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On September 13, the OCC issued a new Problem Bank Supervision booklet of the Comptroller's Handbook to be used by examiners in connection with the examination and supervision of national banks, federal savings associations, and federal branches and agencies of foreign banking organizations. The booklet—the central reference for the OCC's problem bank supervision policy—describes the OCC’s approach to timely identification and rehabilitation of problem banks and replaces previously-issued guidance. Among other things, the booklet (i) discusses red flags that can indicate a potential problem bank; (ii) details the supervisory and enforcement approaches the OCC can take to rehabilitate a problem bank; (iii) provides a comprehensive discussion of the agency’s authority under 12 CFR 6, “Prompt Corrective Action”; and (iv) explains the process for problem bank resolution, including receivership. The booklet complements other Comptroller’s Handbook booklets as well as topical OCC and interagency issuances. The OCC also notes that the booklet “should be supplemented with appropriate examiner consultation with the supervisory office, subject matter experts, Licensing Division staff, and OCC legal counsel.”
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 August 18, the OCC issued a new Model Risk Management booklet as part of the Comptroller’s Handbook’s safety and soundness series. The booklet is used by OCC examiners when examining and supervising national banks, federal savings associations, and federal branches and agencies of foreign banking organizations. Among other things, the new booklet (i) outlines model risk management concepts and general principles; (ii) “informs and educates examiners about sound model risk management practices that should be assessed during an examination”; and (iii) “provides information needed to plan and coordinate examinations on model risk management, identify deficient practices, and conduct appropriate follow-up.” The booklet aligns with principals laid out in OCC Bulletin 2011-12 “Sound Practices for Model Risk Management: Supervisory Guidance on Model Risk Management.”
On August 16, the OCC released an annual update to its Bank Accounting Advisory Series (BAAS). Intended to address a variety of accounting topics and promote consistent application of accounting standards and regulatory reporting among OCC-supervised banks, the BAAS reflects updates to accounting standards issued by the Financial Accounting Standards Board through March 31, 2021, related to, among other things, (i) the amortization of premiums on callable debt securities; and (ii) evaluating goodwill impairment triggering events for private companies. The 2021 edition also includes answers to frequently asked questions from industry and bank examiners. Additionally, the OCC notes that the BAAS does not represent OCC rules or regulations but rather “represents the Office of the Chief Accountant’s interpretations of generally accepted accounting principles and regulatory guidance based on the facts and circumstances presented.”
On August 16, the OCC issued Bulletin 2021-38 announcing the updated version of the Liquidity booklet of the Comptroller’s Handbook. The booklet replaces the 2012 version and provides information and examination procedures on liquidity coverage ratio and net stable funding ratio requirements. Among other things, the revised booklet: (i) discusses risks associated with liquidity; (ii) reflects changes in regulations and relevant OCC issuances since 2012; and (iii) clarifies edits on supervisory guidance, sound risk management practices, and legal language.
On June 29, the CFPB released its summer 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto loan servicing, consumer reporting, debt collection, deposits, fair lending, mortgage origination and servicing, payday lending, private education loan origination, and student loan servicing. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between January and December of 2020. Highlights of the examination findings include:
- Auto Loan Servicing. Bureau examiners identified unfair acts or practices related to lender-placed collateral protection insurance (CPI), including instances where servicers charged unnecessary CPI or charged for CPI after repossession. Examiners also identified unfair acts or practices related to payoff amounts where consumers had ancillary product rebates due, and also found unfair or deceptive acts or practices related to payment application.
- Consumer Reporting. The Bureau found deficiencies in consumer reporting companies’ (CRCs) FCRA compliance related to the following requirements: (i) accuracy; (ii) security freezes applicable to certain CRCs; and (iii) ID theft block requests. Specifically, examiners found that CRCs continued to include information from furnishers despite receiving furnisher dispute responses that “suggested that the furnishers were no longer sources of reliable, verifiable information about consumers.” Additionally, the report noted instances where furnishers failed to update and correct information or conduct reasonable investigations of direct disputes.
- Debt Collection. The report found that examiners found instances of FDCPA violations where debt collectors (i) made calls to a consumer’s workplace; (ii) communicated with third parties; (iii) failed to stop communications after receiving a written request or a refusal to pay; (iv) harassed consumers regarding their inability to pay; (v) communicated, and threatened to communicate, false credit information to CRCs; (vi) made false representations or used deceptive collection means; (vii) entered inaccurate information regarding state interest rate caps into an automated system; (viii) unlawfully initiated wage garnishments; and (ix) failed to send complete validation notices.
- Deposits. The Bureau discussed violations related to Regulation E and Regulation DD, including error resolution violations, issues with provisional credits, failure to investigate, failure to remediate errors, and overdraft opt-in and disclosure violations.
- Fair Lending. The report noted instances where examiners cited violations of HMDA/ Regulation C involving HMDA loan application register inaccuracies, and instances where lenders, among other things, violated ECOA/Regulation B “by engaging in acts or practices directed at prospective applicants that would have discouraged reasonable people in minority neighborhoods in Metropolitan Statistical Areas (MSAs) from applying for credit.”
- Mortgage Origination. The Bureau cited violations of Regulation Z and the CFPA related to loan originator compensation, title insurance disclosures, and deceptive waivers of borrowers’ rights in security deed riders and loan security agreements.
- Mortgage Servicing. The Bureau cited violations of Regulation X, including those related to dual tracking violations, misrepresentations regarding foreclosure timelines, and PMI terminations.
- Payday Lending. The report discussed violations of the CFPA for payday lenders, including falsely representing an intent to sue or that a credit check would not be run, and presenting deceptive repayment options to borrowers that were contractually eligible for no-cost repayment plans.
- Private Education Loan Origination. Bureau examiners identified deceptive acts or practices related to the marketing of private education loan rates.
- Student Loan Servicing. Bureau examiners found several types of misrepresentations servicers made regarding consumer eligibility for the Public Service Loan Forgiveness (PSLF) program, and identified unfair acts or practices related to a servicer’s “failure to reverse negative consequences of automatic natural disaster forbearances.” Additionally, examiners identified unfair act or practices related to failing to honor consumer payment allocation instructions or providing inaccurate monthly payment amounts to consumers after a loan transfer.
The report also highlights recent supervisory program developments and enforcement actions.
On June 25, the FDIC announced PR-58-2021, which outlines a modified approach to implementing its rule requiring insured depository institutions (IDIs) with $100 billion or more in total assets (CIDIs) to submit resolution plans under the Federal Deposit Insurance Act. Among other things, the modified approach extends the resolution plan’s submission frequency to a three-year cycle and lays out new details regarding the FDIC’s emphasis on engagement with firms. The new approach “exempts filers from other content requirements that have been less useful or are obtainable through other supervisory channels.” In addition, on a case-by-case basis, the FDIC plans to “expressly exempt certain content requirements based on the FDIC’s evaluation of how useful or material the information would be in planning to resolve the specified CIDI.” Resolution plans will be submitted in two groups. The first group will contain IDIs whose top tier parent company is not regarded as a U.S. global systemically important bank or a category II banking organization. The second group encompass all other IDIs with $100 billion or more in total assets. For institutions with less than $100 billion in total assets, the moratorium on submission of IDI plans announced in November 2018 remains in effect.
Special Alert: CFPB specifies pandemic foreclosure protections and signals tight supervision and enforcement around servicer efforts
The Consumer Financial Protection Bureau’s Covid-relief mortgage servicing rule issued yesterday steered away from a nationwide foreclosure freeze as initially proposed, instead creating heightened protections for those borrowers who became seriously delinquent during the pandemic. The distinction may not prove to be a game-changer for servicers, however, which will be obligated to carefully document outreach efforts and decisions to advance borrowers into foreclosure — with little margin for error.
The bureau’s final rule, which takes effect Aug. 31, obligates a servicer to continue specifying, with substantial detail, any loss mitigation options that may help the borrower resolve their delinquency. It also largely preserves the proposed streamline modification option on the basis of an incomplete loss mitigation application, although most servicers already have been offering many of these modifications since the early days of the pandemic.
On June 16, the CFPB issued an interpretive rule explaining the reversal of its prior determination that it lacked the authority to examine supervised financial institutions for compliance with the Military Lending Act (MLA). As previously covered by InfoBytes, in 2018, the Bureau discontinued MLA-related examination activities, contending the law does not explicitly prescribe the Bureau the authority to examine financial institutions for compliance with the MLA. In January 2019, the Bureau issued a statement from former Director Kathy Kraninger announcing that she had asked Congress to grant the agency “clear authority to supervise for compliance with the [MLA],” and in March 2019, Senate Democrats issued a letter urging the resumption of reviews for compliance with the MLA during routine lender examinations (covered by InfoBytes here and here).
The CFPB’s interpretive rule states that the Bureau has statutory authority to conduct MLA examinations “[b]ecause conduct that violates the MLA is associated with activities that are subject to TILA and the CFPA.” The Bureau also indicated it may “conduct examinations of very large banks and credit unions for purposes of detecting and assessing those ‘risks to consumers’ that are ‘associated’ with ‘activities subject to’ Federal consumer financial laws.” The interpretive rule states that the Bureau can use formal administrative adjudications, civil enforcement actions, and other authorities to enforce the MLA, which is “complemented by the Bureau’s use of the examination process to detect and assess risks to consumers arising from violations of the MLA.” The rule also points out that the Bureau “believes that the very harmful conduct that Congress sought to prevent in the MLA, which the Bureau has the authority to remedy through its other authorities (specifically enforcement action), sits within the core of this authority.” CFPB acting Director Dave Uejio further emphasizes in the Bureau’s press release that “[t]hrough our enforcement of the MLA, companies that harmed military borrowers have been ordered to pay millions of dollars in redress and civil penalties. To fulfill its purpose and protect military borrowers we must supervise financial institutions and hold them accountable for endangering consumers.” With the issuance of the interpretative rule, the Bureau will now resume MLA-related examination activities.
On June 15, the FDIC Board of Directors met in open session to discuss Real Estate Lending Standards and Minority Depository Institutions (MDIs), among other things. According to FIL-41-2021, the FDIC issued a proposed rule to amend the Interagency Guidelines for Real Estate Lending Policies “to conform the method for calculating the ratio of loans in excess of the supervisory loan-to-value (LTV) limits with the capital framework established in the community bank leverage ratio (CBLR) rule.” The proposed amendments would provide a consistent approach for calculating the ratio of loans in excess of the supervisory LTV limits at all FDIC-supervised institutions by, among other things, establishing supervisory LTV criteria for certain real estate lending transaction types and allowing exceptions to the supervisory LTV limits. Comments on the proposed rule are due 30 days after publication in the Federal Register.
During the meeting, the FDIC Board of Directors also approved and released an updated Statement of Policy Regarding Minority Depository Institutions to enhance the agency’s efforts to preserve and promote MDIs. In August 2020, the FDIC approved a proposed statement of policy, which updated and clarified the agency’s policies and procedures related to MDIs (covered by InfoBytes here). The recently updated statement of policy replaces the 2002 Statement of Policy and includes, among other things:
- Clarification of the FDIC’s expectations for technical assistance and illustration of opportunities for engagement with members of FDIC staff;
- Outreach efforts by the FDIC including, among other things, the establishment of the MDI Subcommittee of the Advisory Committee on Community Banking and enhanced activities to promote collaboration with MDIs;
- Definitions of terms utilized in the MDI program, detailed reporting requirements, and specific methods used to measure the effectiveness of MDI program activities; and
- Clarification of considerations made by examination staff when evaluating performance and assigning ratings.
After considering the comment letters, the FDIC revised the proposed statement of policy to identify, specifically, “state bankers associations as collaboration partners, along with other trade associations that support MDIs in the development of education and training events and other initiatives for MDIs.”
- Buckley Webcast: Best practices for incident-response planning in a dangerous and regulated world
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- APPROVED Webcast: California debt collection license requirement: Overview and analysis
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- Jeffrey P. Naimon to discuss “Regulators are gearing up: Are you ready?” at HousingWire Annual
- Amanda R. Lawrence and Elizabeth E. McGinn discuss “U.S. state privacy legislation – Are you compliant?” at the Privacy+Security Forum
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek