OCC Comptroller Curry Addresses Regulatory Concern Related to Fintech Industry; Outlines Possible Fintech Charter

On September 13, OCC Comptroller Curry delivered remarks at the Marketplace Lending Policy Summit, an inaugural event during which policy implications and regulatory concerns prevalent in the marketplace lending industry were discussed. Similar to past reports and remarks about marketplace lending, Curry expressed concern that the underwriting and business models used by the industry have yet to go through a complete credit cycle: “A less favorable credit cycle will test this business in ways it hasn’t yet experienced, and how sources of funding will hold up under stress remains to be seen.” In addition, drawing attention to the “long-term performance” issues related to marketplace lending, Curry posed the following inquiries: (i) whether new credit underwriting technologies and algorithms comply with existing laws and regulations, such as the Equal Credit Opportunity Act; (ii) whether existing laws, such as the Community Reinvestment Act, should be “amended radically” to ensure that consumers are sufficiently protected against nonbank lenders; (iii) whether an entirely new regulation or law is needed to “protect the public’s interest or prevent risk to the broader financial system”; and (iv) whether innovation itself should be regulated, and, if so, by which primary regulator(s). Notably, Comptroller Curry revealed that the OCC is in the process of developing a potential federal “fintech charter,” a framework that is expected to be released this fall. Comptroller Curry emphasized that, if the OCC grants limited-purpose fintech charters, institutions receiving the charters “will be held to the same strict standards of safety, soundness, and fairness that other federally chartered institutions must meet.”

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CFPB’s Summer Edition of Supervisory Highlights Discloses Issues across Various Financial Markets

On June 30, the CFPB released its twelfth edition of Supervisory Highlights providing supervisory observations from its examiners in the areas of auto origination, debt collection, mortgage origination, small-dollar lending, and fair lending. In the area of auto origination, examiners determined that one or more institutions engaged in deceptive advertising practices related to the benefits of gap coverage products and the effects of payment deferrals, and failed to implement adequate compliance management systems. In the area of debt collection, examiners found that debt sellers sold thousands of debts that were unsuitable for sale because: (i) the accounts were in bankruptcy; (ii) the debts were the product of fraud; or (iii) the accounts had been paid in full. CFPB examiners further observed violations of the Fair Debt Collection Practices Act (FDCPA), determining that at least one collector falsely represented to consumers that a down payment was necessary in order to establish a repayment arrangement, when no such down payment was required by the collectors’ policies and procedures. For mortgage origination, CFPB examiners focused on compliance with provisions of CFPB’s Title XIV rules, the Truth in Lending Act (TILA), as implemented by Regulation Z, and the Real Estate Settlement Procedures Act (RESPA), as implemented by Regulation X, disclosure provisions, and other applicable consumer financial laws. Read more…

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CFPB and DOJ Take Action Against Bank over Mortgage Lending Practices

On June 29, the CFPB announced a joint action with the DOJ against a regional bank with operations in Memphis, Tennessee for allegedly engaging in discriminatory mortgage lending practices in violation of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). According to the CFPB’s and the DOJ’s complaint, between January 1, 2011 and December 31, 2015, the bank (i) engaged in redlining practices in the Memphis area by structuring its business to meet the credit needs of majority-White neighborhoods while ignoring the credit needs of individuals in majority-minority neighborhoods; (ii) discriminated against African American borrowers by allowing its employees to practice discretion in making credit decisions on mortgage loans, which ultimately resulted in African Americans being denied certain mortgages at significantly greater rates than similarly situated white applicants; (iii) charged African Americans, on average, 30 basis points more for first lien and 64 basis points more for second lien mortgage loans than similarly situated white borrowers; and (iv) implemented a policy under which loan officers were advised to deny minority applicants more quickly than other applicants and to deny credit assistance to “borderline” applicants. The complaint further alleges that a series of matched-pair tests at Memphis branches “revealed that the Bank treated African American testers less favorably than similarly situated white testers.” Read more…

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CFPB Report Reviews 2015 Fair Lending Activities and Notes Continuing Priorities

On April 29, the CFPB released its fourth annual report to Congress on fair lending activities. The report recaps the CFPB’s 2015 supervisory and enforcement efforts around fair lending and identifies ongoing priorities in the areas of: (i) mortgage lending, noting a continuing focus on HMDA data integrity and fair lending risks related to redlining, underwriting, and pricing; (ii) indirect auto lending, noting targeted ECOA reviews in examinations; (iii) credit cards, focusing “on the quality of fair lending compliance management systems and on fair lending risks in underwriting, line assignment, and servicing”; and (iv) other product areas including small-business lending, focusing on risks in underwriting, pricing, and redlining, and offering that “current and future small business lending supervisory activity will help expand and enhance the Bureau’s knowledge in this area, including the credit process; existing data collection processes; and the nature, extent, and management of fair lending risk.” The report highlights that “supervisory work on mortgage servicing has included use of the ECOA Baseline Review Modules … to identify potential fair lending risk in mortgage servicing and inform [its] prioritization of mortgage servicers.” In addition to recaps of its 2015 rulemaking, published guidance and efforts at interagency cooperation (including its MOU and sharing of customer complaints with HUD), the report also indicates that the CFPB had a number of authorized enforcement actions in settlement negotiations or pending investigations at year end in areas including mortgage lending, indirect auto lending, and credit cards.

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FTC Submits Letter to CFPB Regarding ECOA Enforcement and Education Activities

On February 8, the FTC sent the CFPB a letter summarizing the FTC’s enforcement activities related to compliance with the Equal Credit Opportunity Act (ECOA) and implementing Regulation B during 2015. The annual letter reviews the FTC’s responsibilities with regard to ECOA enforcement and education to most non-bank financial service providers. Highlights of the letter include, but are not limited to, (i) the FTC’s public workshop on the growing use of online lead generation in industries such as lending and education; (ii) the FTC’s  Federal Register Notice seeking comments on a proposed survey of consumers regarding their experiences in buying and financing automobiles at dealerships, over which the FTC has broad authority to enforce the FTC Act and ECOA; and (iii) updates to the FTC’s Mortgage Discrimination publication, which includes information about ECOA and warns consumers of illegal practices. Finally, the FTC emphasized that, since 2011, it has brought over 25 cases in the auto purchase and financing industry, “including those in a federal-state effort that yielded more than 200 actions for fraud, deception, and other illegal practices.”          

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