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On March 15, five federal agencies—the FDIC, FHFA, Federal Reserve Board, OCC, and Farm Credit Administration (collectively, the “Agencies”)—adopted an interim final rule amending the agencies’ regulations that require swap dealers and security-based swap dealers under the Agencies’ respective jurisdictions to exchange margin with their counterparties for swaps that are not centrally cleared (Swap Margins Rule). The interim final rule seeks to address the situation where the United Kingdom withdraws from the European Union without a negotiated agreement and entities located in the U.K. transfer existing swap portfolios that face counterparties located in the E.U. over to affiliates located in the U.S. or the E.U. Specifically, the interim final rule provides that certain swaps under this situation will not lose their “legacy” status—will not trigger the application of the Swap Margin Rule—if carried out in accordance with the conditions of the rule. The interim final rule is effective immediately and the Agencies are accepting comments for 30 days after publication in the Federal Register.
On March 8, the CFPB and two payday loan trade groups filed a joint status report with the U.S. District Court for the Western District of Texas in the litigation over the Bureau’s final rule on payday loans, vehicle title loans, and certain other installment loans (Rule). As previously covered by InfoBytes, the two payday loan trade groups initiated the suit against the Bureau in April 2018, asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedures Act. In June 2018 and November 2018, the court stayed the litigation and the compliance date of the Rule, after the Bureau’s announcement that it intended to issue a proposed rulemaking to reconsider parts of the Rule. In February 2019, the Bureau issued a proposal, which seeks to rescind certain provisions of the Rule related to the ability-to-repay underwriting standards and delay the compliance date of those affected provisions until August 2020. The proposal does not reconsider the payment-related provisions of the Rule, leaving the compliance date for those provisions at August 19, 2019. (Covered by InfoBytes here.)
In the joint status report, both parties agree that the court’s stay of compliance date and stay of litigation should remain with regard to the underwriting provisions until the Bureau concludes the rulemaking process. As for the payment-related provisions, the payday loan trade groups request the court maintain both the litigation stay and compliance stay of payment provisions until the Bureau completes the underwriting rulemaking process, because the Bureau acknowledged in the proposals that it intends to examine issues related to the payment provisions and “and if the Bureau determines that further action is warranted, the Bureau will commence a separate rulemaking initiative,” which may ultimately moot the litigation. Moreover, the trade groups believe lifting the stays would lead to “piecemeal and potentially wasteful litigation.”
The Bureau also does not seek a lift to the stay of the litigation or compliance date for the payment-related provisions, but for separate reasons. The Bureau argues that the stay of the litigation should be “more limited,” at least until the 5th Circuit issues a decision on the Bureau’s constitutionality in a pending action (covered by InfoBytes here). As for the compliance date stay for the payment-related provisions, the Bureau believes it is not an issue the court needs to decide at this time, but acknowledges that should it request the court lift the stay in the future, the trade groups and the Bureau would have an opportunity to address whether lifting the stay should be delayed to “allow companies to come into compliance with the payments provisions.”
On March 7, the OCC released Bulletin 2019-12, which identifies the key HMDA data fields for full and partial reporters. Specifically, the Bulletin highlights the 37 key data fields for banks required to report all of the data set forth in the CFPB’s October 2015 and August 2017 HMDA amendments, as well as, the 21 key data fields required for banks that qualify for the partial HMDA exemption pursuant to the May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act. According to the Bulletin, OCC examiners will focus on the identified key data fields during transaction testing pursuant to HMDA for data collected on or after January 1, 2018. The Bulletin rescinds OCC Bulletin 2017-41, “Home Mortgage Disclosure Act: Interagency Key Fields.”
As previously covered by InfoBytes, in December 2018, the Federal Reserve Board, the FDIC, and the OCC issued joint guidance regarding the same key data fields that Federal Reserve examiners would use to evaluate the accuracy of HMDA data collected since January 1, 2018.
On March 6, the Federal Financial Institutions Examinations Council (FFIEC) announced it adopted a Policy Statement on the Report of Examination, which documents the findings and conclusions of an examination conducted by a FFIEC member agency. The Policy Statement is a principles-based approach for completing the report of examination (ROE) in order to promote consistency among the FFIEC members while allowing flexibility for individual supervisors to document exam assessments of financial institutions of different sizes, risk profiles, and other conditions. The policy provides a short outline that instructs all ROEs to, among other things: (i) include identifying information; (ii) convey that the ROEs contain confidential supervisory information; (iii) present conclusions and issues in order of importance; and (iv) document the institution’s risk profile and discuss the institution’s risk management practices. The new policy statement rescinds an interagency policy statement from 1993.
On March 6, the Federal Reserve Board (Fed) announced plans to limit the use of the “qualitative objection” in its Comprehensive Capital Analysis and Review (CCAR) exercise. Effective for the 2019 cycle, large U.S. bank holding companies and U.S. intermediate holding companies of foreign banking organizations that participate in four CCAR exercises and successfully pass the qualitative evaluation in the fourth year will no longer be subject to the evaluation under the final rule, which measures firms’ ability on a forward-looking basis to determine capital needs. Firms that fail to pass in the fourth year, the Fed noted, will continue to be subject to a possible qualitative objection until they pass. Moreover, all firms’ capital planning processes will still be evaluated, and firms will be required to pass the quantitative evaluation, which evaluates their ability to maintain minimum levels of capital under hypothetical stress scenarios. Furthermore, the Fed stated that it plans to no longer issue qualitative objections to any firms effective January 1, 2021, with the exception of firms who receive a qualitative objection the preceding year. Along with the final rule, the Fed released instructions for this year’s CCAR exercise, confirming that five of the 18 firms subject to this year’s CCAR exercises will possibly be subject to a qualitative objection.
On March 4, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) on Property Assessed Clean Energy (PACE) financing, which often takes the form of loans to facilitate residential solar energy and other home improvement projects. The ANPR was issued in response to Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate the CFPB propose regulations related to PACE financing. Specifically, the regulations are required to carry out the purposes of TILA’s ability-to-repay requirements and apply TILA’s general civil liability provisions for violations, accounting for the “unique nature” of the transaction. In addition to seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA, the ANPR also requests commenters (i) provide samples of any written materials used in PACE financing transactions; (ii) describe the current standards and practices in PACE financing origination, including application information obtained and underwriting standards used; and (iii) identify parties in a PACE financing transaction to whom civil liabilities may apply, including information related to any rescission rights and loss mitigation programs available upon borrower default. Comments must be submitted within 60 days after publication in the Federal Register.
On February 26, the Federal Reserve Board (Fed) issued clarifying guidance on the new rating system for the supervision of large financial institutions (LFIs). According to SR 19-3, the new LFI rating system replaces the current bank holding company (BHC) rating system and will evaluate and communicate the supervisory condition of: BHCs with total consolidated assets of $100 billion or more; all non-insurance, non-commercial savings and loan holding companies (SLHC) with total consolidated assets of $100 billion or greater; and the U.S. operations of foreign banking organizations with combined U.S. assets of $50 billion or more. The new rating system supports the Board’s supervisory program for all LFIs, including firms posing the greatest risk to U.S. financial stability. The Fed will assign initial LFI ratings to firms supervised by the Large Institution Supervision Coordinating Committee starting early 2019, and all other firms subject to the LFI rating system will be assigned initial ratings in early 2020. SR 19-4, issued the same day, provides guidance on which rating systems apply to BHCs and SLHCs with assets of less than $100 billion, following the adoption of the new LFI rating system.
On February 27, the CFPB released new technical specifications for prepaid account issuers to use when submitting account agreements pursuant to the prepaid account rule. Issuers can now register to use the new electronic submission system “Collect” before the April 1, 2019 effective date of the Bureau’s prepaid rule. (See previous InfoBytes coverage on the prepaid rule here.) The Bureau reminded issuers that all prepaid account agreements offered as of April 1, 2019, must be submitted to the CFPB by May 1, 2019. After May 1, issuers are required to make rolling submissions to the Bureau within 30 days whenever a new agreement is offered, amendments are made to a previously submitted agreement, or a previously submitted agreement is withdrawn. Along with the technical specifications, the Bureau also released several compliance resources, including a user guide, quick reference guide, FAQs and a recorded webinar.
On February 22, the FDIC issued FIL-9-2019, which announces revisions to interagency examination procedures for evaluating compliance with the CFPB’s Prepaid Accounts Rule. The Rule was originally finalized in October 2016 and expands coverage under Regulation E to provide consumers, among other things, additional federal protections on prepaid financial products, person-to-person payment products, and other electronic accounts with the ability to store funds. (Covered by InfoBytes here.) In January 2018, the CFPB finalized updates to the Rule and delayed the effective date until April 1, 2019. (Covered by InfoBytes here.) The FIL contains a link to the interagency procedures listed in the FDIC Compliance Examination Manual and confirms that after April 1 the examination staff will begin supervising institutions for compliance with the rule.
On February 20, the CFPB released the Small Entity Compliance Guide covering the payment-related requirements of the Payday, Vehicle Title, and High-Cost Installment Lending Rule, which, among other things, prohibits payday and certain other lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals. (Detailed coverage on the Rule’s payment provisions available here.)
Notwithstanding the Bureau’s recently issued proposed rulemakings (covered by InfoBytes here), which, if finalized, would rescind certain provisions of the Rule related to underwriting standards and seek to delay the Rule’s compliance date for the underwriting provisions until August 2020, the payment-provisions will take effect August 19, 2019.
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program