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Top Story Lending Related

10/26/2023

CFPB reports consumers paid record $130B in credit card interest and fees in 2022

The CFPB has released its biennial report to Congress on the consumer credit card market. The report found that in 2022 credit card companies charged consumers more than $105 billion in interest and more than $25 billion in fees. Total outstanding credit card debt eclipsed $1 trillion for the first time since the CFPB began collecting this data. The report highlights areas of concern, including more consumers carrying balances month to month, with many falling deeper into debt over time, while credit card company profits remained significantly above pre-pandemic levels.

This is the Bureau's sixth biennial report on the credit card market. It identifies several recent trends in consumer credit card activity, including:

  • Credit card company profits remain high: Major credit card companies’ profits are now higher than pre-pandemic levels, potentially signaling a lack of competition in a market consistently dominated by the top 10 credit card companies.
  • APRs continue to rise above the cost of offering credit: Major credit card companies continue to set interest rates far above major indexes like the federal funds target rate, with an average APR margin of 15.4 percentage points above the prime rate in 2022. Margins continued to rise for across all credit score tiers, even as charge-off rates fell during the pandemic.
  • Consumers were charged $130 billion in interest and fees: For consumers who carried a balance, they paid about 20 percent of their average balance in interest and fees over the course of the year (18 percent of annualized balances on general purpose cards and 21 percent on private label accounts). Many cardholders with subprime scores paid 30 to 40 cents in interest and fees per dollar borrowed each year.
  • Consumers were charged $14.5 billion in late fees, returning to pre-pandemic levels and up from $11.3 billion in 2021
  • More borrowers getting caught in debt: More cardholders are carrying balances month to month or failing behind on payments, and a greater percentage of balances are going more than 180 days delinquent.
  • Consumers with revolving balances were charged more in interest and fees than they earned in rewards

The report also finds a continuing shift toward digital communication. Consumers are increasingly using digital portals, such as website and mobile apps, to manage their cards and make payments. Nearly 80 percent of cardholders are enrolled in their card’s mobile app, with adoption rates even higher for consumers under 65. The report also finds that credit card companies and debt collectors are relying more on text messaging and email to contact borrowers about past-due balances, alongside more traditional means like phone calls or postal mail.

10/25/2023

FTC and Wisconsin act against Rhinelander Auto

The Federal Trade Commission has announced that the Commission and the State of Wisconsin are taking action against Wisconsin auto dealer group Rhinelander Auto Center, its current and former owners, and general manager Daniel Towne for deceiving consumers by tacking hundreds or even thousands of dollars in illegal junk fees onto car prices and for discriminating against American Indian customers by charging them higher financing costs and fees.

The defendants have agreed to proposed court orders that will require Rhinelander’s current owners and Towne to stop their unlawful practices and provide $1.1 million to be used for refunds to consumers. The former owners, Rhinelander Auto Center, Inc. and Rhinelander Motor Company, have agreed to a separate settlement that would require the companies to permanently wind down the businesses and pay $100,000 to be used to refund affected consumers.

In their complaint, the FTC and Wisconsin Department of Justice say that Rhinelander and Towne regularly charged many of their customers junk fees for “add-on” products or services without their consent. The complaint cites one survey of Rhinelander customers that shows half of the dealer’s customers said they were charged for add-ons without authorization or through deception. One consumer was told—deceptively—that Guaranteed Asset Protection (commonly referred to as “GAP,” or “GAP insurance”) was required for her car purchase, even though she didn’t want to buy it; it cost her more than $1,000 in fees and additional interest on her loan.

The complaint also alleges Rhinelander and Towne discriminated against American Indian customers in the cost of financing by adding more “markup” to their interest rates, according to the FTC’s complaint. This additional markup cost American Indian customers $401 more on average compared to non-Latino white customers. The complaint also notes that, since Rhinelander changed ownership in 2019, the disparity has only increased. In addition, the complaint alleges that American Indian customers were charged for unwanted add-ons at a higher rate than non-Latino white customers. In total, American Indians paid on average approximately $1,362 more for add-ons in credit transactions than non-Latino White customers since 2016, and $1,374 more since the new ownership took over, according to the complaint.

10/25/2023

Agencies issue principles for climate-related financial risk management

The Federal Reserve Board, FDIC, and OCC yesterday reported they had jointly finalized principles that provide a high-level framework for the safe and sound management of exposures to climate-related financial risks for large financial institutions. The principles are consistent with the risk management framework described in the agencies’ existing rules and guidance. The principles are intended for the largest financial institutions, those with $100 billion or more in total assets, and address physical and transition risks associated with climate change.

The principles are intended to support efforts by the largest financial institutions to focus on key aspects of climate-related financial risk management. General climate-related financial risk management principles are provided with respect to a financial institution’s governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement, and reporting; and scenario analysis. Additionally, the principles describe how climate-related financial risks can be addressed in the management of traditional risk areas, including credit, market, liquidity, operational, and legal risks.

The final principles neither prohibit nor discourage large financial institutions from providing banking services to customers of any specific class or type, as permitted by law or regulation.

10/25/2023

Agencies approve new CRA regulations

The Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation have announced their approval of revised Community Reinvestment Act (CRA) regulations to update how CRA activities qualify for consideration, where they are considered, and how they are evaluated.

The final rule implements a revised regulatory framework for the CRA that, like the current framework, is based on bank asset size and business model. This tailoring of the framework recognizes the capacity and resource differences among banks. Under the final rule, banks are classified as either a large bank, an intermediate bank, a small bank, or a limited purpose bank. Pursuant to the final rule: large banks are those with assets of at least $2 billion as of December 31 in both of the prior two calendar years; intermediate banks are those with assets of at least $600 million as of December 31 in both of the prior two calendar years and less than $2 billion as of December 31 in either of the prior two calendar years; and small banks are those with assets of less than $600 million as of December 31 in either of the prior two calendar years. These asset-size thresholds will be adjusted annually for inflation.

The key goals of the regulations' update are:

  • Encouraging banks to expand access to credit, investment, and banking services in low-to-moderate income areas
  • Adapt the regulations to change in the banking industry, including internet and mobile banking
  • Provide greater clarity and consistency in the application of the CRA regulations
  • Tailor CRA evaluations and date collection to bank size and type

In general, the rule becomes effective April 1, 2024. Certain amendments in the rule that refer to the Small Business Loan Reporting requirements in subpart B of CFPB Regulation B (12 C.F.R. part 1002) are delayed indefinitely pending a resolution of the validity and applicability of the Small Business Loan Reporting requirements. The agencies will publish an announcement of an effective date for those delayed amendments. One group of selected sections of the common rule text adopted by the agencies will be applicable on January 1, 2026; another group of selected sections of the rule implementing reporting requirements will be applicable on January 1, 2027, with data reporting each April 1, beginning in 2027.

Final section __.51 of the revised regulations includes transition provisions relating to: applicability of the current CRA regulations; HMDA data disclosures; CRA consideration of eligible loans, investments, services, or products; strategic plans; and a particular ratings standard relating to minimum performance requirements applicable to large banks. Until the applicability dates for these provisions, banks will follow the current CRA regulations, included as appendix G to the revised CRA regulations.

The Federal Register submission document is 1,494 pages long. That includes 205 pages reciting the common rule as adopted by the agencies, followed by 223 pages in which each of the agencies spells out revisions to its version of the regulation. New Appendix G, which is a statement of the current regulation of each regulator as of March 31, 2024, is included in each of those three sets of agency revisions.

10/24/2023

SBA disaster relief announcements

10/24/2023

Public hearing on appraisal bias November 1

The CFPB has sent invitations to join the FFIEC Appraisal Subcommittee (ASC) for its third public hearing on appraisal bias to discuss how a residential appraisal is developed and reviewed, the process for reconsiderations of value for residential real estate valuations, and the development of rural appraisals.

The hearing can be attended in person at HUD headquarters at 451 7th Street, SW, Washington, D.C. or via livestream. Online registration is required for both in-person and Zoom streaming access.

10/23/2023

Report of CFPB Education Loan Ombudsman

The CFPB has released the Annual Report of the CFPB Education Loan Ombudsman.

The report analyzes the 9,284 student loan complaints submitted by consumers from September 1, 2022, through August 31, 2023. Of the complaints, 75 percent were related to federal student loans and 25 percent to private student loans. Complaints submitted to the CFPB suggest that across the federal and private student loan markets, failures on the part of industry participants are excluding some borrowers from protections and benefits intended for them under law.

10/19/2023

Sollers College ordered to cancel $3.4M in student debt

The Federal Trade Commission has reported that Sollers College and its parent company, Sollers Inc. have been ordered to cancel $3.4 million in student debt to resolve separate charges brought by the Federal Trade Commission and the state of New Jersey that said the companies lured prospective students to enroll by falsely touting their job-placement rates and that their relationships with prominent companies would lead to jobs after students graduate.

The for-profit school also had an illegal twist to the “income share agreements” it encouraged students to take out to pay for the school, according to the FTC’s complaint. Income-share agreements require students to pay the school a percentage of their future income in exchange for covering their tuition.

According to the FTC’s complaint, Sollers and its parent company used their website, social media, and email campaigns to falsely advertise their partnerships with prominent employers in the fields of information technology, clinical research, and drug safety. Sollers falsely claimed that its partnerships with prominent employers, such as Pfizer, Weill Cornell Medicine, and Infosys, resulted in jobs for its graduates at those companies. In reality, many of the businesses featured on Sollers’ website had no partnership with the school at all.

The complaint states that, since at least 2018, Sollers advertised that the vast majority of Sollers graduates are placed in jobs. For example, the company advertised, “90% of our students are placed within 3 months of graduation,” on its website. In reality, the job placement rate for Sollers graduates is substantially lower than the 80 percent, 82 percent, 90 percent or “near perfect” rates featured prominently on its website and in its advertising campaigns. For example, the school’s own data suggests that the current job-placement rate for graduates of its Life Sciences programs remains as low as 52 percent.

In addition, the complaint notes that Sollers encouraged students to pay for their education using income-share agreements. Under the specific terms of Sollers’s contracts, students agreed to pay Sollers a fixed percentage of their future income on a monthly basis, typically for two years. Between August 2018 and April 2021, the school entered into 392 illegal agreements, none of which included certain disclosures mandated by law. Specifically, the agreements failed to include the Holder Rule notice, which protects consumers who enter certain loans or credit contracts by preserving their right to assert claims and defenses, even if the loans or contracts are assigned to a third party. Sollers later sold a portion of the agreements to third parties.

Under the stipulated order, Sollers is prohibited from falsely advertising any educational product or service. The order also prohibits the company from denying access to diplomas or transcripts based on any debt forgiven by the proposed order. Specifically, Sollers must:

  • stop collecting debts from students on any income-share agreements it currently holds
  • re-purchase any income share agreements it sold to third parties to stop collection efforts on those agreements
  • request that consumer reporting agencies delete the debt from consumers’ credit reports
  • provide written notification to consumers who are receiving debt forgiveness under the proposed order

10/19/2023

FDIC Board to consider final CRA regulations next week

The FDIC has issued a Sunshine Act Meeting Notice of a meeting of its Board at 3:00 p.m. on October 24, 2023. The meeting will be open for webcast observation. Included on the agenda are:

  • Discussion of a memorandum and resolution regarding a final rule on Community Reinvestment Act regulations
  • Discussion of a memorandum and resolution regarding an interagency policy statement on Principles for Climate-Related Financial Risk Management for Large Financial Institutions
  • Resolution regarding a notice of proposed rulemaking to implement revisions to Section 19 under the Fair Hiring in Banking Act

10/17/2023

FHA expands access to mortgage financing

The U.S. Department of Housing and Urban Development, through the Federal Housing Administration (FHA), has announced a new policy that allows lenders to count income from small units of housing built inside, attached to, or on the same property as a primary residence (Accessory Dwelling Units (ADU)) when underwriting a mortgage.

This change allows for the inclusion of rental income from the ADU in the borrower’s qualifying income and would allow more borrowers to qualify for FHA financing for properties with ADUs, including 203(k) Rehabilitation mortgages. ADUs can be rented out to tenants, thereby adding to the supply of housing in a community. In addition, this new policy will enable more first-time homebuyers, seniors, and inter-generational families to leverage the power of ADUs to enhance the generational wealth building potential of homeownership.

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