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Financial Services Law Insights and Observations

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  • State Banking Regulators Support Federal Online Payday Lending Bill

    Consumer Finance

    On April 10, the CSBS sent a letter to Senator Jeff Merkley (D-OR) and Representative Suzanne Bonamici (D-OR) – the chief sponsors in their respective chambers of Congress of legislation related to online payday lending – to express support for the bills. The letter focuses on the provisions of the SAFE Lending Act, S. 172 and H.R. 990, that seek to (i) ensure consistent application of state usury laws and (ii) enhance state authority over online lenders. Noting that state regulators have found “countless instances of unlicensed and unregulated online payday lending” in violation of state law, the CSBS contends that the bills should be considered a “framework for the proper state-federal regulatory balance” with respect to online, short-term, small-dollar loans.

    Payday Lending CSBS U.S. Senate U.S. House

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  • CSBS Urges CFPB to Adopt Rural Designation Petition Process

    Lending

    On April 2, the CSBS released a letter it sent to encourage the CFPB to adopt an additional procedural mechanism for the CFPB to utilize when determining whether an area should be defined as “rural.” The CSBS explains that the Dodd-Frank Act confers Qualified Mortgage benefits on balloon loans if they are made in rural or underserved areas and that the CFPB has elected to utilize the USDA Economic Research Service’s Urban Influence Codes as the basis of their definition of “rural.” The letter identifies inconsistencies with the existing rural classification systems, and suggests that the CFPB adopt a petition process whereby institutions can seek a determination that a specific area be considered rural for purposes of certain Truth in Lending rural requirements.

    CFPB Mortgage Origination CSBS Community Banks

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  • CSBS and AARMR Comment on CFPB Mortgage Servicing Transfer Bulletin

    Lending

    On February 20, the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) issued a statement commending the CFPB for its recent guidance regarding mortgage servicing transfers. The statement explains that state regulators, who generally have jurisdiction over state member and non-member banks and non-depository institutions, similarly have identified potential for consumer harm when loans are transferred during the loss mitigation process. CSBS and AARMR strongly encourage state-supervised servicers to familiarize themselves with applicable state requirements, the various federal laws, and the CFPB guidance, and stated that they plan to update state uniform servicing examination procedures through appropriate Multistate Mortgage Committee processes to account for the new CFPB Guidance.

    CFPB Mortgage Servicing CSBS Loss Mitigation

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  • CSBS Announces Implementation Date for National Mortgage Loan Originator Test

    Lending

    On January 16, the CSBS announced that a new national mortgage loan originator (MLO) test with a uniform state component will be available on April 1, 2013. The 2009 SAFE Act requires that MLOs pass a test in order to obtain a state originator license through the NMLS. Since adoption of the SAFE Act, the test has been comprised of two parts: a national component and a state-specific component. The new test administered by the NMLS is meant to streamline the licensing process for originators seeking to obtain licenses in multiple states. Twenty state agencies will no longer require a state-specific test component as of April 1, 2013, with four more states removing the requirement on July 1, 2013. The NMLS posted additional details about the test, including costs and enrollment eligibility.

    Mortgage Licensing Mortgage Origination NMLS CSBS

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  • CSBS Joins with Federal Authorities to Combat Corporate Account Takeover

    State Issues

    On December 7, the Conference of State Bank Supervisors announced a joint effort with the U.S. Secret Service (Secret Service) and the Financial Services-Information Sharing and Analysis Center (FS-ISAC) to assist financial institutions in adopting best practices to reduce the risks of corporate account takeover, a form of identity theft where cyber criminals gain control of a business’ bank account by stealing credentials and then initiate fraudulent wire and ACH transactions. The recommended practices were developed by a task force formed by the Texas Banking Commissioner and the Secret Service. Using in part the contributions from leading data security and audit firms that serve the community banking industry, the practices expand upon the “Protect, Detect, and Respond” framework developed by the Secret Service, the FBI, the Internet Crime Complaint Center, and FS-ISAC.

    CSBS Privacy/Cyber Risk & Data Security

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  • Federal Banking Regulators Issue Statement on Conversions of Troubled Banks

    Consumer Finance

    On November 26, the Federal Reserve Board, the FDIC, and the OCC, together with the CSBS, issued guidance on implementation of section 612 of the Dodd-Frank Act, which imposes restrictions on conversions of national banks and federal savings associations to state-chartered institutions and vice versa. As the Interagency Statement describes, section 612 generally prohibits such charter conversions while an institution is subject to either a formal enforcement order issued by its primary regulator involving a significant supervisory matter or to a memorandum of understanding entered into with its primary regulator involving a significant supervisory matter. The Statement (i) explains that federal and state agencies consider the prohibition to cover all formal enforcement actions by a federal or state agency, (ii) encourages institutions subject to the prohibition that are seeking conversion under one of the several exceptions to notify regulators prior to submitting a conversion application, and (iii) outlines the processes by which federal and state agencies will comply with the notification and information sharing requirements of section 612.

    FDIC Dodd-Frank Federal Reserve OCC CSBS

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  • State Regulators Oppose Basel III Capital Requirements

    State Issues

    On October 3, the Conference of State Bank Supervisors (CSBS) announced its opposition to the “highly reactionary” approach federal regulators have proposed to implement the Basel III capital accord. Although they support higher levels and improved quality of capital, the state regulators argue that the transaction-level approach proposed by federal regulators is too complex and leaves the financial system susceptible to more volatility. Instead, the state regulators favor an approach based on risk management and the supervisory process. Further, the state regulators charge that the federal proposal, including the proposed specific risk-weighted asset requirements, lack empirical support. The CSBS argues that the proposed standardized risk-weighted assets present a specific challenge to mortgage lending, and in other areas would replace supervisory judgment and institution-specific analysis. The state regulators believe that implementing Basel III as currently proposed will only increase industry costs, limit credit availability, and force industry consolidation.

    Federal Reserve OCC Bank Compliance CSBS Capital Requirements

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  • Special Feature: Report on the AARMR 23rd Annual Regulatory Conference

    Lending

    The American Association of Residential Mortgage Regulators (AARMR) held its 23rd Annual Regulatory Conference in Boston, Massachusetts from August 14-17, 2012.  AARMR is the trade association of state mortgage regulators that coordinates state-level regulation of the mortgage industry and, in partnership with the Conference of State Bank Supervisors (CSBS), created the National Mortgage Licensing System & Registry (NMLS).

    The Conference brought together state and federal mortgage regulators, industry professionals, compliance companies, legal professionals, and education providers to discuss the latest developments in mortgage supervision and pressing issues confronting the industry, most notably developments regarding: (i) the SAFE Act and entity level licensing through the NMLS and (ii) the examination, enforcement and rulemaking initiatives of the Consumer Financial Protection Bureau (CFPB).

    On August 14, recently appointed NMLS Ombudsman Timothy Siwy, Deputy Secretary for Non-Depository Institutions, Pennsylvania Department of Banking, presided over his first bi-annual NMLS Ombudsman Meeting, which allows NMLS users an opportunity to raise concerns and questions regarding the NMLS.  Specifically, the session addressed the following topics, among others:

    • Continued discussion of the states potentially issuing (1) “reciprocal licenses” for mortgage loan originators (MLOs) based on similar state education and testing standards, or (2) a 90- to 120-day “transitional license” for MLOs needing additional time to complete a state’s specific MLO requirements;
    • “Inactive licenses” for federally registered MLOs, which would allow MLOs not currently employed by a state-licensed entity to obtain and maintain an “Approved-Inactive” status in the NMLS if the MLO otherwise satisfies the state’s MLO licensing requirements;
    • The Uniform State Test for MLOs, which is expected to launch in Spring 2013;
    • Alleviating “home state” licensure for MLOs, which is where a state requires the MLO to secure a license not because the MLO makes loans to borrowers in the state or secured by property in the state, but rather because the MLOs office is located in the home state;
    • Issues facing exempt companies, such as insurance companies, that may be required to obtain entity level approval via NMLS because of certain non-lending activities performed by its employees, e.g., underwriting activities;
    • States compelling submission of information from depository institutions to authorize state exemptions via the NMLS when such depository institutions may otherwise be exempt from a state’s mortgage lending law;
    • The April 2012 NMLS amendments, including a request for uniformity among states regarding recently-implemented requirements to upload documentation to the NMLS; and
    • Suggestions on how to improve the user interface of the NMLS.

    Subsequent panel discussions provided more detailed information on several of these topics, and also examined related NMLS issues.

    Details regarding the specific issues submitted for comment, as well as accompanying exhibits and an audio recording, will be made available on the NMLS Ombudsman website.

    The Conference included several CFPB focused panels, which included presentations from high ranking CFPB officials.

    First, on August 15, Edwin Chow, Regional Director, CFPB, West Region, discussed the CFPB’s supervision process for both banks and non-bank lenders with a focus on the recently launched non-bank exams.  Mr. Chow stated that the general intention of a CFPB examination is to evaluate a company’s ability to manage its compliance.  An entity’s ability to manage its compliance is assessed through the CFPB’s examination approach, which at a macro level includes:

    • The CFPB initiating the first point of contact through a preliminary meeting by phone or in-person with the entity;
    • Prior to an examination, issuing a letter to the entity requesting information to facilitate fast and efficient review of the entity;
    • Throughout the process, coordinating with state regulators of the entity; and
    • Following the examination, performing an “exit interview” prior to any finalized action to discuss tentative findings and conclusions and to address how issues may be corrected.

    Regardless of the region in which the examination is being conducted, Mr. Chow indicated that the CFPB will strive for uniformity and consistency in its examination approach.

    Also, on August 16, Steven Antonakes, Associate Director for Supervision, Enforcement, and Fair Lending, CFPB, and David Bleicken, Acting Deputy Associate Director for Supervision, Enforcement, and Fair Lending, CFPB, provided an update on the CFPB’s Supervision, Enforcement, and Fair Lending division and provided an overview of the CFPB’s enforcement approach.  Specifically, the officials indicated that during examinations the CFPB will:

    • Focus on harm to consumers, as it weighs heavily into whether the CFPB takes a “punitive” or “instructive” approach in a particular examination, (e.g., the CFPB may consider on a case-by-case basis whether consumer reimbursements are appropriate when there was no actual harm to a particular consumer);
    • Continue its efforts to maintain any relevant attorney-client privilege for information disclosed by entities.  Following the issuance of its January bulletin and June 28 final rule, the CFPB has asserted that a party may submit information to the CFPB in the supervisory or regulatory process without waiving any applicable privileges;
    • Utilize a product-based, rather than institution-based, focus; and
    • Utilize real-time information sharing.

    While the CFPB touched on the process for making decisions about what constitutes an “abusive” practice under the CFPB’s unfair, deceptive, or abusive acts or practices (UDAAP) authority, the officials declined to comment regarding mortgage-specific practices that the CFPB would generally deem to be “abusive.”

    The CFPB expects to issue the first summary of its examination findings this fall.

    Finally, during a separate panel on August 16, Peter Carroll, Assistant Director of Mortgage Markets, CFPB provided an overview of the CFPB’s widely-reported rulemakings on the combined TILA/RESPA disclosure form, HOEPA, appraisals, ability to repay and qualified mortgages, mortgage servicing guidelines, and MLO compensation and qualification.  Mr. Carroll indicated that next year the CFPB plans to focus on HMDA reporting and reverse mortgages.

    In addition to the above, the Conference covered other various federal and state regulatory issues, including the following:

    • In the panel “Mortgage Fraud and Other Trends Affecting Housing Finance Federal Housing Finance Agency (FHFA) Office of Inspector General,” representatives of the FHFA-OIG provided an overview of its ongoing audits of mortgage fraud;
    • “Mortgage Loan Servicing: Aftermath of National Servicer Settlement/Updates & Lessons” provided an overview of the widely-reported mortgage servicing settlement announced earlier this year.  Notably, Joseph Smith, Monitor of the Office of Mortgage Settlement Oversight, provided several comments regarding the settlement and fair lending concerns.  Specifically, while some have expressed a concern regarding the application of principal reductions for protected classes, the Monitor noted that violations of state fair lending laws were specifically reserved in the settlement, and the Monitor takes the position that the consumer relief provisions do not authorize him to assess whether principal reductions are being equally applied with respect to protected classes;
    • In the panel “Multistate Mortgage Committee Overview of Examination Procedures: Risk Scoping to Post-Exam Enforcement,” the Multistate Mortgage Committee (MMC), which coordinates examination and supervision of mortgage lenders, servicers and brokers operating in more than one state, gave an overview of its activities that (i) emphasized a risk-based approach to examinations, and (ii) outlined an examinations process that strives for uniformity, modernization, and effectiveness;
    • “A Look at Foreclosure Prevention, Loan Modification Scams and the Role of the Regulators” provided an overview of loan modification and foreclosure-related concerns,  including issues affecting low-income borrowers and protected classes; and
    • “FinCEN, Updates on AML for Mortgage Lenders and Originators” provided an overview of anti-money laundering, specifically the recently-effective requirement for non-banking entities, including residential mortgage lenders and originators, to file suspicious activity reports.

     

    CFPB Mortgage Licensing Nonbank Supervision Mortgage Origination NMLS CSBS

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  • State Regulators Urge Passage of CFPB Privilege Legislation

    Consumer Finance

    On August 23, the American Association of Residential Mortgage Regulators, the Conference of State Bank Supervisors, and other state financial regulators sent a letter to Representatives Jim Renacci (R-OH) and Ed Perlmutter (D-CO) in support of H.R. 6125. The recently introduced legislation seeks to amend the Federal Deposit Insurance Act to ensure that information submitted by banks and nonbanks to the CFPB is treated as privileged and confidential information. The state regulators argue that the bill will allow state and federal regulators to share information to facilitate better collaboration and will support use of the Nationwide Mortgage Licensing System and Registry. The letter adds that other federal legislation to address the confidentiality of information submitted to the CFPB does not go far enough to support federal-state coordination.

    CFPB Examination Nonbank Supervision CSBS

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