Last Week, This Morning

December 23, 2024

Below you will find several key developments in the financial services industry, including related developments in information privacy and data security, from the past week. We add an "Amicus Brief(ly)¹" comment to each item, where we briefly (see what we did there?) note for friends (and again?) of CounselorLibrary the important takeaways from the developments outlined in the email. Our legal reporters - CARLAW, HouseLaw, InstallmentLaw, PrivacyLaw, and BizFinLaw - provide more comprehensive, real-time updates of federal and state laws, regulations, litigation, and other industry items of interest. For a personal guided tour and free trial of any of these legal reporters, please contact Michael Willer at 614-855-0505 or mwiller@counselorlibrary.com.

Please note that we will not deliver "Last Week, This Morning" over the next two weeks due to the holidays. The next email will be delivered to your inbox on Monday, January 13. We wish you a very happy holiday season!

On December 13, the Consumer Financial Protection Bureau released its Mortgage Market Activity and Trends report, which provides an overview of residential mortgage lending in 2023 based on the data collected under the Home Mortgage Disclosure Act. "Institutions covered by HMDA are required to collect and report specified information about each mortgage application acted upon and mortgage purchased. The data include the disposition of each application for mortgage credit; the type, purpose, and characteristics of each home mortgage application or purchased loan; the census-tract designations of the properties; loan pricing information; demographic and other information about loan applicants, such as their race, ethnicity, sex, age, and income; and information about loan sales."

Some of the key findings of the report are:

• The total number of applications and originations dropped significantly in 2023. The number of applications decreased by about 4.3 million or 30.3 percent, and originations decreased by 2.7 million or 32.2 percent from 2022.
• Refinance originations dropped by more than half since 2022, and home purchase originations dropped by less than one third.
• More than half of all borrowers paid discount points, a 12.7 percent increase from 2022. The median discount points paid for home purchase loans were $3,000 and for refinance loans were $3,902 in 2023, a 26.6 percent and a 35.6 percent increase from a year ago. The report does not analyze the impact of paying discount points on interest rate reductions or total loan costs.
• Total loan costs, which include origination fees and discount points, also increased between 2022 and 2023, with faster increases for Hispanic white and Black borrowers than for Asian and non-Hispanic white borrowers.
• Rising interest rates throughout 2023 drove higher monthly mortgage payments.
• Despite the increase in the average monthly mortgage payment, the average debt-to-income ratio ("DTI") and the share of home purchase applications denied due to high DTI have not significantly changed year-over-year.
• Non-depository institutions continued to increase their share of closed-end originations.

Amicus brief(ly): The CFPB's observation about the drop in new mortgage loan applications during the higher interest rate environment in 2023 confirms what we know about the market over the past year or so. And the note about borrowers who paid discount points to get a lower periodic interest rate tracks with the higher rate environment, reflecting that borrowers who could afford it paid up front to reduce the interest they would pay over time. The CFPB reports that non-white borrowers saw faster increases in total loan costs (primarily interest rates, but also origination fees). With HMDA data reporting, we expect to see some disparate impact notes about loan pricing, but, in connection with those observations, it is important to remember that HMDA data does not include creditworthiness data that inform pricing. Without some quantitative analysis of loan pricing data that controls for creditworthiness criteria and compares apples to apples, comparative reports on loan pricing are incomplete.

On December 17, the Federal Trade Commission announced its final Trade Regulation Rule on Unfair or Deceptive Fees or "Junk Fees Rule" as it refers to the rule in its press release. After receiving more than 72,000 comments on the topic of "junk fees" since 2022, the FTC limited the rule's scope to live-event ticketing and short-term lodging, two industries that the FTC noted it "has studied in particular." The FTC stated that the final rule does not prohibit any type or amount of fees that increase the advertised price of tickets or lodging. Instead, the final rule requires that businesses clearly and conspicuously disclose the true total price inclusive of all mandatory fees whenever they offer, display, or advertise any price of live-event tickets or short-term lodging and prohibits them from misrepresenting any fees. The final rule also requires businesses to display the total price more prominently than most other pricing information. Finally, the final rule requires businesses that exclude allowable fees, such as shipping or taxes, up front to clearly and conspicuously disclose the nature, purpose, identity, and amount of those fees before consumers consent to pay.

Although the final rule addresses only live-event ticketing and short-term lodging, the FTC's press release noted that other industries "are prohibited from deceiving consumers about fees and pricing per longstanding law." The final rule will become effective 120 days after its publication in the Federal Register.

Amicus brief(ly): For all the talk over the last couple of years about "junk fees," the financial services industry can breathe a little easier. This is a win compared to how this could have gone. The FTC's final rule is limited to imposing requirements on event tickets and hotel stays. However, it does not impose limitations on the kinds of fees we run into in those contexts; it just requires clearer disclosures about the fees that everyone pays but that do not typically show up in booking prices until checkout. Given the regulation of financial services through Truth in Lending and other laws, it was sensible for the FTC to focus its attention elsewhere for what amounts to a disclosure rule. This will almost certainly not be the end of the story on "junk fees," but this rulemaking does not address servicing and other fees imposed in connection with financial services products.

On December 16, the Consumer Financial Protection Bureau released a special edition of Supervisory Highlights focused on student loans. The report covers violations identified by CFPB examiners related to student loan refinancing, private lending and servicing, debt collection, and federal loan servicing, including the following violations highlighted in the CFPB's press release:

• Private lenders gave misleading impressions that borrowers who refinance might not lose access to federal loan cancellation programs and failed to re-amortize consolidated loans following borrowers' requests to exclude federal loans.
• Private lenders unfairly denied discharge applications for borrowers who were eligible based on Total and Permanent Disability status and inaccurately claimed that certain borrowers were ineligible for autopay discounts or falsely advertised to borrowers that they could suspend their loan payments if they lost their job but later eliminated this benefit.
• Private student loan servicers misled borrowers about their right to challenge their loans due to school misconduct and failed to properly consider most borrowers' challenges to their loans based on school misconduct.
• Servicers distributed contracts with provisions that would allow schools to illegally withhold students' academic transcripts or access to classes and other education services in the case of default and falsely threatened students with legal action.
• Federal loan servicers failed to provide adequate ways for borrowers to manage key loan issues by phone, issued deceptive billing statements with incorrect payment amounts and due dates, debited unauthorized amounts, and improperly processed borrowers' applications for income-driven repayment plans.

Amicus brief(ly): Among a number of issues the CFPB repeats in this special edition of its Supervisory Highlights are collection conduct concerns the Bureau has raised consistently in the past and a newer one that is specific to student loans: schools withholding transcripts for non-payment of student debt. The CFPB calls it potentially "abusive" to do that, claiming that providers gain an "unreasonable advantage from the act or practice of creating contracts that permitted educational institutions to engage in blanket withholding of transcripts" because including those provisions enables schools to engage in "strong arm" collection tactics and borrowers were unable to find other financing providers for a number of reasons. There are several other noteworthy findings in the report, especially around servicing practices. We commend student loan servicers to these Supervisory Highlights as guidance for best practices and conduct to avoid.

On December 18, the Consumer Financial Protection Bureau announced three actions aimed at the credit card industry - a circular warning credit card companies against illegal rewards practices, a report highlighting issues with retail credit cards, and an online tool to help consumers find credit cards with lower rates. The circular warns that companies may violate federal law when they devalue earned rewards, hide the conditions for earning or keeping rewards, and/or fail to deliver promised benefits. The report highlights new research that retail credit cards charge significantly higher interest rates than traditional cards as well as consumer complaints about aggressive sales tactics at the point of sale, inability to redeem promotions, and frustration with paper statement fees and late fees. The new tool, Explore Credit Cards, which can be found on the CFPB's website, helps consumers find the best credit card rates by enabling them to compare more than 500 credit cards using unbiased, comprehensive data.

Amicus brief(ly): The CFPB remains busy as the current administration winds down. This flurry of credit card-related activity focuses on the cost of credit cards and concerns about treatment of credit card rewards or benefits, including marketing concerns. If you have bought anything in person this holiday season, chances are the retailer asked if you were paying with your store-branded credit card and, if not, if you would like to sign up for one. The CFPB points out that the cost of those cards is higher and that fulfillment does not always align with promises made at the point of sale. The CFPB takes aim at rewards programs, raising UDAP (they do not mention issues related to perceived "abusive" conduct) concerns about fine print, the devaluation of rewards, and, importantly, failure to deliver on rewards consumers have earned. The circular highlights a consistent theme for the CFPB with respect to credit offerings in general - creditors have to fulfill the terms of their consumer agreements, and failure to do so risks UDAP enforcement. The new credit card shopping tool the CFPB created repeats what a number of other websites do in allowing consumers to compare the terms of credit card offers, but the CFPB's tool may get more traction with consumers if they trust the CFPB as a source for that information.

On December 13, New York Governor Kathy Hochul signed Assembly Bill 9686, which requires the Superintendent of Financial Services to develop a "what mortgage applicants need to know" pamphlet and publish it on the Department of Financial Services' website. The pamphlet must be published in the six most common non-English languages spoken by individuals with limited-English proficiency in New York state, based on the most recent census. Licensed lenders, mortgage bankers, and other banking organizations must provide a copy of the pamphlet to each residential mortgage loan applicant not later than the third business day after receipt of the application and not later than the seventh business day before consummation of the transaction and may do so electronically, either by email or by providing a hyperlink to the pamphlet posted on the DFS's website. The new law provides 21 categories of information that must be included in the pamphlet, as well as other information as determined by the superintendent. The new law is effective June 11, 2025.

Amicus brief(ly): While New York's legislative session adjourned in June, New York allows the legislature to send a bill to the governor through the end of the calendar year, or the governor may request a bill, depending on the bill's contents and priorities. Procedure aside, mortgage lenders and brokers will need to watch for the DFS to post the pamphlet after the new year and then prepare to include it in loan packages beginning in June.

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¹ For the unfamiliar, an “Amicus Brief” is a legal brief submitted by an amicus curiae (friend of the court) in a case where the person or organization (the “friend”) submitting the brief is not a party to the case, but is allowed by the court to file the brief to share information or expertise that bears on the issues in the case.