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Financial Services Law Insights and Observations

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  • Illinois enacts 36 percent rate cap for consumer loans, creates state community reinvestment act

    State Issues

    On March 23, the Illinois Governor signed the Predatory Loan Prevention Act, SB 1792, which prohibits lenders from charging more than 36 percent APR on all non-commercial consumer loans under $40,000, including closed-end and open-end credit, retail installment sales contracts, and motor vehicle retail installment sales contracts. For purposes of calculating the APR, the act requires lenders to use the system for calculating a military annual percentage rate under the Military Lending Act. Any loan with an APR exceeding 36 percent will be considered null and void “and no person or entity shall have any right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.” Additionally, a violation constitutes a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and carries a potential fine up to $10,000. The act also contains an anti-evasion provision that prohibits persons or entities from “making loans disguised as a personal property sale and leaseback transaction; disguising loan proceeds as a cash rebate for the pretextual installment sale of goods or services; or making, offering, assisting, or arranging a debtor to obtain a loan with a greater rate or interest, consideration, or charge than is permitted by this Act through any method including mail, telephone, internet, or any electronic means regardless of whether the person or entity has a physical location in the State.”

    The same day, the governor also signed SB 1608, which, among other things, creates a state version of the Community Reinvestment Act. The act will allow the state to assess whether covered financial institutions, including state-chartered banks, credit unions and non-bank mortgage lenders, are meeting the needs of local communities, including low-income and moderate-income neighborhoods. Financial institutions’ lending practices and community development/redevelopment program investments will be examined by the Secretary of Financial and Professional Regulation, who is granted the authority to conduct examinations in compliance with other state and federal fair lending laws including, but not limited to, the Illinois Human Rights Act, ECOA, and HMDA.

    Both acts are effective immediately.

    State Issues State Legislation Interest Rate CRA Predatory Lending Consumer Finance

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  • FDIC announces Louisiana disaster relief

    Federal Issues

    On March 15, the FDIC issued FIL-18-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Louisiana affected by winter storms. The FDIC acknowledged the unusual circumstances faced by institutions affected by the winter storms and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery,” and that the FDIC will consider institutional relief from certain filing and publishing requirements.

    Federal Issues FDIC Disaster Relief Mortgages CRA

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  • FDIC updates Consumer Compliance Examination Manual

    Agency Rule-Making & Guidance

    On March 2, the FDIC announced updates to its Consumer Compliance Examination Manual (CEM). The CEM includes supervisory policies and examination procedures for FDIC examination staff evaluating financial institutions’ compliance with federal consumer protection laws and regulations. The recent updates include, among other things, changes to the sections and questions related to (i) fair lending laws and regulations and the Fair Lending Scope and Conclusions Memorandum; (ii) TILA and the Consumer Leasing Act; and (iii) the asset-based definitions for small, intermediate, and large institutions for the Community Reinvestment Act.

    Agency Rule-Making & Guidance FDIC Compliance Examination Fair Lending TILA Consumer Leasing Act CRA

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  • FDIC announces Oklahoma winter storm relief

    Federal Issues

    On March 3, the FDIC issued FIL-13-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Oklahoma affected by severe winter storms. The guidance notes that the FDIC will consider the unusual circumstances faced by institutions affected by the winter storms. The guidance highlights suggest that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC notes that institutions “may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider relief from certain reporting and publishing requirements.

    Federal Issues FDIC Disaster Relief CRA

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  • Agencies update CRA Covid-19 FAQs

    Federal Issues

    On March 8, the OCC, Federal Reserve Board, and the FDIC released updated Community Reinvestment Act (CRA) FAQs related to Covid-19. The FAQs, first issued last May (covered by InfoBytes here), provide guidance for financial institutions and examiners regarding CRA consideration for activities taken in response to the pandemic. Highlights of the five new FAQs include:

    • Banks cannot receive CRA service test consideration for Paycheck Protection Program (PPP)-related activities; however, the agencies recognize that because the PPP loan program responds to community credit needs, PPP activities will be considered under the CRA lending test when evaluating flexible or innovative lending programs offered by a bank.
    • Banks should not report PPP loans that have been rescinded or returned under the SBA’s safe harbor on their CRA loan register. Moreover, examiners will not consider these loans in their CRA evaluations of banks during the applicable time period.
    • PPP loans over $1 million in low- or moderate-income geographies or in distressed or underserved nonmetropolitan middle-income geographies “will be considered an eligible community development activity.”
    • As noted in a joint statement released by the agencies last year (covered by InfoBytes here), favorable CRA consideration will be given to banks providing retail banking services and retail lending activities that respond to the needs of affected low- and moderate-income (LMI) individuals, small businesses, and small farms consistent with safe and sound banking practices. These activities may include waiving ATM fees, overdraft fees, and early withdrawal penalties on certificates of deposit (CDs), or allowing LMI consumers to make draws from a HELOC during the repayment period. The agencies note that allowing LMI consumers “to make a withdrawal from an IRA as allowed under the CARES Act, or to draw on a HELOC during the draw period are routine banking services and, as such, are not eligible for CRA consideration.”
    • The agencies will consider community development services provided virtually by bank representatives on an individual level based on the event and the benefitted assessment area.

    Federal Issues Covid-19 CRA OCC Federal Reserve FDIC SBA CARES Act

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  • NYDFS says climate-based activities may qualify for state CRA credit

    State Issues

    On February 9, NYDFS issued new guidance stating that financing activities that support the climate resiliency of low- and moderate-income (LMI) and underserved communities may receive credit under the New York Community Reinvestment Act (the “New York CRA”). The industry letter notes that LMI and underserved communities are “disproportionally affect[ed]” by climate change because they “tend to be more susceptible to flooding and heat waves” and have “fewer resources to recover from natural disasters.” NYDFS reminds institutions that one way banking institutions subject to the New York CRA are evaluated is the extent to which their activity revitalizes or stabilizes both LMI geographies and underserved geographies, and that financing climate resiliency actions “may help mitigate climate change risks and at the same time revitalize or stabilize those geographic areas.” Accordingly, NYDFS outlines a non-exhaustive list of specific examples that may qualify for credit under the New York CRA, including (i) “renewable energy, energy-efficiency and water conservation equipment or projects for affordable housing…”; (ii) “microgrid or battery storage projects in LMI areas with high flood and/or wind risk…”; and (iii) “installation of air conditioning in multifamily buildings offering affordable housing….” Moreover, NYDFS states that banking institutions may also receive credit for climate resiliency promoting investments or loans to Community Development Financial institutions, among others.

    State Issues NYDFS CRA State Regulators

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  • NYDFS details redlining issues from nonbank lenders

    State Issues

    On February 4, NYDFS released a report on redlining in the Buffalo metropolitan area, concluding that there is a “distinct lack of lending by mortgage lenders, particularly non-depository lenders” to majority-minority populations and to minority homebuyers in general. Among other things, the report concluded that (i) while minorities in the Buffalo region comprise about 20 percent of the population, they receive less than 10 percent of total loans made in the region; (ii) nonbank lenders lent at a lower rate in majority-minority neighborhoods than depository institutions did; and (iii) several of the nonbank mortgage lenders did not have adequate fair lending compliance programs and do not make an effort to serve majority-minority neighborhoods. The report made numerous recommendations, including a recommendation to amend the New York Community Reinvestment Act (CRA) to cover nonbank mortgage lenders and a request that the OCC and the CFPB investigate federally regulated institutions serving the Buffalo area for violations of fair lending laws.

    Additionally, NYDFS announced a settlement with a nonbank lender in connection with its lending to minorities and in majority-minority neighborhoods in Buffalo and Syracuse, New York. The settlement agreement found no evidence of intentional discrimination or fair lending law violations but rather weaknesses in the lender’s compliance program. The agreement outlines efforts the lender will take to “provide more meaningful access to residential loans and financing for minorities and individuals living in majority-minority neighborhoods” in Western and Central New York. Among other things, the lender will (i) develop a compliance management plan; (ii) increase marketing to majority-minority census tracts; (iii) create a $150,000 special financing program to increase loan originations for residents of majority-minority neighborhoods; and (iv) increase annual training.

    State Issues NYDFS Mortgages Settlement Enforcement CRA Fair Lending

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  • Court denies dismissal of OCC CRA rule challenge

    Courts

    On January 29, the U.S. District Court for the Northern District of California denied dismissal of an action brought against the OCC by two community coalitions, requesting the court block the agency’s final rule to revise the regulatory framework implementing the Community Reinvestment Act (CRA). As previously covered by InfoBytes, in June 2020, the groups filed a complaint alleging that, among other things, the OCC failed to provide for meaningful public input on key revisions to the agency’s final rule, and that the May 20 rule (covered by a Buckley Special Alert) failed to consider the impact of the Covid-19 pandemic and is in violation of the Administrative Procedures Act. The OCC moved to dismiss the action, arguing that the community groups lack standing, or in the alternative, that they do not fall within the CRA’s “zone of interests.” The district court disagreed. Specifically, the court concluded that the community groups adequately alleged standing because the members of their organizations “compete for OCC-regulated banks’ CRA dollars,” and their members “will now have to compete with investment opportunities that could not previously receive CRA credit.” Moreover, among other things, the court concluded that the community groups satisfy the “the zone-of-interests test, because they receive grants and loans for which banks obtain CRA credit, making them direct beneficiaries of the statute.”

    Courts Federal Issues OCC CRA Administrative Procedures Act

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  • OCC releases CRA determinations, distressed and underserved areas

    Federal Issues

    On January 29, the OCC published Bulletin 2021-5, containing lists of bank type determinations and distressed and underserved areas for 2021, and its computation of the banking industry’s median hourly compensation value. The information is applicable to national banks, federal and state savings associations, and federal branches of foreign banks subject to the agency’s 2020 final rule to modernize the regulatory framework implementing the Community Reinvestment Act rule (CRA). As previously covered by a Buckley Special Alert, the 2020 final rule, among other things (i) updated deposit-based assessment areas; (ii) mandated the inclusion of consumer loans in CRA evaluations; and (iii) included a non-exhaustive illustrative list of activities that qualify for CRA consideration. The 2021 list of bank type determinations identifies banks based on asset size or business model. According to the OCC, a bank’s type will “generally determine[] the performance standards and related examination procedures used to evaluate that bank’s CRA performance.” The agency’s list of distressed or underserved areas identifies tracts where banks participating in qualifying activities may receive CRA consideration under the final rule’s community development definition. Finally, the OCC states that the banking industry median hourly compensation value applicable to qualifying community development service activities will be $39.03. This figure, the agency explains, will be “used to quantify the value of a bank’s community development services” performed from October 1, 2020 through December 31, 2021.

    Federal Issues OCC CRA Of Interest to Non-US Persons

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  • OCC addresses qualifying activities for CRA final rule

    Agency Rule-Making & Guidance

    On January 4, the OCC issued interpretive letter #1177, which addresses qualifying activities of the affiliates and subsidiaries of national banks and savings associations under the OCC’s 2020 final rule to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). As previously covered by a Buckley Special Alert here, the 2020 final rule, among other things (i) updated deposit-based assessment areas; (ii) mandated the inclusion of consumer loans in CRA evaluations; and (iii) included a non-exhaustive illustrative list of activities that qualify for CRA consideration. The interpretive letter states that qualifying activities under the 2020 final rule may include the CRA qualifying activities of the consolidated subsidiaries of a bank, but that a bank’s qualifying activities generally do not include the activities of the bank’s nonbank affiliates. The OCC notes that the “very factors demonstrating the tight link between a bank and its consolidated subsidiary…suggest that activities conducted by a bank’s parent and sister companies should generally not receive CRA credit.” Thus, banks will not be given credit for qualifying activities conducted by such affiliates unless the bank “directly financed or otherwise supported such activities.”

    Agency Rule-Making & Guidance OCC CRA

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