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On August 26, the Conference of State Bank Supervisors (CSBS) sent a letter to House Financial Services Committee Chairwoman Maxine Waters (D-CA) detailing information on CSBS' response to the Covid-19 pandemic related to supervisory efforts, policy initiatives, and mortgage servicing plans. The letter is in response to an August 5th letter from Chairwoman Waters to CSBS, CFPB, OCC, NCUA, FDIC, and Fed asking the agencies, among other things, to immediately update the “Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the COVID-19 Emergency and the CARES Act dated April 3, 2020,” and to take other steps to “provide vigorous oversight and encourage mortgage servicers to work with borrowers to avoid unnecessary foreclosures.”
The letter from the CSBS detailed the consumer protection and supervision efforts of state regulators during the Covid-19 pandemic, noting that they have “monitored the activities of mortgage originators and servicers … and have acted responsively and decisively with expanded examination approaches, new policy, and public guidance.” The letter expanded on these actions by setting forth its efforts in “three very broad categories”: networked supervision, direct supervision, and supervision policy. In the latter two categories, CSBS noted the steps it has taken during the pandemic to “remain vigilant to signs of unwarranted foreclosure activity or other consumer harm.” The letter also agreed that the “states’ dual mandate to protect consumers and ensure a healthy economic environment has been the appropriate approach” during Covid-19.
On July 27, the Oregon governor signed SB 485, which outlines licensing provisions for student loan servicers and implements consumer protections for borrowers. Among other things, the act requires, subject to certain exemptions, persons servicing student loans to obtain a license from the Oregon Department of Consumer and Business Services (DCBS). Should the director reasonably believe that a person subject to the act’s provisions is “engaging in or is about to engage in an act or practice that constitutes servicing a student loan in this state without first obtaining a license” the director may order the person to cease and desist, affirmatively perform the act, or may apply to an Oregon circuit court to enjoin the person from engaging in such act or practice. Additionally, the act outlines requirements related to, among other things, (i) licensing applications, including that the director may require applicants to submit applications to the Nationwide Multistate Licensing System instead of, or in addition to, submitting the application to the director; (ii) licensing renewals, reinstatements, and surrenders; (iii) a licensee’s principal place of business; (iv) liquidity standards; and (v) branch closures, relocations, or the opening of new locations. Under the act, the director is also granted general supervisory authority over each licensee in the state, examination authority, and the ability to participate in multistate examinations scheduled and conducted by the Conference of State Bank Supervisors or the CFPB. The director may also investigate borrower complaints and servicers’ policies and procedures, may impose civil penalties for violations of the act’s provisions, and may promulgate rules and take any other actions necessary to undertake and exercise the duties and powers conferred on the position. The act also outlines provisions related to servicing obligations, prohibits student loan servicers from engaging in fraudulent, deceptive, and dishonest activities, and creates a student loan ombudsperson at DCBS to handle complaints against student loan servicers and educate borrowers about loan repayment options. The act took effect on its passage.
On July 26, the Conference of State Bank Supervisors (CSBS) released model state regulatory prudential standards for nonbank mortgage servicers. The prudential standards provide states with “a consistent framework that ensures covered nonbank servicers maintain the financial capacity to serve consumers and investors with heightened transparency, accountability and risk management standards.” According to CSBS, in the past 10 years, the nonbank mortgage servicer market has grown from 6 percent to 60 percent of the government agency mortgage market, representing at least 45 percent of the servicing market overall, with “[n]onbank mortgage servicers currently administer[ing] roughly three-quarters of the servicing for loans in Ginnie Mae mortgage backed-securities” (encompassing loans to veterans, first-time homebuyers, and low-to-moderate income borrowers). In response to concerns raised by state regulators about the lack of state standards to address servicers’ capital and liquidity levels, as well as inadequate corporate governance and board oversight identified by state and federal examiners, state regulators approved the prudential standards, which focus on two main areas: financial condition and corporate governance. The prudential standards—which “align with existing federal minimum eligibility requirements, wherever practical, to minimize regulatory burden for servicers”—cover both agency and non-agency servicing, and apply to servicers that service at least 2,000 loans and operate in at least two states. Exempt are small servicers that do not meet the minimum requirements, reverse mortgage loan servicers, not-for-profit mortgage servicers, and housing agencies. State agency commissioners are also given the authority to “increase requirements for high-risk servicers or even suspend the requirements in times of economic, societal or environmental volatility.” The prudential standards are part of CSBS’s eight Networked Supervision 2021 priorities, which are intended to advance its “strategy to streamline nonbank licensing and supervision and generate new data for risk analysis through expanded use of technology platforms.”
On July 7, the Conference of State Bank Supervisors (CSBS) and the North American Collection Agency Regulatory Association (NACARA) sent a letter to Department of Education Secretary Miguel Cardona urging the Department to rescind recent policies “claiming preemption or otherwise impairing state regulation of federal student loan servicers and debt collectors.” The letter acknowledges steps taken by the Department to facilitate coordination and collaboration with state financial regulators but notes that additional action is required to accomplish a shared mission of protecting student borrowers. Among other things, the letter discusses several Department actions taken over the years, including the Department’s 2018 position that state regulation of servicers of loans made under the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan Program is preempted by federal law. The letter urges the Department “to rescind the 2018 preemption notice and formally recognize that state oversight and regulation is fully applicable to federal student loan servicers and debt collectors, entirely appropriate, and not in conflict with the purpose of the [Higher Education Act].” The letter also discusses revised guidance issued in May concerning the handling of outside requests for Department records and data. As previously covered by InfoBytes, the revised guidance supersedes the Department’s 2017 guidance and creates a “streamlined and expedited process” for reviewing information requests made by any state or federal authority for information pertaining to companies engaged in student loan lending or collections. However, CSBS and NACARA emphasize that the Department should “recognize that state financial regulators are independently authorized to access records in possession of the federal student loan servicers and debt collectors subject to state regulation.” Additionally, the letter requests, among other things, that the Department take additional action deemed necessary to “fully return” to a policy of collaboration for protecting student loan borrowers, pointing out that timing is important as most federal student loan repayments resume in October.
On June 16, the U.S. District Court for the District of Columbia entered an order staying litigation in a lawsuit filed by the Conference of State Bank Supervisors (CSBS) challenging the OCC’s authority to issue Special Purpose National Bank Charters (SPNB). (Covered by InfoBytes here.) Earlier this year, the OCC responded to CSBS’s opposition to the agency’s alleged impending approval of an SPNB for a financial services provider (proposed bank), in which CSBS argued that the OCC was exceeding its chartering authority (covered by InfoBytes here). The OCC countered that the same fatal flaws that pervaded CSBS’s prior challenges, i.e., that its challenge is unripe and CSBS lacks standing, still remain (covered by InfoBytes here). Moreover, the agency argued, among other things, that the cited application (purportedly curing CSBS’s prior ripeness issues) is not for an SPNB (the proposed bank that has applied for the charter would conduct a full range of services, including deposit taking), but that even it if was an application for an SPNB charter, there are multiple additional steps that need to occur prior to the OCC issuing the charter, which made the challenge unripe.
According to CSBS’s unopposed motion to stay litigation, a “90-day stay would conserve the [p]arties’ and the [c]ourt’s resources by avoiding potentially unnecessary briefing and oral argument.” Further, in referring to acting Comptroller Michael Hsu’s testimony to the U.S. House of Representatives—in which he stated that “the OCC is currently reviewing various regulatory standards and pending actions, including the OCC’s framework for chartering national banks”—CSBS noted that the OCC has represented that it anticipates this review period will take approximately 90 days and that it does not intend to take any action towards granting a charter to the proposed bank during this period. Following the conclusion of the 90-day stay, the parties agreed to confer and submit to the court a joint status report on or before September 27 “addressing the status of the OCC’s plans with respect to processing applications for uninsured national bank charters, including the [proposed bank’s] charter application, and the [p]arties’ proposed schedule for proceeding with or resolving the present case.”
On May 24, the Conference of State Bank Supervisors (CSBS) announced a request for feedback on proposed national licensing requirements for money service businesses (MSBs). According to CSBS President and CEO John W. Ryan, the purpose of the proposal is to set “a national standard that allows the state system to operate as a single network while retaining local accountability and local control.” The proposal is based on a set of nationwide requirements reviewed by a lead state agency. According to the CSBS, the remaining state-specific requirements would be limited to items not covered by the national standards. Key aspects of the proposal include an overview of MSB-specific requirements and how they apply to companies, key individuals (the new name for what was previously referred to as “control persons”), and business location, in addition to proposed changes to the license application process for the MSB industry. The national standards for MSBs include core requirements for all applicants in all industries and MSB industry-specific requirements. The new requirements are expected to notably streamline the licensing process as part of efforts by state regulators to expand uniformity in state regulation through a strategy called Networked Supervision, which incorporates technology, data, and uniform practices to strengthen regulation.
Comments on the proposal must be submitted by July 23.
On April 29, the OCC responded to the Conference of State Bank Supervisors’ (CSBS) most recent challenge to the OCC’s authority to issue Special Purpose National Bank Charters (SPNB). As previously covered by InfoBytes, CSBS filed a complaint last December opposing the OCC’s alleged impending approval of an SPNB for a financial services provider, arguing that the OCC is exceeding its chartering authority.
The OCC countered, however, that the same fatal flaws that pervaded CSBS’s prior challenges (covered by InfoBytes here), i.e., that its challenge is unripe and CSBS lacks standing, still remain. According to the OCC, the cited application (purportedly curing CSBS’s prior ripeness issues) is not for an SPNB—the proposed bank would conduct a full range of services, including deposit taking. Further, the OCC stated, even it if was an application for a SPNB charter, there are multiple additional steps that need to occur prior to the OCC issuing the charter, which made the challenge unripe. As to standing, the OCC asserted that any alleged injury to CSBS or its members is purely speculative. Finally, the OCC contended that CSBS’s challenge fails on the merits because the challenge relies on the premise that the company’s application must be for a SPNB, not a national bank, because the company is not going to apply for deposit insurance but there is no requirement in the National Bank Act, the Federal Deposit Insurance Act, or the Federal Reserve Act that requires all national banks to acquire FDIC insurance.
On April 15, the Conference of State Bank Supervisors (CSBS) announced a request for public comments on proposed requirements for developing a new system to modernize and streamline the NMLS licensing application process and “[p]romote efficient operations and networked supervision among regulators.” Key components of the proposal include:
- A three-part licensing framework that divides licensing requirements into three categories: core, business-specific, and license-specific, with the goal of providing a standard set of requirements for companies, individuals, and locations “regardless of the industry they are operating in or license types they hold.”
- A listing and description of core requirements as applicable to companies and individual licensees.
- An overview of the identity verification process all users will complete when creating a new user account in the modernized NMLS.
CSBS emphasized that one of its Networked Supervision priorities is to establish a standardized licensing approach based on uniform requirements across all state nonbank financial regulatory agencies, and noted that the money services business industry will be the first industry to transition to the new system at some point in 2022. Comments on the proposal will be accepted through May 31.
On February 24, during the Nationwide Multistate Licensing System Annual Conference, the Conference of State Bank Supervisors (CSBS) released an updated cybersecurity examination tool designed for nonbank financial company supervision. The tool is intended for state regulators to use during examinations, and CSBS encourages companies to use it monitor cybersecurity health between examinations. The tool is the newest addition to state regulators’ ongoing efforts to help nonbank companies—including fintech and payment companies, money transmitters, and mortgage companies—protect, mitigate, and respond to cyber threats. While the current tool is “considered a baseline assessment for less complex and lower risk institutions,” CSBS notes that an additional tool is currently under development for release in Q2 2021 for more complex institutions.
On February 22, the Federal Reserve Board, OCC, FDIC, NCUA, and the Conference of State Bank Supervisors issued a joint statement covering supervisory practices for financial institutions affected by winter storms in Texas. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by the winter storms.
Additionally, HUD announced it will make disaster assistance available to Texas by providing foreclosure relief and other assistance to homeowners living in counties affected by the severe winter storms. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties in the affected counties and is making mortgage insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house along with the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.