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Bipartisan state Attorneys General coalition urge CFPB to examine for MLA compliance
On October 23, a bipartisan coalition of 33 state Attorneys General sent a letter to acting Director of the CFPB, Mick Mulvaney, expressing concern over reports that the Bureau is no longer supervising financial institutions for compliance with the Military Lending Act (MLA). The Attorneys General wrote that the Bureau would be “failing to abide by its statutorily mandated duty to enforce the MLA” by interpreting its authority to preclude the examination of lenders for compliance with the act. Specifically, the Attorneys General point to recent amendments to the MLA providing that the statute “shall be enforced” by the Bureau (among other agencies) “under any . . . applicable authorities available to the [Bureau].” This includes the authority to examine lenders “to ‘detect[] and assess[] risks to consumers.” According to the Attorneys General, the origination of non-MLA compliant loans to servicemembers constitutes such a risk.
CFPB bulletin announces changes to supervisory communications
On September 25, the CFPB issued Bulletin 2018-01, which announces changes to how it communicates supervisory expectations to institutions. According to the bulletin, effective immediately, examination reports and supervisory letters will include two categories of findings that convey supervisory expectations: (i) Matters Requiring Attention (MRAs); and (ii) Supervisory Recommendations (SRs). MRAs will continue to be used to outline specific goals for institutions to accomplish in order to correct violations of law, remediate harmed consumers, and address compliance management system (CMS) weaknesses, and will include timeframes for companies to report on its efforts to address MRAs and timeframes for implementation. SRs will be used when the Bureau has not identified violations of law but noted weaknesses in CMS and will contain recommended actions to address weaknesses. The bulletin notes that neither MRAs nor SRs are legally enforceable, but emphasizes the Bureau will consider an institution’s response in addressing the noted concerns when assessing a compliance rating, prioritizing future supervisory work, or assessing the need for an enforcement action.
OCC updates Comptroller’s Handbook with new TILA booklet
On September 26, the OCC issued Bulletin 2018-31, which updates the “Truth in Lending Act” (TILA) booklet of the Comptroller’s Handbook, which previously was issued in December 2014. The booklet provides guidance for OCC examiners to be used in connection with the examination and supervision of national banks and federal savings associations, which offer or extend consumer credit products covered by TILA. The updates reflect changes made to Regulation Z, TILA’s implementing regulations, since the booklet’s previous release, and includes procedures implementing the CFPB’s TILA-RESPA integrated disclosure rule (TRID). Additional updates include, among other things, (i) special provisions on certain construction loans; (ii) special provisions relating to small creditors and rural or underserved areas; (iii) changes regarding appraisals for higher-priced mortgage loan exemptions; (iv) updates to mortgage origination examination procedures; and (v) updates to mortgage servicing rules and the small creditor definition.
With the issuance of the new booklet, the OCC rescinds (i) OCC Bulletin 2014-61, “Truth in Lending Act: Revised Comptroller’s Handbook Booklet and Rescissions”; (ii) The TILA sections of OCC Bulletin 2015-27, “Revised Interagency Examination Procedures for Consumer Compliance”; and (iii) OCC Bulletin 2015-42, “Initial Examinations for Compliance With TILA-RESPA Integrated Disclosure Rule.”
SEC confirms staff statements create no enforceable legal obligations
On September 13, Securities and Exchange Commission (Commission) Chairman, Jay Clayton, issued a statement confirming that staff communications, in the form of written statements, compliance guides, letters, speeches, responses to frequently asked questions, and responses to specific requests for assistance, are “nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.” Clayton’s statement echoes a similar position taken in a joint statement by five federal agencies regarding supervisory guidance, released two days earlier (previously covered by InfoBytes here). Clayton emphasized that only Commission adopted rules and regulations have the force and effect of law and encouraged public engagement on staff statements in order to assist the Commission in developing future rules and regulations.
OCC updates Comptroller’s Handbook booklet to address deposit-related credit
On September 12, the OCC issued Bulletin 2018-28, which updates the “Deposit-Related Credit” booklet of the Comptroller’s Handbook previously issued March 2015. The booklet provides guidance for OCC examiners to be used in connection with the examination and supervision of national banks and federal savings associations who offer small-dollar, unsecured deposit-related credit products and services, such as check credit, overdraft protection, and deposit advance products. The booklet also includes, among other things, (i) updated guidance following the rescission of OCC Bulletin 2013-40, “Deposit Advance Products: Final Supervisory Guidance,” (previously covered by InfoBytes here) and the issuance of OCC Bulletin 2018-14, “Installment Lending: Core Lending Principles for Short-Term, Small-Dollar Installment Lending” (previously covered by InfoBytes here); (ii) information concerning limitations and requirements for consumer credit products extended to active-duty servicemembers covered by the Military Lending Act; (iii) integrated citations to third-party risk management guidance and procedures; (iv) information pertaining to new products and services, including sound due diligence practices; and (v) prohibitions against unfair, deceptive, or abusive acts or practices under Dodd-Frank.
Agencies say supervisory guidance does not have the “force and effect” of law
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.
CFPB issues summer 2018 Supervisory Highlights
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).
FDIC issues summer 2018 Supervisory Insights
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.
CFPB Succession: Bureau reportedly no longer examining for MLA compliance
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.
CFPB updates “workpapers” section of Supervision and Examination Manual
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.