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  • SEC extends deadline for FINRA SLATE rule decision

    Securities

    On June 10, the SEC extended the review period for a proposed rule change by FINRA. The proposed FINRA Rule 6500 Series, concerning the Securities Lending and Transparency Engine (SLATE), would require the reporting of securities loans and provide dissemination of related information for the public. Initially published for public comment on May 7, the rule's decision deadline has now been moved to August 5 to allow the SEC adequate time to consider feedback and deliberate on the rule’s changes.

    Securities Agency Rule-Making & Guidance Securities Exchange Commission Federal Issues FINRA

  • CFPB bans medical debt in credit reporting decisions

    Federal Issues

    On June 11, the CFPB released a proposed rule to ban obtaining or using medical information for credit eligibility determinations. Specifically, the proposed rule would amend the FCRA to remove the medical financial information exception and limit credit reporting of medical debt.

    In 2003, Congress amended the FCRA to restrict creditors’ use of medical information for purposes of making credit eligibility determinations, and it authorized the banking agencies to issue exemptions from the restriction through rulemaking. In 2005, the banking agencies issued a regulatory exception to permit creditors to obtain and use consumers’ medical financial information when making credit eligibility determinations if certain conditions were met. The CFPB’s proposed rule would roll back the 2005 exception, in addition to other changes. First, the proposed rule would remove the financial information exception that permits creditors to obtain and use medical and financial information (including regarding medical debt) in connection with credit eligibility decisions (with certain limited exceptions). Second, the proposed rule would limit consumer reporting agencies’ ability to furnish medical debt information to creditors.

    CFPB Director Rohit Chopra noted in prepared remarks that the proposed rule would eliminate the “loophole” that allowed lenders to access and use medical debt information, which he argued would align regulations with congressional intent. A fact sheet from the White House, published on behalf of Vice President Kamala Harris and Director Chopra, stated that this action builds on prior efforts by the Biden-Harris administration to reduce the burden of medical debt.

    As previously covered by InfoBytes, the Bureau announced this initiative in September 2023. The CFPB signaled its interest in proposing this rule when it threw its support behind Connecticut SB 395, which bans the inclusion of medical debt in consumer reports (covered by InfoBytes here). The proposed rule would go into effect 60 days following publication in the Federal Register.

    Federal Issues CFPB Medical Debt Credit Reporting FCRA

  • Fed seeks to renew TILA, Regulation Z information collection

    On June 4, the Fed published a request for comment on a proposal to extend the “Recordkeeping and Disclosure Requirements Associated with CFPB’s Regulation Z” for three years without revision. According to the notice, the Fed’s request would support the CFPB’s Regulation Z by ensuring consumers receive detailed information about credit terms and costs, particularly in the context of residential real estate transactions, to promote informed credit use. As part of this request, the Fed will invite public comments to address the efficacy of the information collection requirements and seek ways to enhance the quality of collected information, among other things. Comments must be received by August 6. 

    Bank Regulatory Federal Issues Federal Reserve CFPB TILA Regulation Z

  • GAO urges Fed to address outstanding recommendations

    Agency Rule-Making & Guidance

    On June 3, GAO released a letter addressed to Fed Chair, Jerome Powell, to provide an update on the Fed's implementation of past GAO recommendations. As of May, GAO noted 13 open recommendations under the Fed. The Fed recently implemented two of the GAO’s four 2023 priority recommendations: one on stress test capital ratio estimates, and the other pertaining to risk tolerance articulation. GAO did not add any new priority recommendations for the Fed, but instead emphasized the importance of addressing the remaining two items: one related to blockchain technology and the other on financial technology.

    Regarding the blockchain recommendation, GAO urged the Fed to work with other regulators to create a formal mechanism for identifying risks associated with this technology. GAO observed that the Fed had stated in April that it would participate in the Digital Asset Working Group to work with other agencies to address blockchain risks, but GAO recommended that the working group must include a “planning process for identifying and addressing” blockchain risks. Regarding the fintech partnerships recommendation, and in coordination with other federal financial regulators, GAO recommended clear communication on the appropriate use of alternative data in the underwriting process since fintech lenders “may analyze large amounts of alternative data on borrower characteristics … when determining borrowers’ creditworthiness.”

    GAO’s letter also emphasized the importance of Congressional oversight to implement recommendations, suggesting strategies such as legislative incorporation and oversight hearings.

    Agency Rule-Making & Guidance Federal Issues Federal Reserve Congress Blockchain Fintech

  • FHFA enhances Fannie and Freddie flex modification policies

    Federal Issues

    Recently, the FHFA announced that Fannie Mae and Freddie Mac will update their Flex Modification policies to help struggling borrowers reduce their mortgage payments. Flex Modification would be for eligible borrowers experiencing a permanent hardship and cannot make regular monthly mortgage payments. According to the FHFA, the enhanced policies will aim to decrease a borrower’s monthly payments by up to 20 percent through three incremental steps: (i) interest rate reduction; (ii) extending the loan term; and (iii) principal forbearance for those with loan-to-value ratios above 50 percent. These updates were built on the Servicing Alignment Initiative started in 2011 and have been aimed at better resolving mortgage payment delinquencies. The new Flex Modification policies will take effect on December 1.

    Federal Issues Agency Rule-Making & Guidance FHFA Freddie Mac Fannie Mae Mortgages

  • CFPB proposes final rule for registering nonbanks for supervision

    Agency Rule-Making & Guidance

    On June 3, the CFPB issued a final rule to require the registration and reporting of nonbank financial institutions that have been subject to public orders resulting from regulatory actions.  The Bureau’s stated goal in establishing the registry was to assist the public and enforcement agencies in identifying repeat offenders. The registry will compile and maintain all public orders issued by an agency or court, involving certain nonbank entities that were issued at least in part by an action or proceeding by any federal, state or local agency. The final rule mandated those nonbank covered entities—excluding depository institutions and credit unions—must register with the Bureau when they are subject to a public order. Under the CFPA, Section 1022(b)(1) authorized the Bureau to create rules “as may be necessary or appropriate to enable the Bureau to… carry out the purposes and objectives of the Federal consumer financial laws.” Section 1024(b) authorized the Bureau to exercise supervisory authority over certain nonbank entities. The final rule will also require nonbank entities to submit an annual written statement confirming compliance with each public order.

    This rule will apply to all covered entities, specifically nonbanks, which have entered into an order with an effective date on or later than January 1, 2017, and which remain in effect following the effective date of the final rule. Every nonbank that was named in an order and was covered under the rule must register, submitting all information required including the executed order. However, nonbanks that were subject to an order published on the NMLS’s Consumer Access website (other than an order in which the CFPB was involved) can elect for a simplified option.

    This action will be the latest step in the Bureau’s efforts to expand its nonbank supervision program. As previously covered by InfoBytes, the CFPB released a supervisory designation over a nonbank company in March since that company’s conduct posed an alleged risk to consumers (here), and in April the Bureau released its procedural rule to change how it will supervise nonbanks (here). In a prepared statement, the Director of the CFPB, Rohit Chopra, expressed that the final rule was designed to aid the CFPB and other law enforcement agencies to “monitor and track repeat offenders in order to better hold them accountable” regardless of companies reoffending. The director emphasized that court or enforcement orders are not a “tipsheet or set of suggestions.” This rule will go into effect on September 16. 

    Agency Rule-Making & Guidance Federal Issues CFPB Supervision Nonbank Nonbank Supervision

  • CFPB finalizes standards setting body component of open banking rule

    Agency Rule-Making & Guidance

    On June 5, the CFPB announced it finalized in part its proposed Personal Financial Data Rights rule, thus establishing the minimum qualifications necessary for the Bureau to become a recognized industry standard setting body when the full rule becomes final. Last October, the CFPB proposed the Personal Financial Data Rights rule to implement Section 1033 of the CFPA (covered by InfoBytes here) which was intended to offer consumers more control over their financial data and more consumer protections for misused data.

    After considering relevant public comments, the CFPB made several changes to the sections concerning standard setters and the standards they issue. Commenters asked for clarity regarding changes in standards, such as when a consensus standard ceases to have consensus status, and how it could potentially cause market uncertainty. In response, the Bureau replaced the term “qualified industry standard” with “consensus standard” and added a newly defined “recognized standard setter” term. The final rule defined “consensus standard” to clarify when a given standard will be a consensus standard, and also added that a “consensus standard” must be one that will be adopted and maintained by a recognized standard setter. In response to concerns about market uncertainty, the CFPB responded that they expect revocation of recognition for a standard setter to be a rare occurrence.

    Regarding periodic review, the final rule extended the maximum duration of the CFPB’s recognition of a standard-setting body from the proposed duration of three years to five years. The Bureau expects this change will incentivize standard-setting bodies to obtain recognition. The final rule included “data recipients” as an interested party in response to commenter concern that certain fintech sectors may be excluded. Additionally, meeting the criteria in the final rule is just the starting point for approval, as the CFPB may also assess whether the standard-setting body will be committed to developing and upholding open banking standards.

    The final rule also included a guide that detailed how standard setters can apply for CFPB recognition, how the Bureau will evaluate applications, and what standard setters can expect once recognized. The final rule will go into effect 30 days after publication in the Federal Register. 

    Agency Rule-Making & Guidance Federal Issues Privacy CFPB Open Banking Consumer Protection

  • CFPB releases semi-annual report on mid-year 2023

    Federal Issues

    On June 4, the CFPB released its semi-annual report to Congress, for the period beginning April 1, 2023, and ending September 30, 2023. The report highlighted rules and orders, complaints, supervisory and enforcement actions, and fair lending initiatives from the Bureau. The Bureau provided an overview of three final rules: a final rule on its authority over nonbanks in determining their risk, a final rule on small business lending under the ECOA, and an interim final rule in helping transition the LIBOR changes to reflect the LIBOR Act. Additionally, the report included a compilation of reports, guidance and spotlights on different consumer finance issues. Looking ahead, the Bureau noted its upcoming rules following September 2023 with four proposed rules. One on personal financial data rights, another on defining the participants for digital consumer payment applications, another on overdraft lending, one on fees for instantaneously declined transactions, and a final rule on credit card penalty fees.

    During the period from October 2022 to September 2023, the Bureau received 1.55 million consumer complaints. Of these, around 1.2 million complaints were sent to the relevant companies for review. When broken out by category, 79 percent of all consumer complaints were related to credit or other consumer reporting, with 7 percent on debt collection, 4 percent on credit cards, 4 percent on checking or savings, and 2 percent on mortgages; the remaining 4 percent was spread among a variety of consumer finance products.

    During the semi-annual reporting period, the CFPB executed a total of 55 public supervisory and enforcement actions. On state consumer financial law, the Bureau noted its ongoing complaint against an education firm accused of engaging in deceptive marketing and unfair debt collection practices with ten state attorneys general (as covered by InfoBytes here). Additionally, there were three lawsuits submitted along with the New York State Attorney General. Finally, for fair lending, the Bureau discussed its enforcement and rulemaking, with the issuance of a proposed rule on quality for Automated Valuation Models for real estate collateral securing mortgage loans. 

    Federal Issues CFPB Fair Lending Enforcement Rulemaking Agenda

  • President Biden vetoes SEC crypto-asset rule nullification resolution

    Federal Issues

    On May 31, President Biden vetoed H.J.Res. 109 subsequently returning the bill to Congress. This resolution, as previously covered by InfoBytes, was passed by the U.S. House of Representatives on May 8 to nullify an SEC Staff Accounting Bulletin 121 (SAB 121). The guidance, which has been in effect since April 11, 2022, described how the SEC staff expected entities to account for and disclose their custodial obligations to “safeguard crypto-assets held for their platform users.” In his veto message to the House, President Biden stated that the resolution would “inappropriately constrain” the SEC’s ability to “set forth appropriate guardrails and address future issues.” The resolution will now be sent back to the House of Representatives and would require an override vote of two-thirds of the House.

    Federal Issues Securities Securities Exchange Commission Cryptocurrency Rulemaking Agenda Congressional Review Act Veto

  • FDIC publishes its 2024 Risk Review

    On May 22, the FDIC published its 2024 Risk Review which summarized emerging risks in the U.S. banking system in 2023 across five broad categories: credit risk, market risk, operational and cyber risks, climate-related financial risk, and crypto-asset risk. The risk review paid particular attention to risks that may affect community banks. Among other issues to be aware of, the report noted banks continue to be targeted by ransomware threat actors. These cyber threats require banks to continuously improve cybersecurity and other internal controls to effectively combat cyber threats and mitigate the risk of a significant service disruption. The FDIC also reported that economic conditions were strong, and despite a period of stress in early 2023, the banking industry demonstrated resilience. By the end of the year, “overall asset quality metrics were favorable, and liquidity stabilized.” The report also noted that credit risk differed across loan categories, with commercial real estate and consumer loans seeing more asset quality decline. While the commercial real estate sector stayed strong overall, office and retail mall markets struggled. The FDIC remarked that the ability to refinance commercial real estate loans remained a challenge to the industry due to high interest rates, softening property values, and emerging credit weakness.

    Bank Regulatory Federal Issues FDIC Risk Management

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