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FinCEN clarifies customer due diligence FAQs
On August 3, the Financial Crimes Enforcement Network (FinCEN), in consultation with the federal functional regulators, issued responses to three frequently asked questions (FAQs) concerning customer due diligence (CDD) requirements under the Bank Secrecy Act for covered financial institutions. As previously covered by InfoBytes, the 2016 CDD Rule imposed standardized requirements for financial institutions to identify and verify beneficial owners of legal entity customers, subject to certain exclusions and exemptions. The FAQs follow those issued by FinCEN in July 2016 and April 2018 (covered by InfoBytes here and here), and address procedures to collect customer information, methods to establish a customer risk profile, and obligations to update customer information.
CFPB updates HMDA FAQs
On July 28, the CFPB updated its HMDA FAQs to include new guidance covering the reporting of certain data points related to the credit decision. Specifically, the FAQs state that credit underwriting data such as credit score, debt-to-income ratio, and combined loan-to-value ratio must be reported if it was “relied on in making the credit decision—even if the data was not the dispositive factor.” Similarly, the FAQs emphasize that income and property value should also be reported if they were relied on in making the credit decision.
CFPB requests input on ways to prevent credit discrimination
On July 28, the CFPB issued a request for information (RFI) seeking input on ways to create a regulatory environment that expands credit access and ensures consumers and communities are protected from discrimination with respect to any aspect of a credit transaction. The RFI seeks comments to “identify opportunities to prevent credit discrimination, encourage responsible innovation, promote fair, equitable, and nondiscriminatory access to credit, address potential regulatory uncertainty, and develop viable solutions to regulatory compliance challenges under the Equal Credit Opportunity Act (ECOA) and Regulation B.” The RFI is in lieu of a symposium previously planned for this fall on topics related to ECOA. Information received will assist the Bureau in exploring ways to address regulatory compliance challenges, prevent unlawful discrimination, and foster innovation. Among other things, the Bureau seeks comments on ways to provide clarity under ECOA and/or Regulation B related to: (i) disparate impact analysis; (ii) meeting the credit needs of borrowers with limited English proficiency; (iii) special purpose credit programs; (iv) affirmative advertising to disadvantaged groups; (v) small business lending, particularly minority and women-owned firms; (vi) the prohibition of discrimination on the basis of a sexual orientation or gender identity; (vii) the scope of federal preemption of state law; (viii) situations in which “creditors seek to ascertain the continuance of public assistance benefits in underwriting decisions”; (ix) credit underwriting decisions based in part on models using artificial intelligence or machine learning; and (viii) adverse action notices. Comments on the RFI are due 60 days after publication in the Federal Register.
The same day, Director Kathy Kraninger published a blog post outlining Bureau priorities for ensuring a more inclusive financial system. In addition to the RFI, Kraninger discussed (i) the usefulness of the consumer complaint system in identifying cases of discrimination and fair lending violations; (ii) examinations and enforcement actions; (iii) the Bureau’s request for legislative authority to compensate whistleblowers; and (iv) education efforts focusing on consumers’ rights in the financial marketplace, including those related to disparities in student loan outcomes.
CFPB to release ANPR on consumer access to financial records
On July 24, the CFPB announced plans to issue an Advanced Notice of Proposed Rulemaking (ANPR) on consumer-authorized access to financial records later this year. The future ANPR relates to the February Symposium held by the Bureau covering this subject and Section 1033 of the Dodd-Frank Act, which deals with consumers’ rights to access information about their financial accounts. As previously covered by InfoBytes, the purpose of this symposium was “to elicit a variety of perspectives on the current and future state of the market for services based on consumer-authorized use of financial data.” The symposium consisted of three panels: (i) the current landscape and benefits and risks of consumer-authorized data access; (ii) market developments; and (iii) considerations for policymakers. Along with the ANPR announcement, the Bureau released a report summarizing the February symposium.
According to the Bureau, the future ANPR will solicit feedback on (i) how the Bureau can effectively and efficiently implement the financial access rights described in Section 1033 of Dodd-Frank; (ii) the possible scope of data that might be subject to protected access; and (iii) how the Bureau may be able to solve the regulatory uncertainty of Section 1033’s interaction with other statutes, such as the FCRA.
FDIC finalizes policy statement on bank employment standards
On July 24, the FDIC issued a final rule, which formalizes the agency’s Federal Deposit Insurance Act (FDI Act) Section 19 policy statement covering individuals seeking to work in the banking industry who have been convicted of certain crimes. In general, Section 19 of the FDI Act prohibits, without the prior written consent of the FDIC, any person who has been convicted of any criminal offense involving dishonesty, breach of trust, or money laundering—or who has entered into a pretrial diversion or similar program in connection with such an offense—from participating in the banking industry. In August 2018, the FDIC updated the statement of policy to, among other things, expand the criteria of de minimis offenses for which the FDIC will not require the filing of an application (covered by InfoBytes here), and in November 2019, the FDIC issued the proposed rule to finalize the policy statement (covered by InfoBytes here).
The final rule, among other things, (i) exempts all individuals whose covered offenses have been expunged; (ii) expands the scope of the de minimis exception for certain qualifying offenses involving the use of false or fake identification, as well as for small-dollar, simple theft offenses; (iii) eliminates waiting periods for applicants who have had only one qualifying covered offense; and (iv) allows a person with two de minimis offenses to qualify for the de minimis exception, and decreases the waiting period for two such offenses to three years (or 18 months for those who were 21 or younger at the time of the offense).
Fed updates FOIA rules for CSI
On July 24, the Federal Reserve Board issued a final rule revising its “Rules Regarding Availability of Information,” to update and clarify the Board’s regulations implementing the Freedom of Information Act (FOIA) and the rules covering the disclosure of confidential supervisory information (CSI). The final rule, among other things, adopts standards consistent with the OCC’s rules, including (i) permitting supervised financial institutions to disclose CSI with their directors, officers, and employees “when necessary or appropriate for business purposes”; (ii) “permitting disclosures to the supervised financial institution’s outside legal counsel and auditors when the disclosures are ‘necessary or appropriate in connection with the provision of legal or auditing services’”; and (iii) “eliminat[ing] the requirement that supervised financial institutions obtain prior [Board] approval to disclose [CSI] to their other service providers, such as consultants, contractors, and contingent workers.” The final rule also updates definitions for expedited processing, clarifies terms, and helps users “more easily navigate the process of filing a FOIA request.” The final rule is effective 30 days after publication in the Federal Register.
HUD unveils new rule to replace 2015 AFFH rule
On July 23, HUD announced plans to ultimately terminate the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule, while proposing a new final rule titled “Preserving Community and Neighborhood Choice.” The new final rule includes a detailed history of the expansion of the AFFH concept and details concerns with the 2015 rule. According to HUD, the AFFH rule is, among other things, overly burdensome, costly, and ineffective. However, several senators argued against HUD’s originally proposed replacement (covered by InfoBytes here), contending that the proposed rule would reverse efforts to make access to housing fair and equitable and “relies on the faulty premise that simply increasing housing supply can address the problems of housing discrimination and segregation.” HUD stated that after reviewing comments on the proposed changes, the agency ultimately determined them to be “unworkable and ultimately a waste of time for localities to comply with,” and noted that it had instead established programs to bring capital into underserved communities where affordable housing is present but opportunities are not. The new final rule broadly defines “fair housing” to be “housing that, among other attributes, is affordable, safe, decent, free of unlawful discrimination, and accessible under civil rights laws,” and defines “affirmatively furthering fair housing” as “any action rationally related to promoting” any of the attributes of fair housing. Specifically, a grantee’s certification that it has affirmatively furthered fair housing would be deemed sufficient provided it proposed taking action to further fair housing policy during the relevant period. The new final rule will become effective 30 days after publication in the Federal Register.
OCC: Banks may hold cryptocurrency for customers
On July 22, the OCC issued an interpretive letter concluding that national banks and federal savings associations (collectively, “banks”) may hold cryptocurrency on behalf of customers so long as they effectively manage the risks and comply with applicable law. Specifically, the letter responds to a bank’s proposal to offer cryptocurrency custody services to its customers as part of its standard custody business. The OCC notes that “there is a growing demand for safe places, such as banks, to hold unique cryptographic keys associated with cryptocurrencies.” The letter emphasizes that the OCC “generally has not prohibited banks from providing custody services for any particular type of asset,” and providing cryptocurrency custody services “falls within [] longstanding authorities to engage in safekeeping and custody activities.”
The OCC notes that while the custody services will not “entail any physical possession of the cryptocurrency,” OCC regulations authorize banks to provide through electronic means any activities that they are otherwise authorized to perform. Thus, because banks may perform custody services for physical assets, they are “likewise permitted to provide those same services via electronic means (i.e., custody of cryptocurrency).” Additionally, a bank with trust powers has the authority to hold cryptocurrencies in a fiduciary capacity, in the same way they manage other assets they hold as fiduciaries.
The OCC reminds banks that they should develop and implement sound risk management practices, and specifically notes that “custody activities should include dual controls, segregation of duties and accounting controls.” Moreover, banks should “conduct a legal analysis to ensure the activities are conducted consistent with all applicable law,” noting that “[d]ifferent cryptocurrencies may also be subject to different OCC regulations and guidance outside of the custody context, as well as non-OCC regulations.”
OCC proposes True Lender rule
On July 20, the OCC issued a proposed rule (see also Bulletin 2020-70) that addresses when a national bank or federal savings association (bank) is the “true lender” in the context of a partnership between a bank and a third party in order to clarify uncertainties about the legal framework that applies. Specifically, the proposed rule amends 12 CFR part 7 to state that “a bank makes a loan when, as of the date of origination, it (i) is named as lender in the loan agreement or (ii) funds the loan.” The OCC notes that the proposal intends to cover situations where the bank “has a predominant economic interest in the loan,” as the original funder, even if it is not “the named lender in the loan agreement as of the date of origination.”
In response, the Conference of State Bank Supervisors (CSBS) issued a statement opposing the proposal, stating that “the true lender doctrine is and should remain a matter of state law.”
As previously covered by InfoBytes, the OCC and the FDIC recently issued final rules clarifying that whether interest on a loan is permissible under federal law is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan, effectively reversing the U.S. Court of Appeals for the Second Circuit’s 2015 Madden v. Midland Funding decision. At the time, both agencies chose not to address the “true lender” issue.
CFPB adjusts annual dollar amount thresholds under TILA regulations
On July 17, the CFPB released the final rule revising the dollar amounts for provisions implementing the Truth in Lending Act (TILA) and amendments to TILA, including the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s ability-to-repay and qualified mortgage (ATR/QM) provisions. The CFPB is required to make annual adjustments to dollar amounts in certain provisions in Regulation Z, and has based the adjustments on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2020. The following thresholds will be effective on January 1, 2021:
- For open-end consumer credit plans under TILA, the threshold for disclosing an interest charge will remain unchanged at $1.00;
- For open-end consumer credit plans under the CARD Act, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $29, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will also remain unchanged at $40;
- For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $22,052, and the adjusted points and fees dollar trigger for high-cost mortgages will be $1,103; and
- The maximum thresholds for total points and fees for qualified mortgages under the ATR/QM rule will be: (i) three percent of the total loan amount for loans greater than or equal to $110,260; (ii) $3,308 for loan amounts greater than or equal to $66,156 but less than $110,260; (iii) five percent of the total loan amount for loans greater than or equal to $22,052 but less than $66,156; (iv) $1,103 for loan amounts greater than or equal to $13,783 but less than $22,052; and (v) eight percent of the total loan amount for loan amounts less than $13,783.