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  • Student loan servicer seeks declaratory and injunctive relief to resolve dispute concerning preemption of state law

    Courts

    On April 4, a Pennsylvania-based student loan servicer (servicer) that services federal student loans on behalf of the U.S. Department of Education (Department) filed a complaint in the U.S. District Court for the District of Columbia against the Connecticut Department of Banking and its banking commissioner (together, the Connecticut Defendants), and the Department, seeking a judicial determination that the federal Privacy Act of 1974 (Privacy Act) preempts Connecticut law requiring the servicer to disclose certain records containing confidential information about its student loan borrowers to the state, along with data related to borrower complaints, or risk revocation of its state servicer’s license. In addition, the servicer seeks injunctive relief against the Connecticut Defendants to prevent the enforcement of state law in contravention of the Privacy Act and revocation of the servicer’s license.

    In support of the injunctive relief sought, the servicer cites several irreparable harms, including (i) the potential termination of its federal loan servicing contract; (ii) the revocation of its license to service, which would adversely affect approximately 100,000 student borrowers in the state, and (iii) the potential impact on loan servicing arrangements that the servicer has with “dozens of private lenders doing business in Connecticut.”

    As previously covered in InfoBytes, on March 12 Department Secretary Betsy DeVos published an Interpretation that asserted the position that state “regulation of the servicing of Direct Loans” is preempted because it “impedes uniquely Federal interests,” and state regulation of the servicing of loan under the Federal Family Education Loan Program “is preempted to the extent that it undermines uniform administration of the program.” However, last month—as discussed in InfoBytes—a bipartisan coalition of 30 state Attorneys General released a letter urging Congress to reject Section 493E(d) of the Higher Education Act reauthorization—H.R. 4508, known as the “PROSPER Act”—which would prohibit states from “overseeing, licensing, or addressing certain state law violations by companies that originate, service, or collect on student loans.” The states expressed a concern that, if enacted, the law would preempt state consumer protection laws for student borrowers and constitute “an all-out assault on states’ rights and basic principles of federalism.”

    Courts Department of Education Student Lending State Issues Preemption Congress Federal Legislation

  • House passes two bipartisan bills to increase transparency for regulatory appeals process and tailor regulations based on size and complexity

    Federal Issues

    On March 15, the House passed H.R. 4545, the “Financial Institutions Examination Fairness and Reform Act,” which would amend the Federal Financial Institutions Examination Council Act of 1978 to increase transparency and accountability for financial institutions. Among other things, the bill will require federal financial regulatory agencies to comply with deadlines established in the bill to improve the timeliness of examination reports and exit interviews, and will establish the Office of Independent Examination Review to adjudicate financial institutions’ appeals and complaints concerning examination reports. The bill further “requires the establishment of an independent internal agency appellate process at the CFPB for the review of supervisory determinations made at institutions supervised by the CFPB.”

    Separately, on March 14, the House passed H.R. 1116, the “Taking Account of Institutions with Low Operation Risk Act of 2017” (TAILOR Act), which would require federal financial regulatory agencies to tailor regulations to a financial institution’s size and complexity. The TAILOR Act would apply not only to future regulatory guidance and rulemaking but also to regulations adopted seven years prior from February 16, 2017. According to a press release issued by the House Financial Services Committee, the TAILOR Act “moves financial regulatory agencies away from the current one-size-fits-all approach to instead consider additional factors such as an institution's risk profile, unintended potential impact of implementation of such regulations, and underlying policy objectives of the statutory scheme which led to the regulation.” In registering her opposition to the bill, Ranking Member of the Committee, Representative Maxine Waters, D-CA, argued that it would “weaken important safeguards established since the financial crisis” and “provide all financial institutions, including the largest banks, with opportunities to challenge any and every regulation in court if they felt it was not 'uniquely tailored' to their business needs.”

    Federal Issues Federal Legislation Bank Regulatory FFIEC CFPB House Financial Services Committee

  • Senate passes bipartisan financial regulatory reform bill

    Federal Issues

    On March 14, by a vote of 67-31, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) (the bill)—a bipartisan regulatory reform bill crafted by Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo, R-Idaho—that would repeal or modify provisions of Dodd-Frank and ease regulations on all but the biggest banks. (See previous InfoBytes coverage here.) The bill’s highlights include:

    • Improving consumer access to mortgage credit. The bill’s provisions state, among other things, that: (i) banks with less than $10 billion in assets are exempt from ability-to-repay requirements for certain qualified residential mortgage loans; (ii) appraisals will not be required for certain transactions valued at less than $400,000 in rural areas; (iii) banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether); (iv) amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; and (v) the CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.
    • Regulatory relief for certain institutions. Among other things, the bill simplifies capital calculations and exempts community banks from Section 13 of the Bank Holding Company Act if they have less than $10 billion in total consolidated assets. The bill also states that banks with less than $10 billion in assets, and total trading assets and liabilities not exceeding more than five percent of their total assets, are exempt from Volcker Rule restrictions on trading with their own capital.
    • Protections for consumers. Included in the bill are protections for veterans and active-duty military personnel such as: (i) permanently extending the protection that shields military personnel from foreclosure proceedings after they leave active military service from nine months to one year; and (ii) adding a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses general consumer protection options such as expanded credit freezes and the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to TILA consumer protections.
    • Changes for bank holding companies. Among other things, the bill raises the threshold for automatic designation as a systemically important financial institution from $50 billion in assets to $250 billion. The bill also subjects banks with $100 billion to $250 billion in total consolidated assets to periodic stress tests and exempts from stress test requirements entirely banks with under $100 billion in assets. Additionally, certain banks would be allowed to exclude assets they hold in custody for others—provided the assets are held at a central bank—when computing the amount such banks must hold in reserves.
    • Protections for student borrowers. The bill’s provisions include measures to prevent creditors from declaring an automatic default or accelerating the debt against a borrower on the sole basis of bankruptcy or cosigner death, and would require the removal of private student loans on credit reports after a default if the borrower completes a loan rehabilitation program and brings payments current.

    The bill now advances to the House where both Democrats and Republicans think it is unlikely to pass in its current form.

    Federal Issues Federal Legislation Bank Regulatory Dodd-Frank S. 2155 CFPB HMDA Mortgages Licensing TILA TRID Servicemembers Volcker Rule Student Lending Consumer Finance Bank Holding Companies Community Banks Privacy/Cyber Risk & Data Security EGRRCPA

  • House Financial Services Committee holds hearing on data security, breach notifications

    Privacy, Cyber Risk & Data Security

    On March 7, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled “Legislative Proposals to Reform the Current Data Security and Breach Notification Regulatory Regime” to discuss data security and breach notification rules and cybersecurity supervision and examination standards for reporting agencies. Subcommittee Chairman Blaine Luetkemeyer, R-Mo., opened the hearing by stating that “[f]orty-eight states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands have all enacted differing laws requiring private companies to notify individuals of breaches of personal information,” and emphasized the need for a “national solution” to create data security safeguards and responsible notification processes.

    Legislation. The hearing discussed two legislative proposals sponsored by Representatives Luetkemeyer and Patrick McHenry, R-NC, respectively: the “Data Acquisition and Technology Accountability and Security Act” (DATAS Act) and the “Promoting Responsible Oversight of Transactions and Examinations of Credit Technology Act of 2017” (PROTECT Act). The DATAS Act would, among other things, (i) establish broad standards for data protection across industries; (ii) create new federal post-data breach notification requirements; and (iii) establish steps that covered entities must take to notify regulators, law enforcement, and victims after certain types of data breaches. Included within the PROTECT Act are provisions that would (i) subject large consumer reporting agencies to cybersecurity supervision and examination measures; (ii) amend the FCRA to allow consumers to request security freezes be placed, removed, or temporarily lifted on their credit reports; (iii) provide provisions for fees and exceptions from such fees; and (iv) prohibit consumer reporting agencies from including a consumer’s Social Security number in a credit report or being used as a method to identify a consumer.

    Hearing Testimony. The hearing’s four witnesses provided testimony related to current issues with data beaches and protecting consumer information, and commented on the inconsistencies in data breach laws. Among the issues discussed were (i) the challenges of creating a “universal, unique identifier” separate from a Social Security number; (ii) efforts to establish streamlined, uniform, national data breach notification, security, and credit freeze standards; and (iii) the need for U.S. businesses that handle sensitive financial information to implement measures to protect the data and maintain consumers’ trust. Massachusetts Assistant Attorney General and Director of Data Privacy & Security for the Attorney General’s Consumer Protection Division, Sara Cable, stated in her written testimony and during the hearing that the proposed DATAS Act’s consumer notice provisions would “leave consumers in a worse position than the status quo.” She also expressed concern that the bill “allows entities to push the cost of the data security crisis onto consumers without providing any meaningful remedy, strips the state Attorneys General of the authority they are presently and actively using to protect their consumers from breaches, and hamstrings efforts of the States to enact laws in response to future risks in an era of increasing and rapidly evolving technology.” 

    Privacy/Cyber Risk & Data Security House Financial Services Committee Data Breach FCRA Federal Legislation Security Freeze

  • House passes several bills focused on regulatory relief

    Federal Issues

    On March 6, the House passed H.R. 2226, the “Portfolio Lending and Mortgage Access Act,” amending TILA and expanding the safe harbor provisions provided to qualified residential mortgages held in portfolio by banks with less than $10 billion in assets. Under the bill, a mortgage lender would not be subject to civil liability for violating specified ability-to-repay requirements if, among other things, the loan was originated and held continuously in portfolio by a covered institution and complies with certain limitations and requirements related to prepayment penalties and points and fees..

    On the same day, the House also passed H.R. 4725, the “Community Bank Reporting Relief Act,” to amend the Federal Deposit Insurance Act to reduce the regulatory reporting burden on community banks. Specifically, federal banking agencies would be required to issue regulations allowing qualified depository institutions with less than $5 billion in assets to submit abbreviated call reports (consolidated reports of condition and income) every other quarter rather than submitting full call reports every quarter.

    Finally, by a vote of 264-143, the House passed H.R. 4607, the “Comprehensive Regulatory Review Act,” a measure to amend the Economic Growth and Regulatory Paperwork Reduction Act of 1996’s regulatory review process. Among other things, the bill requires federal financial regulators to perform a comprehensive review at least every seven years, instead of every ten years as currently required, to identify regulations that may be tailored to limit burdens on insured depository institutions. 

    Federal Issues Federal Legislation U.S. House Qualified Mortgage Mortgages Community Banks EGRPRA Federal Deposit Insurance Act Bank Regulatory

  • House passes bill to ease operational risk capital requirements for banks

    Federal Issues

    On February 27, in a bipartisan vote of 245-169, the House passed H.R. 4296, which would ease the operational risk capital requirements for banks based on several factors. Specifically, the bill would prohibit the establishment of such requirements unless they are based primarily on the risks posed by a bank's current activities and are determined by a forward-looking assessment of its potential losses and not solely on historic losses. The requirements must also allow for certain adjustments based on certain operational risk mitigants. House Financial Services Committee Chairman Jeb Hensarling stated in a press release issued by the Committee that “H.R. 4296 simply amends the method of how reserve capital is calculated” and that “banks would still retain sufficient reserves to weather an economic storm, but they would also be able to put the billions of dollars currently sitting on the sidelines to work to help fuel the economy.”

    Federal Issues Federal Legislation U.S. House House Financial Services Committee

  • House passes bill that would effectively overturn Madden; others amend RESPA disclosure requirements and adjust points and fees definitions under TILA

    Federal Issues

    On February 14, in a bipartisan vote of 245-171, the House passed H.R. 3299, the “Protecting Consumers Access to Credit Act of 2017,” to codify the “valid-when-made” doctrine and ensure that a bank loan that was valid as to its maximum rate of interest in accordance with federal law at the time the loan was made shall remain valid with respect to that rate, regardless of whether the bank subsequently sells or assigns the loan to a third party. As previously covered in InfoBytes, this regulatory reform bill would effectively overturn the 2015 decision in Madden v. Midland Funding, LLC, which ruled that debt buyers cannot use their relationship with a national bank to preempt state usury limits. Relatedly, the Senate Banking Committee is considering a separate measure, S. 1642.

    The same day, in a separate bipartisan vote of 271-145, the House approved H.R. 3978, the “TRID Improvement Act of 2017,” which would amend the Real Estate Settlement Procedures Act of 1974 (RESPA) to modify disclosure requirements applicable to mortgage loan transactions. Specifically, the bill states that “disclosed charges for any title insurance premium shall be equal to the amount charged for each individual title insurance policy, subject to any discounts as required by either state regulation or the title company rate filings.”

    Finally, last week on February 8, the House voted 280-131 to pass H.R. 1153, the “Mortgage Choice Act of 2017,” to adjust definitions of points and fees in connection with mortgage transactions under the Truth in Lending Act (TILA). Specifically, the bill states that “neither escrow charges for insurance nor affiliated title charges shall be considered ‘points and fees’ for purposes of determining whether a mortgage is a ‘high-cost mortgage.’” On February 12, the bill was received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.

    Federal Issues Federal Legislation U.S. House Usury Lending RESPA TILA Mortgages Disclosures Madden

  • House passes HMDA relief for small banks

    Federal Issues

    On January 18, by a vote of 243-184, the House passed H.R. 2954, to amend HMDA to exempt low-volume mortgage lenders from certain disclosure requirements. If enacted, the bill would exempt depository institutions from maintenance of records and disclosure requirements if, (i) for closed-end mortgage loans, “the depository institution originated less than 500 closed-end mortgage loans in each of the 2 preceding calendar years”; and (ii) for open-end lines of credit, “the depository institution originated less than 500 open-end lines of credit in each of the 2 preceding calendar years.” On January 19, the bill was received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.

    Federal Issues U.S. House Federal Legislation HMDA CFPB Senate Banking Committee Mortgages

  • House Passes Legislation Modifying Systemic Risk Designation Requirements

    Federal Issues

    The House voted 288-130 on December 19 to pass legislation modifying Dodd-Frank Act asset requirements for systemic risk designations of bank holding companies. Under H.R. 3312, the Systemic Risk Designation Improvement Act of 2017, bank holding companies that are subject to increased capital requirements and heightened supervision by the Federal Reserve (Fed) will no longer be automatically designated as systemically important financial institutions (SIFIs) if their asset threshold is $50 billion or greater. Instead, the Fed will review a bank holding company’s size, interconnectedness, infrastructure, “global cross-jurisdictional activity,” and complexity to determine whether it should be designated as a SIFI. Relatedly, the Senate Banking Committee is currently considering a separate measure, S. 2155, which would, among other things, increase the SIFI asset threshold to $250 billion.

    Federal Issues Federal Legislation Dodd-Frank SIFIs Bank Regulatory S. 2155

  • Senate Banking Committee Approves Financial Regulatory Relief Bill

    Federal Issues

    On December 5, the Senate Banking Committee approved bill S. 2155, Economic Growth, Regulatory Relief, and Consumer Protection Act, which would alter certain financial regulations under the Dodd-Frank Act of 2010. While not as sweeping as previous legislative relief proposals (see previous InfoBytes coverage on House Financial CHOICE Act of 2017), the bill was introduced and passed the Committee with bipartisan support. The bill’s highlights include, among other things:

    • Consumer Access to Credit. The bill deems mortgage loans held in portfolios by insured institutions with less than $10 billion in assets to be “qualified mortgages” under TILA, and removes the three-day waiting period for TILA-RESPA Integrated Disclosures if the second credit offer is a lower rate. The bill also instructs the CFPB to provide “clearer, authoritative guidance” on certain issues such as the applicability of TRID to mortgage assumptions and construction-to-permanent loans. Additionally, the bill eases appraisal requirements on certain mortgage loans and exempts small depository institutions with low mortgage originations from certain HMDA disclosure requirements.
    • Regulatory Relief for Certain Institutions. The bill exempts community banks from Section 13 of the Bank Holding Company Act if they have, “[i] less than $10 billion in total consolidated assets, and [ii] total trading assets and trading liabilities that are not more than five percent of total consolidated assets” – effectively allowing for exempt banks to engage in the trading of, or holding ownership interests in, hedge funds or private equity funds. Additionally, the bill raises the threshold of the Federal Reserve’s Small Bank Holding Company Policy Statement and the qualification for certain banks to have an 18-month examination cycle from $1 billion to $3 billion.
    • Protections for Consumers. Included in an adopted “manager’s amendment,” the bill requires credit bureaus to provide consumers unlimited free security freezes and unfreezes. The bill also limits certain medical debt information that can be included on veterans’ credit reports.
    • Changes for Bank Holding Companies. The bill raises the threshold for applying enhanced prudential standards from $50 billion to $250 billion.

    The bill now moves to the Senate, which is not expected to take up the package before the end of this year.

    Federal Issues Senate Banking Committee Dodd-Frank Federal Legislation TILA RESPA TRID Federal Reserve OCC FDIC Mortgages HMDA Credit Reporting Agency S. 2155 EGRRCPA Mortgage Origination

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