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CFPB publishes rulemaking agenda
On June 11, the Office of Information and Regulatory Affairs released the CFPB’s spring 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau is “currently pursuing under interim leadership pending the appointment and confirmation of a permanent Director.” Any changes made by the new permanent director will be reflected in the fall 2021 rulemaking agenda. Additionally, the Bureau indicates that it plans to continue to focus resources on actions addressing the adverse impacts to consumers due to the ongoing Covid-19 pandemic, and highlighted an interim final rule issued in April that addresses certain debt collector conduct associated with the CDC’s temporary eviction moratorium order (covered by InfoBytes here). The Bureau will also continue to take concrete steps toward furthering the agency’s “commitment to promoting racial and economic equity.”
Key rulemaking initiatives include:
- Small Business Rulemaking. Last September, the Bureau released a Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) outline of proposals under consideration, convened an SBREFA panel last October, and released the panel’s final report last December (covered by InfoBytes here and here). The Bureau reports that it anticipates releasing a notice of proposed rulemaking (NPRM) for the Section 1071 regulations this September to “facilitate enforcement of fair lending laws as well as enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.”
- Consumer Access to Financial Records. The Bureau notes that it is considering rulemaking to implement section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued last fall regarding consumer data access (covered by InfoBytes here).
- Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA. The Bureau notes that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
- Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, [ ] avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for December.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued an NPRM in June 2020 to amend Regulation Z to address the sunset of LIBOR, and to facilitate creditors’ transition away from using LIBOR as an index for variable-rate consumer products. A final rule is expected in January 2022.
- Reviewing Existing Regulations. The Bureau notes in its announcement that while it will conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), it will no longer pursue two HMDA proposed rulemakings previously listed in earlier agendas related to the reporting of HMDA data points and public disclosure of HMDA data. Additionally, the Bureau states that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 and plans to publish any resulting changes in the fall 2021 agenda.
The Bureau’s announcement also highlights several completed rulemaking items, including (i) a final rule that formally extended the mandatory compliance date of the General Qualified Mortgage final rule to October 1, 2022 (covered by InfoBytes here); (ii) proposed amendments to the mortgage servicing early intervention and loss mitigation-related provisions under RESPA/Regulation X (covered by a Buckley Special Alert) (the Bureau anticipates issuing a final rule before June 30, when the federal foreclosure moratoria are set to expire); and (iii) a proposed rule (covered by InfoBytes here), which would extend the effective date of two final debt collection rules to allow affected parties additional time to comply due to the ongoing Covid-19 pandemic (the Bureau plans to issue a final rule in June on whether, and for how long, it will extend the effective date once it reviews comments).
2nd Circuit says challenge to OCC’s fintech charter is unripe
On June 3, the U.S. Court of Appeals for the Second Circuit reversed a 2019 district court ruling, holding that NYDFS lacked Article III standing to pursue claims that the OCC’s policy to issue Special Purpose National Bank charters (SPNB charters) to non-depository fintech companies exceeded its statutory authority. As previously covered by InfoBytes, the district court entered final judgment in favor of NYDFS after concluding that the OCC’s SPNB policy should be set aside “with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State. Among other things, the district court, in denying the OCC’s motion to dismiss, determined that the OCC exceeded its authority under the National Bank Act because the Act “unambiguously requires receiving deposits as an aspect of the business,” and that “absent a statutory provision to the contrary, only depository institutions are eligible to receive [a SPNB] from [the] OCC.” The OCC appealed, and both parties filed briefs addressing issues related to ripeness and standing (covered by InfoBytes here).
On appeal, the 2nd Circuit concluded that NYDFS lacked Article III standing to pursue its claims because it failed to show that it had suffered an actual or imminent injury from the OCC’s decision to issue SPNB charters. The appellate court also found NYDFS’s claims to be “constitutionally unripe,” holding that NYDFS’s challenge is too speculative since no non-depository fintech companies have applied for or have been granted an SPNB charter. “It is unclear at this juncture whether New York law will ever be preempted in the ways [NYDFS] fears,” the appellate court wrote. However, the 2nd Circuit determined it lacked jurisdiction to decide the remaining issues on appeal and did not address the district court’s finding that “the ‘business of banking’ under the NBA unambiguously requires the receipt of deposits.” The appellate court remanded the case to the district court with instructions to enter a judgment of dismissal without prejudice.
NYDFS Superintendent Linda Lacewell issued a statement following the 2nd Circuit’s decision, in which she reiterated the importance of “guarding against any encroachment on the state regulatory system” and urged the OCC to reconsider its policy.
Agencies extend CRA credit period for certain disaster relief efforts
On May 27, the FDIC, OCC, and the Fed (collectively, “Agencies”) issued an interagency statement on granting a 36-month extension of the original period provided for Community Reinvestment Act (CRA) consideration for bank activities that help to revitalize or stabilize Puerto Rico and the U.S. Virgin Islands in response to Hurricane Maria. As previously covered by Infobytes, the Agencies issued an interagency statement on the availability of CRA credit for financial institution activities that “help revitalize or stabilize the U.S. Virgin Islands and Puerto Rico, which were designated as major disaster areas by the President because of Hurricane Maria” in January 2018. Provided financial institutions continue to be responsive to the community needs of their own CRA assessment areas, the Agencies will now give “favorable consideration” to community development activities, such as assistance to displaced people, in the areas impacted by Hurricane Maria. In addition, the Agencies state that they may give greater weight to activities aimed at assisting the low and moderate income affected areas, but that general consideration will be given regardless of median or personal income. The Agencies have determined that the ongoing impact of Hurricane Maria in Puerto Rico and the U.S. Virgin Islands warrants an extension through September 20, 2023.
OCC modifies exception to CIF withdrawal period extensions
On May 27, the OCC announced the publication of a final rule that adopts one change to the interim final rule published last August. As previously covered by InfoBytes, the interim final rule clarified, among other things, that under the OCC’s fiduciary activities regulation (12 CFR 9.18 (b)(5)(iii)), a bank that is administering a collective investment fund (CIF) invested “primarily in real estate or other assets that are not readily marketable” may require a prior notice period of up to one year for withdrawals. The interim final rule codified the OCC’s interpretation of the notice requirement as “requiring the bank to withdraw an account within the prior notice period or, if permissible under the CIF’s written plan, within one year after prior notice was required” (known as “the standard withdrawal period”). An exception allows banks to extend the withdrawal period (with opportunities for further extensions) under certain conditions and with OCC approval. While the final rule adopts the interim final rule’s framework, it revises one of the criteria necessary for OCC approval of an extension. Specifically, in order to qualify for an extension, a “bank must ‘represent’ rather than ‘commit’ that it will act upon the withdrawal request as soon as practicable.” The final rule took effect May 26.
OCC to host compliance risk management workshops
On May 26, the OCC announced a series of examiner-led virtual workshops for the boards of directors of community national banks and federal savings associations. The workshops will focus on emerging issues regarding compliance risk, and will provide training and guidance on implementing effective compliance risk management programs, as well as guidance on regulations such as the Bank Secrecy Act and ECOA. A schedule of the upcoming workshops is available here.
U.S.-UK financial regulators discuss bilateral issues
On May 24, the U.S. Treasury Department issued a joint statement covering the recently held fourth meeting of the U.S.-UK Financial Regulatory Working Group (Working Group). Participants included officials and senior staff from both countries’ treasury departments, as well as regulatory agencies including the Federal Reserve Board, CFTC, FDIC, OCC, SEC, the Bank of England, and the Financial Conduct Authority. The Working Group discussed, among other things, (i) financial sector implications of the UK’s withdrawal from the EU; (ii) “cooperative efforts to promote the free flow of cross-border financial services data crucial for effective financial sector regulation and supervision”; (iii) regulatory fragmentation and data localization risks; (iv) the Financial Stability Board’s work on non-bank financial intermediation, which involves active engagement from both U.S. and UK authorities; and (v) the management of climate-related financial risks and other sustainable finance issues. Working Group participants will continue to engage bilaterally on these issues and others ahead of the next meeting planned for this fall.
Agencies to proceed with Call Report revisions
On May 24, the FDIC, Federal Reserve Board, and the OCC published a joint notice and request for comments on information collections published last December and this February (covered by InfoBytes here). The proposed reporting changes would revise and extend three versions of the Call Report—FFIEC 031, FFIEC 041, and FFIEC 051—as well as FFIEC 002, “Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks,” and FFIEC 002S, “Report of Assets and Liabilities of a Non-U.S. Branch that is Managed or Controlled by a U.S. Branch or Agency of a Foreign (Non-U.S.) Bank.” After considering comments received on the information collections, the agencies announced their intention to proceed with the proposed revisions and will submit a request to Office of Management and Budget for approval. The proposed revisions to the reporting forms, along with revised instructions related to FDIC amendments to the deposit insurance assessment system, will be effective with the June 30, 2021, report date. Additionally, the agencies noted that the exclusion of sweep deposits and certain other deposits from reporting as brokered deposits will be effective with the September 30, 2021, report date. Comments on the joint notice must be received by June 23.
Federal agencies release host state loan-to-deposit ratios
On May 21, the FDIC, the Federal Reserve Board, and the OCC released the current host state loan-to-deposit ratios for each state or U.S. territory, which the agencies use to determine compliance with Section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Interstate Act). Under the Interstate Act, banks are prohibited from establishing or acquiring branches outside of their home state for the primary purpose of deposit production. Branches of banks controlled by out-of-state bank holding companies are also subject to the same restriction. Determining compliance with Section 109 requires a comparison of a bank’s estimated statewide loan-to-deposit ratio to the estimated host state loan-to-deposit ratio. If a bank’s statewide ratio is less than one-half of the published host state ratio, an additional review is required by the appropriate agency, which involves a determination of whether a bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches.
OCC releases enforcement actions and terminations
On May 20, 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. Included in the release is a formal agreement entered into with a Pennsylvania-based bank on April 20 in connection with alleged unsafe or unsound practices relating to oversight, internal controls, audit, and information technology controls. 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 on a quarterly basis; and (iii) develop, implement, and adhere to a written risk-based, internal information, technology audit program. The agreement further provides that the technology audit program must be performed by an independent and qualified party and must include fundamental elements of a sound audit program.
OCC examines effects of Covid-19 on federal banking system
On May 18, the OCC released its Semiannual Risk Perspective for Spring 2021, which reports on key risk areas posing a threat to the safety and soundness of national banks and federal savings associations. While, overall, banks maintained sound capital and liquidity levels throughout 2020, the OCC noted that bank profitability remains stressed as a result of low interest rates and low loan demand.
Key risk themes identified in the report include:
- Credit risk. The OCC reported that credit risk is evolving a year into the Covid-19 pandemic, specifically as the economic downturn continues to affect some borrowers’ ability to service debts and government assistance programs start to expire.
- Strategic risk. Strategic risk associated with how bank manage net interest margin compressions and earnings is elevated. The OCC suggested that banks attempting to improve earnings could implement various measures, including cost cutting and increasing credit risk.
- Operational risk. Elevated operational risk can be attributed to complex operating environments and increased cybersecurity threats. A flexible, risk-based approach, including surveillance, reporting, and managing third-party risk, is important for banks to be operationally resilient, the OCC stated.
- Compliance risk. Compliance risk is also elevated due to the expedited implementation of a number of Covid-19-related assistance programs, including the CARES Act Paycheck Protection Program and federal, state, and bank-initiated forbearance and deferred payment programs. These programs, the OCC noted, require “increased compliance responsibilities, high transaction volumes, and new fraud typologies, at a time when banks continue to respond to a changing operating environment.”