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CFPB updates HOEPA and Loan Originator Rule small entity compliance guides
On November 16, the CFPB released versions 3.0 of its Home Ownership and Equity Protection Act (HOEPA) Rule small entity compliance guide and Loan Originator Rule small entity compliance guide to reflect the changes made by Section 107 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which broadened and expanded an exemption for manufactured home retailers. Among other technical and conforming revisions, the Loan Originator Rule guide reflects the new exemptions whereby certain manufactured home retailers are not considered loan originators. The revised HOEPA Rule guide specifies when loan originator compensation paid to a manufactured home retailer must be included in the points and fees calculation.
OCC releases recent enforcement actions
On November 15, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include cease and desist orders, civil money penalty orders, formal agreements, prompt corrective action directives, removal/prohibition orders, and terminations of existing enforcement actions. Two notable enforcement actions are discussed below.
On October 25, the OCC issued a consent order against a Louisiana-based bank related to examination findings from 2018 wherein the bank failed to adopt and implement an adequate Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. Among other conditions, the consent order requires the bank to (i) develop and implement an ongoing BSA/AML risk assessment program; (ii) adopt an independent audit program to conduct a review of the bank’s BSA/AML compliance program; and (iii) submit a written progress report within 30 days after the end of each calendar quarter that details actions undertaken to ensure compliance with the consent order’s provisions. The bank neither admitted nor denied the OCC’s findings and is not required to pay a civil money penalty.
On October 23, the OCC assessed a $100 million civil money penalty against a national bank for alleged deficiencies in the bank’s BSA/AML compliance programs. Specifically, the alleged deficiencies include the failure to comply with a 2015 consent order in a timely manner, which required the bank to, among other things, adopt and implement an adequate BSA/AML compliance program and file timely Suspicious Activity Reports. The consent order acknowledges that the bank has undertaken corrective action to remedy the deficiencies noted by the OCC.
FDIC seeks comments on small-dollar loans
On November 14, the FDIC issued a request for information (RFI) seeking public comment on ways it can encourage FDIC-supervised financial institutions to offer “responsible, prudently underwritten small-dollar credit products that are economically viable and address the credit needs of bank customers.” In the RFI’s release, FDIC Chairman Jelena McWilliams pointed to studies showing that “[c]onsumers benefit when small-dollar credit products are available from banks” and requested “the public to use the RFI process to tell [the FDIC] how to ensure that consumers can obtain small dollar credit from banking institutions in a responsible manner.” The RFI seeks information related to the “full spectrum of issues” related to banks offering small-dollar credit, including regulatory and non-regulatory obstacles for banks, as well as actions the FDIC could take to assist banks in serving the small-dollar market. In addition to general feedback, the RFI includes a list of suggested topics and questions for commenters to address. Comments will be due 60 days after publication in the Federal Register.
Recently, the OCC and the CFPB have also made efforts to encourage banks to meet the small-dollar credit needs of consumers. In May, the OCC issued Bulletin 2018-14 encouraging banks to offer responsible short-term, small-dollar installment loans with typical maturities between two and 12 months (covered by InfoBytes here). In addition to applauding the OCC’s Bulletin, the CFPB announced it expects to publish proposed rules reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans in January 2019 (covered by InfoBytes here).
OCC Comptroller discusses state of banking system; emphasizes areas of economic opportunity and innovation
On November 14, Comptroller of the Currency Joseph Otting discussed the condition of the U.S. federal banking system at the “Special Seminar on International Finance” in Tokyo. Otting highlighted three areas where the OCC is working to promote economic opportunity and service to bank customers: innovation, short-term small dollar lending, and supervision of international banks operating in the U.S. Specifically, Otting discussed, among other things, the importance of (i) providing a path for fintech companies to become national banks to promote modernization, innovation, and competition; and (ii) encouraging banks to provide responsible short-term small-dollar installment loans—typically between $300 and $5,000—to help consumers meet unplanned financial needs.
Notably, while noting that foreign banks have the option to operate under a state license and that the OCC strongly supports the dual banking system in the U.S., Otting stressed that the OCC is well qualified to supervise foreign banks’ federal U.S. branches, and noted that there are “supervisory efficiencies” to be gained when switching from state-by-state oversight and “consolidating the supervision of branches of foreign banks with the supervision of the national bank subsidiary of the parent company, which the OCC already supervises.” According to Otting, operating under a single regulatory framework with one prudential regulator—the OCC—would achieve a “more complete, more efficient, and, importantly, more thorough regulation of the institution.”
Federal Reserve issues flood insurance enforcement action against Illinois bank
On November 13, the Federal Reserve Board announced an enforcement action against an Illinois state bank for allegedly violating the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $15,000 penalty against the bank, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty for a pattern or practice of violations under the NFIA is $2,000 per violation.
Agencies issue disaster relief guidance for California wildfires
On November 13, the OCC, Fannie Mae, Freddie Mac, and HUD issued disaster relief guidance related to the California wildfires. The OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by wildfires and high winds “for as long as deemed necessary for bank operation or public safety.” In issuing the proclamation, the OCC noted that it expects that only those bank offices directly affected by potentially unsafe conditions will close and that they should make every effort to reopen as quickly as possible to address the banking needs of their customers. The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on natural disasters and other emergency conditions.
Fannie Mae reminded servicers of available mortgage assistance options for homeowners impacted by the wildfires: (i) qualifying homeowners are eligible to stop making mortgage payments for up to 12 months without incurring late fees and without having delinquencies reported to the credit bureaus; (ii) servicers may immediately suspend or reduce mortgage payments for up to 90 days without any contact with homeowners believed to have been affected by a disaster; and (iii) servicers must suspend foreclosures and other legal proceedings for homeowners believed to be impacted by a disaster. Freddie Mac similarly reminded servicers of these mortgage relief options.
HUD announced an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is further making FHA insurance available to those victims whose homes were destroyed or severely damaged.
Find continuing InfoBytes coverage on disaster relief here.
Freddie Mac releases various selling and servicing updates in Guide Bulletin 2018-21
On November 13, Freddie Mac released Guide Bulletin 2018-21 announcing selling and servicing updates, including new requirements for mortgages secured by energy and/or water efficient properties. Effective for mortgages with settlement dates on or after May 1, 2019, Freddie Mac’s GreenCHOICE Mortgages program seeks to improve home affordability by reducing homeowners’ monthly energy or water expenses by facilitating the financing of energy efficient improvements and homes. The bulletin lists specific requirements for the program, including caps for financing the costs of improvements, escrow, and energy reporting requirements. Freddie Mac will apply a $500 credit to help offset transactional costs, provided the seller delivers the requisite Investor Feature Identifier. The Bulletin also includes servicing and transfer of servicing requirements for the program.
Finally, the Bulletin covers property insurance requirements related to flood insurance for condominium projects and revisions to insurance policy premium requirements for condominiums located in Puerto Rico, both of which are effective immediately.
Federal Reserve Board summarizes banking conditions and supervisory and regulatory activities
On November 9, the Federal Reserve Board (Board) released the inaugural issue of a new publication, Supervision and Regulation Report (Report), which summarizes banking system conditions, Board supervisory and regulatory activities, trends dating back to the financial crisis, and differing approaches for large financial institutions and regional/community banking organizations. The Report discusses the safety and soundness of the banking industry, and states that the “strong economy” has had a positive effect on the return on equity and return on average assets for banks, with figures showing that industry profitability ratios in the second quarter of 2018 are at a 10-year high.
However, the Board also discusses several areas of concern including, among other things, that firms assigned “less-than-satisfactory-ratings generally exhibit weaknesses in one or more areas such as compliance, internal controls, model risk management, operational risk management, and/or data and information technology [] infrastructure.” The Board also cites weaknesses in Bank Secrecy Act/anti-money laundering (BSA/AML) programs. The Report outlines future supervisory priorities, which continue to address risk management controls and cyber-related risks, and also include (i) a focus on four specific components: capital; liquidity; governance and controls; and recovery and resolution planning for the largest firms; and (ii) a focus on credit risk, operational risk, sales practices and incentive compensation, and BSA/AML compliance for regional and community banks. In addition, the report discusses plans to minimize regulatory burdens, tailor bank examinations to risk, and optimize supervision resources.
CFPB issues semi-annual report to Congress
On November 9, the CFPB issued its semi-annual report to Congress, covering the Bureau’s work from October 1, 2017 to March 30, 2018. The report, which is required by the Dodd-Frank Act, addresses, among other things, problems faced by consumers with regard to consumer financial products or services; significant rules and orders adopted by the Bureau; and various supervisory and enforcement actions taken during the majority of acting Director Mick Mulvaney’s tenure. Specifically, the report includes (i) a summary of five “significant” state Attorney General actions pursuant to Section 1042 of the Dodd-Frank Act, which allows states to enforce the federal law; (ii) a review of the Bureau’s fair lending efforts, noting that it “conducted fewer fair lending supervisory events. . .than in the prior period,” but “cleared a substantially higher number of MRAs or MOU items from past supervisory events than in the prior period”; (iii) a discussion of non-prime and secured credit cards marketed to consumers; and (iv) a list of upcoming initiatives, which includes requests for information regarding, among other things, the Bureau’s consumer complaint and consumer inquiry handling processes, the Bureau’s inherited regulations and inherited rulemaking authorities, the Bureau’s adopted regulations and new rulemaking authorities, Bureau rulemaking processes, Bureau public reporting practices of consumer complaint information, Bureau external engagements, the Bureau’s supervision program, and the Bureau’s enforcement processes.
Notably, the report also discusses the budget for FY 2018, acknowledging the unusual January 2018 request for zero dollars in funding for the Bureau’s quarterly operations (previously covered by InfoBytes here). As for FY 2019, Mulvaney most recently requested nearly $173 million for Q1, which is still significantly below former Bureau Director Richard Cordray’s FY 2017 Q1 request of $217 million.
DOJ sues international bank for RMBS fraud
On November 8, the DOJ announced it filed a complaint in the U.S. District Court for the Eastern District of New York against an international bank and several of its U.S. affiliates for allegedly defrauding investors in connection with the sale of residential mortgage-backed securities (RMBS) from 2006 through 2007. Specifically, the DOJ alleges the bank violated the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) based on mail fraud, wire fraud, bank fraud, and other misconduct by “knowingly and repeatedly” making false and fraudulent representations to investors about the quality of the loans backing 40 RMBS deals. The DOJ is seeking an unspecified amount of civil money penalties under five FIRREA claims.
In response to the filing, the international bank issued a statement indicating that it intends to “contest the complaint vigorously,” arguing, among other things, that the risks of RMBS investments were clearly disclosed to investors and that the bank suffered its own losses from investing in the RMBS referred to in the DOJ complaint.