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GOP Reps urge efficient review of credit-linked note transactions
On September 16, several GOP lawmakers signed a letter urging the Fed to expedite its review process for approving regulated entities’ applications for risk adjusted treatment for the direct issuance of credit-linked notes. The lawmakers emphasized that banks use credit-linked notes to diversify bank balance sheets and enhance financial resiliency and argued that use of such notes could lead to a more efficient allocation of capital, enabling banks to redeploy capital for lending activities, benefiting consumers and corporations by freeing up more capital for lending needs.
The Fed’s approval of directly issued credit-linked note transactions falls under Subpart D of Regulation Q. The Fed reviews these transactions to ensure they transfer risk and to evaluate a bank’s capital adequacy. The lawmakers stressed that an efficient review process was vital as banks prepare for increased capital requirements from the Basel III Endgame standards.
The letter urged the Fed to allocate sufficient resources to review proposed credit-linked note transactions and requested transparent timelines for reviewing and reaching final decisions on bank applications. The letter was signed by seventeen GOP representatives.
GOP pens letter to CFPB on medical debt credit proposal
On August 14, GOP members of the House Financial Services Committee sent a letter to CFPB Director Rohit Chopra voicing concerns about the CFPB’s proposed rule to ban the use of medical information for credit eligibility determinations. As previously covered by InfoBytes, the CFPB’s proposed rule would amend the FCRA to remove the medical financial information exception thus limiting the credit reporting of medical debt. In their letter, the GOP Congress members argued the CFPB’s proposal would weaken the accuracy and completeness of consumer credit reports, increasing risk in the financial system and causing negative effects on the availability of credit.
The letter noted that in the 50 years since the FCRA was enacted, creditors have been allowed to use medical debt information to determine credit eligibility. The letter noted that, in 2003, Congress acknowledged that medical debt information was “beneficial to understanding the full picture” of a consumer’s financial situation when enacting privacy protections for the use of such information. GOP members suggested that the proposed rule may be supported by current political biases, pointing out that the CFPB has had the authority to amend Regulation V, which permits creditors to use medical information for over a decade but only now seeks to prohibit the inclusion of medical debt on credit reports.
In their primary argument opposing the proposed rule, GOP members stated the CFPB did not provide sufficient data to support the claim that there were more inaccuracies in reporting medical debt than other types of debt. They also argued that the existence of some inaccuracies in medical debt reporting should not prevent creditors from knowing the debt burden of potential borrowers, particularly considering available dispute processes under the FCRA. Additionally, the members argued that the CFPB failed to provide evidence that medical debt information was insufficiently predictive to justify exclusion from credit reports.
Finally, the members argued that the proposed rule might have unintended consequences, such as making it more difficult for borrowers, especially low-income borrowers, to obtain credit and to increase the cost medical procedures to compensate providers for increased difficulty in collecting on medical debt.
GOP Senators express concern on FDIC proposed rules regarding corporate governance and risk management
On July 31, Republican members of the U.S. Senate penned a letter to the Chairman of the FDIC, Martin Gruenberg, to convince the Chairman that an FDIC proposed rule regarding soundness standards for corporate governance and risk management may “hinder, not improve, safety and soundness in the U.S. financial system.” As previously covered by InfoBytes, the FDIC last sought comment on its NPRM titled “Guidelines Establishing Standards for Corporate Governance and Risk Management for Covered Institutions with Total Consolidated Assets of $10 Billion or More” in October 2023, which, among other things, would expand the responsibilities of the board of directors for financial institutions.
The Senators expressed three principal concerns about the proposed rules: first, that the proposed rules would impose new responsibilities on a financial institution’s board of directors that may be better suited to senior management, effectively “blur[ring] the lines between the responsibilities of senior management and responsibilities of the [b]oard,” particularly in respect of risk management processes; second, consistent with the criticisms by state supervisors, that some of the rules may conflict with other state and federal regulatory requirements, such as the preference that “risk management functions reside with the firm’s chief risk officer”; and third, the proposed rules would impose “burdensome” corporate governance standards to the smallest banks without any “empirical evidence” that any “discernible benefit” would be obtained. To confirm their findings, the Senators argued that the OCC removed requirements that were found to be analogous from a prior rulemaking — yet the FDIC has not.
The GOP Senators requested answers to several questions no later than August 16, such as whether the FDIC plans to amend or withdraw the proposed rules, and what level of engagement the FDIC had with state-based regulators or stakeholders in developing the proposal. The Senators also directed a question to the OCC’s Acting Comptroller regarding whether the OCC still “believes that board or risk committee approval of material policies under the Framework would be burdensome, and that these policies should be approved by management instead.” The Senators requested the FDIC withdraw the NPRM entirely.