InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Credit reporting agency FCRA suit may go forward
On March 9, the U.S. District Court for the Eastern District of Pennsylvania denied the motion to dismiss and motion to strike a claim of a credit reporting agency (CRA) and its subsidiary (defendants) in a putative class action that alleged the defendants: (i) knowingly used inaccurate eviction information in their tenant screening reports, and (ii) inaccurately represented that they obtained eviction information from public sources, each in violation of the FCRA. Specifically, the plaintiff alleged that the CRA failed to disclose that the eviction information was maintained and sold through the subsidiary, and when the plaintiff requested her credit report from the CRA, the CRA omitted information maintained by the subsidiary and therefore the credit report did not contain “all information in the consumer’s file at the time of the request” as required by the FCRA. She argued that the FCRA prohibits the CRA defendant from skirting the requirement of full and accurate disclosure of consumer information by assigning that duty to a third party—in this case, the subsidiary defendant.
According to its memorandum, the court rejected the CRA’s argument that it could not be held liable for faulty reports issued by its subsidiary. The court answered the question of whether plaintiff “sufficiently alleged that defendant evaded its obligation to make full and accurate disclosure of plaintiff's consumer file. . .through the use of corporate organization, reorganization, structure or restructuring,” concluding that she did so. The court dismissed the defendants’ motion to strike without prejudice, indicating the defendants can raise their argument again in an opposition to class certification.
FDIC and OCC expand comment period for CRA proposal
On February 19, the FDIC and the OCC jointly released a statement extending the public comment period for the proposed Community Reinvestment Act regulations by 30 days. As previously covered by a Buckley Special Alert, the two agencies initially released the notice of proposed rulemaking—which the agencies assert will provide clarity on what activities are eligible for CRA consideration—on December 12. The new comment deadline is April 8.
Powell discusses CRA, LIBOR at House hearing
On February 11, Federal Reserve Chairman Jerome Powell provided testimony to the House Financial Services Committee during a hearing titled “Monetary Policy and the State of the Economy,” discussing regulatory issues concerning, among other things, proposed rulemaking related to the Community Reinvestment Act (CRA) and the transition away from reliance on LIBOR as an interest rate benchmark in financial products. During the hearing, Powell fielded a number of questions concerning the Fed’s plan to update CRA regulations. Reaffirming his support for Fed Governor Lael Brainard’s disapproval of how quickly the FDIC and OCC issued their notice of proposed rulemaking (covered by a Buckley Special Alert), Powell stated that he is “very comfortable with. . .the thinking” Brainard recently outlined in a speech describing alternative approaches to the CRA modernization process (covered by InfoBytes here). Powell emphasized, however, that the ideas in Brainard’s speech do not yet represent a formal framework, stating “[w]e want to be very, very sure. . .that what comes out of this is a proposal. . .from us that will leave all major participants in CRA better off. And so we think it’s important that each metric, each change that we make is grounded in data.”
Powell also discussed the upcoming transition from LIBOR to the Secured Overnight Financing Rate (SOFR), stating that federal regulators are working to ensure financial institutions are prepared for LIBOR’s possible cessation. When asked whether Congress should “simply give the Fed the right to prescribe backup rates when the debt instruments do not do so,” or explicitly adopt SOFR, Powell responded that he did not believe a federal law change is necessary at this time. Powell further responded that the Fed will inform Congress if a change in federal law is needed, emphasizing that the Fed’s “process is ongoing” and that it is “committed to having the banks ready by the end of next year to switch. . .away from LIBOR in case [the rate] is no longer published.” Powell noted that while SOFR will be the main substitute for LIBOR, the Fed is “working with regional [banks] and some of the larger banks, too, about the idea of also having a credit sensitive rate.”
NYDFS encourages financial institutions to assist Puerto Rico
On February 5, the New York governor announced measures to assist with disaster relief for hurricane and earthquake-ravaged Puerto Rico. In an Industry Letter, NYDFS informed state-regulated financial institutions that they may receive Community Reinvestment Act (CRA) credit for “community development activities that revitalize or stabilize designated disaster areas” in Puerto Rico. The letter included the Federal Reserve Bank of New York’s Investment Connection program as one way for New York financial institutions to earn CRA credit. The announcement also mentioned the Guidance to New York State Regulated Banks and Credit Unions Regarding the Earthquakes in Puerto Rico issued on the same day by NYDFS. The guidance urged financial institutions with customers based in Puerto Rico to “consider all reasonable and prudent steps to assist such customers affected by the recent earthquakes in Puerto Rico.” Some of the specific suggestions included (i) waiving ATM fees, overdraft fees, and late payment fees; (ii) increasing ATM daily withdrawal limits and credit card limits; and (iii) working with customers to defer payments or extend payment due dates on loans. The NYDFS guidance also encouraged state-regulated financial institutions to assist in collecting charitable donations and in notifying their customers how they can donate to help Puerto Rico to recover.
Otting defends OCC’s CRA proposal
On January 29, OCC Comptroller Joseph Otting testified at a hearing held by the House Financial Services Committee to discuss the OCC’s Community Reinvestment Act (CRA) modernization proposal. (See Buckley Special Alert covering the joint notice of proposed rulemaking issued last December by the OCC and FDIC.) Committee Chairwoman Maxine Waters (D-CA) expressed concerns with the NPR, arguing that the proposal “runs contrary to the purpose of the CRA and would lead to widespread bank disinvestment from low- and moderate-communities throughout the country.” Waters cited additional concerns with the NPR, including what she believes are efforts by the OCC “to deregulate megabanks” and “greenlight rent-a-bank schemes that allow lenders to skirt state usury caps.”
In his written testimony, Otting reiterated that the NPR is intended to strengthen and modernize CRA regulations and that the proposal does not permit redlining. “Nothing in this proposal changes the agencies’ authority to enforce fair lending laws to prevent discrimination and redlining. The regulations implementing the Fair Housing Act and the Equal Credit Opportunity Act prohibit discrimination and redlining,” Otting stressed in his oral statement. “These regulations are not changed in any way by this proposal.” (Emphasis in the original.) Otting also defended several of the proposed amendments that would, among other things, (i) remove uncertainty that discourages investments; (ii) focus on a bank’s sustained commitment to meeting a community’s credit needs and rewarding long-term investment; and (iii) accommodate banks of different sizes and business models by allowing small banks with less than $500 million in total assets to choose between the existing and the proposed revised framework for their evaluations. During the hearing, Otting also refuted the perception that the NPR employs the use of a single metric to determine a bank’s CRA rating, stating “there is no one ratio in this proposal. . .the average regional bank will have 502 measurement points so every community would be measured by units and dollars and at the top of the house it would be dollars.”
When Congressman Brad Sherman (D-CA) asked about the OCC’s recent request for bank-specific data to inform the NPR (previously covered by InfoBytes here) questioning why the agencies “want to adopt a rule on such a quick timetable when [they] still don’t have the information,” Otting responded that the additional information requested from the banks is meant to help validate the OCC’s analysis and conclusions. However, when the discussion turned to whether Congress could access the data and analysis used to create the NPR, Otting stated that he would be happy to discuss the data and analysis in person but that the information should not be publicly distributed. Waters stated Congress would subpoena the information if necessary. Otting also confirmed that the 60-day comment period of the NPR (which closes March 9) would not be extended, and that the goal would be to finalize the rule within 60 to 70 days after the comment period ends. With respect to the Federal Reserve’s decision not to join in the notice of proposed rulemaking, Otting said, “We have thousands of rules, regulations and guidance that differ amongst the agencies. So no…I do not see it as an impediment at all.” As previously covered by InfoBytes, earlier this month Federal Reserve Governor Lael Brainard discussed the Fed’s approach to the CRA modernization process and explained why the Fed chose not to join in the NPR.
OCC seeks bank-specific data to inform CRA modernization
On January 10, the OCC issued a request for public input (RFI) to aid the OCC and the FDIC in determining how their joint notice of proposed rulemaking might be revised to ensure the final rule achieves the purpose of the Community Reinvestment Act (CRA). A previously covered by a Buckley Special Alert, the NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting. The RFI “seeks bank-specific data and information to supplement currently-available data and to inform potential revisions to modernize and strengthen the CRA regulatory framework,” and specifically requests four types of bank data covering the past three years: (i) retail domestic deposit activities; (ii) total qualifying activity data; (iii) data on qualifying retail loans originated and sold within 90 days; and (iv) other retail loan data by census tract. Comments on the RFI are due March 10.
Federal Reserve governor proposes alternative approach to CRA modernization
On January 8, Federal Reserve Governor Lael Brainard discussed the Fed’s approach to the Community Reinvestment Act (CRA) modernization process, explaining why the agency chose not to join the notice of proposed rulemaking (NPR) issued in December by the OCC and the FDIC. As previously covered by a Buckley Special Alert, the NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting. The NPR was published in the Federal Register on January 9, with comments due March 9.
According to Brainard, “it is more important to get the reforms done right than to do them quickly.” This includes, Brainard emphasized, “giving external stakeholders sufficient time and analysis to provide meaningful feedback on a range of options for modernizing the regulations.” Specifically, the Fed’s proposed approach for measuring banks’ CRA compliance uses “a set of tailored thresholds that are calibrated for local conditions” through the creation of two tests: (i) a retail test, applicable to all retail banks, that “would assess a bank’s record of providing retail loans and retail banking services in its assessment areas”; and (ii) a community development test, applicable to large banks, wholesale banks, and limited-purpose banks, “that would evaluate a bank’s record of providing community development loans, qualified investments, and services.” Banks would then be provided a dashboard related to its retail lending activity, as well as metrics concerning its community development performance.
Brainard also commented that separating evaluations into two different tests is important because “an approach that combines all activity together runs the risk of encouraging some institutions to meet expectations primarily through a few large community development loans or investments rather than meeting local needs.” She explained that having separate tests would ensure that performance metrics are tailored for banks of different sizes and business models, and would “provide greater scope to calibrate the evaluation metrics to the opportunities available in the market, which can differ for retail lending and community development financing.” Further, Brainard stated that using metrics based on a bank’s retail output on the number of loans rather than the dollar volume would help to measure how well a bank is serving the needs of both low- to moderate-income communities and “avoid inadvertent biases in favor of fewer, higher-dollar value loans.”
Agencies release annual CRA asset-size threshold adjustments
On December 31, the Federal Reserve Board, the OCC, and the FDIC announced the joint annual adjustments to CRA asset-size thresholds used to define small and intermediate small banks and small and intermediate small savings associations. A “small” bank or savings association is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.305 billion in assets. An “intermediate small” bank or savings association is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $326 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.305 billion in assets. This joint final rule became effective on January 1.
Agencies release 2018 CRA data
On December 16, the three federal banking agency members of the Federal Financial Institutions Examination Council (FFIEC) with Community Reinvestment Act (CRA) responsibility—the Federal Reserve Board, the FDIC, and the OCC—announced the release of the 2018 small business, small farm, and community development CRA data. The analysis contains information from 700 lenders about originations and purchases of small loans (loans with original amounts of $1 million or less) in 2018, a 2.2 percent decrease from the 718 lenders that reported data in 2017. According to the analysis, the total number of originated loans increased by approximately 8 percent from 2017, with the dollar amount of originations increasing by roughly 5 percent; however, the analysis notes that the majority of this growth is attributable to one bank’s increase in originations. The analysis further notes that 615 banks reported community development lending activity totaling nearly $103 billion in 2018, an increase from $96 billion in 2017.
Special Alert: OCC and FDIC issue CRA modernization proposal
On December 12, the OCC and the FDIC jointly issued a notice of proposed rulemaking (NPR) to modernize the regulatory framework implementing the Community Reinvestment Act. The NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting.
* * *
Click here to read the full special alert.
If you have any questions regarding the CRA or other related issues, please visit our Fair Lending practice page or contact a Buckley attorney with whom you have worked in the past.