CFPB Releases Guidance on FCRA and Regulation V Compliance During COVID-19

On April 1, 2020, the Consumer Financial Protection Bureau (“CFPB”) released a statement on “Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act.” This statement provides guidance outlining the CFPB’s expectations of furnishers and consumer reporting agencies (“CRAs”) during the COVID-19 pandemic, and signals that the CFPB will take a flexible supervisory and enforcement approach to compliance with the Fair Credit Reporting Act (“FCRA”) and its implementing regulation, Regulation V.

The key points of the CFPB’s guidance are discussed below. Continue Reading

Federal Reserve Board Announces Six-Month Delay of Effective Date of Control Framework

Yesterday, March 31, 2020, the Board of Governors of the Federal Reserve System (the “Board”) announced a six-month delay in the effective date of its final rule implementing a revised control framework.  Previously, in January, the Board unanimously approved a final rule establishing a comprehensive, simplified framework for determining when an investor company exhibits control over an investee company for the purposes of the Bank Holding Company Act and the Home Owners’ Loan Act.  The final rule was set to go into effect today, April 1.  Yesterday’s action delays the effective date until September 30, 2020.

In an associated Federal Register notice, the Board indicated that the delay is intended to “allow companies additional time to consult with Board staff about existing investments and relationships,” which will afford companies “greater flexibility to focus on COVID-19-related issues.”  The announcement is the latest in a series of efforts by legislators and financial regulators to delay or ease regulatory requirements in response to the ongoing global pandemic.  These efforts include relief from the application of the Current Expected Credit Losses methodology beyond that provided for in Section 4014 of the recently-passed CARES Act, a 30-day extension for certain banking organizations to file call reports or FR Y-9C reports for the first quarter of 2020, a six-month delay in implementation of changes to the Board’s Payment System Risk Policy for intraday credit, Consumer Financial Protection Bureau no-action relief allowing for late filing of Home Mortgage Disclosure Act data, and Commodity Futures Trading Commission no-action relief allowing for late filing of Dodd-Frank Act compliance reports.

Federal Reserve Establishes Temporary FIMA Repo Facility

Yesterday, March 31, 2020, the Board of Governors of the Federal Reserve System (the “Board”) announced the creation of a temporary repurchase agreement facility for foreign and international monetary authorities (the “FIMA Repo Facility” or the “Facility”) to facilitate liquidity for central banks and other international monetary authorities.  The FIMA Repo Facility is the latest in a series of special liquidity programs that the Board has established to stabilize financial markets in light of economic conditions caused by the global COVID-19 pandemic.  Other initiatives include the establishment of a Money Market Mutual Fund Facility, a Primary Dealer Credit Facility, and a Commercial Paper Funding Facility.

Rationale

The Federal Open Market Committee of the Federal Reserve System established the Facility in order to facilitate easier access to U.S. dollars, thereby providing liquidity for lenders in the authorities’ respective jurisdictions.  It will also reduce pressures on these authorities to sell U.S. Treasury securities to increase their markets’ liquidity.  “Stabilizing foreign dollar markets . . . will support foreign economic conditions and thereby benefit the U.S. economy through many channels, including confidence and trade,” the Board stated in a series of FAQs accompanying the announcement.

Participant Eligibility Requirements

Access to the FIMA Repo Facility is limited to FIMA account holders.  These are generally central banks and other international monetary regulatory bodies.  The Board’s FAQs indicated that “[m]ost FIMA account holders” will be eligible to apply to use the FIMA Repo Facility.  The Board must approve applicants before they may access the Facility.

Mechanics

Participants may use the FIMA Repo Facility to temporarily exchange Treasury securities on the Federal Reserve’s System Open Market Account for U.S. dollars, thereby providing liquidity for lenders in their respective jurisdictions.  They must agree to buy back the securities upon maturity.  Presumptively, this term would be overnight, but can be extended “as needed,” according to the FAQs.  Each transaction will be conducted at an interest rate of twenty-five points over the Interest Rate on Excess Reserves, which is currently 0.10 percent.

Duration

The Board’s announcement stated that the FEMA Repo Facility will begin lending on April 6, 2020, “and will continue for at least 6 months.”

Federal Reserve and FFIEC Offer Regulatory Reporting Relief

Earlier this week, the Federal Reserve provided financial institutions with $5 billion or less in total assets a thirty-day extension to the deadline for filing certain first quarter bank holding company financial reports, and the Federal Financial Institutions Examination Council (FFIEC) provided a similar thirty-day extension of the deadline for all institutions (regardless of size) to submit their March call reports.

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Agencies Encourage Banks to Make Small-Dollar Loans to Customers Affected by Coronavirus

Today, March 26, the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency released an interagency statement encouraging financial institutions to offer responsible small-dollar loans to both consumers and small businesses facing unexpected expenses or sudden income shortfalls due to the COVID-19 pandemic.  The statement is the latest in a series of interagency statements  released in recent weeks encouraging banks to work with customers affected by the coronavirus, including a statement providing that banks will receive credit under the Community Reinvestment Act for certain efforts to assist such customers.

Today’s statement notes that the current regulatory framework authorizes banks to offer small-dollar loans through a variety of structures – including open-end lines of credit, closed-end installment loans, or appropriately structured single-payment loans – subject to safety and soundness standards and consumer protection laws.  The statement does not clarify what features make a small dollar loan “responsible” in the view of the agencies, but the OCC issued guidance in 2018 addressing that issue for national banks and federal savings banks.

Financial institutions may, but are not required to, consult with their primary federal regulator about small-dollar loan products offered to affected customers.  The statement indicates that the agencies are working on future guidance and lending principles for responsible small-dollar lending “in more normalized times.”

Federal Reserve Takes Unprecedented Action to Provide Financial Assistance to U.S. Companies

Yesterday, March 23, the Board of Governors of the Federal Reserve System (the “FRB”) announced the latest in a series of extraordinary actions intended to help mitigate the impacts of the COVID-19 pandemic on the U.S. economy.  Unlike the measures announced last week – which mostly involved re-establishing emergency programs that were used during the 2008–09 financial crisis to help financial institutions – yesterday’s measures include several unprecedented actions designed to provide assistance to U.S. commercial enterprises.

Click here to read Covington’s client alert regarding FRB’s announcements.

Banking Regulators Release Interagency Statement on COVID-19 Related Loan Modifications

On Sunday, March 22, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Conference of State Bank Supervisors released an Interagency Statement encouraging financial institutions to work with borrowers affected by COVID-19, consistent with safety and soundness standards.

Specifically, the guidance states that the agencies will not criticize financial institutions for working with borrowers, and will not direct financial institutions to automatically categorize all COVID-19 related loan modifications – such as short term (e.g., six month) payment deferrals, fee waivers, or extensions of repayment terms – as troubled debt restructurings (“TDRs”)  for regulatory and financial reporting purposes.  In addition, the statement provides that the agencies’ examiners will exercise judgment in reviewing prudent loan modifications, and will not adversely risk rate credits that are affected by COVID-19, even if considered TDRs.  Finally, the guidance provides that short-term deferrals granted due to COVID-19 should not be reported as past due, and loans that are modified due to COVID-19 should not be reported as nonaccrual assets.  The statement reminds financial institutions that such loans may serve as eligible collateral at the Federal Reserve’s discount window.

CFTC Warns of Fraudsters Capitalizing on Investors’ COVID-19 Concerns and Promises Aggressive Enforcement Action

On March 18, the Commodity Futures Trading Commission (“CFTC”) issued a Customer Advisory cautioning the public to be on alert for increased fraudulent activity amidst the COVID-19 pandemic. The agency’s alert followed a series of similar warnings published by other agencies. The CFTC advised that fraudsters may be attempting to profit by taking advantage of investors’ desire to recoup losses or seek safety in the wake of recent market volatility. Fraudsters may promise investors special insider knowledge or insights, unusually large returns, guarantees, surefire trading signals, or low costs to open accounts.
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GOP Stimulus Bill Includes Banking and Financial Markets Relief

Yesterday, on Sunday, March 22, 2020, U.S. Senate Republicans released the latest version of their COVID-19-related stimulus bill, the Coronavirus Aid, Relief, and Economic Security Act or CARES Act.  The bill contains several measures intended to provide relief to banks, their customers, and broader financial markets.

The latest version of the CARES Act includes the following relevant provisions:

  • Treasury Loan and Guarantee Authority. Section 4003 of the bill would provide the U.S. Department of the Treasury with the authority to make up to $500 billion of emergency loans, guarantees, or investments in support of Federal Reserve programs or facilities that provide liquidity to the financial system in support of lending to eligible businesses (including airlines and other U.S. businesses that have not otherwise received adequate economic relief under the Act), states, and municipalities.  Section 4003, which also authorizes Treasury to use a portion of these funds to lend or issue guarantees directly to businesses, including up to $50 billion of loans or guarantees for the benefit of passenger airlines, has reportedly been a focus of Democratic opposition to the bill.
  • FDIC Guarantee Authority. Section 4008 would provide the requisite Congressional authorization under section 1105 of the Dodd-Frank Act, 12 U.S.C. § 5612, for the FDIC to guarantee, through December 31, 2020, the obligations of solvent insured depository institutions and their affiliates, including deposit accounts, without a maximum amount.  The bill would also give the NCUA authority to increase share insurance coverage on noninterest-bearing transaction accounts at federally-insured credit unions, also through December 31, 2020.
  • OCC Authority to Waive Loan Limits. Section 4011 would amend the single borrower loan limit framework that applies to national banks under 12 U.S.C. § 84 (which further applies to federal savings associations under 12 U.S.C. § 1464(u)(1)) by allowing the Comptroller of the Currency to waive such limits for loans to nonbank financial companies (as defined in the Dodd-Frank Act), until the earlier of the termination of the public health emergency declared by the Secretary of Health and Human Services and December 31, 2020.
  • Temporary Reduction in Community Bank Leverage Ratio. Section 4012 would temporarily reduce the minimum community bank leverage ratio to 8 percent, from its currently level of 9 percent, until the earlier of the termination of the public health emergency and December 31, 2020.  The community bank leverage ratio framework allows certain highly capitalized banking organizations with less than $10 billion in total consolidated assets to avoid calculating or reporting risk-based capital ratios.  Section 4012 would also require the federal banking agencies to give a community bank a “reasonable grace period” if it falls out of compliance with the community bank leverage ratio during the same period.
  • Optional Suspension of Troubled Debt Restructurings Under GAAP. Section 4013 would allow financial institutions to suspend requirements under Generally Accepted Accounting Principles (“GAAP”) for loan modifications relating to the COVID-19 pandemic if the loan modification is made in the period from March 1, 2020 to the date that is 60 days after the end of the public health emergency for a loan that was not more than 30 days past due as of December 31, 2019.
  • Temporary CECL Relief. Section 4014 would allow banking organizations not to be subject to the Current Expected Credit Losses (CECL) methodology until the earlier of the termination of the public health emergency and December 31, 2020.
  • Treasury Money Market Guarantee Authority. Section 4015 would temporarily suspend the restrictions of the Emergency Economic Stabilization Act of 2008 on Treasury’s use of the Exchange Stabilization Fund, thereby permitting Treasury to establish a guarantee program for the U.S. money market mutual fund industry.  Any guarantee established under this authority would need to terminate by December 31, 2020.
  • SBA Subsidies for Certain Loan Repayments. Section 1112 would authorize the SBA to pay principal, interest, and fees on certain loans for a six month period beginning on the next payment date.  Covered loans would include loans guaranteed by the SBA under section 7(a) of the Small Business Act (including Community Advantage loans) or title V of the Small Business Investment Act (e., 504 loans), or made by an intermediary to a small business concern using grants received under the Microloan Program established under section 7(m) of the Small Business Act.  This provision would also require the SBA to “encourage” the federal banking agencies and state bank regulators not to require lenders to increase their reserves on account of receiving the payments from the SBA.
  • Relief for Paycheck Protection Program Loans. Section 1102(a)(2) would establish a Paycheck Protection Program under section 7(a) of the Small Business Act for loans to small businesses to cover payroll costs, health insurance, salaries, mortgage payments, rent, and utilities.  A loan made under the program would receive a zero percent risk weight under the bank regulatory capital rules (though would not receive any relief for leverage ratio purposes), and would not be subject to compliance with GAAP’s requirements for troubled debt restructurings.

After Republicans unveiled the legislation, Senate Democrats blocked a motion to advance the bill in a party-line vote.  After the vote, Senate Minority Leader Chuck Schumer (D-NY) stated that “we’re closer than we’ve been at any time over the past 48 hours to an agreement.”

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