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HUD and Fed consider transition from LIBOR
On October 5, HUD issued an advanced notice of proposed rulemaking (ANPRM) seeking comments regarding the transition from the London Interbank Offered Rate (LIBOR) to alternate indices on adjustable rate mortgages (ARMs). According to the ANPRM, most ARMs insured by FHA are based on LIBOR, which is likely to become uncertain after December 31 and to no longer be published after June 30, 2023. Due to the uncertainty, HUD has begun to transition away from LIBOR and has approved the Secured Overnight Financing Rate (SOFR) index in some circumstances. In recognizing that there may be certain difficulties for mortgagees transitioning to a new index, HUD “is considering a rule that would address a Secretary-approved replacement index for existing loans and provide for a transition date consistent with the cessation of the LIBOR index.” Furthermore, HUD “is also considering replacing the LIBOR index with the SOFR interest rate index, with a compatible spread adjustment to minimize the impact of the replacement index for legacy ARMs.” Comments on the ANPRM are due by December 6.
The same day, Federal Reserve Vice Chair for Supervision Randal K. Quarles spoke at the Structured Finance Association Conference in Las Vegas, Nevada, reminding participants that they should cease utilizing LIBOR by the end of the year, “no matter how unhappy they may be with their options to replace it,” and further warned that the Fed will supervise firms accordingly. Quarles emphasized that, “[g]iven the availability of SOFR, including term SOFR, there will be no reason for a bank to use [LIBOR] after 2021 while trying to find a rate it likes better.”
FCC proposes obligations on international robocalls
On October 1, the FCC released a notice of proposed rulemaking (NPRM) to impose obligations on gateway providers to prevent illegal robocalls originating abroad from reaching U.S. consumers and businesses. Among other things, the NPRM seeks to require domestic gateway providers “to apply STIR/SHAKEN caller ID authentication to, and perform robocall mitigation on, foreign-originated calls with U.S. numbers.” As previously covered by InfoBytes, the STIR/SHAKEN framework addresses “unlawful spoofing by confirming that a call actually comes from the number indicated in the Caller ID, or at least that the call entered the US network through a particular voice service provider or gateway.” According to the FCC, the STIR/SHAKEN framework decreases illegal spoofing, provides assistance to law enforcement, and strengthens voice service providers’ blocking of robocalls using illegally spoofed caller ID information. The notice also proposes ensuring that gateway providers are engaged in the fight against illegal robocalls by requiring them to timely respond to traceback requests, which are utilized to block illegal robocalls and inform FCC enforcement investigations. Additionally, the NPRM seeks to require that both the gateway provider and the network accepting questionable traffic from the gateway provider actively block such calls. In a statement, acting Chairwoman Jessica Rosenworcel stated that such measures “will help [the FCC] tackle the growing number of international robocalls.” Comments on the proposed rules are due 30 days after the date of publication in the Federal Register.
FHFA seeks comments on regulatory capital framework
On September 15, FHFA issued a notice requesting public comment on a proposed rule that would amend the regulatory capital framework for Fannie Mae and Freddie Mac (collectively, “GSEs”). The proposed rule would amend the prescribed leverage buffer amount (PLBA) and the capital treatment of credit risk transfers (CRT) to encourage more distribution of credit risk between the GSEs and private investors. Specifically, FHFA is proposing to: (i) change the fixed PLBA equal to 1.5 percent of a GSE’s adjusted total assets to a dynamic PLBA of 50 percent of the GSE’s stability capital buffer; (ii) “replace the prudential floor of 10 percent on the risk weight assigned to any retained CRT exposure with a prudential floor of 5 percent on the risk weight assigned to any retained CRT exposure”; and (iii) eliminate the requirement that a GSE is required to apply an overall effectiveness adjustment to its retained CRT exposures in line with the framework’s securitization framework. Comments on the proposal must be submitted within 60 days of publication in the Federal Register.
FTC reveals rulemaking petition process
On September 15, the FTC announced significant changes in the agency’s rulemaking process that represent “a significant step to increase public participation and accountability around the work of the FTC.” According to the announcement, the Commission approved changes to the FTC’s “Rules of Practice,” which are “designed to make it easier for members of the public to petition the agency for new rules or changes to existing rules that are administered by the FTC.” The changes, which are a key part in the opening of the FTC’s regulatory processes to public input and scrutiny, is a departure from the previous practice where the Commission did not have an obligation to address petitions for agency action. The updates clarify the information that is required for petition submissions and notes the data that the Commission finds helpful in its review. In addition, the changes require that the Commission publish petitions for rulemaking in the Federal Register and solicit public comment for the same. Finally, under the new rules, the Commission must provide petitioners with a specific point of contact in the agency and must respond to petitioners to communicate its decision regarding the petition. The new changes will also apply to requests by certain parties for special exemption from FTC rules, as well as petitions related to industry guidance issued by the Commission.
OCC proposes rescinding its 2020 CRA rule
On September 8, the OCC announced in the Federal Register that it is soliciting comments on a proposal to rescind its 2020 Community Reinvestment Act Rule and to replace it with rules based largely on those adopted jointly by the Federal banking agencies in 1995, as amended. As previously covered by a Buckley Special Alert, the final rule, issued in May 2020, provides for at least a 27-month transition period for compliance based on a bank’s size and business model, among other things. According to the OCC, the proposal, “would align the OCC’s CRA rules with the current Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation rules and thereby facilitate the on-going interagency work to modernize the CRA regulatory framework and create consistency for all insured depository institutions.” Since many aspects of the CRA 2020 rule remain in transition and have not been implemented, the OCC anticipates that the proposed rule will have a limited impact on national banks and savings associations. According to Acting Comptroller Michael J. Hsu, the issuance “is an important step toward strengthening and modernizing the CRA,” and that the agency “is committed to working with the Federal Reserve and FDIC on a future joint rulemaking.” According to the OCC, the proposed rules would apply to all national banks and all federal and state savings associations. Comments are due by October 29.
SEC seeks public information regarding online trading
On August 27, the SEC announced a request for information and public comments regarding the use of digital engagement practices by broker-dealers and investment advisers, such as behavioral prompts, differential marketing, game-like features (gamification), and other design elements or features designed to engage with retail investors on digital platforms, as well as analytical and technological tools and methods (collectively “digital engagement practices” or “DEPs”). The SEC issued the request to better understand the market practices related to firms' use of DEPs and intends “to learn what conflicts of interest may arise from optimization practices and whether those optimization practices affect the determination of whether DEPs are making a recommendation or providing investment advice.” The request is also intended to provide a forum for market participants to provide their perspectives regarding the use of DEPs, including the potential benefits that DEPs provide to retail investors, and protection concerns related to potential investors. The request will assist in the Commission's assessment of existing regulations and consideration regarding whether regulatory action may be required to continue the Commission's mission. A statement by SEC Chair Gary Gensler noted that though “new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice.” The public comment period for the request will remain open for 30 days after publication in the Federal Register.
CFPB seeks comment on mobile-device disclosures
On August 11, the CFPB issued a notice and request in the Federal Register for comments on a Generic Information Collection titled, “Electronic Disclosure on Mobile Devices.” According to the notice, the CFPB is planning “to conduct several studies using methodologies rooted in psychology and behavioral economics to understand electronic disclosure on mobile devices.” Through these studies, the CFPB intends to collect information about demographics, reading electronic disclosures, and how consumers engage with their finances on different devices. Comments are due by September 10.
Education Dept. rolls back state-law preemption on student loans
On August 9, the U.S. Department of Education published an interpretation, noting “that there is significant space for State laws and regulations relating to student loan servicing, to the extent that these laws and regulations are not preempted by the Higher Education Act of 1965, as amended (HEA), and other applicable Federal laws.” The interpretation clarifies the Department’s position on the legality of state laws and regulations regarding certain aspects of federal student loan servicing, such as preventing unfair or deceptive practices, correcting misapplied payments, or addressing refusals to communicate with borrowers. According to the interpretation, though federal law preempts state laws that conflict squarely on issues such as timelines, dispute resolution procedures, and collections, the Department believes that it does not preempt state laws regarding affirmative misrepresentations or other measures meant to address improper conduct that could occur in Federal Family Education Loan Program. The Department stated that “[s]tates may consider and adopt additional measures which protect borrowers and do not conflict with Federal law,” and that “such measures can be enforced by the States and the Department can and will work with State officials to root out all forms of fraud, falsehood, and improper conduct that may occur in the Federal student aid programs.” According to the Department, “[t]his action will help states enforce borrower bills of rights or other similar laws to address issues with servicing of federal student loans.” The new interpretation revokes and supersedes the interpretation published in March 2018, “Federal Preemption and State Regulation of the Department of Education’s Federal Student Loan Programs and Federal Student Loan Servicers” (covered by InfoBytes here). Comments are due 30 days after publication in the Federal Register.
Fed announces new details of the FedNow Service
On August 6, the Federal Reserve Board (Board) announced details of its new payment clearing system, the FedNow Service, which the Board plans to implement through a phased approach with a target launch date sometime in 2023 or 2024. As previously covered by InfoBytes, in August 2019, the Board issued a request for information on a “round-the-clock real-time payment and settlement service,” seeking feedback on how the service might be designed in order to support payment system stakeholders and the general functioning of the U.S. payment system. The Board notes that the newly released details are based on the input received from stakeholders. The Federal Register notice discusses the phased released approach, noting that the “approach will ensure the core features and functionality are delivered as quickly as possible,” even if “certain desirable features” are not available in the initial release. Highlights of the core features of the “24x7x365” FedNow Service include, among other things, (i) a payment flow where the receiver’s bank has an opportunity to confirm that it holds a valid account for the receiver and intends to accept the payment message, before interbank settlement occurs; (ii) the use of the “widely accepted ISO 20022 standard and adopt other industry best practices” for payment message format; (iii) a transaction limit that will be “consistent with market practices and needs at the time” of the launch of service; and (iv) a liquidity-management tool that will allow participants to transfer funds to each other to support the liquidity needs of instant payments. After the initial launch, the Board intends to offer additional features related to fraud prevention, error resolution and case management.
SBA to limit maximum PPP loans to $20 million for corporate groups
On April 30, the Small Business Administration (SBA) issued an Interim Final Rule (IFR) prohibiting a “single corporate group” from receiving more than $20 million in the aggregate from the Paycheck Protection Program (PPP). Businesses are considered to be a part of a single corporate group “if they are majority owned, directly or indirectly, by a common parent.” Small businesses must adhere to this loan cap by withdrawing or cancelling any PPP loan application or approval above $20 million for any loan that is not fully disbursed as of April 30. Failure to follow the IFR, will make such loans ineligible for loan forgiveness. The IFR assures lenders that they are not responsible for a small business’s compliance with this rule, and further, that the IFR does not alter lender obligations required to procure an SBA loan guarantee. In addition, the IFR allows a non-bank lender to be a PPP lender, subject to certain criteria, if the non-bank lender is “either a community development financial institution…or a majority minority, women, or veteran/military owned lender.” The IFR is effective as of May 4, and comments must be received by June 3.