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Financial Services Law Insights and Observations


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  • Agencies seek comments on proposed changes to CECL

    Agency Rule-Making & Guidance

    On October 17, the OCC, Federal Reserve Board, FDIC, and NCUA published a proposed interagency policy statement on allowances for credit losses and proposed interagency guidance on credit risk review systems.

    The proposed policy statement describes the measurement of expected credit losses under the current expected credit losses (CECL) methodology for determining allowances for credit losses applicable to financial assets measured at amortized costs. It will apply to financial assets measured at amortized cost, loans held-for-investment, net investments in leases, held-to-maturity debt securities, and certain off-balance-sheet credit exposures. The proposed policy statement also stipulates financial assets for which the CECL methodology is not applicable, and includes supervisory expectations for designing, documenting, and validating expected credit loss estimation processes. Once finalized, the proposed policy would be effective at the time of each institution’s adoption of CECL.

    The proposed credit risk review systems guidance—which is relevant to all institutions supervised by the agencies—will update the 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses to reflect the CECL methodology. The proposed guidance “discusses sound management of credit risk, a system of independent, ongoing credit review, and appropriate communication regarding the performance of the institution's loan portfolio to its management and board of directors.” Furthermore, the proposed guidance stresses that financial institution employees involved with assessing credit risk should be independent from an institution’s lending function.

    Comments on both proposals are due December 16.

    Agency Rule-Making & Guidance OCC Department of Treasury Federal Reserve FDIC NCUA

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  • House report blames CFPB "politicization" for drop in consumer relief

    Federal Issues

    On October 16, Maxine Waters, Chairwoman of the House Financial Services Committee, released a majority staff report titled, “Settling for Nothing: How Kraninger’s CFPB Leaves Consumers High and Dry,” which details the results of the majority’s investigation into the CFPB’s handling of consumer monetary relief in enforcement actions since Richard Cordray stepped down as director in November 2017. The report argues that, under the leadership of Acting Director Mick Mulvaney and Director Kathleen Kraninger, the Bureau’s enforcement actions “have declined in volume and failed to compensate harmed consumers adequately.” Specifically, the report states that under Corday’s leadership, the “the average enforcement action by the [Bureau] returned $59.6 million to consumers, as compared to an average $31.4 million per action under Mulvaney,” but notes that $335 million of the $345 million in consumer relief obtained during Mulvaney’s tenure resulted from one settlement with a national bank (previously covered by InfoBytes here.) With respect to Director Kraninger, the report acknowledges that the pace of enforcement actions increased compared to Mulvaney; however, the Bureau ordered “only $12 million in consumer relief” during her first six months, as compared to “approximately $200 million in consumer relief” during a similar six months of Corday’s tenure.

    The report highlights specifics from the investigation into settlements announced in early 2019, which resulted in civil penalties but not consumer monetary relief. The report argues that, based on the review of the internal documents received from the Bureau, the lack of consumer relief was due to the “politicization of the [Bureau],” which “contributed to the decline in the [Bureau]’s enforcement activity” rather than the merits of the enforcement actions, notwithstanding that the internal documents reflect the assessment of certain weaknesses in the Bureau’s positions.  The report attributes such politicization to the introduction of political appointee positions throughout the Bureau that oversee each of the divisions. The report concludes by urging Congress to pass the Consumers First Act (HR 1500), which, among other things, seeks to limit the number of political appointees at the Bureau.

    Federal Issues CFPB Settlement Enforcement House Financial Services Committee Civil Money Penalties Consumer Redress

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  • State AGs urge CFPB to reconsider proposed changes to HMDA

    State Issues

    On October 15, a coalition of 13 state attorneys general submitted a comment letter in response to the CFPB’s Advance Notice of Proposed Rulemaking issued last May seeking information on the costs and benefits of reporting certain data points under HMDA. (Previously covered by InfoBytes here.) In the comment letter, the AGs argue, among other things, that the proposed rule would reduce transparency and “undermine the ability of local public officials to investigate unfair and discriminatory mortgage lending practices.” The AGs assert that the Bureau’s proposal to limit the data financial institutions are required to report to the CFPB under HMDA will open the door for financial institutions to engage in discriminatory lending, pointing to the 2018 national HMDA loan-level data released on August 30 (InfoBytes coverage here), which, according to the AGs, show “disturbing trends” that demonstrate the additional data fields are helping to achieve HMDA’s objectives. Specifically, the AGs cite to (i) disparities in manufactured home lending; (ii) racial and ethnic data that points to potential disparities in lending; (iii) the importance of collecting all data on denial reasons; (iv) loan pricing data as an indicator of fair lending; and (v) the importance of collecting debt-to-income and combined loan-to-value ratios.

    The New York AG’s office also sent a second letter the same day in response to a Notice of Proposed Rulemaking (NPRM) issued last May by the Bureau that would permanently raise coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under the HMDA rules. (Previously covered by InfoBytes here.) The AG’s office argues that increasing the reporting threshold “would exempt thousands of lenders from reporting data” and would “inhibit the ability of communities and state and local law enforcement to ensure fair mortgage lending in New York and elsewhere, and violate the Administrative Procedure Act” since it fails to consider the full cost of the proposed rule on the states. Specifically, the AG’s office contends that the NPRM will (i) exempt a large number of depository institutions leading to significance loss of data on a local level; (ii) leave discriminatory lending in the rural and multifamily lending markets unchecked; and (iii) guarantee predatory lending if the threshold for open-end reporting is permanently set at 200 loans.

    State Issues State Attorney General CFPB Mortgages HMDA Fair Lending

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  • Fourth Circuit affirms dismissal of FDCPA suit


    On October 16, the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of an action against a debt collector for allegedly violating the FDCPA and related state statutes when attempting to collect on unpaid debt. The plaintiffs alleged that the defendant’s attempts to collect unpaid homeowners association debt was a violation of the FDCPA’s prohibition on false, deceptive, or misleading representations or unfair or unconscionable means to collect on a debt. According to the opinion, during the process of collecting one plaintiff’s debt, the defendant requested writs of garnishment that sought post-judgment enforcement costs. The plaintiff argued that collecting costs greater than the costs actually assessed in the case violated the FDCPA because it falsely represented the amount due. The district court disagreed, ruling that the defendant abided by Maryland court rules and procedures which allow a judgment creditor to list the original amount of judgment plus any additional court costs, including a writ of garnishment. The district court then considered whether the plaintiff’s claim “that ‘continuing lien clauses,’ which state that the lien covered additional costs that may come due after the lien is recorded, violate the FDCPA.” Here, the district court ruled that the homeowners association’s governing documents authorize continuing liens to cover additional costs that may come due after the lien is recorded, and that the plaintiff was aware that a lien’s amount may change because he signed the documents. Moreover, the district court determined that Maryland law “‘does not expressly permit or prohibit’ continuing lien clauses,” and dismissed the remaining state law claims without prejudice.

    On appeal, the 4th Circuit agreed with the district court that nothing the defendant did constituted a violation of the FDCPA, and concurred that a continuing lien clause does not constitute a violation of the FDCPA. Furthermore, the appellate court held that there is no requirement that the district court remand, as opposed to dismiss, the state law claims as argued in the plaintiffs’ appeal.

    Courts Appellate Fourth Circuit FDCPA

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  • DOJ charges Turkish bank in Iran sanctions violation scheme

    Financial Crimes

    On October 15, the DOJ announced charges against a Turkish bank alleging fraud, money laundering, and sanctions offenses related to the bank’s alleged participation in a scheme to evade U.S. sanctions on Iran. According to the indictment, the bank used money service businesses and front companies to evade U.S. sanctions against Iran and “avoid prohibitions against Iran’s access to the U.S. financial system.” The bank allegedly lied to U.S. regulators and foreign banks about its participation in the fraudulent transactions. The concealed funds, the DOJ claimed, “were used to make international payments on behalf of the Government of Iran and Iranian banks, including transfers in U.S. dollars that passed through the U.S. financial system in violation of U.S. sanctions laws.” Additionally, the DOJ asserted that the conduct—which allowed Iran access to “billions of dollars’ worth of Iranian oil revenue”—was protected by high ranking government officials in Iran and Turkey, some of whom received millions of dollars in bribes to promote and protect the scheme from U.S. scrutiny. 

    Financial Crimes DOJ Sanctions Of Interest to Non-US Persons Iran Anti-Money Laundering

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  • District Court allows NCUA to substitute plaintiff, denies dismissal of breach of contract claim in RMBS action


    On October 15, the U.S. District Court for the Southern District of New York held that the NCUA may substitute a new plaintiff to represent the agency’s claims in a residential mortgage-backed securities (RMBS) action against an international bank serving as an RMBS trustee. In the same order, the court dismissed certain tort claims, but allowed claims for breach of contract to move forward against the trustee.

    According to the opinion, NCUA brought the action on behalf of 97 trusts for which the international bank served as the trustee, even though NCUA only had direct interest in eight of the trusts. NCUA argued it had derivative standing to pursue the claims on behalf of the other 89 trusts “on the theory that it had a latent interest in the [the 89 trusts] after they wound down and as ‘an express third-party beneficiary under the [89 trusts] Indenture Agreements.’” The trustee moved to dismiss the action and after hearing oral arguments on the motion, the court stayed the case pending the outcome of NCUA’s appeal regarding derivative standing in similar action before the U.S. Court of Appeals for the Second Circuit. In August 2018, the 2nd Circuit held that NCUA lacked standing to bring the derivative claims because the trusts had granted the right, title, and interest to their assets, including the RMBS trusts, to the Indenture Trustee. (Previously covered by InfoBytes here.) Based on the appellate court decision in the similar action, NCUA moved to file a second amended complaint and substitute a newly appointed trustee as plaintiff for the claims made on behalf of the 89 trusts for which it did not have direct standing.

    Despite the trustee’s objections, the district court granted NCUA’s request, concluding that NCUA’s claims were timely and allowing the NCUA’s “Extender Statute”—which gives the agency the ability to bring contract claims at “the longer of” “the 6-year period beginning on the date the claim accrues” or “the period applicable under State law”—to apply to the new substitute plaintiff. Additionally, the court denied the bank’s motion to dismiss NCUA’s breach of contract claim alleging the trustee had notice of the defects in the mortgage files held in the various trusts. The court concluded that NCUA sufficiently plead that the trustee “did indeed receive notice [of the defective mortgages] and should have thus acted,” under the Pooling and Servicing Agreements.

    Courts RMBS NCUA Appellate Second Circuit Standing Securities

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  • FDIC approves final stress-test revisions

    Agency Rule-Making & Guidance

    On October 15, the FDIC approved the final rule revising stress testing requirements for FDIC-supervised institutions, consistent with changes made by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule remains unchanged from the proposed rule, which was issued by the FDIC in December 2018 (previously covered by InfoBytes here). The final rule (i) changes the minimum threshold for applicability from $10 billion to $250 billion; (ii) revises the frequency of required stress tests for most FDIC-supervised institutions from annual to biannual; and (iii) reduces the number of required stress testing scenarios from three to two.  FDIC-supervised institutions that are covered institutions will “be required to conduct, report, and publish a stress test once every two years, beginning on January 1, 2020, and continuing every even-numbered year thereafter.” The final rule also adds a new defined term, “reporting year,” which will be the year in which a covered bank must conduct, report, and publish its stress test. The final rule requires certain covered institutions to still conduct annual stress tests, but this is limited to covered institutions that are consolidated under holding companies required to conduct stress tests more frequently than once every other year. Lastly, the final rule removes the “adverse” scenario—which the FDIC states has provided “limited incremental information”—and requires stress tests to be conducted under the “baseline” and “severely adverse” stress testing scenarios. The final rule is effective thirty days after it is published in the Federal Register.

    As previously covered by InfoBytes, on October 4, the OCC issued its final rule incorporating the same revisions as the FDIC.

    Agency Rule-Making & Guidance FDIC OCC Stress Test EGRRCPA

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  • CFPB Private Education Loan Ombudsman's annual report focuses on debt relief scams

    Federal Issues

    On October 15, the CFPB Private Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2017 and August 31, 2019. The report, titled Annual Report of the CFPB Student Loan Ombudsman, is based on approximately 20,600 complaints received by the Bureau relating to federal and private student loan servicing, debt collection, and debt relief services. The report focuses primarily on complaints and student loan debt relief scams, which are, according to Private Education Loan Ombudsman Robert G. Cameron, “two subjects that, if promptly addressed, may have the greatest immediate impact in preventing potential harm to borrowers.” Of the 20,600 complaints, roughly 13,900 pertained to federal student loans with approximately 6,700 related to private student loans. Both categories reflect a decrease in total complaints from previous years. The report also notes that the Bureau handled roughly 4,600 complaints related to student loan debt collection.

    The report goes on to discuss collaborative efforts between federal and state law enforcement agencies, including the CFPB, FTC, Department of Education, and state attorneys general, to address student loan debt relief scams. According to the report, the FTC’s Operation Game of Loans (previous InfoBytes coverage here) has yielded settlements and judgments totaling over $131 million for the past two years, while Bureau actions (taken on its own and with state agencies) have resulted in judgments exceeding $17 million.

    The report provides several recommendations, including that policymakers, the Department of Education, and the Bureau “assess and consider the sharing of information, analytical tools, education outreach, and expertise” to prevent borrower harm, and that when harm occurs, “reduce the window in which harm is occurring through timely identification and remediation.” With regard to student loan debt relief scams, the report recommends, among other things, that enforcement should be expanded “beyond civil enforcement actions to criminal enforcement actions at all levels.”

    Federal Issues CFPB Student Lending Debt Collection Debt Relief Consumer Complaints FTC

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  • California caps rate on installment loans

    State Issues

    On October 10, the California governor signed AB 539, known as the “Fair Access to Credit Act,” which amends the California Financing Law (CFL) to limit the rate of interest on certain installment loans. Specifically, for installment loans with a principal amount between $2,500 and $10,000, lenders are prohibited from charging an annual simple interest rate exceeding 36 percent plus the federal funds rate, excluding an administrative fee (not to exceed $50). Moreover, for loans between $2,500 and $10,000, the bill establishes a minimum 12-month loan term. Among other things, the bill also (i) requires lenders to report each borrower’s payment performance of these installment loans to at least one national credit reporting agency; (ii) requires lenders to offer an approved credit education program or seminar approved by the Commissioner of Business Oversight before disbursing the proceeds to the borrower; and (iii) prohibits lenders from charging or receiving any penalty for prepayment for loans made pursuant to the CFL that are not secured by real property. The bill is effective January 1, 2020.

    State Issues State Legislation Usury Interest Rate Installment Loans

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  • California governor signs CCPA amendments

    State Issues

    On October 11, the California governor signed several amendments to the California Consumer Privacy Act (CCPA) and other privacy-related bills. As previously covered by a Buckley Special Alert, AB 874, AB 1355, AB 1146, AB 25, and AB 1564 leave the majority of the consumer’s rights intact in the CCPA and clarify certain provisions—including the definition of “personal information.” Other exemptions were added or clarified regarding the collection of certain data that have a bearing on financial services companies. Notable revisions to the CCPA include the (i) “personal information” definition; (ii) FCRA exemption; (iii) employee exemption; (iv) business individual exemption; (v) verification and delivery requirements; (vi) privacy policy and training requirements; (vii) collection of information; and (viii) vehicle/ownership information exemption. The various amendments are effective on January 1, 2020, the same day the CCPA becomes effective.

    Additionally, on October 10, the California attorney general released the highly anticipated proposed regulations implementing the CCPA. See the Buckley Special Alert for details of the proposed regulations.

    State Issues Privacy/Cyber Risk & Data Security State Legislation State Attorney General FCRA State Regulation

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