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CFPB issues final remittance rule extending safe harbor and providing compliance exceptions
On May 11, the CFPB issued final amendments to the Remittance Transfer Rule (Final Rule), which implements the Electronic Fund Transfer Act and imposes requirements on insured institutions that handle international money transfers—also known as remittance transfers—on behalf of consumers. The Final Rule follows a notice of proposed rulemaking issued last December (covered by InfoBytes here). Among other things, the Final Rule grants a permanent safe harbor from exact remittance cost disclosures to insured institutions that do fewer than 500 remittances annually in the current and prior calendar years.
The Final Rule also addresses anticipated compliance challenges following the July 21 expiration of an existing exemption that allows certain insured institutions to disclose estimated exchange rates and third-party money transfer fees. Specifically, the Final Rule adopts a new, permanent exception that permits insured institutions to estimate the exchange rate for a remittance transfer to a particular country if, among other things, the remittance payment is made in the local currency of the designated recipient’s country and the insured institution processing the transaction made 1,000 or fewer remittance payments to that country in the previous calendar year. A second permanent exception will allow insured institutions to estimate covered third-party fees for remittance transfers to a recipient’s institution provided, among other things, the insured institution made 500 or fewer remittance transfers to the recipient’s institution in the prior calendar year. While the adopted final amendments will take effect July 21, the Bureau is adopting a transition period for both exceptions that will allow insured institutions that exceed the 1000-transfer or 500-transfer thresholds to “provide estimates for a reasonable period of time while they come into compliance with the requirement to provide exact amounts.”
The Bureau also reminded institutions of its April 10 policy statement (covered by InfoBytes here), which established a temporary exception allowing institutions providing remittance transfers to estimate these fees to consumers in light of the Covid-19 pandemic. From July 1 until January 21, 2021, the Bureau will not cite supervisory violations or initiate enforcement actions against certain institutions for disclosing estimated fees and exchange rates.
Agencies finalize policy changes to CECL
On May 8, the FDIC, Federal Reserve Board, OCC, and NCUA finalized an interagency policy statement on allowances for credit losses and interagency guidance on credit risk review systems. As previously covered by InfoBytes, the proposed policy statement and interagency guidance were released in October 2019.
The final policy statement describes the measurement of expected credit losses under the current expected credit losses (CECL) methodology. The CECL methodology determines allowances for credit losses applicable to financial assets measured at amortized cost, loans held-for-investment, net investments in leases, held-to-maturity debt securities, and certain off-balance-sheet credit exposures. The policy statement also stipulates financial assets for which the CECL methodology is not applicable, and includes supervisory expectations for designing, documenting, and validating expected credit loss estimation processes. The final policy statement becomes applicable to an institution upon that institution’s adoption of a CECL methodology.
The interagency credit risk review systems guidance—which is relevant to all institutions supervised by the agencies—updates the 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses to reflect the CECL methodology. The guidance “discusses sound management of credit risk, a system of independent, ongoing credit review, and appropriate communication regarding the performance of the institution's loan portfolio to its management and board of directors.” Furthermore, the guidance stresses that financial institution employees involved with assessing credit risk should be independent from an institution’s lending function.
See also FDIC FIL-54-2020 and FIL-55-2020 and OCC 2020-49 Bulletin and 2020-50 Bulletin.
Agencies extend two resolution plan filing deadlines
On May 6, the FDIC and Federal Reserve extended the following two upcoming resolution plan filing deadlines for certain banks in light of recent challenges arising from Covid-19:
- September 29, 2020 (90 day extension). This extension applies to the four institutions required to submit plans to address previously identified shortcomings.
- September 29, 2021 (90 day extension). This extension applies to the targeted resolution plans to be submitted by large foreign and domestic Category II and Category III banks under the agencies’ large bank regulatory framework.
Resolution plans for the eight global systemically important banks are still due July 1, 2021, however the agencies noted that they “will monitor conditions and may adjust this deadline if warranted.”
SBA, Treasury extend PPP certification safe harbor
During the week ending May 8, the Small Business Administration (SBA) in consultation with the Treasury Department (Treasury) updated the Paycheck Protection Program (PPP) Frequently Asked Questions (FAQs) to, among other things, provide guidance on the PPP safe harbor and counting a small business’s employees for the 500 or fewer employee requirement. As previously covered by InfoBytes, the SBA will deem that the borrower certification on a loan application was made in good faith if a recipient of a PPP loan prior to April 24 determines it may have other forms of liquidity and repays the loan by the safe harbor deadline of May 7. SBA extended the safe harbor for repayment from May 7 to May 14. The FAQs also provide that a small business must include foreign affiliate employees when calculating how many people it employs for purposes of determining if the business meets the PPP eligibility requirement of 500 or fewer employees. Additionally, the updated FAQs also explain that a PPP loan recipient that makes a good faith attempt, in writing, to rehire a furloughed employee, will not be penalized by a reduction in loan forgiveness it receives if that employee rejects the offer. New FAQs also cover how to calculate maximum PPP loan amounts for seasonal employers and whether nonprofit hospitals qualify for PPP loans.
FCC changes TCPA enforcement under TRACED Act
On May 1, the FCC issued an order announcing the Commission will no longer send entities outside its jurisdiction warnings prior to commencing an enforcement action related to TCPA robocall violations. Specifically, the order, as mandated under Section 3 of the TRACED Act (covered by InfoBytes here), (i) removes provisions that previously required the FCC to issue a warning prior to imposing penalties for making robocalls; (ii) increases the maximum fine that the FCC can assess for robocall violations to $10,000 per intentional unlawful call, in addition to a forfeiture penalty amount; and (iii) extends the statute of limitations to four years for the FCC to investigate and take enforcement action against an entity that violates the TCPA. The order takes effect 30 days after publication in the Federal Register.
Fed extends initial compliance dates for certain parts of SCCL
On May 1, the Federal Reserve Board (Fed) announced it would extend the initial compliance dates for certain parts of its single-counterparty credit limit rule (SCLL), which was approved in 2018 and limits a U.S. bank holding company’s or foreign banking organization’s credit exposure to another counterparty. As previously covered by InfoBytes, the Fed initially proposed the extension last November. Under the extension, the largest foreign banks subject to the single-counterparty credit limit rule will have until July 1, 2021 to comply, while smaller foreign banks will not be required to comply until January 1, 2022.
Fed, OCC, FDIC respond to Crapo’s PPP support letter
In April, Senator Mike Crapo (R-ID), Chairman of the Senate Banking Committee, received replies to an April 8 letter he sent to the Federal Reserve (Fed), OCC, NCUA, and FDIC, which urged the regulators to “strengthen the Paycheck Protection Program” (PPP) and requested that they provide recommendations to assist the market as well as lenders and borrowers affected by Covid-19.
The Fed highlighted how it has strengthened the PPP, stating it: (i) eased “leverage requirements for community banks”; (ii) “published rules delaying the impact on regulatory capital of new loan-loss accounting standards”; (iii) created a new lending facility for the PPP; (iv) jointly with the FDIC, and OCC, “issued an interim final rule to clarify that a zero percent risk weight applies to PPP loans and to neutralize the regulatory capital effects of participating in the new PPP lending facility, helping preserve the flow of credit to small businesses”; (v) “encouraged institutions to use their capital buffers for their primary purpose: to support safe and sound lending throughout the credit cycle”; and (vi) provided suggestions for “congressional action to improve regulatory flexibility.”
The OCC’s replied that it has taken the following actions, among others, to support the PPP: (i) “encouraged banks to work with customers affected by” the pandemic; (ii) “encouraged banks to use the [Fed’s] discount window”; (iii) encouraged use of capital and liquidity buffers by banks; (iv) issued a joint statement with five regulatory agencies promoting “responsible small-dollar loans to consumers and small businesses”; (v) jointly issued interim final rules regarding regulatory capital and deferral of real estate appraisals; and (vi) coordinated listening sessions on the PPP.
The FDIC stated it is working to provide “necessary flexibility to both banks and their customers.” The agency’s response also enumerated several other actions it has taken to promote the PPP, including that it: (i) created a PPP information page on their website; (ii) shared bank questions and concerns with the Small Business Administration (SBA); (iii) created bank frequently asked questions; (iv) issued a financial institution letter referencing resources from the SBA and the Treasury; (v) continues to “provid[e]…resources to our examination teams so they” can better answer questions from regulated institutions; and (vi) jointly with other regulatory agencies, issued guidance on current expected credit losses methodology and community bank leverage ratio. The FDIC also reported possible supplementary and tier 1 leverage ratio changes.
CFPB issues FAQs on ECOA and PPP applications
On May 6, the CFPB issued three clarifying FAQs regarding ECOA and Regulation B loan denial and adverse action notice requirements as they relate to the Paycheck Protection Program (PPP). The three FAQs provide the following clarifications of the requirements for notification of action:
- Notice of Action Taken. A PPP application is not determined to be a “completed application” under Regulation B for purposes of a notice of action taken until a creditor receives a loan number from the SBA or a response about the availability of funds. Once the creditor has received a loan number from the SBA or a response about the availability of funds, the creditor has 30 days to notify the applicant of the action taken on the application.
- Adverse Action Notice. If a creditor “refus[es] to grant” a PPP credit request without ever submitting the loan to the SBA, the creditor is still required under Regulation B to provide an adverse action notice within 30 days and provide the applicant with the specific reason for the denial.
- Denial for Incompleteness. If the creditor has received sufficient information from the applicant for a credit decision, but has not received a loan number from the SBA or a response about the availability of funds, under Regulation B, the creditor may not deny the application based on incompleteness. An application can only be denied for incompleteness if the application is missing information the applicant can provide—not the SBA.
Regulators modify liquidity coverage rule for MMM and PPP participants
On May 5, the Federal Reserve Board, the OCC, and the FDIC announced an interim final rule that modifies the agencies’ Liquidity Coverage Ratio (LCR) rule to support participation in the Federal Reserve's Money Market Mutual Fund Liquidity Facility and the Paycheck Protection Program Liquidity Facility (previously covered by InfoBytes here and here). The LCR rule requires large banks to hold a certain amount of “high-quality liquid assets” in order to meet their short-term liquidity needs. The interim final rule modifies the agencies’ capital rules to neutralize the effects of participation. The rule is effective immediately and comments will be accepted within 30 days of publication in the Federal Register.
SEC's temporary amendments to expedite capital raises through securities offerings
On May 4, the SEC announced it plans to make temporary amendments to Regulation Crowdfunding to enable small businesses impacted by Covid-19 to expeditiously “meet their funding needs through the offer and sale of securities.” After receiving feedback from its Small Business Capital Formation Advisory Committee, the SEC decided that small businesses may have difficulty in quickly raising urgently needed capital in short time frames due to current requirements. The temporary final rule provides relief to these small business issuers by, among other things, easing some Regulation Crowdfunding requirements—provided the issuers meet certain criteria—so that they can measure investor interest in the offering before committing the time and taking on the expense of creating “full offering materials” including financial statements. Further, in addition to other time saving measures pursuant to the temporary final rule, the offering does not need to remain open for 21 days or longer, but rather can close once sufficient binding commitments are received to meet its target, allowing the small business issuers to access the funds from the offering faster than they could under existing rules. The amendments are effective as of May 4 and terminate on March 1 for offerings made between May 4 and August 31.