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Financial Services Law Insights and Observations


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  • OCC to establish Office of Financial Technology

    On October 27, the OCC announced it intends to establish an Office of Financial Technology early next year that will build on and incorporate the agency’s Office of Innovation (established in 2016 and covered by InfoBytes here). Intended to strengthen the OCC’s expertise and ability to adapt to a rapidly evolving banking landscape, the Office of Financial Technology will provide strategic leadership, vision, and perspective for the agency’s financial technology activities and related supervision. The new office will be led by a chief financial technology officer who will be a deputy comptroller reporting to the senior deputy comptroller for bank supervision policy. “Financial technology is changing rapidly and bank-fintech partnerships are likely to continue growing in number and complexity. To ensure that the federal banking system is safe, sound, and fair today and well into the future, we need to have a deep understanding of financial technology and the financial technology landscape,” acting Comptroller of the Currency Michael J. Hsu said. “The establishment of this office will enable us to be more agile and to promote responsible innovation, consistent with our mission.”

    Bank Regulatory Federal Issues Fintech OCC Innovation Supervision

  • FDIC proposes amendments to its guide on supervisory appeals process

    On October 18, the FDIC Board of Directors announced it is soliciting further public comments on proposed amendments to its Guidelines for Appeals of Material Supervisory Determinations. The notice follows an action taken by the Board earlier in May, which restored the Supervision Appeals Review Committee (SARC) as the final level of review in the agency’s supervisory appeals process (covered by InfoBytes here). While the revised guidelines took effect immediately, the FDIC solicited comments on the changes. In response to comments received, the proposed amendments would add the agency’s ombudsman to the SARC as a non-voting member, and the ombudsman would be responsible for monitoring the supervision process after a financial institution submits an appeal. The proposed amendments would also require that materials considered by the SARC be shared with both parties to the appeal (subject to applicable legal limitations on disclosure), and allow financial institutions to request a stay of material supervisory determination while an appeal is pending. Additionally, the division director would be given the discretion to grant a stay or grant a stay subject to certain conditions. Comments on the proposed amendments are due within 30 days of publication in the Federal Register.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance FDIC Supervision

  • Fed vice chair discusses regulating financial innovation

    On October 12, Federal Reserve Vice Chair for Supervision Michael S. Barr delivered remarks at D.C. Fintech Week in a speech titled Managing the Promise and Risk of Financial Innovation. Barr’s remarks focused on financial innovation supported by new technologies, or fintech. Among other things, Barr discussed supporting innovation with appropriate regulation, striking the right balance for crypto-asset activity, regulating stablecoins, recognizing the risks of tokenizing bank liabilities, advancing customer autonomy, and providing public sector support for payment innovation. Barr noted that cryptoassets’ rapid growth, in market capitalization and activity outside and inside supervised banks requires oversight, including safeguards to ensure that crypto service providers are subject to similar regulations as other financial services providers. Barr stated that “[t]he same type of activity should be regulated in the same way,” and this remains the case “even when the activity may look different from the typical activities we regulate, or when it involves an exciting new technology or a new way to provide traditional financial services.” He also disclosed that there are additional types of crypto asset-related activities where the Fed may need to provide guidance to the banking sector in the future. Barr noted that since “crypto assets have proved to be so volatile, they are unlikely to grow into money substitutes and become a viable means to pay for transactions.” He also warned banks seeking to experiment with these new technologies that they should only do so "in a controlled and limited manner.” Regarding the risks of tokenizing bank liabilities, Barr expressed concerns, stating that banks’ crypto-asset-related activities pose “novel risks,” and said that stablecoins could eventually pose a risk to financial stability and that regulators need to put in guardrails before their adoption is more widespread. Barr also acknowledged that not all tokenization arrangements are the same. He stated that potential designs “range from issuance of tokens on private, controlled networks to facilitate payments within or among banks, to proposals that explore issuance of freely circulating tokens on open, permissionless networks.”

    Bank Regulatory Federal Issues Digital Assets Cryptocurrency Stablecoins Federal Reserve Supervision Fintech

  • OCC releases bank supervision operating plan for FY 2023

    On October 6, the OCC’s Committee on Bank Supervision released its bank supervision operating plan for fiscal year 2023. The plan outlines the agency’s supervision priorities and highlights several supervisory focus areas including: (i) strategic and operational planning; (ii) operational resiliency; (iii) third-party oversight and risk management; (iv) credit risk management with a focus on new products, areas of highest growth, and portfolios representing concentrations; (v) allowances for credit losses (ACL), including instances where ACL processes use third-party modeling techniques; (vi) interest rate risk; (vii) liquidity risk management; (viii) consumer compliance management systems with a focus on how programs are disclosed in relation to UDAP and UDAAP statutes; (ix) Bank Secrecy Act/AML compliance; (x) fair lending risks; (xi) Community Reinvestment Act strategies and the potential for modernization rulemaking; (xii) new products and services in areas such as payments, fintech, and digital assets; and (xiii) climate-change risk management. The plan will be used by OCC staff to guide the development of supervisory strategies for individual national banks, federal savings associations, federal branches and agencies of foreign banking organizations, and certain identified third-party service providers subject to OCC examination.

    The OCC will provide updates about these priorities in its Semiannual Risk Perspective, as InfoBytes has previously covered here.

    Bank Regulatory Federal Issues OCC Supervision Digital Assets Fintech Privacy, Cyber Risk & Data Security UDAP UDAAP Bank Secrecy Act Anti-Money Laundering Climate-Related Financial Risks Fair Lending Third-Party Risk Management Risk Management

  • CFPB updates education loan servicing examination procedures

    Agency Rule-Making & Guidance

    On September 28, the CFPB updated the education loan examination procedures in its Supervision and Examination Manual. According to the Bureau, the update to the education loan servicing examination procedures clarifies that when determining its authority to supervise a private student lender, the Bureau “look[s] only to the definition of private education loan in the Truth in Lending Act and not also to Regulation Z.” The Bureau noted that depending on the scope of an examination, “and in conjunction with the compliance management system and consumer complaint response review procedures,” an examination will cover at least one of the following modules: (i) advertising, marketing, and lead generation; (ii) customer application, qualification, loan origination, and disbursement; (iii) student loan servicing; (vi) borrower inquiries and complaints; (v) collections, accounts in default, and credit reporting; (vi) information sharing and privacy; and (vii) examination conclusion and wrap-up.

    Agency Rule-Making & Guidance Federal Issues CFPB Student Lending Examination Consumer Finance Supervision TILA Regulation Z Student Loan Servicer

  • Trade groups object to CFPB’s revised UDAAP exam manual


    On September 28, seven banking industry groups sued the CFPB and Director Rohit Chopra claiming the agency exceeded its statutory authority when it released significant revisions to the UDAAP exam manual in March, which included making clear its view that any type of discrimination in connection with a consumer financial product or service could be an “unfair” practice. (Covered by a Buckley Special Alert.) At the time of issuance, the Bureau emphasized that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service.

    Plaintiff trade groups argued in their complaint filed in the U.S. District Court for the Eastern District of Texas that the Bureau violated its authority outlined in the Dodd-Frank Act by claiming it can examine entities for alleged discriminatory conduct under its UDAAP authority. They contended that “the CFPB cannot regulate discrimination under its UDAAP authority at all because Congress declined to give the CFPB authority to enforce anti-discrimination principles except in specific circumstances,” and that, moreover, the Bureau’s “statutory authorities consistently treat ‘unfairness’ and ‘discrimination’ as distinct concepts.” While the trade groups said they “fully support the fair enforcement of nondiscrimination laws,” they emphasized that they “cannot stand by while a federal agency exceeds its statutory authority, creates regulatory uncertainty, and imposes costly burdens on the business community.”

    The trade groups' suit also claimed that the Bureau violated the Administrative Procedure Act by failing to go through the proper notice-and-comment process when amending the Supervision and Examination Manual. Calling the manual updates “arbitrary” and “capricious,” the trade groups claimed the changes failed to consider the Bureau’s prior position on UDAAP authority and “did not grapple with Congress’s decision to narrowly define the FTC’s unfairness authority to screen out the same kind of power that the CFPB is now claiming for itself.” The complaint also called into question the Bureau’s funding structure, arguing that because the structure violates the Appropriations Clause it should be declared unconstitutional and the exam manual updates set aside.

    A statement released by the U.S. Chamber of Commerce, one of the trade group plaintiffs bringing the law suit, says the Bureau “is operating beyond its statutory authority and in the process creating legal uncertainty that will result in fewer financial products available to consumers.” U.S. Chamber Executive Vice President and Chief Policy Officer Neil Bradley added that the “CFPB is pursuing an ideological agenda that goes well beyond what is authorized by law and the Chamber will not hesitate to hold them accountable.”

    Courts CFPB Examination Supervision UDAAP Dodd-Frank Discrimination Administrative Procedure Act

  • CFPB’s Supervisory Highlights targets student loan servicers

    Federal Issues

    On September 29, the CFPB released a special edition of its Supervisory Highlights focusing on recent examination findings related to practices by student loan servicers and schools that directly lend to students. Highlights of the supervisory findings include:

    • Transcript withholding. The Bureau found several instances where in-house lenders (i.e., where the schools themselves are the lender) are withholding transcripts as a debt collection practice. According to the Bureau, many post-secondary institutions choose to withhold official transcripts from borrowers as an attempt to collect education-related debts. The Supervisory Highlights states the position that the blanket withholding of transcripts to coerce borrowers into making payments is an “abusive” practice under the Consumer Financial Protection Act.
    • Supervision of federal student loan transfers. The Bureau identified certain consumer risks linked to the transfer of nine million borrower account records to different servicers after two student loan servicers ended their contracts with the Department of Education (DOE). The review, which was handled in partnership with the DOE and other state regulators, identified several concerns, such as (i) the information received during the transfer was insufficient to accurately service the loan; (ii) transferee and transferor servicers reported different numbers of total payments that count toward income-driven repayment forgiveness for some borrowers; (iii) information inaccurately stated the borrower’s next due date; (iv) certain accounts were placed into transfer-related forbearances following the transfer, instead of in more advantageous CARES Act forbearances; and (v) multiple servicers experienced significant operational challenges.
    • Payment relief programs. The Bureau found occurrences where federal student loan servicers allegedly engaged in unfair acts or practices when they improperly denied a borrower’s application for loan cancellation through Teacher Loan Forgiveness or Public Service Loan Forgiveness. The Bureau claimed that many servicers “illegally misrepresented borrowers’ eligibility dates and the number of payments the borrower needed to make to qualify for relief,” and “provided misinformation about borrowers’ entitlement to progress toward loan forgiveness during the pandemic payment suspension.” The Bureau said it will continue to monitor servicers’ practices to ensure borrowers receive the relief for which they are entitled, and directed servicers to address consumer harm caused by these actions.

    The Bureau issued a reminder that it will continue to supervise student loan servicers and lenders within its supervisory jurisdiction regardless of institution type. Student loan servicers, originators, and loan holders are advised to review the supervisory findings and take any necessary measures to ensure their operations address these risks.

    Federal Issues CFPB Supervision Examination Student Lending Student Loan Servicer Debt Collection UDAAP CFPA Consumer Finance CARES Act

  • Republicans take issue with CFPB agenda

    Federal Issues

    On September 12, several Republican senators sent a letter to CFPB Director Rohit Chopra expressing concerns that the Bureau is again pursuing “a radical and highly-politicized agenda unbounded by statutory limits.” In particular, the letter took issue with recent Bureau reports on the use of overdraft fees (covered by InfoBytes here and here), calling the agency’s actions a “relentless smear campaign” against banks. “Charging fees that customers chose to pay should not be disturbing or illegal, and yet, the CFPB appears to have developed a particular disdain for banks charging their customers for services, pejoratively calling overdraft protection ‘junk fees,’” the letter stated. Additionally, the letter claimed that the Bureau is changing its rules in order to publish previously confidential information about financial institutions to make it easier to threaten them with reputational harm (covered by InfoBytes here), without affording the financial institution the similar ability to, for example, disclose the existence of a CFPB examination. Among other things, the new procedural rule establishes a disclosure mechanism intended to increase transparency of the Bureau’s risk-determination process that will exempt final decisions and orders by the CFPB director from being considered confidential supervisory information, allowing the Bureau to publish the decisions on their website. According to the senators, the rule requires nonbanks to keep confidential information relating to a decision issued by the Bureau, including facts that could question the decision or raise procedural concerns. “The one-sided nature of the CFPB’s rule change gives the agency the ability to publicly tarnish an institution’s name without affording the firm the power to defend itself,” the letter said. The letter also decries a recent change to the agency’s rules of adjudication to make it more difficult for companies to defend themselves against novel enforcement theories by bypassing an administrative law judge and permitting the director to rule directly on the validity of the legal basis for the enforcement action.

    Federal Issues U.S. Senate Agency Rule-Making & Guidance CFPB Supervision Nonbank Nonbank Supervision Overdraft Fees Consumer Finance Examination Fintech

  • OCC issues expectations for protecting non-public information

    On September 7, the OCC issued Bulletin 2022-21, Information Security: Expectations for Protecting Non-public OCC Information on Institution- or Other Non-OCC-Owned or Managed Video Teleconferencing Services, outlining its expectations for protecting non-public OCC information shared on video teleconferencing services that are operated or managed by an institution or any other party. The OCC reiterated that banks and other parties in possession of such information are prohibited from disclosure without the agency’s prior approval, except under certain limited circumstances. Further, the prohibition extends to the disclosure of information displayed, processed, stored, or transmitted by information systems, including video teleconferencing services. The Bulletin states that non-public OCC information is the property of the OCC and includes, among other things: (i) “OCC reports of examination, including ratings such as CAMELS and the Uniform Rating System for Information Technology ratings”; (ii) “supervisory correspondence”; (iii) “institution responses to supervisory correspondence”; (iv) “investigatory files”; and (v) “certain enforcement-related information, including matters requiring attention.” The OCC also listed several security expectations for any videoconference in which non-public OCC information will be communicated, which includes using an encrypted connection, moderating the meetings, making no recordings or transcriptions, and ensuring the videoconference service is securely configured and routinely patched to protect against cyber intrusion and data loss.

    Bank Regulatory Federal Issues OCC Agency Rule-Making & Guidance Supervision Privacy, Cyber Risk & Data Security

  • Fed vice chair for supervision outlines future priorities

    On September 7, Federal Reserve Board Vice Chair for Supervision Michael Barr laid out his goals for making the financial system safer and fairer during a speech at the Brookings Institution, highlighting priorities related to risk-focused capital frameworks and bank resiliency, mergers and acquisitions, digital assets and stablecoins, climate-related financial risks, innovation, and Community Reinvestment Act modernization plans. Addressing issues related to resolvability, Barr signaled that the Fed would begin “looking at the resolvability of some of the other largest banks [in addition to globally systemically important banks] as they grow and as their significance in the financial system increases.” With respect to bank mergers, Barr commented that “the advantages that firms seek to gain through mergers must be weighed against the risks that mergers can pose to competition, consumers and financial stability.” He said he plans to work with Fed staff to assess how the agency performs merger analysis and whether there are areas for improvement. Barr also discussed financial stability risks posed by new forms of private money created through stablecoins and stressed that Congress should work quickly to enact legislation for bringing stablecoins (especially those intended to serve as a means of payment) within the prudential regulatory perimeter. He added that the Fed plans to make sure that the crypto activity of supervised banks “is subject to the necessary safeguards that protect the safety of the banking system as well as bank customers,” and said “[b]anks engaged in crypto-related activities need to have appropriate measures in place to manage novel risks associated with those activities and to ensure compliance with all relevant laws, including those related to money laundering.” 

    Bank Regulatory Federal Issues Digital Assets Federal Reserve Bank Mergers Fintech Climate-Related Financial Risks CRA Financial Crimes Anti-Money Laundering Of Interest to Non-US Persons Supervision