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Financial regulators issue examiner guidance on Covid-19
On June 23, the federal financial institution regulatory agencies (Federal Reserve Board, OCC, FDIC, and NCUA), in conjunction with the state bank and credit union regulators, issued interagency examiner guidance for assessing the safety and soundness of financial institutions in light of the Covid-19 pandemic. The joint guidance states that due to the “unique, evolving, and potentially long-term nature of the issues confronting institutions” from the Covid-19 pandemic, examiners will “exercise appropriate flexibility in their supervisory response.” The guidance acknowledges that Covid-19 can have an adverse impact on the financial condition and operational capabilities of financial institutions that have appropriate governance and risk management systems in place.
Among other things, the guidance notes that examiners will (i) “continue to assign supervisory ratings in accordance with the interagency CAMELS and ROCA rating systems”; and (ii) “assess the reasonableness of management’s actions in response to the pandemic given the institution’s business strategy and operational capacity.” The guidance also provides details on things such as capital adequacy and asset quality for examiners to consider when assigning composite and component CAMELS and ROCA ratings.
New York adopts language access requirements for debt collectors
Recently, the New York Department of Consumer Affairs (Department) adopted language access amendments to the state’s debt collection rules. The Department published the proposed rules on March 5, and held a public hearing on April 10. The new rules, among other things, require debt collectors to (i) detail in debt validation notices and on any publically maintained websites, the availability of language access services provided by the collector and a statement that a translation of commonly-used debt collection terms is available in multiple languages on the Department’s website; (ii) request and retain, to the extent reasonably possible, a record of the language preference of each consumer from whom the collector attempts to collect a debt; and (iii) maintain a report that details the number of consumer accounts the collector attempted to collect a debt on in a language other than English. The amendments also prohibit debt collectors from (i) providing false, inaccurate, or incomplete translations to a consumer in the course of collecting a debt; and (ii) misrepresenting or omitting a language preference when returning, selling, or referring for litigation a consumer account, when the debt collector is aware of the preference. The new rules are effective June 27.
Texas securities regulator halts cryptocurrency investment business
On June 5, the Texas State Securities Board (TSSB) issued an emergency cease and desist order against a New York-based cryptocurrency investment business for allegedly violating the state Securities Act by soliciting investments in Texas without obtaining the required state licenses and engaging in fraud connected to the offer of the sale of securities. Among other things, the TSSB alleged that the business’s website advertised false information, including fake photos of its “expert team” and testimonials from purportedly “satisfied clients,” and failed to disclose material facts related to how profits are generated through its purported cryptocurrency mining operation, important security information, and risks associated with cryptocurrency investments. According to the order, the business claimed investors could generate returns between 20 and 75 percent within 24 hours depending on how much is invested in the company’s mining operation. The TSSB also alleged that while the business claimed to possess the appropriate licensure to engage in cryptocurrency mining investments, the business did not have the required registrations or licenses and the investment plans “have not been registered by qualification, notification or coordination at any time material hereto, and no permit has been granted for their sale in Texas at any time material hereto.”
Multistate regulator group to address pandemic's effect on financial infrastructure
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.”
NYDFS launches Covid-19-era fintech program
On June 9, the New York Department of Financial Services (NYDFS) announced the launch of “DFS FastForward,” a program “to support innovators seeking to deliver new solutions in financial services, Fintech, InsurTech, and HealthTech for New Yorkers in the COVID-19 era.” DFS FastForward is intended to assist the New York marketplace in adapting to a “new normal” due to Covid-19, and NYDFS is encouraging businesses (NYDFS-regulated and non-regulated) looking to “operate novel financial services and products in New York.” Specifically, NYDFS is seeking innovations that (i) promote recovery for small businesses; (ii) provide “HealthTech” solutions to give New Yorkers better access and assistance to healthcare; and (iii) offer tools to assist consumers in building financial resilience. NYDFS is encouraging those who are interested in participating in program to complete an inquiry form.
CSBS, state regulators express concerns with CFPB taskforce RFI
On June 1, the Conference of State Bank Supervisors (CSBS) submitted a comment letter in response to the CFPB’s Taskforce on Federal Consumer Financial Law’s request for information (RFI). As previously covered by InfoBytes, the taskforce issued the RFI in March seeking input on consumer protection areas for the taskforce to focus its research and analysis, and requesting suggestions for “harmonizing, modernizing, and updating the federal consumer financial laws.” In the letter, CSBS expresses significant concerns regarding the timing of the RFI due to the Covid-19 pandemic, as well as the content of the RFI itself. The letter conveys state regulator concerns over the RFI’s “inclusion of inquiries soliciting input on whether additional preemption of state laws and state regulatory authority is warranted” and highlights the absence of questions asking whether less federal preemption is warranted. According to the letter, “the inclusion of outcome-oriented questions focused on expanding preemption of state authority raises serious questions regarding the objectivity and mission of the Taskforce.” The letter also notes that state regulators and the CFPB have exercised “concurrent regulatory, supervisory, and enforcement authority,” while retaining independent authority, and that coordinated efforts have “fostered a more efficient and effective regulatory system.” The fact that former state regulators are not represented on the taskforce raises several concerns for the state regulators: “This spirit of coordination and collaboration does not seem to be reflected in the timing or content of the request for information, and we fear, the future work of the Taskforce,” the letter states.
Texas amends residential MLO application procedures
On May 1, the Texas Finance Commission adopted amendments related to application procedures for regulated residential mortgage loan originators (MLO). The amendments are intended to reduce costs for residential MLOs and to ensure consistency with current licensing procedures and processes. Among other things, the amendments lower MLO application and annual renewal fees from $300 to $200, and implement statutory changes from HB 1342 (enacted last year) related to criminal background checks for residential MLOs. Specifically, the amendments (i) repeal a provision that allowed for the “denial, suspension, or revocation for any offense occurring in the five years preceding the application”; (ii) add provisions requiring an agency to consider the correlation between the element of a crime and a licensed occupation’s duties and responsibilities; and (iii) remove language related to letters of recommendation provided on behalf of an MLO applicant. The amendments are effective as of May 7.
States offer relief to student loan borrowers not covered by CARES Act
On April 23 and 21, nine states announced a multi-state initiative to provide student loan relief options for borrowers with privately held student loans not covered by the CARES Act. California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, Vermont, and Washington outlined within their announcements specific measures for borrowers with commercially-owned Federal Family Education Loan Program loans and borrowers with private student loans who are struggling to make payments due to the Covid-19 pandemic. The announcements also noted that Virginia is participating in the initiative as well. These relief options, offered in conjunction with the listed private student loan servicers, include (i) a minimum 90-days of forbearance relief; (ii) a waiver of late fees; (iii) no negative credit reporting; (iv) a 90-day moratorium on collection lawsuits; and (v) enrollment in applicable borrower assistance programs, such as income-based repayment. The states cautioned that enrollment in these relief options is not automatic, and recommended borrowers contact their student loan servicer to see what options best suit their needs.
In addition, California, Colorado, Connecticut, New Jersey, Vermont, and Washington recommended that regulated student loan servicers with limited ability to take these actions due to investor restrictions or contractual obligations “should instead proactively work with loan holders whenever possible to relax those restrictions or obligations.”
NYDFS strongly opposes OCC’s proposed CRA rulemaking
On April 8, NYDFS Superintendent Linda Lacewell sent a letter to OCC Comptroller Joseph Otting expressing her “strong opposition” to the OCC’s notice of proposed rulemaking (NPR) issued last December to modernize the Community Reinvestment Act (CRA). (See Buckley Special Alert discussing the NPR). Lacewell urged the OCC to revise substantially or abandon the NPR, referring to the Department’s “extensive experience with the CRA” through its oversight of state-chartered banks’ compliance with the New York Community Reinvestment Act, which, according to Lacewell “largely mirrors the current federal CRA.”
Lacewell addressed several concerns, including that the NPR’s proposed evaluation framework would “reduce CRA evaluations to a single, dollar value comparison of banks’ CRA-qualifying activities to deposits.” This single-metric CRA ratio, Lacewell, stated, would eliminate important qualitative aspects of CRA evaluations and “incentivize banks to focus on large-dollar CRA activities to the detriment of complex and innovative small-dollar projects.” Lacewell also expressed concerns with deposit data limitations, and cited the OCC’s separate request for bank-specific data (covered by InfoBytes here) as an indicator that the data to be relied upon for the CRA ratio may be questionable. Lacewell also asserted that the NPR detrimentally redefines CRA-qualifying activities that may not positively impact low- and moderate-income communities, and fails to evaluate properly assessment area changes. Furthermore, Lacewell argued that the NPR reduces the importance of bank branches in CRA evaluations, and imposes new burdens that disproportionately impact intermediate-small banks.
Lacewell expressed support for an alternative approach suggested by Federal Reserve Governor Lael Brainard in January (covered by InfoBytes here), whose proposal would include, among other things, a set of thresholds calibrated for local conditions and two tests—a retail test and a community development test—that would tailor performance metrics for banks of different sizes and business models.
California DBO sues student loan servicer to compel production of borrower records
On April 2, the California Department of Business Oversight (DBO) announced a lawsuit against one of the nation’s largest student loan servicers seeking an order requiring the production of documents related to the servicer’s administration of the Teacher Education Assistance for College and Higher Education (TEACH) grant program. According to the press release, DBO began an examination in January under the California Student Loan Servicing Act (Act) to determine whether the licensed servicer is improperly converting California teachers’ TEACH grants into loans with back interest. In its complaint, DBO states that the servicer’s refusal to produce records concerning its “handling of the TEACH program reconsideration process” is based on arguments that California law is preempted by the federal Higher Education Act, and that student borrower records are “legally owned” by the Department of Education and cannot be released under the federal Privacy Act of 1974. Because of the servicer’s refusal to produce the records, DBO claims that the servicer “has failed to satisfy its statutory duties,” and has “unduly restrained” DBO’s ability to both oversee the administration of student loan servicing in the state and protect California student loan borrowers. DBO seeks a preliminary and permanent injunction, as well as a declaratory judgment against the servicer to compel compliance with the Act.