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Two whistleblowers earn SEC awards totaling $322,000
On January 22, the SEC announced that it had awarded a total of $322,000 to two whistleblowers in two separate enforcement actions. According to the SEC’s press release, the whistleblowers “played a crucial role in helping the Commission protect Main Street investors,” and “assisted the SEC in returning money to harmed investors.” One whistleblower provided information that reportedly helped the agency “shut down an ongoing fraudulent scheme that was preying on retail investors,” and was awarded $277,000 (see award order here). The other whistleblower, a harmed investor, assisted the agency to “shut down a fraudulent scheme targeting retail investors.” The whistleblower was awarded $45,000 (see award order here). Since 2012, the SEC whistleblower program has awarded roughly $387 million to 72 whistleblowers.
Treasury seeks information on financial sector cybersecurity risks
On January 22, the Department of the Treasury published a request for comments on a proposed information collection designed to better understand cybersecurity risks facing the U.S. financial services sector and financial services critical infrastructure. The “Financial Sector Critical Infrastructure Cybersecurity Survey,” issued by the Department’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP), seeks feedback on ways to enhance resilience within the financial services sector and reduce operational risk. The proposal will also support OCCIP efforts to work collaboratively with industry and interagency partners on these strategies. Comments are due March 23.
FHFA raises annual CFI cap
On January 22, the Federal Housing Finance Agency published its annual adjustment to the cap on average total assets used to determine whether a Federal Home Loan Bank member qualifies as a community financial institution (CFI). The new cap is $1,224,000,000. Under the Federal Home Loan Bank Act, insured depository institutions that qualify as a CFI receive certain advantages in qualifying for bank membership and the ability to receive and collateralize long-term advances. The adjustment took effect January 1.
Federal Reserve vice chairman discusses supervision
On January 17, Federal Reserve Vice Chair for Supervision Randal K. Quarles spoke before the American Bar Association Banking Law Committee meeting in Washington, D.C. on bank supervision and ways to improve transparency, efficiency, and effectiveness. With respect to supervision, Quarles said that the Fed’s communication with supervised banks could be improved and made several specific proposals in the areas of large bank supervision, transparency improvements, and overall supervisory process improvements. In terms of large bank supervision, Quarles discussed how banks are added to the list of complex institutions overseen by the Large Institution Supervision Coordinating Committee (LISCC), particularly with respect to decreases in foreign banking organizations’ (FBOs) size and risk profiles. According to Quarles, over the past decade, four foreign banks have significantly shrunk their presence in the U.S. and reduced risk within their U.S. operations. As a result, these banks’ “estimated systemic impact” is now much smaller than that of the U.S. global systemically important banks. Moving these FBOs to a lower category, he noted, would allow the firms to be supervised alongside other foreign and domestic firms with similar risk profiles. However Quarles emphasized that any changes in these four FBOs’ supervisory portfolios “would have no effect on the regulatory capital or liquidity requirements that currently apply.” Quarles also discussed the Fed’s stress capital buffer proposal—which “will give banks significantly more time to review their stress test results and understand their capital requirements before we demand their final capital plan”—noting that the Fed continues to research ways to “reduce the volatility of stress-test requirements from year to year.”
Concerning transparency, Quarles stated, among other things, that he supports submitting significant supervisory guidance documents with Congress for the purposes of the Congressional Review Act, as it already does with new rules. Quarles also proposed the creation of a database of all significant agency rules and interpretations and seeking public comments on significant supervisory guidance before it is issued. Finally, Quarles said the Fed hopes to maintain “firm and fair supervision” by (i) increasing the ability of supervised firms to share confidential supervisory information; (ii) adopting a rule on the use of guidance in the supervisory process; (iii) restoring the “‘supervisory observation’ category for lesser safety and soundness issues”; and (iv) limiting the use of future Matters Requiring Attention to violations of law, violations of regulation, and material safety and soundness issues.
FTC settles with credit repair companies
On January 17, the FTC announced it had reached settlements with a number of defendants alleged to have operated “an unlawful credit repair scam that has deceived consumers across the country.” According to the FTC’s complaint, the defendants purportedly made false representations to consumers regarding their abilities to improve credit scores, falsely promised to remove any negative entries on the consumers’ credit reports, illegally collected upfront fees from consumers before the services were fully performed, and used threats and coercion to intimidate consumers from disputing charges. The FTC alleged these misleading statements and illegal actions violated TILA, the FTC Act, the Telemarketing Act, and the Credit Repair Organizations Act, among other things. Additionally, the FTC claimed that the defendants “routinely engage in electronic fund transfers from consumers’ bank accounts without obtaining proper authorization, and use remotely created checks to pay for credit repair services they have offered through a telemarketing campaign, in violation of the TSR.” The defendants, without admitting or denying the allegations, agreed to settlements that ban the defendants from offering credit repair services through “advertising, marketing, promoting, offering for sale, or selling,” impose a total monetary penalty of nearly $14 million, and require several defendants to turn over the contents of bank and merchant accounts as well as investment and cryptocurrency accounts. See the settlements here, here, and here.
Kraninger outlines plan to extend GSE patch, previews QM Rule
According to sources, on January 17, CFPB Director Kathy Kraninger sent a letter to prominent members of Congress announcing plans to extend the qualified mortgage patch—which exempts loans eligible for purchase by Fannie Mae and Freddie Mac (GSEs) from the Qualified Mortgage (QM) Rule’s 43 percent debt-to-income (DTI) ratio—for a short period beyond its current January 2021 expiration. As previously covered by a Buckley Special Alert, the Bureau issued an Advance Notice of Proposed Rulemaking last July to solicit feedback on, among other things, whether the DTI limit should be altered and how Regulation Z and the Ability to Repay/QM Rule should be amended to minimize disruption from the so-called GSE patch expiration. Kraninger notes in her letter that the Bureau plans to propose an amendment to the QM Rule to replace DTI ratios as a factor in mortgage underwriting with an alternative measure of credit risk. One alternative, Kraninger says, could be to use pricing thresholds based on the difference between the loan’s annual percentage rate and the average prime offer rate for a similar loan. The Bureau is also considering adding a “seasoning” approach through a separate rulemaking process to give safe harbor to certain loans when the borrower has made timely payments for a certain period, Kraninger states. Sources report that the Bureau plans to issue a Notice of Proposed Rulemaking no later than May.
OCC releases December enforcement actions
On January 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include formal agreements, prohibition orders, and terminations of existing enforcement actions against individuals and banks. Included among the actions is a formal agreement issued against an Illinois-based bank on December 18 for alleged unsafe or unsound practices relating to, among other things, consumer compliance. The agreement requires the bank to (i) establish a compliance committee to monitor the bank’s progress in complying with the agreement’s provisions; (ii) report such progress to the bank’s board on a quarterly basis; and (iii) implement a written consumer compliance program. This program must also include a policies and procedures manual that covers all consumer protection laws, rules, and regulations to which the bank should adhere, an independent audit program, and training of bank personnel in the consumer protection laws, rules, and regulations as appropriate.
FHFA seeks comments on PACE loans
On January 16, the FHFA issued a notice requesting public comment on prospective policy changes to its residential energy retrofitting programs, or Property Assessed Clean Energy (PACE) programs. According to the request for comment, PACE programs are “financed through special state legislation enabling a ‘super-priority lien’ over existing and subsequent first mortgages.” Because the loans are only recorded in tax rolls and not in land records, they do not show up in title searches. This may potentially cause problems for prospective buyers and mortgage lenders. Additionally, the programs are not uniform across states and the GSEs cannot buy properties encumbered by PACE loans.
Comments must be received by March 16.
Fed provides FAQs for tailoring rules
On January 13, the Federal Reserve Board (Fed) issued SR 20-2, “Frequently Asked Questions on the Tailoring Rules” (FAQs) applicable to bank holding companies, savings and loan companies, U.S. intermediate holding companies with $100 billion or more in total assets, and certain depository institutions. In October, as previously covered by InfoBytes, the Fed and the OCC released a jointly developed framework that set out four categories to be used to classify these banking entities for the purposes of determining regulatory capital and liquidity requirements based on risk. The FAQs provide guidance on the tailoring rules, including answers to questions about Liquidity Coverage Ratio (LCR) requirements, recognition of Accumulated Other Comprehensive Income, compliance requirements for foreign banking organizations with less than $100 billion in U.S. assets, and the interpretation of “quarterly” in relation to stress testing frequency.
FDIC extends deadline for comments on innovation pilot programs
On January 14, the FDIC again published a notice and request for comments in the Federal Register on innovation pilot programs. The FDIC first solicited comments on innovation pilot programs in November, with comments due by January 6. As no comments were submitted, the agency is once again requesting comments on the programs, which, as previously covered by InfoBytes, it hopes will spur collaboration “with innovators in the financial, non-financial, and technology sectors to, among other things, identify, develop, and promote technology-driven innovations among community and other banks in a manner that ensures the safety and soundness of FDIC-supervised and insured institutions.”
Comments must be received by February 13.