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  • CFPB Publishes Final Rule Amending Annual Dollar Threshold in TILA Regulations


    On August 30, the CFPB issued a final rule amending Regulation Z, which implements the Truth in Lending Act (TILA), under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank ability-to-repay and qualified mortgage provisions (ATR/QM). The CFPB is required to make adjustments to dollar amounts in the Regulation Z provisions implementing these laws based on the annual percentage change reflected in the Consumer Price Index effective June 1, 2017. For open-end consumer credit plans under TILA, the minimum interest charge disclosure threshold will remain unchanged at $1.00 in 2018. For open-end consumer credit plans under the CARD Act amendments, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $27 in 2018, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will remain unchanged at $38 in 2018. For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages in 2018 will increase to $21,032, and the adjusted points and fees dollar trigger for high-cost mortgages in 2018 will be $1,052. To satisfy the underwriting requirements under the ATR/QM rule, the maximum thresholds for total points and fees for qualified mortgages in 2018 will be: (i) 3 percent of the total loan amount for loans greater than or equal to $105,158; (ii) $3,155 for loan amounts greater than or equal to $63,095 but less than $105,158; (iii) 5 percent of the total loan amount for loans greater than or equal to $21,032 but less than $63,095; (iv) $1,052 for loan amounts greater than or equal to $13,145 but less than $21,032; and (v) 8 percent of the total loan amount for loan amounts less than $13,145. The final rule is effective January 1, 2018.

    Lending Agency Rule-Making & Guidance CFPB TILA Credit Cards HOEPA Ability To Repay Qualified Mortgage Federal Register Regulation Z Mortgages

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  • Federal Reserve Board Amends Policy on Payment System Risk

    Agency Rule-Making & Guidance

    On August 25, the Board of Governors of the Federal Reserve System (Board) published in the Federal Register an amendment to Part II of its Policy on Payment System Risk (PSR Policy) in order to “conform to enhancements to the Reserve Banks’ same-day automated clearinghouse (ACH) service.” Posting rules set forth in the PSR Policy govern the times that credits and debits are posted to institutions’ accounts at the Federal Reserve Banks and determine an institution’s intraday account balance and whether the institution has incurred a negative balance (i.e., a “daylight overdraft”).

    Changes to the PSR Policy include the following:

    • An ACH derived returns function to enable institutions to generate returns via FedLine Web using information from the forward ACH items received through FedACH. The function is intended for institutions that lack the ability to generate returns on their own. Because the derived returns function uses information not available until the day after the processing day for forward ACH items, the Reserve Banks will provide users of the function an interim solution: a same-day paper return option for same-day forward entries greater than $10,000.
    • Clarification of posting times for paper returns and paper notifications of change of prior-dated items. Because these items are manually processed by Reserve Bank staff during normal business hours, the Board has announced that posting will now only occur at 5:00 p.m. The PSR Policy has been modified to remove the 8:30 a.m. posting time. However, depending on when the Reserve Banks receive FedLine Webs returns and FedLine Web notifications of change, these items will continue to be posted at 8:30 a.m. and 5:00 p.m.

    Details regarding amendments to the “Procedures for Measuring Daylight Overdrafts,” including specific details corresponding to the 8:30 a.m., 1:00 p.m., and 5:30 p.m. transaction posting times, are also included in the Board’s policy statement.

    Agency Rule-Making & Guidance Federal Reserve ACH Electronic Transfers Federal Register

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  • HUD Releases Mortgagee Letter Providing Home Equity Conversion Mortgage Servicing Implementation Guidance

    Agency Rule-Making & Guidance

    On August 24, HUD published Mortgagee Letter 2017-11, which provides directions for FHA-approved mortgagees to implement certain servicing policy changes outlined in the Federal Housing Administration: Strengthening the Home Equity Conversion Mortgage Program Final Rule (HECM Final Rule), published in the Federal Register in January 2017. The HECM Final Rule’s servicing requirements (including the additional guidance set forth in Mortgagee Letter 2017-11), will take effect for all FHA case numbers assigned on or after September 19, 2017. The Mortgagee Letter furnishes additional details on the following areas of servicing policy included in the HECM Final Rule: (i) “Default for Unpaid Property Charges”; (ii) “Sale of Property Securing a Due and Payable HECM”; and (iii) “Cash for Keys Incentive and Relocation Incentive.”

    Agency Rule-Making & Guidance HUD FHA Mortgage Servicing Federal Register Home Equity Loans HECM

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  • NCUA Seeks Comments on Comprehensive Regulatory Reform Agenda

    Agency Rule-Making & Guidance

    On August 16, the National Credit Union Association (NCUA) announced plans to publish in the Federal Register a notice requesting comments on its four-year regulatory reform agenda. As an independent agency, the NCUA is not required to comply with President Trump’s Executive Order 13777, which compels agencies to review and carry out regulatory reform, but it chose to voluntarily comply with the spirit of this Order by forming an internal regulatory reform task force to determine if any of the agency’s existing regulations should be eliminated, revised, improved, or clarified. The Task Force Report outlines its initial findings and recommendations for the amendment or repeal of regulatory requirements that it has determined are outdated, ineffective, or excessively burdensome. The report provides a three-tiered prioritization approach to regulatory reform based on “degree of impact and degree of effort” covering a four-year period, where “impact” focuses on the “magnitude of the benefit that would result from the change, and how broadly the stakeholder community would be impacted”, and “effort” considers the time and energy required to make the change.

    Tier 1 recommendations, assigned the highest level of priority with a two year target time frame, address the following key recommendations: (i) revisions to the “loans to members and lines of credit to members” rules, which govern federal credit union loan maturity limits, single borrower limits, third-party servicing of indirect vehicle loans and executive compensation plans; (ii) modernization of the federal credit union bylaws; (iii) revisions to the agency’s chartering and field of membership manual; (iv) potential changes to capital planning and stress test threshold requirements; and (v) implementation of certain fidelity bond and insurance coverage requirements.

    Tier 2 recommendations, which provide a three-year target time frame, address the following key recommendations: (i) revisions to aggregate loan participation limits; (ii) conducting a review to determine whether prior NCUA approval is required to purchase and assume liabilities from market participants other than federal credit unions; and (iii) easing restrictions on investment activities not required by the Federal Credit Union Act.

    Tier 3 recommendations, which provide a four-year target time frame, address the following key recommendations: (i) enhanced third-party due diligence rules; (ii) changes concerning loans and credit lines to members to “[e]nhance Federal preemption where possible and appropriate” in an effort to reduce overlap with state laws and regulatory burden; and (ii) conducting a review of the regulation pertaining to security programs, suspected crimes and transactions reporting, catastrophic acts, and Bank Secrecy Act compliance.

    Comments on the proposed plan are due 90 days after publication in the Federal Register.

    Agency Rule-Making & Guidance NCUA Federal Register Lending

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  • Amendments and Proposal to TRID Rule Published in Federal Register, Comments Due October 10

    Agency Rule-Making & Guidance

    As previously reported in a Special Alert, the CFPB issued amendments to its TILA/RESPA Integrated Disclosure rule, which importantly included a concurrent proposal to address the “black hole” issue that prevents creditors from resetting tolerances using the Closing Disclosure except in very limited circumstances. On August 11, the Bureau published the amendments in a final rule and the proposal in the Federal Register. The final rule takes effect October 10, 2017 with mandatory compliance by October 1, 2018. Comments on the proposal are due October 10, 2017.

    Agency Rule-Making & Guidance CFPB TRID RESPA TILA Federal Register

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  • Federal Reserve Issues Guidance Regarding Roles of Bank Boards, Requests Comments on New SIFI Rating System

    Agency Rule-Making & Guidance

    Guidance Regarding Roles of Bank Boards.

    On August 3, the Federal Reserve (Fed) took an important step towards easing the heavy regulatory burden placed on the boards of directors at the largest U.S. banking organizations, when it issued for public comment a corporate governance proposal intended to “enhance the effectiveness of boards of directors” and “refocus the Federal Reserve supervisory expectations for the largest firms’ boards of directors on their core responsibilities, which will promote the safety and soundness of the firms.”

    The proposal is a result of a multi-year review conducted by the Fed of practices of boards of directors, particularly at the largest banking institutions. The Fed focused on the challenges boards face, the factors that make boards effective, and the ways in which boards influence the safety and soundness of their firms and promote compliance within. The key takeaways of this review included:

    • supervisory expectations for boards of directors and senior management have become increasingly difficult to distinguish;
    • boards devote a significant amount of time satisfying supervisory expectations that do not directly relate to board’s core responsibilities; and
    • boards of large financial institutions face significant information flow challenges, which can result in boards being overwhelmed by the complexity and quantity of information received. 

    The Fed expects that these issues can be remediated by allowing banks to refocus on their core responsibilities, including: (i) developing the firm’s strategy and risk tolerance; (ii) overseeing senior management and holding them accountable for effective risk management and compliance; (iii) supporting the independence of the firm’s independent risk management and internal audit functions; and (iv) adopting effective governance practices.

    In April, Fed Governor Jerome Powell indicated that the financial crisis led to a “broad increase in supervisory expectations” for these boards of directors, but cautioned that the Fed needs to “ensure that directors are not distracted from conducting their key functions by overly detailed checklist of supervisory process requirements.” Explaining that the Fed was reassessing its supervisory expectations for boards, Powell stated “it is important to acknowledge that the board’s role is one of oversight, not management.”

    The proposed guidance better distinguishes the supervisory expectations for boards from those of senior management, and includes new criteria by which the Fed will assess bank boards. The Fed describes effective boards as those which:

    • set clear, aligned, and consistent direction regarding the firm’s strategy and risk tolerance;
    • actively manage information flow and board discussions;
    • hold senior management accountable;
    • support the independence and stature of independent risk management and internal audit; and
    • maintain a capable board composition and governance structure. 

    The proposal also clarifies expectations regarding internal communications within firms for communicating supervisory findings internally, stating that for all supervised firms, most supervisory findings should be communicated to the firm's senior management for corrective action, rather than to its board of directors. Such findings would only be directed to the board for corrective action when the board needs to address its corporate governance responsibilities or when senior management fails to take appropriate remedial action. 

    While the proposal does not address all of the post-crisis challenges faced by bank boards, it is a welcome message to the industry that the Fed recognized the need to recalibrate their expectations. The proposal also identifies existing supervisory expectations for boards of directors that could be eliminated or revised and notes that the Fed intends to continue assessing whether its expectations of bank boards require further changes.

    New SIFI Rating System.

    On August 3, the Fed also issued for public comment a new risk rating system for Large Financial Institutions (“LFI”s) that would replace the RFI rating system for bank holding companies with total consolidated assets of $50 billion or more; non-insurance, non-commercial savings and loan holding companies with total consolidated assets of $50 billion or more; and U.S. intermediate holding companies of foreign banking organizations established pursuant to the Fed’s Regulation YY. (The Fed will continue to use the same RFI rating system that has been in place since 2004 to evaluate community and regional bank holding companies.) 

    The LFI rating system is designed to evaluate LFIs on whether they possess sufficient financial and operational strength and resilience to maintain safe and sound operations through a range of conditions. The system would consist of three chief components:

    • Governance and Controls
      • board of directors
      • management of core business lines and independent risk management and controls and
      • recovery planning (for domestic bank holding companies subject to LISCC);
    • Capital Planning and Positions; and
    • Liquidity Risk Management and Positions.

    The Governance and Control component would evaluate a LFI’s effectiveness in ensuring that the firm’s strategic business objectives are safely within the firm’s risk tolerance and ability to manage the accordant risk. The component will focus on LFIs’ effectiveness in maintaining strong, effective and independent risk management and control functions, including internal audit and compliance, and providing for ongoing resiliency.

    The second and third components are intended to incorporate LFI supervision activities, including CCAR and CLAR, which will be directly reflected within the respective component ratings–resulting in a more comprehensive supervisory approach than the RFI rating system which did not incorporate the results of those supervisory activities.

    Each LFI would receive a component rating using a multi-level scale (Satisfactory/Satisfactory Watch, Deficient-1 and Deficient-2). “Satisfactory Watch” would indicate that a firm is generally considered safe and sound, however certain issues require timely resolution. Any Deficiency rating would result in that LFI being considered less than “well managed.”

    Agency Rule-Making & Guidance Federal Reserve Bank Regulatory Bank Supervision Federal Register SIFIs LFI Regulation YY

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  • OCC, Federal Reserve Solicit Public Comments on Volcker Rule

    Agency Rule-Making & Guidance

    On August 2, the OCC announced it is seeking public comments on ways to improve regulations implementing the Volcker Rule, however the agency stressed it is not seeking comment on changes to the underlying statute. The draft notice outlines issues with the rule, which bans banks from engaging in proprietary trading and restricts their ownership of certain funds, explaining that there is “broad recognition that the final rule [implementing the Volcker Rule] should be improved both in design and in application.” Referring to the Treasury Department’s June 2017 report, which identified problems with the design of the final rule and offered recommendations for revision, the OCC’s notice asked for suggestions on how to improve implementation with the understanding that any revisions would require a joint undertaking by the OCC, Board of Governors of the Federal Reserve System, the FDIC, and consultation with the SEC and the CFTC. Specifically, the notice seeks comments in the following four areas: (i) scope of entities subject to the final rule; (ii) proprietary trading prohibitions; (iii) covered fund prohibitions; and (iv) requirements for compliance program and metrics reporting.

    Comments must be received within 45 days from publication in the Federal Register.

    Separately, on August 2, the Board of Governors of the Federal Reserve System (Fed) issued a notice seeking comment on whether to extend for three years the Reporting, Recordkeeping, and Disclosure Requirements Associated with Proprietary Trading and Certain Interests in and Relationships with Covered Funds (Regulation VV).  Regulation VV imposes information reporting requirements on certain banks engaged in significant trading activities, to ensure compliance with the Volcker Rule. Among other things, the Fed invited comment on whether the proposed collection of information is necessary and has practical utility, and ways to enhance the quality, utility, and clarity of the collected information, while minimizing the burden on respondents. In its notice, the Fed stated that the information collection “is required in order for covered entities to obtain the benefit of engaging in certain types of proprietary trading or investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund, under the restrictions set forth in [the Volcker Rule].”

    Comments must be received by October 2, 2017.

    Agency Rule-Making & Guidance Treasury Department OCC Volcker Rule Dodd-Frank Federal Register Securities Federal Reserve

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  • HUD-OIG Report: Single-Family Note Sales Program Failed to Follow Rulemaking Requirements


    On July 14, the HUD Office of Inspector General (HUD-OIG) published a report on HUD’s rulemaking process for its single-family note sales program, now referred to as the Distressed Asset Stabilization Program (DASP), under which HUD has sold more than 108,000 notes with over $18 billion in unpaid principal balances. According to the report, HUD-OIG conducted an audit to determine whether HUD adhered to open public rulemaking requirements when it implemented the program. The report concluded that while HUD issued an advance notice of proposed rulemaking in 2006, it did not finalize the comment process or prepare the program for a final rule. The report further stated that there was a lack of formal guidance and procedures for the program, stating that “[s]ince its inception, HUD has issued 31 enhancements, or changes, to its single-family note sales program . . . [but does not have] a handbook or guidebook that establishe[s] its formal requirements or policies for the administration of the program.”

    As a result, HUD-OIG recommended that HUD (i) “[c]omplete the rulemaking process for [its] single-family note sales program,” and (ii) “[d]evelop and implement formal procedures and guidance for the note sales program.”

    Lending HUD Mortgages OIG Federal Register

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  • CFPB Extends Comment Deadline for Small Business Lending Request for Information

    Agency Rule-Making & Guidance

    On July 12, the CFPB issued a notice in the Federal Register announcing that, in response to a request from 13 industry trade associations for an additional comment period extension, the Bureau has extended the comment period of the “Request for Information Regarding the Small Business Lending Market” for another 60 days. As previously covered in InfoBytes, the Bureau is seeking responses to its questions regarding the small business lending market and how the implementation of Section 1071 Dodd-Frank Act will affect small business financing. The Bureau also hopes to receive feedback on privacy concerns related to the Section 1071 disclosures. In light of the extension, comments must now be received by September 14.

    Agency Rule-Making & Guidance Federal Issues CFPB Dodd-Frank Small Business Lending Federal Register

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  • Treasury Renews Unchanged Information Collection on Designation of Financial Market Utilities; Seeks Public Comment


    On March 28, the Treasury Department issued a request for comment on its plan to renew an information collection, without change, on the designation of Financial Market Utilities (FMUs) as systemically important financial institutions. According to the Treasury’s notice, the information will be used by the Financial Stability Oversight Council (FSOC) to “determine whether to designate or rescind the designation of an FMU under Title VIII” of the Dodd-Frank Act. The request for comment allows FMUs to submit written materials to the FSOC before the Council makes a designation decision and also permits an FMU to request a hearing or submit materials to contest the FSOC’s proposed determination. Comments on the information collection must be received by April 27, 2017 as instructed on the notice’s publication in the Federal Register.

    Fintech Treasury Department Federal Register Dodd-Frank FSOC SIFA

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