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Senate confirms Barr as Fed Vice Chairman for Supervision
On July 14, the U.S. Senate voted 66 to 28 to confirm Michael Barr as Vice Chairman for Supervision at the Federal Reserve for a four-year term. Barr was also confirmed by a 66-28 vote to serve the 10-year balance of a 14-year term on the Federal Reserve Board of Governors. He fills the last vacant seat on the Fed’s seven-member board. Barr is currently a law and public policy professor at the University of Michigan, and previously served as the assistant secretary for financial institutions in the Treasury Department where he had a key role in the creation of the Dodd-Frank Act (covered by InfoBytes here).
FSB releases statement on crypto-asset activities
On July 11, the Financial Stability Board (FSB) released a statement regarding international regulation and supervision of crypto-asset activities following the “recent turmoil in crypto-asset markets.” The FSB called for “an effective regulatory framework” to “ensure that crypto-asset activities posing risks similar to traditional financial activities are subject to the same regulatory outcomes, while taking account of novel features of crypto-assets and harnessing potential benefits of the technology behind them.” The statement also called for, among other things: (i) crypto-assets and markets to be subjected to effective regulation and oversight relative to their domestic and international risks; (ii) cryptocurrency service providers to ensure compliance with existing legal obligations in the jurisdictions where they operate; and (iii) stablecoins to be subject to “robust” regulations and supervision if they are to be adopted as a widely used means of payment or play an important role in the financial system. The FSB noted the “ongoing work of the FSB and the international standard-setting bodies to address the potential financial stability risks posed by crypto-assets,” and highlighted that member authorities will implement applicable international standards into national regulatory and supervisory frameworks “to the extent not already reflected and will adopt guidance, recommendations and best practices of international standard-setting bodies.”
CFPB examining impact of overdraft programs
On June 16, the CFPB published a blog post outlining recent efforts taken by the agency to collect key metrics concerning the consumer impact of certain supervised institutions’ overdraft and non-sufficient fund (NSF) practices. The Bureau asked more than 20 institutions to provide data on several “consumer-impact metrics,” including: (i) the “[t]otal annual dollar amount consumers receive in overdraft coverage compared to the amount of fees charged”; (ii) the annual amount of overdraft fees charged for each active checking account; (iii) the annual amount of NSF fees charged per active checking account; (iv) “the share of active checking accounts with more than 6 and more than 12 overdraft and/or NSF fees per year”; and (v) the “[s]hare of active checking accounts that are opted into overdraft programs for ATM and one-time debit transactions.” The Bureau stated that it plans to “use this information for further examination and review” and to provide feedback to each institution. The Bureau also plans to “share this information with other regulators,” but will not make the supervisory information public. Additionally, the Bureau noted that while it is “encouraged that some banks and credit unions are competing for consumers’ business by changing their overdraft and NSF programs,” many banks still need to improve their practices.
House Republicans concerned about CFPB UDAAP manual and administrative adjudications
On May 19, nineteen Financial Services Committee Republicans sent a letter to CFPB Director Rohit Chopra expressing concerns about the agency’s new UDAAP supervisory policy and the recent changes to CFPB administrative adjudication procedures. As previously covered by a Buckley Special Alert, the Bureau revised its UDAAP exam manual to highlight the CFPB’s view that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service. With the March announcement, the Bureau made clear its view that any type of discrimination in connection with a consumer financial product or service could be an “unfair” practice — and, therefore, the CFPB can bring discrimination claims related to non-credit financial products. According to the letter, “the CFPB’s new [UDAAP] supervisory policy and the recent changes to CFPB administrative adjudication procedures deviate significantly from past practices.” The letter further argued that “Congress enacted the fair lending laws and delegated their enforcement to the CFPB, clearly defining the limits of CFPB’s jurisdiction.” Additionally, the letter noted that “[e]xtending ECOA’s disparate treatment and disparate impact analysis to non-credit financial products and services ignores these clear limits.” The legislators also contended that “[i]n addition to radically reinterpreting UDAAP, changes to the way the CFPB will supervise for UDAAP will impose significant new responsibilities on supervised entities.”
The letter also expressed concerns regarding changes recently made to the rules governing CFPB administrative adjudications. As previously covered by InfoBytes, in February the Bureau published a procedural rule and request for public comment in the Federal Register to update its Rules of Practice for Adjudication Proceedings. The Bureau indicated that the amendments would provide greater procedural flexibility, providing parties earlier access to relevant information, expanding deposition opportunities, and making various changes related to “timing and deadlines, the content of answers, the scheduling conference, bifurcation of proceedings, the process for deciding dispositive motions, and requirements for issue exhaustion, as well as other technical changes.” According to the letter, this represents a “disturbing” action that is “contrary to [Chopra’s] comments about intending to establish durable jurisprudence made during testimony before the House Financial Services Committee in October 2021,” and “does not abide by typical notice and comment procedures.” The nineteen House Republicans on the Committee stated their view that “it is appropriate for the CFPB to immediately revert back to the previous Rules of Practice and conduct notice and comment rulemaking before [] any new procedures become effective.”
FDIC reinstates SARC as final review in supervisory appeals
On May 17, the FDIC adopted revised Guidelines for Appeals of Material Supervisory Determinations to reinstate the Supervision Appeals Review Committee (SARC) as the final level of review in the agency’s supervisory appeals process. The SARC’s restoration appears to eliminate the independent Office of Supervisory Appeals, which was created and staffed in 2021. The Office of Supervisory Appeals was designed to have final authority to resolve appeals by a panel of reviewing officials and be independent from other divisions within the FDIC that have authority to issue material supervisory determinations (covered by InfoBytes here).
According to the revised guidelines, the SARC will include one inside member of the FDIC’s Board of Directors (serving as chairperson); a deputy or special assistant to each of the other inside board members; and the general counsel as a non-voting member. The guidelines provide a list of material supervisory determinations, including CAMELS, IT, trust, and CRA ratings; consumer compliance ratings; loan loss reserve provision determinations; TILA restitutions; and decisions to initiate informal enforcement actions (such as memoranda of understanding).
The guidelines apply to all FDIC-supervised financial institutions, including state nonmember banks, industrial banks, and insured U.S. branches of non-U.S. banks.
While public comments from industry had supported an independent supervisory appeals process, the revised guidelines are posted in final (not draft) form on the FDIC’s website, with the FIL asserting that the guidelines take effect May 17 (before the comment period concludes on June 21). The notice and request for comments was published in the Federal Register on May 20.
FDIC releases process for MDI designation requests
On May 19, the FDIC released a process for insured institutions or applicants for deposit insurance to submit requests for recognition as a minority depository institution (MDI). As previously covered by InfoBytes, last June the FDIC approved and released an updated Statement of Policy Regarding Minority Depository Institutions to enhance the agency’s efforts to preserve and promote MDIs.
The updated statement of policy details the framework by which the FDIC implements objectives set forth in Section 308 of FIRREA and describes agency initiatives for fulfilling its MDI statutory goals. According to the FDIC, “supervised institutions or applicants for deposit insurance that seek to be recognized as an MDI may submit a written request, signed by a duly authorized officer or representative of the institution or applicant, at any time to the appropriate regional office.” Supervised institutions are also able to submit requests in connection with a merger application or a change in control notice. Requests should contain sufficient information in support of the designation, and the FDIC will send a letter acknowledging recognition of the institution as an MDI if an institution has met the eligibility requirements.
CFPB delivers 2021 fair lending report to Congress
On May 6, the CFPB issued its annual fair lending report to Congress, which outlines the Bureau’s efforts in 2021 to fulfill its fair lending mandate. Much of the Bureau’s work in 2021 focused on addressing racial injustice and long-term economic consequences of the Covid-19 pandemic. According to the report, the Bureau continued to prioritize promoting fair, equitable, and nondiscriminatory access to credit, with a particular focus on fair lending supervision efforts in areas related to “mortgage origination and pricing, small business lending, student loan origination work, policies and procedures regarding geographic and other exclusions in underwriting, and [] the use of artificial intelligence (AI) and machine learning models.” Fair Lending Director Patrice Alexander Ficklin said that while she is “encouraged by the possibility of utilizing vehicles like special purpose credit programs to expand access to credit,” she remains “skeptical of claims that advanced algorithms are the cure-all for bias in credit underwriting and pricing.” The report addressed enforcement and supervision work, highlighting four fair lending-related enforcement actions taken last year related to (i) illegal redlining practices; (ii) failure to provide accurate denial reasons on adverse-action notices; (iii) UDAAP violations related to the treatment of “gate money” for incarcerated individuals; and (iv) fees and payments associated with immigration bonds. The report also discussed initiatives concerning small business lending and data collection rulemaking, automated valuation models rulemaking, and a final rule amending certain provisions in Regulation X related to Covid-19 protections offered by mortgage servicers. Additionally, the report discussed an interpretive rule concerning ECOA’s prohibition on sex discrimination, stakeholder engagement on matters concerning fair lending compliance and policy decisions, HMDA reporting, and interagency engagement and reporting, among other topics. The report noted that going forward, the Bureau intends to sharpen its focus on digital redlining and algorithmic bias to identify emerging risks as more tech companies influence the financial services marketplace. According to CFPB Director Rohit Chopra, “[w]hile technology holds great promise, it can also reinforce historical biases that have excluded too many Americans from opportunities.”
CFPB issues spring supervisory highlights
On May 2, the CFPB released its spring 2022 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing. The report’s findings cover examinations completed between July and December 2021. Highlights of the examination findings include:
- Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to wrongful repossessions, misleading final loan payment amounts, and overcharges for add-on products.
- Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include (i) both CRCs and furnishers failed to provide written notice to consumers providing the results of reinvestigations and direct dispute investigations; (ii) furnishers failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures contained deficiencies related to the accuracy and integrity of furnished information.
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse consumers after determining a billing error had occurred; (iii) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iv) provide consumers with the evidence relied upon to determine a billing error had not occurred. Examiners also identified Regulation Z violations connected to creditors’ acquisitions of pre-existing credit card accounts from other creditors, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA and CFPA violations where debt collectors used false or misleading representations in connection with identity theft debt collection. Report findings also discussed instances where debt collectors engaged in unfair practices by failing to timely refund overpayments or credit balances.
- Deposits. The Bureau discussed violations related to Regulation E, which implements the EFTA, including occurrences where institutions (i) placed duplicate holds on certain mobile check deposits that were deemed suspicious instead of a single hold as intended; (ii) failed to honor a timely stop payment request; (iii) failed to complete error investigations following a consumer’s notice of error because the consumer did not submit an affidavit; and (iv) failed to provide consumers with notices of revocation of provisional credit connected with error investigations regarding check deposits at ATMs.
- Mortgage Origination. Bureau examiners identified Regulation Z violations concerning occurrences where loan originators were compensated differently based on the terms of the transaction. Under the Bureau’s 2013 Loan Originator Final Rule, “it is not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.” Examiners also found that certain lenders failed to retain sufficient documentation to establish the validity for revisions made to credit terms.
- Prepaid Accounts. The Bureau found violations of Regulation E and EFTA related to institutions’ failure to submit prepaid account agreements to the Bureau within the required time frame. Examiners also identified instances where institutions failed to honor oral stop payment requests related to payments originating through certain bill pay systems. The report cited additional findings where institutions failed to properly conduct error investigations.
- Remittances. Bureau examiners identified violations of the EFTA, Regulation E, and deceptive acts and practices. Remittance transfer providers allegedly made false and misleading representations concerning the speed of transfers, and in multiple instances, entered into service agreements with consumers that violated the “prohibition on waivers of rights conferred or causes of action created by EFTA.” Examiners also identified several issues related to the Remittance Rule’s disclosure, timing, and recordkeeping requirements.
- Student Loan Servicing. Bureau examiners identified several unfair acts or practices connected to private student loan servicing, including that servicers failed to make advertised incentive payments (which caused consumers to not receive payments to which they were entitled), and failed to issue timely refund payments in accordance with loan modification payment schedules.
The report also highlights recent supervisory program developments and enforcement actions, including the Bureau’s recent decision to invoke a dormant authority to examine nonbanks (covered by InfoBytes here).
CFPB updates list of institutions under its authority
Recently, the CFPB updated its list of Depository institutions (DIs) and depository affiliates of DIs under its supervisory authority. The CFPB has supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, as well as their affiliates. The list is based on total assets as of December 31, 2021.
Biden nominates Michael Barr as Fed Vice Chair for Supervision
On April 15, President Biden nominated Michael Barr to serve as Vice Chair for Supervision of the Federal Reserve. Barr is currently a law and public policy professor at the University of Michigan, and previously served as the assistant secretary for financial institutions in the Treasury Department where he had a key role in the creation of the Dodd-Frank Act. Barr’s nomination comes after Biden’s first nominee for Vice Chair, Sarah Bloom Raskin, withdrew her nomination after facing bipartisan opposition.