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Top Story Lending Related

11/16/2020

Classic FICO validated for Fannie and Freddie

The Federal Housing Finance Agency has announced the validation and approval of the Classic FICO credit score model for use by Fannie Mae and Freddie Mac (the Enterprises). The validation and approval of Classic FICO by the Enterprises allows them to continue supporting the mortgage market while assessing more modern credit score models that were submitted in response to the 2020 Joint Enterprise Credit Score Solicitation.

Enterprise announcements:

11/13/2020

Debt Collector pays $500,000 for reporting violations

The CFPB has announced a settlement with Afni, Inc.to address its violations in providing information to consumer reporting agencies. Afni is a non-bank Illinois-based debt collector that specializes in collecting debt on behalf of telecommunications companies and furnishes information to consumer reporting agencies about consumers’ credit. The consent order requires Afni to take certain steps to prevent future violations and imposes a $500,000 civil money penalty.

Details of Afni's violations and a link to the Bureau's consent order can be found in BankersOnline's penalty page, "Afni, Inc. pays $500K for FCRA violations."

11/13/2020

Bureau reports on accuracy of payment info received by CRAs

The Bureau has released its quarterly consumer trends report regarding the prevalence of actual payment information in consumer credit reporting. Key findings of the report include

  • Across the three most common installment loan types (auto loans, student loans, and mortgages), shares of credit accounts with actual payment amount information furnished have generally trended upward, and by March 2020, contained actual payment information in more than 90 percent of credit accounts.
  • Shares of revolving and credit card accounts with actual payment information furnished significantly declined over the same time period. The share of credit card accounts containing actual payment data peaked in the fourth quarter of 2013 at 88 percent and has since declined by more than half to 40 percent. Compared to actual payment, other data variables in a consumer’s consumer report, such as balance amount and credit limit, are consistently furnished across loan types.
  • Furnishing actual payment information appears to be an either/or proposition for credit card issuers. Issuers either furnish actual payment information for nearly all accounts or not at all
  • In 2013, up to 70 percent of the largest credit card issuers furnished actual payment data for nearly all accounts. As of 2020, only about half of issuers with recent payments furnish these data.

11/13/2020

Enterprises extend purchase of loans in forbearance

The Federal Housing Finance Agency has approved an extension of the current temporary policy that allows for the purchase of certain single-family mortgages in forbearance that meet specific eligibility criteria as set by Fannie Mae and Freddie Mac (the Enterprises). The policy is extended for loans originated through December 31, 2020.

11/12/2020

Bureau reviewing payday lending disclosures

The CFPB has published a notice and request for comment [85 FR 71886] on an information collection plan titled "Generic Information Plan for the Development and Testing of Disclosures and Related Materials" to test Payday Loan disclosures. The results of this testing (estimated to conclude September 2021) may be used, along with other Bureau considerations, to inform the decision-making process around whether to move forward with a rulemaking related to payday loan disclosures.

11/10/2020

OCC: COVID-19 effects on federal banking system

The OCC has posted its Semiannual Risk Perspective for Fall 2020, reporting the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry.

Although banks are still in strong financial condition, profitability is stressed due to low interest rates and increasing levels of problem loans. The OCC reported credit, strategic, operational, and compliance risks, among the key risk themes in the report:

  • Credit risk is increasing as the economic downturn impacts customer ability to service debts.
  • Strategic risk is an emerging issue due to the historically low rate environment, potential credit stress and their effect on bank profitability.
  • Operational risk is elevated as financial institutions respond to altered work environments and an evolving and complex operating environment. Cybersecurity threats contribute as a key driver of the heightened operational risk environment.
  • Compliance risk is elevated due to a combination of altered work environments, and the requirement to quickly implement federal, state, and proprietary programs designed to support businesses and consumers.

The report also highlights emerging trends in payment products and services as a special topic in emerging risks.

11/10/2020

Fed posts October SLOOS results

The Federal Reserve Board has released the October 2020 Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices, which addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally correspond to the third quarter of 2020.

Loans to businesses: Respondents indicated that, on balance, they tightened their standards and terms on commercial and industrial loans to firms of all sizes. Banks reported weaker demand for C&I loans from firms of all sizes. Meanwhile, banks tightened standards and reported weaker demand across all three major commercial real estate loan categories—construction and land development loans, nonfarm nonresidential loans, and multifamily loans—over the third quarter of 2020.

Loans to households: Banks tightened standards across all categories of residential real estate loans and across all three consumer loan categories—credit card loans, auto loans, and other consumer loans—over the third quarter of 2020 on net. Banks reported stronger demand for credit card loans, auto loans, and most categories of RRE loans.

Banks also responded to a set of special questions inquiring about their forbearance policies. For all loan categories, a majority of banks reported that less than 5 percent of loans were in forbearance in the third quarter. Payment deferral was the most widely cited form of forbearance for CRE, RRE, and consumer loans, while covenant relief was the most cited form of forbearance for C&I loans. For most categories, a borrower’s degree of financial hardship was the factor most widely cited as important in determining banks’ willingness to approve forbearance requests or the terms of forbearance.

11/10/2020

G.19 Consumer Credit data

The Federal Reserve has posted its September 2020 G.19 Consumer Credit data. Consumer credit increased at a seasonally adjusted annual rate of 2-1/4 percent during the third quarter. Revolving credit decreased at an annual rate of 2-1/2 percent, while nonrevolving credit increased at an annual rate of 4 percent. In September, revolving credit increased at an annual rate of 4-3/4 percent, while nonrevolving credit increased at an annual rate of 4-3/4 percent.

11/09/2020

Agencies on LIBOR transition

The OCC, Federal Reserve Board, and FDIC have announced they have issued an interagency Statement on Reference Rates for Loans reiterating that the agencies do not endorse a specific replacement rate for the London InterBank Offered Rate (LIBOR), which is expected to cease after 2021. Banks may use any reference rate for loans that the banks determine to be appropriate for their funding models and customer needs. Banks should include language in lending contracts that provides for using a robust fallback rate if the initial reference rate is discontinued. The statement emphasizes that—

  • all banks should have risk management processes in place, commensurate with the size and complexity of their exposures, to identify and mitigate their LIBOR transition risks. For more information, refer to the FFIEC "joint Statement on Managing the LIBOR Transition."
  • examiners will not criticize banks solely for using a reference rate, including a credit-sensitive rate, other than the secured overnight financing rate (SOFR), for loans.

The agencies encourage banks to determine appropriate reference rates for lending activities and begin transitioning loans away from LIBOR without delay. They also encourage banks to accelerate outreach to lending customers to ensure that they are aware of, and prepared for, the transition from LIBOR. Finally, the agencies encourage banks to consider any technical changes that might be required for internal systems to accommodate new reference rates or fallback rates.

11/06/2020

Driver Loan, LLC and CEO subjects of Bureau suit

The CFPB has announced it has filed a lawsuit against Driver Loan, LLC, and its Chief Executive Officer, Angelo Jose Sarjeant, for allegedly engaging in deceptive acts or practices in taking deposits from and offering credit to consumers.

Driver Loan, based in Doral, Florida, offers short-term, high-interest loans to consumers funded by deposits made by other consumers. The Bureau alleges that Driver Loan and Sarjeant violated the Consumer Financial Protection Act of 2010 (CFPA) by misrepresenting the risks associated with the deposit product it offered to consumers and by misrepresenting the annual percentage rate (APR) for extensions of credit it offered to other consumers. The Bureau’s complaint alleges that since 2017, Driver Loan purports to have offered short-term, high-interest personal loans totaling over $30 million, typically to drivers who work with ride-share companies. The loans range from $100 to $500 each and are repayable in 15 daily installments. The Bureau alleges that Driver Loan deceptively markets its loans as having an APR of 440% when the actual APRs are about 975%.

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