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  • FDIC Approves Final Rule Regarding Resolution Plans

    Consumer Finance

    On January 17, the FDIC approved a final rule establishing the requirements for submission and content of plans to assist the FDIC in the orderly resolution of insured depository institutions with total assets of at least $50 billion. The rule aims to help mitigate risks presented by insolvency of large and complex institutions by enhancing the FDIC’s ability to reduce losses to the Deposit Insurance Fund and limit disruption to the broader financial system. The $50 billion asset threshold means that thirty-seven institutions currently will be required to submit resolution plans (also known as “living wills”). This final rule follows and amends an interim final rule published in September 2011 (see InfoBytes, September 23, 2011). Some amendments are designed to more closely align the rule with a similar rule issued jointly by FDIC and the Federal Reserve Board in October 2011 to require resolution plans for certain bank holding companies. (See InfoBytes, October 21, 2011). Other changes to the interim final rule address comments submitted by stakeholders, including changes to (i) require plans to identify potential barriers or other material obstacles to an orderly resolution, (ii) allow for recapitalization as a resolution option, and (iii) require the FDIC in its plan review process to consult with a covered institution’s regulator before finding that an institution’s data production capability is unacceptable. Resolution plans will be submitted in phases to address the largest institutions first. For example, the first phase requires covered institutions whose parent company had at least $250 billion of nonbank assets as of November 30, 2011 to submit plans on July 1, 2012. Each covered institution must submit plans annually on the anniversary date of their initial submission.

    FDIC Dodd-Frank Living Wills

  • FDIC Approves Proposal for Large Bank Stress Testing

    Consumer Finance

    On January 17, the FDIC approved a proposed rule to implement annual capital-adequacy stress tests for FDIC-insured state nonmember banks and state-chartered savings associations with over $10 billion of total consolidated assets. As of September 30, 2011, there were twenty-three such institutions. Required by the Dodd-Frank Act, the stress tests would assist the FDIC in assessing risk presented by an institution’s capitalization and help ensure the bank’s financial stability. Under the proposal, the FDIC would annually provide covered banks with at least three sets of conditions – baseline, adverse, and severely adverse – that must be used in conducting an annual stress test. The tests would include calculations, for each quarter-end within a defined planning horizon, of the impact on the covered bank’s (i) potential losses, (ii) pre-provision revenues, (iii) loan loss reserves, and (iv) pro forma capital positions, including the impact on capital levels and ratios. Covered banks also would be required to establish an oversight and documentation system to ensure that stress testing procedures are effective. Following a test, a covered bank would be required to submit the results to the FDIC and later release a summary to the public. Under the proposed timeline, each year (i) the FDIC would provide scenarios no later than mid-November, (ii) covered banks would submit their stress test reports by January 5, and (iii) by early April covered banks would publicly release a summary of results. Public comments on the rule will be accepted sixty days following publication of the rule in the Federal Register.

    FDIC Dodd-Frank

  • DOJ Releases Memorandum on Legality of Recess Appointments

    Consumer Finance

    On January 12, the Department of Justice Office of Legal Counsel, which is responsible for providing legal advice to the President, released the memorandum it prepared in advance of the President’s recent decision to appoint Richard Cordray as CFPB Director. In short, the memorandum finds when the Senate is in a periodic pro forma session in which no business is to be conducted, the President may (i) conclude that the Senate is unavailable to perform its advise-and-consent function and (ii) exercise his power to make recess appointments. Pro forma sessions do not have the legal effect of interrupting an intrasession recess otherwise long enough to qualify as a "Recess of the Senate” under the Constitution. The conclusions are based on three considerations explored in detail in the memorandum: (i) the original understanding of the framers and the “longstanding views” of the executive and legislative branches with regard to the practical availability of the Senate to consider nominees, (ii) the inconsistent result of allowing pro forma sessions to prevent Presidential recess appointments given the purpose of the recess appointment clause and historical practice in similar situations, and (iii) the need to preserve constitutional separation of powers.

    CFPB

  • CFPB Releases Mortgage Origination Exam Procedures

    Consumer Finance

    On January 11, the CFPB took its first action to implement its nonbank supervision program by releasing the procedures it will use in examining all bank and nonbank mortgage originators. The Mortgage Origination Examination Procedures describe the types of information examiners will collect to (i) evaluate policies and procedures, (ii) assess compliance with applicable consumer financial services law, and (iii) identify risks to consumers throughout the mortgage origination process. CFPB mortgage origination exams will focus on specific products and will cover one or more of the following modules: (i) company business model; (ii) advertising and marketing; (iii) loan disclosures and terms; (iv) underwriting, appraisals, and originator compensation; (v) closing; (vi) fair lending; and (vii) privacy. These newly released procedures are an extension of the Supervision and Examination Manual the CFPB released in October 2011 (see BuckleySandler Special Alert, October 17, 2011).

    CFPB Examination Mortgage Origination

  • President Obama Appoints Richard Cordray CFPB Director; CFPB Fills Other Top Positions

    Consumer Finance

    On January 4, President Obama invoked his office's recess appointment authority and appointed former Ohio Attorney General Richard Cordray as Director of the CFPB. Mr. Cordray had been serving as Assistant Director for Enforcement at the CFPB while his nomination for Director was pending in the Senate. Although approved by the Senate Banking Committee, Mr. Cordray's confirmation had been blocked by lawmakers seeking to make substantive changes to the CFPB, such as replacing the director structure with a five-member commission. Republican senators objected to Cordray's appointment on constitutional grounds. They have argued that because the Senate has been holding "pro forma" sessions during its recess, President Obama lacked the authority to make a recess appointment. Click here for additional explanation from the White House.

    On January 6, Mr. Cordray appointed Raj Date as Deputy Director of the CFPB. Most recently, Mr. Date, as Special Advisor to the Treasury Secretary, was responsible for operation of the CFPB pending confirmation of a director. Additionally, Mr. Cordray elevated Kent Markus to Assistant Director of the Office of Enforcement. Mr. Markus had been the CFPB Deputy Assistant Director of the Office of Enforcement.

    CFPB Single-Director Structure

  • CFPB Launches Nonbank Supervision Program

    Consumer Finance

    On January 5, the CFPB announced the launch of its nonbank supervision program. With a Director now in place, the Obama Administration believes that the CFPB can now exercise authority granted to it by the Dodd-Frank Act to supervise companies that offer or provide consumer financial products or services, but that do not have a bank, thrift, or credit union charter. (Republican senators have expressed disagreement; in their view, the Dodd-Frank Act grants that authority only when a CFPB Director has been confirmed by the Senate.) Nonbank supervision will proceed in two phases, with immediate focus on nonbank mortgage, payday lending, and private education companies, regardless of such a company's size. A second phase will expand supervision to large debt collection, consumer reporting, auto financing, and money-service businesses. The CFPB expects soon to propose a rule defining "larger participants" in those second-phase markets, a predicate to exercising its supervisory authority over such institutions. The CFPB also noted that it may supervise any nonbank whose conduct poses risks to consumers with regard to consumer financial products or services. Rules describing procedural guidelines for exercising that authority will be published in the future.

    Nonbank Supervision

  • CFPB Issues Guidance Regarding Treatment of Confidential Supervisory Information

    Consumer Finance

    On January 4, the CFPB issued Bulletin 12-01 regarding treatment of privileged and confidential information collected during CFPB's supervisory processes. The Bulletin addresses the concern of supervised institutions that providing attorney-client privileged or work product documents during the supervisory process will waive such privileges with respect to third parties. The CFPB contends in the Bulletin that any privilege would not be waived by obligatory production to the CFPB, and that the CFPB "will not consider waiver concerns to be a valid basis for the withholding of privileged information responsive to a supervisory request." Nonetheless, the Bulletin indicates that the CFPB will give "due consideration" to requests to limit the scope of requests for privileged information, and invites institutions to "memorialize privilege claims when conveying privileged documents" to the CFPB. The Bulletin also clarifies all information obtained in the supervisory process will be exempt from production in response to Freedom of Information Act requests, but that sharing of information between federal and state supervisory and enforcement authorities may be required or appropriate in certain circumstances.

    CFPB

  • Treasury Publishes Proposed Rule Establishing Assessment Schedule for Large Bank Holding Companies and Certain Nonbank Financial Firms

    Consumer Finance

    On January 3, the Treasury Department published a proposed rule to implement Section 155 of the Dodd-Frank Act, which requires Treasury to establish an assessment schedule to cover expenses of the Office of Financial Research and the Financial Stability Oversight Council, as well as the costs of implementing the Federal Deposit Insurance Corporation's orderly liquidation authority. Under the proposal, Treasury would collect assessments twice each year from (i) domestic bank holding companies with total consolidated assets of $50 billion or more, (ii) foreign banking organizations with at least $50 billion in total consolidated assets in U.S. operations, and (iii) nonbank financial companies supervised by the Federal Reserve Board. Treasury proposes to establish a flat rate one month prior to each collection date, and to apply that rate to the total consolidated assets of each covered firm to determine each's assessment. For foreign firms, only total U.S. operations would be considered in calculating the assessment. Treasury expects to (i) finalize the rule before the end of May 2012, (ii) announce the first assessment rate in June 2012, and (iii) collect the first assessment on July 20, 2012.

    Dodd-Frank

  • FFIEC Approves Revised Regulation Z Interagency Examination Procedures

    Consumer Finance

    In late December, The Federal Financial Institutions Examination Council's (FFIEC) Consumer Compliance Task Force approved revised interagency examination procedures for Regulation Z, Truth in Lending. The new procedures reflect changes to rules implementing the Credit Card Accountability Responsibility and Disclosure Act, as well as revisions required by the Dodd-Frank Act, including an increased threshold for exempt consumer credit transactions.

    Credit Cards Examination TILA

  • Texas Finance Commission Adopts New Rules Regarding Mortgages and Consumer Credit

    Consumer Finance

    On December 30, the Finance Commission of Texas published two sets of rules impacting (i) mortgage lenders and servicers, (ii) credit access businesses, and (iii) debt management companies. The first set of rules reorganizes mortgage-related regulations to republish as Chapter 76 all regulations previously published as Chapter 79 of the Texas Administrative Code. This set of rules also establishes certain new regulations as Chapter 79 to implement SB 17 regarding residential mortgage loan servicers. Among the new rules are those to establish registration and bonding requirements for servicers.

    The second set of rules includes two that implement HB 2594 and HB 2592, which require the Commission to establish licensing for credit access businesses that provide payday loans or title loans, and to design new consumer notice disclosure and notice requirements for such firms. These regulations, among other things, set up a process for provisional licenses and a transition period to allow businesses to continue operating while obtaining a full license. Another rule sets new requirements related to standard payoff statement forms for mortgage servicers responding to requests from title insurance companies. Finally, this set of rules revises credit counseling standards for debt management service providers to remove certain obsolete language.

    For a copy of the rules as proposed, click here.

    Payday Lending

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