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Chopra shares prepared remarks about the lessons from 2008
In his recent address at the Better Markets Conference and his address at the Mortgage Collaborative National Conference, CFPB Director Rohit Chopra reflected on lessons from the 2008 financial crisis, discussing the regulatory failures exemplified by mortgage entities’ risky practices and emphasized the post-crisis reforms, including the creation of the CFPB. Chopra highlighted the CFPB's role in implementing crucial mortgage industry standards and its positive impact on borrower protections. He also mentioned the challenges facing the mortgage market today and the legal battles over CFPB rules, touching upon an upcoming Supreme Court case challenging the CFPB's constitutionality and its potential consequences for financial stability, underlining the importance of regulatory rules for financial markets and household finances. Chopra highlighted the CFPB's role in implementing standards for ensuring borrowers' ability to repay through the qualified mortgage and ability-to-repay rule, which granted legal immunity to compliant lenders. As a result of the financial crisis, Congress set requirements related to mortgage data, mortgage servicing, and mortgage lender compensation. Much of the authority that had been held by the OCC, the Fed, and the Office of Thrift Supervision were transferred to the nascent CFPB. In his remarks, Chopra also outlined areas where further action is needed, including open banking, financial data rights, bank mergers, the effectiveness of "living wills" for large financial firms, and the regulation of shadow banks.
FDIC, Fed issue new rules and guidance aimed to strengthen resolution planning at large banks
On August 29, the FDIC and the Federal Reserve Board issued a joint press release inviting public comment on proposed guidance that serves to toughen requirements for non-G-SIB large bank holding companies’ resolution plans, or “living wills” that set forth strategies for rapid and orderly resolution under bankruptcy in the event of financial distress or failure. The proposed guidance, which includes guidance for both domestic triennial full filers and guidance for foreign triennial full filers, will generally apply to certain bank holding companies and foreign banking associations with between $250 billion and $700 billion in total assets. This guidance is separate from the guidance previously issued to the largest and most complex companies, which is already in place. The guidance (i) is organized around key areas of potential vulnerability, such as capital, liquidity, and operational capabilities; (ii) provides agency expectations for both single point of entry and multiple point of entry strategy needs; and (iii) proposes that foreign banking organizations develop U.S. resolution strategies that complement their global resolution plans. The proposed guidance will be published in the Federal Register, with comments due by November 30, 2023.
Separately on August 29, the FDIC approved a notice of proposed rulemaking to enhance resolution planning for insured depository institutions (IDIs) with at least $100 billion in total assets. The proposed rule would strengthen existing IDI resolution planning requirements under 12 CFR § 360.10 and would require a resolution submission from covered IDIs every two years, with limited filings in between. Covered IDIs would be required to submit comprehensive resolution plans that would “enhance current IDI resolution planning requirements by incorporating useful elements of existing guidance and important lessons learned from past plan reviews and from past large bank resolutions, including those earlier this year.” Additionally, IDIs with total assets of at least $50 billion but less than $100 billion would submit more limited informational filings and would not be required to develop a resolution strategy. Comments on the proposed rule are due by November 30, 2023.
DFPI finalizes small business UDAAP and data reporting rule
DFPI recently approved the final regulation for implementing and interpreting certain sections of the California Consumer Financial Protection Law (CCFPL) related to commercial financial products and services. After considering comments and releasing three rounds of modifications to Sections 1060, 1061, and 1062, the final regulation will, among other things, bring protections to small businesses seeking loans, by (i) defining and prohibiting unfair, deceptive, and abusive acts and practices in the offering or provision of commercial financing to small businesses, nonprofits, and family farms; and (ii) establishing data collection and reporting requirements.
Previous InfoBytes coverage on the (i) initial modifications to the CCFPL proposed regulation can be found here; (ii) the second round of CCFPL modifications proposal is found here; and (iii) the third iteration of the modified CCFPL proposal is located here.
This DFPI regulation was notably finalized on the heels of the CFPB’s finalized Section 1071 rule on small business lending data, which similarly will require financial institutions to collect and provide the Bureau data on lending to small businesses (covered by InfoBytes here)
Sections 1060, 1061, and 1062 will be effective on October 1.
OCC releases enforcement actions and terminations
On August 17, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include civil money penalty orders, formal agreements, and prohibition orders, each issued with the consent of the parties. The OCC also announced a termination of an existing enforcement action against a bank. Included in the release is a formal agreement entered into with a Minnesota-based bank on June 27 in connection with OCC findings of alleged unsafe or unsound practices relating to, among other things, consumer compliance and third party risk management. In connection to violations of certain Flood Disaster Protection Act rules, the agreement requires the bank to (i) establish a compliance committee to monitor the bank’s progress in complying with the agreement’s provisions; (ii) report such progress to the bank’s board of directors on a quarterly basis; and (iii) implement a written consumer compliance program. This program must also include procedures and guidance for compliance with all consumer protection laws, rules, and regulations to which the bank should adhere, an independent audit program, a comprehensive training program for bank personnel in the consumer protection laws, rules, and regulations as appropriate, and policies to manage risks in the credit process. It also separately requires revisions to the third-party risk management program addressing due diligence and monitoring of third parties, including monitoring for compliance with consumer protection-related laws and regulations.
OCC updates bank accounting guidance
On August 15, the OCC released an annual update to its Bank Accounting Advisory Series (BAAS) which is intended to address a variety of accounting topics and promote consistent application of accounting standards and regulatory reporting among OCC-supervised banks. The BAAS reflects updates to clarify the accounting standards issued by the Financial Accounting Standards Board related to, among other things, the elimination of recognition and the measurement of troubled debt restructurings by creditors, loan modifications, and credit losses. The August 2023 edition also includes answers to frequently asked questions from industry and bank examiners. Additionally, the OCC notes that the BAAS does not represent OCC rules or regulations but rather “represents the Office of the Chief Accountant’s interpretations of generally accepted accounting principles and regulatory guidance based on the facts and circumstances presented.”
OCC issues guidance regarding purchased loans
On August 8, the OCC issued new guidance regarding the applicability of the legal lending limit (LLL) to purchased loans. The guidance clarifies that “all loans and extensions of credit made by banks are subject to the LLL” and explains that “[w]hether a loan that a bank purchases is attributable to the seller under the LLL regulation depends on specific facts and circumstances.” The OCC then further explains, that in evaluating purchased loans, loans will be attributed to a seller if the bank has direct or indirect recourse to the seller, which can be explicit or implied. Explicit recourse is established through a written agreement and implied recourse can be established though the bank’s course of dealing with the seller. For example, the OCC noted that if a seller routinely “substituted or repurchased loans or refilled or replenished a reserve account even when the contract did not require those actions” that would be sufficient to establish implied recourse.
FFIEC updates BSA/AML examination manual
On August 2, the Federal Financial Institutions Examination Council (FFIEC) updated its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual, which provides examiners with instructions for assessing a bank or credit union’s BSA/AML compliance program and adherence to BSA regulatory requirements. The revisions include updates to the following sections:
- Special Information Sharing Procedures to Deter Money Laundering and Terrorist Activity
- Due Diligence Programs for Correspondent Accounts for Foreign Financial Institutions
- Due Diligence Programs for Private Banking Accounts
- Prohibition on Correspondent Accounts for Foreign Shell Banks; Records Concerning Owners of Foreign Banks and Agents for Service of Legal Process
- Summons or Subpoena of Foreign Bank Records; Termination of Correspondent Relationship; Records Concerning Owners of Foreign Banks and Agents for Service of Legal Process
- Reporting Obligations on Foreign Bank Relationships with Iranian-Linked Financial Institutions
The FFIEC noted that the “updates should not be interpreted as new instructions or as a new or increased focus on certain areas,” but rather are intended to “provide information and considerations related to certain customers that may indicate the need for bank policies, procedures, and processes to address potential money laundering, terrorist financing, and other illicit financial activity risks.” In addition, the Manual itself does not establish requirements for financial institutions, which are found in applicable statutes and regulations but rather reinforce the agency’s risk-focused approach to BSA/AML examinations.
HUD and NAREB to educate consumers on appraisal bias
On August 2, HUD announced a partnership with the National Association of Real Estate Brokers to address appraisal bias and discrimination in the housing market. The collaboration, launching in October 2023, will include online training, roundtable discussions, and distribution of educational material designed to promote fairness in the housing market. HUD also referenced its involvement in the PAVE task force (covered by InfoBytes here), which is dedicated to ending bias in home valuation and has made critical progress since its launch in 2022.
Biden Administration to improve small business loan program
On August 1, the SBA announced implementation of additional policies aimed at expanding small business’ access to capital by modernizing SBA’s signature 7(a) and 504 Loan Programs. The new simplified guidelines for lenders include updated origination policies and procedures, lender participation requirements, and 7(a) loan servicing and liquidation requirements. SBA has also clarified affiliation standards to effectively communicate who qualifies for SBA loans, will use technology updates to bring eligibility determinations in-house, and will also use advanced data analytics and third-party data checks for fraud review on all loan programs before approval.
The following three SBA SOPs took effect on August 1, bringing many of the new policies into practice:
- SOP 50 10 7: Lender and Development Company Loan Programs: Contains SBA’s policies and procedures governing the 7(a) and 504 loan programs.
- SOP 50 56: Lender participation requirements: Contains the criteria for becoming an SBA Lender.
- SOP 50 57: 7(a) Loan Servicing and Liquidation: Contains the policies and procedures for 7(a) loan servicing and liquidation.
Finally, the SBA will begin accepting the Universal Purchase Package, a new feature that is expected to streamline the process for lenders to request SBA honor its loan guaranty. SBA will also introduce new features in E-TRAN, SBA’s online platform used by lenders to upload loan applications.
Biden Administration, agencies take action to protect renters
On July 27, the Biden administration released a fact sheet detailing new actions to develop the Blueprint for a Renters Bill of Rights, which was rolled out early this year (covered by InfoBytes here). The three new actions aim to support renters by (i) “ensuring all renters have an opportunity to address incorrect tenant screening reports”; (ii) “providing new funding to support tenant organizing efforts”; and (iii) “ensuring that renters are given fair notice in advance of eviction.” Additionally, the CFPB, USDA, FHFA, and HUD concurrently released statements aimed at landlords, reminding them of “best practices” and their obligation to inform tenants of their rights.
FHFA published Director Sandra L. Thompson’s statement on “best practices” for the delivery of adverse action notices to renters by GSE-backed multifamily housing borrowers. Referencing research showing that tenant screening reports often contain imprecise or inaccurate information, Director Thompson “strongly encouraged” borrowers who deny a rental application to provide written adverse action notices to the applicants and a copy of any consumer screening report that was relied upon. FHFA’s guidance is based on the FCRA’s requirement that landlords and property managers inform rental applicants of negative information from a consumer screening report that resulted in their rental application being rejected or another unfavorable outcome.
The CFPB posted a blog entry that emphasized landlords’ obligation under the FCRA adverse action notice requirement, which mandates that landlords who take any action against a current or prospective tenant based on a consumer report notify the tenant of the decision and how they can contact the company that created the report. The Bureau advised that renters have the right to review their rental background check report and to dispute information they believe to be inaccurate and encouraged tenants to obtain a free copy of the report from the company that compiled it and dispute any errors (covered by InfoBytes here).
In conjunction with the White House press release, HUD announced it is taking multiple actions to improve rental screening transparency and support renters. It is sending reminders to public housing agencies and property owners about their obligation to inform rejected applicants about reasons for their denial, which provides renters with the opportunity to correct any errors. Additionally, HUD is providing $10 million for tenant education and outreach in Section 8 program properties to assist tenants with “capacity building efforts” for engagement with property management. Furthermore, HUD will issue a proposed rule requiring a 30-day written notification for evictions due to nonpayment of rent in certain subsidized housing.
Also mentioned was the recent White House announcement of actions it is taking to combat “unfair and hidden fees” concerning rental housing (covered by InfoBytes here).