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Senate confirms Gruenberg, FDIC board members
On December 19, the U.S. Senate confirmed Martin J. Gruenberg to be a board member and chairman of the FDIC. Gruenberg has served as acting chairman since former chair, Jelena McWilliams, resigned a year ago. Since joining the FDIC Board of Directors in 2005, Gruenberg has served as vice chairman, chairman, and acting chairman. Prior to joining the FDIC, Gruenberg served on the staff of the Senate Banking Committee as senior counsel of the full committee, and as staff director of the Subcommittee on International Finance and Monetary Policy. (Covered by InfoBytes here.)
The senators also voted to confirm Travis Hill as vice chairman and Jonathan McKernan as an FDIC board member. As previously covered by InfoBytes, during his tenure at the FDIC, Hill previously served as senior advisor to the chairman and deputy to the chairman for policy. Prior to that, Hill served as senior counsel at the Senate Banking Committee. Jonathan McKernan is a senior counsel at the FHFA and currently is on detail from the agency to the Senate Banking Committee where he is counsel on the minority staff. Previously, McKernan served as a senior policy advisor at the U.S. Treasury Department.
On January 5, Gruenberg was sworn in as the 22nd FDIC chairman. The same day, Hill was sworn in as vice chairman and McKernan as a board member.
GSEs must seek FHFA preapproval for new products
On December 20, FHFA announced a final rule requiring Fannie Mae and Freddie Mac to provide advance notice of new activities and to obtain prior approval before launching new products. (See also fact sheet here.) Among other things, the final rule establishes that FHFA will determine which new activities merit public notice and comment and would be treated as new products subject to prior approval. Specifically, the final rule establishes that once a Notice of New Activity is deemed received, FHFA has 15 calendar days to determine if the new activity is a new product that merits public notice and comment. Additionally, the final rule establishes a public disclosure requirement for FHFA to publish its determinations on new activity and new product submissions. Among other things, if the agency “determines that a new activity is a new product, the final rule requires FHFA to publish a public notice soliciting comments on the new product for a 30-day period.” The final rule is effective 60 days after publication in the Federal Register.
HUD seeks public input on disaster recovery funds
On December 20, HUD released two new requests for information (RFIs) seeking public input on how to simplify, modernize, and more equitably distribute critical disaster recovery funds. According to HUD, the RFIs are a broader element of HUD’s newly published Climate Action Plan, “which emphasizes both equity and resilience in disaster recovery, as well as the Biden-Harris Administration’s commitment to strengthening low- and moderate-income communities.” HUD noted that the Community Development Block Grant Disaster Recovery and Mitigation focus on long-term recovery and resilience efforts, targeted to families with low- and moderate-incomes in the most impacted and distressed areas. HUD also noted that both funds are “unique” from other federal disaster assistance programs by FEMA and the SBA, as well as private insurance, because it is the only federal resource with the primary purpose of benefiting low- and moderate-income communities. HUD further noted that the RFIs will inform the policy that will tear down barriers and eliminate unnecessary administrative burden, as to provide better and quicker assistance to those affected.
Agencies release 2021 CRA data
On December 15, members of the FFIEC with Community Reinvestment Act responsibilities (Federal Reserve Board, FDIC, and the OCC) released 2021 Community Reinvestment Act data on small business, small farm, and community development lending. (See also fact sheet here.) The 685 reporting banks reported that they originated or purchased 9.4 million small-business loans totaling $371 billion, with the total number of loans originated by reporting banks increasing by approximately 12.6 percent from 2020. The dollar amount of these small business loans decreased by 21 percent, the report found. Additionally, roughly 47.1 percent of the reported small business loan originations and 59.3 percent of reported farm loans were made to firms with less than $1 million in revenue. With respect to community development lending activity, the agencies reported that based on data compiled from 618 banks, lending activity decreased by 10.1 percent from the amount reported in 2020.
Agencies release annual CRA asset-size threshold adjustments
On December 19, the Federal Reserve Board, FDIC, and OCC announced (see here and here) joint annual adjustments to the CRA asset-size thresholds used to define “small bank” and “intermediate small bank,” which are not subject to the reporting requirements applicable to large banks unless they choose to be evaluated as one. A “small bank” is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.503 billion in assets. An “intermediate small” bank is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $376 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.503 billion in assets. The joint final rule takes effect on January 1, 2023.
States have their say on CFPB funding
Recently, a coalition of state attorneys general from 22 states, including the District of Columbia, filed an amicus brief supporting the CFPB’s petition for a writ of certiorari, which asked the U.S. Supreme Court to review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution. A separate coalition of 16 state attorneys general filed an amicus brief opposing the Bureau’s position and supporting the 5th Circuit’s decision, however these states also urged the Supreme Court to grant the Bureau’s petition to address whether the 5th Circuit’s conclusion was correct.
As previously covered by a Buckley Special Alert, the 5th Circuit’s October 19 holding found that although the Bureau spends money pursuant to a validly enacted statute, the structure violates the Appropriations Clause because (i) the Bureau obtains its funds from the Federal Reserve (not the Treasury); (ii) the agency maintains funds in a separate account; (iii) the Appropriations Committees do not have authority to review the agency’s expenditures; and (iv) the Bureau exercises broad authority over the economy. The case involves a challenge to the Bureau’s Payday Lending Rule, which prohibits lenders from attempting to withdraw payments for covered loans from consumers’ accounts after two consecutive withdrawal attempts have failed due to insufficient funds. As a result of the 5th Circuit’s decision, lenders’ obligation to comply with the rule (originally set for August 19, 2019, but repeatedly delayed) will be further delayed while the constitutional issue winds its way through the courts. The Bureau’s petition also asked the court to consider the 5th Circuit’s decision to vacate the Payday Lending Rule on the premise that it was promulgated at a time when the Bureau was receiving unconstitutional funding. (Covered by InfoBytes here.)
- Amicus brief supporting CFPB’s position. The 22 states urged the Supreme Court to review the 5th Circuit’s decision, arguing that the Bureau’s funding is lawful and that even if the Supreme Court were to find a constitutional defect in the funding scheme, vacating otherwise lawfully-promulgated regulations is neither justified nor compelled by law. “Left undisturbed, the court of appeals’ reasoning could jeopardize many of the CFPB’s actions from across its decade-long existence, to the detriment of both consumers protected by those actions and financial-services providers that rely on them to guide their conduct,” the states said. In their brief, the states argued, among other things, that the Supreme Court should grant the petition “to review at least the question of whether the court of appeals erred in vacating a regulation promulgated during a time when the CFPB received allegedly unconstitutional funding.” The states asserted that the decision “threatens substantial harm” to the states because the states and their residents “could stand to lose the benefits of the CFPB’s critical enforcement, regulatory, and informational functions if the decision [] stands and is interpreted to impair the CFPB’s ongoing operations.” With respect to questions related to the Bureau’s funding structure, the states claimed that it is altogether speculative as to whether the Bureau would have behaved differently if its funding had come from the Treasury rather than the Federal Reserve. Former Director Kraninger’s ratification and reissuance of the Payday Lending Rule “is strong evidence that the CFPB would have issued the same regulation once again, after any constitutional defect was corrected,” the states said.
- Amicus brief opposing CFPB’s position. The 16 opposing states argued, however, that the Supreme Court should grant the Bureau’s petition to provide states with “certainty over their role” in regulating the financial system, and should affirm the 5th Circuit’s decision to “restore the CFPB’s accountability to the states.” In their brief, the states asked the Supreme Court “to resolve this issue quickly” and to “reinvigorate the protections of the Appropriations Clause, not weaken them.” The states maintained that if the Supreme Court does not quickly resolve the dispute, states “will have to litigate the same issue in other districts and circuits over and over,” and “[a]ny continuing confusion could seriously impede the growth of the consumer-financial services market at a time when the economy is already strained.” According to the brief, congressional oversight “ensures a level of state participation that ordinary administrative processes don’t allow.” In summary, the states’ position is that the 5th Circuit’s decision on the funding question is correct and that the court “was right to vacate a rule enacted without constitutional funding.”
10th Circuit: Vendor knowledge of consumer debt is not a public disclosure
On December 16, the U.S. Court of Appeals for the Tenth Circuit affirmed a lower court’s dismissal of an FDCPA suit. According to the opinion, the plaintiff, who had student loan debt, received a collection letter from the defendant that listed the assigned balance as $184,580.73 and the debt balance as $217,657.60 without explaining the difference or that the debt could increase due to interest, fees, and other charges. The defendant, who used an outside mailer to compose and send the letters, sent her two more letters without providing an explanation for the balances. The plaintiff sued, alleging the defendant violated the FDCPA by communicating information about the debt to a vendor that printed and mailed the letters. According to the plaintiff, communicating this information violated FDCPA provisions that prohibit debt collectors from communicating with, in connection with the collection of any debt, any person without the consumer’s consent or court permission. The plaintiff also claimed that the defendant violated the FDCPA by misrepresenting the amount of the debt because it did not indicate that the amount of the debt may increase.
On the appeal, the appellate court affirmed dismissal after it found that the plaintiff lacked standing since neither of the plaintiff’s claims caused a concrete injury. First, the appellate court found that one private entity knowing about the plaintiff’s debt is not a public disclosure of private facts, which does not rise to the level of sustaining a concrete injury needed to sue in federal court. Second, regarding the substance of the letters, the appellate court noted that the plaintiff simply claimed that the letters she received caused her to be confused and to believe the debt was not accruing interest. However, the appellate court found that “confusion and misunderstanding are insufficient to confer standing.”
NYDFS announces benchmark for mortgage lending institutions
On December 16, NYDFS issued industry guidance to all mortgage lending institutions in the state regarding a New York subprime law requirement and the discontinued publication of the primary mortgage market survey rate for 5/1 adjustable rate mortgage (ARM) loans. According to NYDFS, as required by state law, lending institutions must use the weekly Primary Mortgage Market Survey (PMMS), published by Freddie Mac, for loans that are comparable to the term of the underlying loan, to assess whether a home loan qualifies as “subprime” in New York. In November, Freddie Mac discontinued publication of its weekly PMMS average commitment rate for loans in the U.S. for the 5/1 ARM. NYDFS noted that Freddie Mac’s decision “disrupted the ability of lending institutions to determine whether a residential mortgage loan with a comparable duration to the 5/1 ARM is a subprime home loan.” NYDFS continued that the “inability to ensure compliance with the requirements of Section 6-m has made it impossible for lending institutions to offer this loan product in New York, limiting the availability of certain mortgage financing for consumers in New York.” To address availability of mortgage financing in New York, NYDFS announced the designation of the Average Prime Offer Rate for 5/1 ARMs, as published by the Federal Financial Institutions Examination Council, as the replacement benchmark lending institutions should use for calculating the subprime threshold for loans with a fixed rate for at least three years.
SEC awards whistleblower $37 million
On December 19, the SEC announced an award totaling nearly $37 million to a whistleblower whose new information and assistance led to a successful SEC enforcement and related action. According to the redacted order, the whistleblower was the initial source of the company’s internal investigation, as well as the source for investigations by the SEC and another agency. The order also noted that although the company reported the alleged conduct, the whistleblower received credit for initiating the investigations because the whistleblower provided the same information to the SEC within 120 days of providing it internally.
FCA fines UK bank £108 million over AML controls
On December 9, the Financial Conduct Authority (FCA) fined a UK bank more than £107.7 million for allegedly maintaining inadequate anti-money laundering (AML) controls at its business banking division. The bank’s AML controls and attempts to correct the problems were inadequate according to the FCA and “created a prolonged and severe risk of money laundering and financial crime.” The FCA further claimed that these alleged “serious and persistent gaps” prevented the bank from adequately overseeing more than 560,000 business customers between December 2012 and October 2017. According to the FCA, due to the alleged deficiencies, the bank was purportedly unable to verify information provided by customers about their business intentions and was unable to properly monitor the money that customers claimed would be going through their accounts compared with what was actually being deposited. The FCA’s investigation also identified several other mismanaged accounts that left the bank vulnerable to money laundering risk and found examples where the bank failed to promptly address “red flags” associated with suspicious activity. As a result, more than £298 million was routed through the bank before the accounts were closed.
The FCA noted, however, that the fine was reduced from nearly £154 million (a 30 percent discount) due to the bank not disputing the findings. The bank, which has fully cooperated with the FCA’s investigation, released a statement emphasizing that while it took action to address the AML issues once they were identified, it accepts that its “AML framework at the time should have been stronger.” The bank has since implemented significant changes to address these issues by overhauling its financial crime technology, systems, and processes.