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  • CSBS Files Motion in Opposition to OCC’s Motion to Dismiss Fintech Charter Challenge

    FinTech

    On September 13, the Conference of State Bank Supervisors (CSBS) filed its response to the OCC’s motion to dismiss a lawsuit brought against the agency, which challenged its statutory authority to create a special purpose national bank (SPNB) charter for fintech companies. As previously discussed in InfoBytes, the OCC argued in its motion to dismiss that the CSBS lawsuit was premature because the agency has not reached a decision on whether it will make SPNB charters available to fintech companies or other nonbank firms. The OCC further asserted that under the National Bank Act (NBA), its interpretation of “the business of banking” deserves Chevron deference. In its response, CSBS disagreed and argued that in December 2016 the OCC “formally announced” its decision to begin chartering nonbanks, and that with the publication of a supplement to its Licensing Manual—which both stated its authority to issue SPNP charters to “institutions that neither take deposits nor are insured by the [FDIC]” and “invited interested parties to initiate the application process”—the OCC “crystalized its position.”

    In addressing other issues raised by the OCC in support of dismissal of the lawsuit, CSBS argued that:

    • CSBS has sufficient injury for standing because the OCC’s decision to grant charters interferes with states’ sovereignty and the ability to oversee and enforce state licensing and consumer protection laws;
    • the court must test the underlying legal premise, which is that the “OCC lacks the requisite statutory authority under the [NBA] to encroach upon the regulation of nonbanks by issuing national bank charters to institutions that do not take deposits, and therefore do not engage in the ‘business of banking’” because “there is no point in either [the] OCC or its charter applicants devoting resources to ultra vires charters that will be invalidated”;
    • the OCC’s position that CSBS has “failed to state a claim” concerning the interpretation of the “business of banking” is unsupported, and the court “must consider the statutory context of the term, including a regulatory regime that encompasses not only the NBA, but also other federal banking statutes” to conclude that the “business of banking” necessarily includes the taking of deposits; and
    • if the OCC seeks to expand its authority “into areas traditionally occupied by states, courts require a clear showing that Congress, acting through the agency, has approved such a result”—which the OCC has not shown.

    Fintech Courts CSBS OCC Litigation

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  • Agencies Issue Proposed Rulemaking to Amend CRA Regulations to Conform With HMDA Regulation Changes

    Lending

    On September 13, the Federal Reserve Board, the FDIC, and the OCC (Agencies) issued a joint notice of proposed rulemaking to amend Community Reinvestment Act (CRA) regulations to conform to the CFPB’s changes to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The proposed amendments revise the definition of “home mortgage loan” and “consumer loan,” update the public file content requirements to comply with recent Regulation C changes, and make various technical corrections. In addition, the proposal will eliminate obsolete references to the Neighborhood Stabilization Program (NSP), an initiative created by HUD to help stabilize communities contending with foreclosures and abandonment. In 2016, under CRA regulations, NSP-eligible activities were no longer considered “community development.” The Agencies anticipate that the proposed rule will become effective on January 1, 2018, when most of the changes to the HMDA rules go into effect.

    Home Mortgage Loan. Under the 2015 HMDA Rule changes, “most consumer-purpose transactions, including closed-end mortgage loans, closed-end home equity loans, home-equity lines of credit, and reverse mortgages will be reported under HMDA if they are secured by a dwelling.” To conform to the Regulation C amendments, effective January 1, 2018, for purposes of CRA regulations, a “home mortgage loan” will now mean a “closed-end mortgage loan” or an “open-end line of credit,” both of which will now apply only to loans that are secured by a dwelling. Financial institutions will now have the option to decide whether they want home improvement loans that are not secured by a dwelling, which will no longer be HMDA, considered for CRA purposes, although the Agencies note that they may choose to still evaluate some of these loans in certain circumstances “where the consumer lending is so significant a portion of an institution’s lending by activity and dollar volume of loans that the lending test evaluation would not meaningfully reflect lending performance if consumer loans were excluded.”

    Consumer Loan. The proposed rulemaking would no longer include “home equity loans” in the list of “consumer loan” categories for CRA purposes, as it will now be included within the proposed revised definition of a “home mortgage loan.”  

    Comments on the proposal will be accepted for 30 days after publication in the Federal Register.

    Lending Agency Rule-Making & Guidance OCC Federal Reserve FDIC CFPB CRA HMDA Mortgages

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  • OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Flood Insurance Requirements

    Agency Rule-Making & Guidance

    On September 7, the OCC released OCC Bulletin 2017-35 announcing a replacement of its handbook titled “Flood Disaster Protection Act” (FDPA)—last issued in 1999—to reflect recent amendments to the FDPA and implement regulations that resulted from the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) and the Homeowner Flood Insurance Affordability Act of 2014. The booklet, which is part of the Comptroller’s Licensing Manual, clarifies the following changes, among other things:

    • flood insurance requirement exemptions for certain detached nonresidential structures;
    • a requirement that banks—or servicers acting on behalf of a bank—escrow flood insurance premiums and fees for “any loan secured by a residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016,” and also lists exemptions to the requirement;
    • a requirement that banks and servicers “subject to the escrow requirement” must provide borrowers the option to escrow flood insurance premiums and fees and are required to implement the escrow “as soon as reasonably practicable” after the request has been received;
    • FDPA provisions on force-placed insurance, including termination and refund requirements; and
    • “examination procedures for determining compliance with the detached structure, escrow, and force placement provisions.”

    Notably, the OCC stated that the Biggert-Waters Act provision, which requires the acceptance of private flood insurance policies that meets specified criteria to satisfy the mandatory purchase requirement, has not yet been adopted and will be addressed separately.

    Agency Rule-Making & Guidance OCC Flood Insurance Licensing Treasury Department Force-placed Insurance Escrow Mortgages

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  • CFPB, Federal and State Banking Agencies Issue Guidance for Financial Institutions on Providing Disaster Relief to Consumers

    Consumer Finance

    As previously reported in InfoBytes, several federal banking agencies have already issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent disasters. On September 1, the CFPB issued a statement for CFPB-supervised entities on ways to provide assistance to consumers who may be at financial risk. The list includes:

    • offering penalty-free forbearance or repayment periods with disclosed terms;
    • limiting or waiving fees and charges, including overdraft fees, ATM fees, or late fees;
    • restructuring or refinancing existing debt, including extending repayment terms;
    • easing documentation or credit-extension requirements;
    • increasing capacity for customer service hotlines, particularly those that serve consumers in languages other than English; and
    • increasing ATM daily cash withdrawal limits.

    The statement further suggests that supervised entities should utilize existing regulatory flexibility if doing so would benefit affected consumers. Included are examples from Regulations B, X, and Z. Additionally, the Bureau stated it will “consider the circumstances that supervised entities may face following a major disaster and will be sensitive to good faith efforts to assist consumers.”

    The CFPB separately published a blog post for consumers containing a financial toolkit that includes links to disaster relief organizations, ways to secure financial needs, and information on forbearance options, insurance settlements, and contractor evaluations. The CFPB also issued a warning to consumers of the increased risk of scams and fraud.

    In related news, on September 6, the Federal Reserve Board, Conference of State Bank Supervisors, FDIC, and OCC issued a joint press release for financial institutions that may be impacted by Hurricane Irma. The agencies encouraged constructive cooperation with borrowers, noting that “prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism.” Guidance was also issued on matters concerning Community Reinvestment Act considerations, investments, regulatory reporting requirements, publishing requirements, and temporary banking facilities.

    Consumer Finance CFPB Federal Reserve CSBS FDIC OCC CRA Lending Mortgages

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  • OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Change in Bank Control Process

    Agency Rule-Making & Guidance

    On September 1, the OCC released OCC Bulletin 2017-33 announcing a new booklet to provide guidance for persons seeking to acquire control of national banks and federal savings associations. The “Change in Bank Control” booklet, which is part of the Comptroller’s Licensing Manual, provides, among other things:

    • an overview of evaluation criteria and considerations taken into account when the OCC reviews a notice of change;
    • timeframe requirements and information regarding the notice process;
    • the required contents of an application and application process; and
    • references and links to informational resources, including sample forms and documents and statutory/regulatory requirements.

    Reflected in the newly issued booklet are updates to procedures and regulations that have been implemented since 2007, including the integration of the Office of Thrift Supervision into the OCC in 2011 and the issuance of revised regulation 12 C.F.R. § 5 that went into effect July 1, 2015.

    Agency Rule-Making & Guidance OCC Licensing

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  • Banking Agencies Offer Guidance Regarding Harvey Response

    Agency Rule-Making & Guidance

    On August 29, the OCC and FDIC each issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent natural disasters.

    OCC Bulletin 2012-28. The OCC bulletin rescinds and replaces previously issued natural disaster guidance and encourages banks serving affected customers to consider the following: (i) “waiving or reducing ATM fees”; (ii) “temporarily waiving late payment fees or penalties for early withdrawal of savings”; (iii) assisting borrowers based on individual situations, when appropriate, by restructuring debt obligations or adjusting payment terms—not to generally exceed 90 days; (iv) “expediting lending decisions when possible”; (v) “originating or participating in sound loans to rebuild damaged property”; and (vi) communicating with state and federal agencies to help mitigate the effects. “Examiners will not criticize these types of responses as long as the actions are taken in a manner consistent with sound banking practices,” the OCC announced. The bulletin also provides additional resources on accounting and reporting issues and Qualified Thrift Lender requirements, among other things.

    FDIC FIL-38-2017. The FDIC financial institution letter (FIL) provides similar guidance for depository institutions assisting affected customers. FIL guidance includes the following suggestions: (i) “waiving ATM fees for customers and non-customers”; (ii) “increasing ATM daily cash withdrawal limits”; (iii) waiving items such as overdraft fees, time deposit early withdrawal penalties, availability restrictions on insurance checks, and credit card/loan balance late fees; (iv) “easing restrictions on cashing out-of-state and non-customer checks” as well as “easing credit card limits and credit terms for new loans”; (v) allowing borrowers to defer or skip some loan payments; and (vi) “delaying the submission of delinquency notices to the credit bureaus.” “Prudent efforts by depository institutions to meet customers' cash and financial needs generally will not be subject to examiner criticism,” the FIL noted. Also, the FDIC “encourages depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.”

    The following agencies also issued guidance: Federal Reserve, Farm Credit Administration, and the National Credit Union Administration.

    Agency Rule-Making & Guidance Banking Consumer Finance Bank Secrecy Act FDIC OCC Federal Reserve Farm Credit Administration NCUA

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  • FFIEC Releases Guidelines on HMDA Data Testing and Resubmission Standards

    Agency Rule-Making & Guidance

    Earlier this week the Federal Financial Institutions Examination Council (FFIEC) issued new FFIEC Home Mortgage Disclosure Act Examiner Transaction Testing Guidelines (guidelines). Examiners will use the new guidelines to assess the accuracy of the HMDA data recorded and reported by financial institutions and determine when an institution must correct and resubmit its HMDA Loan Application Register. The guidelines will apply to data collected beginning January 1, 2018. As further explained in a CFPB blog post issued the same day, this will be the first time all federal HMDA supervisory agencies—including the CFPB, FDIC, Federal Reserve, NCUA, and the OCC—will adopt uniform guidelines, which are designed to ensure HMDA data integrity (HMDA data includes certain information financial institutions are required to collect, record, and report about their home mortgage lending activity). The purpose for collecting the HMDA data is to evaluate housing trends and issues to monitor lending patterns, assist agencies with fair lending and Community Reinvestment Act examinations, and help identify discriminatory lending practices. According to a FDIC financial institution letter (FIL-36-2017) released on August 23, the highlights of the guidelines include, among other things, a data sampling process, error threshold levels, tolerance levels for minor errors, and the ability of examiners to direct a financial institution to make appropriate change to its compliance management system to prevent recurring HMDA data errors.

    As previously discussed in InfoBytes, in 2016 the CFPB issued a request for public feedback on the resubmission of mortgage lending data reported under HMDA.

    Agency Rule-Making & Guidance HMDA Mortgages CFPB FDIC Federal Reserve NCUA OCC CRA

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  • Federal Banking Regulators Issue Proposal to Simplify Capital Requirements to Provide Regulatory Relief to Community Banks

    Agency Rule-Making & Guidance

    On August 22, the Federal Reserve, FDIC and OCC issued a proposed rule that capital requirements set to take effect in January 2018 would be suspended under a proposed rule for banking organizations not subject to the advanced approaches capital rules, such as community and midsized banks— generally those with less than $250 billion in total assets and fewer than $10 billion in foreign exposure. The federal banking regulators proposed the suspension as they develop a proposal that would simplify capital requirements to reduce regulatory burden. Banks subject to the advance approaches capital rules will still be required to comply with the capital rule requirements taking effect January 1, 2018. The proposal would pause the fully phased-in Basel III requirements regarding the treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests (see FDIC Financial Institution Letter FIL-34-2017). According to a press release issued by the FDIC, “the transitional treatment for those items is scheduled to be replaced with a different treatment on January 1, 2018.” FDIC Vice Chairman Thomas M. Hoenig issued a statement supporting the proposal but pushed for the need to provide additional relief for community banks such as predicating relief based on banking activities and tangible equity rather than asset size.

    Comments on the proposed rule are due 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Basel Federal Reserve FDIC OCC Mortgages Community Banks Bank Regulatory

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  • OCC Updates Comptroller’s Licensing Manual Booklet to Provide Guidance on Substantial Asset Changes

    Agency Rule-Making & Guidance

    On August 23, the OCC released OCC Bulletin 2017-30 announcing a new booklet to address filing policies and requirements pertaining to substantial asset and charter purpose changes for OCC-supervised national banks and federal savings associations. The “Substantial Asset Changes, Including Changes in Charter Purpose” booklet, which is part of the Comptroller’s Licensing Manual, provides, among other things:

    • an overview of asset changes requiring an application;
    • filing exceptions;
    • the OCC’s decision criteria;
    • the required contents of an application and application process; and
    • references and links to informational resources.

    Agency Rule-Making & Guidance OCC Licensing

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  • OCC Issues Guidance for Banks Originating Mortgages with LTV Ratios Greater than 100 Percent as Part of Community Revitalization Efforts

    Lending

    On August 21, in an effort to assist in revitalizing distressed communities, the OCC released guidance for national banks and federal savings associations considering owner-occupied residential mortgage originations with loan-to-value (LTV) ratios greater than 100 percent. Bulletin 2017-28 includes, among other thing, the program criteria, which includes (i) permanent first-lien mortgages with LTV ratios exceeding 100 percent at time of origination, without mortgage insurance or other acceptable collateral, and with an original loan balance of $200,000 or less, (ii) communities that are “officially targeted for revitalization by a federal, state, or municipal government entity or agency,” (iii) a set of program policies and procedures, and (iv) providing notice to the OCC thirty days prior to starting or modifying a program.

    Established programs will be actively monitored and evaluated to examine the performance of the LTV loans, and the programs as a whole will be evaluated at least annually to determine the extent to which they are aiding in revitalization efforts. Depending on its findings, the OCC reserves the right to amend or rescind Bulletin 2017-28, but maintains that any loans originated in agreement with the required provisions will not be affected “solely because of any measurable amendment or rescission of this [B]ulletin.”“Bank lending under such a program may serve the credit needs of individual borrowers and the community, and the bank may receive Community Reinvestment Act consideration depending on the specifics of the program,” the OCC noted.

    Lending Agency Rule-Making & Guidance OCC CRA Mortgage Origination LTV Ratio

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