STATE GOVERNMENT RELATIONS
Indiana Housing Task Force Releases Final Report
On Thursday the interim Housing Task Force met to discuss a proposed final report that will be used for consideration when drafting legislation for next session. The Housing Task Force was created by the General Assembly last session to explore ways to encourage and assist in the creation of workforce and affordable housing. The committee met three times this fall, taking testimony from a number of groups, including the IBA. Notable findings included more state funding in the form of loans or grants for infrastructure, expanding residential TIF (tax increment financing), tax credit incentives, increased focus on financial literacy and appraisal discrimination.
FEDERAL GOVERNMENT RELATIONS
CFPB Issues Guidance on Fees for Overdraft Protection, Depositors
The Consumer Financial Protection Bureau Wednesday issued guidance on certain overdraft and depositor bank fees that the agency alleged “are likely unfair and unlawful.” The guidance was released as part of a larger announcement by the Biden administration that it was directing agencies to take action against “junk fees” and “surprise billing" across a number of industries, including banking, cable and internet bills, and airline and concert tickets.
The CFPB stated that a financial institution may engage in an unlawful practice when it authorizes a transaction on sufficient funds in the customer’s account but charges an overdraft fee when the transaction posts against insufficient funds in the account (“authorized positive, settled negative,” or APSN, transactions).
In terms of depositor fees, financial institutions “can generally stay on the right side of the law when they employ more tailored fee policies that charge depositor fees only in situations where a depositor could have avoided the fee, such as when a depositor repeatedly deposits bad checks from the same originator,” the CFPB indicated.
Read the CFPB circular on overdraft fee practices
Read the agency bulletin on depositor fees
Read the White House statement on junk fees and surprise billing
CFPB Unveils Proposed Data-Sharing Rules
The Consumer Financial Protection Bureau Thursday outlined proposals under consideration that would require businesses to make a consumer’s financial information available to them or a third party at the consumer's direction. The rules would implement Section 1033 of the Dodd-Frank Act, which also directs the agency to promote the development of standardized formats for information made available to consumers.
The CFPB is considering proposals that would allow consumers who want to switch providers to transfer their account history to a new company so they do not have to start over if they are unsatisfied with the service provided by an incumbent firm, according to the agency. The bureau is also considering proposals that would include options around privacy for personal financial data authorized for third-party use, including limitations that would prevent third parties from reselling authorized data for other uses. Comments on the proposals must be submitted by Jan. 25, 2023.
CFPB is required by law to convene a small business review panel to consult with representatives of small entities likely to be affected by the regulations the agency is considering. The panel will prepare a report on the input received from the small entities, which the CFPB will consider as it develops a proposed rule.
Read an outline of the rules under consideration
Read a CFPB summary of the proposed rulemaking
CFPB Begins Soliciting Small-Bank Input on Data-Sharing Rule
During an industry event Tuesday, Consumer Financial Protection Bureau Director Rohit Chopra said his agency began seeking public guidance this week on its much-anticipated data-sharing rule. Before issuing a proposed rule, the CFPB must convene a panel of small businesses that represent their markets to provide input, Chopra said, noting that a discussion guide for small firms will be released this week. The agency then will publish a report in the first quarter of 2023 based on the comments it receives.
The CFPB has been engaged in rulemaking under Section 1033 of the Dodd-Frank Act to establish standards for sharing consumer financial data, typically through third parties, in a secure and transparent manner that gives consumers control. The proposed rule is expected later in 2023. “We then hope to finalize the rule in 2024 and move to implementation,” Chopra said.
“We’ll hear from small banks and financial companies who will be providers of data, as well as the small banks and financial companies who will ingest the data,” he said. “We will also gather input from the ‘fourth parties,’ the intermediary data brokers that facilitate data transfers.”
FHFA Announces New Credit Score Models
The Federal Housing Finance Agency approved new credit score models Monday for Fannie Mae and Freddie Mac. The FHFA approved the FICO 10T and VantageScore 4.0 models to replace Classic FICO, which the government-sponsored enterprises have used for the past 20 years. The new models are designed to be more accurate by capturing new payment histories for borrowers, such as rent, utilities and telecom payments. Once implemented, lenders will be required to deliver both FICO 10T and VantageScore 4.0 credit scores with each loan sold to the enterprises. The FHFA indicated it expects the new models to be implemented in the coming years following outreach to stakeholders to support the transition.
The FHFA also noted the enterprises will begin changing requirements that lenders provide credit reports from all three nationwide consumer reporting agencies. Instead, lenders will be required to provide credit reports from two of the three nationwide agencies.
CFPB Outlines Plan to Challenge Court Ruling on Funding
The Consumer Financial Protection Bureau is reportedly working on a strategy to challenge the Appeals Court ruling that deemed its funding unconstitutional. The ruling has stalled a court case between the CFPB and TransUnion and, in its latest comment on that case, the CFPB stated: "The Court should reject the Fifth Circuit's analysis and instead join every other court to address the issue – including the en banc D.C. Circuit – in upholding the Bureau's statutory funding mechanism."
Fed Study Finds 'Limited Role' for Racial Bias in Mortgage Lending
According to a recent study published by the Federal Reserve, racial bias has played "a limited role" in recent years in generating disparities seen in mortgage lending denials. The researchers used confidential supervisory data collected under the Home Mortgage Disclosure Act to estimate the extent to which racial and ethnic discrimination by mortgage lenders continues to generate disparities in denial rates. They concluded that bias still accounts for some of that gap but that "racially biased credit decisions appear less common than has been suggested by previous research." However, they cautioned the paper's conclusions must be considered "in the context of a large literature that has found evidence of racial bias in other markets and settings."
The researchers acknowledged that as a self-reporting mechanism, HMDA reports may not reflect reality "as a lender engaged in illegal discrimination would be unlikely to explicitly admit this." Still, they said the reports allowed them to better understand how lenders justify excess denials. They then compared the data with other sources of information, such as the denial rates in different communities. They also examined denial rates among fintech lenders, saying that by automating more of the application process, fintech firms have the potential to reduce racial discrimination. Excess denials were higher at fintech lenders than at traditional lenders, "the opposite result we would expect if excess denials reflect racially biased human judgment."
Rather than differential treatment, the researchers concluded that group differences in risk characteristics drive most of the disparities in credit access. They said that Black and Hispanic applicants tend to be more leveraged and have much lower credit scores. As a result, both are less likely to receive algorithmic approval recommendations from government-automated underwriting systems than white applicants.
The researchers noted potential gaps in the data used, such as lenders unfairly discouraging people from underrepresented groups from applying for mortgages. They also said that the HMDA reports used were explicitly created as a tool to fight against mortgage discrimination. "The finding that this effort has been largely successful does not mean that individual racial prejudice has been eliminated, or that overt discrimination would not rear its head if fair lending enforcement were to be relaxed," they said.
Fed Analysis: Pandemic Savings Boom Could be Fueling Inflation
A dramatic increase in the rate of personal savings during the COVID-19 pandemic – driven in part by federal stimulus – may have contributed to persistently high inflation amid constrained supply, according to an economic analysis published Oct. 21 by Federal Reserve staff. The authors estimated that U.S. households accumulated roughly $2.3 trillion in savings in 2020 and through the summer of 2021, far beyond what they would have saved if income and spending components had grown at pre-pandemic levels. They also concluded that households have decumulated about one-quarter of these excess savings since last year, as the saving rate has dropped below its pre-pandemic trend.
The authors estimated that the personal saving rate jumped from less than 10% in the years before the pandemic to a high of more than 26% in the second quarter of 2020. Since the start of 2022, the rate has dipped below 5%. They also concluded that households in the lower half of income distribution were still holding about $350 billion in excess savings as of mid-2022 – mostly stemming from the boost to income induced by fiscal stimulus in 2020 and 2021.
That excess savings has been used to pay down debt, to invest in equity and other financial assets, or as a down payment for buying a home, instead of keeping them as liquid assets, thus shifting where the savings appear on balance sheets, according to the analysis. Regardless of how the money was spent, excess savings resulted in higher net wealth and stronger balance sheets for lower-income households, which have continued to support spending and credit performance.
The authors estimated that households in the top half of income distribution hold the vast majority of excess savings, at about $1.35 trillion as of mid-2022. With that group able to travel and spend again, their excess savings are likely contributing to higher levels of spending, they said. Still, the report's authors added that the recent demand by upper-income households likely has been boosted more by earlier gains in equity and housing prices than by their excess savings.