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On April 16, the FDIC issued an advance notice of proposed rulemaking (ANPR) and request for comment on modifications to its resolution planning framework (known as living wills) for insured depository institutions with over $50 billion in assets. According to the FDIC, the ANPR is considering three changes to streamline the process: (i) creating tiered planning requirements for living wills based on an institution’s size, complexity, and other factors; (ii) revising the frequency and required content of resolution plan submissions, including eliminating living will submission requirements for certain smaller and less complex institutions; and (iii) improving communication between the FDIC and banks on resolution planning. According to a statement issued by FDIC Chairman Jelena McWilliams, the ANPR also proposes two alternative concepts for consideration: “Broadly, either approach would require large, complex institutions to continue to submit periodic resolution plans, streamlined compared to the existing plans. Institutions that are relatively smaller and less complex but still subject to the rule would no longer need to submit actual plans, but would still be subject to periodic engagement and capabilities testing.” Comments on the ANPR are due 60 days after publication in the Federal Register.
On April 17, Kathy Kraninger, Director of the CFPB, spoke before the Bipartisan Policy Center where she reiterated the Bureau’s focus on prevention of harm and announced a symposium that will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act. In her remarks, Kraninger touched on the four “tools” the Bureau has at its disposal to execute its mission: education, rulemaking, supervision, and enforcement.
- Education. The Bureau wants to help consumers protect their own interests and choose the right products and service to help themselves. Specifically, the Bureau is focusing on ensuring that American consumers learn to save to be able to absorb a financial shock.
- Rulemaking. The Bureau will comply with Congressional mandates to promulgate rules or address specific issues through rulemaking, but when the Bureau has discretion, it will focus on “preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices which undermine the ability of consumers to choose the products and services that are best for them.” In the coming weeks, the Bureau will release its proposed rules to implement the FDCPA, which will include (i) bright line limits on the number of calls consumers can receive from debt collectors on a weekly basis; (ii) clarity on how collectors may communicate through new technology such as, email and text messages; and (iii) requiring more information at the outset of collection to help consumers better identify debts and understand payment and dispute options. Kraninger stated, “the CFPB must acknowledge that the costs imposed on regulated entities absolutely affect access to, and the availability of, credit to consumers.”
- Supervision. This tool is the “heart of the agency,” according to Kraninger, as it helps to prevent violations of laws and regulations from happening in the first place. The Bureau will keep in mind that it is not the only regulator examining most entities and will focus on coordination and collaboration with the other regulators so as not to impose unmanageable burdens in examinations.
- Enforcement. The Bureau will continue to enforce against bad actors that do not comply with the law, as enforcement is “an essential tool that Congress gave the Bureau.” The Bureau will have a “purposeful enforcement regime” to foster compliance and help prevent consumer wrongs. Kraninger is “committed to ensuring that enforcement investigations proceed carefully and purposefully to ensure a fair and thorough evaluation of the facts and law… [and ensuring they] move as expeditiously as possible to resolve enforcement matters, whether through public action or a determination that a particular investigation should be closed.”
Kraninger also touched on how the Bureau plans to measure success going forward. Kraninger noted that in the past, the Bureau touted its outgoing statistics as a measurement, such as amount of consumer redress and number of complaints handled. However, according to Kraninger, if the Bureau succeeds in fostering a goal of prevention of harm, certain outputs like meritorious complaints would actually be lower. Therefore, the Bureau’s success should be based on how it uses all of its tools. Lastly, Kraninger announced a symposia series that would convene to discuss consumer protections in “today’s dynamic financial services marketplace.” The first will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act, specifically, to address issues with the “reasonableness” standard. There are no additional details on the date for the symposium but Kraninger noted that this would be the next step in exploring future rulemaking on the issue. The series will also have future events discussing behavioral law and economics, small business loan data collection, disparate impact and the Equal Credit Opportunity Act, cost-benefit analysis, and consumer authorized financial data sharing.
Additionally, on April 9, acting Deputy Director, Brian Johnson, spoke at the George Mason University Law & Economics Center's Ninth Annual Financial Services Symposium. In his prepared remarks, Johnson emphasized that regulatory rules should be “as simple as possible” when dealing with complex markets as they are easier for a greater portion of actors to understand and adapt to and also promote compliance, “which has the ancillary benefit of making it easier for consumers (not to mention regulators) to distinguish between good and bad actors.” Johnson argued that regulators should not try and dictate specific outcomes in rulemaking. Instead, Johnson stated that “financial regulators should recognize that complex market systems are not a means to accomplish their specific goals” and should “narrowly-tailor rules to address a discrete market failure.” Johnson also touched on the Bureau’s new Office of Innovation, noting that the Bureau’s proposed No Action Letter Program and Product Sandbox will offer firms “the opportunity to expand credit while still preserving important consumer protections,” while assisting the Bureau in learning about new technologies and potential consumer risks. As for the Bureau’s cost-benefit analysis, Johnson said that this activity will not be limited to future actions, but will also be used for “periodic retrospective analysis” because financial markets are “constantly changing, requiring constant reappraisal and verification of the rules that govern the system.”
CFPB and Federal Reserve update HMDA examination procedures; CFPB updates ECOA baseline review procedures
On April 1, the CFPB and the Federal Reserve Board (Federal Reserve) issued revisions to the HMDA examination procedures covering data collected since January 1, 2018, under the HMDA amendments issued by the Bureau in October 2015 and August 2017, as well as section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (implemented and clarified by the 2018 HMDA Rule, which was covered by InfoBytes in August 2018 here.) According to the Federal Reserve’s CA 19-5, the HMDA examination updates include, (i) Narrative, Examination Objectives, and Examination Procedure sections that were developed by the Task Force on Consumer Compliance of the FFIEC; (ii) Review of Compliance Management System, Examination Conclusions and Wrap-Up, and Examination Checklist sections that were developed in consultation with the FDIC and the OCC; and (iii) sampling, verification, and resubmission procedures. With regard to HMDA data collected prior to January 1, 2018, institutions will continue to be examined according to the interagency HMDA examination procedures “transmitted with CA 09-10 and the HMDA sampling and resubmission procedures transmitted with CA 04-4.”
Additionally, in April, the CFPB also released updated ECOA baseline review procedures. The procedures consist of five modules: (i) Fair Lending Supervisory History; (ii) Fair Lending Compliance Management System (CMS); (iii) Fair Lending Risks Related to Origination; (iv) Fair Lending Risks Related to Servicing; and (v) Fair Lending Risks Related to Models. According to the Bureau, all exams will cover the Fair Lending CMS module and additional modules will be assigned depending on the scope of examination.
On April 2, the FDIC, Federal Reserve Board, and the OCC (together, the “Agencies”) released a joint statement announcing a notice of proposed rulemaking (NPR) to limit the “interconnectedness” of large banking organizations and reduce systemic risk resulting from the failure of global systemically important bank holding companies (GSIBs), certain intermediate holding companies, and GSIB foreign banking organizations. Among other measures, the NPR proposes that, to discourage GSIBs and advanced approaches banking organizations (generally firms with total consolidated assets of $250 billion or more or at least $10 billion in on-balance sheet foreign exposure) from purchasing large amounts of unsecured debt issued by GSIBs, the Agencies propose to subject these investments “to deduction from the . . . organization’s own regulatory capital.” This debt, the Agencies note in the statement, is used to recapitalize the GSIB during bankruptcy or resolution as a result of failure, and the proposal is intended to reduce both interconnectedness within the financial system and systemic risk. Comments on the NPR are due 60 days after publication in the Federal Register.
On March 29, the SEC and the United Kingdom (UK) Financial Conduct Authority (FCA) signed two updated Memoranda of Understanding (MOU) to continue their cooperation and information sharing with respect to the “effective and efficient oversight of regulated entities across national borders.” The MOUs will come into force on the date EU legislation ceases to have direct effect in the UK, should the UK withdraw from the EU.
The first MOU is a supervisory arrangement covering regulated entities operating across national borders. The MOU—originally signed in 2006—includes updates to increase the scope of covered firms under the MOU to include firms that carry out derivatives, credit rating, and derivatives trading repository businesses. The update will reflect “the FCA’s assumption of responsibility from the European Securities and Markets authority for overseeing credit rating agencies and trade repositories in the event of the UK’s withdrawal from the EU.”
The second MOU—originally signed in 2013—provides a supervisory cooperation and exchange of information framework related to the supervision of covered entities operating within the alternative investment fund industry. The updates ensure that covered entities including investment advisers, fund managers, and private funds “will be able to continue to operate on a cross-border basis without interruption” in the event of a withdrawal.
On March 28, the California governor announced that Manuel Alvarez has been appointed Commissioner of the California Department of Business Oversight. Since 2014, Alvarez has been general counsel, chief compliance officer, and corporate secretary at an online purchase lender. Prior to those roles, he was an enforcement attorney with the CFPB, and a deputy attorney general at the California Department of Justice. Alvarez’s appointment will require the confirmation of the state Senate.
On March 26, the OCC released Bulletin 2019-16, which announces that the FFIEC Task Force on Consumer Compliance developed new interagency examination procedures to reflect the amendments to Regulations Z and E under the CFPB’s Prepaid Accounts Rule (covered by InfoBytes here), which go into effect on April 1. Specifically, the examination procedures reflect (i) Regulation E requirements covering disclosures, limited liability and error resolution, periodic statement, and posting of account agreements; and (ii) Regulation Z requirements covering overdraft credit features with prepaid accounts.
In March, the CFPB updated its examination procedures for short-term, small-dollar lending (payday lending) in its Supervision and Examinations Manual. The procedures are comprised of modules and each examination will cover one more module. Prior to using the procedures, examiners will complete a risk assessment and examination scope memorandum, which will assist in determining which of the five modules the exam will cover: (i) marketing; (ii) application and origination; (iii) payment processing and sustained use; (iv) collections, accounts in default, and consumer reporting; and (v) service provider relationships. The examinations will review for potential violations of TILA, EFTA, FDCPA, FCRA, ECOA, UDAAP, and Gramm-Leach-Bliley Act (GLBA), all of which apply to payday lending.
On March 19, the California Department of Business Oversight (DBO) filed an administrative action to revoke the license and void loans made by a Southern California auto title lender for allegedly violating state lending laws. According to the DBO announcement, the lender allegedly, among other things, (i) charged consumers more interest than permitted by state law; (ii) failed to consider the borrower’s ability-to-repay; and (iii) engaged in “false and misleading” advertising. Specifically, DBO alleges that, in two separate examinations, it determined the lender included DMV fees in borrowers’ principal loan amounts to bring the loans above $2,500. DBO alleges these loans carried interest rates over 100 percent, while the state law cap is 30 percent for loans under $2,500. DBO also alleges the lender violated state law by failing to report the profits it made from a “duplicate-key fee” and made loans from unlicensed locations.
In addition to the formal accusation, the DBO also has commenced an investigation to determine whether the more than 100 percent interest rates that the lender charges on most of its auto title loans may be unconscionable under the law.
On March 20, the CFPB and the FTC released (here and here) their annual report to Congress on the administration of the FDCPA, which highlights the 2018 efforts of the agencies. The agencies coordinate in enforcement; share supervisory and consumer complaint information; and collaborate on education under a memorandum of understanding that was reauthorized in February. (Covered by InfoBytes here.) In the report, the Bureau acknowledges its intent to release a Notice of Proposed Rulemaking on debt collection covering issues such as “communication practices and consumer disclosures” in spring 2019. In addition to highlighting the Bureau’s debt collection education efforts, the report also states that in 2018 the Bureau (i) received approximately 81,500 debt collection complaints related to first-party and third-party collections; (ii) initiated six public enforcement actions alleging violations of the FDCPA, one resulting in an $800,000 civil money penalty; and (iii) identified one or more violations of the FDCPA through supervisory examinations.
As for the FTC, in addition to education efforts, the report states that in 2018 the agency (i) initiated or resolved seven enforcement actions, three of which were related to phantom debt collection, obtaining more than $58.9 million in judgments; (ii) returned money to thousands of consumers who were targeted by phantom debt collection operations; and (iii) banned 32 companies and individuals from working in the debt collection market.
- Buckley Webcast: Maintaining privilege in cross-border internal investigations
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Buckley Webcast: The future of the Community Reinvestment Act
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Buckley Webcast: Amendments to the CFPB's proposed debt collection
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- APPROVED Webcast: State and SAFE Act licensing requirements for banks
- John C. Redding to discuss "TCPA compliance in the era of mobile" at the Auto Finance Risk Summit
- Buckley Webcast: The next consumer litigation frontier? Assessing the consumer privacy litigation and enforcement landscape in 2019 and beyond
- Buckley Webcast: Data breach litigation and biometric legislation
- Buckley Webcast: Trends in e-discovery technology and case law
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program