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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.
FTC confirms two members as its board returns to full strength
On March 8, the FTC announced the confirmation of two new commissioners: Andrew N. Ferguson and Melissa Holyoak. Additionally, current Commissioner Rebecca Kelly Slaughter received a confirmation vote for a second term. Newcomers Ferguson and Holyoak were nominated by President Biden and will serve until September 25, 2025; Slaughter will serve until the same date in 2029. Ferguson had previously been working as solicitor general of Virginia, and before that he was chief counsel to U.S. Sen. Mitch McConnell of Kentucky and as Republican counsel on the U.S. Senate Judiciary Committee. Holyoak was most recently solicitor general with the Utah Attorney General’s Office. Before that, she served as president and general counsel of a D.C.-based public interest law firm.
Fed Chairman Powell testifies before House Financial Services Committee on Basel III “Endgame,” commercial real estate, and banking capital
On March 6, the House Financial Services Committee held its semi-annual hearing on the Federal Reserve’s Monetary Policy Report, and heard testimony from the Federal Reserve Chairman Jerome Powell a day after the Republican committee members sent a letter to the banking regulators urging withdrawal from the Basel III “Endgame” proposal. Powell discussed the Basel III Endgame proposal comments, the commercial real estate market, and capital requirements, among others.
On the Basel III “Endgame” proposal, Chairman McHenry (R-NC) asked if the Fed was listening to the comments received and what the status of the rulemaking is moving forward. Powell confirmed that the Fed has received substantive comments in mid-January and had put out the Quantitative Impact Study; the Fed is still analyzing the comments and will soon reach a point where the Fed can begin making decisions. Powell signaled to expect “broad and material changes to the proposal” while expressing confidence that the final proposal will receive support from the Fed and the public.
Congressman Barr (R-KY), who also questioned the Basel III “Endgame” proposal, asked whether a re-proposal that implemented Basel III in a “capital neutral way” could be achieved without jeopardizing financial stability; Powell responded with “hypothetically, yes.” Then, pointing to a report that found 97 percent of comment letters either opposed or expressed concerns about the proposal, Powell stated “it’s unlike anything I’ve seen.” On technical matters, Barr raised the concern that subjecting different size banks to a one-size-fits-all standard would concentrate the industry, increase risks, and decrease competition. Powell indicated he shared that concern.
Congressman Himes (D-CT) inquired about the commercial real estate market, specifically if the rapid decline in vacancy rates was a manageable risk. Powell indicated that the risks are manageable but stressed that “[t]here will be some losses by banks” and that the Fed is actively in touch with these banks, mostly small- and medium-sized banks with higher concentrations in this market. Congressman Lynch (D-MA) inquired about the 2023 banking issues and if they were caused in part by the “instantaneous” withdrawals of money from the banks as a proverbial bank run. Powell confirmed that the Fed is working on liquidity rules to change this.
Congressman Loudermilk (R-GA) inquired about the driving force behind the record-high levels of credit card debt. Powell believed that pure economic growth was the cause, and the number has just scaled up; alternatively, it was because of the stimulus spending from the pandemic. Loudermilk then posed a hypothetical: if there was a rule on restricting lending from banks, if that rule would drive businesses and consumers towards “alternative forms of credit”; Powell said it would, and that would present nonbank lenders with more business. Moreover, Congressman Loudermilk had Powell commit to at most an analysis of how capital proposals affect small business credit access and small-dollar lending before finalizing any proposals.
HUD Secretary Fudge resigns effective March 22
On March 11, Housing and Urban Development Secretary Marcia L. Fudge announced her resignation and will transition to life as a private citizen. Her statement highlighted her five decades of public service, including as a mayor, congressional staffer, congresswoman, and Secretary. According to Secretary Fudge, during her tenure, HUD has helped more than two million families avoid foreclosure; removed barriers for those with student loans buy a home with an FHA mortgage; and strengthened the number of Black and Hispanic borrowers based on the percentage of volume, among other accomplishments. According to the White House’s brief, Fudge provided HUD with the largest investment in affordable housing in U.S. history. Secretary Fudge’s resignation will go into effect on March 22, and Deputy Secretary Adrianne Todman will succeed her as Acting Secretary.
House Financial Services Committee holds a hearing to address the “moving target” of CFPB’s recent actions
On March 7, the House Committee on Financial Services held a hearing entitled, “Politicized Financial Regulation and its Impact on Consumer Credit and Community Development” to discuss recent actions and proposals, like mandated fee caps and government price fixing, by federal financial regulatory agencies. During the hearing, Congressman Barr (R-KY) criticized recent regulatory actions by federal authorities, particularly the Biden Administration and the CFPB, which he saw as politically-motivated interventions in the financial sector. He expressed concern over the implementation of fee caps and price controls, like the CFPB’s new rule on credit card late fees (covered by InfoBytes here), which he believed could impact consumer access to credit and competition. Barr argued that these regulations served political interests rather than protecting consumers, dismissing the concept of "junk fees" as undefined and hypocritical as the CFPB charges fees itself. Barr also discussed the need for clear standards in enforcement actions under UDAAP to provide certainty to financial institutions and foster a more inclusive market. He criticized other regulatory proposals, such as the Community Reinvestment Act final rule and the new certification process for the Community Development Financial Institutions Fund, for potentially overreaching into the operations of financial institutions.
Barr contended the timing of the CFPB's most recent rule announcement, which was close to President Biden's State of the Union address, alleged a political agenda rather than an independent regulatory action. A witness policy analyst also shared that using financial regulation for political gain can negatively impact consumer credit. The analyst addressed the CFPB’s recent actions against overdraft fees and cited a May 2023 CFPB report which noted that revenue from overdraft and insufficient fund fees in the fourth quarter of 2022 was $1.5 billion lower than in the fourth quarter of 2019 and that many banks have already adjusted their overdraft practices––making the Bureau’s proposals unwarranted. Witnesses also argued how smaller banks and credit unions do not boast the same revenue nor goals as some larger banks, and that regulations should not be a “one size fits all” model.
CFPB publishes notice and requests comments on “Consumer Complaint Survey”
On March 6, the CFPB published a notice and request for comment in the Federal Register, proposing two new surveys to investigate the factors influencing whether consumers file complaints regarding financial products and services.
The initial pilot survey will target credit card users, comparing those who have lodged complaints with the CFPB to those who have not, to help identify the reasons behind their decision-making. This case-control study will aim to reveal key factors associated with the submission of regulatory complaints. Following the pilot, a second, broader survey will encompass a range of financial products, including mortgages, vehicle loans, bank accounts, and debts owed to third-party debt collectors. The surveys will gather data on consumers’ use of the products, the issues faced, their perceptions of the product and provider, and demographic details.
The CFPB was seeking public comments on the necessity and utility of the information collection, the accuracy of its burden estimates, methods for enhancing the quality of the information, and ways to reduce the burden on respondents. Comments must be received by May 6.
State of the Union Address: President Biden addresses the banking industry
On March 7, President Biden delivered his 2024 State of the Union Address, where he highlighted how his administration is actively working to reduce costs for consumers by addressing issues such as corporate price gouging and alleged “junk fees.” According to a related White House Fact Sheet, the Biden Administration was focusing on corporate practices that may contribute to high prices, urging companies to lower their prices in line with decreasing input costs and stabilize supply chains. Biden highlighted the CFPB’s proposed rule on overdraft fees and the final rule on credit card late fees as progress in reducing alleged “junk fees.”
Furthermore, the fact sheet highlighted the CFPB’s scrutiny of alleged practices by branded retailers and airline credit cards of devaluing points and miles and luring in consumers with misleading deferred interest products.
House Committee report finds broad financial surveillance by federal government using financial institutions data following January 6th events
On March 5, the Committee on the Judiciary and its Select Subcommittee on the Weaponization of the Federal Government released an interim staff report on how federal law enforcement agencies, in the wake of the events of January 6, 2021, at the U.S. Capitol, engaged in financial surveillance by encouraging financial institutions to provide data on private transactions of consumers without a nexus to criminal conduct. The report indicated the consumers particularly targeted were those who tend to hold “conservative viewpoints.” The report cited several whistleblower testimonies and provided email transcripts of the government agents’ requests. One institution allegedly acted “voluntarily and without legal process” and provided the FBI with a dataset of names of those who used that institution’s credit or debit card in the Washington, D.C. region between January 5 and January 7, 2021, but also included those who had ever used that institution’s debit or credit card to purchase a firearm. The report suggested that citizens who did nothing other than go “shopping or exerciz[e] their Second Amendment rights” were placed under a type of financial surveillance between their financial institution and the government, making specific mention of right-leaning individuals now at risk.
The report provided context with the Right to Financial Privacy Act of 1978, Section 314(a) of the USA Patriot Act, and the Bank Secrecy Act in mind. While these federal acts were created to protect citizens, the report alleged they “have failed to adequately protect American’s financial information.” The report was particularly critical of the federal government using “informal meetings and backchannel discussions” with financial institutions to devise the best methods for getting Americans’ private financial information, including using merchant category codes and politicized “search terms,” and the federal government disseminating “political materials” to such institutions that were allegedly “hostile” to conservative viewpoints and “treated lawful transactions as suspicious.”
FDIC releases March CRA evaluations for 56 banks, three rated as “Needs to Improve”
On March 4, the FDIC released a list of state nonmember banks evaluated for compliance with the Community Reinvestment Act (CRA) for March. The FDIC evaluated 56 banks with four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 56 evaluations reported by the FDIC, three banks hold the lowest given ratings as “Needs to Improve.” Most banks were rated “Satisfactory,” and seven banks were rated “Outstanding.” According to the FDIC’s release, a copy of a bank’s CRA evaluation is available directly from the bank, as required by law, or from the FDIC’s Public Information Center.
FTC updates the Telemarketing Sales Rule, proposes tech support rule
On March 7, the FTC announced updates to the Telemarketing Sales Rule (TSR) to extend fraud protections to businesses and modernize recordkeeping requirements in response to technological advancements. These updates were part of an ongoing review of the TSR, which governs telemarketing practices and includes the Do Not Call Registry (DNC) and issued rules against telemarketing robocalls.
The newly finalized rule broadened the scope of prohibited deceptive and abusive telemarketing practices to include business-to-business calls, which were previously exempt, except in specific cases. The rule also revised the TSR's recordkeeping requirements to reflect changes in technology and telemarketing methods, which included maintaining detailed call records and consent documentation, as well as compliance with the DNC Registry.
In addition to these updates, the FTC proposed a rule that would enhance its ability to tackle tech support scams by extending the TSR's coverage to include inbound telemarketing calls for technical support services. This amendment addressed deceptive tech support schemes and would empower the FTC to seek stronger legal remedies such as civil penalties and consumer compensation. The Commission invited public feedback on a proposed definition of tech support scams.