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Financial Services Law Insights and Observations

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  • Fed seeks comments on network availability for card-not-present debit card transactions

    Agency Rule-Making & Guidance

    On May 7, the Federal Reserve Board issued a notice of proposed rulemaking (NPRM) seeking comments regarding proposed amendments to Regulation II, which implements Section 920 of the EFTA, that would require banks to ensure that two unaffiliated payment networks are available on their debit cards for online purchases. In a memo to the Board, Fed staff noted that due to the growth in online commerce, “card-not-present transactions have become an increasingly significant portion of all debit card transactions, and technology has evolved to enable multiple networks for these transactions.” However, “[d]espite this, two unaffiliated payment card networks are often not available to process card-not-present transactions, such as online purchases, because some issuers do not enable multiple networks for such transactions.” This outcome, Fed staff stated, is “inconsistent with Regulation II’s requirement that at least two unaffiliated networks be available to process each debit card transaction.”

    The NPRM addresses this issue by amending Regulation II and its official commentary to (i) “clarify that the requirement that each debit card transaction must be able to be processed on at least two unaffiliated payment card networks applies to card-not-present transactions”; (ii) clarify requirements imposed “on debit card issuers to ensure that at least two unaffiliated payment card networks have been enabled for debit card transactions”; and (iii) “standardize and clarify the use of certain terminology.” Notably, Fed staff emphasized in their memo that the NPRM would not impact Regulation II’s provisions governing interchange fees for certain debit card transactions. As previously covered by InfoBytes, last month, two North Dakota trade associations filed a complaint against the Fed claiming that the agency has “failed to properly follow Congress’s instructions to ensure that debit-card processing fees are reasonable and proportional to the costs of debit-card transactions.”

    The Fed published its report on debit card transactions in 2019, and noted it “will continue to review the parts of Regulation II that directly address interchange fees for certain electronic debit transactions in light of the most recent data collected by the Board pursuant to section 920 of the EFTA and may propose revisions in the future.”

    Agency Rule-Making & Guidance Federal Reserve Debit Cards Fintech

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  • Fed shaping “novel institutions” guidelines

    Agency Rule-Making & Guidance

    On May 5, the Federal Reserve Board issued a notice and request for comments on proposed guidelines for evaluating account and service requests that would allow companies with “novel types of banking charters” to access the Fed’s payments system. Among other things, the notice outlines six proposed principals for Reserve Banks to consider when an institution requests access. These include:

    • Whether the institution is eligible under federal statute to maintain an account at a Federal Reserve Bank and has a “well-founded, clear, transparent, and enforceable legal basis for its operations.”
    • Whether the provision of an account and services to an institution would “present or create undue credit, operational, settlement, cyber or other risks to the Reserve Bank.”
    • Whether the provision of an account and services to an institution would “present or create undue credit, operational, settlement, cyber or other risks to the overall payment system.”
    • Whether the provision of an account and services to an institution would “create undue risk to the stability of the U.S. financial system.”
    • Whether the provision of an account and services to an institution would “create undue risk to the overall economy by facilitating activities such as money laundering, terrorism financing, fraud, cybercrimes, or other illicit activity.”
    • Whether the provision of an account and services to an institution would “adversely affect the Federal Reserve’s ability to implement monetary policy.”

    “With technology driving rapid change in the payments landscape, the proposed Account Access Guidelines would ensure requests for access to the Federal Reserve payments system from novel institutions are evaluated in a consistent and transparent manner that promotes a safe, efficient, inclusive, and innovative payment system, consumer protection, and the safety and soundness of the banking system,” Fed Governor Lael Brainard said in the announcement.

    If the Fed decides to grant an access request, “it may impose (at the time of account opening, granting access to service, or any time thereafter) obligations relating to, or conditions or limitations on, use of the account or services as necessary to limit operational, credit, legal, or other risks posed to the Reserve Banks, the payment system, financial stability or the implementation of monetary policy or to address other considerations,” the notice stated, adding that the “account-holding Reserve Bank may, at its discretion, decide to place additional risk management controls on the account and services, such as real-time monitoring of account balances, as it may deem necessary to mitigate risks.”

    Comments on the proposal are due 60 days following publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Reserve Fintech Payments

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  • FHA clarifies timing to review Covid-19 loss mitigation options for borrowers

    Agency Rule-Making & Guidance

    On May 7, FHA issued a notice clarifying when it is appropriate to begin reviewing borrowers for loss mitigation options outlined in the “Review of Borrowers in a Pandemic-Related Forbearance for a Covid-19 Loss Mitigation Option.” The notice acknowledges that some mortgagees are unsure about when to start reviewing borrowers for Covid-19 loss mitigation options. The notice points out that FHA requires mortgagees to review borrowers for Covid-19 loss mitigation options “upon the completion or expiration of the borrower forbearance period.” For clarifying purposes, however, the notice highlights that mortgagees may review borrowers for Covid-19 loss mitigation options “at any point prior to the completion or expiration of their COVID-19 or other pandemic-related forbearance period.” Not only is it permissible for a mortgagee to undertake a loss mitigation review before the borrower exits forbearance, FHA actually urges mortgagees to review borrowers for available Covid-19 loss mitigation options “as soon as practicable as these options are designed to help borrowers resolve their delinquencies and avoid foreclosure.”

    Agency Rule-Making & Guidance FHA Mortgages Covid-19 Consumer Finance

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  • FHFA finalizes GSE resolution plan requirements

    Agency Rule-Making & Guidance

    On May 3, FHFA published a final rule requiring Fannie Mae and Freddie Mac (GSEs) to develop “credible resolution plans” (also known as “living wills”) to facilitate their rapid and orderly resolution in the event FHFA is appointed receiver per the Housing and Economic Recovery Act of 2008. Similar to the living wills that other large financial institutions are required to develop under resolution planning rules issued by the Federal Reserve Board and the FDIC, the resolution plans will create a roadmap for preserving business continuity should the GSEs fail again. FHFA Director Mark Calabria stressed that the rule “helps create a stronger, more resilient housing finance system by protecting taxpayers and the mortgage market from harm.”

    As previously covered by InfoBytes, last December FHFA published a notice of proposed rulemaking seeking to, among other things, implement liquidity and funding requirements for the GSEs. According to FHFA’s fact sheet, public input was incorporated into the final rule’s key components, which include the following requirements:

    • The resolution planning process will start with the identification of core business lines.
    • Initial resolution plans must be submitted “two years after the effective date of the final rule” with “subsequent resolution plans to be submitted every two years thereafter.”
    • Resolution plans must include the following required and prohibited assumptions: (i) an assumption of severely adverse economic conditions; (ii) a prohibition on assuming that the U.S. government will provide or continue to provide “extraordinary support”; and (iii) the reflection of statutory provisions stating “that obligations and securities of the [GSE] issued pursuant to its charter are not guaranteed by the [U.S.] and do not constitute a debt or obligation of the [U.S.].”
    • Resolution plans must identify “potential material weaknesses or impediments to rapid and orderly resolution as conceived in its plan,” along with any actions or steps to address the identified weaknesses or impediments.
    • Resolution plans must ensure confidentiality of certain information but also make portions available to the public.
    • Resolution plans will be reviewed by FHFA to identity whether additional information is needed, as well as any deficiencies or “shortcomings” (defined as supervisory concerns that do not rise to the level of “deficiencies”). Feedback will be provided along with an opportunity for resubmission. 

    Additionally, FHFA added a 12-month notification requirement to the final rule should the agency decide to alter the resolution plan submission date. FHFA also reserved the authority to further refine submission requirements. The final rule is effective 60 days after publication in the Federal Register.

     

     

    Agency Rule-Making & Guidance FHFA Mortgages Fannie Mae Freddie Mac GSEs HERA Living Wills

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  • OCC updates Credit Card Lending booklet

    Agency Rule-Making & Guidance

    On April 29, the OCC issued Bulletin 2021-22 announcing the revision of the Credit Card Lending booklet of the Comptroller’s Handbook. The booklet rescinds OCC Bulletin 2015-14 and replaces version 1.2 of the “Credit Card Lending” booklet that was issued on January 6, 2017. Among other things, the revised booklet (i) discusses the adoption of current expected credit loss methodology and the increased use of such modeling in credit card origination and risk management; (ii) reflects changes to OCC issuances; (iii) includes refining edits regarding supervisory guidance, sound risk management practices, and legal language; and (iv) includes revisions for clarity.

    Agency Rule-Making & Guidance OCC Comptroller's Handbook Credit Cards CECL

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  • FDIC proposal would prohibit misuse of its name or logo

    Agency Rule-Making & Guidance

    On April 22, the FDIC proposed a rule implementing its authority to prohibit “making misrepresentations about deposit insurance or misusing the FDIC’s name or logo.” The proposed rule is intended to promote transparency on the FDIC’s processes for inspecting and enforcing potential breaches of prohibitions under the FDIC Act by “further clarify[ing] [] procedures for identifying, investigating, and where necessary taking formal and informal action to address potential violations of Section 18(a)(4).” Additionally, the proposed rule would establish a primary point of contact for the public to report or inquire about potential violations. The FDIC specified that the proposed rule is in response to the “increasing number of instances where financial services providers or other entities or individuals have misused the FDIC’s name or logo.”

    Comments on the proposed rule will be accepted for 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance FDIC FDI Act

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  • CFPB extends QM compliance to October 2022

    Agency Rule-Making & Guidance

    On April 27, the CFPB issued a final rule formally extending the mandatory compliance date of the General Qualified Mortgage (QM) final rule to October 1, 2022. As previously covered by InfoBytes, and following a two-year rulemaking, last December the Bureau issued the General QM Final Rule to amend Regulation Z and revise the definition of a “General QM” by eliminating the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replacing it with bright-line price-based thresholds. The General QM Final Rule also eliminated QM status resulting solely from loans qualifying for sale to Fannie or Freddie Mac (GSEs), known as the “GSE Patch.” The General QM Final Rule took effect March 1, 2021, but compliance with the new rule is not mandatory until July 1, 2021; in the intervening period, the original and revised General QM Rule are concurrently effective.

    On March 3, the Bureau proposed delaying the mandatory compliance date to provide “greater creditor flexibility and expanded availability of responsible, affordable credit options for some struggling consumers” by keeping both the old and new rule until October 1, 2022. (Covered by InfoBytes here.) By extending the mandatory compliance date, lenders will now have the option of complying with either the revised General QM definition or the original DTI-based General QM definition on applications received on or after March 1, but prior to October 22, 2022. “As the mortgage market navigates an uncertain and challenging time, extending the date by which lenders must comply with the CFPB’s new General QM definition will help provide options and flexibility for both lenders and borrowers,” acting CFPB Director Dave Uejio stated in announcing the official extension.

    Delaying the General QM Final Rule’s mandatory compliance date will also provide lenders additional time to use the GSE Patch, the Bureau noted. However, as previously covered by InfoBytes, on April 8 the GSEs announced that—due to preferred stock purchase agreements (PSPA) with the U.S. Department of Treasury, which require that acquired loans meet the General QM Rule’s loan definition that became effective March 1—the GSEs will no longer, in accordance with the dates below, acquire GSE Patch loans that fail to meet the requirements of the revised General QM Rule, which functionally eliminates the utility of the GSE Patch. Specifically, to be eligible for purchase, Fannie Mae (see Lender Letter LL-2021-09) requires these loans to have application dates on or before June 30, 2021, and be purchased as whole loans on or before August 31, 2021, or be in MBS pools with an issue date on or before August 1, 2021. Freddie Mac issued similar requirements (see Bulletin 2021-13) for loans with application received dates on or after July 1, 2021, and all mortgages with settlement dates after August 31, 2021. As a result, unless the GSEs negotiate an additional amendment to their respective PSPA, this extension will have limited utility to the market.

    Agency Rule-Making & Guidance CFPB Qualified Mortgage Mortgages Ability To Repay Fannie Mae Freddie Mac GSE

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  • Fed proposes extension to TILA disclosure requirements

    Agency Rule-Making & Guidance

    On April 12, the Federal Reserve Board issued a notice of proposed rulemaking to extend TILA recordkeeping and disclosure requirements implemented under Regulation Z. The Board proposes to revise FR Z (OMB No. 7100-0199) to: (i) include burden connected to disclosure requirements in “rules issued by the Bureau since the Board’s last Paperwork Reduction Act (PRA) submission, as well as for one information collection for which the Bureau estimates burden” but the Board formerly did not; (ii) break out and clarify “burden estimates” that were formerly consolidated; and (iii) eliminate burden associated with some requirements due to the Bureau accounting for burden for the entire industry, or because the burden is now deemed a part of an institution’s usual and customary business practices. The notice also mentions that the “disclosures, records, policies and procedures required by Regulation Z are not required to be submitted to the Board.”

    Agency Rule-Making & Guidance Federal Reserve TILA Regulation Z

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  • FHA streamlines mortgage servicing operational requirements

    Agency Rule-Making & Guidance

    On April 19, FHA issued an update to Section III of the Single Family Housing Policy Handbook 4000.1, which streamlines many standard mortgage servicing operational requirements. The updates also incorporate FHA actions taken to support borrowers experiencing Covid-19-related financial hardships. The changes/updates include:

    • A revised loss mitigation home retention “waterfall” to help servicers quickly review borrowers in danger of foreclosure for a permanent FHA Home Affordable Modification Program option without a lengthy forbearance. FHA noted in its announcement that this process “has been proven to be highly effective at helping borrowers avoid redefault and foreclosure.”
    • Streamlined documentation requirements designed “to avoid unnecessary delays” and be more closely aligned “with standard industry servicing practices.” One example includes removing signature requirements on trial payment plans.
    • A revised structure for certain allowable costs and fees corresponding with other industry participants’ fee structures.

    The changes take effect August 17.

     

     

    Agency Rule-Making & Guidance FHA HUD Mortgages Mortgage Servicing Consumer Finance Loss Mitigation

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  • FCC pushes on robocall blocking

    Agency Rule-Making & Guidance

    On April 13, the FCC took several actions associated with blocking illegal and unsolicited robocalls, including sending cease and desist letters (see here and here) to two carriers that “appear to be transmitting multiple unlawful robocall campaigns” and seeking updated information from all carriers and developers of call-blocking tools to learn more about the tools available to consumers and their effectiveness. Key questions include:

    • Whether the companies are offering call blocking tools to consumers at no charge.
    • How the companies measure the effectiveness of blocking tools.
    • What protections the companies have put in place to ensure that call blocking does not interfere with emergency services.

    In addition to seeking input from the industry, the FCC sent cease and desist letters to two carriers regarding the transmission of illegal robocalls through their networks. The letters warn the carriers that downstream carriers will be authorized to block all of their traffic if they do not take steps within 48 hours to “effectively mitigate illegal traffic.”

     

    Agency Rule-Making & Guidance FCC Robocalls Privacy/Cyber Risk & Data Security

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