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CFPB releases spring 2020 rulemaking agenda
On June 30, the CFPB released its spring 2020 rulemaking agenda. According to a Bureau announcement, the information details the regulatory matters that the Bureau “expect[s] to focus on” between May 1, 2020 and April 30, 2021. The announcement notes that the agenda was set before the Covid-19 pandemic struck and while the Bureau “continues to move forward with other regulatory work,” it will prioritize work related to supporting consumers and the financial sector during and after the Covid-19 pandemic.
In addition to the rulemaking activities already completed by the Bureau in May and June of this year, the agenda highlights other regulatory activities planned, including:
- Escrow Rulemaking. The Bureau intends to issue a proposed rule to implement Section 108 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, which directs the Bureau to exempt certain loans made by creditors with assets of $10 billion or less (and that meet other criteria) from the escrow requirements applicable to higher-priced mortgage loans.
- Small Business Rulemaking. The Bureau states that in September 2020, it will publicly release materials for an October panel (convening under the Small Business Regulatory Enforcement Fairness Act) with small entities likely to be directly affected by the Bureau’s rule to implement Section 1071 of Dodd-Frank.
- HMDA. The Bureau states that two rulemakings are planned, including (i) a proposed rule that follows up on a May 2019 advanced notice of proposed rulemaking which sought information on the costs and benefits of reporting certain data points under HMDA and coverage of certain business or commercial purpose loans (covered by InfoBytes here); and (ii) a proposed rule addressing the public disclosure of HMDA data.
- Debt Collection. The Bureau intends to release the final rule amending Regulation F to implement the Fair Debt Collection Practices Act in October 2020 (InfoBytes coverage of the May 2019 proposed rule here). Additionally, “at a later date” the Bureau intends to finalize the February supplemental proposal, which covers time-barred debt disclosures (covered by a Buckley Special Alert here).
- Qualified Mortgages (QM). The Bureau states it is considering issuing a proposed rule “later this year” that would create a new “seasoning” definition of a QM under Regulation Z, allowing for QM status after the borrower has made consistent timely payments for a defined period.
Additionally, in its announcement, the Bureau notes that it is (i) participating in an interagency rulemaking process on quality control standards for automated valuation models (AVMs) with regard to appraisals; and (ii) continuing to review and conduct the five-year lookback assessments under Section 1022(d) of Dodd-Frank.
FCC narrows “autodialer” definition
On June 25, the FCC narrowed the Commission’s definition of an “autodialer,” providing that “if a calling platform is not capable of originating a call or sending a text without a person actively and affirmatively manually dialing each one, that platform is not an autodialer and calls or texts made using it are not subject to the TCPA’s restrictions on calls and texts to wireless phones.” The FCC reiterated that only sequential number generators or other systems that can store or produce numbers to be called or texted at random are the only technologies considered to be autodialers. The FCC further noted that whether a system can make a large number of calls in a short period of time does not factor into whether the system is considered an autodialer, and that message senders may avoid TCPA liability by obtaining prior express consent from recipients. The FCC issued the ruling in response to an alliance’s 2018 petition, which asked the FCC to clarify whether the definition of an autodialer applied to peer-to-peer messaging (P2P) platforms that, among other things, allow organizations to text a large number of individuals and require a person to manually send each text message one at a time. The FCC declined to rule on whether any particular P2P text platform is an autodialer due to the lack of sufficient factual basis.
The FCC issued a separate declaratory ruling the same day reiterating that the TCPA requires autodialer or robocall senders to obtain prior express consent before making any texts or robocalls, stressing that the “mere existence of a caller-consumer relationship does not satisfy the prior-express-consent requirement for calls to wireless numbers, nor does it create an exception to this requirement.” The ruling was issued in response to a health benefit company’s 2015 petition, which asked the FCC to exempt health plans and providers, as well as certain non-emergency, urgent health care-related calls, from the prior consent requirement as long as the company permitted consumers to opt out after the fact.
As previously covered by InfoBytes, several appellate courts have issued conflicting decisions with respect to the definition of an autodialer.
Agencies outline 2021 resolution plan guidance for largest banking organizations
On July 1, the Federal Reserve Board and FDIC released a letter to address 2021 resolution plan submission requirements for the eight largest and most complex domestic banking organizations. The letter identifies targeted information required to be included in the 2021 resolution plans (due July 1, 2021), including certain core elements such as capital, liquidity, and recapitalization strategies, in addition to information on how each banking organization has integrated changes and lessons learned as a result of the Covid-19 pandemic. The agencies intend to use the banking organization’s response to the stress caused by the pandemic to inform their assessment of the banking organization’s resolution-related capabilities and infrastructure. According to the announcement, these will be the “first ‘targeted’ resolution plan[s]” following the agencies’ adoption of a final rule last year, which, among other things, amended the resolution planning requirements for large domestic and foreign firms with more than $100 billion in total consolidated assets (covered by InfoBytes here).
FDIC follows OCC, adopts final rule addressing Madden
On June 25, the FDIC issued a final rule clarifying that whether interest on a loan is permissible under the Federal Deposit Insurance Act is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan. The FDIC’s final rule effectively reverses the Second Circuit’s 2015 Madden v. Midland Funding decision as applicable to state banks and follows the OCC’s issuance of a similar rule earlier this month for national charters. Specifically, the FDIC’s final rule states that, “[w]hether interest on a loan is permissible under section 27 of the Federal Deposit Insurance Act is determined as of the date the loan was made. . . [and] shall not be affected by a change in State law, a change in the relevant commercial paper rate after the loan was made, or the sale, assignment, or other transfer of the loan, in whole or in part.” Additionally, the FDIC rule mirrors the OCC in specifying that the rule does “not address the question of whether a State bank. . .is a real party in interest with respect to a loan or has an economic interest in the loan under state law, e.g. which entity is the ‘true lender.’” Details on the effect of these rules can be found in Buckley’s Special Alert on the OCC’s issuance.
Agencies finalize covered funds changes to Volcker Rule
On June 25, the Federal Reserve Board, CFTC, FDIC, OCC, and SEC (agencies) finalized the rule, which will amend the Volcker Rule to modify and clarify the regulations implementing Section 13 of the Bank Holding Company Act with respect to covered funds. As covered by InfoBytes in February, the agencies issued the proposed rule, and, after the notice and comment period, finalized the proposal with certain modifications based on the public comments. Among other things, the final rule (i) exempts qualifying foreign excluded funds from certain restrictions, but modifies the anti-evasion provision and compliance program requirements from the proposal; (ii) revises the exclusions from the covered fund provisions for foreign public funds, loan securitizations, and small business investment companies; (iii) adopts several new exclusions from the covered fund provisions, including an exclusion for venture capital funds, family wealth management, and customer facilitation vehicles; (iv) permits established, codified categories of limited low-risk transactions between a banking entity and a related fund; (v) provides an express safe harbor for senior loans and senior debt, and redefines “ownership interest”; and (vi) provides clarity regarding permissible investments in the same investments as a covered fund organized or offered by the same banking entity. The final rule is effective October 1.
The FDIC also released a Fact Sheet on the final rule.
Agencies propose updates to Interagency Questions and Answers Regarding Flood Insurance
On July 6, the FDIC, OCC, Federal Reserve Board, NCUA, and the Farm Credit Administration published a request for public comments on proposed new questions and answers to be included in the Interagency Questions and Answers Regarding Flood Insurance, following changes made to flood insurance regulations under the agencies’ joint rule regarding loans in special flood hazard areas. The proposal updates interagency questions and answers last updated in 2011, and is intended to reduce compliance burdens for lenders related to flood insurance laws. Among the new questions and answers are those related to (i) the “escrow of flood insurance premiums”; (ii) the “detached structure exemption to the mandatory purchase of flood insurance requirement”; and (iii) force-placement of flood insurance procedures. The proposal also revises and reorganizes several existing questions and answers to improve clarity and user functionality. Comments are due September 4.
Additionally, FDIC FIL 67-2020 states that the agencies are currently drafting new Interagency Questions and Answers Regarding Flood Insurance related to the 2019 private flood insurance rule (covered by InfoBytes here), which will be proposed at a later date.
Fed releases guidance for de novo banks supervision
On June 24, the Federal Reserve Board sent a letter to the Federal Reserve Banks (FRBs) providing guidance regarding the supervision of de novo state member banks, as well as the evaluation of de novo insured depository institutions (IDI) seeking to become state member banks. Under the letter, an insured depository institution is considered to be in the de novo stage until it has been operating for at least three years. Supervisory Letter SR 20-16, which supersedes Supervisory Letter SR 91-17, “applies to any commercial bank, thrift, Edge Act corporation, or industrial bank that has been in existence for less than three years and is converting to become a state member bank,” and outlines de novo application submission guidelines and FRB examination requirements. SR 20-16 provides that within six months following a de novo’s formation or conversion to a state member bank, the responsible FRB should conduct a targeted examination and issue a report summarizing supervisory findings, with targeted focus on the de novo’s risk management process or the management component of the CAMELS rating, as well as any business and operating plans submitted in connection with its membership application.” SR 20-16 outlines the examination cycle and notes that the full-scope statutorily required examination schedule will not occur until a de novo has had three full-scope examinations and has been in operation for three years. SR 20-16 further provides that, for de novo banks that are subsidiaries of existing bank holding companies, an FRB at its discretion, may elect to make a risk-based determination that if the parent bank has consolidated assets of greater than $3 billion and is in good standing, the subsidiary may be examined less frequently.
CFPB issues interpretive rule on determining underserved areas
On June 23, the CFPB issued an interpretive rule to provide guidance for creditors and others involved in mortgage origination on the CFPB’s process for determining which counties and areas are considered “underserved” for a given calendar year. This interpretive rule supersedes certain parts of the official commentary to Regulation Z that became obsolete when HMDA data points were replaced or otherwise modified by the 2015 HMDA Final Rule. Lenders use the CFPB’s annual list of rural counties and rural or underserved counties when determining qualified exemptions to certain TILA regulatory requirements, such as “the exemption from the requirement to establish an escrow account for a higher-priced mortgage loan and the ability to originate balloon-payment qualified mortgages,” and use the CFPB’s Rural or Underserved Areas Tool to assess whether a rural or underserved area qualifies for a safe harbor under TILA’s Regulation Z. Under the interpretive rule, the CFPB will determine whether an area is considered “underserved” by counting first-lien originations from HMDA data from the preceding calendar year. The interpretive rule also discusses certain “covered transaction” exclusions that will not be counted related to (i) construction methods and total units; (ii) open-end lines of credit and reverse mortgages; (iii) business or commercial purposes; and (iv) demographic information where both the applicant’s and co-applicant’s ethnicity, race, sex, and age are all reported as “not applicable.” The interpretive rule is effective upon publication in the Federal Register.
CFPB launches pilot advisory opinion program to provide regulatory clarity
On June 18, the CFPB launched a pilot advisory opinion program (AO program) to allow entities to submit requests to the Bureau for written guidance in cases of regulatory compliance uncertainty. The pilot AO program procedural rule went into effect June 22, and states that the AO program—established in response to external stakeholder feedback encouraging the Bureau to provide written guidance—will primarily focus on clarifying ambiguities in Bureau regulations, although AOs may also clarify statutory ambiguities. The Bureau notes, however, that it will not issue AOs on matters that require notice-and-comment rulemaking or that are better addressed through that process, and does not intend to issue an AO that will change a regulation or replace a regulation or statute with a “bright-light standard that eliminates all the required analysis.” During the pilot, requests will not be accepted from third parties, such as trade associations or law firms, on behalf of unnamed entities. According to the Bureau’s announcement, it will select topics based on the program’s priorities, and, if appropriate, may publicly “issue an [AO] based on its summary of the facts presented that would be applicable to other entities in situations with similar facts and circumstances.”
The pilot AO program will focus on the following four priorities: (i) providing consumers “with timely and understandable information to make responsible decisions”; (ii) identifying “outdated, unnecessary or unduly burdensome regulations in order to reduce regulatory burdens”; (iii) consistently enforcing federal consumer financial laws “in order to promote fair competition”; and (iv) “[e]nsuring markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”
In determining the appropriateness of an AO, the Bureau will consider several factors, including whether (i) prior Bureau examinations have identified the issue as one that may benefit from additional regulatory clarity; (ii) the issue is “of substantive importance or impact or one whose clarification would provide significant benefit”; and/or (iii) the issue concerns an ambiguity not previously addressed through an interpretive rule or other authoritative source. Additionally, issues currently under investigation or enforcement likely will not be considered appropriate for an AO.
A proposed procedural rule and information collection was also announced June 18, which requests comments on the proposed AO program. Comments must be received 60 days after publication in the Federal Register. The proposed AO program, following the conclusion of the pilot, will be fully implemented after the Bureau reviews the comments.
CFPB updates Remittance Transfer Small Entity Compliance Guide
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.