December 14, 2023 – Read the below newsletter for the latest Mortgage Banking and Consumer Finance industry news written by Ballard Spahr attorneys. In this issue we discuss the recognition of the quality of Ballard’s Consumer Finance Monitor Podcast, as well as the recent House vote to override the CFPB Small Business Lending Rule, despite a likely presidential veto of the resolution.
In This Issue:
- Consumer Finance Monitor Ranked Highest Among CFS Legal Podcasts
- House Votes to Override CFPB Small Business Lending Rule
- This Week’s Podcast Episode: The Biden Administration’s “Junk Fees” Initiative Continues: What the Latest Actions Mean for the Consumer Financial Services and Rental Housing Industries, Part I
- The New CRA: Understanding The Final Rule and Its Impact on Large, Intermediate, and Small Banks; Ballard Spahr to Hold Webinar
- CFPB Publishes Language Access Plan for Consumers With Limited English Proficiency
- CFPB Issues Semi-Annual Report to Congress; CFPB Director Chopra to Appear Before House and Senate Committees
- FHA Proposes Enhancements to its 203(k) Rehabilitation Mortgage Loan Program
- VA Urges Servicers to Implement Foreclosure Moratorium on VA Loans
- Trade Groups Urge CFPB to Issue ANPR on FCRA Rulemaking
- CFPB Director Chopra Addresses AI Concerns
- Did You Know?
- Looking Ahead
Consumer Finance Monitor Ranked Highest Among CFS Legal Podcasts
We are very proud to share the news that in a recent analysis by Good2bSocial, which measured reach and engagement, our Consumer Finance Monitor Podcast ranked highest among law firm podcasts devoted exclusively to consumer financial services. Good2bSocial is a consulting firm that advises law firms on how to use social media effectively.
The goal of our podcast is to help make industry participants make sense of breaking developments and the issues that matter most: new product development, emerging technologies, regulatory compliance and enforcement, and the ramifications of private litigation. We always welcome suggestions from our listeners about topics we should cover in future podcast episodes.
Our podcast was launched more than five years ago. It is available on Ballard Spahr’s website or on most major podcast platforms such as Spotify, Google Play, and Apple. We release a new episode every week, typically on Thursday. Our podcast covers a wide range of consumer financial services issues and our guests include prominent government lawyers, in-house counsel, and academicians representing all points of view. Archived episodes are also available on the firm’s website. Alan Kaplinsky, Ballard Spahr Senior Counsel and former Chair for 25 years of the firm’s Consumer Financial Services Group, generally hosts the podcast episodes.
Our podcast is a companion to our award-winning blog, Consumer Finance Monitor, which we launched on July 21, 2011 when the CFPB became operational. To subscribe to our blog, click here.
Barbara S. Mishkin
House Votes to Override CFPB Small Business Lending Rule
Last week, by a vote of 221-202, the House of Representatives voted to approve S.J. 32, the resolution introduced under the Congressional Review Act to override the CFPB’s final Section 1071 small business lending rule (1071 Rule). The Senate voted to approve S.J. 32 in October 2023. President Biden is expected to veto the resolution and there is unlikely to be sufficient votes to override his veto.
As we have previously noted, a more likely source of relief for industry are the two pending lawsuits challenging the 1071 Rule, one in a Texas federal district court and the other in a Kentucky federal district court. Both district courts have issued orders that preliminarily enjoin the CFPB from implementing and enforcing the Rule on a nationwide basis against all entities covered by the Rule. (The Texas federal court had previously issued an order that granted preliminary relief only to the plaintiffs and their members.)
In addition to raising a constitutional challenge to the 1071 Rule based on the CFPB’s funding mechanism, the plaintiffs in both lawsuits allege that, in promulgating the 1071 Rule, the CFPB violated the Administrative Procedure Act. The plaintiffs in the Kentucky lawsuit also allege that the 1071 Rule violates the First Amendment. The question of whether the CFPB’s funding mechanism is constitutional is currently pending before the Supreme Court in a case challenging the CFPB’s payday lending rule. If the Supreme Court rules that the CFPB’s funding is constitutional or rules that the funding is unconstitutional but the constitutional violation does not impact CFPB actions other than the payday lending rule, the district courts will need to address the plaintiffs’ non-constitutional claims in the lawsuits.
John L. Culhane, Jr., Richard J. Andreano, Jr., Michael Gordon & Alan S. Kaplinsky
This two-part podcast repurposes our most recent webinar on the latest salvo of actions in the Biden Administration’s initiative directed at combatting so-called “junk fees.” Launched in January 2022, the initiative shows no signs of abating.
In Part I, we first review the background of the initiative, the range of fees the Administration has labeled “junk fees,” and discuss the Administration’s focus on competition and its related guidance and directives to federal agencies. We then take a close look at the Federal Trade Commission’s proposed rule to regulate “junk fees,” including the rationale for the FTC’s decision to engage in rulemaking, the price and fee disclosures that would be required by the proposal, and how an FTC “junk fees” rule could be used in support of Consumer Financial Protection Bureau actions targeting “junk fees.” We conclude with a discussion of the impact of the Administration’s initiative and FTC proposal on “junk fees” related to rental housing.
Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, moderates the discussion, joined by John Culhane and Reid Herlihy, Partners in the Group, Michael Gordon and Kristen Larson, Of Counsel in the Group, and Roger Winston, a Partner in the firm and Leader of its Mixed-Use, Condominium, and Multifamily Development Team.
To listen to Part I, click here.
The webinar repurposed in this podcast episode is a follow up to our well-attended May 2023 webinar on “junk fees.” To listen to our two-part podcast episode which repurposes the May 2023 webinar, click here and here.
This is our third blog post on the final rule issued on October 24, 2023, by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency amending their regulations implementing the Community Reinvestment Act (CRA) (the Final Rule). Our first and second blog posts summarized the major changes impacting large and intermediate banks, respectively. In this blog post, we summarize the major changes impacting small banks (those with assets of less than $600 million as of December 31 in either of the two prior calendar years).
On December 6, 2023, from 3:30 p.m. to 4:45 p.m. ET, Ballard Spahr held a webinar, “Community Reinvestment Act Reform: A Discussion of the Final Rule.” For more information and to register, click here.
The Final Rule is effective April 1, 2024; however, compliance dates for a large portion of the Final Rule’s provisions is January 1, 2026. Until the January 1, 2026, compliance date, the current CRA regulations continue to apply.
Small Bank Asset Size. The current CRA regulations define a “small bank” as a bank with assets of less than $376 million as of December 31 of each of the prior two calendar years and defines as “intermediate small banks” those banks with assets of at least $376 million on both of the prior two calendar years and less than $1.503 billion as of December 31 in either of the prior two calendar years. (Current 12 CFR __.12(u).) Under the Final Rule, banks (excluding limited purpose banks) with assets of less than $600 million as of December 31 in either of the two prior calendar years will now be defined as a “small bank.” (Final § __.12.)
According to the joint notice of proposed rulemaking issued in May 2022, approximately 778 banks currently classified as intermediate small banks (those with assets of at least $376 million as of December 31 of both of the prior two calendar years and less than $1.503 billion as of December 31 of either of the prior two calendar years) will be reclassified as small banks under the Final Rule. As a reminder, banks with assets of at least $600 million as of December 31 in the two prior calendar years and less than $2 billion as of December 31 in either of the two prior calendar years will now be defined as an “intermediate bank.”
Facility-Based Assessment Areas. As with large and intermediate banks, small banks will continue to delineate their facility-based assessment areas (i.e., the areas where their main offices, branches, and deposit-taking remote service facilities are located) as part of their CRA evaluation framework. As with intermediate banks, small banks may continue to delineate facility-based assessment areas composed of partial counties and adjust the boundaries of their facility-based assessment areas to include only the contiguous whole census tracts within a portion of a county that they can reasonably be expected to serve, subject to certain limitations. (Final § __.16(b)(3) (limitations on the delineation of a facility-based assessment area include prohibitions on illegal discrimination and arbitrarily excluding low- or moderate-income census tracts).)
Additionally, facility-based assessment areas for all banks, regardless of size, may not extend beyond a metropolitan statistical area (MSA) boundary or state boundary unless located in a multistate MSA.
Outside Retail Lending Areas. As discussed in our previous blog posts, the Final Rule implements a retail lending assessment area applicable only to large banks. (Final § __.17(a).) Small banks that opt to be evaluated under the Retail Lending Test (discussed below) and that conduct a majority of their retail lending (by a combination of loan dollars and loan count) outside of their facility-based assessment areas will have their retail lending performance evaluated in their “outside retail lending area” (i.e., the nationwide area outside of the small bank’s facility-based assessment areas, excluding certain nonmetropolitan counties). (Final § __.18(a)(2) (any county in a nonmetropolitan area where the bank did not originate or purchase any closed-end home mortgage loans, small business loans, small farm loans, or automobile loans is excluded).) Small banks may elect to have their major product lines evaluated in their outside retail lending area or, if they originated or purchased more than 50% of their home mortgage loans, multifamily loans, small business loans, small farm loans, and automobile loans outside their facility-based assessment area in the prior two calendar years, will be required to do so. (Final § __.18(a)(2).)
The CRA Tests. Under the Final Rule, small banks will be evaluated either under the Small Bank Lending Test or, at the bank’s option, the Retail Lending Test. (Final § __.29(a).) The Final Rule maintains the criteria from the current CRA regulations to evaluate a small bank’s lending performance; specifically, a small bank’s retail lending performance will be evaluated based on its loan-to-deposit ratio (adjusted for seasonal variation and other retail and community-development lending activities), the percentage of loans and other retail and community-development lending activities in the bank’s facility-based assessment areas, its record of lending to borrowers and businesses and farms of differing income levels and sizes, its geographic loan distribution, and its record of responding to complaints regarding its performance of meeting credit needs. (Final § __.29(a)(2).) Additionally, small banks may request additional consideration for their community development investment and services activities and for providing branches, services, digital delivery systems, and deposit products that are responsive to certain low- and moderate-income (LMI) individuals, groups, and businesses within or outside of their facility-based assessment areas. (Final § __.29(b)(1).)
Although intermediate small banks under current CRA regulations are evaluated under both a lending test for small banks and a community development test, the Final Rule only evaluates small banks under the Small Bank Lending Test or, at the bank’s option, the Retail Lending Test. For banks classified as intermediate small banks under the current rule that will be deemed small banks under the Final Rule, CRA compliance has been simplified by the elimination of a community development test. Small banks that opt to be evaluated under the Retail Lending Test will be evaluated using the same criteria used to evaluate intermediate banks (i.e., the geographic and borrower distributions of a small bank’s major product lines would be evaluated in its facility-based assessment areas and, where applicable, in its outside retail lending area against market and community benchmarks). (Final § __.22.) For further discussion of the Retail Lending Test provisions, see our second blog post here.
Small banks evaluated under the Small Bank Lending Test will be assigned conclusions of “Outstanding,” “Satisfactory,” “Needs to Improve,” or “Substantial Noncompliance” in each facility-based assessment area, in each State or multistate MSA, and for the institution. (Final § __.29(c)(2), Final 12 CFR part 25, App. E.) Under the Retail Lending Test, examiners will assign the aforementioned conclusions for each State or multistate MSA and for the institution based on the performance score for the small bank’s Retail Lending Test conclusions for the State, multistate MSA, or institution. (Final § __.29(c)(2), Final 12 CFR part 25, App. D.)
In summary, although the changes under the Final Rule are even less impactful for small banks than intermediate banks (and those banks that will be classified as small banks that were formerly intermediate small banks will not be subject to a community development test), small banks still need to prepare for the Final Rule and, going forward, consider whether an evaluation of their lending performance makes sense under the Small Bank Lending Test or the Retail Lending Test.
Scott A. Coleman & Sarah B. Dannecker
CFPB Publishes Language Access Plan for Consumers With Limited English Proficiency
Throughout the past few years, the CFPB has sought input from a range of stakeholders, including community-based organizations and financial institutions, for feedback about how it can improve consumer financial products and services for consumers with limited English proficiency (LEP). As a part of these efforts, the CFPB has taken the following actions: in 2020, it published a Request for Information regarding challenges faced by LEP consumers and hosted a roundtable to discuss these challenges with stakeholders; in 2021, it published a statement providing compliance principles and guidelines on assisting LEP consumers. Most recently, the agency published its Language Access Plan, which describes its own internal operations and its expectations for the industry.
In the plan, the CFPB discusses its recent initiatives, including the agency’s Language Access Task Force (LATF). This task force is a “working group that aims to understand, develop, and execute an agency-wide strategy to provide consumers with LEP meaningful access to CFPB information and services.” More specifically, it aims to improve the infrastructure for access to financial education resources, to develop new programs and to promote consistency in communications, and to identify the changes necessary to remove barriers to financial services.
The CFPB discusses the specific efforts it is currently taking to enhance access to services for LEP consumers, as well as what the Bureau expects from industry participants. First, the CFPB considers language access when creating new rules, such as the small business lending rule. For data collection under the rule, the CFPB will provide translated versions of the data collection sample form. Further, the CFPB published a number of translated brochures meant to help LEP consumers understand their rights and protections, such as protections under fair lending laws. The Bureau also reiterated its 2021 guidance, which “reminded mortgage servicers of their obligation to educate and assist all borrowers, including consumers with LEP, with resolving delinquencies and providing loss mitigation options when transitioning out of COVID-related mortgage forbearance programs.” In addition to these recommendations, the CFPB again encouraged financial institutions to take advantage of special purpose credit programs, in order to reach historically disadvantaged communities. As previously reported, last year the CFPB joined with other federal regulators to release guidance encouraging the use of special purpose credit programs for expanding access to credit.
The agency reminds the industry of its 2021 Statement Regarding the Provision of Financial Products and Services to Consumers with Limited English Proficiency, which “encourages financial institutions to better serve LEP consumers in languages other than English and provides guidance on how financial institutions can increase access to credit in non-English languages.” The statement goes through a number of considerations associated with providing products and services to LEP consumers, and sets forth approaches for industry participants to address those considerations. For example, the CFPB encourages providing LEP consumers with clear and timely disclosures in non-English languages describing the extent and limits of any language services provided throughout the product lifecycle.
Further, the CFPB encourages financial institutions to provide financial information in languages other than English in order to create more opportunities for consumers to access financial services. The statement reminds financial institutions that a number of CFPB issued model forms are available in both English and Spanish, including disclosures that are required under the TRID rule for mortgages, and other commonly used forms. In the past, the CFPB has found a failure to offer account disclosures in languages other than English an abusive act or practice under UDAAP. For example, in 2021, the CFPB brought suit against Libre by Nexus, alleging that Libre engaged in abusive acts by using predominantly English-language agreements to enroll clients, even though Libre knew that many of its clients and co-signers did not understand English, and alleging its employees rushed through the enrollment process and omitted or misrepresented material terms of its written agreements. The Bureau has also brought enforcement actions for related conduct, such as citing ECOA violations for excluding consumers with Spanish-language preferences and Puerto Rico mailing addresses from certain offers.
Lastly, the CFPB describes its internal strategy for expanding access to its content. In addition to its dedicated website for Spanish-speaking consumers with translated financial education and information, the CFPB recently created website pages in Arabic, Chinese, Haitian Creole, Korean, Russian, Tagalog, and Vietnamese, in order to reach more consumers. The CFPB also participates in a number of roundtables and working groups in order to gain insight on challenges faced by LEP consumers.
Recently, the CFPB issued its Semi-Annual Report to Congress covering the period beginning October 1, 2022, and ending March 31, 2023.
On November 29, 2023, CFPB Director Chopra appeared before the House Financial Services Committee for a hearing, “The Semi-Annual Report of the Consumer Financial Protection Bureau.” On November 30, 2023, he appeared before the Senate Banking Committee for a hearing, “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress.”
In advance of the hearings, the Consumer Bankers Association sent letters to the Chair and Ranking Member of the House and Senate committees to offer legislative and regulatory suggestions. In the letters, CBA takes the following positions:
- Credit card late fees proposal. The CFPB should be required to conduct a rigorous cost-benefit analysis of the proposed rule and how it would affect (1) the cost and availability of credit, particularly with respect to non-prime borrowers, (2) the safety and soundness of credit card issuers, and (3) the use of risk-based pricing.
- Section 1033 proposal. The CFPB should broaden the scope of coverage of data providers for both asset accounts and credit products, address liability for breaches more robustly, and do more to effectively end the practice of screen scraping.
- Overdrafts. The CFPB should not engage in overdraft rulemaking that would substantively change how banks offer overdraft services to customers until other issues such as changes to Regulation II’s allowable debit interchange amounts have been finalized and banks can assess the effects of those changes on their ability to provide free checking. The CFPB should also conduct a cost-benefit analysis that evaluates harm to consumers when they must use non-bank services (or cannot access credit at all) when they are unable to access bank-offered overdraft services.
- Section 1034(c) advisory opinion. The CFPB should withdraw its advisory opinion that interprets Section 1034(c) of the Consumer Financial Protection Act to prohibit large banks and credit unions from requiring a consumer to pay a fee or charge to obtain account information. Any requirements imposed by the advisory opinion should be the subject of formal rulemaking.
- Section 1071 final rule implementation. The court injunctions blocking implementation of the final rule until the Supreme Court issues a decision in CFSA v CFPB are expected to provide several months of additional time for lenders to comply with the rule. However, the current implementation period is not sufficient and the CFPB should extend the deadline to 36 months after the final rule was issued to ensure that small business lenders are not forced to pause their small business lending programs to come into compliance with the rule.
John L. Culhane, Jr. & Michael Gordon
FHA Proposes Enhancements to its 203(k) Rehabilitation Mortgage Loan Program
The Federal Housing Administration (FHA) recently proposed enhancements to its 203(k) rehabilitation mortgage loan program. The proposed enhancements are set forth in a draft Mortgagee Letter. FHA will accept feedback on the proposed enhancements, via its Single Family Drafting Table webpage, through January 5, 2024.
The 203(k) rehabilitation loan program provides for FHA insured mortgage loans that consumers may use to purchase a home or refinance an existing loan, and that include funds to pay for the repair or rehabilitation of the home. The draft Mortgagee Letter notes that the use of the program “has declined in recent years.” In February 2023, FHA published a request for information seeking public input regarding the barriers that limit usage of the program by lenders and consumers. The proposed enhancements are based on the feedback that FHA received.
FHA advises in the draft Mortgagee Letter that “[t]o support the Biden-Harris Administration goals of increasing the stock of affordable housing and expanding homeownership opportunities, FHA is making improvements to the Section 203(k) program to make it easier for Mortgagees to originate and for Borrowers to complete needed or desired rehabilitation of their homes.” In announcing the proposed enhancements, U.S. Department of Housing and Urban Development (HUD) Secretary Marcia L. Fudge stated that “[a]t HUD, we are focused on ensuring Americans can make the repairs necessary to keep their homes safe and energy efficient,” and that “[t]hanks to the enhancements we proposed today, home rehabilitation will be more accessible for millions of homebuyers and homeowners through the Federal Housing Administration.”
There are two 203(k) programs. The Standard Program provides funds for remodeling or repair of homes, with a $5,000 minimum repair cost, and the use of an FHA-approved consultant is required. The Limited Program provides funds for minor remodeling and non-structural repairs (such as energy-efficient improvements), with a $35,000 maximum for total rehabilitation costs, and the use of an FHA-approved consultant is permitted but not required. Both Programs would be modified by the proposed enhancements. Among the proposed enhancements are the following:
- Increasing the maximum total rehabilitation costs under the Limited Program to $50,000, and to $75,000 for high-cost areas.
- Permitting the inclusion of the approved consultant’s costs in the mortgage amount under the Limited Program (this is already permitted under the Standard Program).
- To account for longer repair and rehabilitation timeframes common for more complex projects, increasing the allowable rehabilitation period from six to ten months under the Standard Program, and from six to seven months under the Limited Program.
- To allow the borrower to make payments to a supplier or manufacturer, increasing the allowable initial draw amount under the Standard Program to include up to 75% of material costs, instead of the current 50% limit.
- Increasing the permissible mortgage payment reserve period under the Standard Program, which is a reserve to provide for mortgage loan payments during the period that the property cannot be occupied because of the rehabilitation, from six to ten months of mortgage payments.
- Updating the consultant fee schedule to provide for higher maximum fee amounts.
- Modifying one of the factors that determine whether a repair is considered a “major” repair that is not permitted under the Limited Program to increase the period that the repair prevents the borrower from occupying the property from more than 15 days to more than 30 days.
In connection with the announcement of the proposed enhancements, HUD Deputy Assistant Secretary for Single Family Housing Sarah Edelman noted that “[t]he thoughtful responses we received from the industry through our February request for help in identifying barriers to program use were instrumental in the development of these proposed policy updates.”
VA Urges Servicers to Implement Foreclosure Moratorium on VA Loans
The U.S. Department of Veterans Affairs (VA) recently issued Circular 26-23-25 in which VA “is strongly encouraging a foreclosure moratorium on all VA-guaranteed loans through May 31, 2024.” Additionally, VA “urges servicers to cease initiating, continuing, and/or completing foreclosures on all VA-guaranteed loans during this moratorium.” The voluntary moratorium does not apply to vacant or abandoned properties.
In the Circular, VA explains the reasons for urging a foreclosure moratorium. VA first states that higher interest rates have made certain home retention options less viable, especially for those borrowers who requested a COVID-19 forbearance. VA then advises that it “will soon announce a new home retention program, the VA Servicing Purchase (VASP) program, as an option for borrowers who cannot be assisted through other home retention options. However, VA anticipates the VASP program will not be available until March 2024.” Thus, VA is urging servicers to implement a foreclosure moratorium as a means to “give servicers time to work with borrowers and VA to ensure that all borrowers who are behind on their VA-guaranteed loans are given the opportunity to retain their home.” VA also encourages services “to avoid negative credit reporting on affected loans.”
With regard to the COVID-19 Refund Modification and Loan Deferment home retention options previously announced by VA, VA explains that “to help stakeholders better understand the servicing options that are applicable, VA will consolidate recent changes related to COVID-19 Refund Modification and Loan Deferment options and issue new circulars that will be effective through May 31, 2024.”
The VA announcement drew the following response from Bob Broeksmit, the President and CEO of the Mortgage Bankers Association:
“MBA and its members share the VA’s commitment to helping distressed Veteran borrowers stay in their homes through a more affordable and sustainable mortgage payment. We also believe that restoring the VA’s standalone partial claim program–which worked successfully for Veterans and servicers until it was sunset in October 2022–needs to be part of the VA’s long-term plans to assist borrowers facing hardships.
In the meantime, we have significant concerns on the implementation of the voluntary foreclosure moratorium. Servicers provided relief to struggling borrowers during the pandemic by advancing the payments owed on their mortgages and are willing to do so again. However, the VA needs to provide a detailed plan on how servicers will be reimbursed for advancing payments on behalf of borrowers.”
Trade Groups Urge CFPB to Issue ANPR on FCRA Rulemaking
In September 2023, the CFPB announced that it was launching a Fair Credit Reporting Act rulemaking and issued an outline of the proposals it is considering in preparation for convening a Small Business Advisory Review Panel. A group of consumer financial industry trade groups recently sent a letter to Director Chopra urging the CFPB to issue an Advanced Notice of Proposed Rulemaking (ANPR) before it publishes a Notice of Proposed Rulemaking.
In their letter, the trade groups give the following reasons for their request:
- Given the importance of the credit system to the American economy, the CFPB should solicit the widest range of input via an ANPR before making any sweeping changes.
- The CFPB’s SBREFA outline lacks sufficient detail to enable participants to fully identify and respond to all of the issues and implications at stake. The CFPB should build on the comments received through the SBREFA process and issue an ANPR that offers more specificity about the regulatory changes under consideration.
- The CFPB’s recently proposed rule to implement Section 1033 could impact the consumer reporting ecosystem. For example, aggregators that currently are not consumer reporting agencies (CRAs) may be defined as CRAs by the proposed rule. This classification would require those that provide data to and receive it from CRAs to fully understand and provide input to the CFPB on the interplay between the Section 1033 proposal and FCRA rulemaking.
- The CFPB has typically issued an ANPR when considering changes to other complex regulations that have a substantial effect on significant portions of the American economy, such as the Section 1033 rulemaking, rulemaking involving debt collection, credit card late fees, and home mortgage disclosure reporting requirements. Consistent with other ANPR proceedings for complex bodies of law with significant economic impact, the CFPB should seek additional stakeholder input through a detailed ANPR.
John L. Culhane, Jr. & Kristen E. Larson
CFPB Director Chopra Addresses AI Concerns
According to media reports, CFPB Director Rohit Chopra expressed his concerns over the rise of generative artificial intelligence (AI) technology in his remarks at an Axios event in Washington, D.C. last week. Director Chopra indicated that AI could concentrate “enormous” power within the grasp of a few companies and their top executives. He stated that “it’s the winner-take-all dimension of this that makes it much more pressing. There could be a handful of firms, and just to be honest, a handful of individuals who ultimately have enormous control over decisions made throughout the world.”
Chopra also expressed unease with AI’s ability to “simulate human interaction,” saying it can be exploited to “interfere with human life and perpetrate fraud, crime, abuse.” He specifically highlighted the CFPB’s investigation into the consumer fraud implications of certain generative AI, including the use of AI-assisted techniques such as voice cloning to bypass banks’ biometric authentication protocols, which he noted is “going to be a problem.” He noted that the CFPB has also done a “pretty in-depth analysis” of banks’ use of customer service chatbots, with the goal to ensure that banks take responsibility for any erroneous information provided by their chatbots to consumers.
At the same time, Chopra conceded that AI could have beneficial applications for consumers, such as assisting in the finding and disputing of billing errors. However, he stressed the importance of keeping in mind “who really is in control of it, who gets the gains from it.” He stated that “what we’ve seen with lots of aggregations of data, [is] that much of the gains are not broadly distributed, and they go to a handful of people.”
Chopra seemed skeptical when asked about the need for new laws or even a new government agency to regulate AI, stating that, in many cases, regulators already have the authority to address the privacy, competition and other concerns presented by AI. “The public has long-standing laws on the books that actually need to be enforced,” Chopra said. “None of those laws have a fancy technology exception to them, and I think that’s a key focus for the regulators right now.”
As for a new, AI-focused government agency, Chopra said it would be challenging to create such a regulator because AI’s potential applications cut across so many different areas of law and economic activity. “If you’re going to do that, you have to keep the existing [agencies], too,” he said. “The challenge with regulating data is it’s regulating everything, so you can’t create a situation where there’s not accountability to do it.” Moreover, to create a new AI agency, he argued, lawmakers would similarly need to think through what gap they would want it to fill, stating, “I would ask, what do you want to achieve through that? Are you looking for technical expertise? Are you looking for enhanced merger review, acquisition review? Is it more of a national security approach? I think once you answer those questions, it can all come into line.”
Did You Know?
The Illinois Department of Financial and Professional Regulation repealed its regulations relating to its Collection Agency Act (68 Ill. Adm. Code 1210) effective November 20, 2023. Per the adopted repealer:
“Public Act 102-975 effectively transferred the authority for regulation of collection agencies from the Division of Professional Regulation to the Division of Financial Institutions. As the Division of Financial Institutions intends to propose new rules that update and build upon these current rules for collection agencies (38 Ill. Adm. Code 150 – Collection Agency Act) in order to bring industry regulation into alignment with Division standards, these rules will be rendered unnecessary; therefore, the Division proposes their repeal entirely.”
The repealer was published simultaneously with the new regulations adopted by the Division of Financial Institutions (38 Ill. Adm Code 150)., effective November 20, 2023. Per the notice of adopted rules:
“Public Act 102-975 transferred the authority for regulation of collection agencies from the Division of Professional Regulation to the Division of Financial Institutions, effective January 1, 2023. These new rules, proposed alongside the repeal of the previous rules regulating collection agencies (68 Ill. Adm. Code 1210), bring collection agencies into alignment with other industries regulated by the Division of Financial Institutions. These adopted rules adjusted Sections from the previous collection agency rules regarding definitions, officers, applications for or changes to licensure, communications, pseudonyms, changes in ownership, recordkeeping, fees, payments, and the granting of variances to better reflect the standards of the Division of Financial Institutions. There are also three additional Sections: one titled, Administration and Enforcement of the Act; another titled, Reports, which requires licensees to file written reports as the Department determines it to be necessary; and finally, Investigations and Examinations, which states that licensees may be investigated or examined by the Department in order to ensure compliance.
These new rules are intended to help the Division of Financial Institutions fulfill its newly-granted statutory responsibility and align these rules with regulatory requirements of the Act – as well as other Acts regulated by the Division –so that the Division is able to more efficiently administer the Act. Compliance with these new rules may result in de minimis increased costs for collection agencies, including some small businesses. These increased costs may be overset, completely or partially, by a move to online application renewal processing and significant decrease in paperwork and mailing requirements. No less intrusive or less costly alternatives to the methods described within these adopted rules were identified.”
Stacey L. Valerio
Navigating the CFPB’s Proposed Personal Financial Data Rule
A Ballard Spahr Webinar | December 18, 2023, 1:00 PM – 2:00 PM ET
Speakers: Alan S. Kaplinsky, Gregory Szewczyk, Ronald K. Vaske, & Kristen Larson
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