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CFPB, OCC, and FDIC release statement on HMDA exemption in regulatory relief act
On July 5, the CFPB issued a statement regarding the implementation of the partial HMDA exemptions in the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/ P.L. 115-174, which was signed into law by President Trump on May 24. As previously covered by InfoBytes, the Act provides an exemption from HMDA’s expanded data reporting requirements for banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether). Although the statement emphasizes that the Act will not affect the format of the Loan/Application Register (LAR) for HMDA data collected in 2018—which should still be formatted in accordance with the Filing Instructions Guide issued in February (covered by InfoBytes here)—the Bureau stated that it intends to provide guidance later this summer on the Act, including an exemption code for institutions that are not reporting a particular field due to the Act’s partial exemptions.
Additionally, the statement reiterated the Bureau’s December 2017 announcement that it will not require resubmissions for 2018 HMDA data, unless there are material errors; and penalties will not be assessed with respect to errors in the 2018 data. The CFPB notes that 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.”
The OCC issued a similar announcement with OCC Bulletin 2018-19. The FDIC issued a similar announcement with FIL-36-2018.
OCC issues updates to Comptroller’s Handbook
On June 28, the OCC issued Bulletin 2018-18, which revises and updates certain booklets of the Comptroller’s Handbook. Among other things, the revisions and updates (i) clarify the applicability of each booklet to community, midsize, and large banks: (ii) incorporate Uniform Interagency Consumer Compliance Rating System revisions; (iii) provide asset management and Bank Secrecy Act/Anti-Money Laundering/Office of Foreign Assets Control risk assessment examiner guidance to ensure consistency with the Federal Financial Institutions Examination Council BSA/AML Examination Manual’s appendixes J and M; (iv) incorporate relevant aspects of the Dodd-Frank Act; (v) clarify the roles of banks’ boards of directors and management; and (vi) “include revised concepts and references regarding third-party risk management; new, modified, or expanded bank products or services; and corporate and risk governance.” The revised booklets are: Bank Supervision Process, Community Bank Supervision, Compliance Management Systems, Federal Branches and Agencies Supervision, and Large Bank Supervision.
Agencies release 2018 list of distressed, underserved communities
On June 25, the OCC, together with the Federal Reserve and the FDIC, released the 2018 list of distressed or underserved communities where revitalization or stabilization efforts by financial institutions are eligible for Community Reinvestment Act (CRA) consideration. According to the joint release from the agencies, the list of distressed nonmetropolitan middle-income geographies and underserved nonmetropolitan middle-income geographies are designated by the agencies pursuant to their CRA regulations and reflect local economic conditions, including changes in unemployment, poverty, and population. For any geographies that were designated by the agencies in 2017 but not in 2018, the agencies apply a one-year lag period, so such geographies remain eligible for CRA consideration for another 12 months.
Similar announcements from the Federal Reserve and the FDIC are available here and here.
21 Attorneys General oppose “Madden fix” legislation
On June 27, the Colorado and New York Attorneys General led a coalition of 21 state Attorneys General in a letter to congressional leaders opposing HR 3299 (“Protecting Consumers’ Access to Credit Act of 2017”) and HR 4439 (“Modernizing Credit Opportunities Act”), which would effectively overturn the 2015 decision in Madden v. Midland Funding, LLC. Specifically, H.R. 3299 and H.R. 4439 would codify the “valid-when-made” doctrine and ensure that a bank loan that was valid as to its maximum rate of interest in accordance with federal law at the time the loan was made shall remain valid with respect to that rate, regardless of whether the bank subsequently sells or assigns the loan to a third party.
The letter argues that the legislation “would legitimize the efforts of some non-bank lenders to circumvent state usury law” and it was not Congress’ intention to authorize these arrangements with the creation of the National Bank Act. In support of their position, the Attorneys General cite to a 2002 press release by the OCC and the more recent OCC Bulletin 2018-14 on small dollar lending, which stated the agency “views unfavorably an entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).” (Previously covered by InfoBytes here.) The letter also refers to an 1833 Supreme Court case, Nichols v. Fearson, which held that a “valid loan is not invalidated by a later usurious transaction involving that loan” but was not relevant to the decision in Madden because the borrower’s argument related to preemption. Ultimately, the Attorneys General conclude the legislation would erode an “important sphere of state regulation” as state usury laws have “long served an important consumer protection function in America.”
OCC releases 2018 first quarter mortgage performance results
On June 19, the OCC announced the release of the “OCC Mortgage Metrics Report, First Quarter 2018,” its quarterly report of the performance of seven national bank mortgage servicers, which includes data for over one third of all outstanding U.S. residential mortgages. As explained in the Report, foreclosure activity for the first quarter of 2018 increased by 8 percent from the previous quarter but was down 21.5 percent compared to the first quarter of 2017. Overall, mortgage performance remained unchanged from the first quarter of 2017, with 95.6 percent of mortgages current and performing as of the end of the quarter. Servicers initiated 37,300 new foreclosures in the first quarter of 2018 and completed 23,427 mortgage modifications, with most modifications involving a reduction in borrower monthly payments. The OCC further noted, among other things, that the number of home forfeiture actions during the quarter—completed foreclosure sales, short sales, and deed-in-lieu-of-foreclosure actions—decreased by 32.5 percent compared to the first quarter of 2017.
Comptroller Otting discusses regulatory priorities during congressional testimonies
On June 13 and 14, Comptroller of Currency Joseph Otting appeared before the House Financial Services Committee and the Senate Committee on Banking, Housing, and Urban Affairs to discuss his priorities as Comptroller. As highlighted in the identical press releases for both House and Senate hearings, Otting testified about the OCC’s achievements and efforts since being sworn in as Comptroller in November 2017. Among other things, Otting discussed the agency’s efforts to (i) modernize the Community Reinvestment Act (CRA); (ii) promote compliance with the Bank Secrecy Act and anti-money laundering regulations (BSA/AML); and (iii) simplify the Volcker Rule, particularly for small and mid-size banks. Otting emphasized in his written testimony that his priority is to reduce the regulatory burden on financial institutions, specifying that the CRA requirements have become "too complex, outdated, cumbersome, and subjective." To that end, Otting stated that the OCC, in coordination with other federal agencies, is preparing an advance notice of proposed rulemaking to gather information on potential CRA updates, which, in Otting’s view, should include (i) expanding the types of activities that are eligible for CRA credit; (ii) changing assessment areas so they are not based solely on where the bank has a physical presence; and (iii) providing clearer metrics. As for BSA/AML, Otting noted this was his “number two issue” behind reforming the CRA and the working group—the OCC, FinCEN, the FDIC, the Federal Reserve, and NCUA— will likely address key issues like de-risking and improvement of transparency over the next three to six months. Otting noted his pleasure with the Volcker Rule changes in the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155/ P.L. 115-174) but cautioned that fine-tuning may be necessary as the OCC proceeds with implementation.
OCC issues bulletin on supervisory policy and processes for CRA performance evaluations
On June 15, the OCC issued Bulletin 2018-17, which clarifies the agency’s supervisory policies and processes regarding how examiners evaluate and communicate the performance of national banks, federal savings associations, and federal branches and agencies under the Community Reinvestment Act (CRA). The OCC issued these clarifications as part of its ongoing modernization efforts and explained that they are intended to promote the consistency and effectiveness of CRA performance evaluations. The Bulletin addresses policy clarifications for several areas of CRA evaluations, which are effective immediately, such as (i) implementation of full-scope and limited-scope reviews; (ii) consideration of activities that promote economic development; (iii) use of demographic, aggregate, and market share data; and (iv) evaluation frequency and timing. The Bulletin also provides clarifications on standard processes which became effective in May 2017, including, among other things, (i) factors considered when evaluating bank performance under small- and large-bank lending tests; and (ii) information considered and included in the written performance evaluation. The OCC noted that “[t]hese policies and processes apply to the evaluations of all OCC-supervised banks subject to the CRA, regardless of the bank’s asset size or CRA evaluation type.”
OCC releases recent enforcement actions, issues $12.5 million penalty for BSA/AML compliance deficiencies
On June 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, and removal/prohibition orders. The consent order described below was among those in the OCC’s list:
On April 14, the OCC issued a consent order and $12.5 million civil money penalty order against a New York-branch of an international bank for alleged deficiencies in the branch’s BSA/AML compliance program. The alleged deficiencies included the failure to file timely Suspicious Activity Reports (SARs) as well as deficiencies in the branch’s compliance with Office of Foreign Asset Control (OFAC) requirements. Among other things, the consent order requires the branch to (i) develop and implement an ongoing BSA/AML and OFAC risk assessment program; (ii) adopt an independent audit program to conduct a review of the bank’s BSA/AML compliance program; and (iii) ensure the branch has a permanent and experienced BSA officer. The bank has neither admitted nor denied the OCC’s findings.
Federal banking agencies release policy statement on interagency notification of enforcement actions
On June 12, the OCC, Federal Reserve, and FDIC (collectively, “Federal Banking Agencies” or “FBAs”) published in the Federal Register a policy statement on interagency notification of formal enforcement actions to assure ongoing coordination after the Federal Financial Institutions Examination Council rescinded its 1997 revised policy statement on “Interagency Coordination of Formal Corrective Action by the Federal Bank Regulatory Agencies.” According to the new policy statement, when making a determination to bring a formal enforcement action, an FBA should evaluate whether a potential enforcement action involves the interests of another FBA and if so, should notify the agency prior to notifying the financial institution about the pending action. The notice to the FBA should contain enough information for the agency to take necessary action to examine or investigate the financial institution. The statement clarifies that the policy is not intended to substitute or replace the informal communication that routinely occurs between FBAs in advance of an enforcement action.
NYDFS will continue to pursue litigation if OCC moves forward with fintech charter
On June 6, New York Department of Financial Services (NYDFS) Superintendent, Maria T. Vullo, spoke to the Exchequer Club in Washington, DC, emphasizing, among other things, her opposition to the OCC’s proposal for a fintech charter. Vullo noted that the OCC has not actually finalized plans for the new charter and Comptroller, Joseph Otting, is expected to announce his views on the pending proposal soon. As previously covered by InfoBytes, two legal challenges, one by NYDFS and one by the Conference of State Bank Supervisors, were recently dismissed in separate district courts for lack of subject matter jurisdiction and ripeness due to the fact that the OCC has not issued a fintech charter nor has it finalized its plans to issue one. In her speech, Vullo, acknowledged these lawsuits and her desire to continue the litigation “rather than accept the OCC’s lack of authority in the non-depository space and respect the states’ regulation of and consumer protections in this area.” Vullo noted that fintech, when done right, is a “very good thing” that can assist in bringing banking services to underserved customers. But she also stated that companies that use financial technology should not be granted “an exemption from the rules that banks and other financial institutions follow to manage risk and protect consumers.”
Vullo also touched on (i) her support for the CFPB’s final rule on payday loans, vehicle title loans, and certain other high-cost installment loans; (ii) her concerns over the dismantling of the Bureau’s Office for Students; (iii) her opposition to the Department of Education’s position that only the federal government may oversee student loan servicers (see InfoBytes coverage here); and (iv) the potential risks with the unregulated virtual currency market.