Consumer Financial Protection Bureau (CFPB)
CFPB Sues Installment Lending Conglomerate for Illegally Churning Loans
to Harvest Hundreds of Millions in Loan Costs and Fees
The CFPB sued Heights Finance Holding Company, formerly known as Southern Management Corporation, a high-cost installment lender for illegal loan-churning practices that harvested hundreds of millions in loan costs and fees.
The CFPB’s lawsuit alleges that the company harms consumers by:
Coercing distressed customers into fee-laden cycles of reborrowing: Southern’s business strategy centers on getting customers to refinance loans as early and as often as possible. The company uses an array of coercive practices to drive delinquent borrowers into fee-laden refinancing cycles. In addition to fees, these loans decrease the amount of money that borrowers can cash out and increases their total cost of borrowing with each successive refinance.
Incentivizing employees to push refinances: Southern’s incentive-compensation programs reinforce its coercive tactics by rewarding employees who are the most successful in driving payment-stressed borrowers into refinancing and punishing those employees who do not. According to Southern’s executive leadership, “our focus when interacting with delinquent customers has not changed,” and lists refinancing as the top priority when interacting with borrowers. Refinancing is ahead of even collecting the full past-due balances on loans.
Targeting customers for their likelihood to refinance: Southern positively weights past, repeated refinancing in their refinance-approval process. As a result, the company routinely lends to borrowers who have refinanced multiple times even if they clearly cannot afford to service their debt to Southern without refinancing.
Falsely marketing refinances as fresh starts: Southern markets refinances as solutions, fresh starts, and best options for customers who are struggling to repay. However, for many of these customers, refinancing serves only to prolong indebtedness, to increase total borrowing costs, and to offer no long-term solution to financial distress.
Consumer Advisory: Take Action When Home Insurance is Cancelled or Costs Surge
The CFPB issued a consumer advisory which provides information to consumers who may have received a notice from their insurer that their home insurance policy is being dropped. Recently, in response to extreme weather events and natural disasters, some home insurance companies are going out of business. In states like Florida and California, several insurers have stopped selling policies. Other companies have increased the price of insurance to the point where homeowners can’t afford it. Homeowners are facing new decisions about insurance, often with limited time to consider their options.
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Federal Reserve Board (FRB)
FRB Issues Enforcement Action and Fines Regions Bank for Unsafe and Unsound Practices in its Flood Insurance Compliance Program
The Federal Reserve Board issued an enforcement action and fined Regions Bank, of Birmingham, Alabama, approximately $2.95 million for unsafe and unsound practices in its flood insurance compliance program and for flood insurance regulatory violations.
The Board fined Regions for its failure to effectively monitor a portfolio of home equity loans for compliance with flood insurance regulations due to changes in loan servicing platforms and third-party service providers. The Board also fined Regions for a pattern or practice of individual violations of flood insurance regulations.
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Department of Labor (DOL)
DOL Announces Proposed Rule to Restore and Extend Overtime Protections for 3.6 Million Low-Paid Salaried Workers
The DOL announces a notice of proposed rulemaking that would restore and extend overtime protections to 3.6 million salaried workers. The proposed rule would guarantee overtime pay for most
salaried workers earning less than $1,059 per week, about $55,000 per year.
The proposed rule would do the following:
Restore and extend overtime protections to low-paid salaried workers. Many low-paid salaried employees work side-by-side with hourly employees, doing the same tasks and often working over 40 hours a week. But because of outdated and out-of-sync rules, these low-paid salaried workers aren’t getting paid time-and-a-half for hours worked over 40 in a week. The department’s proposed salary level would help ensure that more of these low-paid salaried workers receive overtime protections traditionally provided by the department’s rules.
Give workers who are not exempt executive, administrative or professional employees valuable time back. By better identifying which employees are executive, administrative or professional employees who should be overtime exempt, the proposed rule will better ensure that those who are not exempt will gain more time with their families or receive additional compensation when working more than 40 hours a week.
Prevent a future erosion of overtime protections and ensure greater predictability. The rule proposes automatically updating the salary threshold every three years to reflect current earnings data.
Restore overtime protections for U.S. territories. From 2004 until 2019, the department’s regulations ensured that for U.S. territories where the federal minimum wage was applicable, so too was the overtime salary threshold. The department’s proposed rule would return to that practice and ensure that workers in the U.S. territories subject to the federal minimum wage have the same overtime protections as other U.S. workers.
Upon publication in the Federal Register, the notice of proposed rulemaking will be open for public comment for 60 days. The department will consider all comments received before publishing a final rule. Learn more about
the proposed rule and instructions for submitting comments.
Credit unions would also want to look at the overtime requirements of their states since a number of states have already established overtime rules that exceed what the DOL is proposing.
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Credit Unions May Wish to Start Planning for Potential Federal Government Shutdown This Fall
Once again, the specter of a potential Federal Governmental shutdown looms on the horizon. Congress appears to be on track to trigger another government shutdown on October 1, 2023. This is due to ongoing disagreements within the parties over spending cuts and a thin majority in the House.
Credit unions have supported their members through 3 previous federal government partial shutdowns and even the partial state furloughs. The 3 most recent federal governmental shutdowns include:
October 2013 – 16 days, 800,000 federal workers furloughed
January 2018 – 3 days
December 2018-January 2019 – 35 days, 380,000 federal workers furloughed
Credit union risk management is all about identifying a potential risk or opportunity and then putting a plan in place in case the credit union needs to react to the changing situations.
For a potential government shutdown, credit unions can turn to guidance the NCUA (National Credit Union Administration) issued in Letter to Credit Unions 11-CU-05.
Any government shutdown may have a significant effect on the operations of your credit union, especially for credit unions primarily serving federal employees. You should therefore prepare to respond to members’ questions and their financial needs in the event of the closure of the federal government.
Suggested actions credit unions may take include:
Ensure policies provide flexibility to respond to members’ financial needs in the event of a federal government shutdown;
Prepare for service interruptions if a shutdown affects access to credit union offices and branches located in federal buildings;
Take steps to prudently work with members affected by a shutdown, including providing advances to individuals receiving direct deposits from the federal government;
Develop contingency plans for what will happen with respect to participation in government programs in the event of a shutdown. For example, some credit unions offer loans backed by the Federal Housing Administration (FHA). Individual credit unions will therefore need to decide whether to proceed with scheduled FHA loan closings and whether to hold and guarantee new FHA loans until any impasse on federal spending ends; and
Communicate your credit union’s response plans and efforts before, during and after any shutdown to keep members, volunteers and employees informed.
Consistent with standards of safety and soundness, credit unions should also work with their members to address any financial difficulties that a shutdown may create. Working constructively with credit union borrowers who may experience financial difficulty because of any shutdown is in the long-term best interest of both the credit union and the member. Credit unions may therefore consider offering special programs to assist members who may need short-term loans or other financial assistance. Credit unions may also create loan programs with special loan terms and rates. Additionally, credit unions may offer payment flexibility for existing loans to federal employees affected by any shutdown.
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