sued the CFPB in 2020, arguing, among other things, that the final rule “exempts about 40 percent of depository institutions that were previously required to report” and undermines HMDA’s purpose by allowing potential violations of fair lending laws to go undetected. (Covered by InfoBytes here.) As a result of the September 23 order, the threshold for reporting data about closed-end mortgage loans is 25, the threshold established by the 2015 HMDA Rule.