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New Joint Statement - Credit and Noncitizens

The Consumer Financial Protection Bureau (CFPB) and the Justice Department recently issued a Joint Statement focused on fair lending and considerations under the Equal Credit Opportunity Act for noncitizen applicants. 

Doesn’t Reg. B Already Cover This?

In connection with this topic, most compliance professionals may be thinking to themselves… wait a second, isn’t this already addressed in Reg. B? Those compliance professionals would be correct. So, before we get into the Joint Statement, let us take a look at what the Regulation currently provides us with. As noted in Reg. B (§1002.6 – Rules Concerning Evaluation of Applications), except as otherwise permitted, a creditor may consider any information obtained, so long as the information is not used to discriminate on an applicant on a prohibited basis. It also addresses immigration status as follows: 

“A creditor may consider the applicant's immigration status or status as a permanent resident of the United States, and any additional information that may be necessary to ascertain the creditor's rights and remedies regarding repayment.”

1. National origin - immigration status. The applicant's immigration status and ties to the community (such as employment and continued residence in the area) could have a bearing on a creditor's ability to obtain repayment. Accordingly, the creditor may consider immigration status and differentiate, for example, between a noncitizen who is a long-time resident with permanent resident status and a noncitizen who is temporarily in this country on a student visa.
2. National origin - citizenship. A denial of credit on the ground that an applicant is not a United States citizen is not per se discrimination based on national origin.

What Clarity Does the Joint Statement Provide? 

While the Joint Statement acknowledges that ECOA and Reg. B do not expressly prohibit consideration of immigration status, it does clarify that immigration status can overlap with certain protected bases, for example, race and national origin. As the Agencies noted, immigration status can “serve as a proxy” for those protected characteristics. 

As such, the Agencies clarify that creditors that consider immigration status should determine whether their reliance is “necessary or unnecessary to ascertain their rights or remedies regarding repayment.” 

“To the extent that a creditor is relying on immigration status for a reason other than determining its rights or remedies for repayment, and the creditor cannot show that such reliance is necessary to meet other binding legal obligations, such as restrictions on dealings with citizens of particular countries, 12 C.F.R. pt. 1002, Supp I. ¶ 2(z)-2, the creditor may risk engaging in unlawful discrimination, including on the basis of race or national origin, in violation of ECOA and Regulation B.”

How Should Lenders Proceed? 

Lenders should first gather and review their policies and procedures regarding the consideration of immigration status, keeping in mind that this consideration might be referred to as citizenship status and may be implicated by a consideration of the length of time an applicant has had a social security number. The documentation should be enhanced as needed, to ensure it supports the clarity provided within the Joint Statement and protects the lender from violations of ECOA and Reg. B.

Lenders should also review any “unwritten” lending practices that touch on the consideration of immigration status, which may necessitate interviewing lending staff. Any ambiguity in this type of consideration should be addressed in the enhancements made to documented policies and procedures.

Fair lending training should be updated to include this clarifying information, to ensure that lenders are mindful of the overlap of immigration status consideration and the prohibited bases, that includes race and national origin.

Interested persons are encouraged to review the Joint Statement in its entirety for additional details.   

Hot Off the Presses! New CRA Rule

On October 24, the Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency (the Agencies) released their Community Reinvestment Act (CRA) final rule. The issuance, all 1466 pages, will take some time to absorb; however, the Agencies have provided an Interagency Overview that provides highlights.

As shared in that Overview, objectives and key elements of the rule include:

• strengthening the achievement of the core purpose of the statute,
• adapting to changes in the banking industry; including the expanded role of mobile and online banking,
• providing greater clarity and consistency in application of the regulations,
• tailoring performance standards to account for differences in bank size; business models; and local conditions,
• tailoring data collection and reporting requirements and use existing data whenever possible,
• promoting transparency and public engagement,
• confirming that CRA and fair lending responsibilities are mutually reinforcing, and
• promoting a consistent regulatory approach that applies to banks regulated by all three agencies.

The Overview also provides details on key changes in the final rule. 

While the effective date of the final rule is April 1, 2024, the applicability date for a majority of the provisions is January 1, 2026. Banks will have until January 1, 2027, to comply with specific reporting requirements and also with data reporting requirements every April 1 beginning in 2027. The Agencies have also included transition provisions in the rule and clarified that until the applicability dates for these provisions, banks will follow the current CRA regulations, included as appendix G to the revised CRA regulations. 

Interested persons are encouraged to read the Federal Register notice, the Interagency Overview, and CRA Final Rule Fact Sheet.

Legislative Action!  Small Business Lending Rule

The financial industry has been made aware of certain challenges to the CFPB’s Reg. B rule, implementing section 1071 of the Dodd Frank Act. The rule amends the regulation to require the collection and reporting of certain small business lending data. For informational purposes only, we are sharing news of two recent actions that may be of interest.

• In recent legislative news, Senate Joint Resolution 32 (S.J. Res. 32) - A joint resolution providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Bureau of Consumer Financial Protection relating to “Small Business lending Under the Equal Credit Opportunity Act (Regulation B),” has passed the Senate of the 118^th Congress, without amendment, on October 18, 2023. Interested persons wishing to track the ongoing activity of S.J. Res. 32 may find information at Congress.gov here. 

• In other news from the U.S. District Court, Southern District of Texas, McAllen Division, an Order Granting Intervenors’ Motions for Preliminary Injunction was entered on Thursday, October 26, 2023. This information is tied to the civil action 7:23-CV-00144 in Texas Bankers Association, et al. VS. Consumer Financial Protection Bureau, et al. The preliminary injunction sought relief from implementation and enforcement of the final rule “that extends nationwide to all financial institutions covered by the final rule.” Interested persons may read the Order here.  

Over $10B in Assets? This Guidance is for You!

In a recent issuance, the CFPB announced a new Advisory Opinion entitled “Consumer Information Requests to Large Banks and Credit Unions.” 

The Opinion addresses the prohibition of large banks and credit unions from imposing unreasonable obstacles on customers, such as charging “illegal junk fees,” for basic customer service. 

This ties back to a 2010 federal law requiring large banks and credit unions to provide complete and accurate account information when requested by accountholders. As relayed by the CFPB, the law was part of Congress’s financial reform in the Consumer Financial Protection Act and section 1034(c).

Banks and Credit unions with more than $10 billion in assets are encouraged to review the CFPB’s Advisory Opinion in its entirety, which may be found here and to review any charges imposed for providing basic account information. As is mentioned within the Opinion, this likely includes charging fees:

• to respond to a consumer request for a deposit account balance,
• to respond to a consumer inquiry for a loan balance,
• to respond to a request for a specific type of supporting document, i.e. check image or account agreement and
• for time spent on consumer inquiries seeking information and supporting document for an account.

As with any legal requirement, institutions are encouraged to seek the advice of legal counsel as needed.

Of note, the CFPB stated in their Opinion that they do not intend to seek monetary relief for potential violations that occur prior to February 1, 2024.

Attention BSA Officers!

FinCEN has been busy lately with a release of various issuances of which you should be aware. 

• FinCEN Alert to Financial Institutions to Counter Financing to Hamas and its Terrorist Activities – In light of recent terrorist attacks on the people of Israel, this issuance is provided to assist financial institutions in identifying funding streams to Hamas. The Alert provides red flags that can be used to help detect potential suspicious activity. This is part of a “whole-of-government” response in taking steps necessary to deny Hamas the ability to obtain and utilize funds for terrorism. Interested persons should read this Alert.
• FinCEN Proposes New Regulation on CVC Mixing – FinCEN is announcing a proposed rule that identifies international Convertible Virtual Currency (CVC) mixing as a primary money laundering concern. As shared by FinCEN Director Gacki, “CVC mixing offers a critical service that allows players in the ransomware ecosystem, rogue state actors, and other criminals to fund their unlawful activities and obfuscate the flow of ill-gotten gains.” It is noted as FinCEN’s first use of the “Section 311 authority to target a class of transactions of primary money laundering concern.” FinCEN’s proposed rule was published in the Federal Register.
• FinCEN Renews and Expands Real Estate GTOs – In this announcement, FinCEN adjusts Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind companies used in non-financed purchases of residential real estate. As noted in the release, information obtained under the terms of the GTOs provide valuable data to help uncover illicit activity. Additional details may be found here.

Resumption of Federal Student Loan Payments

As industry stakeholders are aware, the Department of Education’s COVID-19 relief for federal student loans has recently ended. As a result, millions of federal student loan borrowers will have a payment due on their loans this month. In response to this, some federal agencies have issued information on the topic that provides details on the impact to borrowers and student loan servicers. 

Interested persons seeking recently issued information may find the CFPB’s blog post here and the NCUA’s Letter to Credit Unions here.

Updated Information on Junk Fees Issued

Just in case you missed it…earlier this month, the CFPB issued their Supervisory Highlights Junk Fees Update Special Edition (Fall 2023).   

While the CFPB issued a Supervisory Highlights Junk Fees Special Edition in March, this update reflects newer information from examinations that generally were completed between February 2023 and August 2023. Of note, the update outlines areas of concern in three areas: deposits, auto servicing, and remittances. As shared by the CFPB, supervisory efforts have resulted in institutions refunding over $140 million to consumers. The CFPB also notes that multiple banks have updated policies to be more consumer friendly and have eliminated overdraft (OD) fees and non-sufficient funds (NSF) fees on consumer accounts.

What Should We Take Away from this Information? 

• Deposits – Re-familiarize yourself with the CFPB’s UDAAP-related concerns and review fee-related practices that could be implicated in those concerns. Detailed observations are focused on multiple NSF fees for the same transaction, overdraft fees that are unanticipated, information gathered from supervisory requests for OD and NSF related fees, unfair statement fees, returned deposit item fees, and treatment of pandemic relief benefits.
• Auto Servicing – Review the CFPB’s concerns related to fee practices in auto loan servicing and determine any applicability in your auto servicing area. The CFPB’s observations are noted in two areas: overcharging for add-on products when a loan terminates early through payoff or repossession and miscalculating refunds for add-on products after early termination.
• Remittance Transfers – Read about the CFPB’s findings noted in their review of remittance transfers. Noted deficiencies were related to failures to accurately disclose fees and failures to refund fees when needed.

 Interested persons may find the CFPB’s Supervisory Highlights Update here.