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Agencies extend Regulation O relief for some companies controlled by funds
On December 15, the Fed, FDIC, and the OCC announced the issuance of an interagency statement to further extend the “Extension of the Revised Statement Regarding Status of Certain Investment Funds and their Portfolio Investments for Purposes of Regulation O and Reporting Requirements under Part 363 of FDIC Regulations.” The original statement was issued on December 22, 2022, with an expiration of January 1, 2024. The new interagency statement effectively extends the prior no-action position (covered by InfoBytes here) until either January 1, 2025 or the effective date of amendments to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex–controlled portfolio companies that are bank insiders.
The agencies noted that they will refrain from acting against banks extending credit to complex-controlled portfolio companies that would otherwise violate Regulation O, provided the company controls (directly or indirectly) less than 15 percent of the bank’s voting securities (or 20 percent under certain circumstances) and does not plan to place representatives or exercise a controlling influence over the bank. Additionally, the agencies will not pursue action against insured depository institutions for failing to report credit extensions that would violate Regulation O but fall under the interagency statement’s coverage. The agencies explained how credit extensions must be on “substantially the same terms as those prevailing for comparable transactions with unaffiliated third parties” and may not “involve more than normal risk of repayment or present other unfavorable features.”
Fed enters into written agreement with Ohio bank
On December 19, the Federal Reserve Board announced a written agreement with an Ohio state-chartered bank and its holding company to address certain deficiencies identified during a recent examination of the bank. Under the agreement, the bank and its holding company agreed to: (i) use the bank’s resources as a “source of strength”; (ii) submit a written plan to enhance board oversight and management; (iii) conduct a third-party assessment of the bank’s staff; (iv) submit an enhanced written investment policy that includes “periodic analysis of the investment portfolio, including, but not limited to the assessment of market risk, credit risk, interest rate risk, and liquidity risk of the underlying investments”; (v) improve the bank’s investment portfolio management and interest rate risk management practices; (vi) implement an enhanced liquidity risk management program; and (vii) submit a written plan regarding sufficient capital (among other corrective actions).
OCC issues cease-and-desist order to NY bank
On December 14, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals that are or were affiliated with such entities. Included is a cease-and-desist order against an upstate New York bank for allegedly engaging in unsafe or unsound practices, including on the bank’s corporate governance, capital planning, interest rate risk management, liquidity risk management, and reports of condition.
Under the order, the bank must appoint a compliance committee to take corrective action, submit a three-year strategic plan to establish objectives for the bank’s risk profile, earnings performance, growth, and balance sheet mix, among other areas, and maintain a capital ratio of at least 15 percent, a common equity tier 1 capital of at least equal to 14 percent, and a leverage ratio of at least ten percent. The order also requires the bank to create an interest rate risk program and a third-party risk management program.
FSB report addresses financial risk concerns with third-party relationships
On December 4, the Financial Stability Board (FSB) published a report titled “Enhancing Third-Party Risk Management and Oversight: A Toolkit for Financial Institutions and Financial Authorities,” as summarized in this press release. The report provides a toolkit that: (i) defines common terms to improve consistency among financial institutions, including “third-party service relationship,” “service provider,” and “critical service,” among others; (ii) outlines tools for financial institutions to identify critical third-party services and manage potential risks throughout the service lifecycle, onboarding and monitoring of service providers, and reporting incidents, among others; and (iii) outlines tools for financial authorities to manage third-party risks, including how to identify third-party dependencies and potential systemic risks. In preparing the report, the FSB received public feedback over the past summer regarding risk concerns stemming from outsourcing and third-party service relationships.
FTC announces settlement of charges against operators of alleged telemarketing training scheme
On December 11, the FTC issued a press release announcing proposed orders against the CEO and other related individuals and businesses of an income telemarketing training scheme. In connection with the settlement, the FTC filed a complaint in the U.S. District Court of the Middle District of Tennessee alleging violations of the FTC Act and the Telemarking and Consumer Fraud and Abuse Prevention Act. The FTC alleged that the defendants, a Tennessee-based group of companies, practiced deceptive and unlawful advertising, marketing, promotion, distribution, and selling of money-making and investment opportunities in offering a sales mentor program. The complaint alleges defendants performed these acts through several business entities via a telemarketing sales training and coaching program and through marketing practices on social media platforms. Since 2019, consumers paid more than $29 million to defendants for access to this sales training program.
The FTC filed two stipulated judgments for “permanent injunction, monetary judgment, and other reliefs.” The orders contain a total monetary judgment of $16.4 million. The stipulated orders also prohibit the defendants from: (i) making misleading earnings claims, so if the defendants make earnings claim in the future, they have to have a reasonable basis for those claims; and (ii) misrepresenting any sales of goods or services, including the description of the good or service, any past performance, any testimonials, any future predictions of profit earnings, among others. The defendants will also be required to turn over a total of $1 million to be used to refund harmed consumers, with one CEO ordered to pay $600,000 and the other defendants ordered to pay $400,000. All defendants neither admit nor deny any of the allegations in the complaint.
Freddie Mac standardizes down payment assistance programs
On December 4, Freddie Mac announced new, standardized mortgage documents aimed at of making down payment assistance (DPA) programs more accessible nationwide. According to Freddie Mac, the subordinate lien programs for DPA programs have been specific to particular housing finance agencies which created confusion. By standardizing these documents, Freddie Mac hopes to benefit lenders by making DPA programs more efficient.
To create the standardized documents, Freddie Mac partnered with Fannie Mae and state housing finance agencies. These documents will initially be available for 19 states, and eventually for all 50 states and the District of Columbia. These changes come in tandem with Freddie Mac’s new tool, DPA One®, to aggregate and showcase down payment assistance programs on a single platform.
CFPB comments on California DFPI licensing provisions, income-based advances
On December 1, the CFPB posted a blog entry sharing its comment letter responding to the California DFPI’s notice of proposed rulemaking for “income-based advances” from earlier this year. As previously covered by InfoBytes, the DFPI’s proposed regulations would, among other things, clarify licensing provisions and the applicability of the CFL to certain activities. Within the CFPB’s comment letter, it stressed the importance of regulatory consistency of consumer financial products and services across federal and state law. The letter noted the CFPB’s view that companies offering “income-based advances” (also marketed as “earned wage access”) are subject to federal oversight, and the CFPB supports state oversight of such companies as well. Moreover, the CFPB said that DFPI’s particular treatment of income-based advances takes a similar approach to TILA and Regulation Z and that the CFPB plans to issue further guidance regarding the applicability of TILA to these products.
DFPI opens comment period for the Digital Financial Assets Law
On November 20, DFPI announced it is seeking public comment before it begins its formal rulemaking process on its Digital Financial Assets Law (DFAL), which was enacted on October 13. As previously covered by InfoBytes, DFAL created a licensing requirement for businesses engaging in digital financial asset business activity and is effective on July 1, 2025.
For comments that recommend rules, DFPI encourages comments that “propose specific rule language and provide an estimate, with justification, of the potential economic impact on business and individuals that would be affected by the language.” Additionally, DFPI requests metrics, applicable information about economic impacts, or quantitative analysis to support comments. Among other topics, DFPI especially asks for comments related to (i) application fees and potential fee adjustments based on application complexity; (ii) surety bond or trust account factors; (iii) if capital minimums should vary by the type of activity requiring licensure; and (iv) its stablecoin approval process.
Comments must be received by January 12, 2024. On January 8, 2024, DFPI will host a Virtual Informal Listening Session with stakeholders to discuss feedback on this informal invitation for comments.
VA asks all mortgage servicers to pause all VA foreclosures, extends the Covid-19 Refund Modification program
On November 17, the U.S. Department of Veterans Affairs (VA) asked all mortgage servicers to pause any foreclosure proceedings of VA-guaranteed loans, as well as extended its Covid-19 Refund Modification program through May 2024. The VA acknowledges that the veteran community is struggling to make mortgage payments, despite VA-backed mortgages having some of the lowest foreclosure rates in the U.S. The VA’s extension of its Covid-19 Refund Modification program allows more veterans to get a zero-interest, deferred-payment loan to maintain affordable monthly payments. The VA wishes to delay any foreclosure proceedings so that it may continue to assist veterans before it launches its VA Servicing Purchase program, which will allow the VA to purchase defaulted VA loans, modify them, and create a direct loan so that veterans will have a chance at keeping their homes.
FTC approves measures for compulsory process use for AI-related products and services
On November 21, the FTC approved an omnibus resolution in a 3-0 vote, allowing the use of compulsory processes in nonpublic inquiries involving products and services produced or claimed to be produced by artificial intelligence (AI). This resolution aims to streamline the FTC staff's issuance of civil investigative demands (CIDs), in AI-related investigations while maintaining the Commission's authority to decide when CIDs are necessary. This resolution remains valid for 10 years.