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OCC finalizes CIF withdrawal period extensions
On May 21, the OCC issued an interim final rule, which finalizes a rule applicable to national banks and federal savings associations administering a collective investment fund (CIF) invested primarily in real estate or other assets that are not readily marketable. Specifically, under the OCC’s fiduciary activities regulation (12 CFR 9.18), a bank that is administering a CIF invested “primarily in real estate or other assets that are not readily marketable” may require a prior notice period of up to one year for withdrawals. As previously covered by Infobytes, in August 2020, the OCC issued an interim final rule which clarified rules regarding account withdrawals from CIFs in response to the Covid-19 pandemic. The recently released interim final rule codifies the August rule by allowing banks to request to extend the one-year redemption period by another year due to “unanticipated and severe market conditions for specific assets held by the fund,” subject to meeting certain conditions.
The interim final rule will be effective upon publication in the Federal Register.
OCC reconsiders CRA final rule
On May 18, the OCC announced it will reconsider its 2020 final rule overhauling the Community Reinvestment Act (CRA). As previously covered by a Buckley Special Alert, the 2020 final rule, finalized last year, was intended to modernize the regulatory framework implementing the CRA by, among other things: (i) updating deposit-based assessment areas; (ii) mandating the inclusion of consumer loans in CRA evaluations; (iii) including quantitative metric-based benchmarks for determining a bank’s CRA rating; and (iv) including a non-exhaustive illustrative list of activities that qualify for CRA consideration.
“While this reconsideration is ongoing, the OCC will not object to the suspension of the development of systems for, or other implementation of, provisions with a compliance date of January 1, 2023, or January 1, 2024, under the 2020 CRA rule,” the OCC stated. The agency further stressed that its decision to suspend compliance deadlines for the 2020 final rule “will provide for an orderly reconsideration of the June 2020 rule” and “provide the OCC with the opportunity to consider additional stakeholder input, to evaluate issues and questions that have been raised, to reassess the necessary data, and to take additional regulatory action, as appropriate.” The OCC also added that it does not plan to finalize a December 2020 proposed rule covering evaluation measure benchmarks, retail lending distribution test thresholds, and community development minimums under the new general performance standards outlined in the 2020 final rule (covered by InfoBytes here). Moreover, the agency will discontinue the CRA information collection published in the Federal Register last December.
However, the OCC noted that it will continue to implement certain provisions of the 2020 final rule with a compliance date of October 1, 2020, as outlined in OCC Bulletin 2020-99 (covered by InfoBytes here), and reminded banks to “maintain appropriate documentation for CRA examination purposes” as specified in the bulletin.
FDIC seeks input on digital assets
On May 17, the FDIC issued a notice and request for comments regarding information on insured depository institutions’ (IDIs) current and potential digital asset activities. The Request for Information (RFI) solicits input on digital asset use cases involving IDIs and their affiliates to help the agency “inform its understanding of the industry’s and consumers’ interests in this area.” According to the agency, there are “novel and unique considerations” connected to digital assets and “banks are increasingly exploring several roles in the emerging digital asset ecosystem, such as being custodians, reserve holders, issuers, and exchange or redemption agents; performing node functions; and holding digital asset issuers’ money deposits.” FDIC Chairman Jelena McWilliams states that digital asset areas have “seen rapid expansion and innovation in recent years” and that “[t]his RFI gives us an opportunity to gain additional insight into the market, and what role banks might play in the future.” The deadline for submitting comments for the RFI is July 16.
Federal regulators discuss Covid-19 responses and priorities
On May 19, the House Financial Services Committee held a hearing entitled “Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions.” Committee Chairwoman Maxine Waters (D-CA) opened the hearing by expressing her concerns about the “harmful deregulatory actions” taken by the previous administration’s appointees to “roll back key Dodd-Frank reforms and other consumer protections.” She noted, however, that she was pleased that the Senate is moving forward to reverse the OCC’s true lender rule and commented that she has asked House leadership to address the related Congressional Review Act resolution as soon as possible.
Fed Vice Chair for Supervision Randal K. Quarles provided an update on the Fed’s Covid-19 regulatory and supervisory efforts, noting that the Fed has “worked to align [the Fed’s] emergency actions with other relief efforts as the economic situation improves” and is maintaining or extending some measures to promote continued access to credit. When Congresswoman Velazquez inquired how government programs like the Paycheck Protection Program helped to stabilize businesses and improve the overall economy, Quarles answered, “We would have experienced a much deeper and more durable economic contraction, and would have had more lasting economic scarring with closed businesses and defaulting obligations [] had those programs not been put in place.”
OCC Comptroller Michael Hsu discussed the agency’s increasing coordination with other federal and state regulators on fintech policy, in addition to OCC efforts to strengthen Community Reinvestment Act (CRA) regulations and address climate change. The OCC has been encouraging innovation, Hsu said, but added that his “broader concern is that these initiatives were not done in full coordination with all stakeholders. Nor do they appear to have been part of a broader strategy related to the regulatory perimeter.” In his written testimony, Hsu emphasized his concerns with providing charters to fintechs, noting that in doing so, it would “convey the benefits of banking without its responsibilities,” but also “that refusing to charter fintechs will encourage growth of another shadow banking system outside the reach of regulators.” Hsu expressed in his oral statement the importance of finding “a way to consider how fintechs and payment platforms fit into the banking system” and emphasized that it must be done in coordination with the FDIC, Fed, and the states. He also explained that “the regulatory community is taking a fragmented agency-by-agency approach to the technology-driven changes taking place today. At the OCC, the focus has been on encouraging responsible innovation. For instance, we updated the framework for chartering national banks and trust companies and interpreted crypto custody services as part of the business of banking.” When Congressman Bill Huizenga (R-MI) asked how the OCC planned to address the “true lender” rule, which would soften the regulations for national banks to sell loans to third parties, Hsu stated that the OCC originally intended to review the rule, but that after the Senate passed S.J.Res. 15 to invoke the Congressional Review Act and provide for congressional disapproval and invalidation of the rule (covered by InfoBytes here), the agency decided to leave it up to congressional deliberation and will monitor it instead.
FDIC Chairman Jelena McWilliams discussed, among other things, the FDIC’s policy of granting industrial loan company charters. As previously covered by Infobytes, the agency approved a final rule in December 2020 establishing certain conditions and supervisory standards for the parent companies of industrial banks and ILCs. McWilliams defended the FDIC’s new rule during the hearing, stating it “ensures that the parent company serves as a source of financial strength for the ILC while providing clarity about the FDIC's supervisory expectations of both the ILC and its parent company.”
NCUA Chairman Todd Harper also outlined agency measures taken in response to the pandemic. Among other things, Harper noted that the NCUA is supporting low-income credit unions through the Community Development Revolving Loan Fund and that the agency is working to strengthen its Consumer Financial Protection Program (CFPP) to ensure fair and equitable access to credit. During the hearing, Harper stated, “there is an increased emphasis on fair lending compliance, and agency staff are studying methods for improving consumer financial protection supervision for the largest credit unions not primarily supervised by the CFPP.”
FDIC announces Tennessee disaster relief
On May 14, the FDIC issued FIL-33-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Tennessee affected by severe storms, tornadoes, 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.
FDIC chairman addresses the importance of innovation
On May 11, FDIC Chairman Jelena McWilliams spoke at the Federalist Society Conference about the Dodd-Frank Act in a post Covid-19 environment and the future of financial regulation. Among other topics, McWilliams emphasized the importance of promoting innovation through inclusion, resilience, amplification, and protecting the future of the banking sector. McWilliams pointed out that “alternative data and AI can be especially important for small businesses, such as sole proprietorships and smaller companies owned by women and minorities, which often do not have a long credit history” and that “these novel measures of creditworthiness, like income streams, can provide critical access to capital” that otherwise may not be possible to access. McWilliams also discussed an interagency request for information announced by the FDIC and other regulators in March (covered by InfoBytes here), which seeks input on financial institutions’ use of AI and asks whether additional regulatory clarity may be helpful. McWilliams also added that rapid prototyping helps initiate effective reporting of more granular data for banks. Additionally, McWilliams addressed agency’s efforts to expand fintech partnerships through several initiatives intended to facilitate cooperation between fintech groups and banks to promote accessibility to new customers and offer new products. Concerning the ability to confront the direct cost of developing and deploying technology at any one institution, McWilliams added that “there are things that we can do to foster innovation across all banks and to reduce the regulatory cost of innovation.”
NYDFS, insurance company reach $1.8 million cyber breach settlement
On May 13, NYDFS announced a settlement with an insurance company to resolve allegations that the broker violated the state’s cybersecurity regulation (23 NYCRR Part 500) by failing to implement multi-factor authentication or reasonably equivalent or more secure access controls. Under Part 500.12(b), covered entities are required to implement such protocols (see FAQs here). NYDFS’s investigation also revealed that the insurance company falsely certified its compliance with the cybersecurity regulation for 2018. Under the terms of the consent order, the company will pay a $1.8 million civil monetary penalty and will undertake improvements to strengthen its existing cybersecurity program to ensure compliance with 23 NYCRR Part 500. NYDFS acknowledged the broker’s “commendable” cooperation throughout the examination and investigation and stated that the broker had demonstrated its commitment to remediation.
FDIC fines Oregon-based bank for unfair and deceptive collection practices
On May 10, the FDIC announced that an Oregon-based bank has agreed to settle allegations of unfair and deceptive practices in violation of Section 5 of the FTC Act related to a wholly owned subsidiary’s debt collection practices for commercial equipment financing. According to the FDIC, the subsidiary unfairly and deceptively charged various undisclosed collection fees—such as collection call and letter fees and third-party collection fees—to borrowers with past due accounts. The FDIC additionally claimed that some of the subsidiary’s collection practices were also unfair and deceptive, including (i) placing excessive and sequential collection calls to borrowers even after requests were made to stop the calls; (ii) disclosing borrowers’ debt information to third parties; and (iii) telling borrowers that their commercial debt would be reported as delinquent to the consumer reporting agencies (CRAs), even though its policy and practice was to not report such delinquencies to the CRAs. Under the terms of the settlement order, the bank, which does not admit nor deny the violations, will voluntarily pay an approximately $1.8 million civil money penalty.
Fed continues to allow bank insiders access to PPP loans
On May 14, the Federal Reserve Board announced the third extension of a temporary exception from the requirements of section 22(h) of the Federal Reserve Act and corresponding provisions of Regulation O to allow certain bank directors and shareholders to apply for Small Business Administration (SBA) Paycheck Protection Program (PPP) loans from their affiliated banks. The extension is effective immediately and applies to PPP loans made from March 31 through June 30. If the PPP is extended, the rule change will ultimately end on March 31, 2022. The Fed reiterated that any PPP loans extended to bank directors and shareholders must be consistent with SBA’s PPP lending restrictions and done without favoritism from the bank. The original extension was announced on April 17 (covered by InfoBytes here).
Fed will resume HMDA quarterly reporting
On May 14, the Federal Reserve’s Division of Consumer and Community Affairs issued a letter informing supervised financial institutions that HMDA quarterly reporting will resume beginning with institutions’ 2021 first quarter data, due on or before May 31, 2021, for all covered loans and applications with a final action taken date between January 1 and March 31, 2021. As previously covered by InfoBytes, last year the Fed eased quarterly HMDA reporting requirements during the Covid-19 pandemic in order to provide supervised institutions with flexibility to reallocate resources to serving customers. The Fed’s newest letter, which supersedes previous guidance, notes that it “does not intend to cite in an examination or initiate an enforcement action against any entity that did not make the quarterly filing for data collected in 2020.”