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CFPB issues final rule re: credit reporting on human trafficking victims
On June 23, the CFPB issued a final rule implementing amendments to the FCRA intended to assist victims of human trafficking. According to the Bureau’s announcement, the final rule prohibits credit reporting agencies (CRAs) from providing reports containing any adverse items of information resulting from human trafficking. The final rule amends Regulation V to implement changes to the FCRA enacted in December 2021 in the “Debt Bondage Repair Act,” which was included within the National Defense Authorization Act for Fiscal Year 2022. (Covered by InfoBytes here.)
Among other things, the final rule establishes methods available for trafficking victims to submit documentation to CRAs establishing that they are a survivor of trafficking (including “determinations made by a wide range of entities, self-attestations signed or certified by certain government entities or their delegates, and documents filed in a court where a central issue is whether the person is a victim of trafficking”). The final rule also requires CRAs to block adverse information in consumer reports after receiving such documentation and ensure survivors’ credit information is reported fairly. CRAs will have four business days to block adverse information once it is reported and 25 business days to make a final determination as to the completeness of the documentation. All CRAs, regardless of reach or scope, must comply with the final rule, including both nationwide credit reporting companies and specialty credit reporting companies.
The final rule takes July 25.
FinCEN issues statement on independent ATM customer due diligence
On June 22, FinCEN issued a statement providing clarity to banks on the application of a risk-based approach to conducting customer due diligence (CDD) on independent Automated Teller Machine (ATM) owners or operators, consistent with FinCEN’s 2016 CDD Rule. As previously covered by InfoBytes, FinCEN issued a final rule imposing standardized CDD requirements for banks, broker-dealers, mutual funds, futures commission’s merchants, and brokers in commodities in May 2016. The rule established that covered institutions must identify any natural person that owns, directly or indirectly, 25 percent or more of a legal entity customer or that exercises control over the entity. The rule also established ongoing monitoring for reporting suspicious transactions and, on a risk basis, updating customer information. The recently released statement explained that the level of money laundering and terrorism financing risk varies with these customers, and that they do not automatically present a higher level of risk. FinCEN pointed to certain customer information that may be useful for banks in making determinations on the risk profile of independent ATM owner or operator customers, including, among other things: (i) organizational structure and management; (ii) operating policies, procedures, and internal controls; (iii) currency servicing arrangements; (iv) source of funds if a bank account is not used to replenish the ATM; and (v) description of expected and actual ATM activity levels.
FDIC issues a proposed rule on assessments, revised deposit insurance assessment rates
On June 21, the FDIC Board of Directors issued a notice of proposed rulemaking to increase deposit insurance assessment rates by 2 basis points for all insured depository institutions to increase the likelihood that the reserve ratio of the Deposit Insurance Fund (DIF) reaches the statutory minimum of 1.35 percent by September 2028, the statutory deadline. In September 2020, the FDIC adopted a DIF restoration plan to restore the reserve ratio to at least 1.35 percent by September 2028. However, according to the press release, insured deposits continued to grow and, as of March 31, the reserve ratio declined by 4 basis points to 1.23 percent. The FDIC also adopted on June 21 an Amended Restoration Plan, incorporating the increase in assessment rates to provide a buffer to ensure that the DIF achieves the 2028 target and accelerate capitalization of the fund toward the long-term 2 percent goal. In a memorandum providing an update on the restoration plan to the Board of Directors, the FDIC stated that “for the industry as a whole, staff estimate that the estimated annual increase in assessments would average 1% of income, which includes an average of 0.9% for small banks and an average of 1% percent for large and highly complex institutions.” The FDIC also released a Fact Sheet on the DIF, which provides information on the amended restoration plan and notice of proposed rulemaking on assessments and revised deposit insurance assessment rate. The FDIC released a statement regarding the DIF Restoration Plan to incorporate a uniform increase in initial base deposit insurance assessment rates of 2 basis points and to accelerate the time for the reserve ratio to reach the statutory minimum, stating that it “would allow the banking industry to remain a source of strength for the economy during a potential future downturn, and would promote public confidence in federal deposit insurance.” CFPB Director Rohit Chopra released a statement expressing his support for the Amended Plan and proposed increase, referring to these as “important short-term actions.” Chopra also expressed support for the Board to, in the long term, “explore a new mechanism to automatically adjust premiums upward and downward based on economic conditions, rather than relying on ad-hoc actions.” Comments are due by August 20.
CFPB revising its rulemaking approach
On June 17, CFPB Director Rohit Chopra announced in a blog post that the agency plans to move away from overly complicated and tailored rules. “Complexity creates unintended loopholes, but it also gives companies the ability to claim there is a loophole with creative lawyering,” Chopra said. The Bureau’s plan to implement simple, durable bright-line guidance and rules will better communicate the agency’s expectations and will provide numerous other benefits, he added.
With regards to traditional rulemaking, the Bureau outlined several priorities, which include focusing on implementing longstanding Congressional directives related to consumer access to financial records, increased transparency in the small business lending marketplace, and quality control standards for automated valuation models under Sections 1033, 1071, and 1473(q) of the Dodd-Frank Act. Additionally, the Bureau stated it will assess whether it should use Congressional authority to register certain nonbank financial companies to identify potential violators of federal consumer financial laws.
Chopra also announced that the Bureau is reviewing a “host of rules” that it inherited from other agencies such as the FTC and the Federal Reserve. “Many of these rules have now been tested in the marketplace for many years and are in need of a fresh look,” Chopra said. Specifically, the Bureau will (i) review rules originated by the Fed under the 2009 Credit CARD Act (including areas related to “enforcement immunity and inflation provisions when imposing penalties on customers”); (ii) review rules inherited from the FTC for implementing the FCRA to identify possible enhancements and changes in business practices; and (iii) review its own Qualified Mortgage Rules to assess aspects of the “seasoning provisions” (covered by a Buckley Special Alert) and explore ways “to spur streamlined modification and refinancing in the mortgage market.”
The Bureau noted that it also plans to increase its interpretation of existing laws through its Advisory Opinion program and will continue to issue Consumer Financial Protection Circulars to provide additional clarity and encourage consistent enforcement of consumer financial laws among government agencies (covered by InfoBytes here and here).
OCC seeks comments on BSA/AML risk assessment
On June 8, the OCC issued a notice in the Federal Register seeking comments concerning its information collection titled, ‘‘Bank Secrecy Act/Money Laundering Risk Assessment,’’ also known as the Money Laundering Risk (MLR) System. According to the notice, the MLR System “enhances the ability of examiners and bank management to identify and evaluate Bank Secrecy Act/Money Laundering and Office of Foreign Asset Control (OFAC) sanctions risks associated with banks’ products, services, customers, and locations.” The notice stated that the agency will collect MLR information for OCC supervised community and trust banks, and explained that the annual Risk Summary Form (RSF), which collects data about different products, services, customers, and geographies (PSCs), will include three significant changes in 2022. The changes in the 2022 RSF are: (i) the addition of six new PSCs; (ii) the addition of three new customer types under the money transmitters category; and (iii) the deletion of four existing PSCs. Comments close on August 8.
CFPB looking at relationship banking at large institutions
On June 14, the CFPB issued a request for information (RFI) seeking public comments “related to relationship banking and how consumers can assert the right to obtain timely responses to requests for information about their accounts from banks and credit unions with more than $10 billion in assets, as well as from their affiliates.” Section 1034(c) of the CFPA gives consumers the right to access information, including supporting written documentation, in a timely manner about their accounts from these large financial institutions. The Bureau noted in its announcement that to date, the agency “has not enforced or issued additional policy guidance under this legal provision.”
The Bureau pointed out that many large financial institutions are shifting toward algorithmic banking and moving away from relationship banking. As a result of this decline, some consumers are unable to receive customized advice, basic information, or have their problems addressed in a timely fashion, the Bureau said. The RFI seeks input on, among other things, (i) the types of information requested by consumers, how they are using this information, and what information they are unable to obtain from their banks; (ii) differences in accessing information when consumers visit in person, call, or access information online; (iii) customer service representative compensation and incentives; (iv) customer service obstacles that may adversely impact consumers’ ability to bank; (v) obstacles consumers face that adversely affect their ability to bank; (vi) unique obstacles facing immigrants, rural communities, and older consumers; (vii) call center practices; and (viii) changes in customer engagement due to the Covid-19 pandemic.
In addition to examining consumers’ relationships with their depository institutions, CFPB Director Rohit Chopra stated that the Bureau intends to closely examine methods to improve the bank merger process to ensure mergers are meeting the convenience and needs of communities.
Comments on the RFI are due 30 days after publication in the Federal Register.
CA approves commercial financing disclosure regs
On June 9, the California Office of Administrative Law (OAL) approved the Department of Financial Protection and Innovation’s (DFPI) proposed commercial financial disclosure regulations. The regulations implement commercial financing disclosure requirements under SB 1235 (Chapter 1011, Statutes of 2018). (See also DFPI press release here.) As previously covered by InfoBytes, in 2018, California enacted SB 1235, which requires non-bank lenders and other finance companies to provide written, consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances.
Notably, SB 1235 does not apply to (i) depository institutions; (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) a commercial financing transaction in which the recipient is a vehicle dealer, vehicle rental company, or affiliated company, and meets other specified requirements; and (v) a lender who makes no more than one applicable transaction in California in a 12-month period or a lender who makes five or fewer applicable transactions that are incidental to the lender’s business in a 12-month period. The act also does not cover true leases (but will apply to bargain-purchase leases), commercial loans under $5,000 (which are considered consumer loans in California regardless of any business-purpose and subject to separate disclosure requirements), and commercial financing offers greater than $500,000.
California released four rounds of draft proposed regulations between 2019 and 2021 to solicit public comments on various iterations of the proposed text (covered by InfoBytes here). In conjunction with the approved regulations, DFPI released a final statement of reasons that outlines specific revisions and discusses the agency’s responses to public comments.
Among other things, the regulations:
- Clarify that a nondepository institution providing technology or support services to a depository institution’s commercial financing program is not required to provide disclosures, provided “the nondepository institution has no interest, or arrangement or agreement to purchase any interest in the commercial financing extended by the depository institution in connection with such program, and the commercial financing program is not branded with a trademark owned by the nondepository institution.”
- Provide detailed instructions for the content and layout of disclosures, including specific rows and columns that must be used for a disclosure table and the terms that must appear in each section of the table, that are to be delivered at the time a specific type of commercial financing offer equal to or less than $500,000 is extended.
- Cover the following commercial loan transactions: closed-end transactions, commercial open-end credit plans, factoring transactions, sales-based financing, lease financing, asset-based lending transactions. Disclosure formatting and content requirements are also provided for all other commercial financing transactions that do not fit within the other categories.
- Require disclosures to provide, among other things, the amount financed; itemization of the amount financed; annual percentage rate (the regulations provide category-specific calculation instructions); finance charges (estimated and total); payment methods, including the frequency and terms for both variable and fixed rate financing; details related to prepayment policies; and estimated loan repayment terms.
The regulations take effect December 9.
Hsu highlights importance of MDIs, CDFIs
On June 9, acting Comptroller of the Currency Michael J. Hsu spoke before the 2022 Community Development Bankers Association Peer Forum to discuss agency efforts to support underserved communities, as well as initiatives for revitalizing Minority Depository Institutions (MDIs) and increasing investments in Community Development Financial Institutions (CDFIs). Emphasizing the important role MDIs and CDFIs play in providing mortgage credit, small business lending, and other banking services to minority and low-to-moderate-income (LMI) communities, Hsu discussed ongoing challenges facing MDIs in terms of accessing capital and meeting customer needs. He noted that these challenges have caused many MDIs to close, fail, or be acquired by larger banks. Ensuring the survival of the remaining MDIs is important, Hsu said, since these are often the only financial institutions fulfilling minority communities’ financial needs. He further explained that the OCC is “doubling down” on Project REACh, which 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 (covered by InfoBytes here), and stated that Project REACh has “challenged large and midsize banks to sign a pledge to revitalize MDIs with capital investments, technical assistance, business opportunities, executive training, and other resources.” Hsu also discussed recently proposed interagency rules to modernize enforcement of the Community Reinvestment Act (CRA), which will also benefit MDIs and CDFIs. As previously covered by InfoBytes, the Federal Reserve Board, FDIC, and OCC issued a joint notice of proposed rulemaking (NPRM) in May 2022 to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.
CFTC requests feedback on climate-related financial risk
On June 8, the CFTC published a request for information (RFI) in the Federal Register seeking public responses on climate-related financial risks related to the derivatives markets and underlying commodities markets. Among other things, the Commission is seeking input on the types of data that could help the CFTC evaluate climate-related financial risk exposures, scenario analysis and stress testing, risk management, disclosures, product innovation, digital assets, financially vulnerable communities, mechanisms for public-private partnerships/engagement, and coordination with other regulatory bodies. The CFTC emphasized that the responses “will help to inform the Commission’s next steps in furtherance of its purpose to, among other things, promote responsible innovation, ensure the financial integrity of all transactions subject to the Commodity Exchange Act, and avoid systemic risk.” Additionally, the Commission noted that it “may use this information to inform potential future actions including, but not limited to, issuing new or amended guidance, interpretations, policy statements, regulations or other potential commission action within its authority under the Commodity Exchange Act, as well as its participation in any domestic or international fora.”
Comments on the RFI are due August 8.
NYDFS releases stablecoin guidance
On June 8, NYDFS released new regulatory guidance on the issuance of U.S. dollar-backed stablecoins, establishing criteria for regulated virtual currency companies seeking to issue stablecoins in the state. The guidance outlines baseline criteria for USD-backed stablecoins, including that: (i) a “stablecoin must be fully backed by a Reserve of assets,” such that the Reserve’s market value “is at least equal to the nominal value of all outstanding units of the stablecoin as of the end of each business day”; (ii) stablecoin issuers “must adopt clear, conspicuous redemption policies, approved in advance by [NYDFS] in writing, that confer on any lawful holder of the stablecoin a right to redeem units of the stablecoin from the Issuer in a timely fashion at par for the U.S. dollar”; (iii) Reserve assets must be segregated from an issuer’s proprietary assets and “held in custody with U.S. state or federally chartered depository institutions and/or asset custodians”; (iv) a Reserve must consist of specific assets subject to NYDFS-approved overcollateralization requirements and restrictions; and (v) a Reserve must undergo an examination of its management’s assertions at least once a month by a licensed certified public accountant.
NYDFS emphasized that these criteria are not the only requirements it may impose when issuing stablecoins, and informed regulated entities that it will also consider a range of potential risks prior to granting a regulated entity authorization to issue stablecoins. This includes risk related to “cybersecurity and information technology; network design and maintenance and related technology and operational considerations; Bank Secrecy Act/anti-money-laundering [] and sanctions compliance; consumer protection; safety and soundness of the issuing entity; and the stability/integrity of the payment system, as applicable.” Additional requirements may be imposed on regulated entities to address any of these risks.
NYDFS noted that the regulatory guidance is not applicable to USD-backed stablecoins listed, but not issued, by regulated entities, and stated it “does expect regulated entities that list USD-backed stablecoins to consider this guidance when submitting a request for coin issuance or seeking approval for a coin self-certification policy.”