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On September 19, the CFPB published a blog post exploring the potential relationship between high vehicle costs and changes in auto loan characteristics and performance, particularly with respect to consumers with near-prime or subprime credit scores. The Bureau reported that the average vehicle price increased over the past two years, particularly throughout 2021, and that data from the Bureau’s Consumer Credit Panel showed that an increase in the size of newly originated auto loans coincided with a spike in vehicle price. The blog post also highlighted a recent Federal Reserve Bank of New York report, which found that higher vehicle prices are a significant factor driving larger loan amounts. “The dollar value of outstanding auto loans increased by $33 billion between the first and second quarters of 2022 to $1.5 trillion outstanding,” the report said, noting that the increase “is due in large part to larger loan originations rather than by an increase in the number of loans.” The Bureau also reported that recent data has shown that delinquency rates, especially for low-income borrowers, has increased over the past year. While the Bureau said it cannot fully infer that the end of pandemic-related stimulus policies or inflationary pressures are possible explanations for the rise in delinquency rates, the agency said it “cannot ignore the relationship between larger loan amounts and increasing interest rates to consumer’s monthly budgets and some consumers’ struggle to stay current on their loans.” The Bureau stressed, however, that while current data provides insight into broad indicators, it “lacks the granularity to isolate specific economic trends or to fully explore the impact on subsets of consumers.” The agency said it will continue to seek data that allows for better visibility in this market and will remain focused on ensuring that the auto lending market is fair, transparent, and competitive.
On November 29, the Federal Reserve Bank of New York announced the launch of the New York Innovation Center (NYIC), which is intended to advance the partnership with the Bank for International Settlements (BIS) Innovation Hub. According to the announcement, the NYIC will aim to, among other things: (i) identify and develop insights on financial technology trends associated to central banks; (ii) examine the development of public goods to increase the global financial system function; and (iii) “advance and support expertise in the area of central bank innovation.” According to the announcement, to inform the activities of the NYIC, the New York Fed will focus on five opportunity areas, which include “Supervisory and Regulatory Technology, Financial Market Infrastructures, Future of Money, Open Finance, and Climate Risk.” The announcement also noted that, “[t]his work will be based on the venture development process, drawing on principles from entrepreneurship, venture capital, and corporate innovation to produce high-impact solutions.”
On September 15, Michael Held, General Counsel and Executive Vice President of the Legal Group at the Federal Reserve Bank of New York, issued remarks at the ISDA Benchmark Strategies Forum regarding issues relating to the transition from U.S. LIBOR to other rates. As previously covered by InfoBytes, the Alternative Reference Rates Committee announced its recommendation of CME Group’s forward-looking Secured Overnight Financing Rate (SOFR) term rates, following the completion of key changes in trading conventions on July 26 under the SOFR First initiative. Held noted that the U.S. Treasury Department and the Federal Reserve, among others, warned of the “considerable operational, technological, accounting, tax, and legal challenges” that may impact the LIBOR transition speed and that slow progress is also a concern for the derivates market. The second transition issue Held noted is the importance of comparing rates, stating that “alternative rates should be appropriate for the bank’s funding model and customer needs.” Lastly, Held discussed that fallbacks are essential for all alternative options, and it is important for firms that are using credit-sensitive rates to have a complete understanding of their chosen rates.
On June 8, the Federal Reserve Bank of New York updated its frequently asked questions (previously covered here and here) regarding the Term Asset-Backed Securities Loan Facility (TALF). Among other things, the changes clarify (i) who qualifies as a “material investor,” (ii) when asset-backed securities (ABS) are eligible to secure a TALF loan, (iii) the documentation required for ABS issued during a specific period in order for the ABS to be eligible collateral for a TALF loan, and (iv) for newly-issued ABS to be considered for a subscription date, when the issuer must price such ABS. The Federal Reserve Bank of New York also updated several TALF-related forms.
On May 26, the Federal Reserve Bank of New York updated its frequently asked questions), previously covered here, regarding the Term Asset-Backed Securities Loan Facility (TALF). The changes clarify (i) requirements regarding certification of a TALF borrower’s inability to secure adequate credit accommodations, (ii) which nationally recognized statistical rating organizations are eligible rating agencies under the TALF, and (iii) how unsolicited credit ratings are treated.
On May 20, the Federal Reserve Bank of New York announced the first loan subscription date for the Term Asset-Based Securities Loan Facility (TALF) and released an expanded set of Frequently Asked Questions and other documents relating to the facility’s operations. The first subscription date will be June 17, 2020, and the first closing date will be June 25, 2020. The FAQs contain information on why the TALF was established, how the TALF will work, borrower eligibility, eligible collateral, eligible underlying assets, master trust requirements, credit ratings, collateral review, interest rates, and loan subscription and closing, among other things.
On March 31, the Federal Reserve announced the establishment of a temporary repurchase agreement facility (FIMA Repo Facility) to be available to foreign and international monetary authorities. The FIMA Repo Facility will allow central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York to enter into repurchase agreements with the Federal Reserve to temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions. The facility is intended to provide an alternative temporary source of U.S. dollars other than sales of securities in the open market. The Federal Reserve also issued FAQs that answer question about, among other things, the purpose of the facility, eligibility to participate in the facility, and how the facility is structured.
On March 6, the Alternative Reference Rates Committee (ARRC) announced a legislative proposal for New York state legislation for U.S. dollar LIBOR contracts intended to “minimize legal uncertainty and adverse economic impacts associated with LIBOR transition.” The ARRC—a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York in cooperation with a number of other federal financial regulatory agencies—explained that it proposed legislation in New York because the state’s law governs a substantial number of financial contracts that refer to U.S. dollar LIBOR. The proposed bill includes measures to address the absence of sufficient LIBOR fallback or transition language in existing financial contracts referencing LIBOR. The proposed legislation would prohibit parties from being able to use the discontinuance of LIBOR as a reason for declaring a breach of contract, establish a recommended benchmark replacement index as a commercially reasonable substitute for LIBOR, and override contractual language referencing a LIBOR-based rate and require use of the benchmark replacement. Contractual parties would also be permitted to mutually opt-out of any mandatory application of the proposed legislation under the bill. The ARRC specifically highlighted that its proposed legislation would not override existing contract language that already delineated a non-LIBOR rate as a fallback to LIBOR.
In January, the Federal Reserve Bank of New York (New York Fed) released a staff report that analyzes how a cyber attack transmitted through a payment network could be amplified throughout the U.S. financial system. According to the report, Cyber Risk and the U.S. Financial System: a Pre-Mortem Analysis, cyber attacks that impair the most active U.S. banks’ ability to send payments “would likely be amplified to affect the liquidity of many other banks in the system,” including smaller or mid-sized banks that are connected through a shared service provider. The New York Fed notes, however, that the report’s primary focus is on a cyber attack’s impact within a single day, and cautions that should a cyber attack compromise the integrity of the banking system, “the reconciliation and repercussion process would be an unprecedented task.” Among other things, the report (i) establishes a framework for estimating “cyber vulnerability” and understanding the impairments of a cyber attack on a bank’s payment activities; (ii) creates a baseline scenario to study the five largest institutions within the wholesale payment network and the high concentration of payments between large institutions, as well as the resulting imbalance in liquidity that occurs if even a single large institution is unable to remit payments to its counterparties; and (iii) conducts a reverse stress test exercise, in which it analyzes “how many smaller institutions it would take to impair any of the most active ones,” in order to highlight “how the impairment of many smaller institutions also presents a systemic risk.”
On March 22, the Federal Reserve Bank of New York (New York Fed), one of the 12 regional Federal Reserve System banks that make up the United States' central banking system, announced the launch of its Fintech Advisory Group, which is designed to offer “views and perspectives on the emerging issues related to financial technologies, the application and market impact of these technologies, and the potential impact on the New York Fed’s ability to achieve its missions.” The group’s members will participate on a rotating basis, and will include representatives from financial institutions, nonprofits, and research providers. According to the head of the Supervision Group at the New York Fed, “The Fintech Advisory Group will provide the New York Fed with a more complete picture of the rapidly evolving fintech landscape. The Advisory Group will also gather insights that may inform our interaction with market participants and institutions, our training and hiring efforts, and the application of innovative approaches for internal business use.” The group’s first meeting will be held on April 1.
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar
- James C. Chou to discuss ransomware at NAFCU’s Regulatory Compliance & BSA seminar
- Jedd R. Bellman to provide an “Attorney exemption/medical debt update” at the North American Collection Agency Regulatory Association annual conference
- Kathryn L. Ryan to discuss “What should crypto regulation look like: Legislation, regulation and consumer issues” at WCL's First Annual Virtual Currency Law Institute
- Elizabeth E. McGinn to discuss “How to mitigate and manage third-party risks: Leveraging tools and best practices” at The Knowledge Group’s webcast
- Elizabeth E. McGinn, Benjamin W. Hutten, and James C. Chou to discuss “The evolving regulatory landscape: Third-party and cyber risk management” at the 2022 mWISE Conference
- Sherry-Maria Safchuk to discuss “For your eyes only: Privacy updates for 2022-2023” at CCFL’s Annual Consumer Financial Services Conference
- James T. Parkinson to present a “Global anti-corruption update” at IBA’s annual conference