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  • NYDFS Issues Interpretative Guidance Regarding Banking Law Approval Requirements

    Agency Rule-Making & Guidance

    On May 22, the New York State Department of Financial Services (NYDFS) announced it was issuing interpretative guidance regarding the New York Banking Law requirement that mandates prior NYDFS approval for an acquisition or change of control of a banking institution. The guidance was released in response to a request by the New York Bankers Association amid concerns that some investors have been developing non-transparent methods of acquiring and controlling banking institutions without obtaining NYDFS’ review and approval. According to the guidance, “control” is achieved by having direct or indirect power to direct or cause the direction of a banking institution’s management and policies through the ownership of voting stocks or otherwise, and that control is achieved when individuals or entities work together or act in concert to acquire control of a banking institution but with each individual or entity staying below the threshold required for seeking NYDFS’ prior review and approval. The Superintendent of Financial Services, Maria T. Vullo issued a reminder to state-chartered banks that “all proposed changes of control in any banking institution must be submitted to the Department for prior approval under our mandate to safeguard the institutions we supervise and regulate, and to protect the public they serve.”

    The guidance was released the same day Vullo testified at a New York State Assembly hearing on the “Practices of the Online Lending History,” which sought to “explore . . . predatory online lending practices which need to be mitigated, and potential regulatory or legislative action which may be needed to address [this issue].” Vullo urged legislators to clarify the statutory definition of “making loans” to include a wider range of companies and “to include situations where an entity, in addition to soliciting a loan, is arranging or facilitating the funding of a loan, or ultimately purchasing or acquiring the loan.”

    Agency Rulemaking & Guidance Online Lending NYDFS

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  • FDIC Announces Nationwide Seminars for Bank Officers and Employees

    Agency Rule-Making & Guidance

    On May 18, the FDIC issued FIL-18-2017 announcing that, between June 6, 2017 and December 4, 2017, it will conduct four identical live seminars regarding FDIC deposit insurance coverage for bank employees and bank officers. The seminars will include an overview of popular topics such as (i) the Electronic Deposit Insurance Estimator—an interactive tool used to calculate deposit insurance coverage; (ii) the BankFind Directory, which allows users to confirm if a bank is FDIC-insured; and (iii) the Financial Institution Employee’s Guide to Deposit Insurance developed to help bankers provide detailed information about deposit insurance coverage to their depositors. In addition to the live seminars, the FDIC posted to its YouTube channel three separate seminars, entitled (i) Fundamentals of Deposit Insurance Coverage; (ii) Deposit Insurance Coverage for Revocable Trust Accounts; and (iii) Advanced Topics in Deposit Insurance Coverage. Both the live seminars and the YouTube seminars will provide bank employees and officers with an understanding of how to calculate deposit insurance coverage. Bankers interested in attending the seminars should visit the FDIC’s website.

    Agency Rulemaking & Guidance FDIC

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  • CFTC Announces Initiative for Fintechs

    Securities

    On May 17, the U.S. Commodity Futures Trading Commission (CFTC) announced an initiative called “LabCFTC” designed to engage innovators in the financial technology industry and “promot[e] responsible [fintech] innovation to improve the quality, resiliency, and competitiveness of the markets the CFTC oversees.” Located in New York, LabCFTC will address the regulatory challenges of increasingly automated trading and foster a regulatory environment more receptive to emerging fintech companies. The initiative will consist of two major components:

    • GuidePoint will offer opportunities for fintech companies to engage with the CFTC on how to implement innovative technology into existing regulatory framework and navigate the regulatory process.
    • CFTC 2.0 will initiate the adoption of emerging technologies in order to improve the CFTC's effectiveness and efficiency.

    In prepared remarks issued before the New York FinTech Innovation Lab, CFTC Acting Chairman J. Christopher Giancarlo stated that LabCFTC is “[t]wenty-first century regulation for 21st century digital markets and will help the CFTC cultivate a regulatory culture of forward thinking . . . , become more accessible to emerging technology innovators . . . , discover ways to harness and benefit from [fintech] innovation . . ., and become more responsive to our rapidly changing markets.”

    Securities Fintech Agency Rulemaking & Guidance CFTC

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  • NYDFS Files Independent Lawsuit Against OCC Fintech Charter

    FinTech

    Following the April 26 lawsuit filed by the Conference of State Bank Supervisors (CSBS) opposing the OCC’s fintech charter (see previous InfoBytes post), the New York Department of Financial Services (NYDFS) filed its own lawsuit on May 12, asking the court to block the OCC from creating a new special purpose fintech charter. “The OCC’s charter decision is lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York and other state regulators,” NYDFS Superintendent Maria T. Vullo said in a statement announcing the lawsuit. “This charter puts New York financial consumers . . . at great risk of exploitation by newly federally chartered entities seeking to be insulated from New York’s strong consumer protections.” NYDFS’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that the OCC’s charter would include “vast preemptive powers over state law.” Specific concerns include the risk of (i) weakened regulatory controls on usury, payday loans, and other predatory lending practices; (ii) consolidation of multiple non-depository business lines under a single federal charter, thus creating more “too big to fail” institutions; and (iii) creating competitive advantages for large, well-capitalized fintech firms that could overwhelm smaller market players and thus restrict innovation in financial products and services. The complaint also asserts that the “OCC’s action is legally indefensible because it grossly exceeds the agency’s statutory authority.” Finally, the complaint claims that the proposed fintech charter would injure NYDFS monetarily because the regulator’s operating expenses are funded by assessments levied by the OCC on New York licensed financial institutions. According to NYDFS, every non-depository financial firm that receives a special purpose fintech charter from the OCC in place of a New York license deprives NYDFS of crucial resources that are necessary to fund its regulatory function.

    Citing violations of the National Bank Act and conflicts with state law in violation of the Tenth Amendment of the U.S. Constitution, NYDFS seeks declaratory and injunctive relief that would declare the fintech charter proposal to be unlawful and prohibit the OCC from taking further steps toward creating or issuing the charter without express Congressional authority.

    In a press release issued the same day, the CSBS said it “strongly supports the [NYDFS] lawsuit” and reiterated that the OCC “does not have the authority to issue federal charters to non-banks, and its unlawful attempt to do so will harm markets, innovation and consumers.”

    Fintech OCC NYDFS CSBS Licensing Agency Rulemaking & Guidance

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  • FDIC Vice Chairman Discusses Forces of Change in Banking Industry, Proposes Regulatory Relief

    Agency Rule-Making & Guidance

    On May 12, FDIC Vice Chairman Tom Hoenig spoke at the Systemic Risk and Organization of the Financial System Conference in California. He delivered prepared remarks on “Financial Markets and Accountability: A Better Way Forward.” Specifically, Hoenig discussed his views on the need for change in the banking industry and how his recently introduced reform proposal would strengthen the financial system and provide regulatory relief and long-term economic growth.

    Hoenig argued that his proposal, “Regulatory Relief and Accountability for Financial Holding Companies Engaged in Nontraditional Banking Activities,” would help cure the ills and vulnerabilities of the current U.S. financial system, in which the largest banks have grown disproportionately big with activities that are too consolidated, resulting in a financial system that remains “heavily subsidized, increasingly concentrated, and less competitive.”

    Hoenig’s proposal outlines ideas to address too-big-to-fail, enhance financial stability, and return the “safety net to its original purpose of depositor and payment system protection.” The proposal requires the largest banks to hold more capital, while partitioning nonbank activities away from the safety net. Hoenig stated that his proposal is intended to enhance competition by creating a more level playing field between insured and noninsured financial firms. The proposal also inhibits the intermingling of funding and operations between affiliates, which, while advantageous during good times, provides “far greater advantages” during bad times. Hoenig stated this would provide more stability and more consistent economic growth, and facilitate resolution using bankruptcy.

    ICBA Support. Independent Community Bankers of America President and CEO Camden R. Fine issued a statement on Hoenig’s remarks, agreeing that “excessive regulatory burdens have exacerbated the dangerous consolidation of the banking industry into fewer and fewer hands,” and that “[t]o combat excessive consolidation and concentration of resources in the largest and most systemically risky financial firms, ICBA advocates comprehensive regulatory relief for community banks.” ICBA recently published a white paper entitled Community Bank Regulatory Relief: A Roadmap to Economic Growth and Prosperity outlining its views on regulatory reform.

    Agency Rulemaking & Guidance FDIC ICBA Bank Regulatory

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  • OCC to Host Workshops for Community Bank Directors in June

    Agency Rule-Making & Guidance

    On June 20 and 21, the OCC will be hosting two workshops in Nashville for directors of national community banks and federal savings associations supervised by the OCC. The June 20 “Credit Risk” workshop will focus on ways to identify trends and recognize problems within a loan portfolio. In addition, the workshop will discuss board and management roles, how to stay informed of changes in credit risk, and how to effect change. The June 21 “Operational Risk” workshop will focus on the key components of operational risk, and also cover governance, third-party risk, vendor management, and cybersecurity.

    Additionally, from June 26 to 28, the OCC will be hosting a “Building Blocks for Directors” workshop in Atlanta for directors, senior management team members, and other key executives of national community banks and federal savings associations supervised by the OCC. The workshop will: (i) focus on the duties and core responsibilities of directors and management; (ii) discuss major laws and regulations; and (ii) provide insight on the examination process.

    Agency Rulemaking & Guidance OCC Risk Management

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  • OCC Issues Revised Comptroller’s Licensing Manual Booklets

    Agency Rule-Making & Guidance

    On May 8, the OCC announced the release of a revised Fiduciary Powers booklet of the Comptroller’s Licensing Manual, which replaces the version issued in June 2002, and applies to all national banks and federal savings associations proposing to exercise fiduciary powers. This revised booklet incorporates updated procedures and requirements following the integration of the Office of Thrift Supervision (OTS) into the OCC in 2011 and the revisions to 12 C.F.R. § 5 (effective July 1, 2015), which address applications for national banks and federal savings associations proposing to exercise fiduciary powers. Specifically, the revised booklet addresses the: (i) policies and procedures to guide a bank in submitting a request to exercise fiduciary powers or submitting a notice to the OCC that it is exercising fiduciary powers in a new state; and (ii) procedures for a bank to surrender its fiduciary powers and for the OCC to revoke those powers. The booklet also lists references and links to informational resources to assist applicants during the filing process.

    That same day, the OCC also released a revised Public Notice and Comments booklet of the Comptroller’s Licensing Manual, which replaces the version updated in March 2007. This revised booklet incorporates public notice and comments procedures and requirements that were updated following the integration of OTS into the OCC, and the issuance of revised 12 CFR Part 5, and applies to national banks and federal savings associations, unless otherwise noted, as well as federal branches and agencies of foreign banks. In particular, the booklet addresses the “general requirements related to the public notice process, impact of Community Reinvestment Act (CRA) performance on certain applications or notices (filings), application of the convenience and needs standard under the Bank Merger Act, and requirements and procedures for conducting public hearings, public meetings, and private meetings.”

    Agency Rulemaking & Guidance OCC Licensing

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  • Conference of State Bank Supervisors Announce Initiatives to Obviate Need for Fintech Charter, New York Joins Nationwide Mortgage Licensing System for Fintechs

    FinTech

    On May 10, the Conference of State Bank Supervisors (CSBS) announced a “series of initiatives to modernize state regulation of non-banks, including financial technology [fintech] firms.” The raft of initiatives, branded “Vision 2020,” appear to be generally geared towards streamlining the state regulatory system so that it is capable of supporting business innovation, while still protecting  the rights of consumers. As explained by CSBS Chairman and Texas Commissioner of Banking Charles G. Cooper, the CSBS is “committed to a multi-state experience that is as seamless as possible,” and, to this end, “state regulators will transform the licensing process, harmonize supervision [and] engage fintech companies.”

    The initial set of actions that CSBS and state regulators are taking includes the following: 

    • Redesign the Nationwide Multistate Licensing System (NMLS). CSBS plans to redesign the NMLS, which is a web-based system that allows non-depository companies, branches, and individuals in the mortgage, consumer lending, money services businesses, and debt collection industries to apply for, amend, update, or renew a license online. In particular, the CSBS’s redesign will “provide a more automated licensing process for new applicants, streamline multi-state regulation, and shift state resources to higher-risk cases.”
    • Harmonize multi-state supervision. CSBS has created “working groups to establish model approaches to key aspects of non-bank supervision,” to “enhance uniformity in examinations, facilitate best practices,” and “capture and report non-bank violations at the national level.” CSBS also intends to “create a common technology platform for state examinations.”
    • Form an industry advisory panelCSBS will “establish a fintech industry advisory panel to identify points of friction in licensing and multi-state regulation, and provide feedback to state efforts to modernize regulatory regimes.”
    • Assist state banking departments. CSBS intends to start “education programs” that “will make state departments more effective in supervising banks and non-banks.”
    • Make it easier for banks to provide services to non-banksCSBS is also “stepping up efforts to address de-risking—where banks are cautious about doing business with non-banks, due to regulatory uncertainty – by increasing industry awareness that strong regulatory regimes exist for compliance with laws for money laundering, the Bank Secrecy Act, and cybersecurity.”
    • Make supervision more efficient for third parties. CSBS also intends to “support[] federal legislation that would allow state and federal regulators to better coordinate supervision of bank third-party service providers.”

    By harmonizing the supervision and licensing system and working more closely together, state regulators appear to want to eliminate a key reason to seek the OCC charter, namely the ability to deal with one federal agency and follow a single set of rules. As previously covered in InfoBytes, the CSBS and a number of individual stakeholders have fiercely opposed the OCC’s other main fintech initiative—the development of a special purpose national bank charter for payments processors, online lenders and other new entrants in the financial industry. CSBS sued the OCC last month, arguing it lacked the legal power to move forward. The overall initiative appears to be a response to the OCC’s own “responsible innovation” efforts, which—as previously covered in InfoBytes—culminated in the creation of a new office last year to correspond with fintechs and the banks interested in partnering with them.

    Concurrent with CSBS’s Vision 2020 initiatives, on May 11, the New York State Department of Financial Services (NYDFS) announced that beginning July 1, 2017, it will transition to the NMLS to manage the license application and ongoing regulation of all nondepository financial institutions conducting business in the state, commencing with money transmitters. Specifically, on July 1, 2017, financial services companies holding New York money transmitter licenses will have the opportunity to transition those licenses to NMLS, and companies applying for new licenses will be able to apply through NMLS. As previously covered in InfoBytes, NMLS—a secure, web-based licensing system—will allow for easier on-line licensing renewal and enable NYDFS to “provide better supervision of the money transmitter industry by linking with other states to protect consumers.” Financial Services Superintendent Maria T. Vullo stressed that “[b]y working with the CSBS, which is leading the modernization of state regulation through Vision 2020, DFS is supporting the strong nationwide regulatory framework created by states to provide improved licensing and supervision by State regulators.”

    Additional information about NMLS can be accessed through the NMLS Resource Center.

    Fintech Licensing NYDFS NMLS Agency Rulemaking & Guidance CSBS OCC

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  • CFPB Issues Request for Information on Small Business Lending; Prepares to Implement Section 1071 of Dodd Frank Act

    Agency Rule-Making & Guidance

    On May 10, the CFPB announced the issuance of a Request for Information on various aspects of the market for small business loans as the Bureau prepares to implement Section 1071 of the Dodd-Frank Act, which amends the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, maintain, and report information concerning credit applications made by women-owned, minority-owned, and small businesses. The Request includes questions grouped in five categories: (i) defining what constitutes a small business; (ii) data points the Bureau will require to be submitted and collected; (iii) types of lenders involved in small business lending and the appropriate institutional coverage for the data collection requirements; (iv) types of financial products offered to small businesses generally, and those owned by women and minorities in particular; and (v) privacy concerns related to the data collection.

    The CFPB also released Director Cordray’s prepared remarks in advance of a field hearing on small business lending where he introduced the Request for Information and issued a related press release. Comments are due 60 days after the Request for Information is published in the Federal Register. The Bureau also released a report, entitled “Key Dimensions of the Small Business Lending Landscape,” which presents the CFPB's perspective on the market for lending to small, minority-owned and woman-owned firms and gaps in its understanding.

    A couple of industry groups have already weighed in regarding expected difficulties with the application of Section 1071. In a letter sent Tuesday in advance of the field hearing, the National Association of Federally-Insured Credit Unions (NAFCU) urged the CFPB to exempt its members from any rulemaking that compels disclosure of business loan information. NAFCU Regulatory Affairs Counsel Andrew Morris cites the unique characteristics of credit unions, and that such data collection “may yield confusing information about credit unions and further restrict lending activity as a result of increased compliance costs.” The letter notes that “[c]redit unions serve distinct fields of membership, and as a result, institution-level data related to women-owned, minority-owned and small business lending substantially differs in relation to other lenders.”

    And, in a white paper provided to the Treasury Department, the American Bankers Association criticizes what amounts to Section 1071’s conflation of consumer and commercial lending, “recommend[ing] the elimination of any vestige of Bureau regulatory, supervisory, or enforcement authority over commercial credit or other commercial account and financial services.”

    Agency Rulemaking & Guidance CFPB Small Business Lending Dodd-Frank ECOA NAFCU ABA Treasury Department

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  • D.C. Circuit Holds CID Unenforceable Due to “Perfunctory” Notification of Purpose

    Courts

    On April 21, the U.S. Court of Appeals for the D.C. Circuit held that a civil investigative demand (“CID”) did not advise a non-profit organization that accredits for-profit colleges of “’the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.’ 12 U.S.C. § 5562(c)(2).” See CFPB v. Accrediting Council for Indep. Colls.& Schs., [Order] No. 16-5174 (D.C. Cir. Apr. 21, 2017). The CID described “the nature of the conduct” as simply “unlawful acts and practices in connection with accrediting for-profit colleges.” Because this “broad and non-specific” language did not describe the purpose of the CFPB’s investigation, the Court determined that it could not ascertain whether the information sought was reasonably relevant or “the link between the relevant conduct and the alleged violation.” The Court also found that the description of the laws applicable to the violation was inadequate. The CID identified 12 U.S.C. §§ 5531 and 5536 and “any other Federal consumer financial protection law,” but the Court concluded that the citations “tell … nothing about the statutory basis for the Bureau’s investigation” considering the CFPB’s failure to identify “the specific conduct under investigation.” Notably the Court explicitly limited its ruling to the particular CID at issue and declined to address the broader question of whether the CFPB may investigate accreditation of for-profit schools.

    Courts Consumer Finance Agency Rulemaking & Guidance CFPB

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