InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Federal Reserve Chair Discusses Supervision of Largest Institutions In Post-Crisis Era
On March 3, Federal Reserve Chair Janet Yellen delivered remarks to the Citizens Budget Commission regarding actions that the Federal Reserve has taken to strengthen its supervision of large financial institutions in the wake of the recent financial crisis. In her remarks, Chairwoman Yellen highlighted five regulatory changes, including (i) higher capital standards, (ii) higher liquidity requirements, (iii) implementation of stress tests, (iv) required submission of living wills, and (v) in cooperation with the FSOC, the Fed’s enhanced authority to promote the resiliency and stability of the financial system in addition to the safety and soundness of individual institutions.
FDIC Vice Chairman Highlights Set of Supervisory Principles For Larger Institutions
On March 2, FDIC Vice Chairman Thomas Hoenig addressed the Institute of International Banking Annual Conference in Washington, D.C. In his prepared remarks, Vice Chairman Hoenig, who formerly served as President of the Federal Reserve Bank of Kansas City, highlighted four supervisory principles that he believes are necessary to ensure effective supervision. These principles include (i) requiring full-scope examinations for all financial institutions, even large financial institutions, (ii) promoting greater transparency regarding the financial condition of large financial institutions, (iii) fully implementing the Volcker Rule, and (iv) increasing capital requirements to levels that the market purportedly would demand in the absence of a public safety net.
Richmond Fed Cites Regulation As Barrier for New Bank Entry
On March 5, researchers from the Federal Reserve Bank of Richmond released an essay highlighting the decline in the formation of new banks since the financial crisis. According to the essay, new bank formation has fallen from an average of approximately one hundred per year since 1990 to about three per year since 2010. The researchers cited increased banking regulations, the low interest rate environment, and a weak economic recovery as contributing factors for the low rate of new bank startups.
Wyoming Amends State Consumer Protection Act
On March 2, the Wyoming legislature passed S.F. 35 and S.F. 36, which amend the state’s Consumer Protection Act to enhance privacy protections for sensitive personal information. With limited exception for entities covered by the Health Insurance Portability and Accountability Act, S.B. 35 subjects individuals and commercial entities to additional data breach notification requirements, including providing Wyoming residents with information such as (i) the type of information subject to the breach, (ii) a general description of the breach incident, (iii) the approximate date of the breach, (iv) the steps taken by the individual or entity to prevent further breaches, (v) advice on how to review accounts and monitor credit reports, and (vi) whether notification was delayed by a law enforcement investigation. S.B. 36 expands the categories of personal identifying information that trigger protections under the Consumer Protection Act. Assuming signature by Governor Mead, the laws will take effect July 1, 2015.
California Set to Consider Virtual Currency Guidelines
On February 27, California Assembly Member Matt Dababneh introduced AB 1326, which would provide guidelines for individuals or businesses who conduct business using virtual currency. The legislation would prohibit a person from engaging in any virtual currency business activity unless licensed by the Commissioner of Business Oversight or unless otherwise exempt. The application process would require applicants to provide detailed information and pay a $5,000 application fee to the Commissioner of Business Oversight. Licensees would be subject to capital requirements, with a certain amount of capital held in high-quality, investment-grade investments, and would be required to maintain consumer protections.
Massachusetts Mortgage Lender Fined For Conducting Business at Unapproved Branch Location
On February 27, the Massachusetts Division of Banks entered into a consent order with a mortgage lender resolving allegations that it violated state and federal regulations. Under the terms of the consent order, the mortgage lender will pay a $5,000 penalty for conducting mortgage activities at an unapproved branch location. In addition to the penalty, among other requirements, the lender must (i) employ a strong focus and proactive commitment to community development activities and (ii) expand its independent audits to include compliance with state and federal laws, including regulations governing fair lending. Finally, the lender must establish, implement, and maintain policies and procedures to ensure that (i) it does not engage in residential mortgage lending in Massachusetts from unauthorized locations; (ii) it monitors the distribution of its mortgage lending in Massachusetts; (iii) mortgage loan applicants whose application are denied receive notice of their right to appeal under Massachusetts law; (iv) its license type and number are disclosed as required by Division regulation; (v) late charges listed in the Truth-in-Lending statement are not in excess of the amount permitted under Massachusetts law; (vi) it provides Servicing Disclosure Statements in accordance with the timing requirements set forth in CFPB regulations; (vii) it maintains records of transactions with mortgage brokers in compliance with Massachusetts law, and (viii) it provides all Massachusetts consumers with a privacy policy that is in compliance with CFPB regulations.
U.S. Supreme Court To Hear Arguments Involving Guarantor-Spouse's Eligibility for ECOA Protection
On March 2, the U.S. Supreme Court agreed to hear arguments to resolve claims as to whether spousal guarantors could assert ECOA as a defense against a bank’s collection efforts requiring them to guarantee their spouse’s loans. In the case at bar, two men borrowed more than $2 million to fund a real estate development company, and their wives guaranteed the loan. Subsequently, the husbands were unable to make payments and the bank declared default and ordered payment both from the company and the wives as guarantors. Later, the wives filed suit against the bank claiming the bank’s requirement that they guarantee the loans as a condition of the credit constituted discrimination on the basis of marital status. The lower court granted summary judgment in favor of the bank, and the Eighth Circuit affirmed, finding the wives were not “applicants” for credit under ECOA. Hawkins v. Community Bank of Raymore, 761 F.3d 937 (8th Cir. 2014) cert. granted, No. 14-520, 2015 WL 852422 (U.S. Mar. 2, 2015)
The Sixth Circuit recently disagreed, however, finding ambiguity as to whether a guarantor is afforded the protections of ECOA as an applicant for credit. RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp., 754 F.3d 380 (6th Cir.2014).
International Bank to Pay $30 Million to Resolve Overdraft Fee Allegations
On March 2, an international bank agreed to pay $30 million to settle allegations that it changed the order in which customers’ debit transactions cleared in order to generate additional overdraft fees. According to the plaintiffs, the bank engaged in a practice known as “high-to-low” posting, whereby a bank orders transactions from the largest to the smallest dollar amount before posting them to the customer’s account. The bank also charged a $35 fee for each overdraft, regardless of the amount of the transaction. The plaintiffs allege that, when combined, these practices increased the number of overdraft fees paid by some customers because processing the largest charges first depleted their funds more quickly and increased the total number of transactions that failed to clear. The bank appropriately defended its practices, contending, among other things, that the claims were preempted by the National Bank Act and barred by the Uniform Commercial Code, and that the deposit agreement provided for discretion to order transactions. The settlement is scheduled to face a fairness hearing and final approval by the court.
CFPB "Keeping Watchful Eye on Auto Lending Market"
On February 23, CFPB Director Richard Cordray delivered prepared remarks at the National Association of Attorneys General Winter Meeting in Washington, D.C. In his remarks, Cordray indicated that the CFPB is keeping a watchful eye on the auto lending market, stating that auto lending practices are currently being supervised at the largest banks. Cordray further revealed that the CFPB intends to move forward with a proposed rule to oversee the larger nonbank auto lenders as well. Cordray also lobbied the attorneys general to use the CFPB’s government portal to analyze consumer complaints to assist in investigations, stating, “[w]e now have 22 attorneys general and 28 state banking regulators who are already signed up and accessing this information through the secure portal. I strongly urge the rest of you to join us and do the same.”
CFPB Schedules Arbitration Field Hearing
The CFPB announced on February 23 that it plans to host a field hearing on the issue of arbitration provisions within various consumer financial contracts. According to the CFPB’s blog post, the hearing will take place on March 10 in Newark, New Jersey, and will feature remarks from CFPB Director Richard Cordray, testimony from consumer groups, industry representatives, and members of the public. The Dodd-Frank Act instructs the CFPB to study the use of pre-dispute arbitration provisions in consumer financial contracts (and provide a Report to Congress) and gives the CFPB the authority to issue regulations on the use of arbitration clauses if the CFPB chooses. In December 2013, the CFPB issued a report on its preliminary findings, which indicated that approximately 9 out of 10 arbitration clauses used by large banks in credit card and checking account agreements prevent consumers from participating in class actions.