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Financial Services Law Insights and Observations

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  • Federal agencies and CSBS to hold webinar on PPP

    Federal Issues

    On August 20, the FDIC, Federal Reserve Board, OCC, NCUA, and the Conference of State Bank Supervisors  announced that a webinar will be held with SBA officials discussing the loan forgiveness process and recent changes in the Paycheck Protection Program on Thursday, August 27 from 11:00 a.m. to 12:00 p.m. (EDT). Participants must preregister for the webinar and are encouraged to email questions in advance to asktheregulators@stls.frb.org. An archive of the webinar materials will be available here, a few hours after the webinar ends.

    Federal Issues CSBS SBA FDIC FRB OCC NCUA

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  • CSBS: OCC’s proposed “non-branch” provisions undermine dual banking system

    Federal Issues

    On August 3, the Conference of State Bank Supervisors (CSBS) issued its comment letter to the OCC’s Notice of Proposed Rulemaking (NPR) on national bank and savings association activities concerning “non-branch” offices. Specifically, CSBS wrote that the “non-branch” provisions in the NPR make “far-reaching” revisions without legal authority, undermine the dual banking system, conflict with National Bank Act (NBA) preemption limits, and would allow national banks to operate branches without complying with related Community Reinvestment Act (CRA) obligations. Additionally, CSBS contended that the OCC’s rulemaking process is “truncated and flawed,” and afforded a particularly brief period for public comments during the Covid-19 pandemic.

    According to CSBS, the NPR, announced in June (covered by InfoBytes here), would “expand the scope of activities that may occur at non-branch offices purportedly without regard” to state restrictions.  These activities include: (i) performing loan approval and origination functions at a single, publicly accessible office; (ii) disbursing loan proceeds through an operating subsidiary; and (iii) establishing drop boxes and other unstaffed facilities. CSBS also contended that the NPR’s non-branch provisions would undermine Congressional intent and give national banks competitive advantages over state-charted banks. CSBS further argued that the non-branch provisions conflict with Congress’ clear intention that “NBA preemption does not apply to agents, affiliates or subsidiaries of national banks.” Finally, CSBS highlighted a distinction between the proposed non-branches (but de facto branches) and actual branch offices, arguing that the NPR creates a legal loophole allowing non-branch national banks to avoid CRA obligations associated with licensed branches.

    Federal Issues OCC CSBS Agency Rule-Making & Guidance Fintech National Bank Act CRA

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  • OCC proposes True Lender rule

    Agency Rule-Making & Guidance

    On July 20, the OCC issued a proposed rule (see also Bulletin 2020-70) that addresses when a national bank or federal savings association (bank) is the “true lender” in the context of a partnership between a bank and a third party in order to clarify uncertainties about the legal framework that applies. Specifically, the proposed rule amends 12 CFR part 7 to state that “a bank makes a loan when, as of the date of origination, it (i) is named as lender in the loan agreement or (ii) funds the loan.” The OCC notes that the proposal intends to cover situations where the bank “has a predominant economic interest in the loan,” as the original funder, even if it is not “the named lender in the loan agreement as of the date of origination.”

    In response, the Conference of State Bank Supervisors (CSBS) issued a statement opposing the proposal, stating that “the true lender doctrine is and should remain a matter of state law.”

    As previously covered by InfoBytes, the OCC and the FDIC recently issued final rules clarifying that whether interest on a loan is permissible under federal law is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan, effectively reversing the U.S. Court of Appeals for the Second Circuit’s 2015 Madden v. Midland Funding decision. At the time, both agencies chose not to address the “true lender” issue.

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  • CSBS challenges OCC’s Covid-19 preemption bulletin

    Federal Issues

    On June 24, the Director of Regulatory Policy & Policy Counsel at CSBS, Mike Townsley, wrote a blog post in response to the OCC’s Bulletin on Covid-19 preemption, arguing that the bulletin does not have the force and effect of law. As previously covered by InfoBytes, on June 17, the OCC issued a Bulletin stating that banks are governed primarily by federal standards and generally are not subject to state law limitations. The OCC acknowledged states’ efforts to respond to the economic disruptions as “well-intended,” but noted that the competing requirements could risk banks’ safety and soundness. The Bulletin also provided specific examples of the types of state laws that do not apply to banks’ lending and deposit activities.

    In response, Townsley asserts that the Bulletin has no preemptive effect, because the OCC did not follow the “process required by the National Bank Act (NBA) to determine that these state COVID-19 relief measures are preempted.” Specifically, Townsley argues that through the enactment of the Dodd-Frank Act, Congress “amended the NBA to overturn the OCC’s preemption regulations and establish substantive procedural requirements for the determination of whether the NBA preempts a state law.” The requirements include a court or the OCC having to conclude that the law “‘prevents or significantly interferes with the exercise by the national bank of its powers,’” which determination, according to Townsley, if made by the OCC, must be on a case-by-case basis, and include a notice and comment period and the backing of “‘substantial evidence’ on the record.” Townsley also seeks to cast further doubt as to whether the preemption regulations cited by the Bulletin can serve as a guide on procedural grounds, observing that Dodd-Frank requires the OCC to review and decide, through notice and comment, whether to “continue or rescind” each preemption determination every five years, and it has been “well over five years” since the rules were adopted and no such review has ever been conducted. Townsley concludes by citing to the 19th century Supreme Court decision Nat'l Bank v. Commonwealth, stating that national banks “’are subject to the laws of the State.’”

    Federal Issues Covid-19 OCC CSBS State Issues Preemption National Bank Act

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  • Multistate regulator group to address pandemic's effect on financial infrastructure

    State Issues

    On June 11, the Conference of State Bank Supervisors (CSBS) announced the creation of the new Covid-19 Recovery Steering Group led by the Texas Banking Commissioner. The steering group will work through CSBS “to guide multistate efforts to respond to the personal hardships and financial infrastructure risks caused by the global pandemic.” Its members include state regulators from Ohio, California, Texas, Louisiana, Indiana, Massachusetts, Tennessee, South Carolina, Iowa, Kentucky, and Minnesota. The steering group will consider financial services oversight changes to both banks and nonbanks in order to focus on protecting consumers and supporting local economies and plans to share best practices and lessons learned among state regulators and the financial services industry. Additionally, the steering group will consider “[c]hanges to state or federal laws or regulations to improve operational flexibility, information sharing and coordination.”

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  • CFPB, CSBS issue CARES Act forbearance guidance

    Federal Issues

    On June 4, the CFPB and the Conference of State Bank Supervisors (CSBS) issued joint guidance to assist mortgage servicers in complying with the CARES Act provisions granting a right to forbearance to consumers impacted by the Covid-19 pandemic. In addition to providing a statutory overview of the CARES Act protections related to forbearance and additional resources on how the CARES Act impacts other rules and regulations, the guidance contains specific FAQs based on observed or anticipated actions of mortgage servicers related to forbearance. Specifically, the FAQs address the following:

    • Servicers are able to grant CARES Act forbearance periods for less than 180-days at a borrower’s request or if the borrower has provided consent. In situations where a borrower and a servicer cannot agree on the length of the forbearance, or where a servicer cannot communicate with the requesting borrower under certain circumstances, servicers are required to default to the term requested by the borrower, which cannot exceed 180 days.
    • Servicers may not request information from borrowers supporting the need for forbearance. Borrowers do not need to prove hardship—an attestation of hardship due to Covid-19 is the only requirement established by the CARES Act for forbearance. Servicers must also grant forbearance to any requesting borrower with a federally-backed mortgage regardless of delinquency status.
    • Servicers, depending on the facts and circumstances, may be at risk of legal violation or causing consumer harm if they offer “limited repayment options when others are reasonably available.”
    • Examiners will evaluate originators’ communications with borrowers for legal compliance or to determine if consumer harm has occurred. Originators that mislead borrowers by using “loan closing attestations, notices or other communications to discourage borrowers from seeking forbearance” may be at risk of legal violation or causing consumer harm.

    Federal Issues CFPB CSBS CARES Act Mortgages Forbearance Consumer Finance Covid-19

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  • CFPB, CSBS issue consumer guide on CARES Act mortgage relief option

    Federal Issues

    On May 15, the CFPB and Conference of State Bank Supervisors jointly issued a Consumer Relief Guide to provide information to homeowners with federally-backed mortgage loans regarding their rights to relief under the CARES Act. The Guide outlines steps for requesting forbearance and provides additional resources for borrowers who need assistance when understanding their options or working with their mortgage servicers. The Bureau also refers borrowers to its centralized webpage, which covers consumer financial resources for the Covid-19 pandemic (covered by InfoBytes here), as well as its joint housing assistance website launched in coordination with the Federal Housing Finance Agency and the Department of Housing and Urban Development (covered by InfoBytes here).

    Federal Issues CFPB CSBS State Issues Consumer Finance Mortgages Covid-19 CARES Act

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  • Agencies defer real estate appraisals and evaluations affected by Covid-19

    Federal Issues

    On April 14, the FDIC, Federal Reserve Board (Fed), CFPB, NCUA, and OCC (agencies), in consultation with the CSBS, issued an interagency statement addressing challenges related to appraisals and evaluations for real estate financial transactions impacted by the Covid-19 pandemic. The statement outlines flexibilities for physical property inspections and appraisals of residential properties underwritten to Fannie Mae and Freddie Mac (covered by InfoBytes here). The agencies also remind financial institutions of existing exceptions outlined in appraisal regulations previously issued by the OCC, Fed, and FDIC. “The agencies encourage financial institutions to make use of these exceptions,” the statement stresses. “The use of an existing appraisal or evaluation for subsequent transactions may be particularly relevant during the COVID-19 emergency.”

    The same day, the OCC, Fed, and FDIC also issued an interim final rule to amend and temporarily defer interagency regulations that require real estate appraisals for certain transactions. Specifically, regulated financial institutions will be allowed to defer completion of appraisals and evaluations for all residential and commercial real estate transactions, with the exception of those involving the acquisition, development, and construction of real estate. Financial institutions will be allowed up to 120 days from the closing date to obtain the required appraisal or evaluation in order to expedite the liquidity needs of borrowers during the Covid-19 pandemic. However, the OCC, Fed, and FDIC expect financial institutions to “make best efforts to obtain a credible valuation of real property collateral before the loan closing, and otherwise underwrite loans consistent with the principles in the agencies’ Standards for Safety and Soundness and Real Estate Lending Standards.” The interim final rule takes effect upon publication in the Federal Register and will expire December 31, 2020.

    Federal Issues FDIC Federal Reserve OCC CFPB NCUA CSBS Covid-19 Appraisal Agency Rule-Making & Guidance

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  • CSBS requests clear guidance on PPP from SBA, Treasury

    Federal Issues

    On April 9, the Conference of State Bank Supervisors (CSBS) sent a letter to Treasury Secretary Steven T. Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza regarding Paycheck Protection Program (PPP) guidance. The letter requested the SBA and Treasury to (i) “[i]nstitute clear, coordinated, and timely guidance and communication on PPP”; (ii) “[e]nsure community banks and their small business customers have equal access to PPP loans”; and (iii) “[e]stablish transparent, public disclosure on PPP loans” in order to make the PPP successful. Among other points, CSBS specifically asserted that different SBA offices are providing conflicting information regarding PPP loan funding, and lenders require guidance on required documentation, initial disbursements, and terms and structure of unforgiven amounts on the PPP loans. Additionally, community banks are experiencing difficulties with the SBA’s loan application submission portal, including access and requests for additional information. Finally, the letter urges public disclosure of PPP loan statistics.

    Federal Issues CSBS SBA Department of Treasury CARES Act Covid-19 Small Business Lending

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  • Financial institution regulators provide Covid-19 mortgage servicer guidance

    Federal Issues

    On April 3, the Federal Reserve (Fed), CSBS, CFPB, FDIC, NCUA, and the OCC (agencies) jointly announced an interagency statement (Joint Statement) to clarify the agencies’ supervisory and enforcement approach “regarding certain consumer communications required by the mortgage servicing rules” under Regulation X during the Covid-19 pandemic. Along with the Joint Statement, the CFPB released FAQs on the mortgage servicing rules during the pandemic. The agencies advised mortgage servicers to consider both the Joint Statement and the FAQs “when developing approaches to work with borrowers.”

    The Joint Statement, among other things, gives mortgage servicers greater flexibility to provide CARES Act forbearance of up to 180 days and other short-term options upon the request of borrowers with federally backed mortgages without having to adhere to otherwise applicable compliance rules. In addition, the Joint Statement provides that no supervisory or enforcement action will be taken for delays in: (i) “sending the written early intervention notice to delinquent borrowers”; (ii) “establishing or making good faith efforts to establish live contact with delinquent borrowers”; or (iii) “sending the loss mitigation-related notices.”

    Federal Issues Federal Reserve CFPB FDIC NCUA OCC CSBS CARES Act Mortgage Servicing Mortgages Covid-19

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