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  • House Financial Services Committee Issues Second Interim Report on Bureau’s Role in Fraudulent Accounts Scandal Investigation

    Federal Issues

    On September 19, the Majority Committee Staff of the House Financial Services Committee (Committee) released a second interim report and supporting documents on the investigation of the role the CFPB played in detecting and remedying a major national bank’s practice of opening unauthorized bank accounts. As previously covered in InfoBytes, the first interim report, issued June 6, accused Director Richard Cordray, among other things, of failing to cooperate with the Committee’s “comprehensive investigation.” The second interim report claims the CFPB and Director Cordray failed to comply with the Committee’s repeated requests for documents related to the investigation into the bank’s practices, never conducted its own independent investigation (but, instead, “relied primarily, if not exclusively,” on a third party report), and withheld a crucial Recommendation Memorandum from the Committee for over a year that disclosed analysis of the legal and factual components of the Bureau’s investigation, as well as an evaluation of whether to enter into a settlement. The Committee’s accusations also include claims that Director Cordray allegedly misled Congress about the agency's investigation into the bank’s illegal sales practices and may have “rushed” a settlement with the bank, which resulted in a $100 million fine when it was potentially liable for a statutory civil monetary penalty exceeding $10 billion. Chairman Jeb Hensarling (R-Tex.) said in a press release that “[t]he premature suspension of its investigation means that the CFPB also potentially lost the opportunity to discover recently revealed instances of further consumer harm.”

    Federal Issues CFPB House Financial Services Committee Settlement Enforcement Fraud Investigations

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  • Senate Banking Committee’s Fintech Hearing Discusses Regulatory Challenges and Innovation Risks

    FinTech

    On September 12, the full Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Examining the Fintech Landscape” to discuss topics concerning fintech innovation and the regulatory landscape. Committee Chairman Mike Crapo (R-Idaho) opened the hearing by asserting that while fintech firms provide “new and innovative products and services in areas such as marketplace lending, digital payments and currencies, wealth management, insurance and more . . . [u]ncertainty remains around questions like data security and the proper regulatory treatment to ensure consumers and the financial system are safeguarded.” Sen. Crapo said that he welcomes the opportunity to learn more about fintech innovations, the impact on the financial system, and the current regulatory approach to this sector.

    Sen. Sherrod Brown (D-Ohio), ranking member of the Committee, also released an opening statement in which he called for the need to “improve federal oversight of data collection and data security,” especially in light of the recent credit reporting data breach. (See previous InfoBytes summary here.) Sen. Brown noted that he is interested in understanding “how Congress can encourage fintech innovation to make it easier for community banks to serve their customers, comply with important safety and soundness and anti-money laundering rules.”

    The three witnesses offered numerous insights related to the fintech industry, including (i) the need to manage risk without stifling fintech innovation; (ii) the importance of creating consistent standards and a regulatory framework; (iii) the need to clearly outline the definition of fintech firms and digital lenders; (iv) challenges when using algorithms and alternative data to assess creditworthiness; and (v) concerns regarding state preemption in the fintech space. The witnesses also answered questions concerning the concept of utilizing a regulatory sandbox to allow fintech firms to operate on a limited basis to test new ideas, and offered support for an innovation office, which would help fintech firms and regulators understand the emerging landscape.

    • Mr. Lawrance Evans, Director, Financial Markets, U.S. Government Accountability Office (testimony);
    • Mr. Eric Turner, Research Analysis, S&P Global Market Intelligence (testimony); and
    • Mr. Frank Pasquale, Professor of Law, University of Maryland Francis King Carey School of Law (testimony).

    Fintech Federal Issues Senate Banking Committee Privacy/Cyber Risk & Data Security Data Collection / Aggregation

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  • President Trump Signs Government Funding Package, Temporarily Extends National Flood Insurance Program

    Federal Issues

    On September 8, President Trump signed a government-funding package (H.R. 601) that temporarily extends the National Flood Insurance Program (NFIP), which was set to expire September 30, through December 8. The extension provides Congress additional time to establish a long-term financial solution. (See previous InfoBytes coverage on the NFIP here.) The Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, also temporarily lifts the nation’s debt ceiling, funding the federal government through December 8, and delivers the first installment of emergency aid for victims of Hurricane Harvey.

    Federal Issues Federal Legislation National Flood Insurance Program Trump

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  • Legislation Introduced to Make Bitcoin Purchases up to $600 Tax-Exempt

    FinTech

    On September 7, Representatives Jared Polis (D-Colo.) and David Schweikert (R-Ariz.)—co-chairs of the Congressional Blockchain Caucus—introduced the Cryptocurrency Tax Fairness Act of 2017 to allow for tax and IRS reporting requirements exemptions on cryptocurrency transactions of up to $600. The bill is in response to an IRS notice issued in 2014 that held that virtual currency, such as bitcoin and other forms of cryptocurrency, must be treated as property for U.S. federal tax purposes. According to a press release issued by Rep. Polis’ office, this “outdated guidance classifies even the smallest of cryptocurrency transactions the same as buying or selling stock, which dis-incentivizes consumers from using virtual currencies to pay for goods and services.” The bill proposes amending the Internal Revenue Code to exclude up to $600 of “gain from the sale or exchange of virtual currency for other than cash or cash equivalents” from gross income and ordering the Treasury Department to create “regulations providing for information returns on virtual currency transactions for which gain or loss is recognized.”

    Fintech Federal Issues Federal Legislation Bitcoin Cryptocurrency

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  • Senate Committee on Banking, Housing, and Urban Affairs to Hold Fintech Hearing

    FinTech

    On September 12, the Senate Committee on Banking, Housing, and Urban Affairs will hold an open session hearing entitled “Examining the Fintech Landscape.” The hearing will feature witnesses from the U.S. Government Accountability Office, S&P Global Market Intelligence, and the University of Maryland School of Law. The hearing will take place at 10:00 am EDT and be made available via webcast.

    Fintech Federal Issues Senate Banking Committee

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  • FDIC Issues First Quarter 2018 CRA Examination Schedule, Releases September List of CRA Compliance Examinations

    Federal Issues

    On August 31, the FDIC issued its Community Reinvestment Act (CRA) Examination Schedule for the Fourth Quarter of 2017 and First Quarter of 2018. The FDIC stated that the banks listed on the schedules were chosen for CRA examinations based on their asset size and CRA rating, and that absent reasonable cause, institutions with $250 million or less in assets and a CRA rating of “Satisfactory” would be examined no more than once every 48 months, and those institutions with a CRA rating of “Outstanding” would be examined no more than once every 60 months. The FDIC noted that due to recent natural disasters, some examinations may be delayed.

    Separately, the FDIC published its monthly list of state nonmember banks recently evaluated for CRA compliance. The list reports CRA evaluation ratings assigned to institutions in June 2017 as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Of the 67 banks evaluated, 6 were rated “Outstanding,” 59 received a “Satisfactory” rating, and 2 were rated “Needs to Improve.” Monthly lists of all state nonmember banks and their evaluations that have been made publically available can be accessed through the FDIC’s website.

    Federal Issues Bank Compliance CRA FDIC

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  • Department of Education Terminates Student Loan Sharing Agreements with CFPB, Announces Expanded Focus on Enforcement and Consumer Protection

    Lending

    On August 31, the US Department of Education submitted a letter notifying the CFPB that it intends to terminate two Memoranda of Understanding (MOUs) between the agencies regarding the sharing of information in connection with the oversight of federal student loans. The MOUs that will terminate on September 30, 2017, are the “Memorandum of Understanding Between the Bureau of Consumer Financial Protection and the U.S. Department of Education Concerning the Sharing of Information” (Sharing MOU), dated October 19, 2011, and the “Memorandum of Understanding Concerning Supervisory and Oversight Cooperation and Related Information Sharing Between the U.S. Department of Education and the Consumer Financial Protection Bureau,” dated January 9, 2014.

    The letter rebukes the CFPB for overreaching and undermining the Education Department’s mission to serve students and borrowers, and states that it “takes exception to the CFPB unilaterally expanding its oversight role to include the Department's contracted federal student loan servicers.” The letter also accuses the CFPB of failing to share all complaints related to Title IV federal student loans within 10 days of receipt as required by the MOUs, and that the Bureau’s intervention in these cases “adds confusion to borrowers and servicers who now hear conflicting guidance related to Title IV student loan services for which the Department is responsible.”

    In a press release issued by the House Committee on Education and the Workforce on September 1, Representative Virginia Foxx (R-N.C.) praised the Department’s decision stating, “[t]he Department of Education has made it clear that its partnership with the CFPB is doing more harm than good when it comes to how it can best serve students and borrowers.” However, advocacy groups such as Americans for Financial Reform and the National Consumer Law Center (NCLC) criticized the Department’s decision, with the NCLC calling it “outrageous and deeply troubling” and refuting the Department’s claims that the CFPB “’unilaterally’ expanded its oversight role over servicers and collectors of federal student loans.” Instead it argued that the Department’s “failures are what led Congress to give the CFPB authority to help students.”

    On the same day, the Education Department issued a press release announcing “a stronger approach to how Federal Student Aid (FSA) enforces compliance by institutions participating in the Federal student aid programs by creating stronger consumer protections for students, parents and borrowers against ‘bad actors.’” The strategy will focus on illegitimate debt relief organizations and schools that defraud students, and FSA will engage in “comprehensive communications and executive outreach to ensure parties and their leadership understand their responsibilities, the consequences of non-compliance and appropriate remedies.” The CFPB was notably absent, however, from the release’s reference to FSA’s continued stakeholder coordination, which listed the FTC and the DOJ.

    On September 7, the CFPB responded to the CFPB’s letter to request time to “engage in a constructive conversation” with the Department to determine a path for continued collaboration to best serve the needs of student loan borrowers. Director Richard Cordray noted that because the Department has access to the CFPB’s Government Portal as part of the agencies’ arrangement, the Department is able to view borrower complaints in “near real-time.” According to Director Cordray, the Department has accessed the portal 80 times over the past three months. Several examples of the Bureau’s supervisory examinations are also provided to highlight the CFPB’s position that its actions have not been “inconsistent with the Department’s directives or [in conflict with the] shared goal of protecting student loan borrowers.”

    Lending Student Lending Federal Issues Department of Education CFPB House Committee on Education MOUs NCLC FSA

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  • FDIC Releases Summer 2017 Supervisory Insights

    Federal Issues

    On August 30, the FDIC released its Summer 2017 Supervisory Insights (see FIL-39-2017), which contains articles discussing community bank liquidity risks and developments and changes to the Bank Secrecy Act. The first article, “Community Bank Liquidity Risk: Trends and Observations from Recent Examinations,” discusses, among other things, (i) an overview of trends in liquidity risk; (ii) the importance of liquidity risk management and contingency funding plans as bank management navigate funding, mitigate liquidity stress, and plan for the future; and (iii) “principles outlined in existing supervisory guidance.” The first article is “intended as a resource for bankers who wish to heighten awareness of prudent liquidity and funds management.” The second article, “The Bank Secrecy Act: A Supervisory Update,” emphasizes the role information collected through Bank Secrecy Act/Anti-Money Laundering (BSA/AML) programs plays in the U.S. government’s counter terrorist financing initiatives and other financial system protection measures. The article also provides an overview of the financial regulatory agency examination process, compliance program monitoring, recent trends in BSA/AML examination findings, and examples of significant deficiencies in BSA/AML compliance programs that necessitated formal remediation. In addition, the summer issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.

    Federal Issues FDIC Banking Bank Supervision Bank Secrecy Act Anti-Money Laundering Combating the Financing of Terrorism

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  • FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in July 2017

    Federal Issues

    On August 25, the FDIC released its list of 24 orders of administrative enforcement actions taken against banks and individuals in July. The FDIC issued consent orders against three banks, including one alleging “unsafe or unsound banking practices relating to [b]ank management and directors, capital maintenance, liquidity, credit administration, third-party risk management, audit, interest rate risk, and strategic and profit planning.”

    Ten enforcement actions identified by the FDIC related to unsafe or unsound banking practices and breaches of fiduciary duty leading to financial loss, including seven removal and prohibition orders and three assessments of civil money penalties. Also on the list are four Section 19 orders, which allow applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and seven terminations of consent orders.

    There are no administrative hearings scheduled for September 2017. The FDIC database containing all 24 of its enforcement decisions and orders may be accessed here.

    Federal Issues Enforcement FDIC

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  • FDIC Issues Quarterly Banking Profile for Second Quarter 2017

    Federal Issues

    On August 22, the FDIC released its latest Quarterly Banking Profile. The profile indicates that commercial banks and savings institutions reported an aggregate net income of $48.3 billion in the second quarter of 2017—a 10.7 percent increase from the previous year. The FDIC primarily attributed the rise in second quarter income to an increase in net interest income and noninterest income. Average return on assets rose to 1.14 percent, which is the highest in 10 years. Community bank net income increased 8.5 percent from a year earlier to $5.7 billion in the second quarter and community banks “continue[d] to report higher net interest margins than the overall industry,” although, the gap is narrowing. However, FDIC Chairman Martin J. Gruenberg noted in a statement released that same day that the annual rate of loan growth has slowed for three consecutive quarters and that “an extended period of low interest rates and an increasingly competitive lending environment have led some institutions to reach for yield,” which created “heightened exposure to interest-rate risk, liquidity risk, and credit risk.”

    Federal Issues Banking FDIC

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