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Agencies issue revised interagency flood insurance Q&As
On May 11, the FDIC, OCC, Federal Reserve Board, NCUA, and the Farm Credit Administration (the agencies) jointly issued revised, reorganized, and expanded interagency questions and answers (Q&As) regarding federal flood insurance laws. The revised Q&As supersede versions published in 2009 and 2011, and consolidate Q&As proposed by the agencies in 2020 and 2021 (covered by InfoBytes here). Reflecting significant changes to flood insurance requirements made by the Biggert-Waters Flood Insurance Reform Act and the Homeowner Flood Insurance Affordability Act, as well as regulations issued by the agencies to implement these laws, the revised Q&As consist of 144 Q&As (including 24 private flood insurance Q&As) covering a range of topics, including the escrow of flood insurance premiums, the detached structure exemption to the mandatory flood insurance purchase requirement, force placement procedures, and the acceptance of flood insurance policies issued by private insurers. The agencies also made non-substantive revisions to certain Q&As to provide more direct responses to questions asked, additional clarity, or make technical corrections. In response to concerns raised by several commenters, the agencies confirmed that they are providing the interagency Q&As “as guidance only,” and clarified that “all the Q&As apply to all policies, whether [National Flood Insurance Program] or a flood insurance policy issued by a private insurance company, unless otherwise noted in the Q&A.” Additionally, the agencies noted “that they are working individually and on an interagency basis to address financial risks associated with climate change consistent with the [a]gencies’ regulatory and supervisory authorities,” and therefore “decline to make changes to any of the Q&As in response to climate risk change.
The same day, the agencies issued Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance. The interagency questions and answers replace the 2009 and 2011 publications and consolidate Q&As proposed by the agencies in July 2020 and in March 2021. This bulletin rescinds: (i) OCC Bulletin 2009-26, Flood Disaster Protection Act: Revised Interagency Questions and Answers Regarding Flood Insurance; (ii) OCC Bulletin 2011-42, Flood Disaster Protection Act: Interagency Questions and Answers Regarding Flood Insurance’ (iii) OCC Bulletin 2020-69, Flood Disaster Protection Act: Proposed Revisions to Interagency Questions and Answers Regarding Flood Insurance; (iv) OCC Bulletin 2020-78, Flood Disaster Protection Act: Agencies Extend Comment Period on Proposed Revisions to Interagency Questions and Answers Regarding Flood Insurance; and (v) OCC Bulletin 2021-13, Flood Disaster Protection Act: Proposed Interagency Questions and Answers Regarding Private Flood Insurance.
Fed updates synthetic identity fraud mitigation toolkit
Recently, the Federal Reserve updated a synthetic identity fraud mitigation toolkit offering new information regarding fraud detection technology and data sharing and discussing the value of fraud information sharing within the industry to help fight synthetic identity fraud. As previously covered by InfoBytes, in February, the Fed released the synthetic identity fraud mitigation toolkit intended to help financial institutions, businesses, and consumers improve awareness, detection, measurement, and mitigation of identity fraud. The recent updates in the toolkit provide guidance on enhancing organizations' ability to prevent and mitigate synthetic identity fraud using a variety of detection and prevention technologies and approaches. Topics contained in the toolkit include insights and downloadable resources covering, among other things: (i) the basics of synthetic identity fraud; (ii) how synthetic identities are used; (iii) when synthetics become a reality; (iv) detecting a synthetic identity; (v) validating identities; and (vi) identifying synthetics.
Hsu: Bank merger framework needs updating
On May 9, acting Comptroller of the Currency Michael J. Hsu delivered remarks before the Brookings Institution focusing on updating the framework used to analyze bank merger applications. In his remarks, Hsu described that bank mergers have “received significant attention this past year” and that “[c]oncerns about the negative effects of bank mergers on competition, communities and financial stability have prompted some to call for a moratorium on merger activity.” Hsu also noted that “others have defended the benefits of mergers,” noting that “the U.S. financial services market is highly competitive, and mergers allow institutions to achieve needed economies of scale and to diversify risk through geographic or product expansion.” The OCC adopted the DOJ’s bank merger review guidelines, which were last revised in 1995, but public comments as to whether it should update the guidelines to reflect trends in the banking and financial services sector and to modernize its approach to bank merger review is currently pending. Stating that the frameworks for analyzing bank mergers need updating, Hsu noted that imposing a moratorium on mergers would “lock in the status quo,” thus, “prevent[ing] mergers that could increase competition, serve communities better, and enhance industry resiliency.” Considering that it is time to “rethink the frameworks” for analyzing bank merger applications, Hsu stated that he does not believe that “the statutory prongs of competitiveness, safety and soundness, meeting community needs, and financial stability need to be revisited.” Instead, he described that, “the modes of analysis used by regulators to apply these factors need to be improved.” According to Hsu, there is a “resolvability gap” among large regional banks, which is creating a whole new set of "too-big-to-fail" entities as these banks grow in size.
FDIC, HUD announce New Mexico wildfire disaster relief
On May 9, the FDIC issued FIL-19-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of New Mexico affected by wildfires and straight-line winds that began on April 5. In the guidance, the FDIC writes that, in supervising institutions affected by the wildfires, it will consider the unusual circumstances those institutions face. The guidance suggests that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC will also consider relief from certain reporting and publishing requirements.
Separately, on May 6, HUD announced disaster assistance available to certain counties impacted by the New Mexico wildfires and straight-line winds, providing foreclosure relief and other assistance to affected homeowners. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house and the costs of repair, through a single mortgage. The program also allows homeowners with damaged property to finance the repair of their existing single-family homes. Furthermore, HUD is allowing administrative flexibilities to community planning and development grantees, as well as to public housing agencies and Tribes.
Special Alert: Breaking down the proposed CRA overhaul
The federal banking agencies last week announced their highly anticipated proposal to revamp and modernize regulations implementing the Community Reinvestment Act. The proposal may significantly impact the compliance obligations of large banks, which the proposal generally defines as those with assets greater than $2 billion, while granting smaller banks the option of continuing to comply under the existing framework. The proposal aims to bring to a close the CRA reform process that began more than a decade ago, and was marked most recently by the OCC’s decision to pull back its 2020 regulatory overhaul (as covered by InfoBytes here).
Agencies overhaul CRA requirements
On May 5, the Federal Reserve Board, FDIC, and OCC (collectively, “agencies”) issued a joint notice of proposed rulemaking (NPRM) on new regulations implementing the Community Reinvestment Act (CRA) to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. According to the NPRM, the “CRA encourages banks to help meet the credit needs of the local communities in which they are chartered, consistent with a bank’s safe and sound operations, by requiring the Federal banking regulatory agencies to examine banks’ records of meeting the credit needs of their entire community, including low- and moderate-income neighborhoods.” The agencies are, among other things, proposing to:
- Expand access to credit, investment, and banking services in low- and moderate-income (LMI) communities to promote community engagement and financial inclusion. The proposal would also evaluate bank lending to small businesses and farms with gross annual revenues of $250,000 or less to maintain focus on the borrowers with the greatest need;
- Adapt changes to update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models;
- Use a retail lending volume screen and metric-based performance ranges to evaluate a bank’s retail lending volumes. CRA evaluations of retail lending and community development financing will include public benchmarks for greater clarity and consistency. The proposal would also clarify eligible CRA activities, such as affordable housing, that are focused on LMI, underserved, and rural communities;
- Tailor CRA evaluations and data collection to recognize differences in bank size and business models. Smaller banks would continue to be evaluated under the existing CRA framework with the option of being evaluated under aspects of the proposed framework; and
- Maintain a unified approach across agencies and incorporate stakeholder feedback.
The agencies also released a Fact Sheet describing key elements of the proposal. Acting Comptroller of the Currency, Michael J. Hsu, called the issuance of the joint NPRM an “important milestone” in bringing the three federal banking agencies back together to develop a uniform approach for addressing inequalities in credit access and other financial services. Fed Governor Lael Brainard pointed out that “[t]he last major revisions to the CRA regulations were made in 1995.” “The CRA is one of our most important tools to improve financial inclusion in communities across America, so it is critical to get reform right,” she stressed. CFPB Director Rohit Chopra, who voted in favor of the NPRM as an FDIC board member, said the proposal “better effectuates Congressional directives intended to ensure that the needs of historically underserved individuals and communities are adequately met,” but reminded policymakers that it is also important “to consider whether nonbank mortgage lenders should also be required to better meet the needs of the communities they serve.” Treasury Secretary Janet Yellen similarly applauded the release of the NPRM. Comments on the NPRM are due August 5.
A Buckley Special Alert is forthcoming.
OCC hosts virtual innovation hours
On May 4, the OCC announced it will host virtual Innovation Office Hours on June 14 through 15 to promote responsible innovation in the federal banking system. As previously covered by InfoBytes, the OCC established the Office of Innovation in 2017 to implement certain aspects of the OCC’s responsible innovation framework, including, among other things: (i) creating an outreach and technical assistance program; (ii) conducting awareness and training activities for OCC staff, such as implementing an internal web page that provides OCC staff a ‘one-stop-shop’ to access information on industry trends and innovative products, services, and processes; and (iii) encouraging coordination and facilitation among the regulatory community and industry stakeholders. According to the OCC’s recent announcement, parties should request a virtual office hours session by May 20 and should provide information on their interested topic(s). The OCC will determine specific meeting times and arrangements after it receives and accepts the request.
FDIC, Census launch small business lending survey
On May 3, FDIC acting Chairman Martin J. Gruenberg and U.S. Census Bureau (Census) Director Robert L. Santos announced that approximately 2,000 U.S. banks of all sizes and from all geographic areas in the U.S. have been invited to participate in the 2022 Small Business Lending Survey (SBLS)—a nationally representative online survey regarding small business lending practices and volumes. According to the FDIC, banks are the most common source of external financing for small businesses, however “there is little high-quality data on this activity.” The last SBLS occurred in 2016 and the 2022 survey intends to provide further understanding about current bank lending. Sponsored by the FDIC and administered by Census, the SBLS, according to the announcement, “provides a comprehensive view of small business lending by banks and will significantly expand the FDIC’s and the public’s understanding of the impact banks have on the nation’s small businesses.” The selected banks include all FDIC-insured institutions with assets of $3 billion or more as well as a random sample of banks with assets of less than $3 billion. The survey responses will be confidential and anonymous and the FDIC will only report the aggregated results.
FDIC releases March enforcement actions
On April 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in March. During the month, the FDIC issued 13 orders consisting of “six orders terminating consent order, one order to pay civil money penalty, five Section 19 orders, and one order of termination of insurance.” Among the orders is a civil money penalty imposed against a Kentucky-based bank related to alleged violations of the Federal Deposit Insurance Act for allegedly “deceptively advertising interest rates and fees for residential mortgage loans as the lowest on the market, with a promise of a ‘best rate guarantee,’ comparative shopping for such rates, and lower rates due to the bank’s fee structure.” The order requires the payment of a $425,000 civil money penalty.
Hsu discusses stablecoin standards
On April 27, acting Comptroller of the Currency Michael J. Hsu issued a statement regarding stablecoin standards after appearing before the Artificial Intelligence and the Economy: Charting a Path for Responsible and Inclusive AI symposium hosted by the U.S. Department of Commerce, National Institute of Standards and Technology, FinRegLab, and the Stanford Institute for Human-Centered Artificial Intelligence. According to Hsu, the internet has “technical foundations” that “provide for an open, royalty-free network.” He further noted that “[t]hose foundations did not emerge on their own. They were developed by standard setting bodies like IETF (Internet Engineering Task Force) and W3C (World Wide Web Consortium), which had representatives with differing perspectives, a shared public interest ethos, and a strong leader committed to the vision of an open and inclusive internet.” Hsu further stated that stablecoins do not have “shared standards and are not interoperable.” However, to make stablecoins “open and inclusive,” Hsu said that he believed that “a standard setting initiative similar to that undertaken by IETF and W3C needs to be established, with representatives not just from crypto/Web3 firms, but also from academia and government.” As previously covered by InfoBytes, Hsu discussed stablecoin policy considerations earlier this month in remarks before the Institute of International Economic Law at Georgetown University Law Center, calling for the establishment of an “intentional architecture” for stablecoins developed through principles of “[s]tability, interoperability and separability,” as well as “core values” of “privacy, security, and preventing illicit finance.”