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Agencies propose codifying that supervisory guidance lacks force of law
On October 20, the Federal Reserve Board, CFPB, FDIC, NCUA, and OCC released a notice of proposed rulemaking (NPRM), which seeks to codify the “Interagency Statement Clarifying the Role of Supervisory Guidance issued by the agencies on September 11, 2018 (2018 Statement).” As previously covered by InfoBytes, the 2018 Statement confirmed that supervisory guidance “does not have the force and effect of law, and [that] the agencies do not take enforcement actions based on supervisory guidance.” The Statement emphasized that the intention of supervisory guidance is to outline agencies’ expectations or priorities and highlighted specific policies and practices the agencies intend to take relating to supervisory guidance to further clarify the proper role of guidance, including: (i) not citing to “violations” of supervisory guidance; (ii) limiting the use of numerical thresholds or other “bright-line” requirements; (iii) limiting multiple issuances of guidance on the same topic; (iv) continuing to emphasize the role of supervisory guidance to examiners and to supervised institutions; and (v) encouraging supervised institutions to discuss supervisory guidance questions with their appropriate agency contact.
In addition to codifying the above elements of the 2018 Statement, the proposal would amend the 2018 Statement by (i) clarifying that references in the Statement limiting agency “criticisms” includes criticizing institutions “through the issuance of [matters requiring attention] MRAs and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations”; and (ii) adding that supervisory criticisms should be “specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.”
Comments are due 60 days after publication in the Federal Register, which has not yet occurred.
FinCEN, federal banking agencies provide CIP program relief
On October 9, the Financial Crimes Enforcement Network (FinCEN), in concurrence with the OCC, Federal Reserve, FDIC, and NCUA (collectively, “federal banking agencies”), issued an interagency order granting an exemption from the requirements of the customer identification program (CIP) rules for insurance premium finance loans extended by banks to all customers. The exemption is intended to facilitate insurance premium finance lending for the purchase of property and casualty insurance policies and will apply to loans extended by banks and their subsidiaries, subject to the federal banking agencies’ jurisdiction. According to FinCEN, insurance premium finance loans present a low risk for money laundering due to the purpose for which the loans are extended and the limitations on how such funds may be used. Moreover, FinCEN emphasized that “property and casualty insurance policies themselves are not an effective means for transferring illicit funds.” Banks, however, must still comply with all other regulatory requirements, including those implementing the Bank Secrecy Act that require the filing of suspicious activity reports. Furthermore, the federal banking agencies determined that the order is consistent with safe and sound banking practices. The order supersedes a September 2018 order, which previously granted an exemption from the CIP rule requirements for commercial customers (covered by InfoBytes here).
CFPB outlines application process for early termination of consent orders
On October 5, the CFPB issued a policy statement outlining the application process for entities seeking to terminate a consent order before the original expiration date. Generally, consent orders issued by the Bureau carry five-year terms, although the term may be extended in certain circumstances. While reiterating the essential role consent orders play in the Bureau’s enforcement work, the Bureau recognizes that consent orders can impose costly and resource-intensive reporting and record-keeping requirements, and may impact a regulated depository institution’s ability to open new branches or merge or acquire other financial institutions. Acknowledging that there may be “exceptional circumstances” where early termination may be appropriate, the policy statement sets forth eligibility criteria that entities must meet, and lays out the standards that the Bureau intends to use when evaluating early termination applications. It also notes that only entities are permitted to apply for early termination of a consent order. Individuals are not eligible do so.
Among other things, an entity applying for early termination must demonstrate that it (i) has fully complied with the consent order’s terms and conditions; and (ii) has a “satisfactory” compliance management system in its institutional product line or compliance area under which the consent order was issued. Entities must also meet certain timing and threshold eligibility criteria. The policy statement further specifies that an entity may not apply if it has been banned from participating in a certain industry, if the consent order involves violations of an earlier order, or if any criminal activity is involved. Once an application is determined to be complete, the Bureau states that it “generally intends to complete [its] compliance review within six months.”
The policy statement takes effect October 8.
OCC issues CRA compliance resources
On October 1, the OCC released three items in support of the implementation of the new Community Reinvestment Act (CRA) final rule. The three newly released items include: (i) a compliance guide for small banks; (ii) an initial illustrative list of qualifying activities; and (iii) a form to request consideration of items to be added to the list of qualifying activities. As previously covered by a Buckley Special Alert, the OCC’s rule, while technically effective October 1, provides for at least a 27-month transition period for compliance based on a bank’s size and business model. Large banks and wholesale and limited purpose banks will have until January 1, 2023 to comply, and small and intermediate banks that opt-in to the final rule’s performance standards will have until January 1, 2024.
FCC seeks comment on TCPA exemptions
On October 1, the FCC issued a Notice of Proposed Rulemaking (NPRM), seeking comment on exemptions already granted under the TCPA allowing certain entities and types of calls to be made using an automatic telephone dialing system. The FCC is required by Section 8 of The Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act) to ensure that any exemption granted under the TCPA “includes requirements with respect to: (i) the classes of parties that may make such calls; (ii) the classes of parties that may be called; and (iii) the number of such calls that may be made to a particular called party.” Section 8 of the TRACED Act requires the FCC to prescribe new regulations or amend existing regulations with regard to the TCPA exemptions no later than December 30, 2020. The FCC is seeking comment on the current nine exemptions, which include, among other things, financial-institution calls to a wireless number. The FCC notes that the current conditions under the financial institution exemption “appear to satisfy section 8 of the TRACED Act” because there are limitations on the class of calling parties, the class of called parties, and the number of calls (no more than three calls per event over a three-day period for each affected account).
Additionally, the FCC seeks comment on the exemption allowing commercial calls to residences that do not constitute telemarketing. The FCC notes that the current exemption does not appear to satisfy Section 8’s requirements, as there is not enough specificity of the class of party that makes the calls, nor is there a limit on the number of calls that can be made. The FCC proposes to alter this exemption into two types of classes of parties: informational and transactional callers and seeks comment on whether to limit the number of calls that can be made under this exemption.
Comments will be due 15 days after publication in the Federal Register.
Fed FAQs clarify bank control structure under BHC and HOLA
On September 30, the Federal Reserve Board issued several frequently asked questions related to its control and divestiture proceedings final control rule that took effect the same day. As previously covered by InfoBytes, in January the Fed revised the bank control framework to clarify the rules used to determine whether a company controls a bank or a bank controls a company pursuant to the Bank Holding Company Act (BHC Act) and the Home Owners' Loan Act (HOLA). Among other things, the Fed notes that it “does not expect” to revisit investment structures that had previously been reviewed prior to the effective date of the control rule, and would not require changes to investment structures “that represent a reasonable interpretation of [Fed] precedent at the time the structure was created.” The FAQs also discuss what constitutes a “limiting contractual right” with respect to a contractual provision between “a first company and a second company that requires the second company to conform its activities to the activities restrictions under the [BHC Act] or [HOLA],” along with whether the control rule differentiates “between limiting contractual rights based on the circumstances under which the right was created or the nature of the document in which the right resides.”
Fed proposes updates to capital planning requirements
On September 30, the Federal Reserve Board issued a notice of proposed rulemaking (NPRM) to tailor the requirements in the Fed’s capital plan rule applicable to large bank holding companies and U.S. intermediate holding companies of foreign banking organizations. The changes would conform the capital planning, regulatory reporting, and stress capital buffer requirements for firms with $100 billion or more in total assets (Category IV) with the tailored regulatory framework approved by the Fed last October (covered by InfoBytes here). The NPRM would also make additional changes to the Fed’s stress testing rules, stress testing policy statement, and regulatory reporting requirements related to “business plan change assumptions, capital action assumptions, and the publication of company-run stress test results for savings and loan holding companies” to be consistent with a final rule issued last year that amended resolution planning requirements for large domestic and foreign firms (covered by InfoBytes here). These changes include removing company-run stress test requirements and implementing biennial, rather than annual, supervisory stress tests for firms subject to Category IV standards. Additionally, the Fed seeks comments on its existing capital planning guidance for firms of all sizes. Notably, the Fed states that the NPRM would not affect the calculation of firms’ capital requirements. Comments on the NPRM are due November 20.
FFIEC adopts revised interagency examination procedures for TILA
On September 30, On September 30, the OCC issued Bulletin 2020-84 announcing the Task Force on Consumer Compliance of the Federal Financial Institutions Examination Council’s adoption of revised interagency examination procedures for TILA, as implemented by Regulation Z. The updated interagency procedures reflect changes made to Regulation Z that relate to the TILA-RESPA Integrated Mortgage Disclosure Rule. Updates also reflect amendments to TILA that relate to the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), such as (i) special provisions relating to high-cost loans, appraisals, and student lending; (ii) “an additional type of qualified mortgage for insured depository institutions with less than $10 billion in assets”; and (iii) “an additional type of escrow exemption for insured depository institutions with less than $10 billion in assets.” The bulletin rescinds the “Truth in Lending Act” booklet of the Comptroller’s Handbook, as well as OCC Bulletin 2018-31, “Truth in Lending Act: Revised Comptroller's Handbook Booklet and Rescissions.” Going forward, examiners should only rely on the revised interagency examination procedures.
The CFPB also updated its TILA examination procedures to reflect 2017 and 2018 amendments to Regulation Z and EGRRCPA on September 29.
OCC releases bank supervision operating plan for FY 2021
On October 1, the OCC’s Committee on Bank Supervision released its bank supervision operating plan (plan) for fiscal year 2021. The plan outlines the agency’s supervision priorities and highlights several supervisory focus areas including: (i) credit risk management; (ii) commercial and residential real estate concentration risk management, with a focus in areas heavily impacted by the Covid-19 pandemic; (iii) allowances for loan and lease losses; (iv) cybersecurity and operational resiliency; (v) Bank Secrecy Act/anti-money laundering compliance; (vi) compliance risk management related to Covid-19-related bank activities; (vii) Community Reinvestment Act performance; (viii) fair lending examinations and risk assessments; (ix) LIBOR phase-out preparations; (x) oversight of significant third-party relationships; (xi) change management to address significant operational changes; and (xii) payment systems products and services. The plan will be used by OCC staff members to guide the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, and technology service providers.
The OCC will provide updates about these priorities in its Semiannual Risk Perspective, as InfoBytes previously has covered.
Fed issues ANPR on CRA modernization
On September 21, the Federal Reserve Board (Fed) issued an Advance Notice of Proposed Rulemaking (ANPR) inviting public comment on its approach for modernizing the regulations that implement the Community Reinvestment Act (CRA). The Fed’s ANPR follows a final rule to modernize the regulatory framework implementing the CRA issued by the OCC in May (covered by a Buckley Special Alert), which was met by opposition from community coalitions and House Democrats (covered by InfoBytes here and here). Neither the FDIC nor the Fed joined in promulgating the OCC’s final rule, which is technically effective October 1, 2020, but provides for at least a 27-month transition period for compliance based on a bank’s size and business model.
According to the Fed, the ANPR’s objectives are to increase the clarity, consistency and transparency of CRA supervisory expectations and standards, while minimizing data collection burdens. The following are key takeaways from the ANPR:
- Promoting financial inclusion. The ANPR seeks feedback on ways to strengthen regulations and evaluate how banks meet the needs of low- and moderate-income (LMI) communities and address inequities in credit access. The ANPR proposes, among other things, (i) ways to encourage more activities that support minority depository institutions (MDIs), Community Development Financial Institutions, as well as women-owned financial institutions and low-income credit unions outside of a bank’s assessment area; (ii) seeks feedback on additional incentives for investing in and partnering with MDIs; and (iii) requests input on expanding geographic areas for community development activities to allow banks to receive special CRA credit for activities in areas with high unmet needs.
- Metrics. The ANPR introduces a metrics-based approach to bring greater clarity, consistency, and transparency to how banks are assessed and rated. The ANPR proposes assessing banks’ CRA performance using a Retail Test and a Community Development Test with options to be evaluated under certain subsets based on their size. According to the Fed’s fact sheet, the metrics would be “tailored to local market conditions and adjust[ed] automatically to reflect structural economic differences and changes over the business cycle.” Additionally, the proposed retail lending metrics formulas use the number of a bank’s loans, rather than the dollar amount of those loans, to avoid weighting larger loans more heavily than smaller ones.
- Internet banks. The ANPR contemplates defining an internet bank for CRA purposes and allowing such internet banks to delineate nationwide assessment areas to “more holistically capture their banking activities.”
- CRA deserts. The ANPR considers designating “CRA deserts”—“areas with little bank presence and corresponding lesser availability of banking products and services and community development activities”—and allowing banks to receive credit for community development activities in designated areas of need outside of their assessment areas. The ANPR also suggests providing additional consideration if a bank operates a branch in a designated banking desert within an assessment area.
- CRA-approved activities. The ANPR proposes publishing an illustrative, non-exhaustive list of community development activities that qualify for CRA consideration and seeks feedback on an activity pre-approval process.
- Small banks. The ANPR proposes eliminating the current intermediate small bank category and establishing an asset-size threshold of $750 million or $1 billion to distinguish between small and large retail banks. Currently, the asset threshold between small and intermediate small banks is $326 million, and the threshold between intermediate small and large banks is $1.305 billion. Small retail banks could continue to be evaluated under the current CRA framework but would have the option to be evaluated under certain of the new subtests. Small banks are also exempt from additional deposit and certain other data collection requirements.
- Consistent approach. Fed Chair Jerome Powell released a statement stressing that the ANPR “is an important step forward in laying a foundation for the [Fed, OCC, and FDIC] to build a shared, modernized CRA framework that has broad support.”
Comments on the ANPR are due 120 days after publication in the Federal Register.