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House passes HMDA relief for small banks
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.
OCC highlights supervisory priorities in fall 2017 semiannual risk report
On January 18, the OCC announced the release of its Semiannual Risk Perspective for Fall 2017, identifying key risk areas for national banks and federal savings associations. Top supervisory priorities will focus on credit, operational, and compliance risk. As previously discussed in the spring 2017 semiannual report, compliance risk continues to be an ongoing concern, particularly as banks continue to adopt new technologies to help them comply with anti-money laundering rules and the Bank Secrecy Act (BSA), in addition to addressing increased cybersecurity challenges and new consumer protection laws. (See previous InfoBytes coverage here.) The OCC commented that these types of risks can be mitigated by banks with “appropriate due diligence and ongoing oversight.”
Specific areas of particular concern include the following:
- easing of commercial credit underwriting practices;
- increasing complexity and severity of cybersecurity threats, including phishing scams that are the primary method of breaching bank data systems;
- using limited third-party service providers for critical operations, which can create “concentrated points of failure resulting in systemic risk to the financial services sector”;
- compliance challenges under the BSA; and
- challenges in risk management involving consumer compliance regulations.
The report also raises concerns about new requirements under the Military Lending Act along with pending changes to data collection under the Home Mortgage Disclosure Act, which could pose compliance challenges. It further discusses a new standard taking effect in 2020 for measuring expected credit losses, which “may pose operational and strategic risk to some banks when measuring and assessing the collectability of financial assets.”
The data relied on in the report was effective as of June 30, 2017.
CFPB succession update: CFPB requests zero funding; seeks public comment regarding Bureau’s activities; & more
On January 17, in a letter to Federal Reserve Chair Janet Yellen, acting CFPB Director Mick Mulvaney requested zero dollars for the Bureau’s quarterly operating funds. Each fiscal quarter, as required by law, the CFPB formally requests that the Federal Reserve transfer a specified amount of money to the Bureau so it can perform the functions outlined in its budget. In his letter, Mulvaney stated that the prior Director maintained a “reserve fund” for the CFPB, and the money in this fund is sufficient to cover the CFPB’s expenses for the second quarter. This will be the first time in the history of the CFPB that its Director has requested no additional amount to fund quarterly operations. The CFPB also announced its plan to publish a series of Requests for Information (RFIs) in the Federal Register seeking public input on the way the Bureau is performing its statutory obligations. These RFIs will request “comment on enforcement, supervision, rulemaking, market monitoring, and education activities.” The first RFI will seek information regarding the Bureau’s Civil Investigative Demand processes and procedures.
On January 18, the CFPB voluntarily dismissed its case against four online installment lenders for allegedly deceiving customers by collecting debts that were not legally owed, previously covered by InfoBytes here. The complaint, filed in the United States District Court for the Northern District of Illinois, alleged, among other things, that the lenders engaged in unfair, abusive, and deceptive acts—a violation of the Dodd-Frank Act—by collecting on installment loans that are partially or wholly void under state law. In September 2017, the case was transferred to Kansas, where the Bureau’s notice of dismissal was filed. The notice does not specify a reason for the dismissal.
FDIC releases winter 2017 Supervisory Insights
On January 10, the FDIC released its Winter 2017 Supervisory Insights (see FIL-5-2018), which contains articles discussing credit management information systems and underwriting trends. The first article, “Credit Management Information Systems: A Forward-Looking Approach,” discusses, among other things, how financial institutions can incorporate forward-looking metrics to assist in identifying future issues. The article also emphasizes the importance of effective risk management programs which contain policies and procedures that support strategic decision making by senior management and board members responsible for overseeing lending activities. The second article, “Underwriting Trends and Other Highlights from the FDIC’s Credit and Consumer Products/Services Survey,” shares the recent credit survey results from examinations of FDIC-supervised financial institutions. The survey indicates that risk may be increasing in the industry based on reports of credit concentrations, increases in potentially volatile funding sources, and more “out-of-area lending.” In addition, the winter issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.
CFPB succession update: Judge denies English’s motion
On January 10, Judge Timothy Kelley denied CFPB Deputy Director Leandra English’s request for a preliminary injunction to prevent OMB Director Mick Mulvaney from serving as the acting director of the CFPB. In his opinion, Judge Kelley emphasized that English failed to show a likelihood of success on the merits because, among other reasons, “[t]he best reading of the two statutes [at issue] is that Dodd-Frank requires that the Deputy Director ‘shall’ serve as acting Director, but that under the [Federal Vacancies Reform Act] the President ‘may’ override that default rule.” Additionally, in finding that English failed to demonstrate irreparable harm, Judge Kelley stated that “[t]he CFPB is not and will not be shuttered; it continues to operate with Mulvaney functioning as acting director” with “the backing of the CFPB’s General Counsel and senior management.” He concluded his opinion by stating:
There is little question that there is a public interest in clarity here, but it is hard to see how granting English an injunction would bring about more of it…. The President has designated Mulvaney the CFPB’s acting Director, the CFPB has recognized him as the acting Director, and it is operating with him as the acting Director. Granting English an injunction would not bring about more clarity; it would only serve to muddy the waters.
The decision follows a hearing on December 22, 2017, where Judge Kelley heard arguments from both parties, as previously covered by InfoBytes. While English’s requests have now been denied twice, as expected, she has filed an appeal to the U.S. Court of Appeals for the D.C. Circuit, which is also currently considering the challenge to the CFPB’s constitutionality by PHH Corporation.
In addition to the English litigation, Mulvaney and President Trump face similar arguments in a complaint brought by a credit union in the U.S. District Court for the Southern District of New York, as previously covered by InfoBytes here. On December 22, 2017, the defendants responded to the complaint with a motion to dismiss, arguing that the credit union does not have standing to sue, will not succeed on the merits, and will not suffer irreparable harm from the appointment. In its reply, the credit union added an additional argument that the CFPB’s decision to slow HMDA enforcement will remove the compliance incentive and HMDA data “will cease being reliable” to show compliance with the Community Reinvestment Act (“CRA”). The credit union asserts that banks deposit at their institution to meet CRA objectives but may cease to do so without an incentive to comply with HMDA. A hearing is scheduled for January 12.
As previously covered by InfoBytes, the CFPB issued a statement that supervisory examinations of 2018 HMDA data will be “diagnostic” to help “identify compliance weaknesses, and will credit good-faith compliance efforts” and that it does not intend to impose penalties with respect to errors reported in the 2018 data.
FDIC Fines Puerto Rican Bank for Flood Insurance Violations, Releases November Enforcement Actions
On December 29, the FDIC released a list of 29 administrative enforcement action orders taken against banks and individuals in November, as well as one termination order issued in October. The FDIC assessed a $153,000 civil money penalty against a Puerto Rican bank, citing 321 violations of the Flood Disaster Protection Act (FDPA) and the National Flood Insurance Act (NFIA) for (i) failing to notify borrowers that they were required to purchase flood insurance; and (ii) failing to obtain flood insurance on a borrower’s behalf in a timely fashion for those borrowers who failed to obtain insurance within 45 days after receiving notification. A second civil money penalty was issued against an Ohio-based bank for allegedly engaging in a pattern of violating requirements under the FDPA and NFIA, including by failing to obtain flood insurance at the time of origination.
Also on the list are consent orders issued against two banks related to unsafe or unsound banking practices, four Section 19 orders allowing applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” five terminations of consent orders, and two adjudicated decisions, among others.
There are no administrative hearings scheduled for January 2018. The FDIC database containing all 30 enforcement decisions and orders may be accessed here.
CFPB Releases HMDA Tools; Updates HMDA Asset Threshold
On December 27, the CFPB announced the launch of a HMDA Check Digit Tool and a Rate Spread Calculator to assist financial institutions in the calculation of data field values required for reporting HMDA data. According to the CFPB, the HMDA Check Digit Tool and the Rate Spread Calculator will remain available to financial institutions throughout the 2018 collection period and beyond. As previously covered by InfoBytes, new HMDA data collection and reporting requirements under the amendments to Regulation C became effective January 1, 2018.
Also on December 27, the CFPB published a final rule increasing the asset-size exemption threshold under HMDA for financial institutions. As of January 1, 2018, banks, savings associations, and credit unions with assets of $45 million or less as of December 31, 2017 are exempt from collecting data in 2018. Regulation C requires the CFPB to adjust the asset threshold based on the year-to-year change in the average of the CPI–W (not seasonally adjusted) for each 12-month period ending in November, rounded to the nearest million. During the 12-month period ending in November 2017, the CPI–W increased by 2.1 percent, resulting in an increase in the threshold from $44 million to $45 million.
FHFA Requests Input on GSE Credit Score Requirements; Releases 2018 Scorecard
On December 20, the Federal Housing Financial Agency (FHFA) announced a Request for Input (RFI) seeking feedback from interested parties regarding how Fannie Mae and Freddie Mac (the GSEs) should update their current credit score requirements. Specifically, the GSEs plan to stop using the Classic FICO credit score model and to replace it with one of four options. These options include (i) requiring the use of either the FICO 9 credit score model or the VantageScore 3.0 credit score model; (ii) requiring the use of both the FICO 9 and the VantageScore 3.0 credit score models; (iii) allowing lenders to choose between either the FICO 9 or the VantageScore 3.0 credit score models; or (iv) allowing lenders to deliver multiple scores through a waterfall approach that would establish a primary and a secondary score. The FHFA’s RFI asks interested parties to provide feedback on these options by responding to 22 questions outlined in the RFI by February 20.
On December 21, FHFA released the 2018 Scorecard outlining specific conservatorship priorities for the GSEs and their joint venture, Common Securitization Solutions, LLC (CSS). The 2018 Scorecard continues to identify many of the priorities outlined in the 2017 Scorecard. In addition, the 2018 Scorecard highlights the FHFA’s focus on gathering information to support its assessment of single-family rental strategies and extends the timeline for implementation of the Single Security Initiative on the Common Securitization Platform to the second quarter of 2019.
Arguments Heard in English Litigation; CFPB Announces Relaxed Compliance Requirements for HMDA; Other Proposed Rulemakings
On December 22, Judge Timothy Kelley heard arguments from both parties related to Leandra English’s litigation against President Trump and Mick Mulvaney. Judge Kelley did not rule on the matter at the close of the hearing. As previously covered by InfoBytes, English filed an amended complaint for declaratory and injunctive relief and a motion for preliminary injunction on December 6.
In response to English’s new arguments, the defendants filed an opposition motion on December 18. Among other things, the response counters an argument—raised by English for the first time in her amended complaint—that the Federal Vacancies Reform Act (FVRA) cannot be used to appoint an acting CFPB Director because the Director is also a member of the FDIC. Defendants responded that the FVRA provision excluding appointments to independent multi-member boards or commissions only applies to direct appointments and not to positions that serve as “ex officio” members, as the CFPB Director does on the FDIC. The defendants go on to explain that English’s interpretation would prevent the use of FVRA to fill multiple Cabinet and other high-ranking Executive Branch positions that serve as ex officio members of independent agencies. The defendants also alleged that English failed to satisfy the requirements of the federal quo warranto statute – the exclusive means, according to the defendants, for directly challenging Mulvaney’s authority to perform as Acting Director of the CFPB. English replied to the defendant’s opposition motion on December 21.
Throughout the week, the CFPB took action regarding current and future rulemakings:
HMDA. On December 21, the CFPB issued a statement regarding compliance with the Home Mortgage Disclosure Act (HMDA) final rule and amendments to the HMDA final rule. Although the Bureau did not delay the January 1, 2018 effective date as some had hoped, it acknowledged the difficulties of coming into compliance with the new requirements, stating that the Bureau “does not intend to require data resubmission unless data errors are material or assess penalties with respect to errors for data collected in 2018 and reported in 2019.” According to the CFPB, compliance with the HMDA requirements pose “significant system and operational challenges” and therefore, institutions should focus the 2018 data collection on identifying areas for improvement in their HMDA compliance management systems for future years. The Bureau further advised that it expects that supervisory examinations of 2018 HMDA data will be “diagnostic” to help “identify compliance weaknesses, and will credit good-faith compliance efforts.” However, institutions will still use the CFPB’s new HMDA Platform for data collected in 2017. The FDIC and the OCC issued similar announcements, Financial Institution Letter FIL-63-2017 and OCC Bulletin 2017-62 respectively, and other regulators are expected to do the same.
The Bureau’s stated intent to focus on “good-faith compliance efforts” and “material” errors in the early days of the new HMDA requirements is similar to the approach taken for implementation of the Ability-to-Repay/Qualified Mortgage Rule and the TILA-RESPA Integrated Disclosure Rule. While this flexible approach is generally beneficial for lenders and consumers, it does produce some uncertainty over what will be considered “good faith” or “material.”
The Bureau also announced its intent to engage in additional HMDA rulemaking that may (i) re-examine the criteria determining whether institutions are required to report data; (ii) adjust the requirements related to reporting certain types of transactions; and (iii) re-evaluate the required reporting of additional information beyond the data points required in HMDA, as amended by the Dodd-Frank Act.
Prepaid Accounts. On December 21, the CFPB also issued a statement on the final rule covering prepaid accounts and the proposed amendments to that rule. In the statement, the CFPB announced that it intends to adopt final amendments “soon after the new year” and that it expects to further extend the April 1, 2018 effective date to allow more time for implementation. The Bureau did not give details on the nature of the amendments or the length of the expected extension.
Debt Collection. On December 14, OMB released a Notice of Action, which reflected that the CFPB withdrew its plan to conduct a survey related to debt collection disclosures of 8,000 individuals. According to OMB’s notice, the CFPB withdrew the plan because “Bureau leadership would like to reconsider the information collection in connection with its review of the ongoing related rulemaking.”
House Passes Legislation Modifying Systemic Risk Designation Requirements
The House voted 288-130 on December 19 to pass legislation modifying Dodd-Frank Act asset requirements for systemic risk designations of bank holding companies. Under H.R. 3312, the Systemic Risk Designation Improvement Act of 2017, bank holding companies that are subject to increased capital requirements and heightened supervision by the Federal Reserve (Fed) will no longer be automatically designated as systemically important financial institutions (SIFIs) if their asset threshold is $50 billion or greater. Instead, the Fed will review a bank holding company’s size, interconnectedness, infrastructure, “global cross-jurisdictional activity,” and complexity to determine whether it should be designated as a SIFI. Relatedly, the Senate Banking Committee is currently considering a separate measure, S. 2155, which would, among other things, increase the SIFI asset threshold to $250 billion.