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On November 14, the FDIC issued a request for information (RFI) seeking public comment on ways it can encourage FDIC-supervised financial institutions to offer “responsible, prudently underwritten small-dollar credit products that are economically viable and address the credit needs of bank customers.” In the RFI’s release, FDIC Chairman Jelena McWilliams pointed to studies showing that “[c]onsumers benefit when small-dollar credit products are available from banks” and requested “the public to use the RFI process to tell [the FDIC] how to ensure that consumers can obtain small dollar credit from banking institutions in a responsible manner.” The RFI seeks information related to the “full spectrum of issues” related to banks offering small-dollar credit, including regulatory and non-regulatory obstacles for banks, as well as actions the FDIC could take to assist banks in serving the small-dollar market. In addition to general feedback, the RFI includes a list of suggested topics and questions for commenters to address. Comments will be due 60 days after publication in the Federal Register.
Recently, the OCC and the CFPB have also made efforts to encourage banks to meet the small-dollar credit needs of consumers. In May, the OCC issued Bulletin 2018-14 encouraging banks to offer responsible short-term, small-dollar installment loans with typical maturities between two and 12 months (covered by InfoBytes here). In addition to applauding the OCC’s Bulletin, the CFPB announced it expects to publish proposed rules reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans in January 2019 (covered by InfoBytes here).
OCC Comptroller discusses state of banking system; emphasizes areas of economic opportunity and innovation
On November 14, Comptroller of the Currency Joseph Otting discussed the condition of the U.S. federal banking system at the “Special Seminar on International Finance” in Tokyo. Otting highlighted three areas where the OCC is working to promote economic opportunity and service to bank customers: innovation, short-term small dollar lending, and supervision of international banks operating in the U.S. Specifically, Otting discussed, among other things, the importance of (i) providing a path for fintech companies to become national banks to promote modernization, innovation, and competition; and (ii) encouraging banks to provide responsible short-term small-dollar installment loans—typically between $300 and $5,000—to help consumers meet unplanned financial needs.
Notably, while noting that foreign banks have the option to operate under a state license and that the OCC strongly supports the dual banking system in the U.S., Otting stressed that the OCC is well qualified to supervise foreign banks’ federal U.S. branches, and noted that there are “supervisory efficiencies” to be gained when switching from state-by-state oversight and “consolidating the supervision of branches of foreign banks with the supervision of the national bank subsidiary of the parent company, which the OCC already supervises.” According to Otting, operating under a single regulatory framework with one prudential regulator—the OCC—would achieve a “more complete, more efficient, and, importantly, more thorough regulation of the institution.”
On October 17, the Office of Information and Regulatory Affairs released the CFPB’s fall 2018 rulemaking agenda. According to the Bureau’s preamble, the information presented is current as of August 30 and represents regulatory matters it “reasonably anticipates” having under consideration during the period of October 1, 2018, to September 30, 2019. The Bureau also states it plans on “reexamining the requirements of [ECOA] in light of recent Supreme Court case law and the Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations.”
Key rulemaking initiatives include:
- Property Assessed Clean Energy Loans (PACE): The Bureau is planning to complete an assessment of its 2013 rules for assessing consumers’ ability to repay mortgage loans by January 2019, which will inform the drafting of a request for information or advance notice of proposed rulemaking (ANPR) on PACE issues to facilitate the Bureau’s rulemaking process.
- HMDA/Regulation C: The Bureau plans to follow-up on its action in August 2017 to amend Regulation C to increase the threshold for collecting and reporting data with respect to open-end lines of credit for a period of two years so that financial institutions originating fewer than 500 open-end lines of credit in either of the preceding two years would not be required to begin collecting such data until January 1, 2020.
- Debt Collection: The Bureau states it plans to issue an ANPR addressing issues such as communication practices and consumer disclosures by March 2019, and has received support from industry and consumer groups to engage in rulemaking to explore ways to apply the FDCPA to modern collection practices.
- Small Dollar Lending: The Bureau anticipates it will issue a proposed rule on small dollar lending in January 2019.
- Payday Rule: The Bureau estimates it will issue an ANPR in January 2019 to reconsider the merits and compliance date for its final payday/vehicle title/high-cost installment loan rule.
- FCRA: Comments must be submitted by November 19 on the changes and underlying disclosures implemented by its interim final rule, which amended certain model forms under the FCRA and took effect September 21. (See previous InfoBytes coverage on the interim final rule here.)
Long term priorities now include rulemaking addressing (i) small business lending data collection; (ii) consumer reporting; (iii) amendments to FIRREA concerning automated valuation models; (iii) consumer access to financial records; (iv) rules to implement the the Economic Growth, Regulatory Relief, and Consumer Protection Act, concerning various mortgage requirements, student lending, and consumer reporting; and (v) clarity for the definition of abusive acts and practices.
On September 30, the California governor signed AB 237, which establishes a pilot program under the California Financing Law with the stated purpose of encouraging lenders to provide affordable small dollar loans to consumers. Significant features of the program include: (i) an increase to the upper limit of a permissible loan, from $2,500 to $7,500; and (ii) the authorized imposition of specified alternative interest rates and charges on unsecured loans of at least $300 and less than $2,500.
Under California’s Pilot Program for Increased Access to Responsible Small Dollar Loans (Pilot Program), licensees who choose to participate in the Pilot Program will be required to apply and pay a specified fee to the Commissioner of Business Oversight (Commissioner). Participating licensees will also be required, among other things, to (i) determine a borrower’s ability to repay the loan, factoring in all verifiable outstanding credit and capping total monthly debt service payments at 50 percent of the borrower’s gross monthly income for loans of $2,500 or less and 36 percent for loans greater than $2,500; (ii) establish terms of 180 days or more for loans with principal balances of at least $1,500, but less than $2,500, upon origination; (iii) establish terms of no less than one year and no more than five years for loans with principal balances exceeding $2,500; (iv) implement policies and procedures for the purpose of answering borrower questions and performing reasonable background checks on any finders associated with the licensee’s participation in the Pilot Program (AB 237 permits approved licensees to use the services or one more finders); and (v) reduce the interest rate of each subsequent loan made to the same borrower by a minimum of one percentage point under certain conditions. In addition, AB 237 allows the Commissioner to charge a licensee certain fees associated with the use of a finder, stipulates examinations requirements for licensees and finders, and establishes deadlines and requirements for the Commissioner when submitting required findings from the Pilot Program. The Pilot Program will run through January 1, 2023.
Governor Brown issued a message in conjunction with his signing AB 237 expressing his concern, among others, that increasing the cap on small dollar loans without also providing stricter regulatory oversight may lead to “unintended consequences.” Governor Brown requested that the state’s Department of Business Oversight “increase their vigilance and more carefully oversee both lenders and finders to ensure their actions comply with existing law.”
- Jonice Gray Tucker to discuss "Trends in regulatory enforcement" at the American Bar Association Banking Law Committee Meeting
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo