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Senate Banking Committee Seeks Perspectives of Midsized, Regional, and Large Institutions, Regulators on Economic Growth
On June 15, the Senate Committee on Banking, Housing, and Urban Affairs (Committee) held a hearing entitled, “Fostering Economic Growth: Midsized, Regional and Large Institution Perspective”. This is the third in a series of hearings to address economic growth. Frequent topics of discussion in the hearing included stress testing and capital planning—specifically the Federal Reserve’s Comprehensive Capital Analysis and Review stress test. Also discussed was the Systemically Important Financial Institution designation and costs incurred as a result, as well as the Volcker Rule.
Sen. Mike Crapo (R-Idaho), Chairman of the Committee, remarked in his opening statement that the current regulatory framework is “insufficiently tailored for many of the firms subject to it.”
Sen. Sherrod Brown (D-Ohio) – ranking member of the Committee—released an opening statement in which he stated “Let me be clear: proposals to weaken oversight of the biggest banks have no place in this committee’s process. . . Having said that, I am optimistic that there is room for agreement on a modified regime for overseeing regional banks.”
The June 15 hearing—a video of which can be accessed here—included testimony from the following witnesses:
- Mr. Harris Simmons, Chief Executive Officer and Chairman of Zions Bancorporation, on behalf of the Regional Bank Coalition (prepared statement)
- Mr. Greg Baer, President of The Clearing House Association (prepared statement)
- Mr. Robert Hill, Chief Executive Officer of South State Corporation, on behalf of the Midsize Bank Coalition of America (prepared statement)
- Ms. Saule Omarova, Professor of Law at Cornell University Law School (prepared statement)
On June 22, the Senate Banking Committee held another hearing entitled “Fostering Economic Growth: Regulator Perspective, the fourth in its series of hearings focusing on economic growth. The hearing is available via webcast here.
Maine Amends Fair Debt Collection Practices Act to Enact Debt Collection Requirements for Debt Buyers
On June 16, Maine Governor Paul LePage signed into law amendments (H.P. 836) to the state’s Fair Debt Collection Practices Act (Maine FDCPA) to promote the fiscally responsible collection of purchased debts. Changes affect the definitions of charge-off, debt buyer and resolved debt, as well as licensing and documentation requirements, transferring debt ownership, collection actions, and civil penalties.
The law now considers a “debt buyer” to be a debt collector, and defines a debt buyer as a person “regularly engaged in the business of purchasing charged-off consumer debt for collection purposes, whether the person collects the debt or hires a [third] party, which many include an attorney-at-law, in order to collect the debt.” Notably, the definition excludes supervised financial organizations or a person that “acquires charged-off consumer debt incidental to the purchase of a portfolio predominantly consisting of consumer debt that has not been charged off.” Debt buyers must comply with existing licensing requirements and criminal background checks under the provisions of Maine FDCPA Section 11031.
The law will apply to a debt buyer with respect to debt sold to the debt buyer on or after January 1, 2018. Furthermore, it will not “affect the validity of any collection actions taken, civil actions or arbitration actions commenced or judgments entered into prior to January 1, 2018.”
Federal Reserve Chair Comments on CCAR and Stress Test Transparency
On June 16, Federal Reserve (Fed) Chair Janet Yellen sent a letter to Rep. Blaine Luetkemeyer (R-Mo.) underscoring the Fed’s understanding of the need to provide transparency in its Comprehensive Capital Analysis and Review (CCAR) process and stress test scenarios. The Fed, Yellen asserts, will continue to published CCAR instructions in advance of the submission date for capital plans. Yellen further committed to releasing instructions and scenarios for the stress tests by February 15. The guidance will offer banks more details about the qualitative and quantitative components of the exam. However, Yellen warned that disclosing all the details of the Fed's modeling on the annual exams “would give banks an incentive to adjust their business practices in ways that change the results of the stress test without changing the risks faced by the firms . . . [resulting in] less effective stress tests that present a misleading picture of the actual vulnerabilities faced by firms. There would also be a risk of increased correlations in asset holdings among large banks, making the financial system more vulnerable to adverse economic shocks.” However, Yellen said the Fed is weighing different approaches to provide banks with more information about the agency's modeling.
Texas Governor Passes Legislation Related to Vehicle Installment Contracts, Documentary Fees, and Deferred Presentment Transactions for Military Borrowers
On June 9, Texas Governor Greg Abbott signed legislation (H.B. 2339) amending the state’s Finance Code provisions governing trade-in credit agreements related to motor vehicle retail installment contracts. The law now authorizes a seller—upon execution of a contract—to offer to sell to a buyer a “trade-in credit agreement,” which is “a contractual arrangement under which a retail seller agrees to provide a specified amount as a motor vehicle trade-in credit for the diminished value of the motor vehicle that is the subject of the retail installment contract in connection with which the trade-in credit agreement is offered if the motor vehicle is damaged but not rendered a total loss as a result of a collision accident, with the credit to be applied toward the purchase or lease of a different motor vehicle from the retail seller or an affiliate of the retail seller.” Specifically, a trade-in credit agreement is separate from a retail installment contract, not a term of the retail installment contract, and not insurance. The law further outlines changes related to the amount charged for a trade-in credit agreement as well as terms and conditions of the retail installment contract. The law takes effect September 1, 2017.
On June 15, the governor signed legislation (H.B. 2949) relating to the maximum amount a retail seller of motor vehicles can charge for a documentary fee. Under the changed provisions, a seller is now required to provide written notice to the finance commission of the amount it intends to charge unless the documentary fee is considered reasonable, which is established as an amount “less than or equal to the amount of the documentary fee presumed reasonable . . . by rule of the finance commission.” In determining whether a fee is reasonable, the commissioner considers the resources a retail seller may need to employ to perform its duties when handling and processing documents related to the sale and financing of the vehicle. The law takes effect September 1, 2017.
Separately on June 15, the governor signed legislation (H.B 2008) amending the Texas Finance Code to require a lender that enters into a deferred presentment transaction with a military servicemember or a dependent of a servicemember to comply with the Military Lending Act (MLA) (10 U.S.C. § 987) and its implementing regulation. The MLA prohibits creditors from extending consumer credit if the “creditor rolls over, renews, repays, refinances, or consolidates any consumer credit extended to the covered borrower by the same creditor with the proceeds of other consumer credit extended by that creditor to the same covered borrower.” Creditors engaged in deferred presentment transactions or similar payday loan transactions are subject to these limitations “provided however, that the term does not include a person that is chartered or licensed under Federal or State law as a bank, savings association, or credit union.” The law takes effect September 1, 2017.
Bipartisan HOME Act Introduced to Protect Access to Affordable Housing
On June 13, Representatives Randy Hultgren (R-Ill.) and Gwen Moore (D-Wis.) introduced legislation to strengthen the Federal Home Loan Bank (FHLB) System by ensuring access to mortgage credit and affordable housing assistance for millions of consumers. As set forth in a June 15 press release issued by Rep. Hultgren’s office, the Housing Opportunity Mortgage Expansion (HOME) Act (H.R. 2890) would allow lenders to regain membership in the FHLB System provided they (i) joined before the Federal Housing Finance Agency (FHFA) proposed its recently finalized membership rule, and (i) are able to “demonstrate a commitment to residential mortgage activities.”
As previously discussed in InfoBytes, FHFA’s final rule added a revision intended to help streamline membership applications. However, Hultgren asserts that the rule “restricts FHLB membership eligibility” by excluding “captive insurers” under its definition of an “insurance company” thereby prohibiting membership. The HOME Act, Hultgren states, “would clarify that companies with a history and mission of supporting residential housing should be able to continue to serve our communities.”
Industry Groups Submit Comments on FHFA’s Proposed Evaluation Guidance for “Duty to Serve” Provisions
As previously discussed in InfoBytes, the Federal Housing Finance Agency (FHFA) published a final rule last December implementing certain “Duty to Serve” provisions of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. Among other things, the rule requires that Fannie Mae and Freddie Mac (Enterprises) adopt formal plans to improve the availability of mortgage financing in a “safe and sound manner” for residential properties that serve “very low-, low-, and moderate-income families” in three specified underserved markets: manufactured housing, affordable housing preservation, and rural markets. The FHFA also published a Proposed Evaluation Guidance to outline the following: (i) FHFA's expectations regarding the development of such Underserved Markets Plans, and (ii) the process by which FHFA will evaluate annually Fannie’s and Freddie’s achievements under their Plans. The deadline to submit comments was June 7.
Mortgage Bankers Association (MBA) Letter. In its June 7 comment letter, the MBA stated that it commends efforts undertaken by the FHFA to develop a framework of requirements for the Enterprises to follow when preparing their Underserved Market Plans, as well as an evaluation system to rate implementation progress. Particularly, the MBA noted that, based on its data, the U.S. “will see 15.9 million additional households formed over the decade ending in 2024 . . . [which] will increase the need for all types of housing, including already limited affordable housing for very low-, low-, and moderate-income borrowers.” Furthermore, “manufactured home financing, affordable housing preservation, and additional rural housing opportunities can play a key role in providing both first-time home-buying opportunities and affordable rental options for consumers in these underserved markets.” With respect to the Proposed Evaluation Guidance, the MBA stressed the importance of flexibility so adjustments can be made for “unanticipated obstacles or opportunities caused by significant changes in market conditions that arise.”
Center for Responsible Lending (CRL) Letter. Also on June 7, CRL issued a comment letter to the Proposed Guidance in which it offered recommendations concerning “public input and transparency, assessing the contents of the plants to ensure meaningful objectives, and the evaluation and scoring process.” Specifically, CRL noted that while the Enterprises have taken measures such as reinstating lower down payment programs and creating pilot programs to address the underserved markets, it believes a “robust duty to serve process will further access credit initiatives by promoting and incentivizing responsible and sustainable lending to lower wealth households.” However, the CRL also raised several issues over the Proposed Evaluation Guidance, specifically in terms of the proposed scoring system. Under current FHFA guidance, Enterprises’ plans are scored on three factors: progress, impact, and effort/implementation. Conversely, under the proposed scoring system, failure only occurs due to a lack of progress because the impact and effort criteria are assessed only after the Enterprise receives a pass/fail determination. In reaction, CRL raised the following concerns: (i) “What guards against Enterprises putting only low impact objectives in the plan?” (ii) “What incentives do Enterprises have to score highly (above minimally passing)?” and (iii) “What guards against only proposing easily achievable objectives?” In addition to scoring methodology changes, CRL recommended that the FHFA implement a more rigorous loan product and loan purchase evaluation process and increase transparency.
FCC Proposes $120 Million Fine for Spoofed Robocalls
On June 22, the Federal Communications Commission (FCC) announced a proposed fine of $120 million against a telemarketer for violating the Truth in Caller ID Act. The agency claims that the individual made nearly 100 million calls in which he falsified caller ID information in order to display incorrectly the same area code and first three digits as the consumer he was calling. “Neighbor spoofing,” according to the FCC, is an illegal technique used to appear to be calling from the recipient’s own area. If the recipient answered the call, the caller would then offer travel packages falsely claiming to represent well-known hotel and travel companies. The citation and order provides the telemarketer with 30 days to respond to the FCC.
OCC to Host Operational Risk Workshop, Will Hold Innovation "Office Hours"
On July 25, the OCC will host an operational risk workshop in Charleston, WV for directors of national community banks and federal savings associations supervised by the OCC. The workshop will focus on the key components of operational risk, governance, third-party risk, vendor management, and cybersecurity.
Additionally, on July 24 through the 26, the OCC’s Office of Innovation will hold “Office Hours” in New York City for national banks, federal savings associations, and fintech companies to provide an opportunity for attendees to discuss matters related to financial technology, new products and services, bank or fintech partnerships, as well as other items related to financial innovation. Meeting requests are due by July 5.
15 State Attorneys General Clarify Data Breach Notification Laws
On June 5, 15 state attorneys general issued a joint letter to an e-commerce hosting company refuting the company’s assertion in its FAQ provided to online retailers that they are not obligated to notify customers of a data breach in situations where credit card CVV numbers were not disclosed. According to claims made by the attorneys general, the company erroneously stated that, pursuant to the identified states’ data breach notification laws, “there is no obligation to notify in those states . . . if your customers’ CVV data was not exposed.” The attorneys general argued that this is incorrect and stated, “[t]he CVV number does not have to be disclosed to trigger our states’ notification obligations.” The letter noted as an example, New York General Business Law § 899-aa(1)(b)(3), which stipulates that companies must provide notification of a data breach to affected customers when a credit or debit card number plus “any required security code, access code, or password” that would permit access to the account is obtained by an unauthorized party. The attorneys general stated that a CVV code is not a required access code because the card can be used without it. The company is required to provide clarification regarding its FAQ to affected client retailers.
BAFT Announces 2017 Global Payments Symposium; Will Highlight Advances in Payments Innovation, Blockchain, and Artificial Intelligence
On July 19 and 20, the Bankers Association for Finance and Trade (BAFT) will host its 2017 Global Payments Symposium in New York City. The symposium will help bankers and payments professionals understand the latest innovation trends affecting compliance, payments, blockchain, fintech, cybercrime, and artificial intelligence, among others. BAFT will also discuss methods to integrate innovations into the business lines and how global challenges and best practices impact the U.S.