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Financial Services Law Insights and Observations


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  • CFPB releases spring 2022 semi-annual report

    Federal Issues

    On December 6, the CFPB issued its semi-annual report to Congress covering the Bureau’s work for the period beginning October 1, 2021 and ending March 31, 2022. The report, which is required by Dodd-Frank, addresses several issues, including complaints received from consumers about consumer financial products or services throughout the reporting period. The report highlighted that the Bureau, among other things, has: (i) conducted an assessment of significant actions taken by state attorneys general and state regulators related to federal consumer financial law; (ii) initiated 21 fair lending supervisory activities to determine compliance with federal laws, including ECOA, HMDA, and UDAAP prohibitions, and engaged in interagency fair lending coordination with other federal agencies and states; (iii) “encouraged lenders to enhance oversight and identification of fair lending risk and to implement policies, procedures, and controls designed to effectively manage HMDA activities, including regarding integrity of data collection”; and (iv) launched a new Diversity, Equity, Inclusion, and Accessibility Strategic Plan to increase workforce and contracting diversity.

    In regard to supervision and enforcement, the report highlighted the Bureau’s public supervisory and enforcement actions and other significant initiatives during the reporting period. Additionally, the report noted rule-related work, including advisory opinions, advance notice of proposed rulemakings, requests for information, and proposed and final rules. These include rules and orders related to the LIBOR transition, fair credit reporting, Covid-19 mortgage and debt collection protections for consumers, small business lending data collection, and automated valuation model rulemaking.

    Federal Issues CFPB Consumer Finance Dodd-Frank Supervision ECOA HMDA UDAAP Diversity Fair Lending Covid-19 Small Business Lending Mortgages

  • OCC discusses credit risk management, diversity and inclusion

    On December 5, acting Comptroller of the Currency Michael J. Hsu delivered remarks at the RMA Risk Management and Internal Audit Virtual Conference, where he spoke about the current expected credit losses standard (CECL) and the importance of workforce diversity and inclusion. Hsu started by discussing CECL and mentioning that though loan portfolios have generally remained resilient and widespread, “deterioration isn’t currently evident in credit quality metrics, the effects of high inflation, rising interest rates, lagging wage growth, supply chain disruptions, and stress from geopolitical events threaten the unexpectedly strong credit performance observed over the past few years.” He further pointed out that the longer-term effects of the Covid-19 pandemic, such as the shift in preferences toward online shopping and remote work, and other circumstances, can erode business profit margins, debt service capacity, and collateral valuations, in addition to adversely affecting credit risk levels at financial institutions. When speaking about sound practice, Hsu stated that maintaining safe and sound credit risk management practices through this period of economic uncertainty is critical. He also noted that “timely risk identification and ratings, increased focus on concentrated portfolios and vulnerable borrowers, and stress testing and sensitivity analysis are particularly critical risk management activities at this time.” He further warned that the “flexibility” provided by CECL must ensure safety and soundness, arguing that there needs to be “appropriate support and documentation of management’s judgments,” as well as management’s assumptions, decisions, expectations, and qualitative adjustments. He emphasized that the first step to improving diversity, equity, and inclusion requires more transparency from the financial services industry regarding the diversity of their boards and executive leadership, and organizations need to develop diversity plans and monitor outcomes. He also emphasized that financial institutions should actively “foster a true sense of belonging for everyone.” In closing, Hsu stated that “improving diversity and inclusion is a ‘need to have’ for [the OCC] to achieve our mission of assuring safety and soundness, fair access to financial services, and fair treatment of customers.”

    Bank Regulatory Federal Issues OCC Diversity Credit Risk Risk Management CECL Covid-19

  • Hsu discusses expanding diversity and inclusion

    On May 12, acting Comptroller of the Currency Michael J. Hsu spoke before the Asian Real Estate Association of America Diversity and Fair Housing Summit focusing on the agency’s efforts to decrease barriers to homeownership and promote financial inclusion. In his remarks, Hsu described the agency’s commitment to expanding diversity and inclusion by “encouraging banks to expand their financing of affordable housing and other community needs, especially in low- and moderate-income (LMI) areas.” He further discussed the interagency Community Reinvestment Act (CRA) notice of proposed rulemaking (NPR) on new regulations updating how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. (Covered by InfoBytes here.) Hsu noted that the provisions of the NPR “are intended to expand access to credit, investment, and basic banking services in LMI areas where they are most needed,” and that it “significantly update[s] regulations intended to encourage banks to meet the credit needs of the entire communities they serve.” Hsu also stated that the agency will “continue to diversify its staff, and train and promote a diverse leadership team.” Hsu explained that through Project REACh (Roundtable for Economic Access and Change), the agency “is harnessing the energy and ideas of concerned civil rights, community, banking, business, and other industry leaders across the nation” and that progress has been made through its various workstreams. As previously covered by InfoBytes, Project REACh brings together leaders from the banking industry, national civil rights organizations, and various businesses and technology organizations to identify and reduce barriers to accessing capital and credit. Finally, Hsu mentioned that he is “concerned by the hype and the risk consumers face” regarding the growing interest in cryptocurrency investments and other digital assets. He believes that “better financial education and information will benefit all consumers and help reduce our nation’s broad racial wealth gap.”

    Bank Regulatory Federal Issues OCC Financial Inclusion Diversity Consumer Finance

  • Hsu discusses expanding minority homeownership

    On April 19, acting Comptroller of the Currency Michael J. Hsu delivered remarks before the Black Homeownership Collaborative’s Fair Housing Month Virtual Forum. In his remarks, Hsu described initiatives to expand fair access and homeownership opportunities for minorities, low- and moderate-income areas, and communities of color. Regarding home valuations, Hsu quoted a PAVE Program report (covered by InfoBytes here) that cited research finding that “12.5 percent of appraisals for home purchases in majority-Black neighborhoods and 15.4 percent in majority-Latino neighborhoods resulted in a value below the contract price—or what a buyer was willing to pay—compared with only 7.4 percent of appraisals in predominantly White neighborhoods.” Second, Hsu mentioned the OCC’s Project REACh (covered by InfoBytes here), which was launched in 2020 and promotes greater access to capital and credit for minority and underserved populations. Hsu compared Project REACh and the Black Homeownership Collaborative by claiming they both “recognize[] that there is power in bringing a range of stakeholders together to collaborate and solve problems.” Finally, Hsu noted that the federal banking agencies are modernizing and strengthening the CRA regulations to expand financial access and inclusion to low- and moderate-income communities, and noted that he expects an interagency CRA Notice of Proposed Rulemaking to come soon.

    Bank Regulatory OCC Diversity Underserved Consumer Finance

  • OCC’s Hsu discusses climate financial risk management, diversity and inclusion

    On March 7, acting Comptroller of the Currency Michael J. Hsu spoke before the Institute of International Bankers Annual Washington Conference to discuss climate-related financial risk and diversity and inclusion in the banking industry. In his remarks, Hsu described the agency as “laser-focused on the safety and soundness aspects of climate change risks.” Specifically, he noted that the OCC is concentrating on “large banks’ climate risk management capabilities: identifying, measuring, monitoring and mitigating climate-related exposures and risks.” He stated that “[w]eaknesses in risk management could adversely affect a bank’s safety and soundness, as well as the overall financial system.” Hsu also stressed the importance of cyber defense, saying “[h]eightened vigilance is clearly warranted.”

    Hsu further discussed draft principles, which were released in December 2021, and are intended to support the identification and management of climate-related financial risks at OCC-regulated institutions with over $100 billion in total consolidated assets. (Covered by InfoBytes here). He noted that the principles will be finalized later this year when more detailed guidance will be developed in collaboration with the Federal Reserve Board and FDIC. After “an appropriate transition period,” Hsu noted that an assessment of large banks’ climate risk management capabilities would begin. He also noted that for midsize and community banks, it will be a number of years before OCC examiners conduct climate risk management examinations and suggested to bankers to use time “wisely.”

    At the end of his remarks, Hsu compared “diversity and inclusion” to “safety and soundness,” in that it should be treated as a single idea, and without it, “diversity over time becomes a box to be checked, not a state to strive for or a value to be upheld.”

    Bank Regulatory Federal Issues OCC Climate-Related Financial Risks Risk Management Diversity

  • NYDFS proposes partnership with CDFIs

    State Issues

    On February 25, NYDFS announced a proposal to partner with Community Development Financial Institutions (CDFIs) to deliver $150 million to small businesses. According to the announcement, the partnership was announced after Governor Kathy Hochul held a roundtable related to “how New York State can spur economic recovery in Black and brown communities,” as well as “new efforts to fight structural racism embedded in the financial system and support innovative community lending programs and economic development services focused on reaching communities of color.” The announcement pointed out that the partnership is part of the governor’s FY2023 budget, which proposed an unprecedented assistance package for small businesses, including more than $500 million to the state. Governor Hochul also announced an advisory council of New York State-chartered CDFIs and minority depository institutions, which will be led by NYDFS Superintendent Adrienne Harris, and “will elevate the specific concerns of New York CDFIs and MDIs to support communities of color and ensure their needs are met.”

    State Issues New York NYDFS State Regulators Small Business Lending CDFI Diversity

  • FDIC issues 2021 annual report

    On February 17, the FDIC released its 2021 Annual Report, providing an overview of the agency’s goals and agenda over the past year, and describing the financial health of the agency, its funds, and insured financial institutions. The report highlighted areas of focus for the FDIC over the past year, such as:

    • Financial inclusion. According to the report, the FDIC “has seen meaningful improvements in recent years in reaching the ‘last mile’ of unbanked households in this country. Based on the results of our biennial survey of households, the proportion of U.S. households that were banked in 2019 – 94.6 percent – was the highest since the survey began in 2009.” The report noted several FDIC-led initiatives related to inclusive banking. In June 2021, the FDIC’s technology lab, FDiTechannounced a tech sprint, Breaking Down Barriers: Reaching the Last Mile of Unbanked U.S. Households, which challenged participants to “explore new technologies and techniques that would help expand the capabilities of banks to meet the needs of unbanked individuals and households.” (Covered by InfoBytes here.) The FDIC also expanded its #GetBanked public awareness campaign into the Los Angeles, Dallas, and Detroit metropolitan areas in continuation of the agency’s efforts to increase financial inclusion to the unbanked population. (Covered by InfoBytes here.)
    • Mission-Driven Banks. According to the report, the FDIC increased Minority Depository Institutions (MDI) representation on the agency’s Community Bank Advisory Committee (CBAC), which “established a new MDI subcommittee of the CBAC to highlight the work of MDIs in their communities and to provide a platform for MDIs to exchange best practices, and enabled MDIs to review potential purchases of a failing MDI before non-MDI institutions are given this opportunity.” As previously covered by InfoBytes, these efforts were incorporated in a Statement of Policy.
    • Competitiveness of Community Banking. According to the report, the FDIC held a “rapid phased prototyping competition” where more than 30 technology firms were invited to participate in the competition "to develop tools for providing more timely and granular data to the FDIC on the health of the banking sector while also making such reporting less burdensome for banks. Of those 30 firms, we asked four participants to move forward in the competition by proposing a proof of concept for their technologies – either independently or jointly.” The FDIC also facilitated the development of “a public/private standard-development organization to establish standards for due diligence of vendors and for the technologies they develop.”
    • Deposit Insurance Fund (DIF). According to the report, the DIF balance increased to a record $123.1 billion in 2021–a $5.2 billion increase from the year-end 2020 balance. No insured financial institutions failed in 2021 and “contingent liability for anticipated failures declined to $20.8 million as of December 31, 2021, compared to $78.9 million as of December 31, 2020.”

    Bank Regulatory Federal Issues FDIC Minority Depository Institution Diversity Community Banks Deposit Insurance

  • FHFA releases AI/ML risk management guidance for GSEs

    Federal Issues

    On February 10, FHFA released Advisory Bulletin (AB) 2022-02 to Fannie Mae and Freddie Mac (GSEs) on managing risks related to the use of artificial intelligence and machine learning (AI/ML). Recognizing that while the use of AI/ML has rapidly grown among financial institutions to support a wide range of functions, including customer engagement, risk analysis, credit decision-making, fraud detection, and information security, FHFA warned that AI/ML may also expose a financial institution to heightened compliance, financial, operational, and model risk. In releasing AB 2022-02 (the first publicly released guidance by a U.S. financial regulator that specifically focuses on AI/ML risk management), FHFA advised that the GSEs should adopt a risk-based, flexible approach to AI/ML risk management that should also be able “to accommodate changes in the adoption, development, implementation, and use of AI/ML.” Diversity and inclusion (D&I) should also factor into the GSEs’ AI/ML processes, stated a letter released the same day from FHFA’s Office of Minority and Women Inclusion, which outlined its expectations for the GSEs “to embed D&I considerations throughout all uses of AI/ML” and “address explicit and implicit biases to ensure equity in AI/ML recommendations.” The letter also emphasized the distinction between D&I and fairness and equity, explaining that D&I “requires additional deliberation because it goes beyond the equity considerations of the impact of the use of AI/ML and requires an assessment of the tools, mechanisms, and applications that may be used in the development of the systems and processes that incorporate AI/ML.”

    Additionally, AB 2022-02 outlined four areas of heightened risk in the use of AI/ML: (i) model risk related to bias that may lead to discriminatory or unfair outcomes (includes “black box risk” where a “lack of interpretability, explainability, and transparency” may exist); (ii) data risk, including concerns related to the accuracy and quality of datasets, bias in data selection, security of data from manipulation, and unfamiliar data sources; (iii) operational risks related to information security and IT infrastructure, among other things; and (iv) regulatory and compliance risks concerning compliance with consumer protection, fair lending, and privacy laws. FHFA provided several key control considerations and encouraged the GSEs to strengthen their existing risk management frameworks where heightened risks are present due to the use of AI/ML.

    Federal Issues FHFA Fintech Artificial Intelligence Mortgages GSEs Risk Management Fannie Mae Freddie Mac Diversity

  • CFPB reports on diversity and inclusion in financial services industry

    Federal Issues

    On January 19, the CFPB’s Office of Minority Women and Inclusion (OMWI) released a report on diversity and inclusion in the financial services industry. The report, among other things, summarized the results of the Bureau’s research in 2020 to further understand how companies under the Bureau’s jurisdiction publicly show their commitment to diversity. According to the report, the sample showed an “extremely mixed picture of progress in the financial services sector on public diversity and inclusion information: 44% of the sample (119 entities) had no public information about diversity and inclusion efforts on their website or in annual reports. In contrast, 22% of entities sampled (60) had high information availability on their websites or public documents.” The report found that few organizations outside of depository lenders had either a dedicated diversity and inclusion executive or a formal body that directed diversity and inclusion efforts, and instead, centered their diversity and inclusion efforts within the human resources office, or opted to not publicize that information. The report also outlined recommendations for financial services companies of different sizes to improve the diversity and inclusion information that is available to the public, including that small companies with little to no information about diversity and inclusion should add a public value statement on their website. For large companies, the report recommended employing a chief diversity officer, expanding their workforce demographic data, and publicizing their professional development resources. The report also emphasized that executing an organizational commitment to diversity and inclusion is important for institutions to remain competitive. In continuing with its diversity-focused research, the Bureau plans to continue its diversity-focused industry research and will “track the progress of researched entities annually.”

    Federal Issues CFPB Diversity

  • Treasury highlights strategy to advance racial equity

    Federal Issues

    On October 25, the U.S. Treasury Department released a blog post that highlights how the Department is focusing on advancing racial equity. Among other things, the blog noted that this focus has informed the Treasury’s decision to establish “a dedicated Office of Recovery Programs and has flowed through the policy and operational decisions [it has] made to implement the historic American Rescue Plan.” According to the blog, the Office of Recovery Programs addresses urgent needs and makes lasting investments to mitigate long-term disparities by making equity a foundational priority in the delivery of the program, which has improved the circumstances of vulnerable households and created opportunities for small businesses, cities, and states. In addition, Treasury announced the appointment of Janis Bowdler to be the Department’s first Counselor for Racial Equity. The blog also noted that Treasury’s “efforts go beyond [Treasury’s] diverse, dedicated political appointees,” because Treasury is “also deeply committed to improving diversity and inclusion among the broader career Treasury workforce, where we acknowledge much more work remains to be done.”

    Federal Issues Diversity Racial Bias Department of Treasury


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