Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On January 29, the Federal Housing Finance Agency (FHFA) released its strategic plan for 2018-2022, which sets three strategic goals and discusses multiple factors associated with achieving each goal. FHFA’s three strategic goals for 2018-2022 are:
- Ensure safe and sound regulated entities. FHFA intends to, among other things, use a risk based system to identify supervisory concerns and monitor entities for timely remediation. Additionally, FHFA intends to monitor industry trends and market conditions for emerging risks and issue supervisory guidance and policies related to expectations for safety and soundness.
- Ensure liquidity, stability, and access in housing finance. FHFA intends to, among other things, promote ongoing liquidity in the marketplace for new and refinanced mortgages. FHA will monitor access to mortgage credit and collaborate with other regulators to identify emerging issues. FHA will support multifamily housing needs of the underserved market and promote policies that support fair access to financial services for qualified borrowers.
- Manage Fannie Mae and Freddie Mac’s ongoing conservatorships. FHFA will continue, among other things, to oversee Fannie Mae and Freddie Mac staffing, will address outstanding claims involving Fannie Mae and Freddie Mac, and will oversee the implementation of the Uniform Mortgage Data Program.
The strategic plan also identifies critical factors that may affect achievement of the above goals, including (i) economic conditions and government policies of foreign markets; (ii) market developments and legislative reform affecting the U.S. housing market; (iii) financial performance of Fannie Mae and Freddie Mac; (iv) the status of the Fannie Mae and Freddie Mac conservatorship; and (v) management of FHFA resources.
CFPB Succession: Mulvaney removes Fair Lending office enforcement power; Warren sends payday congressional inquiry
On February 1, it was reported that Mulvaney has moved The Office of Fair Lending and Equal Opportunity from the Supervision, Enforcement and Fair Lending division (SEFL) of the CFPB to the Office of the Director. According to sources, Mulvaney sent an email which states that the Fair Lending office will now be focused on “advocacy, coordination and education” as opposed to the day-to-day responsibility of enforcement and supervision oversight, which will remain in the SEFL division. A spokesperson for the acting director stated, “by elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities...by combining these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness.”
On January 31, Senator Elizabeth Warren and five other Democratic members of congress sent a letter to the CFPB inquiring about the Bureau’s decision to reconsider its final rule addressing payday loans, vehicle title loans, and certain other extensions of credit, as previously covered by InfoBytes. The letter expresses dissatisfaction with the lack of explanation for this decision and for the CFPB’s decision to end a multiyear investigation into a national installment loan lender (previously covered by InfoBytes here). The letter requests specific information related to the payday rule decision, such as, (i) lists of personnel involved in providing legal advice and lists of meetings attended by political appointees related to the payday decision; (ii) an explanation of the analysis that lead to the decision; and (iii) information related to communications with certain members of the payday loan industry. Interestingly, the letter is addressed to Leandra English as “Acting Director” of the CFPB and Mick Mulvaney as “Director” of the Office of Management and Budget.
As for Leandra English’s litigation, on January 31, English filed her corrected Appellant’s Brief with the U.S. Court of Appeals for the D.C. Circuit. The brief does not raise any significantly new arguments. The government’s response is due by February 23. Additionally, on February 1, a judge for the U.S. District Court for the Southern District of New York dismissed a similar complaint brought by a NY credit union (previously covered by InfoBytes here). In granting the government’s motion to dismiss, the judge agreed that the credit union did not allege a “concrete and particularized injury caused by CFPB actions under Mulvaney’s leadership” and therefore, did not have standing to bring the action.
On January 29, the Federal Reserve Board and the FDIC sent letters to 19 foreign banks operating in the United States to outline and clarify resolution plan expectations. According to a joint release issued by the regulators, Dodd-Frank-mandated resolution plans—commonly known as living wills—require certain foreign banks to detail strategic plans for their U.S. operations “for rapid and orderly resolution under bankruptcy” should the banks fail or fall under material financial distress. Requested in the letters, among other things, are specifics on resolution strategies, capital calculations, management of liquidity, stress testing, and organizational structures. Banks are required to submit 2018 resolution plans no later than December 31, 2018. Refer here to access a list of banks and letters.
On January 31, the CFPB released its Request for Information (RFI) on administrative adjudications, which solicits public comment on the process for the Bureau to “better understand the benefits and impacts of its use of administrative adjudications, and how its existing process may be improved.” The RFI broadly requests feedback on “all aspects” of the administrative adjudication process but also highlights specific topics on which comment is requested, including (i) whether the Bureau should abandon the process and pursue contested matters only in federal court; (ii) the policy for proceedings to be conducted expeditiously, including the associated timeframes; (iii) whether the Bureau should make documents available to respondents electronically at its own expense; (iv) whether CFPB staff should be permitted to issue subpoenas without approval of the administrative law judge; (v) limitations on expert witnesses; (vi) limitations on discovery, including deposing fact witnesses or servicing interrogatories; and (vii) whether there should be the opportunity to stay a decision of the director pending appeal by filing a supersedeas bond. The RFI was published in the Federal Register on February 5 and comments are due by April 6.
This is the second RFI released related to the CFPB’s plan to publish a series of RFIs seeking input on the way the Bureau is performing its statutory obligations. As previously covered by InfoBytes, the CFPB’s first RFI related to Civil Investigative Demands (CIDs).
Buckley Sandler Special Alert: D.C. Circuit upholds CFPB’s constitutionality but rejects its interpretation of RESPA
On January 31, the U.S. Court of Appeals for the D.C. Circuit issued its long-awaited en banc decision in CFPB v. PHH Corporation. In a 7-3 decision, the court concluded that the CFPB’s single-director structure is constitutional, even though the president can only remove the director for cause. Importantly, however, the court also reinstated the portion of t he October 2016 panel opinion concluding that the CFPB misinterpreted the Real Estate Settlement Procedures Act (RESPA) and its statute of limitations. As a result, the $109 million penalty imposed on PHH is vacated and the case will go back to the CFPB, where new leadership must decide whether to pursue the action. PHH has 90 days to seek review by the Supreme Court.
Ten judges issued seven separate opinions in this case, totaling 250 pages. The following is a summary of the key holdings.
* * *
If you have questions about the decision or other related issues, please visit our Consumer Financial Protection Bureau practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.
On January 19, Federal Reserve Vice Chairman for Supervision Randal Quarles spoke at the American Bar Association Banking Law Committee Annual Meeting to discuss his initial observations on the post-crisis regulation regime and provide a status update on the Fed’s key areas of focus for improving the “efficiency, transparency, and simplicity of regulation.” Quarles emphasized that there are a variety of means to improve efficiency, such as (i) addressing unintended adverse consequences of a regulation, or (ii) calibrating a regulation “more precisely to the risks in need of mitigation.” Transparency around rulemaking encourages a variety of perspectives, and simplifying regulations “promotes public understanding of regulation, promotes meaningful compliance by the industry with regulation, and reduces unexpected negative synergies among regulations,” he added.
According to Quarles, “small bank capital simplification, burden reduction in resolution planning, enhancements to stress testing, leverage ratio recalibration, and Volcker rule simplification” are common ground areas for improvement, efforts have progressed, and regulations have been proposed for changes, including extending the resolution planning cycle to reduce the reporting burden. Quarles also noted that the Fed expects to release a proposal on leverage ratio recalibration in the near future, and has started working with five banking agencies on a proposal to streamline the Volcker rule.
Another area of focus Quarles highlighted is the Fed’s plan to revisit the “advanced approaches” thresholds used to identify internationally active banks, including risk-based capital requirements as well as the supplementary leverage ratio. Quarles further noted that the current $250 billion-asset or $10 billion in on-balance-sheet foreign exposures thresholds were formulated more than a decade ago “and have not been refined since then.” Additionally, Quarles announced plans to work with his Fed colleagues to simplify the framework for loss absorbency requirements. According to Quarles, candidates for simplification include (i) eliminating the advanced approaches risk-based capital requirements; (ii) eliminating one or more stress testing ratios; and (iii) modifying the total loss-absorbing capacity requirements. The framework for making determinations of control under the Bank Holding Company Act—while not a post-crisis regulation—could also be improved to be less “burdensome and time-consuming,” Quarles added.
Finally, as previously covered in InfoBytes, Quarles commented on the Fed’s requests for comments issued last December on three proposals designed to increase stress testing transparency while also testing the resiliency of large, complex banks. “I believe that the disclosure we have provided does not go far enough to provide visibility into the supervisory models that often deliver a firm's binding capital constraint,” Quarles noted.
On January 19, 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 civil money penalty orders, cease and desist orders, prompt corrective action directives, and removal/prohibition orders. The list also includes recently terminated enforcement actions.
Civil Monetary Penalty. On December 27, the OCC issued a consent order (2017 Order) against a national bank’s South Dakota branch for violating a 2012 OCC issued consent order (2012 Order) related to deficiencies identified in the agency’s Bank Secrecy Act and anti-money laundering (BSA/AML) rules and regulations. According to the 2017 Order, the branch failed to timely comply with the 2012 Order, which required the branch to, among other things, (i) establish a Compliance Committee to oversee the branch’s adherence to the outlined provisions; (ii) submit, implement, and maintain an effective BSA/AML action plan; (iii) ensure the effective implementation of policies and procedures, which would fulfill BSA/AML and Office of Foreign Assets Control obligations; (iv) conduct a BSA/AML compliance program evaluation, risk assessment, and audit program; (v) develop appropriate customer due diligence policies and procedures, along with programs to ensure the timely identification and reporting of suspicious activity; (vi) develop practices governing the use of cash letter services and remote deposit capture; and (vii) conduct independent reviews of account and transaction activity. As a result, the 2017 Order requires the branch to pay a $70 million civil money penalty for failing to comply with the 2012 Order. The bank, while agreeing to the terms of the consent order, has not admitted or denied any wrongdoing.
On January 25, the CFPB released its Request for Information (RFI) on Civil Investigative Demands (CIDs), which solicits public comment on “how best to achieve meaningful burden reduction or other improvement to the CID processes while continuing to achieve the Bureau’s statutory and regulatory objectives.” The RFI broadly requests feedback on “all aspects” of the CID process but also highlights specific topics on which comment is requested, including (i) the Bureau’s process for initiating investigations and issuing CIDs; (ii) the delegation of authority to officials within the CFPB’s Office of Enforcement; (iii) steps the Bureau could take to improve recipients’ understanding of investigations and the information sought by CIDs; (iv) timeframes and certifications for responses; (v) modifications and objections to CIDs; and (vi) the rights of entities and individuals who are compelled to provide testimony, including the right to have counsel present.
As previously covered by InfoBytes, the CFPB announced its plan to publish a series of RFIs seeking public input on the way the Bureau is performing its statutory obligations. The RFI was published in the Federal Register on January 26 and comments are due by March 27.
On January 23, acting CFPB Director Mick Mulvaney sent an email to staff (a similar version was later published as an op-ed in the Wall Street Journal) outlining his vision for how the CFPB will enforce consumer protection laws. In the email, Mulvaney emphasizes that the CFPB will no longer “push the envelope” in pursuit of the agency’s mission, a phrase which he attributes to former CFPB Director Richard Cordray. While Mulvaney acknowledges that there will be times the agency will need to take “dramatic action to protect consumers,” he states that this will only be done as “the most final of last resorts,” after all other resolutions have failed. In terms of what this means for the Bureau’s current work, Mulvaney states that enforcement will be focused on “quantifiable and unavoidable harm to the consumer.” As for regulation, there will be “more formal rulemaking on which financial institutions can rely, and less regulation by enforcement.” Mulvaney also suggests that prioritization will be guided by complaint data, specifically noting that, in 2016, debt collection accounted for almost a third of complaints received by the CFPB whereas prepaid cards and payday lending accounted for nine-tenths of a percent and two percent respectively.
The statements in Mulvaney’s letter to staff are in line with many of the CFPB’s recent actions, including last week’s announcement that the Bureau intends to reconsider its final rule addressing payday loans and its December 21 announcement that it will be amending its prepaid card rule (previously covered by InfoBytes here and here). Additionally, on January 23, a national installment loan lender announced an end to a multi-year investigation by the CFPB, stating that the Bureau does not intend to recommend an enforcement action into the company’s practices. As previously covered by InfoBytes, the CFPB also recently dismissed its case against four online installment lenders.
Leandra English’s challenge to Mulvaney’s authority to serve as acting director of the CFPB continues. On January 23, a three-judge panel for the U.S. Court of Appeals for the D.C. Circuit agreed to the expedited appeal of English’s case, ordering English’s brief due by January 30 and the government’s response due by February 23.
On January 18, by a vote of 243-184, the House passed H.R. 2954, to amend HMDA to exempt low-volume mortgage lenders from certain disclosure requirements. If enacted, the bill would exempt depository institutions from maintenance of records and disclosure requirements if, (i) for closed-end mortgage loans, “the depository institution originated less than 500 closed-end mortgage loans in each of the 2 preceding calendar years”; and (ii) for open-end lines of credit, “the depository institution originated less than 500 open-end lines of credit in each of the 2 preceding calendar years.” On January 19, the bill was received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.