CFA News

CFAnews Update – July 15, 2021

President Signs Bipartisan Repeal of Anti-Consumer “Fake Lender” Rule

 On June 30, President Biden signed S.J. Res. 15 into law, repealing the Office of the Comptroller of the Currency’s (OCC’s) “fake lender” rule and delivering a major victory in the fight to end high-cost, predatory lending. The fake lender rule allowed lenders to evade state interest rate laws merely by putting a bank’s name on the loan paperwork.

The signing of the resolution was the culmination of a vigorous campaign, in which a broad, bipartisan cross-section of experts, organizations, officials, and 25 state attorneys general urged Congress to repeal the rule. It came on the heels of bipartisan votes to approve the resolution in both the House and the Senate. CFA joined with other advocates in praising Congress and President Biden for the action, which will help prevent the expansion of predatory lending in all 50 states.

“President Biden’s signature and the bipartisan votes in both the House and Senate illustrate the widespread disapproval of the harmful rent-a-bank model that is being used by predatory payday and installment lenders to make triple-digit interest rate loans that are illegal across the country,” said CFA Financial Services Outreach Manager Rachel Gittleman.

The need to repeal the rule was particularly urgent in light of the economic devastation caused by the COVID-19 pandemic. “The rule runs counter to the widespread goal of rebuilding the economy as we emerge from the pandemic,” said Rachel Weintraub, CFA Legislative Director and General Counsel. “We applaud President Biden for his quick action, as well as Chairwoman Maxine Waters and Congressman Chuy García for their leadership on this issue in the House and Chairman Sherrod Brown and Senator Chris Van Hollen in the Senate and appreciate their work in overturning this harmful regulation.”

“Overturning the fake lender rule is an important first step to protect small businesses and families devastated by COVID from predatory lending, especially in communities of color,” Gittleman added. “Our federal financial regulators must revisit additional rules that pave the way for usury law evasions and use their supervisory and enforcement authority to crack down on rent-a-bank lending throughout the country. In addition, Congress must pass the Veterans and Consumers Fair Credit Act, to permanently cap interest rates at 36% for all consumers,” she concluded.

FHFA Adopts Key Recommendation from CFA Report

In a move that delivers desperately needed relief for COVID-19-affected homeowners, the Federal Housing Finance Agency (FHFA) announced earlier this month that it has eliminated its previous loan-to-value ratio restrictions on mortgagors seeking a modification to their borrowing terms due to hardships caused by COVID-19.

Prior to the rule change, borrowers with more equity in their homes were blocked from being able to seek a payment restructuring process. As a result of the change, a servicer now has the ability to reduce the interest rate on a borrower’s loan even if the borrower’s loan-to-value ratio is less than 80%.

“The prior rule put borrowers with greater home equity in a tenuous position by forcing them to either sell their homes or risk foreclosure if they were no longer able to afford their existing payments as a result of an economic hardship caused by COVID-19,” said CFA Director of Housing Policy Mitria Wilson-Spotser in a press statement.

This change was among the key recommendations in a report by independent researcher Kanav Bhagat, released in May by CFA. The report, Avoiding COVID-19 Related Foreclosures by Implementing Cost-Effective Mortgage Modifications for Federally-backed Loans, found that at the end of 2020, approximately 3.25 million homeowners were one month behind on their mortgage and that 2.15 million were at least three payments past due. It estimated “that over the remainder of 2021 up to 2.4 million homeowners may be unable to resume making their regular monthly mortgage payment due to a sustained loss of income and/or increased expenses and will need a permanent mortgage modification to remain in their home.”

The report specifically called for government mortgage modification programs to target a 25% mortgage payment reduction in order to deal with the rise of foreclosures caused by the pandemic. While any amount of payment reduction is helpful to borrowers, according to the report, evidence shows that “more substantial payment reduction leads to reduced default and foreclosure rates, and the high cost to the lender of the current modification programs means that fewer homeowners will receive relief.”

“Allowing homeowners to receive an interest rate reduction as part of their mortgage modification regardless of their loan-to-value ratio will help families suffering from COVID-19 related financial hardship keep their home,” Bhagat explained. “By taking this step, the FHFA and the GSEs will be able to offer more homeowners with a GSE-backed mortgage deeper payment reductions that create affordable monthly payments and avoid foreclosures.”

DOJ Withdraws From Settlement with the National Association of Realtors

In a major win for consumers, the U.S. Department of Justice’s Antitrust Division announced that it would be withdrawing from a proposed settlement with the National Association of Realtors (NAR) “to permit a broader investigation of NAR’s rules and conduct.”

“This withdrawal by the Department of Justice is good news for consumers for two reasons,” said CFA Senior Fellow Stephen Brobeck. “First, the proposed settlement would not have significantly advanced price competition in a marketplace with high, fairly uniform commissions; and second, the settlement threatened to undercut several class-action lawsuits that seek to remove the most important barrier to price competition.”

The main elements of the proposed settlement were that brokers would have to make the commission offered to buyer agents on multiple listing services publicly available, and that buyer agents would be prohibited from representing their services as being free to consumers. A 2020 CFA analysis of the proposed settlement showed various ways that buyer agents could get around the intention of the fee disclosure.

A CFA press release provides additional details on why the settlement was bad for consumers and what the ultimate policy goal in this area should be.

“Although the proposed settlement would have given buyers more information about buy-side commissions, it would not have given these home purchasers adequate opportunity to negotiate these fees,” Brobeck said. “This opportunity would only occur if buyer and seller commissions were uncoupled, the main goal of class-action lawsuits that have advanced in the courts.”

Insurance Anti-Discrimination Bill Becomes Law in Colorado

 On July 6, Colorado Governor Jared Polis signed insurance reform legislation SB 169 into law, requiring insurers to demonstrate that their use of external data and algorithms do not discriminate on the basis of race, ethnicity, gender, gender identity and expression, and sexual orientation.

“This is a victory for fairness in insurance markets,” said Douglas Heller, CFA’s Insurance Expert, in a press statement. “Insurers hide behind their algorithms and a hollow promise that they never consider a customer’s race, but their data sources and models can perpetuate and entrench structural racism and other forms of unfair discrimination. This law takes direct aim at insurance practices that have unfair and illegal outcomes, irrespective of the intention behind the practice.”

The law specifically requires insurance companies to change their practices when unfair discrimination results from the algorithms, models, or other external data sources that they use in underwriting and pricing insurance and handling claims. The law instructs the Insurance Commissioner to seek stakeholder input in advance of adopting rules to ensure that insurers’ use of data and models do not result in harmful discrimination practices, while also giving companies the chance to fix any biases found in their algorithms.

CFA will participate in the Colorado stakeholder process and continues to fight for similar reforms in other states.

DOE Urged to Act on Past-Due Efficiency Standards for Lighting Products

 In late June, CFA, the National Consumer Law Center (NCLC), and 24 consumer groups from across the country sent a letter urging U.S. Department of Energy Secretary Granholm to implement the legally required energy efficiency standard for household lighting products that were disregarded by the previous administration.

In 2021 alone, sales of inefficient light bulbs will cost consumers $1.8 billion in lost utility savings, according to the letter. “The delay in implementing the standard on January 1, 2020, as required by law, will result in costing consumers well over a billion dollars in lost savings and is causing the release of millions of tons of climate change emissions into the air,” said Mel Hall-Crawford, CFA’s Director of Energy Programs.

The “implementation of the standards will ensure that all consumers benefit from up-to-date, energy saving technology,” particularly low-income consumers, the letter states. Implementing these standards also has widespread public support, as seen in a 2019 CFA survey that found that two-thirds of respondents support federal efficiency standards for light bulbs.

“Each month of additional delay will cost consumers $300 million in higher electricity bills and result in 800,000 tons of additional carbon emissions being spewed into the atmosphere,” Hall-Crawford said.DOE needs to implement the standard post haste!”

CFA Renews OHV Safety Warnings as 16 States See Injuries Increase

 Since COVID-19 rattled the world, causing a significant change in the way Americans and people everywhere spent their time, CFA has documented that numerous states have seen increases in off-highway vehicle (OHV) incidents. According to a new analysis released by CFA ahead of the July 4th holiday, at least sixteen states have documented an increase in OHV injuries from 2020-2021.

OHVs include: all-terrain vehicles (ATVs), recreational off-highway vehicles (ROVs), and utility task vehicles (UTVs). Data collected by CFA and its OHV Safety Coalition has shown that July is the month with the most OHV fatalities followed by May, June and August.

“We are alarmed at reports of increased numbers of OHV emergency room visits in hospitals in at least sixteen states,” said Rachel Weintraub, CFA Legislative Director and General Counsel. “These increases are occurring earlier than usual due to COVID-19, and we hope that the increasing trend we have seen throughout this past year will not continue as summer begins.”

CFA data from 2013-2020 has shown that July 4th accounts for the highest amount of OHV fatalities for all age demographics. CFA issued an alert to OHV riders to operate their vehicles with caution.

“OHV related incidents are already higher this year due to COVID-19, and we urge all OHV riders to prioritize safety so that this statistic will not be a reality again in 2021,” Weintraub said. “Operators of OHVs must have the necessary skills to maneuver an OHV, should use appropriate safety equipment, such as helmets, should never operate on roads, and never carry passengers.”

State Funeral Regulators Urged to Improve Usefulness of Consumer Info

A new report released last month by the Funeral Consumers Alliance (FCA) and CFA found that most state funeral service regulators provide poor or no information to consumers about their funeral rights, how to file complaints, how to learn about disciplinary actions, and how to best shop for funeral services. The report also identified seven agencies that make excellent information available to consumers.

Researchers from FCA and CFA graded state regulatory agencies using six criteria that included not only the content of information but also its presentation – most importantly, whether a link to consumer information was prominently featured on the home page of the agency’s website. States were assigned a grade  on a scale from A (excellent) to F (poor). Thirty-three states scored failing grades of D (26) or F (7), while only seven states earned an A grade and another five were awarded a B.

These findings led CFA and the FCA to urge state funeral home regulators to make it a priority to improve the usefulness of consumer information that is available on their websites.

“Consumers need good information about funeral homes that offer a variety of services which are relatively costly,” the organizations wrote in the report. “State funeral service regulators are mandated to serve the public interest and are best equipped to provide consumers information about their rights, how to complain, and disciplinary actions.”

In particular better pricing information is needed, according to the report. “Posted price lists would greatly assist bereaved consumers who now must physically visit funeral homes to obtain the price lists,” said CFA Senior Fellow Stephen Brobeck. “An updated Funeral Rule, coupled with improved consumer information from state agencies, would significantly benefit consumers who face costly choices at a time when many must cope emotionally with the death of a loved one.”