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On September 11, five federal agencies (the Federal Reserve Board, CFPB, FDIC, NCUA, and OCC) issued a joint statement confirming that supervisory guidance “does not have the force and effect of law, and [that] the agencies do not take enforcement actions based on supervisory guidance.” The statement distinguishes the various types of supervisory guidance—interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions—from laws or regulations and emphasizes that the intention of supervisory guidance is to outline agencies’ expectations or priorities. The statement highlights five policies and practices related to supervisory guidance: (i) limit the use of numerical thresholds or other “bright-line” requirements; (ii) examiners will not cite to “violations” of supervisory guidance; (iii) request for public comment does not mean the guidance has the force and effect of law; (iv) limit multiple issuances of guidance on the same topic; and (v) continue to emphasize the role of supervisory guidance to examiners and to supervised institutions.
On September 6, the CFPB released its summer 2018 Supervisory Highlights, which outlines its supervisory and oversight actions in the areas of auto loan servicing, credit card account management, debt collection, mortgage servicing, payday lending, and small business lending. The findings of the report cover examinations that generally were completed between December 2017 and May 2018. Highlights of the examination findings include:
- Auto loan servicing. The Bureau determined that billing statements showing “paid-ahead” status after insurance proceeds from a total vehicle loss were applied, where consumers were treated as late if they failed to pay the next month, were deceptive. The Bureau also found that servicers unfairly repossessed vehicles after the repossession should have been canceled because the account was not coded correctly, or because an agreement with consumer was reached.
- Credit card account management. The Bureau found that companies failed to reevaluate accounts for eligibility for a rate reduction under Regulation Z or failed to appropriately reduce annual percentage rates.
- Debt collection. The Bureau found that debt collectors failed to mail debt verifications to consumers before engaging in continued debt collection, activities as required by the FDCPA.
- Mortgage servicing. The Bureau found that mortgage servicers delayed processing permanent modifications after consumers successfully completed their trial modifications, resulting in accrued interest and fees that would not otherwise have accrued, which the Bureau determined was an unfair act or practice.
- Payday lending. The Bureau found that companies threatened to repossess consumer vehicles, notwithstanding that they generally did not actually do so or have a business relationship with an entity capable of doing so, which the Bureau determined was a deceptive practice. The Bureau also found that companies did not obtain valid preauthorized EFT authorizations for debits initiated using debit card numbers or ACH credentials provided for other purposes, in violation of Regulation E.
- Small business lending. The Bureau found that some institutions collect and maintain only limited data on small business lending decisions, which it determined could impede the institution’s ability to monitor ECOA risk. The Bureau noted positive exam findings including, (i) active oversight of an entity’s CMS framework; (ii) maintaining records of policy and procedure updates; and (iii) self-conducted semi-annual ECOA risk assessments, which included small business lending.
The report notes that in response to most examination findings, the companies have already remediated or have plans to remediate affected consumers and implement corrective actions, such as new policies in procedures.
Finally, the report highlights, among other things, (i) two recent enforcement actions that were a result of supervisory activity (covered by InfoBytes here and here); (ii) recent updates to the mortgage servicing rule and TILA-RESPA integrated disclosure rule (covered by InfoBytes here and here); and (iii) HMDA implementation updates (covered by InfoBytes here).
On September 5, the FDIC released its summer 2018 issue of Supervisory Insights (see FIL-44-2018), which contains articles discussing bank lending to the oil and gas sector and an overview of bank credit risk grading systems. Information and analysis from examiner observations is presented in the article, “Credit Risk Grading Systems: Observations from a Horizontal Assessment.” Sixteen large state nonmember banks’ credit risk grading programs are analyzed for (i) their use of expert judgment based systems and/or quantitative scorecards and models to assign credit grades; (ii) data usage and retention needs; and (iii) governance and risk management frameworks established by grade definitions. The article advises that “a bank’s credit risk grading system should align with the bank’s size and complexity to facilitate accurate risk identification, measurement, monitoring, and reporting,” and should include internal systems to allow for effective risk assessment, timely and accurate reporting, and procedures for safeguarding and managing assets. In addition, the issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.
According to reports citing “internal agency documents,” acting Director of the CFPB Mick Mulvaney intends to cease supervisory examinations of the Military Lending Act (MLA), contending the law does not explicitly prescribe the Bureau the authority to examine financial institutions for compliance with the MLA. In 2013, amendments to the MLA granted enforcement authority to the same agencies with administrative enforcement power under TILA, including the Bureau, but these amendments did not also provide these same agencies with the statutory authority to supervise institutions for compliance with the MLA. The Bureau currently includes the MLA in the statutory- and regulation-based procedures section of the Supervision and Examination Manual and has not released a formal statement in response to reports of this supervisory change.
In August, the CFPB released an updated version of the Supervision and Examination Manual, which includes minor changes to the workpapers section of the examination process and an updated scope summary template. According to the manual, workpapers are the records documenting the review conducted by examiners to reach conclusions about the financial institution’s compliance with federal consumer protection laws. The manual emphasizes that “[a]ll information collected and all records created during the review that are used to support findings and conclusions could potentially be included in the workpapers” and all workpapers must be reviewed and signed off by the examiner in charge. The Bureau requires all workpapers and related documentation to be maintained in electronic form.
- Daniel R. Alonso to moderate an interactive roundtable at the Latin Lawyer and GIR Connect: Anti-Corruption & Investigations Conference
- APPROVED Checkpoint Webcast: You have license renewal questions, we have answers
- 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
- Daniel R. Alonso to discuss anti-money-laundering at FELABAN Spanish-language webinar “Perspective for banks: LAFT, FINCEN, OFAC, Cryptocurrency”
- Daniel R. Alonso to discuss "What’s new in BSA/AML compliance?" at the Institute of International Bankers Regulatory Compliance Seminar
- Marshall T. Bell and John R. Coleman to speak at 2021 AFSA Annual Meeting
- Jon David D. Langlois to discuss "Regulatory update: What you need to know under the new boss; It won’t be the same as the old boss" at the IMN Residential Mortgage Service Rights Forum (East)
- Daniel R. Alonso to discuss internal investigations at the Institute of Internal Auditors of Argentina Spanish-language webinar
- Benjamin B. Klubes to discuss “Creating a Fantastic Workplace Culture”
- 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