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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.
FDIC seeks input on voluntary certification of innovative technologies
On July 20, the FDIC issued a Request for Information (RFI) seeking input on whether a public/private standard-setting partnership and voluntary certification program could be established to (i) promote the efficient and effective adoption of innovative technologies at supervised financial institutions; and (ii) support financial institutions’ efforts to implement innovative models, manage risk, and conduct due diligence of third-party fintech firms. The RFI is being issued as part of the agency’s FDiTech initiative (covered by InfoBytes here), which was established in 2019 to encourage innovation within the banking industry (particularly at community banks), support collaboration for piloting new products and services, eliminate regulatory uncertainty, and manage risks.
The FDIC stated that establishing a standards-setting body, developed by regulators and industry stakeholders, would help promote innovation across the banking sector and streamline the vetting process for fintech partners. The agency noted that a voluntary certification program could assist in standardizing due diligence practices and reduce costs for financial institutions that choose to participate. Additionally, the FDIC emphasized that it “is especially interested in information on models and technology services developed and provided by [fintechs].” Comments are due 60 days after publication in the Federal Register.
CFPB repeals Payday Rule’s ability-to-pay provisions
On July 7, the CFPB issued the final rule revoking certain underwriting provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Payday Lending Rule). As previously covered by InfoBytes, the Bureau issued the proposed rule in February 2019 and the final rule implements the proposal without revision. Specifically, the final rule revokes, among other things (i) the provision that makes it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay the loans according to their terms; (ii) the prescribed mandatory underwriting requirements for making the ability-to-repay determination; (iii) the “principal step-down exemption” provision for certain covered short-term loans; and (iv) related definitions, reporting, and recordkeeping requirements. Additional details regarding the final rule can be found in the Bureau’s unofficial redline and executive summary.
While compliance with the payment provisions of the Payday Lending Rule is currently stayed by court order (see previous InfoBytes coverage here), the Bureau states that it “will seek to have them go into effect with a reasonable period for entities to come into compliance.” Additionally, the CFPB ratified the payment provisions of the Payday Lending Rule in light of the U.S. Supreme Court decision in Seila Law (covered by a Special Alert here) and issued a statement on the supervision and enforcement of certain aspects of the payment provisions with respect to certain large loans. According to the statement, the Bureau does not intend to take supervisory or enforcement action with regard to covered loans that exceed the Regulation Z coverage threshold (currently set at $58,300). The statement notes that the Bureau is monitoring and assessing the “effects of the [p]ayment [p]rovisions, including their scope, and [it] may determine whether further action is needed in light of what it learns.”
Moreover, the Bureau released FAQs pertaining to compliance with the payment provisions of the Payday Lending Rule. The FAQs discuss the details of the covered loans and “payment transfers”—defined as a “a debit or withdrawal of funds from a consumer’s account that the lender initiates for the purpose of collecting any amount due or purported to be due in connection with a covered loan”—under the rule.
CFPB ratifies prior regulatory actions in wake of Seila Law
On July 7, the CFPB, “out of an abundance of caution,” ratified several previous actions, including the large majority of the Bureau’s existing regulations, following the U.S. Supreme Court’s opinion in Seila v. Consumer Financial Protection Bureau. As previously covered by a Buckley Special Alert, the Court held that, while the clause in the Consumer Financial Protection Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers, the removal provision could—and should—be severed from the statute establishing the CFPB, rather than invalidating the entire statute. According to the Bureau’s announcement, the action ratifies most regulatory actions taken by the Bureau from January 4, 2012 through June 30, 2020, and “provides the financial marketplace with certainty that the rules are valid in light of the Supreme Court decision in Seila Law.” The Bureau noted, however, that the ratification does not include two actions: (i) the July 2017 “Arbitration Agreements” rule, which was disapproved following the approval by President Trump of a joint resolution under the Congressional Review Act that provides “the ‘rule shall have no force or effect’”; and (ii) the November 2017 “Payday, Vehicle Title, and Certain High-Cost Installment Loans” rule (Payday Rule), for which the Bureau previously revoked the rule’s mandatory underwriting provisions. Both of these actions are not within the scope of the ratification, the Bureau stated, noting, however, that it has separately ratified the Payday Lending Rule’s payment provisions.
The Bureau is also considering whether to ratify other legally significant actions, such as certain pending enforcement actions, and stated it will make separate ratifications, if appropriate. However, the Bureau stressed it “does not believe that it is necessary for this ratification to include various previous Bureau actions that have no legal consequences for the public, or enforcement actions that have finally been resolved.” Additionally, because the ratification is not a “rule” or “rule making” as defined by the Administrative Procedure Act (APA), since it is “not an ‘agency statement of general or particular applicability and future effect’” and is “not ‘formulating, amending, or repealing a rule,’” the Bureau contended it is not subject to the APA’s notice-and-comment procedures.
CFPB issues proposed rule on Regulation Z HPML escrow exemptions
On July 2, the CFPB issued a notice of proposed rulemaking (NPRM) to amend Regulation Z, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, and exempt certain insured depository institutions and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). Under the proposed amendment, any loan made by an insured depository institution or credit union that is secured by a first lien on the principal dwelling of a consumer would be exempt from Regulation Z’s HPML escrow requirement if (i) the institution has assets of no more than $10 billion; (ii) “the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year”; and (iii) the institution meets certain existing HPML escrow exemption criteria. Comments on the NPRM will be accepted for 60 days following publication in the Federal Register.
OCC issues new UDAP/UDAAP Comptroller’s Handbook booklet
On June 29, the OCC issued a new Comptroller’s Handbook booklet, “Unfair or Deceptive Acts or Practices and Unfair, Deceptive, or Abusive Acts or Practices,” which covers details for examiners regarding UDAP violations under Section 5 of the FTC Act and UDAAP violations under sections 1031 and 1036 of the Dodd-Frank Act. The booklet includes, among other things, examination procedures for assessing the effectiveness of a bank’s compliance management systems in identifying and managing UDAP and UDAAP risks and red flags that examiners can use to identify acts or practices that may raise UDAP or UDAAP concerns. Specifically, Appendix A includes a detailed list of nine red flags that examiners can use to identify potential areas with higher risks, including items such as (i) customer complaints received by the OCC or the bank; (ii) whistleblower referrals; (iii) higher than average fee incomes; (iv) weak servicing and collection practices; and (v) inadequate oversight over incentive compensation programs. Additionally, Appendix B includes risk indicator charts for examiners to use when assessing the quantity and quality of a bank’s risk management for UDAP and UDAAP.
FinCEN outlines BSA due diligence requirements for hemp-related businesses
On June 29, the Financial Crimes Enforcement Network (FinCEN) issued guidance for hemp-related business customers to explain due diligence requirements and identify the types of information financial institutions can collect to comply with Bank Secrecy Act (BSA) regulatory requirements. The guidance supplements a December 2019 interagency statement (covered by a Buckley Special Alert), which confirmed that financial institutions are no longer required to file a suspicious activity report (SARs) on customers solely because they are “engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.” Among other things, the guidance reiterates FinCEN’s expectation that financial institutions conduct customer due diligence (CDD) for hemp-related businesses, as they would for other customers, and establish appropriate on-going risk-based CDD procedures. This may include confirming that the hemp business is complying with applicable state, tribal government, or United States Department of Agriculture licensing requirements. Financial institutions should also tailor BSA/Anti-Money Laundering programs to appropriately reflect the risks associated with a customer’s particular risk profile and file the required reports. The guidance further provides that while financial institutions are not required to file SARs on customers solely because they are engaged in a hemp business, “financial institutions are expected to follow standard SAR procedures.” Examples of suspicious activity that may warrant the filing of a SAR are provided. Finally, the guidance states that financial institutions must report currency transactions connected to hemp-related businesses as they would for any other customer for transactions above $10,000 in aggregate on a single business day.