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Fed formalizes stance on supervisory guidance
On March 31, the Federal Reserve Board issued a final rule codifying the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the CFPB, FDIC, NCUA, and OCC on September 11, 2018 (2018 Statement). As previously covered by InfoBytes, an October 2018 joint proposal amended the 2018 Statement by (i) clarifying that references in the 2018 Statement limiting agency “criticisms” includes criticizing institutions “through the issuance of [matters requiring attention] and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations”; and (ii) adding that supervisory criticisms should be “specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.” The final rule is effective 30 days after publication in the Federal Register, and mirrors final rules issued by the CFPB, OCC, FDIC, and NCUA.
Acting director sets out CFPB priorities
On January 28, newly appointed CFPB acting Director, Dave Uejio, released a statement he sent to staff announcing his immediate priorities for the Bureau as: (i) relief for consumers facing hardship and economic crisis due to the Covid-19 pandemic, and (ii) racial equity. Acknowledging the recently released Covid-19 Supervisory Highlights (covered by InfoBytes here), Uejio stated he was “concerned” about the findings, which noted issues with mortgage servicing, auto loan servicing, student loan servicing, and small business lending (including banks' practice of only offering Paycheck Protection Program loans to pre-existing customers). Uejio stated that going forward, the Bureau will “take aggressive action to ensure that regulated companies follow the law and meet their obligations to assist consumers during the COVID-19 pandemic,” noting that companies will have already received or should expect to receive a letter dictating “remediat[ion] [to] all of those who are harmed” and should “change policies, procedures, and practices to address the root causes of harms.” Moreover, Uejio will be reversing policies put into place by the previous administration, including reinstating examinations of the Military Lending Act and rescinding “public statements conveying a relaxed approach to enforcement.”
Additionally, Uejio said fair lending enforcement is a “top priority,” calling it “time” for the CFPB to “take bold and swift action on racial equity.” Uejio noted plans to “elevate and expand existing investigations and exams,” as well as add new ones and focus broadly on “unlawful conduct that disproportionately impacts communities of color and other vulnerable populations.”
FDIC revises supervisory appeals guidelines
On January 19, the FDIC issued FIL-04-2021 announcing the adoption of revised Guidelines for Appeals of Material Supervisory Determinations (Guidelines). The Guidelines, originally proposed last August (covered by InfoBytes here), will establish a new, independent Office of Supervisory Appeals (Office) replacing the current Supervision Appeals Review Committee. The new Office will have final authority to resolve appeals by a panel of reviewing officials and will be independent from other divisions within the FDIC that have authority to issue material supervisory determinations. The Guidelines provide that appeals submitted to the Office will be decided by a panel of term-appointed reviewing officials with bank supervisory or examination experience. Additionally, the division director will make an independent supervisory determination without deferring to the judgments of either party, with communications between the Office and members of either the supervisory staff or the appealing institution to be shared with the other party to the appeal. The Guidelines will also permit an institution to request expedited review of its appeal, and will amend the procedures and timeframes for considering formal enforcement-related decisions through the supervisory appeals process. The Guidelines will take effect once the new Office is fully operational. In the meantime, the current guidelines will remain in effect.
CFPB issues Covid-19 supervisory highlights
On January 19, the CFPB released a special edition of Supervisory Highlights detailing the agency’s Covid-19 prioritized assessment (PA) observations. Since May 2020, the Bureau has conducted PAs in response to the pandemic in order to obtain real-time information from supervised entities operating in markets that pose an elevated risk of pandemic-related consumer harm. According to the Bureau, the PAs are not designed to identify federal consumer financial law violations, but are intended to spot and assess risks in order to prevent consumer harm. Targeted information requests were sent to entities seeking information on, among other things, ways entities are assisting and communicating with consumers, Covid-19-related institutional challenges, compliance management system changes made in response to the pandemic, and service provider data. Highlights of the Bureau’s findings include:
- Mortgage servicing. The CARES Act established certain forbearance protections for homeowners. The Bureau pointed out that many servicers faced significant challenges, including operational constraints, resource burdens, and service interruptions. Consumer risks were also present, with several servicers (i) providing incomplete or inaccurate information regarding CARES Act forbearances, failing to timely process forbearance requests, or enrolling borrowers in unwanted or automatic forbearances; (ii) sending collection and default notices, assessing late fees, and initiating foreclosures for borrowers in forbearance; (iii) inaccurately handling borrowers’ preauthorized electronic funds transfers; and (iv) failing to take appropriate loss mitigation steps.
- Auto loan servicing. The Bureau noted that many auto loan servicers provided insufficient information to borrowers about the impact of interest accrual during deferment periods, while other servicers continued to withdraw funds for monthly payments even after agreeing to deferments. Additionally, certain borrowers received repossession notices even though servicers had suspended repossession operations during this time.
- Student loan servicing. The CARES Act established protections for certain student loan borrowers, including reduced interest rates and suspended monthly payments for most federal loans owned by the Department of Education. Many private student loan holders also offered payment relief options. The Bureau noted however that servicers faced significant challenges in implementing these protections. For certain servicers, these challenges led to issues which raised the risk of consumer harm, including (i) provision of incorrect or incomplete payment relief options; (ii) failing to maintain regular call center hours; (iii) failing to respond to forbearance extension requests; and (iv) allowing certain payment allocation errors and preauthorized electronic funds transfers.
- Small business lending. The Bureau discussed the Small Business Administration’s Paycheck Protection Program (PPP), noting that when “implementing the PPP, multiple lenders adopted a policy that restricted access to PPP loans beyond the eligibility requirements of the CARES Act and rules and orders issued by the SBA.” The Bureau encouraged lenders to consider and address any fair lending risks associated with PPP lending.
The Supervisory Highlights also examined areas related to credit card accounts, consumer reporting and furnishing, debt collection, deposits, prepaid accounts, and small business lending.
CFPB finalizes rule stating supervisory guidance lacks force of law
On January 19, the CFPB issued a final rule codifying the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the CFPB, OCC, Federal Reserve Board, FDIC, and the NCUA on September 11, 2018 (2018 Statement). As previously covered by InfoBytes, the October 2018 joint proposal amended the 2018 Statement by (i) clarifying that references in the Statement limiting agency “criticisms” includes criticizing institutions “through the issuance of [matters requiring attention] MRAs and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations”; and (ii) adding that supervisory criticisms should be “specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.”
The Bureau notes that it chose to issue a final rule that is specific to the Bureau and Bureau-supervised institutions, rather than a joint version including the five agencies as it did with the proposal. However, the final rule adopts the proposed rule without substantive change. The final rule is effective 30 days after publication in the Federal Register.
Similar announcements were issued by the OCC, FDIC, and NCUA.
CFPB and NCUA announce supervision MOU
On January 14, the CFPB announced a Memorandum of Understanding (MOU) with the NCUA, which is intended to improve supervision coordination of credit unions with over $10 billion in assets. According to the Bureau’s press release, the MOU covers (i) the sharing of the Covered Reports of Examination and final Reports of Examination for covered institutions, using secure, two-way electronic means; (ii) collaboration in semi-annual strategy planning sessions for examination coordination; (iii) information sharing on training activities and content; and (iv) information sharing related to potential enforcement actions.
Agencies release annual CRA asset-size threshold adjustments
On December 17, the Federal Reserve Board and the FDIC announced the joint annual adjustments to CRA asset-size thresholds used to define small and intermediate small banks, which are subject to streamlined CRA evaluations and not subject to the reporting requirements applicable to large banks unless they choose to be evaluated as one. A “small” bank is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.322 billion in assets. An “intermediate small” bank is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $330 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.322 billion in assets. This joint final rule became effective on January 1.
The OCC did not join in this announcement. As previously covered by a Buckley Special Alert, on May 20, the OCC announced the final rule to modernize the regulatory framework implementing the CRA. Its new CRA rule defines a small bank as an institution with $600 million or less in assets in four of the last five calendar quarters and an intermediate small bank as having $2.5 billion or less in assets in four of the last five calendar quarters.
Agencies announce several resolution plan actions
On December 9, the FDIC and Federal Reserve Board announced several resolution plan actions, including providing finalized guidance for the resolution plans of four large foreign banking organizations (FBOs). Pursuant to the Dodd-Frank Act, FBOs must submit resolution plans—also known as “living wills”—which detail the strategic plans for their U.S. operations and subsidiaries for rapid and orderly resolution in bankruptcy in the event that the banks fail or fall under material financial distress. The final guidance modifies the proposed updates issued last March (covered by InfoBytes here) in several ways. Among other changes, the agencies “tailored their expectations around resolution capital and liquidity, derivatives and trading activity, as well as payment, clearing, and settlement activities,” and modified the scope of the guidance “to generally cover foreign banks in category II of the agencies' large bank regulatory framework.” As a result, three FBOs would be subject to the guidance for their plan submissions for 2021, and an additional FBO would be subject to the guidance for its full plan due in 2024 if it remains within the scope. The agencies also released information for 15 large foreign and domestic banks in categories II and III of the large bank regulatory framework that identifies required targeted information to be included in their next resolutions plans, due December 17, 2021. The agencies also confirmed that certain previously identified weaknesses in four FBOs have been remediated.
Fed issues supervisory letter covering appeals process
On December 4, the Federal Reserve Board issued supervisory letter SR 20-28 / CA 20-14, which discusses the internal appeals process for material supervisory determinations and its policy regarding the Ombudsman. As previously covered by InfoBytes, in March, the Fed issued final amendments intended to improve and expedite the appeals process. Among other things, the final amendments (i) clarify that Matters Requiring Attention and Matters Requiring Immediate Attention “are appealable material supervisory determinations”; (ii) “permit an institution’s senior management to file an appeal, provided that management informs the institution’s board of directors of their decision to file an appeal and keeps the board informed of the status of the appeal”; (iii) “permit an institution to request an extension of time to file an appeal in appropriate circumstances”; and (iv) “clarify that, at an institution’s request, the initial review panel must schedule a meeting with the institution.” The amended Ombudsman policy formalizes current practices of the office, including receiving supervisory-related complaints and supervisory determination appeals. The Fed requests that Reserve Banks distribute the supervisory letter covering the appeals process changes to their various supervised institutions and to appropriate supervisory staff.
Washington governor extends suspension of consumer garnishment
On November 20, the Washington governor issued a proclamation extending a previous moratorium on garnishment for consumer debts until the earlier of December 7, 2020 or the termination of Washington’s Covid-19 State of Emergency. See here, here and here for previous coverage. The suspension applies to garnishment of consumer bank accounts, wages and income to satisfy consumer debt judgments.