Consumer Compliance Outlook: Fourth Issue 2021

News from Washington: Regulatory Updates

Agencies release annual Community Reinvestment Act (CRA) asset-size threshold adjustments for institutions they supervise.

On December 16, 2021, the Board of Governors of the Federal Reserve System (Board) and the Federal Deposit Insurance Corporation announced the annual adjustment to the asset-size thresholds used to define small and intermediate small banks under their CRA regulations as follows:

The changes were effective on January 1, 2022.

The Board and the Consumer Financial Protection Bureau (Bureau) announce dollar thresholds in Regulations Z and M for exempt consumer credit and lease transactions.

On December 1, 2021, the Board and the Bureau published dollar thresholds that will apply under Regulation Z (Truth in Lending Act or TILA) and Regulation M (Consumer Leasing Act or CLA) for determining exempt consumer credit and lease transactions, respectively, in 2022. The annual adjustment is based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If the CPI-W has not increased, the Board and the Bureau maintain the exemption threshold from the prior year.

Transactions at or below the thresholds are subject to the protections of the regulations. Based on the annual percentage increase in the CPI-W as of June 1, 2021, the protections of TILA and the CLA generally will apply to consumer credit transactions and consumer leases of $61,000 or less in 2022. Note, however, that private education loans and loans secured by real property (such as mortgages) are subject to TILA regardless of the loan amount.

Agencies announce the threshold for smaller loan exemption from appraisal requirements for higher priced mortgage loans.

On December 1, 2021, the Board, the Bureau, and the Office of the Comptroller of the Currency (OCC) announced the threshold exempting loans from special appraisal requirements for higher-priced mortgage loans during 2022 will increase from $27,200 to $28,500. As with the Regulation Z and Regulation M thresholds discussed previously, adjustments are made annually to the threshold based on the change in the average of the CPI-W. Special appraisal requirements for higher-priced mortgage loans include a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan. The rules contain an exemption for loans of $25,000 or less, with that threshold also adjusted annually to reflect increases in the CPI-W average.

The Bureau issues a request for information (RFI) to help assess the effectiveness of its 2015 final Home Mortgage Disclosure Act (HMDA) rule.

On November 22, 2021, the Bureau published an RFI in the Federal Register seeking input from the public on its plans to voluntarily assess the effectiveness of its 2015 final rule and related amendments (the HMDA Rule), which implemented amendments to HMDA in §1094 of the Dodd‒Frank Act, in meeting HMDA’s goals and the objectives of the Dodd‒Frank Act, which include monitoring discrimination in mortgage lending. Section 1022(d) of the Dodd‒Frank Act requires the Bureau to assess the effectiveness of a significant rule not later than five years after its effective date. The Bureau determined that the HMDA Rule is not a significant rule for the purposes of §1022(d) but is voluntarily assessing it because it “recognizes the importance of the HMDA Rule … and believes that the public would benefit from the Bureau conducting a voluntary assessment.” See 86 Federal Register at 66227.

The Bureau’s assessment will focus primarily on the following areas:

The press release for the RFI referenced the findings of the Bureau’s recent reports analyzing HMDA data. An August 2021 report on residential mortgage lending trends analyzed 2020 HMDA data and found that Black and Hispanic applicants are more likely to be charged higher interest rates or denied mortgage credit than White applicants. The press release also referenced a July 2021 report on Asian American and Pacific Islander mortgage borrowers that also analyzed 2020 HMDA data and found that certain subgroups “fared better than others in the mortgage market. For example, Chinese and Asian Indian borrowers paid lower interest rates, on average, than non-Hispanic White borrowers. On the other hand, even though they had higher average credit scores and incomes, and lower combined-loan-to-value (CLTV) ratios, their denial rates were higher than that for non-Hispanic White borrowers” (see report at p. 5). The press release also noted that the July report was able to leverage the expanded reporting of racial and ethnic subgroups required in the 2015 final rule. The deadline for commenting on the HMDA Rule RFI was on January 21, 2022.

Agencies update their prior “COVID-19 Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the Continuing COVID-19 Pandemic and CARES Act.”

On April 3, 2020, the Board, the Bureau, the FDIC, the National Credit Union Administration (NCUA), the OCC, and State Financial Regulators (agencies) issued a joint statement in response to the COVID-19 pandemic announcing their supervisory approach to enforcing the mortgage servicing rules under Regulation X, 12 C.F.R. Part 1024. The statement said the agencies would not initiate supervisory actions against servicers that fail to meet certain timing requirements under the mortgage servicing rules if they made good faith efforts to provide those required notices or disclosures and took the related actions within a reasonable period of time.

On November 10, 2021, the agencies issued a statement to update this prior guidance, noting that while the pandemic continues, servicers have had sufficient time to work with affected consumers and develop more robust business continuity and remote work capabilities. As a result, the agencies will apply their respective supervisory and enforcement authorities, when appropriate, to address any noncompliance or violations of the Regulation X mortgage servicing rules that occur after the date of the statement. The Federal Reserve Board issued Consumer Affairs letter 21-6 to announce the news to the institutions it supervises.

Federal bank regulatory agencies issue a guide to help community banks evaluate fintech relationships.

On August 27, 2021, the Board, FDIC, and OCC (agencies) published a guide (Conducting Due Diligence on Financial Technology Companies: A Guide for Community Banks) to help community banks assess risks when considering relationships with financial technology (fintech) companies. The guide notes that fintech companies “can provide community banks with many benefits, such as enhanced products and services, increased efficiency, and reduced costs, all bolstering competitiveness. Like other third-party relationships, arrangements with fintech companies can also introduce risks. Assessing the benefits and risks posed by these relationships is key to a community bank’s due diligence process.” The guide discusses six key areas of due diligence when a community bank is considering partnering with a fintech company: business experience and qualifications, financial condition, legal and regulatory compliance, risk management and control processes, information security, and operational resilience. The guide also identifies potential sources of information that may be useful to help evaluate fintech companies.

The Department of Housing and Urban Development (HUD) proposes to accept private flood insurance for mortgages insured by the Federal Housing Administration (FHA).

On November 23, 2020, HUD published a notice in the Federal Register to amend its implementing regulations for FHA-insured mortgages secured by property in a special flood hazard area (SFHA) to permit borrowers to have the option of obtaining private flood insurance meeting the statutory definition of that term in §100239 of the Biggert‒Waters Flood Insurance Reform Act of 2012 (42 U.S.C. §4012a(b)(7)). Currently, if these loans are secured by property in an SFHA, as defined by FEMA, the borrower must obtain flood insurance through the National Flood Insurance Program to satisfy the mandatory purchase requirements of the Flood Disaster Protection Act of 1973. HUD is also proposing a “compliance aid” provision to help mortgagees evaluate whether a policy meets the definition of private flood insurance. The comment period closed on January 22, 2021.