InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
OCC Issues Bulletin Regarding Mandatory Contractual Stay Requirements for Qualified Financial Contracts
On October 3, the OCC issued Bulletin 2016-31 seeking comment on a proposed rule intended to “enhance the resilience and the safety and soundness of federally chartered and licensed financial institutions.” Pursuant to the proposal, a covered bank would be required to ensure that a covered qualified financial contract (i) contains a contractual stay-and-transfer provision equivalent to those contained in the Dodd-Frank Act’s stay-and-transfer provision under title II and in the Federal Deposit Insurance Act; and (ii) restricts the use of default rights based on an affiliate’s insolvency. Moreover, the proposal would “make conforming amendments in certain definitions in the capital adequacy standards in 12 CFR 3 and the liquidity risk measurement standards in 12 CFR 50.” Comments on the proposed rule are due by October 18, 2016.
Revised MLA Examination Procedures Released
On September 29, the Federal Reserve released the interagency examination procedures for the DOD’s Military Lending Act (MLA) final rule published in July of 2015. Also on September 29, the CFPB released its own examination procedures under the final rule, providing guidance as to how the CFPB will conduct reviews under what will be a broader scope of coverage under the MLA, including credit cards, deposit advance products, overdraft lines of credit (not traditional overdraft services), and certain types of installment loans. The final rule goes into effect on Monday, October 3 for most extensions of consumer credit to active duty servicemembers and their dependents.
Fed Proposal Would Modify Stress Tests for Large, Noncomplex Bank Holding Companies
On September 26, the Federal Reserve released a proposed rule that would essentially remove bank holding companies defined to be “large and noncomplex” from the qualitative portion of annual Comprehensive Capital Analysis and Review (CCAR) assessment process (“stress tests”). Under the proposed rule, large and noncomplex bank holding companies are those with total consolidated assets of at least $50 billion, but less than $250 billion, less than $10 billion in foreign exposure, and less than $75 billion in average nonbank assets. Currently, the Fed applies the CCAR process to bank holding companies with more than $50 billion in total consolidated assets. Fed Governor Daniel Tarullo indicated that the Fed was also considering adoption of a “stress capital buffer” approach for larger, global systemically important banks (GSIB). The new approach would replace the uniform 2.5-percent capital conservation buffer, and would instead require GSIBs to retain capital “equal to the maximum decline in a firm's common equity tier 1 capital ratio under the severely adverse scenario of the supervisory stress test before the inclusion of the firm's planned capital distributions.”
Fed Proposes Restrictions on Financial Holding Companies' Physical Commodities Activities
On September 23, the Federal Reserve released a proposed rule outlining new risk-based capital and other regulatory requirements for banks that transact in physical commodities. Among other things, the proposed rule would require financial holding companies to retain additional capital if the company is engaged in activities involving commodities for which existing laws impose certain environmental liability. The rule also looks to accomplish the following: (i) to restrict the amount of physical commodity trading activity firms may conduct; (ii) to rescind authorizations that allow firms to engage in physical commodity activities involving power plants; (iii) to remove copper from the list of precious metals that all bank holding companies are permitted to own and store; and (iv) to establish reporting requirements on the nature and extent of firms' physical commodity holdings and activities. In the memo discussing the proposal, the Fed indicated that it was addressing circumstances where “damages can exceed the market value of the physical commodity involved in the catastrophic events, and can exceed the committed capital and insurance policies of the organization.” The deadline to submit comments is set at December 22.
Federal Court Denies FinCEN's Second Attempt to Ban Foreign Bank
On September 21, the U.S. District Court for the District of Columbia stayed enforcement of FinCEN’s second attempt to cut off a Tanzania-based bank’s access to the U.S. banking system. The dispute originated from FinCEN’s attempt to prohibit domestic financial institutions from opening or maintaining correspondent accounts on behalf of the foreign bank under the authority of Section 311 of the USA PATRIOT ACT, which authorizes FinCEN take special measures against banks of primary money laundering concern. FinCEN first promulgated a final rule imposing the prohibition in July 2015, which was enjoined by the court in August, 2015. FinCEN agreed to a voluntary remand to correct deficiencies in its rulemaking process, such as providing the bank access to declassified information and considering the use of less drastic measures to address its concerns. In March 2016, FinCEN promulgated a revised final rule in which it indicated that the bank’s AML compliance remained inadequate and that the bank continued to engage in “illicit financial activity.” Upon a second review, the court again found that FinCEN had failed to adequately disclose declassified information to the bank prior to releasing the revised final rule, and did not properly respond to other of the bank’s concerns. In addition, the court was not satisfied that FinCEN had made the required consultations with other executive-branch agencies as required by statute.
Credit Union National Association: Credit Unions Remain Exempt from the FDCPA
On September 9, the Credit Union National Association (CUNA) sent a letter to the CFPB regarding the CFPB’s initial outline of the proposed rule for third party debt collectors. The letter asserts that, since the Fair Debt Collection Practices Act (FDCPA) was enacted, credit unions have been exempt from the statute’s rules and that to extend any rulemaking pursuant to the statute to include credit unions would be “unlawful.” The CUNA distinguishes credit unions from for-profit debt collectors subject to the FDCPA, claiming that credit unions’ collection approach is more holistic: “They are not just interested in short-term efforts of collecting a debt; instead, they try to find out the specific cause of their member’s financial challenge.” The CUNA is concerned that certain aspects of the CFPB’s proposal as outlined, including the “highlight technical substantiation and oversight requirements,” would negatively impact credit unions. The CUNA reminded the CFPB that pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA), it is required to consider the recommendations in its letter before finalizing any rule.
SEC Appoints New Deputy Associate Director in Division of Investment Management's Rulemaking Office
On September 7, the SEC named Sarah G. ten Siethoff Deputy Associate Director in the Division of Investment Management’s Rulemaking Office. Since joining the SEC in 2008, Ms. ten Siethoff has served in various roles in the Division’s Rulemaking Office, including Assistant Director, Senior Special Counsel, and Senior Counsel. In her new role, Ms. ten Siethoff will, among other things, recommend rulemaking and other policy initiatives under the Investment Company and the Investment Advisers Acts of 1940. Prior to joining the SEC in 2008, Ms. ten Siethoff worked as an associate in private practice.
CFPB Issues Proposed Rule Seeking to Amend Procedures for Disclosing Certain Confidential Information
On August 24, the CFPB published a proposed rule seeking to amend procedures used by persons in the public domain to obtain information from the CFPB under the Freedom of Information Act, the Privacy Act of 1974 and legal proceedings. In part, the proposal also seeks to revise the 2013 final rule related to the “exchange of confidential supervisory information (CSI) with certain agencies.” Specifically, the CFPB proposes to remove the standard for sharing CSI, thereby utilizing the same standard for sharing information that is not considered CSI and giving the CFPB the discretion to disclose CSI to another agency “to the extent that the disclosure of the information is relevant to the exercise of the [agency’s] statutory or regulatory authority.” Among other things, if accepted, the proposal may allow the CFPB to establish a CSI sharing regime to include state attorneys general and other agencies without supervisory power. Comments are due by October 24, 2016.
Industry Groups Voice Concern that the CFPB's Arbitration Proposal Fails to Provide Protection for Consumers
On August 22, the American Bankers Association, the Consumer Banks Association, and the Financial Services Roundtable sent a letter to CFPB Director Cordray regarding the agency’s proposed arbitration rule. According to the Associations, the CFPB’s proposal seeking to impose certain restrictions on the use of mandatory pre-dispute arbitration clauses is inconsistent with the agency’s March 2015 study of consumer arbitration and fails to meet the Dodd-Frank requirements that it provide consumer protection and satisfy the public interest. Arguing that consumers will “truly suffer if the proposed rule becomes final,” the letter highlights the following concerns: (i) due to the “surge” of additional class actions, consumers, as tax payers, will be forced to pay for the increased costs to the court systems; (ii) as litigants, they will face backlogs as court systems experience delays in administering and resolving the class action suits; (iii) as customers of financial service providers, they will be subject to increased prices and/or reduced services because “the billions of dollars in class action litigation costs will be passed through them in whole or in part”; and (iv) consumers will lose the benefits of arbitration, including efficiency, convenience, and fewer costs. The Associations contend that the proposal, if passed, would be particularly restricting for small dollar “non-classable” claims. The Associations further their argument against the proposal by pointing to various inconsistencies with the conclusions outlined in the CFPB’s March 2015 study. Moreover, the letter asserts that the CFPB’s 2015 study was “incomplete” because it failed to address and analyze several key issues that would further demonstrate the proposed rule’s shortcomings with respect to public interest, including, among other things, consumer satisfaction with arbitration and the potential impact the removal of arbitration would have on consumers and the public. The Association’s recommendation that the CFPB not proceed with finalizing its proposal is one of many submitted to the agency, including a recent letter from various House Republicans expressing concern that the proposal “will choke off access to products and services that help consumers manage their creditworthiness, monitor changes in their credit reports, and protect themselves against identity theft.” The influx of comments on the proposal came at the close of its comment due date, August 22, 2016.
FinCEN Issues Proposed Rule to Remove AML Exemption for Certain Banks
On August 26, FinCEN published a proposed rule that seeks to impose AML program requirements on banks that are without a Federal functional regulator, including, but not limited to, private banks, non-federally insured credit unions, and certain trust companies. FinCEN estimates that there are 740 such banks nationwide. The proposal would establish minimum AML program standards for such banks. In addition, if finalized, the proposed rule would expand the reach of FinCEN’s customer due diligence final rule to cover banks that are not already subject to the rule’s customer identification program requirements and beneficial ownership requirements. FinCEN issued the proposal to ensure that Bank Secrecy Act coverage is consistent across the industry. Comments on the proposal must be submitted to FinCEN by October 24, 2016.