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Senator Warren pens letter to banking regulators to check on their regulatory commitments following 2023 bank failures
On March 10, Senator Warren (D-MA) released a letter to Federal Reserve Vice Chair Michael Barr, FDIC Chairman Martin Gruenberg, and Acting Comptroller of the Currency Michael J. Hsu (the bank regulators) seeking information on any progress with their commitments to strengthen bank regulatory standards following the 2023 banking issues. Warren urged the bank regulators to reinstate the rules for banks with assets between $100 and $250 billion, including liquidity requirements and capital stress tests, that were rolled-back with the 2018 enactment of the “Economic Growth, Regulatory Relief, and Consumer Protection Act” (EGRRCPA). She concluded her letter by posing several questions, including asking what efforts the bank regulators are taking to strengthen rules, when these rules are expected to be announced or implemented, how many banks will be subject to these rules, if the implementation process would include a comment period, and if lobbying by large banks against the Basel III capital rule has weakened the bank regulators’ resolve to strengthen rules for banks with more than $100 billion in assets. Sen. Warren has asked for a response by March 25.
OCC’s Hsu speaks on operational resilience framework as regulators consider non-financial disruptions
On March 12, the Acting Director for the OCC, Michael J. Hsu, delivered a speech at a banking conference in Washington, D.C. on “operational resilience,” which he defined as a bank’s ability to “prepare for, and adapt to, and withstand or recover from disruptions.” Hsu stressed that the most concerning impacts on financial institutions are not financial, but often arise from natural disasters, pandemics, global conflicts, or weak internal governance management. The acting director noted an increase in the probability of disruptions occurring and the impacts of them. In response, the OCC will expect financial institutions to be operationally resilient, and Hsu stated that the federal banking agencies are considering making changes to their operational resilience framework for large banks and possibly third-party service providers.
These principles were first laid out in a white paper following the September 11, 2001, attack on the World Trade Center whereby the paper promoted geographic diversity and the resiliency of data centers. During the Covid-19 Pandemic, the federal banking agencies issued a paper that integrated existing guidance and common industry practices in October 2020.
Ginnie Mae now requires issuers to disclose cybersecurity incidents within 48 hours
On March 4, the President of Ginnie Mae released All Participants Memorandum (APM) 24-02, which set forth a new requirement applicable to all issuers, including issuers that subservice loans for others. The memo mandated that all approved issuers must notify Ginnie Mae of any significant cybersecurity incident within 48 hours of detection. Ginnie Mae defined a “Cyber Incident” as “an event that actually or potentially jeopardizes, without lawful authority, the confidentiality, integrity, or availability of information or an information system; or constituted a violation or imminent threat of violation of security policies, security procedures, or acceptable use policies and has the potential to directly or indirectly impact the Issuer’s ability to meet its obligations under the terms of the Guaranty Agreement.” If a Cyber Incident has occurred, issuers must it report to Ginnie Mae via a specified email address and must include (i) the date and time of the incident, (ii) a summary of the incident, and (iii) points of contact responsible for coordinating any follow-up questions regarding the incident. These requirements are also now reflected in Chapter 03, Part 18 of the Mortgage-Backed Securities Guide, 5500.3, REV-1.
CFPB lowers most credit card late fees to $8, amending Regulation Z
On March 5, the CFPB announced a final rule that will amend TILA Regulation Z and lower the typical credit card late fees from $30 to $8. According to the final rule, the CFPB determined that the Regulation Z §1026.52(b) $30 discretionary safe harbor for fees (for card issuers that together with their affiliates have at least one million open credit card accounts, i.e., “larger card issuers”) is too high, and therefore “are not consistent with TILA’s statutory requirement that such fees be reasonable [for a] violation.”
For larger card issuers, the final rule will repeal the current safe harbor threshold amount and adopt a late fee safe harbor dollar amount of $8. It also will eliminate late fees for a higher safe harbor dollar amount for repeat violations that occur during the same billing cycle or in one of the next six billing cycles. Larger card issuers will still be able to charge fees above the safe harbor threshold for late fees if they can prove the higher fee is necessary to cover their actual collection costs.
With respect to late fees imposed by larger card issuers, the provision on annual adjustments for the safe harbor dollar amounts (to reflect changes in the consumer price index) will not apply to the $8 safe harbor amount for those late fees. For card issuers that together with their affiliates have fewer than one million open credit card accounts for the entire preceding calendar year (“smaller card issuers”), the safe harbors revised pursuant to the annual adjustments will continue to apply to the late fees imposed by them. The final rule also amended comments and sample forms in Appendix G to revise current examples of late fee amounts to be consistent with the $8 safe harbor amount. Card issuers that meet or exceed the one million open credit card account thresholds, transforming them into larger card issuers, will have 60 days to comply with the requirements of the rule.
Regarding annual adjustments for safe harbor threshold amounts, the rule will adjust safe harbor threshold amounts in §§1026.52(b)(1)(ii)(A) and (B) to $32, and $43 for repeat violations that will occur during the same billing cycle or in one of the next six billing cycles. These two revised threshold amounts will apply to penalty fees other than late fees for all card issuers, as well as late fees imposed by smaller card issuers. The CFPB’s final rule will go into effect 60 days after publication in the Federal Register.
The final rule was highlighted in the White House’s Fact Sheet entitled, “President Biden Announces New Actions to Lower Costs for Americans by Fighting Corporate Rip-Offs,” which announced a new “Strike Force on Unfair and Illegal Pricing” co-chaired by the DOJ and the FTC to strengthen interagency efforts to combat high prices through anti-competitive, unfair, deceptive, or fraudulent business practices.
OCC releases February CRA evaluations for 31 banks, one “Needs to Improve”
On March 1, the OCC released its Community Reinvestment Act (CRA) performance evaluations for last February. The OCC evaluated 31 national banks and federal savings associations under four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 31 evaluations reported by the OCC, only one entity holds the lowest rating, a small bank in Indiana, which was rated “Needs to Improve.” Most entities were rated “Satisfactory,” and six entities were rated “Outstanding.” In an OCC FAQ regarding the implementation of the CRA, the OCC detailed how it evaluates and rates financial institutions by reviewing both the institution itself (such as its capacity, constraints, business strategies, competitors, and peers) and the community the institution it serves (such as its demographics, economic data, lending, investment, and service opportunities).
District Court decides in favor of bank despite alleged FDCPA and RESPA violations
On February 15, the U.S. District Court for the Central District of California granted a bank defendant’s motion to dismiss certain claims presented in the plaintiff’s complaint alleging violations of the Fair Debt Collection Practices Act (FDCPA) and Real Estate Settlement Practices Act (RESPA).
With respect to the FDCPA claim, the court found that the defendant did not qualify as a “debt collector” within the meaning of the statute because the defendant acquired the loan through its merger with the original creditor of the plaintiff’s mortgage. The court noted that several other district courts have held that an entity that acquires a debt through its merger with another creditor is not a “debt collector” under the FDCPA even if the merger occurred following the borrower’s default on the debt.
With respect to the plaintiff’s RESPA claim, the court found that the plaintiff failed to allege a violation of the statute because the plaintiff’s letter to the defendant, which requested a copy of the original promissory note underlying the deed of trust as well as a loan payoff amount, did not constitute a “qualified written request” triggering the defendant’s obligations under RESPA to respond.
OCC names Ted Dowd as Acting Senior Deputy Comptroller and Chief Counsel
On February 23, the OCC announced that Ted Dowd will serve as the Acting Senior Deputy Comptroller and Chief Counsel for the agency while the OCC searches for a successor to Ben McDonough. Dowd is currently the Deputy Chief Counsel, a position he has fulfilled since 2018 where he oversaw the operations of all OCC district counsel offices. Under the new position, Dowd will oversee all legal aspects of the OCC, as well as support the agency’s activities in bank chartering, supervision, enforcement, and rulemaking, among others. This positional change will go into effect on April 8 when the current OCC Chief Counsel Ben McDonough begins a new position at another agency.
FFIEC highlights the importance of property valuation practices
On February 12, the Federal Financial Institutions Examination Council (FFIEC) released a statement on examination principles related to ensuring fair and creditable residential property valuation practices among supervised institutions. The FFIEC underscored the necessity for institutions to comply with anti-discrimination laws and regulations, such as the ECOA and the Fair Housing Act, while also adhering to safety and soundness regulations outlined in statutes like the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. According to the statement, effective valuation review programs are essential for identifying and addressing deficiencies, ensuring compliance with appraisal regulations, and promoting fair lending practices. Through examination processes, both in consumer compliance and safety and soundness assessments, the FFIEC aimed to mitigate risks associated with valuation discrimination or bias.
Agencies issue 2023 Shared National Credit Program Report
On February 16, the FDIC, Fed, and OCC issued the 2023 Shared National Credit (SNC) Report, which found that while large, syndicated bank loans generally have moderate credit quality, there appears to be a trend of declining credit quality stemming from higher interest rates and tighter profit margins in certain industries. The report found that credit risk remains high in leveraged loans and specific sectors like technology, telecom, healthcare, and transportation. Also, the real estate and construction sector showed mixed trends.
FTC encourages potential defendants to sign tolling agreements to avoid "undue delay"
On February 20, Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, said in an FTC blog post, that although the FTC welcomes open dialogue with parties in open investigations, the Commission is prepared to quickly pivot to litigation in cases should companies cause “undue delay” to redress for consumers. In light of a 2021 Supreme Court ruling in AMG Capital Management, LLC v. FTC, the FTC can no longer pursue monetary relief under Section 13(b) of the FTC Act, which lacks a statute of limitations. Instead, the FTC said, it frequently turns to Section 19, 15 U.S.C. § 57b, which allows courts to order defendants to provide redress only if violations occurred within three years of the Commission’s action. To facilitate timely productive discussions, the FTC Bureau of Consumer Protection often requests tolling agreements from potential defendants to provide time for information gathering and dialogue while preserving the possibility of a pre-litigation settlement or closing the investigation in appropriate cases. Parties are encouraged to sign these agreements, as refusal may impact extension requests and meeting opportunities. If necessary, the FTC will recommend litigation to protect consumer interests.