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FHFA proposes stress testing amendments
On December 16, the FHFA released a notice of proposed rulemaking (NPRM) to amend the stress testing requirements for Federal Home Loan Banks (FHL Banks), consistent with changes made by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). Specifically, the NPRM will (i) increase the minimum threshold for regulated entities to conduct stress tests from $10 billion to $250 billion in total consolidated assets; (ii) remove the requirements for FHL Banks subject to stress testing, as none of the banks meet the minimum threshold (notably, under the proposal, the Director will maintain the ability to require any regulated entity with assets below the minimum threshold to conduct stress tests at his or her discretion); and (iii) reduce the number of stress test scenarios from three to two by removing the “adverse” scenario. According to the FHFA, while the “adverse” scenario provides value in limited circumstances, “the ‘baseline’ and ‘severely adverse’ scenarios largely cover the full range of expected and stressful conditions.” As such, the FHFA believes removing the “adverse” scenario will reduce the supervisory burden for FHL Banks. The FHFA further proposes that the Enterprises (Fannie Mae and Freddie Mac)—who remain subject to stress testing under the NPRM—be required to conduct stress tests on an annual basis, as Section 401 changed the required frequency from “annual” to “periodic,” but did not define the term “periodic” in the Act.
Comments on the NPRM are due January 13, 2020.
Warren and Brown question CFPB advisory opinion plans
On December 5, Senators Elizabeth Warren and Sherrod Brown wrote a letter to CFPB Director Kathy Kraninger seeking information regarding the Bureau’s plans for a program to issue formal advisory opinions. As previously covered by InfoBytes, the CFPB in September announced three new policies to “improve how the Bureau exercises its authority to facilitate innovation and reduce regulatory uncertainty,” including the mention of an “advisory opinion program” in the final policy announcement for one of the new policies. According to the letter, the Senators have concerns that CFPB guidance issued through advisory opinions has the potential to “exempt companies from complying with consumer protection laws” and “allow political employees to unduly influence and restrict the application of the consumer laws.” The letter lays out a number of questions for Director Kraninger regarding the CFPB’s use of advisory opinions, including whether all opinions will be made public, whether the facts and circumstances leading to a request for an opinion will be investigated, whether all opinions will be in writing, and who will draft them. Specifically, the letter questions the role of political appointees “at each stage of the advisory opinion process.” The letter requests that the Bureau respond to the questions by December 19.
HUD increases FHA loan limits for 2020
On December 3, HUD announced the maximum FHA loan limits for 2020, issuing Mortgagee Letter 19-19 for FHA-insured forward mortgage case numbers and Mortgagee Letter 19-20 for FHA-insured Home Equity Conversion Mortgage (HECM) case numbers. The general one-unit property limits “floor” increased to $331,760, and the “ceiling” increased to $765,600, while the HECM claim amount also increased to $765,600, effective January 1, 2020.
FDIC posts enforcement actions manual
On December 2, the FDIC announced the release of its full enforcement manual (manual). According to Financial Institution Letter (see FIL-76-2019), the manual, which was posted to the FDIC website, is meant to “support the work of field office, regional office, and Washington office staff involved in processing and monitoring enforcement actions.” The letter states that the manual was released to promote “greater transparency” to FDIC-insured institutions and other concerned parties as to the agency’s enforcement policies and procedures. Additionally, the letter cautions that the manual “does not interpret any law or regulation” nor does it “establish supervisory requirements” or “industry guidance.”
FSOC issues final guidance on nonbank designations; highlights key risks in annual report
On December 4, the Financial Stability Oversight Council (FSOC) issued final interpretive guidance to revise and update 2012 guidance concerning nonbank financial company designations. According to Treasury Secretary Steven T. Mnuchin, the guidance “enhances [FSOC’s] ability to identify, assess, and respond to potential risks to U.S. financial stability. . . by promoting careful analysis and creating a more streamlined process.” Among other things, the guidance (i) implements an activities-based approach for identifying, assessing, and addressing potential risks and threats to financial stability in the U.S., allowing FSOC to work with federal and state financial regulators to implement appropriate actions when a potential risk is identified; (ii) enhances the analytic framework for potential nonbank financial company designations, which includes a cost-benefit analysis and a review of the likelihood of a company’s material financial distress determined by its vulnerability to a range of factors; and (iii) enhances the efficiency and effectiveness of the nonbank financial company designation process by condensing the process into two stages and increasing “engagement with and transparency to” companies under review, as well as their regulators, through the creation of pre- and post-designation off ramps.
FSOC also released its 2019 annual report to Congress, which reviews financial market developments, identifies emerging risks, and offers recommendations to enhance financial stability. Key highlights include:
- Cybersecurity. FSOC states that “[g]reater reliance on technology, particularly across a broader array of interconnected platforms, increases the risk that a cybersecurity event will have severe consequences for financial institutions.” Among other things, FSOC recommends continued robust, comprehensive cybersecurity monitoring, and supports the development of public and private partnerships to “increase coordination of cybersecurity examinations across regulatory authorities.”
- Nonbank Mortgage Origination and Servicing. The report adds the increasing share of mortgages held by nonbank mortgage companies to its list of concerns. FSOC notes that of the 25 largest originators and servicers, nonbanks originate roughly 51 percent of mortgages and service approximately 47 percent—a notable increase from 2009 where nonbanks only originated 10 percent of mortgages and serviced just 6 percent. FSOC states that risks in nonbank origination and servicing arise because most nonbanks have limited liquidity as compared to banks and rely more on short-term funding, among other things. FSOC recommends that federal and state regulators continue to coordinate efforts to collect data, identify risks, and strengthen oversight of nonbanks in this space.
- Financial Innovation. The report discusses the benefits of new financial products and practices, but cautions that these may also create new risks and vulnerabilities. FSOC recommends that these products and services—particularly digital assets and distributed ledger technology—should be continually monitored and analyzed to understand their effects on consumers, regulated entities, and financial markets.
Regulators issue joint statement on using alternative data in underwriting
On December 3, the Federal Reserve, the CFPB, the FDIC, the NCUA, and the OCC (agencies) issued an Interagency Statement on alternative data use in credit underwriting, highlighting applicable consumer protection laws and noting risks and benefits. (See press release here). According to the statement, alternative data use in underwriting may “lower the cost of credit” and expand credit access, a point previously raised by the CFPB and covered in InfoBytes. Specifically, the potential benefits include: (i) increased “speed and accuracy of credit decisions”; (ii) lender ability to “evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system”; and (iii) consumer ability “to obtain additional products and/or more favorable pricing/terms based on enhanced assessments of repayment capacity.” “Alternative data” refers to information not usually found in traditional credit reports or typically provided by customers, including for example, automated “cash flow evaluation” which evaluates a borrower’s capacity to meet payment obligations and is derived from a consumer’s bank account records. The statement indicates that this approach can improve the “measurement of income and expenses” of consumers with steady income over time from multiple sources, rather than a single job. The statement also recognizes that the way in which entities use alternative data—for example, implementing a “Second Look” program, where alternative data is only used for applicants that would otherwise be denied credit—can increase credit access. The statement points out that use of alternative data may increase potential risks, and that those practices must comply with applicable consumer protection laws, including “fair lending laws, prohibitions against unfair, deceptive, or abusive acts or practices, and the Fair Credit Reporting Act.” Therefore, the agencies encourage entities to incorporate appropriate “robust compliance management” when using alternative data in order to protect consumer information.
CFPB to amend Remittance Transfer Rule
On December 3, the CFPB issued a Notice of Proposed Rulemaking (NPRM) relating to the Remittance Transfer Rule (Rule), which implements the Electronic Fund Transfer Act’s (EFTA) protections for consumers sending international money transfers, or remittance transfers. The NPRM makes three proposals. First, the Bureau proposes to increase the Rule’s safe harbor threshold, mitigating compliance costs for financial institutions. The EFTA and the Rule consider a “remittance transfer provider” to include “any person that provides remittance transfers for a customer in the normal course of business.” However, the Rule currently includes a “safe harbor” provision that excludes persons that process 100 or fewer remittance transfers annually. The NPRM proposes increasing this threshold from 100 to 500 international remittance transfers per year. According to the Bureau’s announcement, the change would “reduce the burden on over 400 banks and almost 250 credit unions that send a relatively small number of remittances—less than .06 percent of all remittances.”
Second, the NPRM proposes adopting two permanent exceptions. The first is a permanent statutory exception that would allow certain insured institutions to estimate exchange rates and money transfer fees they are required to disclose, rather than provide consumers with exact costs when they send money abroad. Such an exemption would only apply in instances where a 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. An identical exemption provision is currently set to expire July 21, 2020. (Previous InfoBytes coverage here.) The NPRM proposes adopting a second permanent exception to allow insured institutions to estimate covered third-party fees for remittance transfers to a recipient’s institution provided, among other things, the insured institution made 500 or fewer remittance transfers to the recipient’s institution the prior calendar year.
Third, the NPRM requests comments on a list of safe harbor countries for which providers may use estimates for remittance transfers.
Comments must be received 45 days after publication in the Federal Register. In conjunction with the NPRM, the Bureau also released a summary of the NPRM, a table of contents, and an unofficial redline of the proposed amendments to the Rule.
Special Alert: Banks no longer required to file SARs for hemp-related businesses
Federal and state banking regulators confirmed in a December 3 joint statement that banks are no longer required to file a suspicious activity report on customers solely because they are “engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.”
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Click here to read the full special alert.
For questions about the alert and related issues, please visit our Bank Secrecy Act/Anti-Money Laundering practice page, or contact a Buckley attorney with whom you have worked in the past.FHFA increases conforming loan limits for 2020
On November 26, the FHFA announced that it will raise the maximum conforming loan limits for mortgages purchased in 2020 by Fannie Mae and Freddie Mac from $484,350 to $510,400. In high-cost areas, such as Los Angeles, New York, San Francisco, and Washington, D.C., the maximum loan limit will be $765,600. For a county-specific list of the maximum loan limits in the U.S., click here.
FCRA allowable disclosure charge remains unchanged
On November 27, the CFPB announced that the ceiling on the maximum allowable charge for disclosures by a consumer reporting agency to a consumer pursuant to section 609 of the FCRA will remain unchanged at $12.50 for the 2020 calendar year. The final rule announcing the amount was published the same day in the Federal Register.