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OCC releases enforcement actions for April 2024
On April 18, the OCC released a list of recent enforcement actions against national banks, federal savings associations, and individuals affiliated with such entities (defined as institution-affiliated parties, or IAPs). The actions against banks include two formal agreements and one cease and desist order against three individual banks. In each instance, the OCC alleged that the banks engaged in unsafe or unsound practices related to some combination of board oversight, liquidity management, capital requirements, or credit risk. With respect to IAPs, the announcement included four enforcement actions against IAPs to “deter, encourage correction, or prevent violations, unsafe or unsound practices, or breaches of fiduciary duty,” The OCC issued prohibition orders, which prohibit the IAP from any participation in affairs of a bank or other institution), for all four IAPs and assessed civil money penalties ranging from $40,000 to $400,000 against three of them. The announcement also included two more prohibition orders against two additional IAPs for criminal activities. More information on the OCC’s enforcement action types can be found here.
Fed’s Bowman discusses risk management and bank supervision
On April 18, Fed governor Michelle Bowman delivered opening remarks at the Regional and Community Banking Conference in New York. During her speech, Bowman acknowledged the recent challenges that have impacted the U.S. banking system. She pointed out that recent events, including the pandemic, a rapid rise in inflation and interest rates, market uncertainties, and bank failures, have brought traditional risks, such as liquidity and interest rate risks, to the forefront, while other risks, like cybersecurity and third-party risks, “continue to evolve and pose new challenges.”
Bowman emphasized the importance of banks having robust risk management frameworks to identify and control both existing and emerging risks. She also stressed the need for banks to innovate responsibly and adapt their risk management as new products and services are introduced, while cautioning that regulators must balance supervision and regulation so as not to stifle responsible innovation. In light of the recent bank failures, Bowman also underscored the need for banks to have of contingency funding plans in place, which may include borrowing from the Federal Home Loan Banks or the Fed’s discount window. While regulators can encourage banks to maintain and test these plans, she noted that they should not overstep their role and interfere with management decisions.
Highlighting that these evolving risks can be exacerbated by inadequate bank supervision and acknowledging the need for a review and potential adjustments in supervision following the recent bank failures, Bowman stressed that supervision should remain commensurate to a bank’s size, complexity, and risk profile, and should focus on core and emerging risks so as not to impair the long-term viability of the banking system, including mid-sized and smaller banks.
OCC seeks input on LCR and NSFR reporting and recordkeeping requirements
On April 16, the OCC released a request for comment on proposed revisions to its “Reporting and Recordkeeping Requirements Associated with Liquidity Coverage Ratio: Liquidity Risk Measurement, Standards, and Monitoring” to account for three new recordkeeping requirements to be included in 12 CFR part 50, which applies to large national banks and Federal savings associations. The notice outlined steps that such institutions should take to ensure they properly document compliance with the “liquidity coverage ratio” (LCR), which is designed to “promote the short-term resilience” of a bank’s liquidity risk profile, and the “net stable funding ratio” (NSFR), which is designed to reduce disruptions to a bank’s funding sources. The revised reporting obligations require covered institutions to self-report when LCR falls below the minimum threshold or when there is an NSFR shortfall and, in some cases, to submit a liquidity or remediation plan, including estimated time frame for resuming compliance with LCR or NSFR requirements. The recordkeeping revisions require covered entities to, among other things, establish and maintain written policies and procedures for a number of processes, including monitoring changes in relevant laws related to master netting agreements, determine the composition of its eligible high-quality liquid assets (HQLA), and ensure consistent treatment for determining eligible HQLA. Comments must be received by June 17.
FHFA seeks public input on new closed-end second mortgage product
On April 22, the FHFA sent to the Federal Register a notice of a proposed new product from Freddie Mac to begin purchasing certain single-family closed-end second mortgages. According to the proposal, Freddie Mac would purchase certain closed-end second mortgage loans from approved and active sellers and on properties for which Freddie Mac already owns the first mortgage, subject to additional product and term limitations. FHFA’s stated goal is to offer borrowers a second mortgage at a lower interest rate than other financing alternatives given the higher interest rate environment, and increased competition among second mortgage lenders. FHFA requested comments on nine questions, with comments to be received by May 22.
Republican House Financial Services Committee members seek clarity on 1071 rule implementation timeline
On April 18, Republican members of the House Financial Services Committee sent a letter to CFPB Director Rohit Chopra to express concern over the lack of clarity regarding the implementation timeline of the CFPB’s small business data collection rule, referenced as the 1071 Rule. As previously covered by InfoBytes, in October of last year, a Texas District Court issued a preliminary injunction that required the CFPB to halt implementation of the 1071 Rule, and directed the Bureau to extend the rule’s compliance deadline “to compensate for the period stayed.” In the letter, republican lawmakers stress that the CFPB has been “reluctant” to confirm whether it will comply with the court order, which has led to confusion among regulated financial institutions regarding compliance timeframe with the 1071 Rule. The letter also highlights that some prudential regulators are reportedly advising institutions to prepare for compliance by October 1, despite the court order. Accordingly, Republican members urge the CFPB to provide clear guidance affirming compliance with the court order and extending deadlines accordingly, including with respect to the rule’s transition period for data collection and reporting requirements.
Director Thompson outlines FHFA’s efforts to promote housing access and affordability
On April 18, Sandra L. Thompson, Director of the FHFA, addressed the U.S. Senate Committee on Banking, Housing, and Urban Affairs, emphasizing FHFA’s role in promoting access to affordable housing for homebuyers and renters nationwide through the regulation and supervision of its regulated entities—Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System—to ensure they meet their housing mission. Acknowledging the reforms implemented by FHFA over the past 15 years, which have strengthened the financial conditions of regulated entities, and FHFA’s ongoing review of the FHLBank System, Thompson outlined the agency’s efforts to address barriers to affordable and sustainable housing. Her recommendations include amending the Bank Act to expand the range of member institutions eligible to pledge community financial institution (CFI) collateral in order to secure affordable FHLBank advances to include all Community Development Financial Institutions and credit union members, and increasing the statutorily required minimum funding contribution for the Affordable Housing Program from 10 percent to at least 20 percent of FHLBank net income from the previous year. Thompson further highlighted FHFA’s efforts to address appraisal bias and improve data to promote equitable valuations, reduce costs associated with title verification, and codify the requirements that Fannie Mae and Freddie Mac maintain Equitable Housing Finance Plans, among other initiatives. Thompson concluded her remarks by discussing FHFA’s ongoing credit score initiative, which seeks to transition Fannie Mae’s and Freddie Mac’s use of Classic FICO to the use of the more inclusive FICO 10T and VantageScore 4.0 models, alongside shifting from tri-merge to bi-merge credit reports.
OCC’s Hsu discusses creating economic opportunity for “new Americans”
On April 10, Acting Comptroller of the Currency, Michael J. Hsu, delivered prepared remarks, during a public meeting of the Financial Literacy and Education Commission (FLEC). During his remarks, Hsu underscored the significance of financial literacy and inclusion for “new Americans,” drawing from his own experience as a child of immigrants. Acknowledging the substantial contributions of immigrant communities to the U.S. economy, including through entrepreneurship and innovation, Hsu urged financial institutions to support a system that is inclusive and equitable. Hsu called for banks to expand services offered in languages other than English and to explore innovative means of accepting diverse forms of identification within the regulatory framework to facilitate greater access to financial services for foreign-born individuals who are more likely to be unbanked. The speech also highlighted the need for mortgage financing options that cater to the unique requirements of immigrant populations, including extending access to credit for individuals without traditional credit scores. Hsu specifically emphasized special purpose credit programs and community partnerships as a means to extend credit to new Americans. Hsu concluded by pointing to the OCC's resources aimed at bolstering the efforts of banks and their community partners in enhancing financial capability among immigrant populations.
OCC extends comment period on proposed rules for the Bank Merger Act
On April 10, the OCC announced a notice published in the Federal Register extending the comment period for the OCC’s proposed rule on bank mergers. The NPRM titled, “Business Combinations under the Bank Merger Act,” was originally published on February 14. As previously covered by InfoBytes, the rule would amend procedures to include a policy statement that “summarizes the principles the OCC uses when it reviews proposed bank merger transactions under the Bank Merger Act.” Under the typical 60-day comment period, the comment period for the original NPRM would have closed on April 15. The OCC extended the comment period in response to a request to do so, to allow interested parties additional time to prepare and submit their comments. The notice will not not indicate who made the request. The new deadline for parties to submit comments is June 15.
CSBS and FHFA sign agreement to enhance information sharing on nonbank mortgage companies
On April 10, the Conference of State Bank Supervisors (CSBS) and the FHFA announced they have signed a memorandum of understanding (MOU) to enhance information sharing on nonbank mortgage companies. The MOU reportedly aimed to improve the ability to coordinate on market developments, identify and mitigate risks, and ultimately, further protect consumers, taxpayers, and the nation’s housing finance system. CSBS Board Chair, Lise Kruse, emphasized the value of collaboration between state and federal regulators to support a stable mortgage marketplace, given the distinct authority each supervisory agency maintained over the nonbank mortgage industry. According to the CSBS, state financial regulators primarily oversee nonbank mortgage companies, while the FHFA regulated significant entities like Fannie Mae and Freddie Mac, which served as important counterparties to the nonbank mortgage industry. According to FHFA Director, Sandra L. Thompson, the new information sharing protocols will enable both state and federal regulators to supervise the mortgage industry more effectively, leading to improved outcomes for all stakeholders.
FTC report to Congress suggests legislative enhancements on consumer protection
On April 10, the FTC issued a report addressed to Congress detailing its efforts to collaborate with state attorneys general (AGs) from across the U.S. on consumer protection law enforcement goals. The report, titled “Working Together to Protect Consumers: A Study and Recommendations on FTC Collaboration with the State Attorneys General,” was issued pursuant to the FTC Collaboration Act of 2021 and included legislative recommendations to enhance the FTC’s consumer protection efforts. The report followed a request for information issued by the FTC in June 2023, seeking public comments on how the FTC might improve collaboration with state AGs to protect consumers from fraud and ensure fairness in the marketplace.
The FTC's report was divided into three main sections:
- The first section outlined the existing collaborative practices between the FTC and state AGs, detailing their shared roles in combating frauds and scams, the respective law enforcement authority of the FTC and the AGs, and the ways federal and state enforcers can share the information they gather, including through networks such as the Consumer Sentinel Network consumer complaint database.
- The second section described best practices to ensure effective collaboration between the FTC and state AGs, including strong information-sharing practices and coordination of enforcement actions. It also suggested ways to expand the sharing of technical resources and expertise between federal and state agencies.
- The third section provided legislative recommendations aimed at improving collaboration efforts by providing the FTC with clearer authority to pursue legal actions. This section emphasized a request for Congress to restore the FTC’s authority to seek monetary refunds for consumers who have been defrauded, following a 2021 U.S. Supreme Court decision holding that such relief was not available to the Commission (covered by InfoBytes here). Additionally, this section suggested giving the FTC independent authority to seek civil penalties and clear authority to take legal action against facilitators of unfair or deceptive practices.
In its report to Congress, the FTC emphasized the importance of a collaborative approach to consumer protection among enforcement agencies and states, continuing to seek ways to strengthen its ties with state AGs to address future challenges.