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Top Story Lending Related

11/22/2023

CFPB approves pilot disclosure for construction loans

The CFPB has posted a blog article announcing the agency has approved an application from the Independent Community Bankers of America (ICBA) that marks the first step for piloting disclosures for construction loans. Under this program, the CFPB authorizes parameters for in-market testing of alternatives to required disclosures.

The ICBA applied under the program for a template covering the CFPB’s Know Before You Owe Disclosures. In particular, the ICBA asked to test certain adjustments to the existing mortgage disclosures in the unique context of construction loans, for which the CFPB’s disclosures were not primarily designed. The application noted that, in particular, many first-time homebuyers in rural areas build their homes instead of buying existing homes, and consequently, the challenges of using the current disclosures in the construction loan context may impact rural areas more acutely. The CFPB solicited comments on the ICBA’s application in February and made a decision to approve the template after reviewing the public feedback.

The CFPB waiver template issued to the ICBA indicates that the ICBA application aims to increase the availability of affordable single-close construction-to-permanent loans, i.e., a loan transaction that combines a construction phase loan with a permanent mortgage loan once the home is built, and employs a single closing and single set of closing costs. ICBA believes that consumer understanding of construction loans would be improved by disclosures that ICBA views as more specifically tailored to such loans, and that more community banks would offer such loans if they could use such disclosures. ICBA further believes its proposed alternative LE and the CD will more fully disclose all the various components of a single-close construction-to-permanent loan. In an attachment to the Application, ICBA described in detail its proposed changes to the LE and CD for construction loans.

Individual lenders can apply for approval to test the alternative disclosures for construction loans. In deciding whether to approve individual lender applications, the CFPB will carefully evaluate a lender’s plan to test the effectiveness of these disclosures. The CFPB looks forward to reviewing any lender applications.

11/22/2023

FHFA modifies provisions of Enterprise Regulatory Capital Framework

The Federal Housing Finance Agency has announced the publishing of a final rule that amends several provisions of the Enterprise Regulatory Capital Framework (ERCF) for Fannie Mae and Freddie Mac (the Enterprises).

The final rule includes modifications of certain provisions of the ERCF related to guarantees on commingled securities, multifamily mortgage exposures secured by properties with government subsidies, and derivatives and cleared transactions, among other modifications. These amendments clarify certain aspects of the ERCF and help to further align the ERCF with the risks faced by the Enterprises. It becomes effective April 1, 2024, with selected provisions effective January 1, 2026.

11/21/2023

MLA temporary file upload issue reported

There is a notice on the Department of Defense’s Military Lending Act website that some multiple record request files that were uploaded to the MLA website between 4 p.m. EST on November 14 and 2 p.m. EST on November 15 did not get processed. Senders will need to re-upload their files if they were not processed.

11/21/2023

Prehired LLC ordered to shut down, provide over $30M in relief to borrowers

The CFPB and eleven states on Monday announced that Prehired, LLC will provide more than $30 million in relief to student borrowers for making false promises of job placement, trapping students with “income share” loans that violated the law, and resorting to abusive debt collection practices when borrowers could not pay. The CFPB partnered with Washington, Delaware, California, Oregon, Minnesota, Illinois, South Carolina, North Carolina, Massachusetts, Virginia, and Wisconsin to bring the enforcement action against Prehired and two affiliated companies (Prehired Recruiting, LLC and Prehired Accelerator, LLC). The order approved by the U.S. Bankruptcy Court for the District of Delaware requires Prehired to cease all operations, pay $4.2 million in redress to consumers that were affected by its illegal practices, and voids all of its outstanding income share loans, valued by Prehired at nearly $27 million.

Prehired was a Delaware-based company that operated a 12-week online training program claiming to prepare students for entry-level positions as software sales development representatives with “six-figure salaries” and a “job guarantee.” Prehired offered students income share loans to help finance their costs of the program. Today’s order also names two affiliated companies, Prehired Recruiting and Prehired Accelerator, that pursued collection on defaulted income share loans.

In July 2023, the states and the CFPB sued Prehired to void the illegal loans and facilitate consumer redress. The states and the CFPB alleged that Prehired:

  • Deceived borrowers by claiming its loans were not loans: Prehired’s marketing falsely claimed that its loans did not create a debt because the loan was contingent on job placement with a yearly salary over $60,000. But the company also deceptively buried terms in the loan that required graduates to pay even if they never got a job.
  • Kept borrowers in the dark about key loan information: Prehired hid important loan terms from borrowers, including the amount financed, finance charges, and the loans’ annual percentage rate.
  • Tricked consumers with deceptive debt collection practices: Prehired Recruiting and Prehired Accelerator pushed borrowers into converting their income share loan into a revised “settlement agreement” that required them to make payments even if they had not found a job, and which contained more burdensome dispute resolution and collection terms. Prehired Recruiting and Prehired Accelerator also falsely represented the amount of debt owed by consumers and stated Prehired could collect more than the consumer legally owed.
  • Sued students in a faraway location: Prehired Recruiting filed debt collection lawsuits in a jurisdiction far away from where the consumers lived and were not able to be physically present when they executed the financing contract. Many consumers were unaware that Prehired Recruiting could file an action in Delaware because Prehired’s income share loans did not provide for venue in Delaware or the consumers had little or no opportunity to review or negotiate that provision.

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11/20/2023

CFPB orders Toyota Motor Credit to pay $60M

This morning, the CFPB announced it has ordered Toyota Motor Credit Corporation to pay $60 million in consumer redress and penalties for operating an illegal scheme to prevent borrowers from cancelling product bundles that increased their monthly car loan payments. The company is alleged to have withheld refunds or refunded incorrect amounts on the bundled products and knowingly tarnished consumers’ credit reports with false information. The CFPB ordered Toyota Motor Credit to stop its unlawful practices, pay $48 million to harmed consumers, and pay a $12 million penalty into the CFPB’s victims relief fund.

Toyota Motor Credit Corporation is the United States-based auto-financing arm of the Toyota Motor Corporation, and is headquartered in Plano, Texas. It is one of the largest indirect auto lenders in the United States, with nearly five million customer accounts and more than $135 billion in assets as of October 2022.

Toyota Motor Credit provides financing for consumers buying cars through Toyota dealerships, and also offers optional products and services sold with the vehicles. Dealerships often sell the products and services as a bundled package to consumers and then add them onto car loan contracts. Bundled products include Guaranteed Asset Protection (GAP), which covers the difference (or gap) between the amount a consumer owes on an auto loan and what their insurance pays if the vehicle is stolen, damaged, or totaled. Toyota Motor Credit also offers Credit Life and Accidental Health (CLAH) coverage, which covers the remaining balance if a borrower dies or becomes disabled, and vehicle service agreements, which reimburse borrowers for parts and service beyond what is covered by the manufacturer warranty. The cost of the bundled products, financed by Toyota Motor Credit, averaged between $700 and $2,500 per loan. Including these products in a vehicle sale or lease can significantly increase the loan amount, monthly payment, and finance charge. Toyota Motor Credit profits from the sale of these products by collecting more finance charges on the increased loan amount.

The Bureau alleges that thousands of consumers complained to Toyota Motor Credit that dealers had lied about whether these products were mandatory, included them on contracts without the borrowers’ knowledge, or rushed through paperwork to hide buried terms. Nevertheless, Toyota Motor Credit devised a scheme to retain the revenue from these products by making it extremely cumbersome to cancel, and then failed to provide proper refunds for consumers who succeeded in cancelling. The company also falsely told consumer reporting companies that borrowers had missed payments, and it failed to correct consumer reporting errors it knew were wrong.

Toyota Motor Credit’s alleged actions violated the Consumer Financial Protection Act’s prohibition against unfair and abusive acts and practices, as well as the Fair Credit Reporting Act and its implementing regulation. Today’s order describes in detail how the company is alleged to have harmed consumers, including by:

  • Directing consumers to a dead-end cancellation hotline: Toyota Motor Credit prevented many consumers from cancelling product bundles by making the process unreasonably difficult. Consumers who wanted to cancel over the phone were directed to a “retention hotline” operated by employees whose primary objective was to dissuade such cancellations. Between 2016 and 2021 alone, Toyota Motor Credit funneled more than 118,000 consumer calls through this hotline. Representatives on the hotline were instructed to keep promoting the products until a consumer had verbally requested to cancel three times, at which point the representatives would tell the consumer that it was only possible to cancel by submitting a written request.
  • Delaying refunds by applying them to principal payments: Instead of issuing a refund check or lowering the monthly payment amount upon a consumer’s cancellation of bundled products, Toyota Motor Credit applied the refund amount as an additional payment toward principal, reducing the number of monthly payments. Applying the refund in this way effectively delayed the return of the consumer’s money until the end of the sale or lease agreement term. The company used this fact to discourage cancellations, telling consumers on the retention hotline that their monthly payments would not decrease and that they would not receive direct refunds.
  • Withholding refunds or providing inaccurate refund amounts: Toyota Motor Credit failed to refund prepaid GAP and CLAH premiums to consumers who paid off the loan or ended the lease before the end of the contract. Toyota Motor Credit also relied on faulty calculations which resulted in incorrect refunds for consumers who canceled their vehicle service agreements.
  • Furnishing false data to consumer reporting companies: Toyota Motor Credit falsely reported customer accounts as delinquent for failure to make monthly account payments even though customers had already returned leased vehicles, and the company did not promptly correct the negative information it had sent to consumer reporting companies even though it knew it was wrong. Toyota Motor Credit also failed to maintain reasonable policies and procedures to ensure payment information it sent to consumer reporting companies was accurate.

11/16/2023

CFPB orders Enova to pay $15M and restitution for unfair practices

The CFPB yesterday announced it has ordered online lender Enova International Inc. to pay a $15 million penalty for widespread illegal conduct including withdrawing funds from customers’ bank accounts without their permission, making deceptive statements about loans, and cancelling loan extensions. Enova paid a $3.2 million penalty to the CFPB in 2019, and was ordered to cease its illegal conduct. For violating that order and continuing to break the law, Enova is now banned from offering certain consumer loans, must provide redress to the consumers it harmed, and is required to tie executive compensation to the company’s compliance with federal consumer financial protection laws.

Enova is a publicly traded nonbank lender headquartered in Chicago, Illinois. Enova extends or arranges unsecured installment loans and lines of credit to consumers in 37 states through its CashNetUSA- and NetCredit-branded subsidiaries. Up until 2022, Enova also extended unsecured payday loans to consumers through its CashNetUSA-branded subsidiaries.

After taking action against Enova in 2019, the CFPB investigated Enova’s compliance with the 2019 order. The investigation found that the company was continuing to engage in illegal behavior, affecting more than 111,000 consumers. The Bureau found that Enova—

  • Withdrew funds without borrowers’ consent: Enova withdrew or tried to withdraw funds from consumers’ accounts without having obtained their express informed consent as required by the 2019 order. In some cases Enova used bank account information it had purchased from online lead generators, overwriting the bank account information that borrowers had authorized Enova to use.
  • Backtracked on loan extensions: Enova cancelled loan extensions it had granted to certain consumers and in most instances debited such consumers’ bank accounts for the full loan payment instead of only a smaller loan extension fee, in violation of the 2019 order.
  • Deceived borrowers with false statements and omissions: Enova failed to tell consumers who had been granted a loan extension that making an interim partial payment would result in cancellation of the loan extension and misrepresented the amount that Enova would charge to consumers who made such an interim partial payment. Enova also misrepresented the due date for certain loan payments, that consumers could skip certain loan payments, and the amounts due on certain loans.
  • Failed to provide consumers copies of signed authorizations: Enova initiated recurring electronic fund transfers from consumers’ bank accounts without providing the consumer with a copy of a signed authorization identifying the particular bank account that the consumer had authorized for such transfers, in violation of the 2019 order.

The current consent order requires Enova to:

  • Stop offering certain short-term loans: For seven years, Enova is prohibited from offering or providing closed-end consumer loans that must be substantially repaid within 45 days.
  • Stop its illegal practices: Enova is prohibited for engaging in certain practices, including initiating attempts to debit funds from a consumer’s account without having obtained the consumer’s express informed consent and failing to honor loan extensions granted to consumers.
  • Reform executive compensation: Enova’s executive compensation policies and agreements must consider the actions taken by the executive to ensure that the executive’s business or department complies with the order and federal consumer financial law.
  • Provide redress to consumers: Enova must provide redress to all consumers whose accounts Enova debited without their express informed consent, including by returning to those consumers all unlawfully debited amounts and associated fees, costs, and interest.
  • Pay a civil penalty: Enova will make a civil penalty payment of $15 million to the CFPB victims relief fund.

For a link to the CFPB's Consent Order, see "Enova ordered to pay $15 million for illegal conduct and violating 2019 order" in the BankersOnline Penalties pages.

11/15/2023

FHA increases allowable fees for inspections of vacant homes

The Federal Housing Administration has announced it has increased the allowable property inspection fee limits for property inspections of single-family homes associated with defaulted FHA-insured mortgages. These inspections are a crucial component of servicers’ preservation and protection of properties. They also safeguard neighborhoods from blight arising from inadequately maintained unoccupied homes.

With the updates announced yesterday, FHA is increasing fees for certain allowable inspection categories, making its fee limitations consistent with those in use by other industry participants. FHA intends to evaluate allowable parameters for other property preservation expenses in the future.

11/15/2023

FHFA reports 2024 multifamily loan purchase caps

The Federal Housing Finance Agency (FHFA) has announced that the 2024 multifamily loan purchase caps for Fannie Mae and Freddie Mac (the Enterprises) will be $70 billion for each Enterprise, for a combined total of $140 billion to support the multifamily market.

The FHFA will require that at least 50 percent of the Enterprises’ multifamily businesses be mission-driven, affordable housing. In addition, for 2024, loans classified as supporting workforce housing properties in Appendix A of the Conservatorship Scorecard will be exempt from the volume caps. All other mission-driven loans remain subject to the volume caps. To ensure the Enterprises continue to provide sufficient liquidity and support in the multifamily mortgage market, FHFA will continue to monitor the multifamily mortgage market and will increase the caps if necessary. However, to prevent market disruption, if FHFA determines that the actual size of the 2024 market is smaller than was initially projected, FHFA will not reduce the caps.

11/14/2023

CFPB distributing about $241,000 to 845 consumers

This week, 845 former Student Aid Institute (SAI) consumers will receive checks in the mail in response to a lawsuit filed against Frank Ronald Gebase Jr., the founder, owner, and operator of Processingstudentloans, a student loan debt-relief company that illegally withdrew hundreds of thousands of dollars from the bank accounts of former SAI consumers without their authorization. The total distribution amount is $240,994.00, and the money is from the CFPB’s victims relief fund.

Payments were sent on November 13, 2023, through RUST Consulting.

11/14/2023

Bureau increases cap for credit bureau charges to a consumer

The CFPB has issued a final rule to be effective January 1, 2024, to establish the maximum allowable charge for disclosures during 2024 by a consumer reporting agency to a consumer under section 609 of the Fair Credit Reporting Act. The CFPB is amending Appendix O to Regulation V, to set the maximum allowable charge at $15.50 for 2024.

BankersOnline has updated Appendix O to Regulation V in its Regulations pages to reflect this change.

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