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Financial Services Law Insights and Observations


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  • Regulators address concerns at Senate Banking Committee hearing, receive written concerns regarding Basel III

    Federal Issues

    On November 14, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing where regulators, Fed Vice Chair for Supervision Michael Barr, FDIC Chair Martin Gruenberg, NCUA Chair Todd Harper, and acting Comptroller of Currency Michael Hsu, testified regarding the Basel III Endgame proposal. Gruenberg’s prepared remarks noted that Basel III reforms are a “continuation of the federal banking agencies’ efforts to revise the regulatory capital framework for our nation’s largest financial institutions, which were found to be undercapitalized and over-leveraged during the Global Financial Crisis of 2008.” The proposal would raise capital requirements for large banks (covered by InfoBytes here).

    Concerning Basel III, Senator Tester (D-MO) mentioned he has “some concerns about the proposed changes and how its impact will be on workers’ and households’ and small businesses’ access to credit and overall vibrancy of our capital markets.” “These rules don’t affect any banks in Montana, but they do affect the big guys that affect Montana,” he noted.

    Among other testimonies, Senator Warner (D-VA) expressed concerns regarding the timeline of the comment period and potential changes to the proposal. Specifically, Sen. Warner mentioned that comments may not be received until after the rule is close to finalization. Fed Vice Chair Barr noted that the regulators have yet to evaluate comments on the proposal, as most are expected to come through mid-January, and that depending on the substance of some comments, they are open to making appropriate changes to the proposal. Acting Comptroller of the Currency Hsu’s written testimony echoed Barr’s remarks, stating “[w]e will consider all comments, including alternative approaches.”

    Moreover, on November 12, a group of Republican lawmakers of the committee also sent a letter to the OCC, FDIC, and the Fed. In the letter, the senators argued that the proposal would restrict billions of dollars in capital, resulting in costlier and more limited access to credit for millions of consumers, impacting affordable housing, mortgage lending, small business lending, and consumer access to credit cards and home equity lines. The proposal was also criticized for its potential to disadvantage U.S. companies globally and harm middle-market private entities and small businesses. Moreover, the letter suggested that the proposal could negatively impact pension funds, increase fees for risk hedging, and decrease returns for retirees.

    Also on November 12, several banking industry groups sent a letter to the Fed, FDIC, and the OCC requesting them to issue a revised proposal. The letter alleges violations of the Administrative Procedures Act because the data used to inform the interagency proposal is not publicly available. The groups also argued that the proposed rule repeatedly utilizes non-public analyses based on the agencies’ “supervisory experience” to support different aspects of the rule. Regarding sensitive data, the groups say, “Nothing prevents the agencies from releasing such data and analyses in a manner that is anonymized or aggregated to the extent necessary to protect bank or other party confidentiality.” The senators also believe the proposal would impose “significant harm” throughout the economy “particularly in the face of current economic headwinds and tightening credit conditions.”

    Federal Issues OCC FDIC Federal Reserve Bank Supervision Capital Requirements Consumer Finance CRA Administrative Procedures Act

  • Fed Governor Michelle Bowman gives speech discussing banking regulatory reforms and concerns

    On November 9, Federal Reserve Governor Michelle W. Bowman delivered a speech on the economy and prioritization of bank supervision and regulation. Governor Bowman highlighted recent developments in banking regulatory framework reform. Governor Bowman began by highlighting the proposed reforms to capital requirements for banks with more than $100 billion in assets. She mentioned the central concern raised is the potential inadequacy of the quantitative and analytical foundations of these reforms. Governor Bowman questioned whether Basel III reforms effectively address regulatory deficiencies and emphasized the need for a thorough understanding of both the benefits and costs of implementing such changes. Governor Bowman discussed the actions taken by the agencies, including an extended comment period and efforts to gather more information on the proposal's potential impact. Several areas are identified as necessary to address, such as redundancy in the capital framework, calibration of the Market Risk Capital Rule, the inefficiency of two standardized capital stacks, and the punitive treatment of fee income. Governor Bowman also highlighted the missed opportunity to review leverage ratio requirements, which could have implications for market functioning in times of stress.

    Shifting the focus to the CRA, Governor Bowman acknowledged the importance of improving access to credit, especially in low- and moderate-income (LMI) communities. However, the Governor mentioned concerns raised about the new final rule implementing the CRA. She explained some criticism for it being unnecessarily complex, overly prescriptive, and disproportionately burdensome for banks, especially community banks. It applies the same regulatory expectations to small and large banks, failing to recognize the differences among banks in terms of size, risk, and business models, she added. Governor Bowman’s remarks underscore the need for a balanced, data-driven, and risk-focused approach to regulatory reforms. 

    Bank Regulatory CRA Basel Bank Supervision

  • 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

  • SEC’s SAB 121 should be subject to congressional review, says GAO


    On October 31, the GAO opined that the SEC’s Staff Accounting Bulletin 121 (SAB 121) is a rule, and thus the SEC was required to submit it for congressional review. SAB 121 describes how SEC staff would expect entities to account for and disclose their custodial obligations for engaging in crypto-asset services, noting that crypto companies may have to present such obligations as a liability on their balance sheets. The GAO found that SAB 121 provides interpretive guidance, but the SEC failed to submit a report as required under the Congressional Review Act (CRA) before a rule can take effect.

    The GAO’s opinion notes that the SEC maintains a different position than the GAO on the nature of SAB 121, arguing that SAB 121 is not a rule (and thus subject to CRA review), but instead is “guidance” indicating “how the Office of the Chief Accountant and the Division of Corporation Finance would recommend that the agency act,” and is not an agency statement from the full Commission. However, the GAO’s found that “[SAB 121] is a statement made by the SEC,” and that “a statement issued by a subset of the agency may still constitute an agency statement for CRA purposes.”

    Securities GAO CRA Congress

  • Judge dismisses FDCPA suit for communication with CRAs


    On October 26, a U.S. District Court for the Eastern District of New York granted a motion to dismiss an FDCPA suit holding that there is nothing in the FDCPA that prohibits debt collectors from reporting information about a debt to a credit reporting agency. The plaintiff filed a complaint in January 2023 alleging that the defendant violated the FDCPA by communicating with the plaintiff after the plaintiff requested that the debt collector stop all communications. The plaintiff further alleged that the defendant violated the FDCPA by reporting this debt to the major credit reporting agencies, which subsequently led to the plaintiff being denied credit. While the judge ruled that the plaintiff had standing to sue because of the denial of credit, the judge also ruled that the statute “expressly permits communications with ‘a consumer reporting agency if otherwise permitted by law,’” and that the plaintiff did not allege that negligence was the proximate cause of damages.

    Courts FDCPA CRA New York Debt Collection Consumer Finance

  • Agencies issue final rule to modernize Community Reinvestment Act regulations

    Agency Rule-Making & Guidance

    On October 24, the Fed, FDIC, and OCC issued an interagency announcement regarding the modernization of their rules under the Community Reinvestment Act (CRA), a law enacted in 1977 to encourage banks to help meet the credit needs of their communities, especially low- and moderate-income (LMI) neighborhoods, in a safe and sound manner. The new rule overhauls the existing regulatory scheme that was first implemented in the mid-1990s.

    For banks with assets of at least $2 billion (Large Banks), the final rule adds a new category of assessment area to the existing facility based assessment area (FBAA). Large Banks that do more than 20 percent of their CRA-related lending outside their FBAAs will have that lending evaluated in retail lending assessment areas, i.e., MSAs or states where it originated at least 150 closed-end home mortgage loans or 400 small business loans in both of the previous two years. All Large Banks will be subject to two new lending and two new community development tests, with lending and community development activities each counting for half a bank’s overall CRA rating. Banks with assets between $600 million and $2 billion will be subject to a new lending test. Large Banks with assets greater than $10 billion will also have special reporting requirements.

    Additionally, the rule (i) implements a standardized scoring system for performance ratings; (ii) revises community development definitions and creates a list of community development activities eligible for CRA consideration, regardless of location; (iii) permits regulators to evaluate “impact and responsiveness factors” of community development activities; (iii) continues to make strategic plans available as an alternative option for evaluation; (iv) revises the definition of limited purpose bank so that it includes both existing limited purpose and wholesale banks and subjects those banks to a new community development financing test; and (v) considers online banking in the bank’s evaluations.

    Most of the rule’s requirements will be effective January 1, 2026. The remaining requirements, including the data reporting requirements, will apply on January 1, 2027.

    Agency Rule-Making & Guidance Federal Issues OCC Federal Reserve CRA Supervision Capital Requirements Consumer Finance Redlining

  • 3rd Circuit Limits furnishers’ labeling authority


    On October 2, the U.S. Court of Appeals for the Third Circuit ruled that a collection agency who was acting as a furnisher of credit reporting information could not shirk its duty to investigate a dispute by labeling the dispute “frivolous” when the complaint was referred for investigation by a credit reporting agency (CRA).  The decision overturned the lower court’s ruling which had sided with the furnisher.

    According the ruling, the plaintiff in this action claimed that a fraudulent account had been opened in his name with a television service provider. Plaintiff was described as having first disputed the account directly with the television service provider, but failed to provide supporting documents which the television service provider had requested.  Following the plaintiff’s failure to provide the requested documentation, the television service provider referred the disputed account to the collection agency, who in turn reported the delinquent account to the CRA.

    The ruling states that when the disputed account appeared on the plaintiff’s consumer report, the plaintiff made an indirect dispute of the information with the CRA, who in turn forwarded the dispute to the collection agency for investigation. The ruling notes that the collection agency undertook no further investigation in response to the dispute, and instead merely confirmed the account information and updated the plaintiff’s address, which the court noted took only 13 seconds.

    The court noted that although the FCRA does allow for the recipient of disputes “to preliminarily vet the dispute for frivolousness or irrelevance before investigating,” once a CRA has referred a dispute to a furnisher, “the furnisher does not have such discretion.” Because in this case the collection agency had been referred to it by a CRA, it “had a duty to investigate [plaintiff’s] indirect dispute when it received notice thereof from [the CRA].”

    Courts Third Circuit Appeals Debt Collection CRA Credit Furnishing

  • NY proposes amendments of debt collector rules

    State Issues

    On September 30, the New York City Department of Consumer and Worker Protection (Department) published proposed amendments to its rules relating to debt collectors. The proposed amendments to its 2020 rules, which require debt collectors to inform consumers about language access services, come in response to the CFPB’s 2020 updates to the FDCPA, and the Department’s 2022 public hearing, among other things. The proposed rule (i) repeals a section requiring debt collection agencies to give consumers certain disclosures when collecting on time-barred debt; (ii) requires debt collection agencies to maintain an annual report identifying certain actions taken by the agency in any language; (iii) expands the list of required records to cover compliance with relevant laws and rules, as well as a monthly log of all debt collection-related communications by any medium between the agency and the consumer; and (iv) adds definitions relating to communications with consumers, such as “attempted communication,” “clear and conspicuous,” “covered medical entity,” “limited-content message,” “original creditor” and “originating creditor.”

    State Issues Agency Rule-Making & Guidance New York Consumer Finance Consumer Protection Debt Collection CRA

  • Agencies extend favorable CRA consideration for certain areas affected by Hurricane Maria

    On September 20, the Federal Reserve, FDIC, and OCC announced they are providing a 36-month extension to give favorable consideration under the CRA for bank activities that help revitalize or stabilize areas in Puerto Rico and the U.S. Virgin Islands impacted by Hurricane Maria. This extension is the second extension following the original period provided in January 2018 and the first extension granted in May 2021.

    The agencies determined that the FEMA’s designation of parts of Puerto Rico and the U.S. Virgin Islands as “active disaster areas” demonstrates ongoing community need to the area. The extension allows the agencies to give favorable consideration to a financial institution’s activities in the qualifying areas that satisfy the definition of “community development” under the CRA, including loans and investments, through September 20, 2026. The activities will be treated consistently with the agencies’ original Interagency Statement in January 2018.

    Bank Regulatory Federal Issues OCC FDIC Federal Reserve CRA Disaster Relief

  • FDIC's chairman addresses CRA rulemaking, unbanked households, and nonbank payment services

    Federal Issues

    On September 20, FDIC Chairman Martin J. Gruenberg delivered prepared remarks at the Exchequer Club, discussing the risks posed by nonbank financial institutions (nonbanks) to the U.S. financial system. He noted that nonbanks hold a significant share of the financial sector, with assets totaling around $20.5 trillion in 2021, emphasizing their importance alongside traditional banks. Gruenberg highlighted the financial stability concerns associated with nonbanks, especially their limited regulation and supervision compared to traditional banks. He further mentioned the interconnectedness between nonbanks and banks, and the potential for nonbanks to transmit risk during market shocks, which underscores the need for attention to these issues. Specifically, Gruenberg stated that the “information about the risks undertaken by a variety of nonbanks is severely lacking”, and transparency about these issues will ensure a safer financial system. Gruenberg also pointed out that nonbanks are becoming increasingly active in mortgage finance, business lending, and consumer financial services. He discussed some risks associated with hedge funds and leveraged investment vehicles generally, such as their reliance on short-term funding, and their potential to disrupt the stability of financial markets. Gruenberg concluded by advocating for a comprehensive strategy to address the financial stability risks posed by nonbanks, emphasizing the importance of transparency, oversight, and prudential requirements for nonbank financial institutions.

    Federal Issues FDIC CRA Nonbank FSOC Consumer Finance


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