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OCC issues semi-annual Interest Rate Risk Statistics Report
On October 20, the OCC published the fall 2021 edition of the Interest Rate Risk Statistics Report. The report presents interest rate risk data gathered during examinations of OCC-supervised midsize and community banks and federal savings associations with reported data by asset size, charter type, and minority depository institutions. The OCC’s supervisory process for the fall 2021 report reviewed banks’ reported data from September 30, 2019 to June 30, 2021, including exposures, risk limits, and non-maturity deposit assumptions. The OCC notes that the statistics presented within the report “are for informational purposes only and do not represent OCC-suggested limits or exposures.”
District Court approves order permanently banning defendants from making robocalls
On October 21, the U.S. District Court for the Middle District of Florida issued an order approving a permanent injunction and $6.4 million civil money penalty against the remaining participants in a cruise line telemarketing operation allegedly aimed at marketing free cruise packages to consumers. In January, the FTC filed a complaint against the defendants (two individuals and five companies they controlled, including the cruise line) for their alleged involvement in the telemarketing operation. As previously covered by InfoBytes, the complaint asserted violations of the FTC Act and the Telemarketing Sales Rule. The same day the complaint was filed, the FTC announced that it had entered into two settlement agreements—one with a call center and two individuals, and one with an additional individual—for their roles in the telemarketing operation. The court’s October order follows a recent FTC announcement (covered by InfoBytes here), indicating it had reached an agreement with the defendants who neither admitted nor denied the allegations. The court’s order requires the individual defendants to cooperate with any future FTC investigations and to disclose “the contents of their auto-dialed, telemarketing, or pre-recorded telephone communications and records or other information pertaining to [the] autodialed, telemarketing, or pre-recorded telephone communications.” The order also suspends the $6.4 million civil money penalty after the two individual defendants each pay $50,000 to the Treasury Department.
DOJ, CFPB, and OCC announce aggressive redlining initiative; take action against national bank for alleged lending discrimination
On October 22, the DOJ, in collaboration with the CFPB and the OCC, announced a new initiative to combat redlining and lending discrimination. The Combatting Redlining Initiative will be led by the DOJ’s Civil Rights Division’s Housing and Civil Enforcement Section in partnership with U.S. Attorney’s offices, and will, among other things, (i) “ensure that fair lending enforcement is informed by local expertise on housing markets and the credit needs of local communities of color”; (ii) “[e]xpand the department’s analyses of potential redlining to both depository and non-depository institutions” (the DOJ noted that non-depository lenders now make the majority of mortgages in the U.S.); (iii) strengthen financial regulator partnerships to ensure fair lending violations are identified and referred to the DOJ; and (iv) increase fair lending coordination with state attorneys general to identify potential violations. Attorney General Merrick Garland stated that the initiative will “address[] modern-day redlining by making far more robust use of our fair lending authorities,” and marks the DOJ’s “most aggressive, coordinated effort to address redlining.” Garland noted that several redlining investigations are currently ongoing and more are expected to be opened in the upcoming months.
In his remarks, CFPB Director Rohit Chopra also warned that the Bureau will be “closely watching for digital redlining, disguised through so-called ‘neutral algorithms, that may reinforce the biases that have long existed.’” He added that “the speed with which banks and lenders are turning lending and advertising decisions over to algorithms is concerning,” and cautioned against assuming that algorithms will be bias free.
In conjunction with the announcement of the multi-agency initiative, the DOJ, CFPB, and OCC, took action against a national bank for alleged redlining practices. According to the complaint, the bank violated the Fair Housing Act, ECOA, and the CFPA by deliberately engaging in conduct that discouraged consumers in majority-Black and Hispanic neighborhoods in the Memphis metropolitan area from seeking credit. The bank also allegedly established a limited number of branches in majority-Black and Hispanic communities, and did not provide mortgage-lending services to walk-in customers in these neighborhoods. The complaint further alleged, among other things, that the bank’s fair lending policies and procedures did not adequately ensure equal access to credit to majority-Black and Hispanic neighborhoods, and that internal governance and oversight committees to oversee fair lending were not established until after the OCC initiated a fair lending examination of the bank.
Under the terms of the proposed settlement, the bank will be required to pay a $5 million civil money penalty. The bank will also have to invest $3.85 million through a loan subsidy program to increase access to credit, and provide $400,000 to develop community partnerships to increase access to residential mortgage credit. The loan subsidy program will go towards closing cost assistance, down payment assistance, and payment of mortgage insurance premiums. Additionally, the bank must increase branches and outreach efforts in majority-Black and Hispanic neighborhoods, devote at least $200,000 in targeted advertising annually to generate applications for mortgages in these neighborhoods, and take remedial efforts to improve its fair lending compliance.
Fed governor discusses need for new banks
On October 22, Federal Reserve Governor Michelle W. Bowman spoke at the 2021 Community Bankers Symposium: Banking on the Future regarding why there have been so few de novo bank formations over the last decade and what can be done to encourage more de novo banks. Bowman discussed “the importance of community banks,” noting that they “provide critical financial services to their communities and to many customers who might have limited geographic access to banking services.” She pointed out that community banking has been declining in both rural and urban communities due in part to an increased need to hire experienced staff, which is challenging to attract and retain. To encourage more de novo banks, Bowman stated it is “crucial to provide a balanced, transparent, and effective regulatory framework that promotes a vibrant community bank sector.” She also emphasized that policymakers should “appropriately refine the regulatory and supervisory framework to minimize unnecessary compliance costs for smaller banks and address impediments to bank formations.”
OCC releases October enforcement actions
On October 21, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently or formerly affiliated with such entities. Included is a civil money penalty order against a Seattle-based bank, which requires the bank to pay $2.5 million for, among other things, allegedly failing to adopt and implement a Bank Secrecy Act/Anti-Money Laundering compliance program.
CFPB orders tech companies to submit payment system information
On October 21, the CFPB issued orders to six large U.S. technology companies seeking information and data on their payment system business practices. The Bureau stated that the information is intended to help the Bureau understand how these companies use personal payments data and manage data access to users. The Bureau issued the orders citing its authority under the CFPA, Section 1022(c)(4), which grants the agency “statutory authority to order participants in the payments market to turn over information to help the Bureau monitor for risks to consumers and to publish aggregated findings that are in the public interest.” The Bureau’s press release also noted it intends to study the payment system practices of two major Chinese tech companies.
The Bureau made available an example order that contains 55 requests seeking various information and data on several topics, including: (i) “[d]ata harvesting and monetization”; (ii) “[a]ccess restrictions and user choice”; and (iii) documents and information related to payment platforms and compliance with federal consumer protection laws, such as the EFTA and the Gramm-Leach-Bliley Act. Citing consumer data and privacy expectations, the Bureau explained that “[c]onsumers expect certain assurances when dealing with companies that move their money. They expect to be protected from fraud and payments made in error, for their data and privacy to be protected and not shared without their consent, to have responsive customer service, and to be treated equally under relevant law.”
Director Rohit Chopra issued a statement commenting on the purpose of the orders. He noted that the Bureau’s inquiry “is one of many efforts within the Federal Reserve System to plan for the future of real-time payments” and that it “will help to inform regulators and policymakers about the future of our payments system.”
Agencies release statement on LIBOR transition
On October 20, the CFPB, Federal Reserve Board, FDIC, NCUA, and OCC, in conjunction with the state bank and state credit union regulators, (collectively, “agencies”) released a joint statement regarding the transition away from LIBOR. As previously covered by InfoBytes, the Fed, FDIC, and OCC issued a joint statement encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. The agencies' October 20 joint statement provides supervisory considerations for institutions when choosing an alternative reference rate, such as, among other things: (i) the meaning of new LIBOR contracts; (ii) understanding how the chosen reference rate is constructed and the fragilities associated with it; and (iii) expectations for fallback language. In addition, the agencies noted that supervised institutions should “develop and implement a transition plan for communicating with consumers, clients, and counterparties; and ensure systems and operational capabilities will be ready for transition to a replacement reference rate after LIBOR’s discontinuation.”
FHFA makes GSE desktop appraisals permanent, expands refinance programs for LMI borrowers
On October 18, FHFA announced two measures to advance housing sustainability and affordability. Speaking before the 2021 Mortgage Bankers Association Annual Convention and Expo, acting Director Sandra Thompson announced that Fannie Mae and Freddie Mac (GSEs) “will incorporate desktop appraisals into their guides for many new purchase loans starting in early 2022.” Thompson explained that including desktop appraisals in the selling guides will change what was a temporary flexibility into an option that will “mitigate risk for use over the long-term” and will “become an established option for originating [GSE] loans.” According to Thompson, this certainty should allow lenders, borrowers, and appraisers to take advantage of efficiency gains provided through desktop appraisals.
Thompson also announced that the GSEs will expand their refinance programs for low- and moderate-income borrowers that were introduced last year. Several enhancements will be made to the RefiNow and RefiPossible programs to expand eligibility requirements and make the programs easier for lenders to offer. Thompson noted that income threshold for eligible borrowers will be raised from 80 percent of area median income to 100 percent. Additionally, the GSEs are making other modifications to reduce operational frictions for lenders.
CFPB reaches $6 million settlement with prison financial services company
On October 19, the CFPB issued its first enforcement action under newly-appointed Director Rohit Chopra. The consent order, issued against a provider of financial services to prisons and jails, stated that the company engaged in unfair, deceptive, and abusive acts or practices in violation of the CFPA by charging consumers fees to access their own funds on prepaid debit cards that they were required to use. The CFPB also claimed the company violated the EFTA and implementing Regulation E by requiring consumers to sign up for its debit card as a condition of receiving gate money (i.e. “money provided under state law to help people meet their essential needs as they are released from incarceration”). According to the CFPB, the company provided approximately 1.2 million debit release cards to consumers, which replaced cash or check options previously offered by state departments of correction. In addition to forcing consumers to use the debit cards to access their funds, the company also allegedly charged consumers fees that were not authorized by the cardholder agreement and misrepresented the fees that it charged. Pursuant to the consent order, the company—which neither admitted nor denied the allegations—may only charge “a reasonable inactivity fee” if a debit card is not used for 90 days. The company is also required to pay $4 million in consumer redress and a $2 million civil money penalty.
Chopra released a separate statement, saying the “case illustrates some of the market failures and harms that occur when the disbursement of government benefits is outsourced to third-party financial services companies that fail to adhere to the law.” He warned that the CFPB “will continue to scrutinize these companies, particularly when law violations and abuses of dominance undermine the intent of such government benefits, and where the harms fall heavily on people who are struggling financially.”
States, consumer advocates urge agencies to explicitly disavow rent-a-bank schemes
On October 18, consumer advocates and several state attorneys general and financial regulators responded to a request for comments issued by the OCC, Federal Reserve Board, and the FDIC on proposed interagency guidance designed to aid banking organizations in managing risks related to third-party relationships, including relationships with fintech-focused entities. (See letters here and here.) As previously covered by InfoBytes, the proposed guidance addressed key components of risk management, such as (i) planning, due diligence and third-party selection; (ii) contract negotiation; (iii) oversight and accountability; (iv) ongoing monitoring; and (v) termination. Consumer advocates and the states, however, expressed concerns that the agencies’ proposed guidance does not “highlight the significant risks associated with high-cost lending involving third-party relationships,” and does not include measures to prevent banks from entering into nonbank lending partnerships (e.g. “rent-a-bank schemes”).
According to the consumer advocates’ letter, the agencies’ guidance “should unequivocally declare that it is inappropriate for a bank to rent out its charter to enable attempted avoidance of state consumer protection laws, in particular interest rate and fee caps, or state oversight through licensing regimes.” The consumer advocates stated that they are aware of six FDIC-supervised banks involved in rent-a-bank schemes with nonbank lenders making allegedly illegal high-cost loans, and urged the FDIC to take immediate, “overdue” action to put an end to them. Among other things, the consumer advocates said the new guidance should explicitly specify: (i) that a bank’s involvement in lending that exceeds state interest rate limits with a nonbank is a “critical activity”; (ii) that lending partnerships involving loans exceeding a fee-inclusive 36 percent annual percentage rate (APR) “pose especially high risks”; and (iii) that in instances where a loan exceeds the Military Lending Act’s 36 percent APR, the federal banking supervisor will directly examine the third-party partner and charge the bank for the cost of the examination.
The states wrote in their letter that “experience teaches us that, in the absence of an explicit disavowal of rent-a-bank schemes, the [p]roposed [g]uidance invites continued abuse of banks’ interest exportation rights, to the considerable detriment of state regulation, consumer protection, and banks’ safety and soundness.” The states strongly encouraged the agencies to “explicitly disavow rent-a-bank schemes.”