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Financial Services Law Insights and Observations

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  • OCC releases October enforcement actions

    Federal Issues

    On October 21, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently or formerly affiliated with such entities. Included is a civil money penalty order against a Seattle-based bank, which requires the bank to pay $2.5 million for, among other things, allegedly failing to adopt and implement a Bank Secrecy Act/Anti-Money Laundering compliance program.

    Federal Issues OCC Enforcement Bank Secrecy Act Anti-Money Laundering Bank Regulatory

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  • Agencies release statement on LIBOR transition

    Federal Issues

    On October 20, the CFPB, Federal Reserve Board, FDIC, NCUA, and OCC, in conjunction with the state bank and state credit union regulators, (collectively, “agencies”) released a joint statement regarding the transition away from LIBOR. As previously covered by InfoBytes, the Fed, FDIC, and OCC issued a joint statement encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. The agencies' October 20 joint statement provides supervisory considerations for institutions when choosing an alternative reference rate, such as, among other things: (i) the meaning of new LIBOR contracts; (ii) understanding how the chosen reference rate is constructed and the fragilities associated with it; and (iii) expectations for fallback language. In addition, the agencies noted that supervised institutions should “develop and implement a transition plan for communicating with consumers, clients, and counterparties; and ensure systems and operational capabilities will be ready for transition to a replacement reference rate after LIBOR’s discontinuation.”

    Federal Issues CFPB LIBOR Agency Rule-Making & Guidance FDIC OCC Federal Reserve NCUA Bank Regulatory

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  • States, consumer advocates urge agencies to explicitly disavow rent-a-bank schemes

    Federal Issues

    On October 18, consumer advocates and several state attorneys general and financial regulators responded to a request for comments issued by the OCC, Federal Reserve Board, and the FDIC on proposed interagency guidance designed to aid banking organizations in managing risks related to third-party relationships, including relationships with fintech-focused entities. (See letters here and here.) As previously covered by InfoBytes, the proposed guidance addressed key components of risk management, such as (i) planning, due diligence and third-party selection; (ii) contract negotiation; (iii) oversight and accountability; (iv) ongoing monitoring; and (v) termination. Consumer advocates and the states, however, expressed concerns that the agencies’ proposed guidance does not “highlight the significant risks associated with high-cost lending involving third-party relationships,” and does not include measures to prevent banks from entering into nonbank lending partnerships (e.g. “rent-a-bank schemes”).

    According to the consumer advocates’ letter, the agencies’ guidance “should unequivocally declare that it is inappropriate for a bank to rent out its charter to enable attempted avoidance of state consumer protection laws, in particular interest rate and fee caps, or state oversight through licensing regimes.” The consumer advocates stated that they are aware of six FDIC-supervised banks involved in rent-a-bank schemes with nonbank lenders making allegedly illegal high-cost loans, and urged the FDIC to take immediate, “overdue” action to put an end to them. Among other things, the consumer advocates said the new guidance should explicitly specify: (i) that a bank’s involvement in lending that exceeds state interest rate limits with a nonbank is a “critical activity”; (ii) that lending partnerships involving loans exceeding a fee-inclusive 36 percent annual percentage rate (APR) “pose especially high risks”; and (iii) that in instances where a loan exceeds the Military Lending Act’s 36 percent APR, the federal banking supervisor will directly examine the third-party partner and charge the bank for the cost of the examination.

    The states wrote in their letter that “experience teaches us that, in the absence of an explicit disavowal of rent-a-bank schemes, the [p]roposed [g]uidance invites continued abuse of banks’ interest exportation rights, to the considerable detriment of state regulation, consumer protection, and banks’ safety and soundness.” The states strongly encouraged the agencies to “explicitly disavow rent-a-bank schemes.”

    Federal Issues Bank Partnership Rent-a-Bank State Regulators State Issues State Attorney General Bank Regulatory Third-Party Risk Management Third-Party FDIC OCC Federal Reserve Consumer Finance Military Lending Act

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  • OCC issues updated LIBOR self-assessment tool

    Federal Issues

    On October 18, the OCC released an updated self-assessment tool for banks to evaluate their preparedness for the LIBOR cessation at the end of the year. The updated guidance reminds banks that they should cease entering into new contracts using LIBOR as a reference rate as soon as practicable but no later than December 31, 2021. The self-assessment tool may be used by banks to identify and mitigate a bank’s LIBOR transition risks, and management should use the tool to evaluate whether preparations for the transition are sufficient. The OCC notes that “LIBOR exposure and risk assessments and cessation preparedness plans should be complete or near completion with appropriate management oversight and reporting in place,” and “most banks should be working toward resolving replacement rate issues while communicating with affected customers and third parties, as applicable.” The OCC also reminds banks to tailor risk management processes to the size and complexity of a bank’s LIBOR exposures and “consider all applicable risks (e.g., operational, compliance, strategic, and reputation) when scoping and completing LIBOR cessation preparedness assessments.”

    Bulletin 2021-46 rescinds Bulletin 2021-7 published in February (covered by InfoBytes here).

    Federal Issues LIBOR OCC Bank Regulatory Risk Management

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  • OCC releases bank supervision operating plan for FY 2022

    Federal Issues

    On October 15, the OCC’s Committee on Bank Supervision released its bank supervision operating plan for fiscal year 2022. The plan outlines the agency’s supervision priorities and highlights several supervisory focus areas including: (i) strategic and operational planning; (ii) credit risk management, including allowances for loan and lease losses and credit losses; (iii) cybersecurity and operational resiliency; (iv) third-party oversight; (v) Bank Secrecy Act/anti-money laundering compliance; (vi) consumer compliance management systems and fair lending risk assessments; (vii) Community Reinvestment Act performance; (viii) LIBOR phase-out preparations; (ix) payment systems products and services; (x) fintech partnerships involving potential cryptocurrency-related activities and other services; and (xi) climate-change risk management. The plan will be used by OCC staff members to guide the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, and technology service providers.

    The OCC will provide updates about these priorities in its Semiannual Risk Perspective, as InfoBytes has previously covered.

    Federal Issues OCC Supervision Bank Regulatory Third-Party Third-Party Risk Management Risk Management Bank Secrecy Act Anti-Money Laundering Fair Lending CRA Fintech Climate-Related Financial Risks

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  • ARRC recommends firms reduce use of LIBOR before year end

    Federal Issues

    On October 14, the Alternative Reference Rates Committee (ARRC) recommended that all market participants take proactive action now to reduce their use of U.S. dollar LIBOR to promote a smooth end to new LIBOR contracts by year end. ARRC referred to a joint statement issued last November by the Federal Reserve Board, FDIC, and OCC encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. (Covered by InfoBytes here.) According to the agencies, entering into contracts after this date will create safety and soundness risks given consumer protection, litigation, and reputation risks at stake. ARRC recommended that firms adopt its selected alternative, the Secured Overnight Financing Rate, which is consistent with steps that several firms have already taken to ensure they are in the position to meet the supervisory guidance. This includes “setting targets for reductions in new LIBOR activity, limiting the range of LIBOR offerings, and implementing internal escalation exceptions processes around new LIBOR contracts for narrow cases in line with supervisory guidance.” 

    Federal Issues ARRC LIBOR SOFR Federal Reserve FDIC OCC Bank Regulatory

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  • NYDFS requires flood insurance and diversity and inclusion training for insurance producers and public adjusters

    State Issues

    On October 13, NYDFS announced that property/casualty insurance producers are required to take continuing education in flood insurance and diversity and inclusion. NYDFS is the first state regulator to mandate such requirements, which have been added to the state’s insurance regulations. “Requiring education on flood insurance and diversity and inclusion is not only timely, it is in the best interest of consumers,” acting Superintendent Adrienne A. Harris said. In addition, property/casualty insurance producers who sell flood insurance through the National Flood Insurance Program (NFIP) will be required to comply with the continuing education requirement, which according to the NYDFS announcement, is intended to ensure consumers receive accurate NFIP quotes and are not accidentally underinsured for flood damage. The requirement will assist “producers and adjusters to better service a diverse population of consumers and be culturally sensitive and aware when interacting with consumers and members of the public,” NYDFS stated. 

    State Issues State Regulators NYDFS Flood Insurance Climate-Related Financial Risks Diversity National Flood Insurance Program Bank Regulatory

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  • Fed joins Central Bank Network for Indigenous Inclusion

    Federal Issues

    On October 13, Federal Reserve Governor Lael Brainard announced that the Fed has joined the Central Bank Network for Indigenous Inclusion to foster continuing dialogue, research, and education and increase awareness of economic and financial issues and opportunities for Indigenous economies. The same day, Brainard spoke at Fed Listens: Roundtable with Oklahoma Tribal Leaders in Oklahoma City, Oklahoma, to discuss how the economic disparities experienced by tribal nations were exacerbated by the Covid-19 pandemic. She noted that in an effort to overcome such disparities, it will be important to identify and address barriers to financial inclusion. In addition, Brainard discussed how the Fed has a role to play in supporting economic growth and financial inclusion in Native communities, and that the Fed is collaborating with the other banking agencies to propose Community Reinvestment Act reforms that would increase financial inclusion and the availability of community development financing in underserved communities.

    Federal Issues Federal Reserve Diversity Covid-19 CRA Bank Regulatory

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  • Chopra sworn in as CFPB director

    Federal Issues

    On October 12, Rohit Chopra was sworn in as Director of the CFPB. Chopra issued a message to Bureau staff, the Federal Reserve Board, FDIC Board of Directors, and members of the Financial Stability Oversight Council, applauding former acting Director Dave Uejio’s service and stressing the importance of safeguarding household financial stability. Chopra explained that promoting competition, shifting market power toward consumers and law-abiding businesses, and anticipating emerging risks remain critically important to the CFPB’s mission. Noting that this is an “extremely fragile moment for our economy and our country,” Chopra explained that the Covid-19 pandemic has “put into clearer focus the longstanding systemic and structural barriers we must overcome to build a more inclusive economy.” He added that he intends to “build on” the work Uejio has already started to address racial equality and the pandemic, and said Uejio will remain at the Bureau until he is confirmed as assistant secretary for Fair Housing & Equal Opportunity.

    The CFPB also announced several leadership changes within the Bureau. Newly appointed Deputy Director Zixta Q. Martinez, whose roles at the Bureau previously included senior advisor for Supervision, Enforcement and Fair Lending, will oversee the Bureau’s Operations Division. Karen Andre, who most recently served as special assistant to the president for Economic Agency Personnel within the Executive Office of the President will serve as associate director for Consumer Education and External Affairs. Returning to the CFPB are Jan Singelmann who will serve as chief of staff. Singelmann previously served as senior litigation counsel in the Bureau’s Office of Enforcement and most recently served as counsel for Senator Sherrod Brown, whose work covers consumer finance and data privacy issues. Erie Meyer, who returns to serve as chief technologist, was previously on the implementation team that launched the Bureau and was a founding team member of the Bureau’s Office of Technology and Innovation. 

    Federal Issues CFPB Consumer Finance Covid-19 Bank Regulatory

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  • NYDFS awards funds to support underserved communities

    State Issues

    On October 7, NYDFS announced the first awards from the New York Community Development Financial Institution (CDFI) Fund to support access to safe and affordable banking services in historically underserved and redlined, low-income communities. According to the announcement, with a multi-year $25 million New York state-commitment, the CDFI Fund plans to allocate resources for the growth of CDFIs to assist in the delivery of affordable financial products and services and financial literacy programming to low- and moderate-income New York citizens. In addition, the CDFI Fund will expand “access to capital and technical assistance services for New York State small businesses and non-profit organizations.” In total, 31 CDFIs were selected to receive financial inclusion grants, which totaled nearly $5 million.

    State Issues NYDFS Redlining Consumer Finance CDFI Bank Regulatory

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