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OCC outlines EFTA remittance transfer examination procedures
On August 2, the OCC issued Bulletin 2021-33, which outlines supplemental examination procedures on remittance transfers used by OCC examiners and rescinds certain related booklets and bulletins. The examination procedures supplement EFTA procedures issued by the Federal Financial Institutions Examination Council that were adopted by the OCC in 2019 and address several provisions for implementing Regulation E’s requirement to disclose the exact cost of remittance transfers. These include: (i) a safe harbor threshold increase, which “excludes certain banks from the requirements for a bank that provides remittance transfers for consumers in the normal course of the bank’s business,” and (ii) certain allowable exchange rate and third-party fee disclosure exceptions. The bulletin also provides a summary of the CFPB’s Regulation E amendments concerning remittance transfers that took effect July 2020 (covered by InfoBytes here).
Agencies clarify LIBOR transition on regulatory capital instruments
On July 29, the FDIC, Federal Reserve Board, and OCC (see FDIC FIL-54-2021, Fed SR 21-12, and OCC Bulletin 2021-32) provided answers to frequently asked questions (FAQs) about the impact on regulatory capital instruments under 12 CFR 324 when transitioning from LIBOR to another reference rate. Among other things, the agencies clarified that “such a transition would not change the capital treatment of the instrument, provided the alternative rate is economically equivalent with the LIBOR-based rate.” Specifically, the FAQs clarify that the agencies do “not consider the replacement or amendment of a capital instrument that solely replaces a reference rate linked to LIBOR with another reference rate or rate structure to constitute an issuance of a new capital instrument for purposes of the capital rule.” Additionally, such a replacement or amendment would not create an incentive to redeem, provided “there are no substantial differences from the original instrument from an economic perspective.” Supervised financial institutions should conduct an appropriate analysis demonstrating that the replacement or amended instrument is not substantially different from the original instrument from an economic perspective and may be asked to provide the analysis to the agencies. “Considerations for determining that a replacement or amended capital instrument is not substantially different from the original instrument from an economic perspective could include, but are not limited to, whether the replacement or amended instrument has amended terms beyond those relevant to implementing the new reference rate or rate structure,” the FAQs state.
Find continuing InfoBytes coverage on LIBOR here.
OCC takes measures to address climate change risks
On July 27, the OCC appointed Darrin Benhart as its Climate Change Risk Officer and announced its membership in the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). OCC’s membership in NGFS will allow the agency to collaborate with central banks and peer supervisors, share best practices, and contribute to the development of climate risk management in the financial sector. The appointment of Benhart to the newly created position “will significantly expand the agency’s capacity to collaborate with stakeholders and to promote improvements in climate change risk management at banks,” acting Comptroller Michael J. Hsu stated, adding that Benhart “brings a wealth of supervisory, policy, and leadership experience to the role.” Hsu emphasized that “[p]rudently managing climate change risk is a safety and a soundness issue,” noting that these changes “will enable the agency to be more proactive in accelerating the development and adoption of robust climate change risk management practices, especially at the larger banks.”
OCC to rescind CRA final rule as agencies signal joint overhaul
On July 20, the OCC announced it will propose to rescind the agency’s May 2020 final rule overhauling the Community Reinvestment Act (CRA), signaling the OCC’s intention to collaborate with the Federal Reserve Board and the FDIC on a separate joint rulemaking. As previously covered by a Buckley Special Alert, the OCC’s final rule was intended to modernize the regulatory framework implementing the CRA by, among other things: (i) updating deposit-based assessment areas; (ii) mandating the inclusion of consumer loans in CRA evaluations; (iii) including quantitative metric-based benchmarks for determining a bank’s CRA rating; and (iv) including a non-exhaustive illustrative list of activities that qualify for CRA consideration.
The announcement follows the completion of a review undertaken by acting Comptroller Michael Hsu (covered by InfoBytes here). Hsu stated that although “the OCC deserves credit for taking action to modernize the CRA,” the adoption of the final rule was “a false start” in attempting to overhaul the regulation. According to Hsu, the OCC intends to work with the Fed and the FDIC to develop a joint Notice of Proposed Rulemaking and build on an Advance Notice of Proposed Rulemaking issued by the Fed last September (covered by InfoBytes here). The federal agencies issued an interagency statement noting that they have “broad authority and responsibility for implementing the CRA” and that “[j]oint agency action will best achieve a consistent, modernized framework across all banks to help meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods.”
Fed, OCC report on health of MDIs
Recently, the Federal Reserve Board and the OCC issued reports pursuant to Section 367 of the Dodd-Frank Act generally detailing the health of Minority Depository Institutions (MDIs) and the agencies’ efforts taken to assist MDIs as the Covid-19 pandemic disproportionately affected low- and moderate-income communities and racial and ethnic minorities. The Fed’s report, “Promoting Minority Depository Institutions,” discussed, among other things, extra steps taken by the agency to support and assist MDIs over the past year, which included conducting individualized outreach on several topics like how to access the discount window and the Paycheck Protection Program Liquidity Facility (covered by InfoBytes here and here). The report also examined efforts taken by the Fed to preserve and promote MDIs through its Partnership for Progress program—“a national outreach effort to help MDIs confront unique business-model challenges, cultivate safe banking practices, and compete more effectively in the marketplace”—and covered the Fed’s unanimous approval last September to approve an Advance Notice of Proposed Rulemaking on modernizing the Community Reinvestment Act (covered by InfoBytes here).
The OCC outlined actions taken to preserve and promote MDIs in its “2020 Annual Report,” including the launch of the Roundtable for Economic Access and Change known as Project REACh (covered by InfoBytes here). OCC subject matter experts also provided regulatory technical assistance to MDIs on topics including safety and soundness, cybersecurity, compliance with Bank Secrecy Act/anti-money laundering requirements, and current expected credit loss accounting methodology, among others. The OCC also noted that despite a seven-basis-points drop on the average return on assets for MDIs through the pandemic, the health of those institutions “remained satisfactory.”
OCC marks first anniversary of financial inclusion project
On July 15, the OCC marked the one-year anniversary of Project REACh, an initiative launched by the agency last year to promote greater financial inclusion of underserved populations. As previously covered by InfoBytes, Project REACh (Roundtable for Economic Access and Change) brings together leaders from the banking industry, national civil rights organizations, and various businesses and technology organizations to identify and reduce barriers to accessing capital and credit. While the project’s scope in its first year included a national workstream and a regional effort centered on Los Angeles, acting Comptroller Michael Hsu announced that Project REACh will soon expand its regional focus to Washington, D.C., Dallas, and Detroit in order “to replicate the success of the project’s national workstream.” In prepared remarks, Hsu emphasized that addressing economic inequality needs to be “transformational, not transactional,” pointing out that “the financial system can perpetuate inequality” as “traditional credit scores, traditional overdraft practices, and predatory lending make it expensive to be poor, while wealthy clients can borrow and access a wide range of financial services at lower cost.” Hsu explained that Project REACh’s structure and approach allows for collaborative problem identification and problem solving and creates opportunities for business and community representatives to incubate ideas and pilots “that can later be implemented on a broader scale than possible by any one institution.”
Federal agencies seek comments on third-party relationships
On July 13, the Federal Reserve Board, FDIC, and OCC announced a request for public comments on proposed guidance designed to aid banking organizations manage risks related to third-party relationships, including relationships with financial technology-focused entities. The guidance also responds to industry feedback requesting alignment among the agencies with respect to third-party risk management guidance. The proposed guidance provides “a framework based on sound risk management principles for banking organizations to consider in developing risk management practices for all stages in the life cycle of third-party relationships that takes into account the level of risk, complexity, and size of the banking organization and the nature of the third-party relationship.” The proposal addresses key components of risk management, such as (i) planning, due diligence and third-party selection; (ii) contract negotiation; (iii) oversight and accountability; (iv) ongoing monitoring; and (v) termination. Comments on the proposal are due 60 days after publication in the Federal Register.
Biden orders federal agencies to evaluate banking, consumer protections
On July 9, President Biden issued a broad Executive Order (E.O.) that includes provisions related to the financial services industry.
- CFPB. The E.O. encourages the CFPB director to issue rules under Section 1033 of Dodd-Frank “to facilitate the portability of consumer financial transaction data so consumers can more easily switch financial institutions and use new, innovative financial products.” As previously covered by InfoBytes, last October, the Bureau issued an advanced notice of proposed rulemaking on Section 1033, seeking comments on questions related to consumers’ access to their financial records. The E.O. also instructs the Bureau to enforce Section 1031 of Dodd-Frank, which prohibits unfair, deceptive, or abusive acts or practices in consumer financial products or services, “to ensure that actors engaged in unlawful activities do not distort the proper functioning of the competitive process or obtain an unfair advantage over competitors who follow the law.”
- Treasury Department. The E.O. calls on Treasury to submit a report within 270 days on the effects on competition of large technology and other non-bank companies’ entry into the financial services space.
- FTC. The E.O. tasks the FTC with establishing rules to address concerns about “unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy.” The FTC already commenced that process on July 1, when it approved changes to its Rules of Practice to amend and simplify the agency’s procedures for initiating rulemaking proceedings. According to Commissioner Rebecca Kelly Slaughter, “[s]treamlined procedures for Section 18 rulemaking means that the Commission will have the ability to issue timely rules on issues ranging from data abuses to dark patterns to other unfair and deceptive practices widespread in our economy.”
- Bank Mergers. The E.O. encourages the Attorney General, in consultation with the Federal Reserve Board, FDIC, and OCC, to “review current practices and adopt a plan, not later than 180 days after the date of this order, for the revitalization of merger oversight under the Bank Merger Act and the Bank Holding Company Act of 1956.”
CFPB focuses on racial bias in home appraisals
On July 2, the CFPB announced its prioritization of resources to focus on the role of racial bias in home appraisals. According to the CFPB, undervaluation of homes based on race further drives the racial wealth divide and overvaluation of homes also puts family wealth at risk, leading to higher rates of foreclosure. On June 15, the CFPB hosted a home appraisal bias event where the NCUA, OCC, and HUD discussed insights on the role of racial bias in home appraisals, which led to conversations on how to collaborate with stakeholders in eliminating racial bias and other inequities in housing. The Bureau also noted it is “pleased to participate” in President Biden’s new interagency initiative to address inequity in home appraisals. The announcement offers numerous tools, among other resources, such as a joint housing website for those needing help paying their mortgage or rent, particularly in light of the CDC’s moratorium expiring on July 31, and a link to HUD’s Fair Housing and Equal Opportunity office for victims of appraisal bias.
Biden signs repeal of OCC’s “true lender” rule
On June 30, President Biden signed S.J. Res. 15, repealing the OCC’s “true lender” rule pursuant to the Congressional Review Act. Issued last year, the final rule amended 12 CFR Part 7 to state that a bank makes a loan when, as of the date of origination, it either (i) is named as the lender in the loan agreement, or (ii) funds the loan. The final rule also provided that if “one bank is named as the lender in the loan agreement and another bank funds the loan, the bank that is named as the lender in the loan agreement makes the loan.” (Covered by InfoBytes here.)