InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Agencies issue joint statement on loan modifications and reporting for financial institutions
On March 22, the Federal Reserve Board (Fed), CFPB, FDIC, NCUA, OCC, and Conference of State Bank Supervisors (CSBS) issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” to address the “unique and evolving situation” created by Covid-19. Guidance covered in the statement includes, among other things (i) “encourage[ing] financial institutions to work prudently with borrowers” negatively impacted by disruptions in the economy caused by the virus, to include providing loan modifications to borrowers and mitigating credit risk; (ii) advising that in “accounting for loan modifications” the modifications “do not automatically result in [troubled debt restructurings] (TDRs).” The agencies assert that “short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs”; (iii) reporting loans as past due as a result of a payment deferral is “not expected”; (iv) reporting short-term loan arrangements, such as deferrals, as nonaccrual assets is temporarily not required; and (v) reminding financial institutions that restructured loans “continue to be eligible as collateral at the [Fed’s] discount window.” The statement adds that “the agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk,” and “agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.” (See Fed press release; OCC press release; FDIC press release and FIL-22-2020; NCUA press release; CFPB press release; and CSBS press release.)
Fed amends internal appeals process
On March 17, the Federal Reserve Board (Fed) published a final policy, which revises the internal appeals process for institutions that receive an adverse material supervisory determination, as well as its policy regarding the Fed’s Ombudsman. As previously covered by InfoBytes, the Fed requested comments on proposed amendments intended to improve and expedite the appeals process. Among other things, the final amendments (i) clarify that Matters Requiring Attention and Matters Requiring Immediate Attention “are appealable material supervisory determinations”; (ii) “permit an institution’s senior management to file an appeal, provided that management informs the institution’s board of directors of their decision to file an appeal and keeps the board informed of the status of the appeal”; (iii) “permit an institution to request an extension of time to file an appeal in appropriate circumstances”; and (iv) “clarify that, at an institution’s request, the initial review panel must schedule a meeting with the institution.” The amendments and final policy are applicable starting April 1, and the final appeals process will apply to all material supervisory determination appeals initiated after that date.
FDIC approves creation of de novo banks; proposes new industrial bank rules
On March 18, the FDIC announced (see here and here) the approval of two deposit insurance applications, which will allow for the creation of two de novo industrial banks. The first approval order will permit a California-based company to originate commercial loans to merchants that process card transactions through the company’s payments system and will operate from a main office located in Utah. The second approval order will permit a Nebraska-based corporation to originate and service private student loans and other consumer loans. The new bank will operate as an internet-only bank from a main office located in Utah. Both companies now await approval from the Utah Department of Financial Institutions.
Separately, on March 17, the FDIC announced that it is seeking comments on a proposed rule that would require certain conditions and commitments for approval or non-objection to certain filings involving industrial banks and industrial loan companies (collectively, “industrial banks”), such as deposit insurance, change in bank control, and merger filings. The proposed rule applies to industrial banks whose parent company is not subject to consolidated supervision by the FRB. The proposed rule would require a covered parent company to enter into written agreements with the FDIC and the industrial bank to: (i) address the company's relationship with the industrial bank; (ii) require capital and liquidity support from the parent company to the industrial bank; and (iii) establish appropriate recordkeeping and reporting requirements.
The proposed rule would require prospective covered companies to agree to a minimum of eight commitments, which, for the most part, the FDIC has previously required as a condition of granting deposit insurance to industrial banks. These include: (i) providing a list of all parent company subsidiaries annually; (ii) consenting to examinations of the parent company and its subsidiaries; (iii) submitting to annual independent audits; (iv) maintaining necessary records; (v) limiting the parent company’s representation on the industrial bank’s board to 25 percent; (vi) maintaining the industrial bank’s capital and liquidity requirements “at such levels deemed appropriate” for safety and soundness; (vii) entering into tax allocation agreements; and (viii) implementing contingency plans “for recovery actions and the orderly disposition of the industrial bank without the need for a receiver or conservator.” Comments on the proposed rule will be due 60 days after publication in the Federal Register.
CFPB releases HMDA FAQs
On March 6, the CFPB released seven updated FAQs to assist reporting institutions in complying with HMDA and Regulation C. As previously covered by InfoBytes, the Federal Financial Institutions Examinations Council’s issued the 2020 edition of the “Guide to HMDA Reporting: Getting It Right!” in February. The FAQs offer guidance for reporting the following data points: (i) universal loan identifier (ULI); (ii) legal entity identifier (LEI); (iii) ethnicity, race, and sex; (iv) discount points; and (v) construction and construction/permanent transactions. Highlights are listed below:
- Regulation C does not “require a financial institution to provide the ULI on loan documents.” It requires a financial institution to “collect, record, and report a ULI for applications for covered loans that is receives, covered loans that it originates, and covered loans that it purchases for each calendar year.”
- “For applications taken by telephone…a person collecting the race or ethnicity information [is required] to orally state the information in the collection form unless the information pertains uniquely to applications taken in writing, for example, the italicized language in the sample data collection form.”
- “[A] financial institution should not correct the race or ethnicity as reported by the applicant, even if the applicant has entered clearly incorrect or inappropriate information.”
- “Where a natural person applicant does not provide ethnicity, race, or sex information for a mail, internet, or telephone application, and a financial institution does not have an opportunity to collect this information during an in person meeting during the application process, the financial institution may report either that the information was not collected on the basis of visual observation or surname (code 2) or that the requirement to report this data field is not applicable (code 3).”
- “For construction and permanent loans where the construction loan is a separate transaction, the financial institution reports only the loan term of the permanent loan. Because the separate construction loan is designed to be replaced by permanent financing, it is excluded as temporary financing.”
OCC issues Comptroller’s Handbook booklet updating deposit-related credit guidance
On March 12, the OCC issued Bulletin 2020-14 announcing the revision of the Deposit-Related Credit booklet of the Comptroller’s Handbook that was issued in September 2018. The revised booklet provides guidance for OCC examiners in connection with the examination and supervision of national banks, federal savings associations, and federal branches and agencies of foreign banking organizations that provide small-dollar, unsecured credit products and services such as check credit, overdraft protection, and deposit advance products. The revised booklet includes, among other things, (i) updated guidance following the rescission of OCC Bulletin 2018-28, Deposit-Related Credit: Updated Comptroller’s Handbook Booklet Advance Products (previously covered by InfoBytes here); (ii) changes to OCC issuances, laws, and regulations made since the last booklet; (iii) information explaining the applicability of references to covered savings associations; and (iv) clarifying edits regarding supervisory guidance and sound risk management practices. An appendix containing a sample request letter is also included.
SEC guidance provides regulatory flexibility for shareholder meetings
On March 13, the SEC issued guidance to assist public companies, investment companies, shareholders, and other market participants affected by Covid-19 with upcoming annual shareholder meetings. According to the SEC, the guidance is intended to facilitate the ability of companies to hold these meetings and engage with shareholders, including through the use of technology, while complying with federal and state securities laws. Specifically, the guidance provides regulatory flexibility to companies seeking to change the date and location of shareholder meetings, such as allowing affected parties to make these announcements in SEC filings without incurring additional costs.
FDIC and Fed issue proposed living will guidance for FBOs
On March 6, the FDIC and the Federal Reserve Board issued a joint notice and request for comment on their proposal for updates to resolution plan guidance for certain large foreign banking organizations (FBOs). Pursuant to the Dodd-Frank Act, FBOs must submit resolution plans—also known as “living wills”—which detail the strategic plans for their U.S. operations and subsidiaries for rapid and orderly resolution in bankruptcy in the event that the banks fail or fall under material financial distress. Updates in the proposal focus on the FBO’s derivatives and trading activities and payment, clearing, and settlement activities and are informed by responses from FBOs to the prior 2018 FBO guidance and 2019 domestic guidance. In addition, the proposal contains an appendix of frequently asked questions with answers provided by agency staff. The agencies also seek comments “on objective, quantitative criteria to determine its applicability.” Comments must be received by May 5.
CFPB announces advisory opinion program, updates business conduct bulletin, proposes whistleblower award legislation
On March 6, the CFPB announced three new measures it is undertaking to prevent customer harm, including (i) implementing an advisory opinion program; (ii) updating its bulletin regarding responsible business conduct; and (iii) advancing whistleblower award legislation through engagement with Congress. Details of each measure are as follows:
- Advisory Opinion Program. As previously covered by InfoBytes, the Bureau issued three new innovation policies last September to reduce regulatory uncertainty and improve compliance. Similarly, the Bureau’s March 6 announcement states that the advisory opinion program should “provide clear guidance to assist companies in better understanding their legal and regulatory obligations.” The program directs that requests for advisory opinions should be submitted through the CFPB website. The opinions will then be published in the Federal Register and on its website.
- Responsible Business Conduct Bulletin. The amended bulletin, originally released in 2013, “clarif[ies] [the Bureau’s] approach to responsible business conduct” and emphasizes “the importance of such conduct.” The updated bulletin presents four categories of “responsible conduct” that entities are encouraged to adopt to improve the culture of compliance and that the CFPB will use to evaluate whether credit is warranted in an enforcement investigation or supervisory matter, including (i) self-assessment; (ii) self-reporting; (iii) remediation; and (iv) cooperation.
- Whistleblower Award Legislation. The proposed legislative language would amend Title X of the Dodd-Frank Act and authorize the Bureau to create a whistleblower award program. For individuals that volunteer information leading to a “successful enforcement action,” the program would enable the Bureau to provide a monetary award of between 10 to 30 percent of the collected penalty amount, up to $10 million.
OCC proposes licensing policy changes
On March 5, the OCC announced a Notice of Proposed Rulemaking (NPR) and request for comment on proposed amendments that would update and clarify certain licensing policies and procedures and would revise its rules in 12 CFR part 5 to eliminate unnecessary requirements. Proposed changes include, among other things (i) allowing national and federal savings associations to “follow the procedures applicable to state banks or state savings associations…for certain business combinations”; (ii) expanding operating subsidiary notice and expedited review processes to include activities that are substantively the same as activities previously approved by the OCC; (iii) allowing “non-controlling investments and pass-through investments” in non-OCC supervised entities; (iv) creating procedures for citizenship and residency waivers for national bank directors; (v) redefining “troubled condition” in relation to director and senior executive officer changes; and (vi) adding chief risk officer to the list of positions for which a bank in troubled condition must provide notice when making a personnel change. Comments must be received by May 4.
OCC updates FAQs on third-party risk management
On March 5, the OCC released Bulletin 2020-10, which provides answers to frequently asked questions (FAQs) concerning its existing guidance on management of third-party relationships, including relationships with fintech firms and data aggregators. This bulletin, issued to supplement Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” rescinds (but incorporates the substance of) OCC Bulletin 2017-21 (covered by InfoBytes here). Key topics addressed in the new FAQs include:
- clarifying the definition of “third-party relationships” and “business arrangements”;
- outlining expectations for banks that have third-party relationships with cloud computing providers or data aggregators;
- addressing a bank’s reliance on and use of third party-provided reports, certificates of compliance, and independent audits;
- discussing risk management when a third party—such as a less established fintech firm, start-up, or other small business—has limited ability to provide the same level of financial information or other due diligence-related information as a more established third party;
- suggesting approaches for due diligence and ongoing monitoring in instances where the bank has limited negotiating power;
- addressing ways banks can offer products or services to underbanked/underserved populations through fintech third-party relationships;
- discussing considerations for banks when entering into a marketplace lending arrangement with a nonbank entity; and
- outlining measures to address risk management when obtaining alternative data from a third party that may be used by or on behalf of a bank.
The bulletin also reiterates that banks are expected “to practice effective risk management regardless of whether the bank performs an activity internally or through a third party,” and that a “bank’s use of third parties does not diminish the bank’s responsibility to perform the activity in a safe and sound manner and in compliance with applicable laws and regulations.”