InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Fed extends TILA disclosure requirements
On September 1, the Federal Reserve Board adopted a proposal to extend the recordkeeping and disclosure requirements associated with the TILA, implemented by Regulation Z for three years, with revision. While Dodd-Frank transferred rule-writing authority for Fed-supervision institutions under Regulation Z to the CFPB, the Fed is taking action to “minimize burden on small entities through tailored supervision, including through a risk-focused consumer compliance supervision program and an examination frequency policy that provides for lengthened time between examinations for institutions with a lower risk profile.” As previously covered by InfoBytes, the Board proposed in April to revise FR Z (OMB No. 7100-0199) to: (i) include burden connected to disclosure requirements in “rules issued by the Bureau since the Board’s last Paperwork Reduction Act (PRA) submission, as well as for one information collection for which the Bureau estimates burden” but the Board formerly did not; (ii) break out and clarify “burden estimates” that were formerly consolidated; and (iii) eliminate burden associated with some requirements due to the Bureau accounting for burden for the entire industry, or because the burden is now deemed a part of an institution’s usual and customary business practices. The revisions will be implemented as proposed and are effective immediately.
NYDFS: Regulated insurers should expedite Ida-related claims
On September 2, NYDFS advised regulated insurers to expedite Tropical Depression Ida-related insurance claims. Emphasizing the severity of damage experienced by homeowners and businesses, NYDFS urged insurers to work towards a fair and speedy resolution of claims. In addition to outlining expectations related to the claims process, NYDFS noted that it will also “expedite the issuance of temporary adjustor permits as necessary to qualified out-of-state independent insurance adjusters pursuant to New York Insurance Law” to increase the number of available adjusters to process claims.
NYDFS offers guidance on preventing sexual orientation discrimination in mortgage lending
On August 31, NYDFS issued new guidance to regulated mortgage lenders for developing and implementing programs to comply with the state’s fair lending law, which “prohibits discrimination in, among other things, the granting, withholding, extending, or renewing, or in the fixing of the rates, terms, or conditions of any form of credit on the basis of sexual orientation.” According to an analysis conducted by NYDFS of mortgage loan applications and mortgage loan terms (between 2016 and 2018) from four non-depository lenders and one bank, “in all but two of the fifteen data sets reviewed, same-sex pairs of applicants were denied mortgage loans at higher rates than opposite-sex pairs of applicants.” Additionally, the analysis found that “in six of the data sets, same-sex pairs received between 9 and 17 basis points higher average annual percentage rates than opposite-sex pairs.” NYDFS emphasized that a “same-sex pair” does not necessarily involve LGBTQI individuals, but could also be a mortgage loan application from a father and son or two business partners of the same sex, among other pairings. As such, NYDFS acknowledged that it was “unable to determine with certainty whether discrimination based on sexual orientation occurred as to any particular same-sex pair within the data set.”
However, because NYDFS concluded that its findings raised enough concerns over the potential for discrimination against LGBTQI mortgage applicants, NYDFS advised mortgage lenders to take the following actions, among others, to mitigate discrimination: (i) vest responsibility in senior management to develop a fair lending plan and ensure mortgage lending practices comply; (ii) monitor the implementation of the fair lending plan and “continually address[] application and underwriting processes as well as pricing policies”; (iii) implement a training program and semi-annually provide updates on fair lending issues; (iv) “[e]nsure automatic and timely review by a higher-level supervisor of all rejected or withdrawn applications for loans from same-sex pairs who indicated that they would live together in the mortgaged property; (v) extend (in writing) a fair lending plan’s principles to a mortgage lender’s refinancing and collection practices; and (vi) periodically review and update fair lending compliance programs and fair lending plans to ensure they remain current. Mortgage lenders are also advised to utilize rate sheets and exception logs to document applications from same-sex pairs, document approved loans for such applicants that received less favorable terms, and conduct statistical and regression analysis of loan data.
Agencies provide guidance on Hurricane Ida and California wildfires
Recently, the FDIC, Federal Reserve Board, NCUA, OCC, and the Conference of State Bank Supervisors issued joint statements covering supervisory practices for financial institutions affected by Hurricane Ida and the California wildfires (see here and here). Among other things, the agencies informed institutions facing operational challenges that the regulators will expedite requests for temporary facilities, noting that in most cases, “a telephone notice to the primary federal and/or state regulator will suffice initially to start the approval process, with necessary written notification being submitted shortly thereafter.” The agencies also called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by Hurricane Ida and the California wildfires.
DOJ, OCC settle redlining allegations
On August 30, the DOJ and the OCC announced coordinated efforts to resolve allegations of lending discrimination by a Georgia-based bank for violations of the Fair Housing Act and ECOA by allegedly redlining predominantly Black and Hispanic neighborhoods in Texas from 2013-2017. The OCC, which referred the matter to DOJ, ordered the bank to pay a $3.3 million civil money penalty. Under the DOJ’s settlement, the bank will invest more than $5.5 million to increase credit opportunities for residents of those neighborhoods.
FDIC releases July enforcement actions
On August 27, the FDIC released a list of administrative enforcement actions and one Notice of Charges taken against banks and individuals in July. During the month, the FDIC issued nine orders consisting of “three Orders to Pay Civil Money Penalties, two Orders of Prohibition from Further Participation, three Section 19 Orders, and one Order Terminating Consent Order.” Among the orders is a civil money penalty imposed against a Kansas-based bank concerning alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “made, increased, extended, renewed, sold, or transferred a loan secured by a building or mobile home located or to be located in a special flood hazard area without properly notifying the Administrator of FEMA or their designee.” The order requires the payment of a $9,500 civil money penalty.
The FDIC also imposed a civil money penalty against a Missouri-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank (i) “[m]ade, increased, extended or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; (ii) “[m]ade, increased, extended or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral”; and (iii) “[f]ailed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $4,000 civil money penalty.
Agencies issue fintech guidance for community banks
On August 27, the FDIC, OCC, and Federal Reserve Board released a guide as part of its efforts to promote and support the adoption of new technologies by financial institutions. (See also FIL-59-2021 and OCC Bulletin 2021-40.) The Conducting Due Diligence on Financial Technology Companies: A Guide for Community Banks is intended to help community banks conduct due diligence when considering relationships with prospective fintech companies. Among other things, the guide addresses six key due diligence topics for community banks to consider, including (i) business experience, strategic goals, and qualifications; (ii) financial conditions and market information; (iii) legal and regulatory compliance; (iv) risk management policies, processes, and controls; (v) information security programs; and (vi) operational resilience, such as business continuity planning, incident response, service level agreements, and reliance on subcontractors. The guide also provides practical sources of information that may be useful when evaluating fintech companies. The agencies note that use of the guide, which is consistent with the FDIC’s Guidance for Managing Third-Party Risk, is voluntary and that the guide does not anticipate all types of fintech relationships and risks. Consistent with risk-based programs, a community bank may tailor how it uses the information “based on specific circumstances, the risks posed by each third-party relationship, and the related product, service, or activity. . . offered by the fintech company.”
OCC says banks affected by Hurricane Ida may close
On August 27, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by Hurricane Ida “for as long as deemed necessary for bank operation or public safety.” The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, it is generally expected that only bank offices directly affected by potentially unsafe conditions should close and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
FDIC announces Tennessee disaster relief
On August 26, the FDIC issued FIL-58-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Tennessee affected by severe storms and flooding. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested 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 noted 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 regulatory relief from certain filing and publishing requirements.
OCC cites preemption decision in valid-when-made rule challenge
On August 24, the OCC filed a statement of recent decision in support of its motion for summary judgment in an action brought against the agency by several state attorneys general challenging the OCC’s final rule on “Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred” (known also as the valid-when-made rule). The final rule was designed to effectively reverse the U.S. Court of Appeals for the Second Circuit’s 2015 Madden v. Midland Funding decision and provide that “[i]nterest on a loan that is permissible under [12 U.S.C. § 85 for national bank or 12 U.S.C. § 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.” (Covered by a Buckley Special Alert.) The states’ challenge argued that the rule “impermissibly preempts state law,” is “contrary to the plain language” of section 85 (and section 1463(g)(1)), and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the states contended that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule, essentially enabling “‘rent-a-bank’ schemes.” (Covered by InfoBytes here.) Both parties sought summary judgment, with the OCC arguing that the final rule validly interprets the National Bank Act (NBA) and that not only does the final rule reasonably interpret the “gap” in section 85, it is consistent with section 85’s “purpose of facilitating national banks’ ability to operate their nationwide lending programs.” Moreover, the OCC asserted that 12 U.S.C. § 25b’s preemption standards do not apply to the final rule, because, among other things, the OCC “has not concluded that a state consumer financial law is being preempted.” (Covered by InfoBytes here.)
In its August 24 filing, the OCC brought to the court’s attention a recent order issued by the U.S. District Court for the Western District of Wisconsin. As previously covered by InfoBytes, the Wisconsin court reviewed claims under the FDCPA and the Wisconsin Consumer Act (WCA) against a debt-purchasing company and a law firm hired by the company to recover outstanding debt and purported late fees on the plaintiff’s account in a separate state-court action. Among other things, the court examined whether the state law’s notice and right-to-cure provisions were federally preempted by the NBA, as the original creditor’s rights and duties were assigned to the debt-purchasing company when the account was sold. The court ultimately concluded that the WCA provisions “are inapplicable to national banks by reason of federal preemption,” and, as such, the court found “that a debt collector assigned a debt from a national bank is likewise exempt from those requirements” and was not required to send the plaintiff a right-to-cure letter “as a precondition to accelerating his debt or filing suit against him.”