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Education Dept. increases standards for student loan servicers
On October 15, the Department of Education announced revised standards for its student loan servicers effective early next year. The six identified student loan servicing companies signed contract extensions agreeing to comply with federal, state, and local laws governing student loan servicing and collections and will respond to complaints filed with those authorities in a timely manner. According to Federal Student Aid (FSA) Operating Officer Richard Cordray, the new standards “rais[e] the bar for the level of service student loan borrowers will receive. . .[and] come at a critical time as we help borrowers prepare for loan payments to resume early next year.” The FSA states that servicers that do not meet certain performance standards may see a decrease in the number of accounts placed with them, and servicers that assist borrowers avoid falling behind on payments, especially at-risk borrowers, will be rewarded.
Standards will measure several performance metrics including: (i) the percentage of borrowers who end a phone call before reaching a customer service representative; (ii) how well customer service representatives answer borrowers’ questions and help navigate repayment options; (iii) “[w]hether servicers process borrower requests accurately the first time”; and (iv) the overall level of customer service borrowers receive. Additionally, the six servicers will be required to submit “new, comprehensive reports,” which will provide FSA greater insight into borrowers’ experiences with loan servicers and allow FSA to track why borrowers contact their loan servicers, the type of borrower applications that are denied, and complaints borrowers send directly to loan servicers. FSA says it intends to publicly release the performance data.
HUD and Fed consider transition from LIBOR
On October 5, HUD issued an advanced notice of proposed rulemaking (ANPRM) seeking comments regarding the transition from the London Interbank Offered Rate (LIBOR) to alternate indices on adjustable rate mortgages (ARMs). According to the ANPRM, most ARMs insured by FHA are based on LIBOR, which is likely to become uncertain after December 31 and to no longer be published after June 30, 2023. Due to the uncertainty, HUD has begun to transition away from LIBOR and has approved the Secured Overnight Financing Rate (SOFR) index in some circumstances. In recognizing that there may be certain difficulties for mortgagees transitioning to a new index, HUD “is considering a rule that would address a Secretary-approved replacement index for existing loans and provide for a transition date consistent with the cessation of the LIBOR index.” Furthermore, HUD “is also considering replacing the LIBOR index with the SOFR interest rate index, with a compatible spread adjustment to minimize the impact of the replacement index for legacy ARMs.” Comments on the ANPRM are due by December 6.
The same day, Federal Reserve Vice Chair for Supervision Randal K. Quarles spoke at the Structured Finance Association Conference in Las Vegas, Nevada, reminding participants that they should cease utilizing LIBOR by the end of the year, “no matter how unhappy they may be with their options to replace it,” and further warned that the Fed will supervise firms accordingly. Quarles emphasized that, “[g]iven the availability of SOFR, including term SOFR, there will be no reason for a bank to use [LIBOR] after 2021 while trying to find a rate it likes better.”
Fed to adopt Fedwire message format, asks for comments on expedited adoption
On October 4, the Federal Reserve Board announced that it will adopt the International Organization for Standardization’s (ISO) 20022 message format for its Fedwire Funds Service—a real-time gross settlement system owned and operated by the Federal Reserve Banks that enables businesses and financial institutions to quickly and securely transfer funds. This change will enable “enhanced efficiency of both domestic and cross-border payments, and a richer set of payment data that may help banks and other entities comply with sanctions and anti-money laundering requirements,” the Fed stated. Additionally, the Fed requested public comments on a revised plan (targeted for no earlier than November 2023) to implement the ISO 20022 message format on a single day rather than in three separate phases, as originally proposed. According to the Fed, the adoption of ISO 20022 is part of the agency’s initiative to enhance its payment services. Comments must be received 90 days after publication in the Federal Register.
FCC proposes obligations on international robocalls
On October 1, the FCC released a notice of proposed rulemaking (NPRM) to impose obligations on gateway providers to prevent illegal robocalls originating abroad from reaching U.S. consumers and businesses. Among other things, the NPRM seeks to require domestic gateway providers “to apply STIR/SHAKEN caller ID authentication to, and perform robocall mitigation on, foreign-originated calls with U.S. numbers.” As previously covered by InfoBytes, the STIR/SHAKEN framework addresses “unlawful spoofing by confirming that a call actually comes from the number indicated in the Caller ID, or at least that the call entered the US network through a particular voice service provider or gateway.” According to the FCC, the STIR/SHAKEN framework decreases illegal spoofing, provides assistance to law enforcement, and strengthens voice service providers’ blocking of robocalls using illegally spoofed caller ID information. The notice also proposes ensuring that gateway providers are engaged in the fight against illegal robocalls by requiring them to timely respond to traceback requests, which are utilized to block illegal robocalls and inform FCC enforcement investigations. Additionally, the NPRM seeks to require that both the gateway provider and the network accepting questionable traffic from the gateway provider actively block such calls. In a statement, acting Chairwoman Jessica Rosenworcel stated that such measures “will help [the FCC] tackle the growing number of international robocalls.” Comments on the proposed rules are due 30 days after the date of publication in the Federal Register.
FinCEN seeks comments on antiquities trading
On September 23, the Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comments on implementing Section 6110 of the Anti-Money Laundering Act of 2020 (Act) regarding the trade in antiquities. FinCEN noted that this is the first of several regulatory actions that the agency intends to undertake to implement Section 6110. As previously covered by InfoBytes, the Act made numerous changes to the Bank Secrecy Act (BSA), including amendments to the definition of “financial institution” to include a “person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” FinCEN explained that crimes related to the trade in antiquities may include money laundering and sanctions violations, and may also be exploited by terrorist financiers seeking to evade detection when laundering illicit funds through the U.S. financial system. In March, FinCEN issued an advisory notice (covered by InfoBytes here) alerting financial institutions with existing BSA obligations about illicit activity associated with trade in antiquities and art. According to FinCEN, the ANPRM “is an important step in strengthening U.S. national security by protecting the U.S. financial system from money launderers and terrorist financiers that seek to exploit the antiquities trade.”
In developing the ANPRM, FinCEN coordinated with the FBI, the Attorney General, and Homeland Security Investigations to consider several factors, including “the degree to which the regulations should focus on high-value trade in antiquities, and on the need to identify the actual purchasers of such antiquities, in addition to the agents or intermediaries acting for or on behalf of such purchasers,” whether thresholds should apply when determining persons to regulate, and what exemptions, if any, should apply to the regulations. The ANPRM seeks comments regarding, among other things: (i) “the potential for money laundering, financing of terrorism, and other illicit financial activity in the antiquities industry”; (ii) “the existence of any safeguards in the industry to guard against this potential”; (iii) “the effect that compliance with BSA requirements could have on the antiquities industry”; (iv) “what additional steps may be necessary to protect the industry from abuse by money launderers and other malign actors”; and (v) “which actors within the antiquities trade should be subject to BSA requirements.” Comments are due October 25.
SEC letter illustrates climate-change disclosures
Recently, the SEC’s Division of Corporation Finance issued guidance to companies that may be required to include information concerning climate change risks and opportunities in “disclosures related to a company’s description of business, legal proceedings, risk factors, and management’s discussion and analysis of financial condition and results of operations.” Such disclosures, as discussed in the SEC’s 2010 Climate Change Guidance, address the following: (i) the effect of pending or existing legislation, regulations, and international agreements related to climate change; (ii) the indirect impact of regulations or the direction of business trends; and (iii) the physical effects of climate change. An illustrative letter provided by the Division outlines “sample comments that the Division may issue to companies regarding their climate-related disclosure or the absence of such disclosure.” The Division clarified that the letter does not provide an exhaustive list of issues that companies should consider, and that any comments issued “would be appropriately tailored to the specific company and industry, and would take into consideration the disclosure that a company has provided in Commission filings.”
OCC updates earnings and regulatory Comptroller’s Handbook
On September 22, the OCC issued Bulletin 2021-44 announcing versions 1.0 of the “Earnings” and “Regulatory Reporting” booklets of the Comptroller’s Handbook. The new booklets apply to national banks, federal savings associations, and federal branches and agencies of foreign banking organizations, as well as the OCC’s supervision of community banks. The revised “Earnings” booklet rescinds the “Analytical Review of Income and Expense” booklet issued in March 1990 (with examination procedures issued in March 1998). The revised “Regulatory Reporting” booklet rescinds the “Review of Regulatory Reports” booklet, which was also issued in March 1990. The “Earnings” booklet, among other things, “supplements the earnings core assessments and provides examiners with expanded procedures to use when reviewing earnings for a specific line of business or the bank as a whole.” The “Regulatory Reporting” booklet, among other things: (i) pertains to call reports and similar financial reports but not, for instance, annual reports or those concerning nonfinancial activities; (ii) highlights sound risk management principles regarding regulatory reporting; and (iii) provides examiners procedures regarding assessing activities for a bank’s regulatory reporting. Although the rating system for federal branches does not include an earnings rating, examiners perform an earnings review, tailored to the activities of the federal branch, and, as such, the “Earnings” booklet is helpful guidance.
CFPB requests comments on credit card data collections
On September 21, the CFPB published a notice and request for comments in the Federal Register seeking input on revisions to an existing, currently approved information collection, related to reporting terms of credit card plans and consumer and college credit card agreements. The notice relates to credit card data collected by the Bureau as required under TILA regarding agreements between issuers and consumers under a credit card account for open-end consumer credit plans, as well as “any college credit card agreements to which the issuer is a party and certain additional information regarding those agreements.” The data collections will enable the Bureau to provide “a centralized and searchable repository for consumer and college credit card agreements and information regarding the arrangements between financial institutions and institutions of higher education.” Comments must be received by October 21.
CFPB addresses IT examinations in updated Supervision and Examination Manual
Recently, the CFPB updated its Supervision and Examinations Manual to include a new section, Compliance Management Review – Information Technology, to assist examiners when assessing an institution and its service providers’ IT controls as part of a compliance management systems (CMS) review. All institutions under the Bureau’s supervision and enforcement authority are required to have a CMS adapted to its business strategy and operations. Among other things, the new CMS-IT examination manual outlines the following five modules: (i) Module 1: Board and Management Oversight; (ii) Module 2: Compliance Program; (iii) Module 3: Service Provider Oversight; (iv) Module 4: Violations of Law and Consumer Harm; and (v) Module 5: Examiner Conclusions and Wrap-Up. Each module addresses the examination objectives of the relevant policies and procedures, including those related to the oversight and commitment to an institution’s CMS, change management, risk management, self-identification and corrective action, and consumer complaint responses. The modules also discuss appropriate training, monitoring, and auditing of the various stages of an effective CMS program.
FHFA seeks comments on regulatory capital framework
On September 15, FHFA issued a notice requesting public comment on a proposed rule that would amend the regulatory capital framework for Fannie Mae and Freddie Mac (collectively, “GSEs”). The proposed rule would amend the prescribed leverage buffer amount (PLBA) and the capital treatment of credit risk transfers (CRT) to encourage more distribution of credit risk between the GSEs and private investors. Specifically, FHFA is proposing to: (i) change the fixed PLBA equal to 1.5 percent of a GSE’s adjusted total assets to a dynamic PLBA of 50 percent of the GSE’s stability capital buffer; (ii) “replace the prudential floor of 10 percent on the risk weight assigned to any retained CRT exposure with a prudential floor of 5 percent on the risk weight assigned to any retained CRT exposure”; and (iii) eliminate the requirement that a GSE is required to apply an overall effectiveness adjustment to its retained CRT exposures in line with the framework’s securitization framework. Comments on the proposal must be submitted within 60 days of publication in the Federal Register.