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Financial Services Law Insights and Observations

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  • Agencies issue revised interagency flood insurance Q&As

    On May 11, the FDIC, OCC, Federal Reserve Board, NCUA, and the Farm Credit Administration (the agencies) jointly issued revised, reorganized, and expanded interagency questions and answers (Q&As) regarding federal flood insurance laws. The revised Q&As supersede versions published in 2009 and 2011, and consolidate Q&As proposed by the agencies in 2020 and 2021 (covered by InfoBytes here). Reflecting significant changes to flood insurance requirements made by the Biggert-Waters Flood Insurance Reform Act and the Homeowner Flood Insurance Affordability Act, as well as regulations issued by the agencies to implement these laws, the revised Q&As consist of 144 Q&As (including 24 private flood insurance Q&As) covering a range of topics, including the escrow of flood insurance premiums, the detached structure exemption to the mandatory flood insurance purchase requirement, force placement procedures, and the acceptance of flood insurance policies issued by private insurers. The agencies also made non-substantive revisions to certain Q&As to provide more direct responses to questions asked, additional clarity, or make technical corrections. In response to concerns raised by several commenters, the agencies confirmed that they are providing the interagency Q&As “as guidance only,” and clarified that “all the Q&As apply to all policies, whether [National Flood Insurance Program] or a flood insurance policy issued by a private insurance company, unless otherwise noted in the Q&A.” Additionally, the agencies noted “that they are working individually and on an interagency basis to address financial risks associated with climate change consistent with the [a]gencies’ regulatory and supervisory authorities,” and therefore “decline to make changes to any of the Q&As in response to climate risk change.

    The same day, the agencies issued Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance. The interagency questions and answers replace the 2009 and 2011 publications and consolidate Q&As proposed by the agencies in July 2020 and in March 2021. This bulletin rescinds: (i) OCC Bulletin 2009-26, Flood Disaster Protection Act: Revised Interagency Questions and Answers Regarding Flood Insurance; (ii) OCC Bulletin 2011-42, Flood Disaster Protection Act: Interagency Questions and Answers Regarding Flood Insurance’ (iii) OCC Bulletin 2020-69, Flood Disaster Protection Act: Proposed Revisions to Interagency Questions and Answers Regarding Flood Insurance; (iv) OCC Bulletin 2020-78, Flood Disaster Protection Act: Agencies Extend Comment Period on Proposed Revisions to Interagency Questions and Answers Regarding Flood Insurance; and (v) OCC Bulletin 2021-13, Flood Disaster Protection Act: Proposed Interagency Questions and Answers Regarding Private Flood Insurance.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance OCC FDIC Federal Reserve NCUA Farm Credit Administration Risk Management Flood Insurance Mortgages National Flood Insurance Program

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  • Agencies to update administrative enforcement proceedings

    On April 13, the FDIC, OCC, Federal Reserve Board, and NCUA (collectively, “agencies”) announced they are issuing a notice of proposed rulemaking (NPRM) to modernize the agencies’ Uniform Rules of Practice and Procedure (Uniform Rules) applicable to formal administrative enforcement proceedings for insured depository institutions. As previously covered by InfoBytes, in March, the agencies issued an interagency proposal to update policies and procedures governing administrative proceedings for supervised financial institutions, which accounted for the routine use of electronic presentations in hearings and for use of technology in administrative proceedings, among other things. The proposed rule would recognize the use of electronic communications and technology in all aspects of administrative hearings to increase the accuracy and fairness of administrative adjudications. Among other things, the NPRM would (i) allow electronic signatures and filings; (ii) permit depositions to be held by remote means; (iii) modernize language and definitions; and (iv) extend certain filing time limits. Amended provisions also address additional topics including the authority of administrative law judges, adjudicatory proceedings, good faith certifications, ex parte communications, conflicts of interest, and expenses. The agencies also propose to modify their specific Local Rules of administrative practice and procedure applicable to enforcement actions brought by each agency. The OCC has already proposed to amend its rules on organization and functions to address service of process and to integrate its Uniform Rules and Local Rules so that a single set of rules applies to both national banks and federal savings associations Comments on both the interagency rulemaking and the OCC’s rulemaking are due 60 days after publication in the Federal Register.

    Bank Regulatory Agency Rule-Making & Guidance Federal Issues FDIC OCC NCUA Federal Reserve Federal Register Electronic Records Enforcement

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  • Agencies seek to update administrative enforcement proceedings

    On March 22, the Federal Reserve Board, OCC, FDIC, and NCUA issued an interagency proposal to update policies and procedures governing administrative proceedings for supervised financial institutions. According to the proposal, the amendments are necessary to account for the routine use of electronic presentations in hearings and for use of technology in administrative proceedings, and to account for relevant legal developments since the rules were last updated, including the abolishment of the Office of Thrift Supervision, and the grant of new authorities to the agencies. Additionally, according to the proposal, the Fed “proposes to codify and clarify its long-standing practices concerning the conduct of formal administrative investigations and promulgate rules governing all formal investigations of organizations and individuals within the Board’s jurisdiction.” Finally, the FDIC proposes to amend its rules of administrative proceeding to permit greater use of depositions in the course of administrative proceedings.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Federal Reserve OCC FDIC NCUA Enforcement

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  • Agencies weigh in on availability of SPCPs under ECOA and Regulation B

    Federal Issues

    On February 22, the CFPB, DOJ, FDIC, Fed, FHFA HUD, OCC, and NCUA released an interagency statement “to remind creditors of the ability under [ECOA] and Regulation B to establish special purpose credit programs [(SPCPs)].” The statement points creditors to the CFPB’s December 2020 Advisory Opinion on SPCPs, which clarified (i) the content that a for-profit organization must include in a written plan that establishes and administers a SPCP under Regulation B; and (ii) the type of research and data that may be appropriate to inform a for-profit organization’s determination that an SPCP is needed to benefit a specified class of persons. The statement highlights December 7, 2021 HUD guidance, which concluded that SPCPs “instituted in conformity with ECOA and Regulation B generally do not violate the FHA,” conveying that SPCPs may also be appropriate avenues to expand credit access in mortgage lending. This was reiterated in a post released by the CFPB, stating that the “[interagency] statement [on SPCPs] calls attention to these programs as one way to expand access to critical financial services, including mortgage lending.”

    Federal Issues CFPB FDIC OCC DOJ Federal Reserve NCUA Regulation B ECOA Mortgages

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  • CFPB seeks to prevent algorithmic bias

    Agency Rule-Making & Guidance

    On February 23, the CFPB released an outline of possible options for upcoming rulemaking to prevent algorithmic bias in automated home valuation models (AVMs). Dodd-Frank mandates that the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA engage in joint agency rulemaking to strengthen the oversight of AVMs, which requires (i) ensuring a high level of confidence in the estimates; (ii) protecting against data manipulation; (iii) avoiding conflicts of interest; (iv) requiring random sample testing and reviews; and (v) accounting for other factors deemed “appropriate” by the agencies. The Small Business Advisory Review Panel’s Outline of Proposals and Alternatives Under Consideration details options for ensuring computer models used to determine home valuations are accurate and fair. While recognizing that AVMs “have the potential to contribute to lower costs and shorter turnaround times in the performance of property valuations” and are increasingly being used—in part due to advances in database and modeling technology and the availability of larger property datasets—the Bureau cautioned that using AVMs may introduce several risks that can impact data integrity and accuracy. The outline also expressed concerns that AVMs may “reflect bias in design and function or through the use of biased data and may introduce fair lending risk.” To mitigate potential fair lending risks in AVMs, the Bureau stated it is considering proposing “a requirement that covered institutions establish policies, practices, procedures, and control systems to ensure that their AVMs comply with applicable nondiscrimination laws.” The Bureau added that it “preliminarily believe[s] standards designed to ensure compliance with applicable nondiscrimination laws may help ensure the accuracy, reliability, and independence of AVMs for all consumers and users.” Without proper safeguards, the Bureau warned in its announcement that “flawed” AVMs “could digitally redline certain neighborhoods and further embed and perpetuate historical lending, wealth, and home value disparities.”

    Among other things, the outline also previewed definitions under consideration for terms such as “mortgage originator,” “mortgage,” and “consumer’s principal dwelling,” and noted that the Bureau is considering a “principles-based option” to allow regulated institutions more flexibility to set their own AVM quality control standards, as well as a “prescriptive option” with a more detailed set of requirements for institutions to reduce potential compliance uncertainty. “It is tempting to think that machines crunching numbers can take bias out of the equation, but they can’t,” CFPB Director Rohit Chopra said. “This initiative is one of many steps we are taking to ensure that in-person and algorithmic appraisals are fairer and more accurate.”

    The Bureau stated that the next step will be to review the options to determine their potential impact on small business stakeholders as required by the Small Business Regulatory Enforcement Fairness Act of 1996. Feedback will be used to inform the Bureau’s efforts on developing a formal proposal with the other agencies.

    Agency Rule-Making & Guidance CFPB AVMs Federal Reserve OCC FDIC NCUA FHFA Mortgages Fair Lending

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  • Agencies emphasize illegality of appraisal discrimination

    Federal Issues

    On February 4, CFPB Fair Lending Director Patrice Ficklin, along with senior staff from the Federal Reserve Board, OCC, FDIC, NCUA, HUD, FHFA, and DOJ, sent a joint letter to The Appraisal Foundation (TAF) emphasizing that discrimination prohibitions under the Fair Housing Act (FHA) and ECOA extend to appraisals. The joint letter, sent in response to a request for comments on proposed changes to the 2023 Appraisal Standards Board Ethics Rule (Ethics Rule) and Advisory Opinion 16, noted that while provisions prohibit an appraiser from relying on “unsupported conclusions relating to characteristics such as race, color, religion, national origin, sex, sexual orientation, gender, marital status, familial status, age, receipt of public assistance income, disability, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value,’” the “provisions do not prohibit an appraiser from relying on ‘supported conclusions’ based on such characteristics and, therefore, suggest that such reliance may be permissible.” The letter noted that the federal ban on discrimination under the FHA and ECOA is not limited only to “unsupported” conclusions, and any discussions related to potential appraisal bias should be consistent with all applicable nondiscrimination laws. The joint letter encouraged TAF to present the nondiscrimination requirements as “an essential part of any guidance provided in the Ethics Rule or Advisory Opinion 16 to ensure compliance with fair housing and fair lending laws.”

    In a blog post, Ficklin noted that despite the fact that federal law prohibits racial, religious, and other discrimination in home appraisals, there are still reports of appraisers making “value judgments on biased, unfounded assumptions about borrowers and the neighborhoods in which they live.” Additionally, Ficklin noted that the Bureau is carefully reviewing findings presented in a report funded by the Federal Financial Institutions Examination Council's Appraisal Subcommittee, which raised serious concerns related to existing appraisal standards and provided recommendations with respect to fairness, equity, objectivity, and diversity in appraisals and the training and credentialing of appraisers.

    Federal Issues CFPB Appraisal Fair Lending Fair Housing Act ECOA Federal Reserve OCC FDIC NCUA HUD FHFA DOJ FFIEC Bank Regulatory

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  • NCUA extends Covid-19 regulatory relief

    Federal Issues

    On December 21, the NCUA unanimously approved an extension to the effective date of a temporary final rule, which granted regulatory relief to federally insured credit unions during the Covid-19 pandemic. In 2020, the NCUA issued the final rule to temporarily raise “the maximum aggregate amount of loan participations that a [federally insured credit union (FICU)] may purchase from a single originating lender to the greater of $5,000,000 or 200 percent of the FICU’s net worth.” The final rule also temporarily suspended certain “limitations on the eligible obligations that a federal credit union [] may purchase and hold.” Required timeframes related to the occupancy or disposition of certain properties not in use for federal credit union business or that were abandoned were also suspended. The temporary final rule’s modifications will remain in effect through December 31, 2022.

    Federal Issues NCUA Credit Union Covid-19 Agency Rule-Making & Guidance

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  • Agencies provide post-tornado assistance

    Federal Issues

    On December 15, the OCC, Federal Reserve Board, FDIC, NCUA, and state regulators (collectively, “agencies”) issuedjoint statement reminding banks of supervisory expectations related to disaster recovery, and specifically tornadoes. According to the statement, the agencies “recognize the serious impact of tornadoes on the customers and operations of many financial institutions and will provide appropriate regulatory assistance to affected institutions subject to their supervision.” The agencies also “encourage institutions operating in the affected areas to meet the financial services needs of their communities.” The statement also, among other things, addressed supervisory expectations connected to lending, temporary bank facilities, publishing requirements, regulatory reporting requirements, the Community Reinvestment Act credit, and investments.

    The agencies acknowledged the unusual circumstances faced by institutions affected by the severe weather and suggested they work with borrowers in communities under stress, stating that this can be consistent with safe-and-sound practices as well as in the public interest. For example, the agencies noted that “many financial institutions face staffing, power, telecommunications, and other challenges in re-opening facilities after tornado damage,” and that “the damage caused by tornadoes may affect compliance with publishing and other requirements for branch closings, relocations, and temporary facilities under various laws and regulations.” The agencies noted that contacting one’s primary federal and/or state regulator is part of the steps when operational challenges persist and when compliance difficulties in publishing or other requirements arise. A complete list of the affected disaster areas can be found here.

    The FDIC also issued FIL-78-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Kentucky affected by recent severe weather events. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other relief, (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.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.

    Federal Issues NCUA OCC Federal Reserve FDIC State Regulators Disaster Relief CRA Bank Regulatory Supervision

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  • CFPB publishes fall 2021 rulemaking agenda

    Agency Rule-Making & Guidance

    On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.

    Key rulemaking initiatives include:

    • Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
    • Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
    • Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
    • Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
    • Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
    • Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”

    Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.

    Agency Rule-Making & Guidance CFPB Covid-19 Small Business Lending Section 1071 Consumer Finance PACE Programs AVMs Dodd-Frank Section 1033 Regulation Z LIBOR HMDA RESPA TILA CARES Act Debt Collection EGRRCPA Federal Reserve OCC FDIC NCUA FHFA Bank Regulatory FIRREA CARD Act

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  • FFIEC updates BSA/AML examination manual

    Agency Rule-Making & Guidance

    On December 1, the Federal Financial Institutions Examinations Council (FFIEC) published updated versions of three sections and one new section of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual (Manual), which provides examiners with instructions for assessing a bank or credit union’s BSA/AML compliance program and adherence to BSA regulatory requirements. The new section is Introduction – Customers, and the revisions include the following updated sections: Charities and Nonprofit Organizations, Independent Automated Teller Machine Owners or Operators, and Politically Exposed Persons. The FFIEC noted that the “updates should not be interpreted as new instructions or as a new or increased focus on certain areas,” but rather are intended to “provide information and considerations related to certain customers that may indicate the need for bank policies, procedures, and processes to address potential money laundering, terrorist financing, and other illicit financial activity risks.” In addition, the Manual itself does not establish requirements for financial institutions, which are found in applicable statutes and regulations. (See also FDIC FIL-12-2021 and OCC Bulletin 2021-10.) As previously covered by InfoBytes, in June, the FFIEC updated the following sections of the Manual: International Transportation of Currency or Monetary Instruments ReportingPurchase and Sale of Monetary Instruments RecordkeepingReports of Foreign Financial Accounts, and Special Measures.

    Agency Rule-Making & Guidance FDIC Federal Reserve OCC FFIEC NCUA Bank Secrecy Act Anti-Money Laundering Of Interest to Non-US Persons Financial Crimes Bank Regulatory

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