On July 9, 2019, the federal banking agencies released a final rule to simplify aspects of the regulatory capital rules for banking organizations that are not “advanced approaches” banking organizations, i.e., those with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. Initially proposed in September 2017 as part of the agencies’ ongoing efforts to meaningfully reduce regulatory burden on small and mid-sized banking organizations, the final rule is intended to simplify and clarify certain aspects of the capital rules, and in particular the capital treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests. Importantly, the Board of Governors of the Federal Reserve System (“Board”) also used the rulemaking as an opportunity to streamline an important aspect of its regulatory framework by permitting bank holding companies, savings and loan holding companies, and state member banks of all sizes to redeem or repurchase their common stock without obtaining formal, prior regulatory approval under most circumstances.
On July 11, the House Financial Services Committee held a markup for a series of bills designed to reform the credit reporting system and the Fair Credit Reporting Act (“FCRA”). Each bill passed on a party-line vote. The associated hearing was titled “Who’s Keeping Score? Holding Credit Bureaus Accountable and Repairing a Broken System.”
In her opening statement, Committee Chairwoman Maxine Waters (D-CA) stated her belief that “our credit reporting system is deeply broken.” She added that “[c]onsumers make more complaints about the credit reporting process to the Consumer Financial Protection Bureau than any other issue,” and that it “is exceedingly common that credit reports are filled with errors.”
The Committee considered the following credit reporting reform bills, each introduced by a Democratic member:
- The Restricting Use of Credit Checks for Employment Decisions Act, which would ban the use of consumer report information for most employment decisions.
- The Free Credit Scores for Consumers Act of 2019, which would expand consumer disclosure rights. In particular, nationwide consumer reporting agencies (“CRAs”) would be required to disclose consumer credit scores annually upon request. Further, any CRA would be required to disclose to consumers their full file and credit score when that consumer obtains a fraud alert or security freeze, or has disputed information on the credit report.
- The Restoring Unfairly Impaired Credit and Protecting Consumers Act, which would require CRAs to remove adverse information from consumer reports after four (rather than the current seven) years.
- The Improving Credit Reporting for All Consumers Act, which would reform the dispute process in several ways, including by providing consumers the right to appeal disputes.
The bills can now be considered by the full House of Representatives. Were they to pass the full House, the lack of Republican supports suggests they would face significant challenges in the Senate.
On Tuesday, June 25, the Consumer Financial Protection Bureau (the “CFPB”) convened the first in a new series of symposia on consumer protection topics. The symposium series was announced in Director Kathleen Kraninger’s first major speech as the Bureau’s Director on April 17, 2019. The intent of the series is to initiate dialogue with stakeholders that will inform the Bureau’s future rulemakings. The topic of the first symposium, in which our colleague Eric Mogilnicki participated, was the meaning of “abusive acts or practices” under section 1031 of the Dodd–Frank Act. The “abusive” standard has been on the Bureau’s rulemaking agenda since the fall of 2018. Continue Reading
On June 14, 2019, the Federal Reserve Board (“Federal Reserve”) released a Notice of Proposed Rulemaking (“NPR”) requesting public comment on updates to its regulations governing the disclosure of confidential supervisory information (“CSI”) and its Freedom of Information Act (“FOIA”) procedures. Although the Federal Reserve classified many of the proposed revisions as “clarifications” or “technical updates,” the NPR includes several important changes to this rule. Comments must be received by August 16, 2019. Continue Reading
On June 13, 2019, the FDIC released its first edition of Consumer Compliance Supervisory Highlights, the purpose of which is to increase transparency regarding the FDIC’s consumer compliance supervisory activities. The publication provides a high-level overview of the consumer compliance issues identified through approximately 1,200 consumer compliance examinations conducted in 2018 for non-member state-chartered banks and thrifts.
In describing these supervisory highlights, the FDIC noted that 98% of all FDIC-supervised institutions were rated satisfactory or better for consumer compliance. However, the FDIC brought 21 consumer compliance-related formal enforcement actions that included civil money penalties totaling approximately $3.5 million. The institutions subject to these formal enforcement actions paid approximately $18.1 million in required restitution and $4 million in voluntary restitution. The most frequently cited violations in 2018 included the Truth in Lending Act (Regulation Z), the Truth in Savings Act (Regulation DD), Electronic Funds Transfer (Regulation E), the Flood Disaster Protection Act, and the Equal Credit Opportunity Act/Regulation B.
In the publication, the FDIC discusses a number of areas in which it has found violations, including overdraft programs (unfair and deceptive acts or practices), mortgage loan referral payments to third parties (RESPA), electronic fund transfers (Regulation E), skip-a-payment loan programs (unfair or deceptive acts or practices), and finance charges and annual percentage rate (“APR”) calculations (Regulation Z). These findings are described below. In addition, the publication includes summaries of actions taken to mitigate the risks of violations. Continue Reading
On June 7, 2019, 26 Democratic senators sent a letter to Consumer Financial Protection Bureau (the “Bureau”) Director Kathleen Kraninger criticizing the Bureau’s proposed rule to modify Regulation F under the Fair Debt Collection Practices Act. As we have previously discussed, the Bureau released its long-anticipated proposed rule on May 7, 2019. Director Kraninger described the proposal as an effort to “modernize the legal regime for debt collection” and “ensure we have clear rules of the road where consumers know their rights and debt collectors know their limitations.”
The letter describes and criticizes the proposal in the following ways:
- According to the letter, the proposed rule’s provisions regarding text messages and emails would “permit collectors to overwhelm consumers with intrusive communications” and “exacerbate and increase troubling harassment tactics.”
- Collectors would not be required to use free-to-end-user text messaging; consumers can be required to receive information by clicking hyperlinks, which “raises security concerns”; and the rule allows an supported assumption that emails have been received by the consumer unless an “undeliverable” message is returned. For these reasons, the rule generally “authorizes new forms of communication between debt collectors and consumers without extending essential consumer protections.”
- Permitting collectors to make seven calls per week, per debt would “effectively permit debt collectors to inundate consumers with calls.”
- By prohibiting the filing or threatening of filing a lawsuit only if the collector “knows or should know” that debt is not enforceable, the Bureau “could encourage collectors to practice willful ignorance about the status of the debt they collect.”
The following senators signed the letter: Senators Bob Menendez (D-N.J.), Sherrod Brown (D-Ohio), Catherine Cortez Masto (D-Nev.), Kirsten Gillibrand (D-N.Y.), Cory Booker (D-N.J.), Richard Blumenthal (D-Conn.), Chris Van Hollen (D-Md.), Angus King (I-Maine), Tammy Duckworth (D-Ill.), Dianne Feinstein (D-Calif.), Elizabeth Warren (D-Mass.), Ben Cardin (D-Md.), Kamala Harris (D-Calif.), Tammy Baldwin (D-Wisc.), Edward Markey (D-Mass.), Doug Jones (D-Ala.), Tina Smith (D-Minn.), Jack Reed (D-R.I.), Richard Durbin (D-Ill.), Bernie Sanders (I-Vt.), Sheldon Whitehouse (D-R.I.), Amy Klobuchar (D-Minn.), Brian Schatz (D-Hawaii), and Mazie Hirono (D-Hawaii), Jeff Merkely (D-Or.), Ron Wyden (D-Or.).
Comments on the Bureau’s proposed rule are due August 19, 2019.
On June 4, 2019, Jelena McWilliams, the Chairman of the Federal Deposit Insurance Corporation (“FDIC”), addressed the Community Development Bankers Association. Her remarks emphasized the importance of community banking in the U.S. economy while also touching upon a number of related topics including Minority Depositary Institutions (“MDIs”), the Community Reinvestment Act (“CRA”), Small-Dollar Lending and Innovation.
On May 21, 2019, the U.S. Securities and Exchange Commission (the “SEC”) issued guidance to national securities exchanges and the Financial Industry Regulatory Authority (“FINRA”) (referred to as “SROs”) clarifying the SEC’s expectations with respect to their market data fees. These guidelines clarify enhanced standards for SROs to increase their fees for products and services, including fees for market data and connections, which has become a significant revenue source for data providers. Continue Reading
The Office of the Comptroller of the Currency (OCC) released earlier this week its Semmiannual Risk Perspective for Spring 2019. The 30-page report, authored by the OCC’s National Risk Committee, reflects the agency’s view of current risks facing OCC-regulated banks. One of the functions of the National Risk Committee is to guide bank examiners on issues warranting supervisory attention, and thus the risks identified by the Committee can foreshadow areas that will receive particular attention from bank examination teams over the next several months.
The Semiannual Risk Perspective for Spring 2019 reflects a continuing focus from the OCC on compliance risk, with the report describing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance risk, in particular, as “high.” The report states that “[b]anks are challenged to effectively manage money-laundering risks in a complex, dynamic global operating and regulatory environment,” and it emphasizes that “BSA/AML compliance risk management systems should be commensurate with the risk associated with a bank’s products, services, customers, and geographic footprint.”
The Semiannual Risk Perspective also describes operational risk as elevated, flagging cybersecurity threats as a key driver of such risk. The report additionally identifies an anticipated increase in merger and acquisition activity by banks as a driver of operational risk, particularly where acquisitions and post-acquisition integrations are “not well-planned and executed.”
The Semiannual Risk Perspective addresses fintech and regtech issues under several different categories of risk, noting that rapid growth in both sectors “touch[es] each of [the] risk themes” discussed in the report. Fintech is identified as a source of strategic risk, with the report emphasizing that banks should consider, among other things, the extent to which deployment of fintech increases a bank’s dependence on vendors. The report’s observations in this regard reflect longstanding concerns from regulators, including that banks across the industry may become dependent on a single vendor, or a small group of vendors, who are market leaders with respect to a particular software application or technological service.
The report’s emphasis on the strategic risk resulting from technological change is noteworthy in light of the OCC’s encouragement of a national bank fintech charter and its recent promotion of innovation pilot programs. Notwithstanding the risks associated with new technologies, the OCC’s report acknowledges that banks cannot stay competitive without making use of them.
In addition to the above non-financial risks, the report addresses credit, liquidity, and other financial risks resulting from: “successive years of [economic] growth” and an accompanying “incremental easing in underwriting”; competitive pressures that may lead to an increase in the cost of deposits; and, relatedly, the potential that deposits have become less sticky, meaning that fluctuations in interest and deposit rates could give rise to liquidity risk.
On May 9, 2019, the Financial Crimes Enforcement Network (“FinCEN”) published interpretive guidance to reiterate how FinCEN’s existing regulations relating to money services businesses (“MSBs”) apply to business models involving convertible virtual currencies (“CVCs”). The guidance is the most significant CVC-related guidance that FinCEN has released since its 2013 guidance on the application of money transmission regulations to CVC transactions. The guidance does not establish any new regulatory requirements but, rather, synthesizes FinCEN’s existing framework of regulations, administrative rulings, and guidance since 2011 and applies this framework to common business models involving CVCs.