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CFPB Succession: CFPB drops payday lawsuit, new CRA measures introduced in Congress
On March 22, Senator Moran, R-Kan, with 15 GOP co-sponsors introduced a resolution under the Congressional Review Act to block the CFPB’s Bulletin 2013-02 (Bulletin) on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). The resolution follows a December 2017 letter issued by the Government Accountability Office (GAO) to Senator Pat Toomey (R-Pa.) stating that the Bulletin is a “general statement of policy and a rule” that is subject to override under the CRA, previously covered by InfoBytes here.
On the same day, Senator Graham, R-SC, introduced a resolution to overturn the CFPB’s final rule addressing payday loans, vehicle title loans, and certain other extensions of credit. A similar resolution was introduced in the House in December 2017 by a group of bipartisan lawmakers. As previously covered by InfoBytes, while acting Director Mick Mulvaney has suggested he would not seek his own repeal of the Bureau’s rule but may “reconsider” it, he has expressed his support for the Congressional measures to block the rule. Additionally, according to media reports, the CFPB has recently dropped a case against an online payday loan company and Mulvaney is currently reviewing whether to continue three other investigations into lenders of similar products.
CFPB releases RFI on guidance and implementation materials
On March 28, the CFPB released its tenth Request for Information (RFI) in a series seeking feedback on the Bureau’s operations. This RFI solicits public comment to assist the Bureau in “assessing the overall effectiveness and accessibility of its guidance materials and activities (including implementation support).” Specifically, the Bureau is seeking feedback regarding interpretive rules and general statements of policy that the CFPB determined do not need to go through the Administrative Procedures Act (APA) notice and comment process, as well as other “non-rule guidance” such as compliance guides and webinars. While the Bureau is seeking feedback on all aspects of its various guidance materials, the RFI specifically seeks comments related to (i) the regulatory inquiries function; (ii) regulatory implementation and compliance aids; (iii) official interpretations and standalone interpretive rules; (iv) SEFL guidance materials; (v) disclaimers included on non-rule guidance materials; and (vi) recommendations for new forms of written guidance. The RFI is expected to be published in the Federal Register on April 2. Comments will be due 90 days from publication.
FTC responds to CFPB RFI on CIDs
On March 27, the FTC’s Bureau of Consumer Protection (BCP) released its comment letter responding to the CFPB’s Request for Information (RFI) on Civil Investigative Demands (CIDs) – the first RFI in a series seeking feedback on the CFPB’s operations (previously covered by InfoBytes here). According to the BCP, good government requires an agency to use restraint both when deciding to issue compulsory CIDs and when making specific demands, because courts are deferential to an agency’s request. The BCP emphasizes the need for a balance between the enforcement of laws by an agency and the potential burden on the party whom receives the demand.
The FTC response is notable as it is not common for a federal agency to submit comments to another agency’s RFI. However, as the BCP points out, the CFPB originally used the FTC’s Rules of Practice and Procedure as a model when establishing its CID process, and in July 2017, the BCP implemented several reforms to its consumer protection CID process. (Previously covered by InfoBytes here.) The comment letter notes the BCP’s belief that the reforms “have been quite successful in lessening burdens on recipients and improving transparency while continuing to allow the agency to obtain the information it needs to enforce the law.” In response to the CFPB’s specific requests, the BCP outlined its internal processes and provided the Bureau with specific recommendations, while recognizing the inherent differences in each agency’s authority, mission and organizational structure. The BCP recommendations include:
- Opening/closing investigations. Increase oversight by senior agency leadership with respect to the opening and closing of investigations by staff in the Office of Enforcement.
- Issuing CIDs. Delegate authority to issue CIDs to more senior officials (as opposed to the Deputy Assistant Directors of the Office of Enforcement) or to officials who are not directly involved in the investigation.
- Explaining purpose of investigation. Ratify the Bureau’s currently informal process of articulating a more specific purpose for the CID and using the CFPB’s “meet-and-confer” requirement under 12 C.F.R. § 1080.6(c) to constructively engage with the recipient to better improve their understanding of the CID’s purpose.
- Scope of requests. Use the meet-and-confer process to resolve or narrow concerns regarding potentially broad CID requests in order to avoid unnecessary burdens on the recipient and delays caused by a petition to limit or quash a CID.
- Incorporating certain Federal Rules by reference. For the taking of testimony of an entity and the handling inadvertent production of privileged information, publicly acknowledge the intent to follow the relevant standards under the Federal Rules of Civil Procedure and Evidence.
- Rights afforded to individuals in investigational hearings. Continue to prevent witnesses from consulting with counsel while a question is pending and counsel from objecting to a question or instructing the witness not to answer (except with regard to privilege). The BCP stated that, in addition to being consistent with its rules, these limitations are “consistent with federal court practice and are appropriate given that the investigational hearing is part of the agency’s non-public investigation to determine whether a violation has occurred and whether an action would be in the public interest.”
- Response requirements. Consider streamlining guidelines for document submission of electronically stored information
As for the process for petitions to modify or set aside CIDs, without providing a specific recommendation to the Bureau, the BCP spent considerable time outlining certain outside criticisms of its own process, including that petitioners do not receive the BCP rely brief given to the assigned Commissioner in response to a petitions and that the Commissioner’s ruling on the petition is placed on the public record, revealing the underlying non-public investigation. The BCP defended these practices, emphasizing that the reply briefs contain protected information regarding the FTC’s internal investigation process and the burden to redact the information outweighs the minimal benefit to the petitioner. Additionally, the BCP stated that publicly disclosing the Comissioner’s ruling is consistent with ensuring the government is subject to the “watchful eye” of the public.
As previously covered by InfoBytes, all comments to the CFPB RFI are now due by April 26.
FFIEC issues Examination Modernization Project update
On March 22, the Federal Financial Institutions Examination Council (FFIEC) issued an update on the status of its Examination Modernization Project. According to FDIC FIL-11-2018 and the accompanying press release, the project’s objective is to identify and assess measures to improve the community bank safety and soundness examination process, pursuant to the Economic Growth and Regulatory Paperwork Reduction Act’s review of regulations. According to feedback from selected supervised institutions and examiners, agencies should ensure examiners understand the importance of clear, transparent communication objectives during the examination process. As a result, the FFIEC indicated the following four areas with the potential for “meaningful supervisory burden reduction”:
- regulator communication objectives should be highlighted and reinforced before, during, and after examinations;
- technology should be leveraged to “shift, as appropriate, examination work from onsite to offsite”;
- examinations should continue to be tailored “based on risk”; and
- electronic file transfer systems should be improved “to facilitate the secure exchange of information between institutions and supervisory offices or examiners.”
The FFIEC also announced plans to take further action on other areas of improvement.
GAO recommends Treasury offer incentives to financial institutions to serve LMI communities
On March 16, the Government Accountability Office (GAO) released a report identifying incentives to encourage financial institutions to provide banking services and small-dollar consumer loans in lower- and middle-income (LMI) communities. The report—issued in response to concerns raised by a 2015 FDIC survey, which found that “unbanked” or “underbanked” households tended to be located in LMI communities—assessed services provided by financial institutions in these areas, reviewed how regulators performed Community Reinvestment Act (CRA) evaluations, and solicited input from stakeholders such as consumer advocacy groups and financial industry members.
Currently, CRA evaluation procedures do not consistently require an assessment of banks’ provision of retail banking services or small-dollar, non-mortgage consumer lending. Rather, banks are evaluated for these criteria typically only “if consumer lending is a substantial majority of the lending or a major product of the institution, which generally is not the case across all institution types.” According to GAO’s report, a June 2017 Treasury report (previously covered in a Buckley Sandler Special Alert), indicated that the CRA should be modernized to better target statutory and regulatory responses to financial risks faced by U.S. consumers. Treasury announced plans to review the CRA, but a timeline is yet to be released. Meanwhile, GAO recommended—and Treasury concurred—that Treasury should consider the findings in this report when conducting its review. GAO also proposed several incentives for financial institutions, including the following:
- modifying lending and service tests conducted as part of the CRA examination process to focus more on how institutions are offering basic banking services and small-dollar, non-mortgage loans;
- expanding the scope of areas and entities assessed as part of the CRA examinations to capture more types of institutions, including all bank affiliates and nonbanks; and
- providing clarifying guidance about the examination process.
CFPB releases RFI on inherited rules, extends comment period for first three RFIs
On March 22, the CFPB released its ninth Request for Information (RFI) in a series seeking feedback on the Bureau’s operations. This RFI solicits public comment to assist the Bureau in deciding “whether it should amend the regulations or exercise the rulemaking authorities that it inherited from certain other Federal agencies.” Specifically, the Bureau is seeking feedback regarding its “Inherited Regulations” – the consumer financial laws that were previously vested in other federal agencies but were transferred to the CFPB assumed by the Dodd-Frank Act. The RFI seeks information related to all aspects of the Inherited Regulations, including (i) whether the Inherited Regulations should be tailored to an institution of a particular size or are incompatible with new technologies; (ii) changes the Bureau could make to the Inherited Regulations to more effectively meet the specific law’s statutory purpose; (iii) changes the Bureau could make to the Inherited Regulations to advance the statutory purposes stated in Section 1021 of the Dodd-Frank Act; (iv) whether the Bureau should introduce pilots, field tests, demonstrations or other activities to better analyze the cost/benefits of potential Inherited Regulations; and (v) where the Bureau could exercise more of its rulemaking authority to better align with the objectives of the applicable consumer financial laws. The RFI is expected to be published in the Federal Register on March 26. Comments will be due 90 days from publication.
On March 19, the CFPB extended the comment period of the first three RFIs released in the series to 90 days (previously covered by InfoBytes here, here, and here). The comment periods were originally set for 60 days after publication in the Federal Register but now the 90-day deadline applies to the following to match those of subsequent issuance:
- Civil Investigative Demands (CIDs) – comments are now due by April 26
- Adjudication Proceedings – comments are now due by May 7
- Enforcement Process – comments are now due by May 14
OCC announces March 2018 enforcement actions and terminations
On March 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The new enforcement actions include a cease and desist order, a civil money penalty order, notices filed, and recently terminated enforcement actions. Two notable actions are as follows:
Cease and Desist Consent Order. On February 12, the OCC issued a consent order against a New Jersey-based bank for deficiencies related to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) rules and regulations. Among other things, the consent order requires the bank to (i) appoint an independent third-party consultant to conduct a review of the bank’s BSA/AML compliance program; (ii) review and update a comprehensive BSA/AML compliance action plan and monitoring system; (iii) create a comprehensive training program for “appropriate operational and supervisory personnel, and the Board of Directors, to ensure their awareness of their responsibility for compliance with” the BSA; (iv) develop policies and procedures related to the collection of customer due diligence and enhanced due diligence when opening accounts; (v) appoint a BSA officer; (vi) develop and conduct ongoing BSA/AML risk assessments to monitor accounts for “high-risk customers”; and (vii) conduct a “Look-Back” plan to determine whether suspicious activity was timely identified and reported by the bank and whether additional SARs should be filed for previously unreported suspicious activity. Furthermore, the bank is prohibited from opening new accounts for commercial customers designated as “medium risk or higher” in areas such as “money services businesses, foreign or domestic correspondent banks, payment processors, or cash-intensive businesses” without prior authorization. The bank, while agreeing to the terms of the consent order, has neither admitted nor denied any wrongdoing.
Termination of enforcement action. On February 14, the OCC terminated a 2002 consent order issued against a Texas-based payday lender after determining that “the safe and sound operation of the banking system does not require the continued existence of” previously issued restrictions. In 2002, the OCC claimed the payday lender engaged in “unsafe and unsound” practices, including violations of ECOA and TILA for failing to safeguard customers’ loan files. Among other things, the consent order fined the payday lender a $250,000 civil money penalty, imposed record-keeping requirements, and prohibited it from “entering into any kind of written or oral agreement to provide any services, including payday lending, to any national bank or its subsidiaries without the prior approval of the OCC.”
House Financial Services Committee holds hearing on potential regulation of cryptocurrencies and ICOs
On March 14, the House Financial Services Subcommittee on Capital Markets, Securities, and Investment held a hearing entitled “Examining Cryptocurrencies and ICO Markets” to discuss recommendations for Congress concerning the regulation of cryptocurrencies and initial coin offering ("ICO") markets. Subcommittee Chairman Bill Huizenga, R-Mich., opened the hearing by stating that “[c]ryptocurrencies and ICOs provide an innovative vehicle for startups to potentially access capital and grow their businesses,” and emphasized that potential regulation of this market should not stifle innovation in the area of digital currencies and capital formation.
The hearing’s four witnesses offered numerous insights into the shaping of regulation in the crytopcurrency and ICO markets. The witnesses discussed emphasizing the potential of ICOs for U.S. investors, disclosures in the ICO market, and the need for regulation to be clear with definitive classification guidelines. Additionally, witnesses commented on the unanticipated negative consequences of regulation, including the risk associated with developing a regulatory framework around the cryptocurrency market since the market is still emerging. The hearing included discussion on the functions of cryptocurrency and the ICO market, including distinguishing an ICO offering from a traditional Initial Public Offering (IPO) and the different uses of “scarce tokens,” such as bitcoin, which would impact whether cryptocurrencies were regulated as commodities or securities.
House passes two bipartisan bills to increase transparency for regulatory appeals process and tailor regulations based on size and complexity
On March 15, the House passed H.R. 4545, the “Financial Institutions Examination Fairness and Reform Act,” which would amend the Federal Financial Institutions Examination Council Act of 1978 to increase transparency and accountability for financial institutions. Among other things, the bill will require federal financial regulatory agencies to comply with deadlines established in the bill to improve the timeliness of examination reports and exit interviews, and will establish the Office of Independent Examination Review to adjudicate financial institutions’ appeals and complaints concerning examination reports. The bill further “requires the establishment of an independent internal agency appellate process at the CFPB for the review of supervisory determinations made at institutions supervised by the CFPB.”
Separately, on March 14, the House passed H.R. 1116, the “Taking Account of Institutions with Low Operation Risk Act of 2017” (TAILOR Act), which would require federal financial regulatory agencies to tailor regulations to a financial institution’s size and complexity. The TAILOR Act would apply not only to future regulatory guidance and rulemaking but also to regulations adopted seven years prior from February 16, 2017. According to a press release issued by the House Financial Services Committee, the TAILOR Act “moves financial regulatory agencies away from the current one-size-fits-all approach to instead consider additional factors such as an institution's risk profile, unintended potential impact of implementation of such regulations, and underlying policy objectives of the statutory scheme which led to the regulation.” In registering her opposition to the bill, Ranking Member of the Committee, Representative Maxine Waters, D-CA, argued that it would “weaken important safeguards established since the financial crisis” and “provide all financial institutions, including the largest banks, with opportunities to challenge any and every regulation in court if they felt it was not 'uniquely tailored' to their business needs.”
CFPB releases RFI on adopted regulations and new rulemaking authorities
On March 14, the CFPB released its eighth Request for Information (RFI) in a series seeking feedback on the Bureau’s operations. This RFI solicits public comment to assist the Bureau in deciding “whether it should amend any rules it has issued since its creation or issue rules under new rulemaking authority provided for by the Dodd-Frank Act,” which the RFI defines as the Bureau’s “Adopted Regulations.” This RFI does not seek information related to the Bureau’s “Inherited Regulations” that have not yet been amended by the CFPB. Inherited Regulations are those promulgated under the consumer financial laws that were previously vested in other federal agencies but the Bureau assumed responsibility over through the Dodd-Frank Act.
The CFPB is requesting feedback regarding the content of all Adopted Regulations, except for its 2015 HMDA final rule (or its subsequent amendments) and its final rule addressing payday loans, vehicle title loans, and certain other extensions of credit. Specifically, the RFI seeks information related to all aspects of the Adopted Regulations, including (i) whether the Adopted Regulations should be tailored to an institution of a particular size or are incompatible with new technologies; (ii) changes the Bureau could make to the Adopted Regulations to more effectively meet the specific law’s statutory purpose; (iii) changes the Bureau could make to the Adopted Regulations to advance the statutory purposes stated in Section 1021 of the Dodd-Frank Act; (iv) whether the Bureau should introduce pilots, field tests, demonstrations or other activities to better analyze the cost/benefits of potential Adopted Regulations; and (v) where the Bureau could exercise more of its rulemaking authority to better align with the objectives of the applicable consumer financial laws. The Bureau also requested comment on aspects of the adopted regulations that should not be amended. The RFI is expected to be published in the Federal Register on March 19. Comments will be due 90 days from publication.