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OCC releases FAQs on proposal to rescind 2020 CRA rule
On October 26, the OCC issued responses to frequently asked questions on its notice of proposed rulemaking (NPRM) to rescind its 2020 Community Reinvestment Act Rule (2020 Rule) and to replace it with rules based largely on those adopted jointly by the federal banking agencies in 1995, as amended. As previously covered by InfoBytes, the OCC noted it intends to align the agency’s CRA rules with current Federal Reserve Board and FDIC rules, “thereby facilitat[ing] the on-going interagency work to modernize the CRA regulatory framework and create consistency for all insured depository institutions.” The FAQs discuss the rulemaking process and provide a general timeline on the transition from the 2020 Rule. The FAQs also answer questions concerning: (i) CRA bank-type determinations; (ii) qualifying activity determinations; (iii) the qualifying activity confirmation request system; (iv) the transition period for tracking activities that qualify under the 2020 Rule but would not qualify should the 1995 rules be reinstated; (v) examination administration; (vii) assessment areas; (vii) targeted geographic areas; (viii) strategic plans; and (ix) submitting public comments.
NYDFS seeks to implement Commercial Finance Disclosure Law
On October 20, NYDFS published a notice announcing a proposed regulation (23 NYCRR 600) to implement New York’s Commercial Finance Disclosure Law (CFDL) (covered by InfoBytes here). The CFDL was enacted at the end of December 2020, and amended in February to expand coverage and delay the effective date to January 1, 2022. (See S5470-B, as amended by S898.) Under the CFDL, providers of commercial financing, which includes persons and entities who solicit and present specific offers of commercial financing on behalf of a third party, are required to give consumer-style loan disclosures to potential recipients when a specific offering of finance is extended for certain commercial transactions of $2.5 million or less.
As previously covered by InfoBytes, NYDFS solicited comments on a pre-proposed regulation released last month, which, among other things, (i) specified persons and entities required to comply with the regulation; (ii) defined terms used within the CFDL, including “commercial financing” and “finance change”; (iii) explained APR rate calculations and allowed tolerances; (iv) outlined specific disclosure requirements, including formatting and signature requirements; and (vi) detailed several provisions related to commercial financings that offer multiple payment options, certain duties of financers and brokers involved in commercial financing, record retention requirements, and the reporting process for certain providers that calculate estimated annual percentage rates.
The proposed regulation made several changes to the pre-proposed regulation based on comments NYDFS received. These include:
- Modifying the definition of when a specific offer is made that triggers the requirement to provide a disclosure. NYDFS stated that this change “should allow for some negotiations between borrowers and lenders before disclosures are required.”
- Adding the Secured Overnight Financing Rate (SOFR) as an acceptable rate index for use in adjustable-rate financings due to the cessation of LIBOR at the end of the year.
- Clarifying the definition of a “broker” to be “defined in terms of the substantive services they perform during the underwriting process.”
- Modifying the allowed tolerances when calculating APRs as required under Part 600.04. For most transactions, NYDFS explained that the tolerance threshold will remain one-eighth of one percent. For irregular transactions, NYDFS proposed a larger tolerance of one-quarter of one percent.
Additionally, the proposed regulation provides that the compliance date for the final regulation will be six months after the final adoption and publication of the regulation in the State Register. Comments on the proposed regulation are due December 19.
FDIC finalizes rule amending real estate lending
On October 22, the FDIC adopted a final rule amending the Interagency Guidelines for Real Estate Lending Policies to include consideration of the capital framework established in the community bank leverage ratio (CBLR) rule into the method of calculating the ratio of loans in excess of the supervisory loan-to-value limits (LTV limits), which applies to all FDIC-supervised financial institutions. As previously covered by InfoBytes, the FDIC issued the proposed rule to amend the Interagency Guidelines for Real Estate Lending Policies in June by proposing to establish supervisory LTV criteria for certain real estate lending transaction types and allowing exceptions to the supervisory LTV limits. Among other things, the final rule: (i) “revises the Appendix so that all FDIC-supervised institutions calculate the ratio of loans in excess of the supervisory LTV limits using tier 1 capital plus the appropriate allowance for credit losses in the denominator, regardless of an institution’s CBLR election status”; and (ii) “provides a consistent approach for calculating the ratio of loans in excess of the supervisory LTV limits at all FDIC-supervised institutions,” and “would approximate the historical methodology . . . for calculating the ratio of loans in excess of the supervisory LTV limits.” The final rule is effective 30 days after publication in the Federal Register.
Agencies seek to update uniform rules for administrative enforcement proceedings
Recently, the FDIC, OCC, Federal Reserve Board, and NCUA issued a notice of proposed rulemaking (NPRM) to modernize the agencies’ Uniform Rules of Practice and Procedure (Uniform Rules) applicable to formal administrative enforcement proceedings. The amendments would recognize the use of electronic communications and technology in all aspects of administrative hearings to increase the efficiency and fairness of administrative adjudications. Among other things, the NPRM would (i) allow electronic signatures and filings; (ii) permit depositions to be held by remote means; (iii) modernize language and definitions; and (iv) extend certain filing time limits. Amended provisions also address the authority of administrative law judges, adjudicatory proceedings, good faith certifications, ex parte communications, and expenses. The agencies also propose to modify their specific rules of administrative practice and procedure (known as the Local Rules) applicable to enforcement actions brought by each agency. FDIC staff released a memo recommending its board approve and authorize the NPRM, pointing out that the rules have not been substantively updated in 25 years and do not account for technological advances.
Fed announces new rules for staff securities trading
On October 21, the Federal Reserve Board announced new rules to prohibit the purchase of individual securities, restrict active trading, and increase the timeliness of reporting and public disclosure. According to the announcement, the new rules apply to the Reserve Bank and Board policymakers and senior staff. Among other things, the rules require that Fed policymakers and senior staff provide 45 days’ advance notice and obtain approval before purchasing or selling approved securities. In addition, they will be required to hold investments for a minimum of one year.
FHA proposes changes to defect taxonomy for loan servicing
On October 28, FHA requested stakeholder review and feedback on a draft update to Appendix 8.0 – FHA Defect Taxonomy for its Single Family Housing Policy Handbook 4000.1. The updated draft appendix includes, among other things, (i) six new defect areas to incorporate loan-level servicing reviews (servicer operations, account administration, delinquent and default servicing, loss mitigation processing, home retention, and home disposition); (ii) severity tier descriptions explaining the process used for determining whether defects require corrective servicing action or a different response “based on the impact of non-compliance on FHA, the property, or both”; and (iii) and expanded, servicing-specific remedies for violations. As previously covered by InfoBytes, FHA issued an update to Section III of the handbook, which streamlined many standard mortgage servicing operational requirements and incorporated FHA actions taken to support borrowers experiencing Covid-19-related financial hardships. The proposed defect taxonomy updates are intended to increase transparency into FHA’s servicing loan review process and provide clarity on how FHA will hold servicers accountable for loan-level compliance. Comments are due December 27.
NCUA approves expansion of CUSO lending rights
On October 21, the National Credit Union Administration Board approved a final rule by a 2-1 vote to expand the range of permissible activities and services that credit union service organizations (CUSOs) may engage in. Under the final rule, CUSOs will be allowed to originate, purchase, sell, and hold any type of loan a federal credit union is permitted to, including auto and payday loans. The final rule also provides the Board “additional flexibility to approve permissible CUSO activities and services outside of notice and comment rulemaking.” NCUA Vice Chairman Kyle Hauptman stated the rule “gives credit unions the tools to compete more effectively in the digital marketplace.” However, NCUA Chairman Todd Harper opposed the final rule, warning that because NCUA “lacks the third-party vendor authorities that the other federal banking agencies and several state regulators have, the NCUA has no power to supervise CUSOs for compliance with federal consumer financial protection laws and regulations and compliance with prudential standards like concentration limits, maximum loan-to-value ratios, and minimum capital levels.” The final rule takes effect 30 days after publication in the Federal Register.
OCC updates Payment Systems booklet
On October 21, the OCC issued Bulletin 2021-49 announcing the revision of the Payment Systems booklet of the Comptroller’s Handbook. The booklet rescinds the Payment Systems and Funds Transfer Activities booklet of the Comptroller’s Handbook (March 1990); the Office of Thrift Supervision Examination Handbook section 580, the Payments Systems Risk (January 1994); banking Circular 235, International Payments Systems Risks (May 10, 1989); and OCC Bulletin 1996-48, Stored Value Card Systems: Information for Bankers and Examiners (September 3, 1996). Among other things, the revised booklet: (i) provides information on payment systems, types of payments, risks associated with payment systems, and associated risk management practices; (ii) highlights the requirements of 12 CFR 7.1026 on payment systems memberships; and (iii) includes expanded examination procedures and “supplemental procedures for deeper review of certain payment activities.”
Agencies release statement on LIBOR transition
On October 20, the CFPB, Federal Reserve Board, FDIC, NCUA, and OCC, in conjunction with the state bank and state credit union regulators, (collectively, “agencies”) released a joint statement regarding the transition away from LIBOR. As previously covered by InfoBytes, the Fed, FDIC, and OCC issued a joint statement encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. The agencies' October 20 joint statement provides supervisory considerations for institutions when choosing an alternative reference rate, such as, among other things: (i) the meaning of new LIBOR contracts; (ii) understanding how the chosen reference rate is constructed and the fragilities associated with it; and (iii) expectations for fallback language. In addition, the agencies noted that supervised institutions should “develop and implement a transition plan for communicating with consumers, clients, and counterparties; and ensure systems and operational capabilities will be ready for transition to a replacement reference rate after LIBOR’s discontinuation.”
CFPB releases Spanish-language model validation notice for debt collectors
Recently, the CFPB issued a Spanish-language translation of its Model Validation Notice. Debt collectors are permitted to send a consumer a completely and accurately translated validation notice if the consumer was either provided an English-language version in the same communication or in a prior communication. Debt collectors that meet these requirements and use the translated notice qualify for the Debt Collection Rule’s safe harbor that any translation be complete and accurate. The Bureau noted that the translated validation notice omits the disclosure informing consumers of their right to request the validation notice in Spanish, “because no translation of those disclosures is necessary,” but debt collectors who choose to include the optional Spanish-language disclosures in a Spanish-language validation notice are still eligible for the safe harbor.