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NYDFS to Revise Proposed Cybersecurity Regulation Following Public Hearing Before State Lawmakers
On December 19, the New York Assembly Standing Committee on Banks held a public hearing, receiving testimony about a recently proposed regulation intended to address cybersecurity risks to entities regulated by the New York Department of Financial Services (NYDFS). Previously covered by InfoBytes upon its initial release in September 2016, the proposed regulation has since been subject to a public comment period before final issuance.
The hearing before the NY State Assembly provided an opportunity for representatives from a variety of NYDFS-regulated entities to offer testimony and/or raise objections. Many of the witnesses cited the proposal’s “one-size-fits-all” approach as a source of concern, noting that the proposed regulation currently does not account for variations in the business models, IT system structures, or risk profiles of the institutions they affect. Other concerns raised by the witnesses included onerous reporting requirements, a lack of harmony between the proposal and federal regulations and guidance, high costs of compliance, and even reputational risk arising out of exposure through FOIA Laws. An archived video of the hearing can be accessed here.
Two days after the hearing in Albany, NYDFS indicated that it is now planning to release an updated version of the regulation on December 28—thereby pushing the effective date to March 1, 2017. InfoBytes will continue to monitor the status of the proposed regulation and will issue an update once NYDFS publishes its revised regulation.
CFPB Outlines Fair Lending Priorities for 2017
On December 16, the Director of the Office of Fair Lending and Equal Opportunity at the CFPB announced the Bureau’s fair lending priorities for 2017. According to Ms. Ficklin’s blog post, the CFPB will increase its efforts to prevent credit discrimination and improve credit access by focusing on redlining, mortgage and student loan servicing, and small business lending. Specifically, the Bureau will increase its focus on evaluating: (i) whether lenders are intentionally avoiding lending in minority neighborhoods; (ii) if delinquent borrowers face more difficulty in working out payment arrangements with mortgage or student loan servicers because of their race or ethnicity; and (iii) whether women-owned and minority-owned small businesses experience discrimination when applying for credit.
FHFA Finalizes Amendments to Regulations Governing FHLBs' Acquired Member Asset Programs
On December 19, the FHFA published a final rule modifying, reorganizing and relocating the current regulation governing the Federal Home Loan Banks’ (FHLBs) Acquired Member Asset (AMA) programs. As required by the Dodd-Frank Act, the final rule removes and replaces references in the current regulation to ratings issued by a Nationally Recognized Statistical Ratings Organization. The rule also provides the FHLBs with greater flexibility in choosing a model for estimating the credit enhancement required for AMA loans. The final rule adds a provision allowing an FHLB to authorize the transfer of mortgage servicing rights on AMA loans to any institution, including a non-member of the FHLB System. The new rule also allows FHLBs to acquire mortgage loans that exceed the conforming loan limits where such loans are guaranteed or insured by a department or agency of the U.S. government. The final rule excludes a proposed provision that would have eliminated the use of private, loan-level, supplemental mortgage insurance in the member credit enhancement structure required for the AMA programs, but the final version does require FHLBs to establish financial and operational standards that insurers must meet before offering insurance on AMA loans. The new final rule goes into effect on January 18, 2017.
Also on December 19, FHFA issued another final rule (i) limiting the scope of “business activities” that would trigger an FHLB’s obligation to file a “new business activity” notice, (ii) modifying the submission requirements, and (iii) establishing new timelines for agency review and approval of such notices. The rule “narrows the scope of the [new business activity] regulation in two ways: (1) By limiting it to activities that introduce new material risks to the [FHLB]; and (2) By eliminating the need to file an NBA notice prior to accepting new types of collateral.” This new rule similarly goes into effect on January 18, 2017.
FFIEC Updates CRA Data Entry Software and HMDA Data Filing Method
On December 19, the Federal Financial Institutions Examination Council (FFIEC) posted the 2017 version of its Community Reinvestment Act (CRA) Data Entry Software. This software—which is intended to help automate the filing of CRA data—is year-specific, i.e., 2016 reporting requires the 2016 version, not the 2017 version. In November, the FFIEC clarified that it was discontinuing its HMDA Data Entry Software and instead requiring that filers submit HMDA data collected in 2017 using a web interface called the “HMDA Platform.”
Fed to Require Public Disclosure of Big Liquidity Risk Metrics
On December 19, the Fed announced its approval of a rule requiring large banks to publicly disclose certain quantitative liquidity-risk metrics on a quarterly basis. As previously covered in InfoBytes, in September 2014, the federal banking agencies had adopted a rule requiring banks with assets of $50 billion or more to hold “high-quality liquid assets” (HQLA) in an amount equal to or greater than the bank’s net cash outflows during a 30-day stress period; the ratio of HQLA to net cash outflows is the bank’s “liquidity coverage ratio” (LCR). The Fed’s new rule requires large banks to disclose their LCRs, HQLA amounts by category, and certain other metrics, including projected “net stressed cash outflow” amounts and derivatives inflows and outflows. Compliance deadlines range from April 2017 through October 2018.
CFPB Orders Payday Lender to Pay Over $500k in Civil Monetary Penalty and Restitution to Customers
On December 16, the CFPB announced that it had entered a stipulation and consent order assessing a $250,000 civil monetary penalty and other remediation against a financial-services company that offers payday loans and check-cashing services based on allegations that it misled consumers through deceptive online advertisements and collections letters and made unauthorized electronic transfers from consumers’ bank accounts. Among other things, the Bureau took particular issue with the fact that Bureau examiners had previously identified “significant compliance-management-system weaknesses that heightened the risk that violations w[ould] occur,” and that “[a]t the times the violations described in this order, the company had not adequately addressed these issues.”
According to the terms of the consent order, the company is required to: (i) end its deceptive practices and obtain authorization for any electronic-fund transfers; (ii) pay approximately $255,000 to redress harm caused to affected consumers; and (iii) pay a civil monetary penalty of $250,000. As explained by CFPB Director Richard Cordray, “consumers were making decisions based on false and deceptive information, and today’s action will give the company’s customers the redress they are owed.”
CFPB Takes Action Against Pawnbrokers for Misleading Annual Percentage Rates
On December 19, the CFPB announced it had filed enforcement actions (3:16cv987, 3:16cv988, 1:16cv1566, 1: 16cv1567) in federal district court against four Virginia pawnbrokers for misleading customers through deceptively low annual percentage rates that intentionally omit or hide certain fees and charges. In each Complaint, the Bureau alleges both TILA violations and unfair, deceptive, or abusive acts or practices under Dodd-Frank and the CPA. The complaints seek injunctive relief ordering the pawnbrokers to stop the allegedly illegal practices, restitution for consumers, and statutory penalties.
CFPB Unveils Web-based Tool To Deliver Regular Updates on Consumer Lending Markets
On December 19, the CFPB announced the release of “Consumer Credit Trends,” a beta version of its new web-based tool to help the public monitor developments in the mortgage, credit card, auto loan, and student loan markets. According to the Bureau, the data used by Consumer Credit Trends “draws from a nationally representative sample of credit records maintained by one of the top three U.S. credit repositories.” The CFPB plans to update this information regularly, and will offer analyses on notable findings as warranted. It also clarifies that “before being provided to the Bureau,” the credit records are “stripped of any information that might reveal consumers’ identities, such as names, addresses, and Social Security numbers.” The ability to “chart the state of consumer markets,” says CFPB Director Richard Cordray, “will help us identify and act on trends that warn of another crisis or that show credit is too constricted.”
Fed Finalizes Debt-Minimum Rule to Help Banking System Weather Shocks
On December 15, the Fed finalized a rule requiring the biggest global banks to guard against potential collapse by holding minimum amounts of long-term debt and regulatory capital. The rule applies to bank holding companies, U.S. global systemically important banks (GSIB), as well as U.S. branches of foreign banks, and aims to shift the costs of bank failure to shareholders rather than taxpayers by requiring lenders to maintain sufficient amounts of long-term debt, which can be converted to equity to keep a failing bank’s key operations afloat. Specifically, the measure will establish minimum required levels for long-term debt and total loss-absorbing capacity, as well as restrictions on certain short-term debt financing arrangements by parents of GSIB-designated financial institutions. In prepared opening remarks, Fed Chair Janet Yellen explained that “[t]he rule is guided by common sense principles: bank shareholders and debt investors should place their own money at risk so depositors and taxpayers are well protected, and the biggest banks must bear the costs that come with their size.”
In a memorandum to the Board of Governors, the Fed’s staff noted that covered banks are currently about $70 billion short altogether of the new requirements. The Fed staff estimated that the aggregate increased funding of approximately $680 million to $2 billion annually would be required to make up the shortfall.
CFPB Orders Credit Services Provider to Pay $200K Civil Penalty for Improper Contract Disclosures
On December 19, the CFPB entered a consent order against a Virginia-based credit services provider assessing a $200,000 penalty and other remediation for making loans with improper disclosures. It was the CFPB’s second enforcement action against the company, as the Bureau had previously taken action against the company, requiring it, among other things, to revise its contract disclosures back in 2014. Under the terms of the consent order released this week, the company must hire an independent consultant with specialized experience in consumer-finance compliance to conduct an independent review of the company’s issuance and servicing of credit, and report to the CFPB a compliance plan based on the findings of such review. The Bureau also assessed a $200,000 civil monetary penalty.