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Agencies release annual CRA asset-size threshold adjustments
On December 16, the Federal Reserve Board and the FDIC announced joint annual adjustments to the CRA asset-size thresholds used to define “small bank” and “intermediate small bank,” which are subject to streamlined CRA evaluations, but not subject to the reporting requirements applicable to large banks unless they choose to be evaluated as one. A “small bank” is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.384 billion in assets. An “intermediate small” bank is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $346 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.384 billion in assets. The joint final rule takes effect on January 1, 2022.
FSOC highlights potential risks in 2021 annual report
On December 17, the Financial Stability Oversight Council (FSOC) released its annual report highlighting significant financial market and regulatory developments, potential financial risks, and recommendations for promoting U.S. financial stability. The report focused on several recommendations that FSOC member agencies should take to mitigate systemic risk and ensure financial stability.
- Climate-related Financial Risk. FSOC advised financial regulators to “promote consistent, comparable, and decision-useful disclosures that allow investors and financial institutions to take climate-related financial risks into account in their investment and lending decisions.” Taking these steps, FSOC noted, will enable financial regulators to promote resilience within the financial-sector and help support an orderly, economy-wide transition to net-zero emissions. FSOC also recognized the importance of incorporating climate-related risks into risk management practices and supervisory expectations for regulated entities. The same day, acting Comptroller of the Currency Michael J. Hsu issued a statement supporting FSOC’s new Climate-Related Financial Risk Committee, which was announced in October (covered by InfoBytes here). “The CFRC will play an important role in identifying priority areas for assessing and mitigating climate-related risks to the financial system, coordinating information sharing, aiding in the development of common approaches and standards, and facilitating communication across FSOC members and interested parties. Addressing climate-related risks to the financial system requires the collaboration of multiple parties and partnerships, using many strategies and mechanisms.”
- Digital Assets. FSOC recommended that federal and state regulators continue to examine financial risks posed by emerging uses of digital assets and coordinate efforts to address potential issues arising in this space. FSOC advised member agencies to consider the recommendations in the President’s Working Group on Financial Markets’ “Report on Stablecoins” (covered by InfoBytes here), which was published in coordination with the FDIC and the OCC.
- LIBOR Transition. FSOC commended the Alternative Reference Rates Committee’s efforts to facilitate an orderly transition from LIBOR to alternative reference rates, and advised member agencies to “determine whether regulatory relief is necessary to encourage market participants to address legacy LIBOR portfolios.” Additionally, member agencies should “continue to use their supervisory authority to understand the status of regulated entities’ transition from LIBOR, including their legacy LIBOR exposure and plans to address that exposure.”
- Cybersecurity. FSOC advised federal and state agencies to “continue to monitor cybersecurity risks and conduct cybersecurity examinations of financial institutions and financial infrastructures to ensure, among other things, robust and comprehensive cybersecurity monitoring, especially in light of new risks posed by the pandemic, ransomware incidents, and supply chain attacks.”
While noting that financial conditions have normalized since spring 2020, FSOC noted that “risks to U.S. financial stability today are elevated compared to before the pandemic” and that “the outlook for global growth is characterized by elevated uncertainty, with the potential for continued volatility and unevenness of growth across countries and sectors.”
FinCEN, OCC take action against bank for AML violations
On December 16, FinCEN announced an $8 million civil money penalty against a Texas-based bank for violating the Bank Secrecy Act (BSA) and its implementing regulations from at least 2015 to 2019 by allegedly failing to implement and maintain an effective, reasonably designed anti-money laundering (AML) program. According to the consent order, the bank allegedly failed to report hundreds of suspicious transactions to FinCEN involving illegal financial activity by its customers and continued to knowingly process the transactions after becoming aware that certain customers were subjects of criminal investigations. According to FinCEN, the bank’s violations “caused millions of dollars in suspicious transactions to go unreported to FinCEN in a timely and accurate manner, including transactions connected to tax evasion, illegal gambling, money laundering, and other financial crimes.”
The same day, the OCC announced a $1 million civil money penalty against the bank for “related violations.” According to the OCC’s separate but coordinated investigation with FinCEN, the bank allegedly failed to adopt and implement a BSA/AML system of internal controls to assure ongoing compliance with the BSA and its implementing regulations. According to the consent order, the bank’s alleged internal control deficiencies, and other failures in its BSA/AML compliance program, “resulted in the failure to investigate and disposition alerts and violations of the suspicious activity reporting requirements.” FinCEN's announcement noted that, “[a]s many of the facts and circumstances underlying the OCC’s civil penalty also form the basis of FinCEN’s Consent Order, FinCEN agreed to credit the $1 million civil penalty imposed by the OCC, and “[t]aken together, [the bank] will pay a total of $8 million to the U.S. Treasury as a penalty for its violations, with $7 million representing FinCEN’s penalty and $1 million representing the OCC’s penalty.”
OCC releases enforcement actions
On December 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently or formerly affiliated with such entities. Included in the release is a cease and desist order issued against an Oklahoma-based bank for alleged “unsafe or unsound practices” related “to management and board supervision, strategic and capital planning, risk ratings and loan review, credit administration, and the allowance for loan and lease losses.” Without admitting or denying the claims, the bank is required by the order to, among other things, maintain capital ratios, as defined in and as calculated in accordance with 12 C.F.R. Part 3: (i) “a total capital ratio at least equal to thirteen percent”; and (ii) “a leverage ratio at least equal to nine percent.” The order also provides that the bank must establish a Compliance Committee “to monitor and oversee the Bank’s compliance with the provisions of this [o]rder,” and “will meet at least monthly and maintain minutes of its meetings.”
OCC revises the Comptroller’s Licensing Manual
On December 10, the OCC announced an updated version of its “Background Investigations,” “Capital and Dividends,” “Charters,” “Conversions to Federal Charter,” and “National Bank Director Waivers” booklets of the Comptroller’s Licensing Manual. According to Bulletin 2021-60, the revised booklets: (i) replace booklets with the same titles issued between April 2017 and October 2019; (ii) reflect recent changes to 12 CFR 5 and other applicable regulations; (iii) eliminate references to outdated guidance and provide current references; and (iv) make other minor modifications and corrections.
NYDFS issues proposed amendment to third-party debt collection rules
On December 15, NYDFS announced a proposed amendment to 23 NYCRR 1, which regulates third-party debt collectors and debt buyers. The proposed amendment factored in findings from NYDFS investigations, which revealed instances of abusive and deceptive debt collection practices, as well as consumer debt collection complaint data. According to acting Superintendent Adrienne A. Harris, the “proposed amendment requires clear communication on consumer debt obligations and ensures the consumer has the right information to dispute the validity of the debt.” The proposed regulation will mitigate predatory debt collection by taking measures to ensure consumers only pay debts they owe and only pay them once. Harris added that the proposed amendment will offer enhanced consumer protections by increasing transparency, requiring enhanced disclosures, reducing misleading statements about consumer debt obligations, and limiting harassment by placing stricter limits on debt collection phone calls than those currently imposed under federal regulations. Among other things, the proposed amendment also:
- Defines “communication” as “the conveying of information regarding a debt directly or indirectly to any person through any medium.”
- Defines “creditor” as “any person or such person’s successor in interest by way of merger, acquisition, or otherwise, to whom a debt is owed or allegedly owed.”
- Amends the definition of “debt collector” to include “any creditor that, in collecting its own debts, uses any name other than its own that would suggest or indicate that someone other than such creditor is collecting or attempting to collect such debts.” The definition also includes certain exemptions, such as persons “performing the activity of serving or attempting to serve legal process” in the judicial enforcement of a debt “or serving, filing, or conveying” other specified documents pursuant to rules of civil procedure, but that are “not a party to, or providing legal representation to a party to, the action[.]”
- Requires collectors to clearly and conspicuously send written notification within 5 days after an initial communication with a consumer letting the consumer know specific information about the debt, including (i) validation information; (ii) the type of reference date used to determine the itemization date; (iii) account information associated with the debt; (iv) merchant/affinity/facility brand association; (v) the date the last payment (including any partial payment) was made; and (vi) the statute of limitations, if applicable.
- Requires collectors to inform consumers they have “the right to dispute the validity of the debt, in part or in whole,” and provides instructions on how consumers may dispute the validity of the debt.
- States that certain disclosures may not be sent exclusively through an electronic communication, and prohibits treating a formal pleading in a civil action as an initial communication.
- Provides that, if a collector “has reason to know or has determined” that the statute of limitations on a debt it seeks to collect has expired, the collector is required to provide clear and conspicuous notice in all communications that, among other items, it believes the statute of limitations has expired. For debts not subject to a statute of limitations, collectors must notify consumers that they are “not required to provide the debt collector with an admission, affirmation, or acknowledgment of the debt, a promise to pay the debt, or a waiver of the statute of limitations.”
- Prohibits collectors from communicating by telephone or other means of oral communication when attempting to collect on debts for which the statute of limitations has expired, without certain consent or permission.
- Requires collectors to provide consumers written substantiation of a debt (no longer specified as a “charged-off” debt) in hard copy by mail within 30 days of receiving a request for substantiation of a debt (unless a consumer has consented to receiving electronic communications). The written substantiation must include, among other information, (i) a statement describing the complete chain of title from the creditor “to which the debt was originally owed or alleged to be owed” to the present creditor “or owner of the debt”; and (ii) notice that a consumer may request additional documentation and instructions on how to make such a request. Collectors are also required to provide within 30 days after the consumer makes such a request for substantiation, documents sufficient to establish the complete chain of title, including documents sufficient to establish the specific dates on which the debt was assigned, sold or transferred and names of each previous owner of the account to the current owner.
- Requires collectors to retain certain information on a debt “until the debt is discharged, sold, or transferred, or for 7 years, whichever is longer.”
- Requires collectors to provide written confirmation of the satisfaction of a debt to a consumer within 20 business days of receiving receipt of the satisfaction of a debt. The confirmation must include the name of the creditor to which the debt was originally owed and the account number unless stipulated otherwise.
- Limits collectors to 1 telephone call and 3 attempted telephone calls in a 7-day period per alleged debt, without certain consents or permission, “except that telephone calls in excess of one time per seven day period are permitted when” a consumer requests to be contacted or when the communication is required under the proposed amendment or other federal or state law.
- Permits collectors to communicate with persons through electronic channels to collect a debt only if (i) the person has voluntarily provided certain contact information to the debt collector; and (ii) the person has given certain revocable consent in writing directly to the debt collector. The proposed amendment also provides (i) certain disclosure requirements for electronic communications “initiated by” a collector; (ii) privacy requirements that incorporate 15 U.S. Code § 1692c(b); and (iii) outlines compliance requirements for collectors should a consumer revoke consent.