Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Fed: Must consider pre-pandemic condition when underwriting Main Street Lending Program loans

    Federal Issues

    On September 18, the Federal Reserve Board, in conjunction with the FDIC and the OCC, revised the Main Street Lending Program (MSLP) FAQs (for-profit here, nonprofit here) to clarify underwriting expectations, supervisory expectations, and details regarding co-borrower loans. Specifically, the FAQs note that a lender is expected to “conduct an assessment of each potential borrower’s pre-pandemic financial condition and post-pandemic prospects” when reviewing an application to determine approval. Additionally, the FAQs state that Fed supervisors will “not criticize” lenders for originating loans in accordance with MSLP requirements, even when “such loans are considered non-pass at the time of origination,” provided the weaknesses are due to the Covid-19 pandemic and expected to be temporary. Finally, the FAQs include new details covering co-borrower loans, as the Federal Reserve Bank of Boston anticipates the MSLP will accept loans made to multiple co-borrowers starting next week.

    Federal Issues Covid-19 Federal Reserve Main Street Lending Program FDIC OCC Compliance

    Share page with AddThis
  • OCC, FDIC announce disaster relief guidance

    Federal Issues

    On September 14, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by Hurricane Sally “for as long as deemed necessary for bank operation or public safety.” The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs. Earlier in the week, the OCC also issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by wildfires in Oregon and Washington.

    Separately, on September 14, the FDIC issued FIL-89-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Puerto Rico affected by Tropical Storm Isaias. In the guidance, the FDIC notes that, in supervising institutions affected by the severe weather, the FDIC will consider the unusual circumstances those institutions face. The guidance suggests that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices,” so the institutions can “contribute to the health of the local community and serve the long-term interests of the lending institution.” Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize designated disaster areas. The FDIC states, among other things, that it will also consider relief from certain filing and publishing requirements, and recommends institutions experiencing disaster-related compliance difficulties contact the New York Regional Office.

    Find continuing InfoBytes coverage on disaster relief here.

    Federal Issues OCC FDIC Consumer Finance Disaster Relief

    Share page with AddThis
  • OCC outlines risk management guidance for loan purchases

    Agency Rule-Making & Guidance

    On September 10, the OCC issued Bulletin 2020-81 to address sound risk management principles concerning loan purchase activities. The OCC reminded banks that loan purchase activities “are subject to certain regulatory standards and long-standing risk management guidelines,” and that banks are expected to engage in these activities “in a safe and sound manner and in compliance with applicable accounting standards, laws, and regulations.” Banks should also ensure loan purchase activities align with strategic plans and are supported by sound risk management systems, the OCC added. The Bulletin includes examples of sound risk management of loan purchase activities, such as (i) developing well-defined strategic plans; (ii) conducting underwriting analysis and due diligence of loans prior to purchase; (iii) evaluating ways loan purchase activities may affect “credit, strategic, reputation, interest rate, liquidity, compliance, and operational risks”; and (iv) ensuring policies and procedures “support effective processes for engaging in loan purchase activities.” Other topics addressed include credit administration, such as due diligence and independent credit analysis, loan portfolio and pool purchases, and recourse arrangements. The OCC also emphasized that because entering into new, modified, or expanded products or services may alter a bank’s risk profile, “bank management should engage in sound risk management to identify, measure, monitor, and control the risks associated with new loan purchase activities.”

    Agency Rule-Making & Guidance OCC Risk Management

    Share page with AddThis
  • OCC revises the Comptroller’s Licensing Manual

    Agency Rule-Making & Guidance

    On September 9, the OCC announced an updated version of its “Federal Branches and Agencies” booklet of the Comptroller’s Licensing Manual. According to Bulletin 2020-80, the revised booklet clarifies and updates the OCC’s policies and processes covering the establishment, operations, and other corporate activities of federally licensed offices of foreign banks, including (i) notice and application filing requirements; (ii) decision factors and criteria; and (iii) removal of internal licensing procedures.

    Agency Rule-Making & Guidance OCC Comptroller's Licensing Manual Bank Compliance

    Share page with AddThis
  • OCC updates OREO booklet

    Federal Issues

    On September 2, the OCC issued Bulletin 2020-79 announcing the revision of the “Other Real Estate Owned” booklet of the Comptroller’s Handbook. Among other clarifying and technical changes the revised booklet reflects changes to the holding period requirements for federal savings associations under 12 CFR 34, subpart E. Additionally, the booklet has been updated to reflect changes to other regulations and other OCC issuances that have been published since the booklet was last updated in August 2018.

    Federal Issues OCC Comptroller's Handbook

    Share page with AddThis
  • NYDFS opposes OCC’s true lender rule

    State Issues

    On September 2, NYDFS Superintendent Linda A. Lacewell announced the regulator’s opposition to the OCC’s proposed “true lender” rule. As previously covered by InfoBytes, the proposed rule would amend 12 CFR part 7 to state that “a bank makes a loan when, as of the date of origination, it (i) is named as lender in the loan agreement or (ii) funds the loan,” and intends to cover situations where the bank “has a predominant economic interest in the loan,” as the original funder, even if it is not “the named lender in the loan agreement as of the date of origination.” In response, NYDFS issued a comment letter stating that if the proposed rule is enacted, nonbank lenders that are not chartered or licensed by the federal government would be able to “qualify for federal protection from state usury laws” and make high-cost loans with interest rates well above the interest rate normally permitted by New York law. These laws currently make predatory, high-interest lending illegal, and make usurious loans entered into in the state void and unenforceable, NYDFS stated, arguing that the proposed rule would “gut state usury laws and state licensing requirements with respect to unregulated lenders.” NYDFS also stated, among other things, that the proposed rule, if codified, would “effectively sanction so-called ‘rent-a-bank’ or ‘rent-a-charter’ schemes” and allow “unregulated nonbank lenders to launder loans through banks as an end-around consumer-protective state usury limits.” In addition, NYDFS argued that the OCC lacks the authority to issue the proposed rule “because it has failed to comply with the requirements applicable to preemption determinations under federal law and conflicts with Congress’ intent to limit the preemption of states’ consumer protection laws.”

     

    State Issues NYDFS OCC Agency Rule-Making & Guidance True Lender Valid When Made

    Share page with AddThis
  • Agencies give guidance on working with borrowers affected by hurricane, wildfires

    Federal Issues

    On September 1, the Federal Reserve Board, OCC, FDIC, NCUA, and the Conference of State Bank Supervisors (CSBS) issued a joint statement covering supervisory practices for financial institutions affected by Hurricane Laura and the California wildfires. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas.

    Additionally, HUD announced it will make disaster assistance available to Louisiana, which will provide foreclosure relief and other assistance to homeowners living in parishes affected by Hurricane Laura. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house along with the costs of repair, through a single mortgage.  The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.

    Federal Issues Disaster Relief HUD FDIC OCC Federal Reserve NCUA CSBS

    Share page with AddThis
  • OCC says banks affected by wildfires and storms can close

    Federal Issues

    On August 24 and 25, the OCC issued two proclamations (available here and here) permitting OCC-regulated institutions, at their discretion, to close offices affected by the California and Colorado wildfires and the severe weather along the U.S. Gulf Coast “for as long as deemed necessary for bank operation or public safety.” The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.

    Find continuing InfoBytes coverage on disaster relief here.

    Federal Issues OCC Disaster Relief

    Share page with AddThis
  • Agencies finalize three pandemic-related rules

    Federal Issues

    On August 26, the Federal Reserve Board, FDIC, and OCC finalized three rules that were temporarily issued in March and April to assist financial institutions during the Covid-19 pandemic. Highlights of the three rules include:

    • Community Bank Leverage Ratio (CBLR). The agencies adopted, without change, two interim final rules issued in April (covered by InfoBytes here) that temporarily lower the CBLR threshold and provide a gradual transition back to the prior level in order to enable qualifying community banking organizations to support lending during the Covid-19 pandemic. Effective October 1, the final rule, among other things, lowers the leverage ratio to eight percent through 2020 and increases the ratio to 8.5 percent in 2021 and nine percent in 2022.
    • Current Expected Credit Losses (CECL). The agencies adopted, without substantial change, an interim final rule issued in March (covered by InfoBytes here), which provides an additional two years to the three-year transition period that is already available to “mitigate the estimated cumulative regulatory capital effects” of CECL. The final rule expands the pool of eligible institutions to include any institution adopting CECL in 2020 and is effective upon publication in the Federal Register.
    • Capital distributions. The agencies adopted, without change, an interim final rule issued in March revising the definition of “eligible retained income” to allow for a more gradual application of any automatic limitations on capital distributions if an institution’s capital levels decline below certain levels. Additionally, the final rule includes the adoption of a Federal Reserve-only interim final rule (covered by InfoBytes here), similarly revising the definition of “eligible retained income” for purposes of the total loss-absorbing capacity rule. The final rule is effective January 1, 2021.

    Federal Issues Agency Rule-Making & Guidance FDIC OCC CECL Federal Reserve Capital Covid-19

    Share page with AddThis
  • State AGs challenge FDIC’s “valid-when-made” rule

    Courts

    On August 20, eight state attorneys general—from California, Illinois, Massachusetts, Minnesota, New Jersey, New York, North Carolina, and the District of Columbia—filed an action in the U.S. District Court for the Northern District of California challenging the FDIC’s valid-when-made rule. As previously covered by InfoBytes, the FDIC’s final rule clarifies that, under the Federal Deposit Insurance Act (FDIA), whether interest on a loan is permissible is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan (details on the effect of the rule can be found in Buckley’s Special Alert on the issuance of the OCC’s similar rule).

    In the complaint—which follows a similar action filed in July by three of the same attorneys general against the OCC for issuing a final rule designed to effectively reverse the Second Circuit’s 2015 Madden v. Midland Funding decision (previously covered here)—the attorneys general argue, among other things, that the FDIC does not have the power to issue the rule, asserting that the FDIC has the power to issue “‘regulations to carry out’ the provisions of the FDIA,” but not regulations that would apply to non-banks. Moreover, the attorneys general assert that the rule’s extension of state law preemption would “facilitate evasion of state law by enabling “rent-a-bank” schemes.” Finally, the complaint states that the FDIC failed to explain its consideration of evidence contrary to its assertions, including evidence demonstrating that “consumers and small businesses are harmed by high interest-rate loans, and thus that Madden is likely to have been beneficial rather than harmful.” The complaint requests the court to declare that the FDIC violated the Administrative Procedures Act in issuing the rule and hold the rule unlawful.

    Courts OCC Madden Interest Rate FDIC State Issues State Attorney General

    Share page with AddThis

Pages

Upcoming Events