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On March 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The new enforcement actions include a cease and desist order, a civil money penalty order, notices filed, and recently terminated enforcement actions. Two notable actions are as follows:
Cease and Desist Consent Order. On February 12, the OCC issued a consent order against a New Jersey-based bank for deficiencies related to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) rules and regulations. Among other things, the consent order requires the bank to (i) appoint an independent third-party consultant to conduct a review of the bank’s BSA/AML compliance program; (ii) review and update a comprehensive BSA/AML compliance action plan and monitoring system; (iii) create a comprehensive training program for “appropriate operational and supervisory personnel, and the Board of Directors, to ensure their awareness of their responsibility for compliance with” the BSA; (iv) develop policies and procedures related to the collection of customer due diligence and enhanced due diligence when opening accounts; (v) appoint a BSA officer; (vi) develop and conduct ongoing BSA/AML risk assessments to monitor accounts for “high-risk customers”; and (vii) conduct a “Look-Back” plan to determine whether suspicious activity was timely identified and reported by the bank and whether additional SARs should be filed for previously unreported suspicious activity. Furthermore, the bank is prohibited from opening new accounts for commercial customers designated as “medium risk or higher” in areas such as “money services businesses, foreign or domestic correspondent banks, payment processors, or cash-intensive businesses” without prior authorization. The bank, while agreeing to the terms of the consent order, has neither admitted nor denied any wrongdoing.
Termination of enforcement action. On February 14, the OCC terminated a 2002 consent order issued against a Texas-based payday lender after determining that “the safe and sound operation of the banking system does not require the continued existence of” previously issued restrictions. In 2002, the OCC claimed the payday lender engaged in “unsafe and unsound” practices, including violations of ECOA and TILA for failing to safeguard customers’ loan files. Among other things, the consent order fined the payday lender a $250,000 civil money penalty, imposed record-keeping requirements, and prohibited it from “entering into any kind of written or oral agreement to provide any services, including payday lending, to any national bank or its subsidiaries without the prior approval of the OCC.”
House Financial Services Committee holds hearing on potential regulation of cryptocurrencies and ICOs
On March 14, the House Financial Services Subcommittee on Capital Markets, Securities, and Investment held a hearing entitled “Examining Cryptocurrencies and ICO Markets” to discuss recommendations for Congress concerning the regulation of cryptocurrencies and initial coin offering ("ICO") markets. Subcommittee Chairman Bill Huizenga, R-Mich., opened the hearing by stating that “[c]ryptocurrencies and ICOs provide an innovative vehicle for startups to potentially access capital and grow their businesses,” and emphasized that potential regulation of this market should not stifle innovation in the area of digital currencies and capital formation.
The hearing’s four witnesses offered numerous insights into the shaping of regulation in the crytopcurrency and ICO markets. The witnesses discussed emphasizing the potential of ICOs for U.S. investors, disclosures in the ICO market, and the need for regulation to be clear with definitive classification guidelines. Additionally, witnesses commented on the unanticipated negative consequences of regulation, including the risk associated with developing a regulatory framework around the cryptocurrency market since the market is still emerging. The hearing included discussion on the functions of cryptocurrency and the ICO market, including distinguishing an ICO offering from a traditional Initial Public Offering (IPO) and the different uses of “scarce tokens,” such as bitcoin, which would impact whether cryptocurrencies were regulated as commodities or securities.
House passes two bipartisan bills to increase transparency for regulatory appeals process and tailor regulations based on size and complexity
On March 15, the House passed H.R. 4545, the “Financial Institutions Examination Fairness and Reform Act,” which would amend the Federal Financial Institutions Examination Council Act of 1978 to increase transparency and accountability for financial institutions. Among other things, the bill will require federal financial regulatory agencies to comply with deadlines established in the bill to improve the timeliness of examination reports and exit interviews, and will establish the Office of Independent Examination Review to adjudicate financial institutions’ appeals and complaints concerning examination reports. The bill further “requires the establishment of an independent internal agency appellate process at the CFPB for the review of supervisory determinations made at institutions supervised by the CFPB.”
Separately, on March 14, the House passed H.R. 1116, the “Taking Account of Institutions with Low Operation Risk Act of 2017” (TAILOR Act), which would require federal financial regulatory agencies to tailor regulations to a financial institution’s size and complexity. The TAILOR Act would apply not only to future regulatory guidance and rulemaking but also to regulations adopted seven years prior from February 16, 2017. According to a press release issued by the House Financial Services Committee, the TAILOR Act “moves financial regulatory agencies away from the current one-size-fits-all approach to instead consider additional factors such as an institution's risk profile, unintended potential impact of implementation of such regulations, and underlying policy objectives of the statutory scheme which led to the regulation.” In registering her opposition to the bill, Ranking Member of the Committee, Representative Maxine Waters, D-CA, argued that it would “weaken important safeguards established since the financial crisis” and “provide all financial institutions, including the largest banks, with opportunities to challenge any and every regulation in court if they felt it was not 'uniquely tailored' to their business needs.”
On March 14, the CFPB released its eighth Request for Information (RFI) in a series seeking feedback on the Bureau’s operations. This RFI solicits public comment to assist the Bureau in deciding “whether it should amend any rules it has issued since its creation or issue rules under new rulemaking authority provided for by the Dodd-Frank Act,” which the RFI defines as the Bureau’s “Adopted Regulations.” This RFI does not seek information related to the Bureau’s “Inherited Regulations” that have not yet been amended by the CFPB. Inherited Regulations are those promulgated under the consumer financial laws that were previously vested in other federal agencies but the Bureau assumed responsibility over through the Dodd-Frank Act.
The CFPB is requesting feedback regarding the content of all Adopted Regulations, except for its 2015 HMDA final rule (or its subsequent amendments) and its final rule addressing payday loans, vehicle title loans, and certain other extensions of credit. Specifically, the RFI seeks information related to all aspects of the Adopted Regulations, including (i) whether the Adopted Regulations should be tailored to an institution of a particular size or are incompatible with new technologies; (ii) changes the Bureau could make to the Adopted Regulations to more effectively meet the specific law’s statutory purpose; (iii) changes the Bureau could make to the Adopted Regulations to advance the statutory purposes stated in Section 1021 of the Dodd-Frank Act; (iv) whether the Bureau should introduce pilots, field tests, demonstrations or other activities to better analyze the cost/benefits of potential Adopted Regulations; and (v) where the Bureau could exercise more of its rulemaking authority to better align with the objectives of the applicable consumer financial laws. The Bureau also requested comment on aspects of the adopted regulations that should not be amended. The RFI is expected to be published in the Federal Register on March 19. Comments will be due 90 days from publication.
On March 14, Fannie Mae updated its Servicing Guide to include industry best practices for servicing HomeStyle Renovation Mortgage Loans (Renovation Loans). According to Fannie Mae SVC-2018-02, the updates to the Servicing Guide include, among other changes, new requirements to: (i) conduct property inspections for all Renovation Loans before escrow draw requests may be approved; (ii) ensure that all subcontractors are licensed in jurisdictions where licensing applies; (iii) perform updated appraisals when repairs deviate materially from the original plan; and (iv) provide a certificate of occupancy upon completion. Additional changes to the requirements for Renovation Loans may also be found in Fannie Mae’s recently updated Selling Guide, covered by InfoBytes here.
The updates to the Servicing Guide also include an update to the Allowable Foreclosure Attorney Fees Exhibit, which changes the maximum allowable fees for loans secured by properties in certain states. The Servicing Guide requirements for determining the modified terms under the Fannie Mae Cap and Extend Modification for Disaster Relief have also been updated.
On March 14, by a vote of 67-31, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) (the bill)—a bipartisan regulatory reform bill crafted by Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo, R-Idaho—that would repeal or modify provisions of Dodd-Frank and ease regulations on all but the biggest banks. (See previous InfoBytes coverage here.) The bill’s highlights include:
- Improving consumer access to mortgage credit. The bill’s provisions state, among other things, that: (i) banks with less than $10 billion in assets are exempt from ability-to-repay requirements for certain qualified residential mortgage loans; (ii) appraisals will not be required for certain transactions valued at less than $400,000 in rural areas; (iii) banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether); (iv) amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; and (v) the CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.
- Regulatory relief for certain institutions. Among other things, the bill simplifies capital calculations and exempts community banks from Section 13 of the Bank Holding Company Act if they have less than $10 billion in total consolidated assets. The bill also states that banks with less than $10 billion in assets, and total trading assets and liabilities not exceeding more than five percent of their total assets, are exempt from Volcker Rule restrictions on trading with their own capital.
- Protections for consumers. Included in the bill are protections for veterans and active-duty military personnel such as: (i) permanently extending the protection that shields military personnel from foreclosure proceedings after they leave active military service from nine months to one year; and (ii) adding a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses general consumer protection options such as expanded credit freezes and the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to TILA consumer protections.
- Changes for bank holding companies. Among other things, the bill raises the threshold for automatic designation as a systemically important financial institution from $50 billion in assets to $250 billion. The bill also subjects banks with $100 billion to $250 billion in total consolidated assets to periodic stress tests and exempts from stress test requirements entirely banks with under $100 billion in assets. Additionally, certain banks would be allowed to exclude assets they hold in custody for others—provided the assets are held at a central bank—when computing the amount such banks must hold in reserves.
- Protections for student borrowers. The bill’s provisions include measures to prevent creditors from declaring an automatic default or accelerating the debt against a borrower on the sole basis of bankruptcy or cosigner death, and would require the removal of private student loans on credit reports after a default if the borrower completes a loan rehabilitation program and brings payments current.
The bill now advances to the House where both Democrats and Republicans think it is unlikely to pass in its current form.
On March 9, the FTC entered into a settlement with a credit card merchant and its individual officer (collectively, “defendants”) relating to an allegedly deceptive credit card telemarketing operation. According to the FTC’s amended complaint, the defendants violated the FTC Act and the Telemarketing Sales rule by assisting a telemarketing company in masking its identity by processing the company’s credit card payments through multiple fictitious companies. The FTC previously had banned the telemarketing company from selling fraudulent “work-at-home” opportunities in 2015. The settlement, among other things, prohibits the defendants from processing payments or acting as an independent sales organization. The order also stipulates a judgment of approximately $1.3 million, which will be suspended unless it is determined that the financial statements defendants submitted to the FTC contain any inaccuracies.
On March 9, the Financial Stability Board (FSB) announced the release of its Supplementary Guidance to the FSB Principles and Standards on Sound Compensation Practices (Supplementary Guidance) relating to FSB’s Principles and Standards published in 2009. The Supplementary Guidance arises out of a 2015 workplan implemented to address concerns about compensation practices that could create misaligned incentives within financial institutions. The Supplementary Guidance, which does not contain new or additional principles and standards, provides recommendations presented in three parts: (i) “governance of compensation and misconduct risk”; (ii) “effective alignment of compensation with misconduct risk”; and (iii) “supervision of compensation and misconduct risk.” The Supplementary Guidance notes that “inappropriately structured compensation arrangements can provide individuals with incentives to take imprudent risks,” which may lead to potential harm for financial institutions and their customers or stakeholders. The Supplementary Guidance suggests that financial institutions use compensation tools as part of an overall strategy to limit risks and address misconduct, and cautions that “compensation should be adjusted for all types of risk.”
On March 7, Fannie Mae, in Lender Letter LL-2018-01, and Freddie Mac, in Guide Bulletin 2018-04, extended the suspension of foreclosure sales through May 31 of mortgaged properties in FEMA-declared disaster areas in Puerto Rico and the U.S. Virgin Islands due to Hurricanes Irma and Maria.
Find continuing InfoBytes coverage on Disaster Relief here.
On March 12, the U.S. Department of Education published an Interpretation in the Federal Register, which takes the position that state regulation of servicers of loans made under the William D. Ford Federal Direct Loan Program (Direct Loans) and the Federal Family Education Loan Program (FFEL Program Loans) is preempted by Federal law. Specifically, the Department noted that state “regulation of the servicing of Direct Loans” is preempted because it “impedes uniquely Federal interests,” and state regulation of the servicing of FFEL Program Loans “is preempted to the extent that it undermines uniform administration of the program.” The Interpretation was issued in response to several states having recently enacted regulatory regimes, or sought to apply existing consumer protection statutes, imposing additional requirements on such student loan servicers. The Ranking Member of the House Committee on Education and the Workforce, Representative Bobby Scott, D-VA, issued a statement following the notice of publication on March 9, disagreeing with the Department’s Interpretation: “Congress has not given the Secretary the authority to preempt state consumer protection law for student borrowers. . . . I urge the Secretary to reverse this egregious overreach of Federal authority to rescind states’ ability to protect student borrowers and hold unscrupulous servicers accountable.”