The CFPB issued guidance and consumer information tools last week covering components of the Coronavirus Aid, Relief and Economic Security (CARES) Act. In this rapidly environment, financial services companies might do well to check the CFPB blog frequently to keep abreast of new developments and to be aware of specific information and tools consumers may reference in difficult hardship conversations. 

Credit Reporting Policy Statement: On April 1, the CFPB issued a Policy Statement regarding the CARES Act credit reporting requirements lenders and credit furnishers and reporting agencies must follow under the fair Credit Reporting Act and Regulation V.

The Statement recognizes the importance of accurate credit reporting and information to the consumer financial services market system. In a press release Director Kraninger said: “During this time of uncertainty, we are providing clarity to ensure the consumer reporting industry can continue to function. Consumers rely on their credit report to purchase a new car, their new home, or to finance their college education. An effective consumer reporting system is critical in promoting fair and efficient access to credit in the consumer financial services market.”

While highlighting the adverse impact of the COVID-19 pandemic on consumers, the Policy Statement recognizes the operations and staffing challenges lenders, servicers and reporting agencies are having as well. “The Bureau intends to consider the circumstances that entities face as a result of the COVID-19 pandemic and entities’ good faith efforts to comply with their statutory and regulatory obligations as soon as possible. The Bureau believes that this flexibility will help furnishers and consumer reporting agencies to manage the challenges the current crisis poses.”

On January 1, 2018, certain provisions of the California Homeowner Bill of Rights (“HBOR”) expired.  But contrary to what many assumed, the January 1, 2018 expiration date did not apply to all of the HBOR’s provisions, and many provisions have been replaced by new regulations.  We’ve prepared the below summary of some of the substantial changes to the law and how they will affect HBOR litigation in the future.

• The new HBOR removes many of the distinctions between servicers conducting more/less than 175 annual foreclosures.  In most but not all respects, all servicers are treated the same going forward.
• Changes in the private right of action/relief.
  • The HBOR still has a private cause of action, but only for material violations of section 2923.5 (pre-NOD notice requirements), 2923.7 (single point of contact), 2924.11 (dual tracking), and 2924.17 (accuracy of NOD declaration; substantiate right to foreclose).
  • Injunctive relief is available prior to the recording of a trustee’s deed.  After a trustee’s deed is recorded, a servicer may be liable for actual economic damage and the greater of treble or actual damages for material violations that are intentional or reckless.  Attorney’s fees are still available if the borrower prevails.
  • However, mortgage servicers who have engaged in “multiple and repeated uncorrected violations” of section 2924.17 are no longer liable for a $7,500 penalty.

While the final Basel III capital rules have not been published at the time of this post, it was clear from this morning’s comments at the meeting of the Board of Governors of the Federal Reserve System that community banks have been heard. Highlights from the meeting include the following positions of the Federal Reserve on the Basel III rules.

•  AOCI – Non-internationally active financial institutions (i.e., all community banks) will be allowed a one-time option to opt out of the inclusion of accumulated other comprehensive income in Tier 1 regulatory capital. This opt-out option will ease the potential burden on community banks from incorporating fluctuations in the value of their available for sale securities portfolio in their regulatory capital calculations. We view this as a big win for community banks.
• Mortgage Loan Risk-Weighting – Many community banks expressed a great deal of concern with the proposed risk weighting of residential mortgage loans, which was based on loan-to-value ratios and certain other features, including whether or not the loan had a balloon feature. In response to those comments, the final Basel III rule will contain no changes to the current risk weighting of residential mortgage loans. While this is a nice win for banks and borrowers, the separate qualified mortgage rules will likely impact mortgage lending in the future.
• Trust Preferred Securities – The final Basel III rules will grandfather the eligibility of trust preferred securities to qualify as Tier 1 capital for bank holding companies with less than $15 billion in total consolidated assets. This change will obviate the need for many community banks to raise capital through the issuance of common equity to replace the Tier 1 capital previously provided by the issuance of trust preferred securities.

While the written rule will undoubtedly contain a great deal of additional clarifications, the early comments from the meeting of the Board of Governors of the Federal Reserve System indicate that the rally of community banks against certain aspects of the Basel III rules was very successful. We will publish more analysis as we digest the final rules.