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On June 18, the CFPB updated its Remittance Transfer Small Entity Compliance Guide to reflect the final amendments to the Remittance Transfer Rule (Final Rule) issued by the Bureau in May (covered by InfoBytes here). Among other things, the Final Rule grants a permanent safe harbor from exact remittance cost disclosures to insured institutions that do fewer than 500 remittances annually in the current and prior calendar years. Additionally, the Final Rule adopts a new, permanent exception that permits insured institutions to estimate the exchange rate for a remittance transfer to a particular country if, among other things, the remittance payment is made in the local currency of the designated recipient’s country and the insured institution processing the transaction made 1,000 or fewer remittance payments to that country in the previous calendar year.
As previously covered by InfoBytes, the CFPB issued FAQs covering Covid-19 and the Final Rule, and the Bureau issued a policy statement, which established a temporary exception allowing institutions providing remittance transfers to estimate fees to consumers in light of the Covid-19 pandemic. For the period between July 1 to January 21, 2021, the Bureau will not cite supervisory violations or initiate enforcement actions against certain institutions for disclosing estimated fees and exchange rates.
Special Alert: CFPB proposes changes to qualified mortgage definition; delays expiration of “GSE patch” until final rule becomes effective
On June 22, the CFPB released two Notices of Proposed Rulemaking (NPRM) to address the January 2021 expiration of the so-called GSE Patch for the Qualified Mortgage (QM) Rule. The GSE Patch provided QM status to mortgage loans eligible for purchase by either of the GSEs even if the loans did not otherwise meet the criteria for a QM under the “General QM” standard provided they comply with the same loan-feature prohibitions and points-and-fees limits as General QM loans. Notably, the GSE Patch allows loans to exceed the 43 percent debt-to-income ratio limit required under the General QM standard and also does not require creditors to use Appendix Q to Regulation Z to calculate the consumer’s income and debt.
In the first NPRM, the Bureau proposes to remove the General QM loan definition’s 43 percent DTI limit and replace it with a price-based threshold. In the second NPRM, the Bureau proposes to delay the expiration of the GSE Patch until the effective date of final amendments to the General QM definition in order to facilitate a smooth and orderly transition away from the GSE Patch definition of a Qualified Mortgage.
Recently, the NCUA released updated guidance to federally insured credit unions on serving hemp businesses. As previously covered by InfoBytes, in August 2019, NCUA released interim guidance allowing federally insured credit unions to service hemp businesses. The guidance explained that the Agriculture Improvement Act of 2018 (2018 Farm Bill) removed hemp from Schedule I of the Controlled Substances Act, but noted that hemp could not be produced lawfully under federal law, beyond a 2014 pilot program, until the USDA promulgated regulations and guidelines to implement the hemp production provisions of the 2018 Farm Bill. In October 2019, the USDA issued an interim final rule, which outlined provisions to approve plans submitted by state or Native American tribes that want to retain primary regulatory authority over the production of hemp and a federal licensing plan for producers in states and tribal territories that do not have their own USDA-approved plans.
The newly released guidance reminds credit unions to stay current with the federal, state, and Native American tribal laws and regulations that apply to any hemp-related businesses, as the interim final rule does not preempt or limit any law state or tribal law that that is more stringent than the 2018 Farm Bill. Among other things, the guidance notes that NCUA examiners will collect data concerning the types of services credit unions are providing to hemp-related businesses and states that the NCUA expects credit unions to employ sufficient customer due diligence procedures as part of their BSA/AML compliance program to ensure hemp growers possess a valid state or USDA license.
On June 4, the OCC announced two rulemaking issuances: a Notice of Proposed Rulemaking (NPR) that is intended to eliminate outdated regulatory requirements, and an Advance Notice of Proposed Rulemakings (ANPR) seeking comments on banking issues related to digital technology and innovation.
Specifically, the NPR would amend 12 CFR part 7 to update or eliminate outdated regulatory requirements and clarify and codify recent OCC interpretations related to the modern financial system. Among other things, the changes would include (i) codifying interpretations which permit covered institutions to engage in certain tax equity finance transactions; (ii) clarifying anti-takeover provisions; and (iii) expanding the ability of national banks to choose corporate governance provisions under state law.
The ANPR seeks comment on regulations 12 CFR part 7, subpart E and 12 CFR part 155, and, among other things, asks commenters to discuss (i) whether, in light of technological advances, the legal standards of both regulations are flexible enough; (ii) whether there are digital banking activities not covered by these rules that the OCC should address; (iii) the barriers or obstacles to further adoption of crypto-related activities in the banking industry; and (iv) the potential implications of new payments technologies and processes for the banking industry.
Comments on both issuances are due August 3.
On June 4, the CFPB released three documents to assist in the LIBOR transition before its anticipated cessation at the end of 2021. Highlights of the documents include:
- Notice of Proposed Rulemaking. The Bureau issued a proposed rule 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. For open-end products, among other things, the proposal would (i) require creditors to include in the change-in-terms notice the replacement index and any adjusted margin; (ii) add a LIBOR-specific provision allowing the LIBOR transition to occur on or after March 15, 2021, as opposed to the current rule’s “no longer available” standard; and (iii) allow creditors to elect a replacement index that is newly established and has no history, or is not newly established and has a history, if certain conditions are met. For closed-end credit, among other things, the proposal provides the Secured Overnight Financing Rate (SOFR) recommended by the Alternative Reference Rates Committee (ARRC) as a “comparable index” to LIBOR. In conjunction with the proposal, the Bureau released a “Fast Facts” high-level summary and an unofficial redline.
- FAQ Guidance. The Bureau released FAQ guidance to address other LIBOR transition topics and regulatory questions that do not require amendments to Regulation Z. Among other things, the FAQs cover general regulatory implementation considerations and specific requirements related to adjustable rate mortgage and HELOC disclosures.
- CHARM Booklet. The Bureau released revisions to their Consumer Handbook on Adjustable Rate Mortgages (CHARM) booklet, which aims to help consumers better understand adjustable rate mortgage loan products. The revisions provide updates based on consumer testing and remove LIBOR-based rate examples.
On June 3, the FHFA published a final rule for the housing goals of the Federal Home Loan Banks (FHLBs) to help underserved borrowers. The final rule’s changes include: (i) eliminating the retrospective evaluation using HMDA data and establishing a single prospective mortgage purchase housing goal at 20 percent of the number of each FHLB’s total Acquired Member Assets mortgage purchases; (ii) establishing a separate small member participation housing goal with a target goal of at least 50 percent; (iii) eliminating the existing $2.5 billion volume threshold and allowing banks to propose alternative target levels for housing goals, subject to public comment and FHFA approval; (iv) capping the extent FHLBs can use loans to higher-income borrowers to meet their housing goals; (v) establishing a process through which FHLBs could propose alternative goals to the prospective goals set in the final rule; and (vi) simplifying and clarifying eligibility criteria for housing goals to enable federally backed loans sold by small institutions to FHLBs to count for goal purposes. The final rule takes effect 60 days after publication in the Federal Register. Written requests from FHLBs proposing alternative target levels are due September 15, 2020. Enforcement will be phased in over three years and will apply to the 2021 - 2023 calendar years.
On June 1, the CFPB updated its reverse mortgage servicing examination procedures to incorporate current HUD regulations that provide the structure for Home Equity Conversion Mortgage (HECM) products. The updated procedures also add new exam questions to include issues raised in complaints submitted by older consumers. According to the Bureau’s summary, additions to the procedures include: (i) information regarding situations where a “servicer advances funds to pay for property taxes in any situation where the borrower was not behind on these payments”; (ii) guidance concerning a servicer’s timeliness in providing accurate payoff statements; (iii) new language under “Causes of Default” summarizing the circumstances under which an eligible non-borrowing spouse on an HECM loan may stay in the home after the borrower dies, for loans originated on or after August 4, 2014; and (iv) new language in the background section, which “incorporates HUD’s August 2017 regulatory changes that affected the ways in which lenders and servicers calculate the initial and annual mortgage insurance premiums,” as well as additional language “to provide a fuller description of reverse mortgages.”
On June 2, 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. Under the 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 yearly host state loan-to-deposit ratios. If a bank’s statewide ratio is less than one-half of the yearly 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.
On May 27, the CFPB issued an updated HMDA Small Entity Compliance Guide to reflect the changes made to Regulation C by the April final rule, which permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit (covered by InfoBytes here). The final rule, which amends Regulation C, increases the permanent threshold from 25 to 100 loans starting July 1, 2020, for both depository and nondepository institutions. The final rule also increases the permanent threshold for collecting and reporting data about open-end lines of credit from 100 to 200, but this change will not take effect until January 1, 2022, when the current temporary threshold of 500 open-end lines of credit expires. Beginning in 2022, both depository and nondepository institutions that meet this threshold must report data on open-end lines of credit by March 1 of the following calendar year. The Guide also notes the CFPB’s statement that, as of March 26, 2020, it “does not intend to cite in an examination or initiate an enforcement action against any institution for failure to report its HMDA data quarterly.”
On May 26, the OCC issued Bulletin 2020-56 announcing the revision of the Sampling Methodologies booklet of the Comptroller’s Handbook. Among other things, the revised booklet (i) discusses the differences between statistical and judgmental sampling; (ii) details the OCC’s statistical sampling methodologies; and (iii) includes look-up tables covering statistical sample sizes and upper confidence bounds. The revised booklet is effective for supervisory activities beginning on or after June 15.
- Daniel P. Stipano and Jonice Gray Tucker to discuss "The questioning begins: Potential liability under the Paycheck Protection Program" at an American Bar Association Banking Law Committee webinar
- Sherry-Maria Safchuk to discuss "Final CCPA regulations: Compliance considerations" at a CUCP virtual meeting
- Daniel R. Alonso to discuss "When can trial lawyers take their case to the public? The Harvey Weinstein case and beyond" at a New York City Bar Association webcast
- Daniel P. Stipano to discuss "Cram for the exam: Best prep strategies for a regulatory examination" at an ACAMS webinar
- Melissa Klimkiewicz to discuss "Flood insurance basics" at the NAFCU Virtual Regulatory Compliance School
- Sasha Leonhardt to discuss "Privacy laws clarified" at the National Settlement Services Summit (NS3)