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  • OCC suggests “administrative solutions” may be available for Madden fix

    Agency Rule-Making & Guidance

    On October 9, the OCC responded to a letter written by 26 Republican members of the House Financial Services Committee urging the agency to update its interpretation of the definition of “interest” under the National Bank Act (NBA) to limit the impact of the U.S. Court of Appeals for the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC (covered by a Buckley Special Alert here). The representatives’ letter (covered by InfoBytes here) argued that Madden deviated from the longstanding valid-when-made doctrine—which provides that if a contract that is valid (not usurious) when it was made, it cannot be rendered usurious by later acts, including assignment—and has “caused significant uncertainty and disruption in many types of lending programs.” The representatives urged the OCC to prioritize a rulemaking to address the issue. In response, the OCC agreed with the letter’s concerns, and stated that “administrative solutions to mitigate the consequences of the Madden decision may be available.” The OCC noted that it has filed amicus briefs in the past, reiterating the view that Madden was wrongly decided, but did not elaborate any further on potential plans for a rulemaking to address the issue.

    Agency Rule-Making & Guidance OCC Federal Issues House Financial Services Committee U.S. House Madden Valid When Made Appellate

  • House report blames CFPB "politicization" for drop in consumer relief

    Federal Issues

    On October 16, Maxine Waters, Chairwoman of the House Financial Services Committee, released a majority staff report titled, “Settling for Nothing: How Kraninger’s CFPB Leaves Consumers High and Dry,” which details the results of the majority’s investigation into the CFPB’s handling of consumer monetary relief in enforcement actions since Richard Cordray stepped down as director in November 2017. The report argues that, under the leadership of Acting Director Mick Mulvaney and Director Kathleen Kraninger, the Bureau’s enforcement actions “have declined in volume and failed to compensate harmed consumers adequately.” Specifically, the report states that under Cordray’s leadership, “the average enforcement action by the [Bureau] returned $59.6 million to consumers, as compared to an average $31.4 million per action under Mulvaney,” but notes that $335 million of the $345 million in consumer relief obtained during Mulvaney’s tenure resulted from one settlement with a national bank (previously covered by InfoBytes here). With respect to Director Kraninger, the report acknowledges that the pace of enforcement actions increased compared to Mulvaney; however, the Bureau ordered “only $12 million in consumer relief” during her first six months, as compared to “approximately $200 million in consumer relief” during a similar six months of Cordray’s tenure.

    The report highlights specifics from the investigation into settlements announced in early 2019, which resulted in civil penalties but not consumer monetary relief. The report argues that, based on the review of the internal documents received from the Bureau, the lack of consumer relief was due to the “politicization of the [Bureau],” which “contributed to the decline in the [Bureau]’s enforcement activity” rather than the merits of the enforcement actions, notwithstanding that the internal documents reflect the assessment of certain weaknesses in the Bureau’s positions. The report attributes such politicization to the introduction of political appointee positions throughout the Bureau that oversee each of the divisions. The report concludes by urging Congress to pass the Consumers First Act (HR 1500), which, among other things, seeks to limit the number of political appointees at the Bureau.

    Federal Issues CFPB Settlement Enforcement House Financial Services Committee Civil Money Penalties Consumer Redress

  • House Republicans push OCC for Madden regulatory fix

    Federal Issues

    On September 19, 26 Republican members of the House Financial Services Committee wrote to the OCC, urging the agency to update its interpretation of the definition of “interest” under the National Bank Act (NBA) to limit the impact of the U.S. Court of Appeals for the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC (covered by a Buckley Special Alert here). The letter argues that Madden deviated from the longstanding valid-when-made doctrine—which provides that if a contract that is valid (not usurious) when it was made, it cannot be rendered usurious by later acts, including assignment—and has “caused significant uncertainty and disruption in many types of lending programs.” Specifically, the letter asserts that the decision “threatens bank-fintech partnerships” that may provide better access to capital and financing to small business and consumers. The letter acknowledges the recently filed amicus brief in the U.S. District Court for the District of Colorado by the OCC and the FDIC, which criticized the Madden decision for disregarding the valid-when-made doctrine and the “stand-in-the-shoes-rule” of contract law (previously covered by InfoBytes here), and requests that the OCC prioritize rulemaking to address the issue.

    Federal Issues U.S. House House Financial Services Committee Madden Valid When Made Fintech Usury State Issues OCC

  • Waters and 101 representatives urge CFPB to reconsider payday compliance delay

    Federal Issues

    On August 23, House Financial Services Committee Chair, Maxine Waters (D-Calif) and 101 other members of Congress wrote to CFPB Director Kathy Kraninger to express concern over the Bureau’s recent amendment of and delay to certain ability-to-repay provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule), previously covered by InfoBytes here and here. Specifically, the letter opposes the CFPB’s decision to remove certain ability-to-repay requirements, as well as the Bureau’s June 2019 decision to delay the August 19 compliance date for the mandatory underwriting provisions of the Rule until November 19, 2020. The letter cites to an April 30 subcommittee hearing that examined the payday lending industry and argues that “payday and car-title lenders lack the incentive to make loans that borrowers have the ability to repay while still being able to afford basic necessities of life.” The agency, according to the letter, is betraying “its statutory purpose and objectives to put consumers, rather than lenders, first” by delaying the Rule’s implementation.

    Additionally, in the press release announcing the letter, Waters also expressed concern that the CFPB had not yet asked the U.S. District Court for the Western District of Texas to lift a stay of compliance so that the payment provisions of the Rule could be implemented. As previously covered by InfoBytes, two payday loan trade groups initiated the suit against the Bureau in April 2018, asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedures Act. The court recently ordered the stay of the full Rule’s compliance date to remain in full force and effect and requested another joint status report from the parties by December 6.

    Federal Issues U.S. House House Financial Services Committee CFPB Payday Rule

  • Waters previews committee priorities

    Federal Issues

    On August 23, House Financial Services Committee Chairwoman Maxine Waters released an overview of the Committee’s fall 2019 priorities and highlighted efforts undertaken during the 116th Congress so far. Upcoming areas of focus will include (i) holding hearings to examine the state of minority depository institutions, review stock buybacks, and analyze innovations for loan instruments; (ii) conducting an ongoing review of a social media company’s proposed cryptocurrency and digital wallet; (iii) continuing oversight of federal financial agencies through testimony from Treasury Secretary Steven T. Mnuchin, CFPB Director Kathy Kraninger, FHFA Director Mark Calabria, and Federal Reserve Vice Chairman Randal K. Quarles; (iv) examining the Terrorism Risk Insurance Program; (v) analyzing workforce diversity improvements; and (vi) increasing homeownership access through Federal Housing Administration improvements and housing finance reform. The Committee will also continue its task forces on data privacy, the use of artificial intelligence in the financial services market, and the evolution of payments and cash.

    Federal Issues House Financial Services Committee

  • House Fintech Task Force holds hearing on alternative data

    Federal Issues

    On July 25, the House Financial Services Committee’s Task Force on Financial Technology held a hearing, entitled “Examining the Use of Alternative Data in Underwriting and Credit Scoring to Expand Access to Credit.” As noted by the hearing committee memorandum, credit reporting agencies (CRAs) have started using alternative data to make lending decisions and determine credit scores, in order to expand consumer access to credit. The memorandum points to some commonly used alternative data factors, including (i) utility bill payments; (ii) online behavioral data, such as shopping habits; (iii) educational or occupational attainment; and (iv) social network connections. The memorandum notes that while there are potential benefits to using this data, “its use in financial services can also pose risks to protected classes and consumer data privacy.” The committee also presented two draft bills from its members that address relevant issues, including a draft bill from Representative Green (D-TX) that would establish a process for providing additional credit rating information in mortgage lending through a five-year pilot program with the FHA, and a draft bill from Representative Gottheimer (D-N.J.) that would amend the FCRA to authorize telecom, utility, or residential lease companies to furnish payment information to CRAs.

    During the hearing, a range of witnesses commented on financial institutions’ concerns with using alternative data in credit decisions without clear, coordinated guidance from federal financial regulators. Additionally, witnesses discussed the concerns that using alternative data could produce outcomes that result in disparate impacts or violations of fair lending laws, noting that there should be high standards for validation of credit models in order to prevent discrimination resulting from neutral algorithms. One witness argued that while the concern of whether using alternative data and “algorithmic decisioning” can replicate human bias is well founded, the artificial intelligence model their company created “doesn’t result in unlawful disparate impact against protected classes of consumers” and noted that the traditional use of a consumer’s FICO score is “extremely limited in its ability to predict credit performance because its narrow in scope and inherently backward looking.” The key to controlling algorithmic decision making is transparency, another witness argued, stating that if the machine is deciding what credit factors are more important or not, the lender has “got to be able to put it on a piece of paper and explain to the consumer what was more important,” as legally required for “transparency in lending.”

    Federal Issues U.S. House House Financial Services Committee Fintech Alternative Data

  • House Fintech Task Force holds first hearing

    Fintech

    On June 25, the House Financial Services Committee’s Task Force on Financial Technology held its first-ever hearing, entitled “Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation.” As previously covered by InfoBytes, the Committee created the task force to explore the use of alternative data in loan underwriting, payments, big data, and data privacy challenges. The hearing’s witness panel consisted of high-ranking innovation officials across various agencies and associations, including the CFPB, OCC, SEC, CSBS, and the U.K.’s Financial Conduct Authority. Among other things, the hearing discussed whether digital currency is considered a security, the OCC’s special purpose national bank charter, and the U.K.’s regulatory sandbox approach.

    SEC representative, Valerie Szczepanik, stated that she believes the SEC has been “quite clear” with regard to initial coin offerings, noting that “[e]ach digital asset is its own animal. It has to be examined on its facts and circumstances to determine what in fact it is. It could be a security, it could be a commodity, it could be something else. So we stand ready to provide kind of guidance to folks if they want to come and talk to us. We encourage them to come talk to us before they do anything so they can get the benefit of our guidance.”

    While much of the OCC special purpose bank charter discussion focused on a social media’s plan to launch its own virtual currency, CSBS representative, Charles Clark, emphasized that “[s]tate regulators oppose the special purpose charter because it lacks statutory authority” and that it should be up to Congress to decide whether the OCC can regulate non-bank entities. Clark noted that a federal system would create an unlevel playing field compared to a state system where “a small company can enter the system, scale up, and be competitive with an innovative idea.”

    Lastly, the FCA representative, Christopher Woolard, emphasized that fintech firms participating in the country’s sandbox program are “fully regulated” and probably the U.K.’s “most heavily supervised,” noting that the FCA believes “sandbox firms have to work in the real world from day one.” Additionally, Woolard asserted that the sandbox program is making a difference in the market stating that of their 110 tests, 80 percent of the firms that enter the program go on to fully operate in the market. He concluded asserting, “we believe that around millions of consumers have [] access to new products [] geared around better value or greater convenience.”

     

     

    Fintech OCC SEC UK FCA CSBS U.S. House House Financial Services Committee

  • Democratic Representatives demand rescission of CFPB’s permanent HMDA threshold proposal

    Federal Issues

    On June 11, House Financial Services Committee Chairwoman Maxine Waters and 64 other Democratic House members sent a letter to the CFPB urging rescission of its May proposal to permanently raise the coverage thresholds for collecting and reporting HMDA data and to retire its HMDA Explorer tool. (Covered by InfoBytes here.) In the letter, members argue that recent data “showed widespread discrimination in bank lending” and that redlining continues to be a pervasive problem. They note that HMDA data is an important tool for public officials to understand access to credit in their communities, and that the Bureau’s proposal would exempt “about half of lending institutions from reporting data about closed-end mortgages … [and] sacrifice information that can make a difference in the lives of creditworthy, lower-income consumers.” The members also ask for information regarding the new Federal Financial Institutions Examination Council (FFIEC) query tool that is to be used as a replacement for the HMDA Explorer tool and Public Data Platform API that the Bureau plans to retire, as previously covered by InfoBytes here.

    Federal Issues Agency Rule-Making & Guidance CFPB HMDA FFIEC U.S. House House Financial Services Committee Mortgages

  • House Financial Services Committee creates fintech, AI task forces

    Federal Issues

    On May 9, the House Financial Services Committee announced the creation of a Task Force on Financial Technology as well as a Task Force on Artificial Intelligence. Representative Stephen Lynch (D-MA) will chair the Task Force on Financial Technology, which will explore the use of alternative data in loan underwriting, payments, big data, and data privacy challenges. Representative Bill Foster (D-IL) will chair the Task Force on Artificial Intelligence, which will focus on understanding ways to utilize AI within the financial services industry. It will also examine issues related to algorithms, digital identities, and combatting fraud. Both task forces will expire on December 9.

    Federal Issues House Financial Services Committee Fintech

  • Waters says housing finance reform and diversity are top priorities

    Federal Issues

    On April 2, House Financial Services Committee Chairwoman Maxine Waters (D-CA) spoke before the American Bankers Association’s Washington Summit to discuss several priorities and emerging issues, including comprehensive housing reform, diversity in financial services, fintech regulation, cannabis banking, and Bank Secrecy Act/anti-money laundering (BSA/AML) reform.

    • Housing finance reform. Waters discussed resolving the long-term status of GSEs and several core principles underlying housing finance reform including, among other things, (i) maintaining access to the 30-year, fixed-rate mortgage; (ii) ensuring sufficient private capital is available to protect taxpayers; (iii) requiring transparency and standardization that ensures a level-playing field for all financial institutions especially community banks and credit unions; (iv) maintaining credit access for all qualified borrowers; and (v) ensuring access to affordable rental housing. “Many of the proposals for housing finance reform exclude small financial institutions from being able to access the secondary mortgage market. I believe that the inclusion of small financial institutions must be a critical part of any conversations about GSE reform,” Waters stated.
    • Diversity in financial services. Waters discussed the newly formed Diversity and Inclusion Subcommittee (previously covered by InfoBytes here) when noting that minority representation in financial services management positions remains underrepresented. The new subcommittee will examine diversity trends to promote inclusion. “Diverse representation in these institutions, and particularly at the management level, is essential to ensure that all consumers have fair access to credit, capital, and banking and financial services,” Waters stated.
    • Fintech regulation. Waters commented that fintech regulation is a committee priority. Waters stated that it is important “we encourage responsible innovation with the appropriate safeguards in place to protect consumers and without displacing community banks.”
    • Cannabis banking. Waters highlighted her committee's work last month in advancing HR 1595, which would create protections for financial institutions that provide services to state-sanctioned cannabis-related businesses. The bill would create a safe harbor for depository institutions that would bar federal banking regulators from terminating banks’ deposit insurance or otherwise penalize them if they provide services to a cannabis-related legitimate business or service provider.
    • BSA/AML reform. Waters discussed a hearing that was held to look at “common sense” improvements that could be made to the current BSA/AML framework. She further stated that the committee is considering beneficial ownership legislation, in addition to exploring ways to work with the Financial Crimes Enforcement Network regarding BSA/AML reporting.

    Federal Issues House Financial Services Committee Consumer Finance Housing Finance Reform Bank Secrecy Act Anti-Money Laundering Fintech Medical Marijuana Diversity and Inclusion Subcommittee FinCEN

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