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OCC Updates Policies and Procedures to Clarify Impact of CRA Ratings on Licensing Applications
On November 8, the OCC issued Bulletin 2017-51, updating guidance related to its approach when evaluating certain licensing applications from OCC-supervised banks that have “less than satisfactory” Community Reinvestment Act (CRA) ratings, either overall or in one or more particular geographic region. The revised Policies and Procedures Manual (PPM 6300-2) provides clarity on the OCC’s scrutiny of a bank’s CRA performance when an application is submitted to participate in a covered transaction such as (i) establishing or relocating a branch or main or home office; (ii) participating in a Bank Merger Act filing; (iii) converting from a state to a federal charter; and (iv) converting between federal charters. The revisions also allow applicants to document for the OCC how participating in such a transaction would “help the bank to achieve its CRA objectives” and “meet the credit needs of the community it serves, consistent with its safe and sound operation.”
Acting Comptroller Discusses Efforts to Promote Lending and Investment in Distressed Communities
On November 2, Acting Comptroller of the Currency Keith A. Noreika addressed the National Association of Affordable Home Lenders to emphasize the OCC’s efforts to support depository institution lending and investment in distressed communities. In his speech, Noreika discussed the guidance issued by the OCC in August (previously covered by InfoBytes), which covers owner-occupied residential mortgage originations with loan-to-value (LTV) ratios greater than 100 percent. The guidance is intended to aid in the revitalization of certain areas around the country and provide a framework for the OCC’s monitoring of these programs for safe and sound lending practices. Noreika concluded that since August “the guidance and the programs being established…are beginning to make differences in the communities that need reinvestment the most” and encouraged their continued use by reminding the conference that these programs can also provide banks credit under the Community Reinvestment Act (CRA).
OCC Policy Outlines CRA Evaluation Process and Impact of Discriminatory Practices
On October 12, the OCC issued OCC Bulletin 2017-40 announcing the release of its Policies and Procedures Manual 5000-43 (PPM 5000-43), which outlines the OCC’s policy and framework for how the agency determines Community Reinvestment Act (CRA) ratings when there’s evidence of discriminatory or other illegal credit practices directly related to a supervised financial institution’s CRA lending activities. First, PPM 5000-43 requires a “logical nexus” between the assigned ratings and the evidence of discriminatory or other illegal practices to ensure that the CRA evaluation “does not penalize a bank for compliance deficiencies or illegal credit practices unrelated to its CRA lending activities.” Second, the OCC examiners will give “full consideration” to any remedial actions the institution has already taken to address such discriminatory or other illegal credit practices to ensure that the CRA rating “does not penalize a bank for compliance deficiencies or illegal credit practices that have been, or are substantially being, addressed by the bank.”
FDIC Releases October List of CRA Compliance Examinations
On October 5, the FDIC published its monthly list of state nonmember banks recently evaluated for CRA compliance. The list reports CRA evaluation ratings assigned to institutions in July 2017 as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Of the 59 banks evaluated, six were rated “Outstanding,” 52 received a “Satisfactory” rating, and one was rated “Needs to Improve.” Monthly lists of all state nonmember banks and their evaluations that have been made publicly available may be accessed through the FDIC’s website.
Federal Agencies Offer Regulatory Relief for Hurricane Victims
Federal agencies continue to announce regulatory relief for financial institutions aiding consumers affected by recent hurricane disasters. InfoBytes coverage on previous disaster relief measures can be accessed here, here, and here.
Freddie Mac. On September 25, Freddie Mac issued Bulletin 2017-21 (Bulletin) to extend certain temporary selling and servicing requirements meant to provide flexibility and relief for mortgages and borrowers in areas impacted by all hurricanes occurring on or after August 25 through the 2017 hurricane season. In particular, Freddie Mac will reimburse sellers for property inspections completed prior to the sale or securitization of mortgages secured by properties in disaster areas caused by a 2017 hurricane. Freddie Mac is also requiring servicers to suspend foreclosure sales and eviction activities on property located in eligible disaster areas affected by Hurricane Maria. However, the Bulletin provides that a servicer can proceed with a foreclosure sale if it can confirm that (i) inspection was completed on a mortgaged property “identified as vacant or abandoned prior to Hurricane Maria,” and (ii) the property sustained no “insurable damage.” The Bulletin also reminds servicers to report all mortgages affected by an eligible disaster that are 31 or more days delinquent to Freddie Mac.
Veterans Affairs (VA). On September 27, the VA issued Circular 26-17-28 to outline measures that it encourages mortgagees to utilize to provide relief to veterans affected by Hurricane Maria. Specific recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
FDIC. On September 27, the FDIC released a financial institution letter to provide additional guidance for depository institutions assisting affected consumers. As previously covered in Infobytes, the FDIC released guidance for Hurricane Harvey disaster relief, and issued a joint press release in conjunction with the Federal Reserve Board, Conference of State Bank Supervisors, and the OCC as a response to those affected by Hurricane Irma. The newest release, FIL-46-2017, announced regulatory relief for financial institutions affected by Hurricane Maria, and steps to facilitate recovery in affected areas, which include: (i) “extending repayment terms, restructuring existing loans, or easing terms for new loans,” and (i) “encourage[ing] depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.” Further, banks that support disaster recovery efforts, the FDIC noted, may receive favorable Community Reinvestment Act consideration.
SEC. On September 28, the SEC issued an order providing regulatory relief to companies and individuals with federal securities law obligations who have been affected by recent natural disasters. The order provides conditional exemptions to certain securities laws requirements for specified periods of time. The Commission additionally adopted “interim final temporary rules” applicable to Regulation Crowdfunding and Regulation A filing deadline extensions.
Financial Crimes Enforcement Network (FinCEN). On October 3, FinCEN issued a notice to financial institutions that file Bank Secrecy Act reports to encourage communication with FinCEN and their functional regulator regarding any expected filing delays caused by recent hurricanes.
Eleventh Circuit Enforces Binding Arbitration Agreement
On September 26, a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit held that a customer is bound to a mandatory arbitration clause in his deposit account agreement with a national bank. In doing so, the appellate court reversed the Florida district court’s decision, which denied the national bank’s motion to compel arbitration. In 2010, the customer filed a putative class action over the charging of overdraft fees associated with a bank account he held jointly with his wife. The case concerns an account agreement signed by the customer when he transferred an existing account into the joint account in 2001. The appellate court reasoned that the customer “was on notice that signing the 2001 signature card represented the start of a new contractual relationship” and therefore, subject to the updated arbitration clause.
The CFPB’s new arbitration rule, which went into effect September 18, does not allow companies subject to the rule to use arbitration clauses to stop consumers from being part of a class action. However, as previously discussed in InfoBytes, the House passed a disapproval resolution under the Congressional Review Act to repeal the rule. A similar measure is expected to be considered by the Senate within the next week.
Agencies Issue Proposed Rulemaking to Amend CRA Regulations to Conform With HMDA Regulation Changes
On September 13, the Federal Reserve Board, the FDIC, and the OCC (Agencies) issued a joint notice of proposed rulemaking to amend Community Reinvestment Act (CRA) regulations to conform to the CFPB’s changes to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The proposed amendments revise the definition of “home mortgage loan” and “consumer loan,” update the public file content requirements to comply with recent Regulation C changes, and make various technical corrections. In addition, the proposal will eliminate obsolete references to the Neighborhood Stabilization Program (NSP), an initiative created by HUD to help stabilize communities contending with foreclosures and abandonment. In 2016, under CRA regulations, NSP-eligible activities were no longer considered “community development.” The Agencies anticipate that the proposed rule will become effective on January 1, 2018, when most of the changes to the HMDA rules go into effect.
Home Mortgage Loan. Under the 2015 HMDA Rule changes, “most consumer-purpose transactions, including closed-end mortgage loans, closed-end home equity loans, home-equity lines of credit, and reverse mortgages will be reported under HMDA if they are secured by a dwelling.” To conform to the Regulation C amendments, effective January 1, 2018, for purposes of CRA regulations, a “home mortgage loan” will now mean a “closed-end mortgage loan” or an “open-end line of credit,” both of which will now apply only to loans that are secured by a dwelling. Financial institutions will now have the option to decide whether they want home improvement loans that are not secured by a dwelling, which will no longer be HMDA, considered for CRA purposes, although the Agencies note that they may choose to still evaluate some of these loans in certain circumstances “where the consumer lending is so significant a portion of an institution’s lending by activity and dollar volume of loans that the lending test evaluation would not meaningfully reflect lending performance if consumer loans were excluded.”
Consumer Loan. The proposed rulemaking would no longer include “home equity loans” in the list of “consumer loan” categories for CRA purposes, as it will now be included within the proposed revised definition of a “home mortgage loan.”
Comments on the proposal will be accepted for 30 days after publication in the Federal Register.CFPB, Federal and State Banking Agencies Issue Guidance for Financial Institutions on Providing Disaster Relief to Consumers
As previously reported in InfoBytes, several federal banking agencies have already issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent disasters. On September 1, the CFPB issued a statement for CFPB-supervised entities on ways to provide assistance to consumers who may be at financial risk. The list includes:
- offering penalty-free forbearance or repayment periods with disclosed terms;
- limiting or waiving fees and charges, including overdraft fees, ATM fees, or late fees;
- restructuring or refinancing existing debt, including extending repayment terms;
- easing documentation or credit-extension requirements;
- increasing capacity for customer service hotlines, particularly those that serve consumers in languages other than English; and
- increasing ATM daily cash withdrawal limits.
The statement further suggests that supervised entities should utilize existing regulatory flexibility if doing so would benefit affected consumers. Included are examples from Regulations B, X, and Z. Additionally, the Bureau stated it will “consider the circumstances that supervised entities may face following a major disaster and will be sensitive to good faith efforts to assist consumers.”
The CFPB separately published a blog post for consumers containing a financial toolkit that includes links to disaster relief organizations, ways to secure financial needs, and information on forbearance options, insurance settlements, and contractor evaluations. The CFPB also issued a warning to consumers of the increased risk of scams and fraud.
In related news, on September 6, the Federal Reserve Board, Conference of State Bank Supervisors, FDIC, and OCC issued a joint press release for financial institutions that may be impacted by Hurricane Irma. The agencies encouraged constructive cooperation with borrowers, noting that “prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism.” Guidance was also issued on matters concerning Community Reinvestment Act considerations, investments, regulatory reporting requirements, publishing requirements, and temporary banking facilities.
FDIC Issues First Quarter 2018 CRA Examination Schedule, Releases September List of CRA Compliance Examinations
On August 31, the FDIC issued its Community Reinvestment Act (CRA) Examination Schedule for the Fourth Quarter of 2017 and First Quarter of 2018. The FDIC stated that the banks listed on the schedules were chosen for CRA examinations based on their asset size and CRA rating, and that absent reasonable cause, institutions with $250 million or less in assets and a CRA rating of “Satisfactory” would be examined no more than once every 48 months, and those institutions with a CRA rating of “Outstanding” would be examined no more than once every 60 months. The FDIC noted that due to recent natural disasters, some examinations may be delayed.
Separately, the FDIC published its monthly list of state nonmember banks recently evaluated for CRA compliance. The list reports CRA evaluation ratings assigned to institutions in June 2017 as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Of the 67 banks evaluated, 6 were rated “Outstanding,” 59 received a “Satisfactory” rating, and 2 were rated “Needs to Improve.” Monthly lists of all state nonmember banks and their evaluations that have been made publicly available can be accessed through the FDIC’s website.
FFIEC Releases Guidelines on HMDA Data Testing and Resubmission Standards
Earlier this week the Federal Financial Institutions Examination Council (FFIEC) issued new FFIEC Home Mortgage Disclosure Act Examiner Transaction Testing Guidelines (guidelines). Examiners will use the new guidelines to assess the accuracy of the HMDA data recorded and reported by financial institutions and determine when an institution must correct and resubmit its HMDA Loan Application Register. The guidelines will apply to data collected beginning January 1, 2018. As further explained in a CFPB blog post issued the same day, this will be the first time all federal HMDA supervisory agencies—including the CFPB, FDIC, Federal Reserve, NCUA, and the OCC—will adopt uniform guidelines, which are designed to ensure HMDA data integrity (HMDA data includes certain information financial institutions are required to collect, record, and report about their home mortgage lending activity). The purpose for collecting the HMDA data is to evaluate housing trends and issues to monitor lending patterns, assist agencies with fair lending and Community Reinvestment Act examinations, and help identify discriminatory lending practices. According to a FDIC financial institution letter (FIL-36-2017) released on August 23, the highlights of the guidelines include, among other things, a data sampling process, error threshold levels, tolerance levels for minor errors, and the ability of examiners to direct a financial institution to make appropriate change to its compliance management system to prevent recurring HMDA data errors.
As previously discussed in InfoBytes, in 2016 the CFPB issued a request for public feedback on the resubmission of mortgage lending data reported under HMDA.