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CFPB Succession: Leandra English steps down, seeks to dismiss appeal; Mulvaney selects close advisor to be new deputy
On July 9, Leandra English filed a motion for voluntary dismissal with the U.S. Court of Appeals for the D.C. Circuit, effectively ending her eight-month legal battle over the appointment of Mick Mulvaney as acting director of the CFPB. The motion follows an announcement released via Twitter on July 6 that English will be stepping down from her position as deputy director of the Bureau “in light of the recent nomination of a new Director.” (As previously covered by InfoBytes, President Trump nominated Kathy Kraninger, currently serving as the associate director for general government at the Office of Management and Budget (OMB), to be the director of the Bureau for a five-year term.) In April, the D.C. Circuit heard oral arguments in English’s litigation. Unlike previous arguments, which focused on the president’s authority to appoint Mulvaney under the Federal Vacancies Reform Act (FVRA), the court spent considerable time discussing Mulvaney’s concurrent role as head of the OMB, and whether that dual role is inconsistent with the Bureau’s independent structure as established by the Dodd-Frank Act. A decision was pending at the time English submitted her dismissal of the case.
Following English’s resignation, Mulvaney announced the selection of Brian Johnson as the Bureau’s acting deputy director. Johnson was Mulvaney’s first advisor hire at the Bureau, and he currently serves as a principal policy director. Prior to joining the Bureau, Johnson was a senior counsel at the House Financial Services Committee.
Federal Reserve, FDIC extend resolution plan filing deadline for 14 domestic firms
On July 2, the Federal Reserve Board and the FDIC announced that the deadline to file resolution plans, also known as living wills, for 14 domestic firms has been extended to December 31, 2019. This one-year extension provides more time for the agencies to provide feedback on the firms’ last round of resolution plan submissions, as well as for the firms to produce their next resolution plans as required by the Dodd-Frank Act. The agencies also issued a reminder that due to the recent passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act, banks with less than $100 billion in total consolidated assets are no longer bound by resolution plan requirements.
OCC issues updates to Comptroller’s Handbook
On June 28, the OCC issued Bulletin 2018-18, which revises and updates certain booklets of the Comptroller’s Handbook. Among other things, the revisions and updates (i) clarify the applicability of each booklet to community, midsize, and large banks: (ii) incorporate Uniform Interagency Consumer Compliance Rating System revisions; (iii) provide asset management and Bank Secrecy Act/Anti-Money Laundering/Office of Foreign Assets Control risk assessment examiner guidance to ensure consistency with the Federal Financial Institutions Examination Council BSA/AML Examination Manual’s appendixes J and M; (iv) incorporate relevant aspects of the Dodd-Frank Act; (v) clarify the roles of banks’ boards of directors and management; and (vi) “include revised concepts and references regarding third-party risk management; new, modified, or expanded bank products or services; and corporate and risk governance.” The revised booklets are: Bank Supervision Process, Community Bank Supervision, Compliance Management Systems, Federal Branches and Agencies Supervision, and Large Bank Supervision.
Federal Reserve releases stress test results
On June 21, the Federal Reserve Board released the results of stress tests conducted on 35 financial institutions, representing 80 percent of the assets of all banks operating in the U.S. The results are from the eighth round of stress tests led by the Fed since 2009 and the sixth round under the Dodd-Frank Act. Under the most severe scenario tested by the Fed, consisting of a severe global recession with unemployment rising to 10 percent and a steepening Treasury yield curve, the Fed projected losses at the 35 institutions would total $578 billion and the aggregate common equity tier 1 capital ratio would fall from an actual 12.3 percent in the fourth quarter of 2017 to 7.9 percent. The Fed also noted that several factors, including higher credit card balances and changes to the tax code, affected the post-stress capital ratios this year.
Federal Reserve Board approves final rule setting single counterparty credit limit
On June 14, the Federal Reserve Board approved a rule to establish single-counterparty credit limits for U.S. bank holding companies with at least $250 billion in total consolidated assets, foreign banking organizations operating in the U.S. with at least $250 billion in total global consolidated assets (as well as their intermediate holding companies with $50 billion or more in total U.S. consolidated assets), and global systemically important bank holding companies (GSIBs).
The rule, which implements section 165(e) of the Dodd-Frank Act, requires the Board to limit a bank holding company’s or foreign banking organization’s credit exposure to an unaffiliated company. Under the rule, a GSIB’s credit exposure is limited to 15 percent of its tier 1 capital to another systemically important firm. A U.S. bank holding company and other applicable foreign institution is limited to a credit exposure of 25% of its tier 1 capital to a counterparty.
GSIBs will be required to comply with the final rule on January 1, 2020, while other covered entities will have through July 1, 2020 to comply. The final rule was published in the Federal Register on August 6 and will take effect October 5.
Trump signs legislation enacting bipartisan regulatory relief bill
On May 24, President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) (the bill) — which modifies provisions of the Dodd-Frank Act and eases certain regulations on certain smaller banks and credit unions. Upon signing, the White House released a statement quoting the president, “[c]ommunity banks are the backbone of small business in America. We are going to preserve our community banks.”
The House, on May 22, passed the bipartisan regulatory reform bill by a vote of 258-159. The bill was crafted by Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo, R-Idaho and passed by the Senate in March. The House passed the bill without any changes to the Senate version, even though House Financial Services Chairman, Jeb Hensarling, originally pushed for additional reform provisions to be included. Specifically, the bill does not include certain provisions that were part of Hensarling’s Financial CHOICE Act, such as (i) a complete repeal of the Volker Rule; (ii) subjecting the CFPB to the Congressional appropriations process and restructure the agency with a bipartisan commission; and (iii) reducing the Financial Stability Oversight Council’s (FSOC) authority to designate nonbank financial institutions as Systemically Important Financial Institutions (SIFIs).
In response to the bill’s passage, the OCC’s Comptroller of Currency, Joseph Otting, issued a statement supporting the regulatory changes and congratulating the House, “[t]his bill restores an important balance to the business of banking by providing meaningful reductions of regulatory burden for community and regional institutions while safeguarding the financial system and protecting consumers.” Additionally, acting Director of the CFPB, Mick Mulvaney, applauded Congress, noting that the reforms to mortgage lending were “long overdue” and called the bill “the most significant financial reform legislation in recent history.”
As previously covered by InfoBytes, the highlights of the bill include:
- Improving consumer access to mortgage credit. The bill’s provisions state, among other things, that: (i) banks with less than $10 billion in assets are exempt from ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) appraisals will not be required for certain transactions valued at less than $400,000 in rural areas; (iii) banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether); (iv) amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; and (v) the CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.
- Regulatory relief for certain institutions. Among other things, the bill simplifies capital calculations and exempts community banks from Section 13 of the Bank Holding Company Act if they have less than $10 billion in total consolidated assets. The bill also states that banks with less than $10 billion in assets, and total trading assets and liabilities not exceeding more than five percent of their total assets, are exempt from Volcker Rule restrictions on trading with their own capital.
- Protections for consumers. Included in the bill are protections for veterans and active-duty military personnel such as: (i) permanently extending from nine months to one year the protection that shields military personnel from foreclosure proceedings after they leave active military service; and (ii) adding a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to the TILA ability-to-repay requirement.
- Changes for bank holding companies. Among other things, the bill raises the threshold for automatic designation as a SIFI from $50 billion in assets to $250 billion. The bill also subjects banks with $100 billion to $250 billion in total consolidated assets to periodic stress tests and exempts from stress test requirements entirely banks with under $100 billion in assets. Additionally, certain banks would be allowed to exclude assets they hold in custody for others—provided the assets are held at a central bank—when computing the amount such banks must hold in reserves.
- Protections for student borrowers. The bill’s provisions include measures to prevent creditors from declaring an automatic default or accelerating the debt against a borrower on the sole basis of bankruptcy or cosigner death, and would require the removal of private student loans on credit reports after a default if the borrower completes a loan rehabilitation program and brings payments current.
Each provision of the bill will take effect at various intervals from the date of enactment up to 18 months after.
Trump signs legislation repealing CFPB auto guidance, Mulvaney praises action; CFPB to reexamine ECOA requirements
On May 21, President Trump signed resolution S.J. Res. 57, which repeals CFPB Bulletin 2013-02 on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). The president’s signature completes the disapproval process under the Congressional Review Act (CRA), which began after the Government Accountability Office (GAO) issued a letter in December 2017 to Senator Pat Toomey (R-Pa) stating that “the Bulletin is a general statement of policy and a rule” that is subject to override under the CRA. The Senate passed the disapproval measure in April and the House approved it in the beginning of May. (Previously covered by InfoBytes here.)
The repeal responds to concerns that the bulletin improperly attempted to regulate auto dealers, which the Dodd-Frank Act excluded from the Bureau’s authority. In a statement after the president’s signing, CFPB acting Director Mick Mulvaney praised the action and thanked the president and Congress for “reaffirming that the Bureau lacks the power to act outside of federal statutes.” He also stated that the repeal “clarifies that a number of Bureau guidance documents may be considered rules for purposes of the CRA, and therefore the Bureau must submit them for review by Congress. The Bureau welcomes such review, and will confer with Congressional staff and federal agency partners to identify appropriate documents for submission.”
Additionally, acting Director Mulvaney announced plans to reexamine the requirements of ECOA, “[g]iven a recent Supreme Court decision distinguishing between antidiscrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor.” Although the decision is not identified, it is likely the June 2015 Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which concluded that disparate impact claims are permitted under the Fair Housing Act but acknowledged some limitations on its application. (Covered by a Buckley Sandler Special Alert.)
9th Circuit will not rehear interest on escrow preemption decision
On May 16, a panel of three judges on the U.S. Court of Appeals for the 9th Circuit denied the petition for an en banc rehearing of its March decision, which held that a California law that requires a bank to pay interest on escrow funds is not preempted by federal law. In addition to the national bank’s appeal for a rehearing, the OCC notably filed an amicus brief supporting the rehearing, arguing that the court “comprehensively misinterpreted” the Supreme Court’s 1996 decision Barnett Bank of Marion County v. Nelson. (Previously covered by InfoBytes here.) The panel noted that the full court had been advised of the bank’s petition for rehearing, and no judge had requested a vote on rehearing.
CFTC Commissioner says FSOC should take lead in future fintech policy regulation
On May 3, Commodities Futures Trading Commission (CFTC) Commissioner Rostin Behnam emphasized that the Financial Stability Oversight Council (FSOC) should take the lead in evaluating the future of oversight and regulation of the fintech industry. In his keynote address to a financial regulatory conference in Washington, D.C., Behnam highlighted the rise of cryptocurrencies as an example of the need to “identify and craft an appropriate path forward for ensuring that legal issues resulting from these technologies are identifiable and solvable before they cross the horizon.” According to Benham, FSOC, due to its mandate in the Dodd-Frank Act, has the authority to, among other things, convene financial regulators for collaboration and propose policy direction based on input from all stakeholders. Acknowledging the need for all market participants and regulators to be aligned when it comes to fintech regulation, Benham stated that “anything less than decisive action by policymakers in the short term” will lead to uncertainty.
PHH will not challenge CFPB’s constitutionality with Supreme Court
PHH will not seek to appeal the January 31 decision by the U.S. Court of Appeals for the D.C. Circuit, which upheld the CFPB’s constitutionality in a 7-3 decision. (Covered by a Buckley Sandler Special Alert.) The Supreme Court requires petitions for writ of certiorari to be filed within 90 days of the decision, which would have put PHH’s deadline around May 1. According to reports, a PHH spokesperson confirmed the company did not file the petition but declined to provide further comment.
As previously covered by InfoBytes, the U.S. Court of Appeals for the 5th Circuit recently agreed to hear a similar challenge to the constitutionality of the CFPB’s single-director structure by two Mississippi-based payday loan and check cashing companies.