Community Banks – Week in Review
A number of statements and agency actions over the last several days warrant review by banks of all sizes. To begin with the broadest possible news, the Federal Open Market Committee left unchanged the target range for the federal funds rate of ¼ to ½%. The unemployment rate was pegged at 4.9% for October, and real GDP was estimated to have grown at a 2.9% annual rate in the third quarter.
Of interest to community banks in particular was the OCC's release of a revised "Community Banking Supervision" booklet, which contains new procedures for asset quality core assessments.
On the FinTech front, the Comptroller gave a major speech in which he discussed both the regulatory sandbox concept and a possible limited purpose FinTech national bank charter. The OCC is prepared to work with companies on pilot programs for products and services but will not provide a more freewheeling regulatory environment. Any possible charter would involve the same stringent regulation that accompanies other national bank charters. Given the significance of the remarks, we quote from the speech extensively below.
Elsewhere, the CFPB announced enforcement actions involving debt collection and disclosure of the APR and issued examination procedures for reverse mortgage servicing and student loan servicing as well as reissuing guidance on service providers.
The full set of developments over the past week includes:
- Bureau of Labor Statistics releases employment data for October (Nov. 4).
- Unemployment rate now at 4.9%.
- 161,000 nonfarm payroll jobs created.
- Announcement available at http://www.bls.gov/.
- Bureau of Economic Analysis announces "advance estimate" that real GDP grew at annual rate of 2.9% in third quarter (Oct. 28).
- In second quarter, growth of GDP was 1.4% annualized.
- Announcement available at http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm.
- Federal Open Market Committee holds target range for federal funds rate steady at ¼ to ½ % at meeting on Nov. 1-2.
- "The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives."
- Statement available at http://www.federalreserve.gov/newsevents/press/monetary/20161102a.htm.
- "The Economic Outlook," remarks on "Policy Changes after the Great Recession" by Federal Reserve Vice Chairman Fischer at the "Macroeconomics after the Great Recession" conference sponsored by IMF (Nov. 4).
- "It is my view that the labor market is close to full employment."
- Inflation relating to personal consumer expenditures now approaching 2%.
- Remarks available at http://www.federalreserve.gov/newsevents/speech/fischer20161104a.htm.
- OCC updates asset quality core assessment procedures in "Community Banking Supervision" booklet of Comptroller's Handbook (Nov. 3).
- New procedures:
- Incorporate updated concentration risk management procedures.
- Incorporate updated stress testing guidance for community banks.
- Incorporate procedures for the credit underwriting assessment.
- Enhance retail credit examination procedures.
- Enhance appraisal and evaluation examination procedures.
- Enhance allowance for loan and lease losses examination procedures.
- Enhance other real estate owned examination procedures.
- Enhance credit review examination procedures.
- Update the standard request letter.
- Update the asset quality references.
- Revised booklet available at https://occ.gov/news-issuances/bulletins/2016/bulletin-2016-36.html.
- New procedures:
- OCC announces plan to roll out new web-based Central Application Tracking System for filing of licensing and public welfare investment applications and notices by national banks and federal thrifts (Nov. 7).
- Roll-out in three phases:
- First phase for frequent e-Corp and CD-1 Invest filers to begin Jan. 17, 2017.
- Second phase for all other e-Corp and CD-1 Invest filers to begin in spring 2017.
- Third phase for all remaining national banks and federal thrifts to begin in late spring 2017.
- CATS will replace current e-Corp and CD-1 Invest on BankNet.
- OCC Bulletin 2016-37 available at https://occ.gov/news-issuances/bulletins/2016/bulletin-2016-37.html.
- Roll-out in three phases:
- NY Dep't of Financial Services enters into consent order with Agricultural Bank of China for various intentional actions (Nov. 4).
- Action "highlights the importance" of DFS's recent anti-terrorism and AML regulation – even though regulation does not take effect until Jan. 1, 2017.
- Violations include:
- Dollar-clearing transaction patterns involving companies in China, Russia, and the Middle East, a bank in Afghanistan, and Iranian counterparties.
- Curtailment of independence of Chief Compliance Officer who eventually resigned, as did much of compliance staff.
- Independent monitor.
- $215 million civil money penalty.
- Order available at http://www.dfs.ny.gov/about/press/pr1611041.htm.
- CFPB publishes Supervisory Highlights (Issue 13, Fall 2016) (Oct. 31).
- CFPB and NY Dep't of Financial Services file suit against network of debt collectors for alleged violations of Fair Debt Collection Practices Act and for alleged unfair and deceptive practices (Nov. 2).
- Complaint in CFPB v. MacKinnon (W.D.N.Y.) available at http://www.consumerfinance.gov/about-us/newsroom/cfpb-and-new-york-attorney-general-file-lawsuit-against-illegal-nationwide-debt-collection-scheme/.
Equal Credit Opportunity Act
- CFPB publishes two blog posts for consumers on rights under ECOA (Oct. 31, Nov. 2).
- Posts available at http://www.consumerfinance.gov/about-us/newsroom/.
- "The Banking Revolution: Innovation, Regulation & Consumer Choice," remarks by Comptroller Curry before Chatham House 'City Series' Conference (Nov. 3).
- Regulatory sandbox:
- "Some of the discussion about pilots is whether regulators should create a “safe space” to allow companies to try out new products and processes without the risk of penalty if the trial runs afoul of consumer protection laws or other regulations. I do not support this approach."
- "Waiving compliance with consumer protection or safety and soundness never makes sense, nor does our agency have the authority to waive compliance requirements. It is the company’s responsibility to ensure products and processes are safe before rolling them out."
- "Companies can conduct carefully designed pilots responsibly and limit their liability by controlling scope and duration and ensuring their tests are closely monitored throughout."
- "Having an open dialogue with regulators in developing a pilot also helps by encouraging product and system designers to ask the right questions as they determine a product’s features and the parameters of the test. Working with regulators also helps regulators understand precautions that companies have taken to ensure new products and processes are safe and sound and meet consumer protection standards. Facilitating responsible pilots will be one of the many tasks of our innovation staff."
- FinTech limited purpose national bank charter:
- "It is clear that the OCC has the authority to issue a charter to companies that engage in at least one of three core banking functions—taking deposits, paying checks, or lending money. And, it’s clear that many fintechs perform these activities."
- "Fintechs may also help expand financial inclusion, but their promise must be balanced with prudential regulatory concerns as well as consumer protection."
- "We are still deliberating about whether it makes sense to grant a national bank charter to fintechs, and under what conditions. We plan to issue a paper soon to describe our thoughts on this important question and seek comment on our approach."
- "Let me be clear, if the OCC decides to grant a national charter in this area, the institution will be held to the same high standards of safety, soundness, and fairness that other federally chartered institutions must meet. Having a national charter has tremendous value, and because of that it carries certain responsibilities."
- Remarks available at https://occ.gov/news-issuances/index-news-issuances.html.
- Regulatory sandbox:
- SEC to hold forum on financial technology innovation in the financial services industry on Nov. 14 at SEC headquarters in Washington DC.
- Forum designed "to foster greater collaboration and understanding among regulators, entrepreneurs and industry experts into Fintech innovation and evaluate how the current regulatory environment can most effectively address these new technologies."
- Agenda with panels available at https://www.sec.gov/news/pressrelease/2016-234.html.
- Forum open to public on a first-come, first-served basis; no registration required.
- Live webcast available through SEC's Fintech Spotlight page, https://www.sec.gov/spotlight/fintech.
- Banking agencies propose private flood insurance rule (Oct. 31).
- Proposed rule would implement requirement in Biggert-Waters Act that regulated lenders accept private flood insurance that meet certain requirements in addition to policies available through FEMA.
- Proposal available at https://occ.gov/news-issuances/news-releases/2016/nr-ia-2016-139.html.
- Comment deadline: 60 days from publication in Federal Register.
- FDIC publishes Affordable Mortgage Lending Guide, Part II: State Housing Finance Agencies (Nov. 3).
- Guide intended for community banks to describe grant and mortgage loan programs offered at the state level.
- Guide covers first-lien mortgage products, down payment and closing assistance, mortgage tax credit certificates, and homeownership education and counseling programs.
- Guide is second of three publications on affordable mortgage lending. Part I, published in September 2016, covers federal agencies and GSEs. Part III, to be published later in 2016, will cover the Federal Home Loan Banks.
- Parts I and II of Guide available at https://www.fdic.gov/consumers/community/mortgagelending/guide.html.
- CFPB publishes reverse mortgage servicing examination procedures (Oct. 31).
- CFPB publishes education loan servicing examination procedures (Oct. 31).
- NY Dep't of Financial Services finalizes regulation requiring all NY institutions of higher education and vocational training to provide a uniform Financial Aid Award Information Sheet to undergraduate students when responding to financial aid applications (Nov. 3).
- Regulation will apply to applications for assistance for academic year 2016-2017.
- Regulation and model forms available at http://www.dfs.ny.gov/consumer/student_protection/shopping_sheet.htm.
Third Party Service Providers
- CFPB reissues guidance on service providers (Oct. 31).
- Bulletin and guidance available at http://www.consumerfinance.gov/about-us/newsroom/cfpb-supervision-recovers-11-million-225000-harmed-consumers/.
Too Big to Fail
- Office of Financial Research and Federal Reserve Bank of Cleveland announce 2016 Financial Stability Conference to be held on Dec. 1-2 in Washington DC (Nov. 1).
Truth in Lending
- CFPB files suit against Virginia pawnbroker for allegedly misleading statements about annual percentage rate on loans (Nov. 3).
- Complaint in CFPB v. B&B Pawnbrokers, Inc., Civil Action No. 3:16cv887 (E.D. Va.) available at http://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-bb-pawnbrokers-deceiving-consumers-about-loan-costs/.
- Nov. 9
- FDIC Banker Teleconference Series: Overdraft Practices webinar.
- OCC Directors Workshop, "Compliance Risk", Cincinnati OH.
- Nov. 10
- OCC Directors Workshop, "Operational Risk", Cincinnati OH.
- Nov. 14
- SEC FinTech forum, Washington DC.
- Nov. 15
- OCC Directors Workshop, "Compliance Risk", Little Rock AR.
- Nov. 16
- OCC Directors Workshop, "Operational Risk", Little Rock AR.
- Nov. 17
- FDIC San Francisco Region Bankers' Forum, "Detecting Compliance Risk in Products, Services, and Operations."
- Nov. 29
- FDIC Community Banking Initiative: De Novo Outreach Meeting, Atlanta GA.
- OCC Directors Workshop, "Risk Governance", Houston TX.
- Nov. 30
- OCC Directors Workshop, "Credit Risk", Houston TX.
- Dec. 1-2
- Office of Financial Research/Federal Reserve Bank of Cleveland, 2016 Financial Stability Conference, Washington DC.
- Dec. 6
- OCC Directors Workshop, "Risk Governance", Philadelphia PA.
- Dec. 7
- OCC Directors Workshop, "Compliance Risk," Philadelphia PA.
Regulatory Comment Deadlines
- Nov. 8 – Federal Reserve: survey on work of Secure Payments Task Force.
- Nov. 12 – NY Dep't of Financial Services: cybersecurity requirements.
- Nov. 14 – OCC: receiverships of uninsured national banks (with implications for possible FinTech charter).
- Nov. 14 – OCC: prohibition from dealing and investing in industrial and commercial metals.
- Nov. 25 – Federal Reserve: changes to capital planning and stress testing for large, noncomplex banking firms.
- Dec. 22 – Federal Reserve: limits on physical commodity activities of financial holding companies.
- 60 days from publication in Federal Register – Federal Reserve/FDIC/OCC: private mortgage insurance.
For more information, contact Dwight Smith, email@example.com, or 202.545.2885.
The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.