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  • CFPB reports on veterans’ financial hurdles despite legislative wins

    Agency Rule-Making & Guidance

    On November 1, the CFPB published a broad summary of several findings regarding how financial institutions may not be doing all they can to help service members under federal legislation. For instance, in 2022, the CFPB found that service members were losing $10 million a year in savings in eligible auto and personal loans. Last month, the CFPB released a similar study on how credit card companies were also limited in giving all the benefits they could offer under the SCRA. Loans aside, military payroll allotments provide financial companies with a way to force automatic payments––something the CFPB acknowledges is “ripe for abuse.” The CFPB worked with the DOD to close loopholes that could exploit servicemembers. Additionally, military identity theft in 2023 is still an ongoing issue, as has been previously covered by InfoBytes here. But in October the CFPB found that Transunion had failed to provide crucial identity theft protection for thousands of individuals, including active-duty members of the military. There are also issues with supposed consulting services: “Earlier this year, the CFPB published a joint WARNO with the VA on unaccredited individuals and organizations and the CFPB is working closely with federal and state agencies to protect veterans’ benefits.”

    The CFPB notes it will “continue to work with all our partners as the financial marketplace evolves so we can understand the unique needs and challenges of members of the military community. If you have a problem with a financial product or service, submit a complaint to us, and we’ll work to get you a response.”

    Agency Rule-Making & Guidance Federal Issues CFPB Military Lending Loans

  • CFPB releases report on state community reinvestment acts

    Agency Rule-Making & Guidance

    On November 2, the CFPB issued a report on several states’ community reinvestment laws. The report focused on how much outstanding mortgage debt banks hold in the residential mortgage market: in 1977, “banks held 74 percent of outstanding mortgage debt. By 2007, this share had declined to just 28 percent.”

    In 1977, Congress passed the Community Reinvestment Act (CRA) to combat redlining practices that prevailed despite the passing of the Fair Housing Act of 1968 and the Home Mortgage Disclosure Act of 1975. While the federal CRA applies to banks only, many states created their community reinvestment laws to cover non-bank mortgage companies, including CT, IL, MA, NY, RI, WA, WV, and DC.

    Key findings from the CFPB's report are below:

    • Some states require mortgage companies to provide affirmative lending, service delivery, and investment services;
    • Some states conduct independent examinations, while other states review federal performance evaluations in conjunction with state factors;
    • Enforcement includes limitations on mergers, acquisitions, branching activities, and licensing;
    • Some states collect information beyond federal requirements for evaluation; and
    • Some state acts have been amended in response to market changes.

    The CFPB finds that states play an active role in promoting reinvestment by institutions, but further review is necessary to understand these developments.

    Agency Rule-Making & Guidance Federal Issues CFPB CRA Redlining Fair Access to Credit Act Banking

  • FHA updates guidance on sales comparison grid for manufactured homes

    Agency Rule-Making & Guidance

    On November 2, the FHA released a mortgage letter (ML) updating the sales comparison approach for manufactured homes. The update to the FHA’s rule affects how real estate appraisers will now appraise manufactured homes using the sales comparison approach (SCA) grid. The SCA is the mix of attributes in a home that determine its value (e.g., floor area, features, location, number of bathrooms, lot size, etc.). A manufactured home is a home unit constructed entirely off-site and then shipped on-site. According to the FHA’s ML, this letter “updates the exception in the Sales Comparison Approach for Manufactured Housing (II.D.5.k) section of the Single-Family Housing Policy Handbook 4000.1” by aligning the “FHA[’s] insurance guidelines with the requirements from Fannie Mae and Freddie Mac programs.”

    HUD Secretary Marcia L. Fudge spoke on this change, stating “[t]he critical step we're taking today ensures HUD is in alignment with our industry partners, and it will make more quality affordable housing available to people across the country.”

    Agency Rule-Making & Guidance Federal Issues HUD FHA Fannie Mae Freddie Mac

  • FSOC approves analytic framework for financial stability risks and guidance on nonbank financial company determinations

    Agency Rule-Making & Guidance

    On November 3, the Financial Stability Oversight Council (FSOC) announced that it unanimously voted to issue the final versions of a new analytic framework regarding financial stability risks, in addition to updated interpretive guidance on the council’s nonbank designation guidance. The analytic framework indicates vulnerable points that commonly contribute to financial stability risks, and it explains how FSOC may address the risks, including interagency coordination, recommendations to regulators, or the designation of certain entities. The nonbank designation guidance establishes how the council determines whether a given nonbank should be under the Fed’s supervision and prudential standards under Section 113 of Dodd-Frank. In April, FSOC released the proposed analytic framework and the proposed nonbank designation guidance (as covered by InfoBytes here) and opened a comment period on the proposals.

    FSOC adopted key changes in consideration of public comments on the proposed framework, including (i) clarifications to the interpretation of “threat to financial stability”; (ii) more examples of quantitative metrics considered in its analysis; (iii) expanded discussion of transmission channels; and (iv) additional emphasis on FSOC’s engagement with state and federal financial regulatory agencies regarding risk. Comments directed at the interpretive guidance were addressed, and some changes are reflected in the framework. Both CFPB Director Rohit Chopra and OCC Acting Comptroller Michael J. Hsu issued statements supporting the issuance of the interpretive guidance and the framework. Chopra commented that FSOC’s actions to evaluate whether any “shadow bank” meets the statutory threshold for enhanced oversight are essential in preventing potential threats to financial stability. Hsu also noted the significance of leveraging Dodd-Frank's tools for “monitoring and mitigating risks to U.S. financial stability.”

    The analytic framework will be effective upon publication in the Federal Register, and the nonbank designations guidance will be effective 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues Fintech FSOC Federal Reserve Supervision Nonbank

  • FHFA releases comprehensive report of entire FHLBank system

    On November 7, the FHFA released a report titled “FHLBank System at 100: Focusing on the Future,” providing a comprehensive overview of the Federal Home Loan Banks (FHLBank) system in its entirety. The FHLBank system is comprised of domestic and small, community-focused lenders that are connected to the global capital markets, engendering lenders to “better support housing and community development” through liquidity. The FHFA’s report acknowledged that the banking sector volatility in March 2023 led to a “significant advance demand” and it “provided a record volume of advances” to their members.

    Furthermore, the report details the background of the FHLBank System, such as its history, member type, and business functions. The features from the FHLBank system’s mission are to provide liquidity to members, as well as support housing and community developments. The chapter on stable and reliable sources of liquidity confirms that the FHLBank system is not the lender of last resort due to its funding structure of bonds and short-term notes. In addition, the Moving Forward chapter offers a list of goals for the FHLBank system to adopt. Interestingly, Appendix 5 of the report highlights an analysis of four crises from the banking failures from March to May 2023.

    Special Alerts Federal Issues FHFA FHLB Banking Mortgage Lenders

  • UK Government finalizes cryptoasset guidance with financial promotions

    Securities

    On November 2, the UK Financial Conduct Authority (FCA) finalized guidance informing individuals and firms regarding the communication and promotion of cryptoassets. The final guidance follows a consultation period that closed on August 10.

    In UK law, Section 21 of the Financial Services and Markets Act 2000 prohibits any person from, in the course of business, communicating a financial promotion – an invitation or inducement to engage in investment activity – unless such person is an authorized person, the content is approved by an authorized person, or another exemption applies.  The guidance describes the application of the financial promotion oversight regime to “qualifying cryptoassets” and expresses the expectation that all “cryptoasset financial promotions must be fair, clear and not misleading.”

    The guidance reiterates that it “does not create new obligations for firms but relates to firms existing regulatory obligations” and that persons and firms that act in accordance with the guidance will be considered “as having complied with the rule or requirement to which that guidance relates.”

     

    Securities UK Cryptocurrency Regulation Of Interest to Non-US Persons

  • SEC charges crypto company with fraud and anti-registration violations

    Securities

    On November 1, the SEC charged a crypto company and its executive team with fraud through the unregistered sale of crypto asset securities. According to the complaint, the defendants represented in marketing materials, website, social media posts, and other communications with the public that a certain percentage of funds for each transaction would be retained and inaccessible by any party for a period of four years as a safety mechanism against asset misappropriation. Instead, the complaint alleges, the defendants accessed the funds and misappropriated tens of millions of dollars for various purposes, including manipulation of the market for the crypto asset, business expenses, investments in unrelated companies, and personal use. The complaint charges defendants with violating the registration and anti-fraud provisions of the Securities Act of 1933 and the anti-fraud provisions of the Securities Exchange Act of 1934.

    Securities Federal Issues Venture Capital Risk Management Digital Assets

  • NY AG report reveals racial disparities in homeownership and offers proposed solutions

    State Issues

    On October 31, New York AG Letitia James released a report detailing racial disparities in homeownership and access to home financing in New York. The report states that Black and Latino New Yorkers are “underrepresented” among mortgage applicants, and white households are overall more likely to own homes than Black, Latino, or Asian households. The report also found that regardless of credit score, income, size of the loan and other factors, all applicants of color are denied mortgages at a higher rate than white applicants. In addition, the report found that disparities between white borrowers and borrowers of color persist in the context of refinance transactions and are also present in loans made by “[n]ew private-sector, non-depository lenders.”

    The report identified policy solutions that could reduce these disparities, including (i) subsidizing down payments and interest rates for first-generation homebuyers; (ii) increasing state funding for nonprofit financial institutions that support underserved communities of color; (iii) passing the New York Public Banking Act, which would create a regulatory framework for the establishment of public banks, thereby expanding access to affordable financial services in underserved areas; (iv) bolstering resources for government agencies to conduct fair lending investigations and enhancing New York’s Human Rights Law to explicitly prohibit discriminatory lending practices; and (v) exploring options for offering state-provided banking services in accessible locations to increase access to traditional banking services.

    State Issues New York State Attorney General Fair Lending Consumer Finance Lending FHA Refinance Racial Bias

  • OCC releases commercial lending bulletin on venture loans

    On November 1, the OCC issued a bulletin on “commercial loans to early-, expansion-, and late-stage companies,” which it referred to as “venture loans.” The OCC explained that although “venture lending supports new business formation and can improve access to capital for growth companies… new business ventures have a high probability of failure.” Accordingly, the bulletin, which “applies to all OCC-regulated banks, including community banks, that engage in or are considering engaging in venture lending,” provides guidance on the agency’s expectations for risk management and risk-rating of venture loans. 

    The bulletin expressly exempts “[f]ully monitored and controlled asset-based loans (ABL) to early-, expansion-, and late-stage companies,” from the guidance.  In addition, the OCC does not categorize the following types of credit as venture loans:

    • Loans to businesses that primarily rely on internal cash flow, rather than equity investments, for their growth;
    • Loans made under government-backed lending support programs where federal, state, or local guarantees sufficiently reduce credit risk (e.g., SBA guarantees); and
    • Loans made under special purpose credit programs (SPCP).

    Bank Regulatory OCC Commercial Lending Venture Capital Risk Management

  • Agencies revise TCPA examination procedures

    Agency Rule-Making & Guidance

    On November 2, the OCC published revisions to the interagency examination procedures for the Telephone Consumer Protection Act (TCPA), which are utilized by the FDIC, NCUA, and the OCC.  The OCC also announced that it is rescinding the “‘Telephone Consumer Protection Act and Junk Fax Protection Act’ section of the ‘Other Consumer Protection Laws and Regulations’ booklet of the Comptroller’s Handbook” and explained that OCC examiners will rely on the new interagency procedures. 

    The revisions were made to reflect amendments to the TCPA that became effective on October 25, 2021.  “The revised interagency examination procedures address:

    • provisions governing how customers can revoke consent under the TCPA;
    • special exemptions from the customer consent provisions of the TCPA for banks using automated communications to notify customers of potential account fraud; and
    • safe harbors for callers that check a reassigned number database maintained by the Federal Communications Commission.”

    The revised examination procedures booklet can be found here.

    Agency Rule-Making & Guidance OCC FDIC NCUA Comptroller's Handbook TCPA

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