News from Washington: Regulatory Updates
The Board of Governors of the Federal Reserve System (Board) issues a final rule to codify the 2018 statement on the role of supervisory guidance.
On March 31, 2021, the Board adopted a final rule outlining and confirming its use of supervisory guidance for the institutions it regulates, including state member banks, bank holding companies, savings and loan holding companies, and foreign banking organizations. The rule codifies, with certain clarifications, the principles set forth in the September 2018 Interagency Statement Clarifying the Role of Supervisory Guidance (statement), which clarified the distinction between laws and regulations and supervisory guidance. The rule confirms that supervisory guidance, unlike a law or regulation, does not have the force and effect of law, and the Board does not take enforcement actions or issue supervisory criticisms based on noncompliance with supervisory guidance. Instead, supervisory guidance outlines supervisory expectations and priorities, or articulates views about appropriate practices in a given subject area. The rule is effective May 10, 2021.
The Consumer Financial Protection Bureau (Bureau) releases a report on Federal Consumer Financial Law.
On January 4, 2021, the Bureau released a two-volume report of its Taskforce on Federal Consumer Financial Law, which the Bureau created in January 2020 to conduct research and provide recommendations about consumer protection laws. The report examines the legal framework for consumers and financial services providers and suggests ways to improve it. The report’s recommendations include the following:
- Expand access to the payment system by unbanked and underbanked consumers;
- Research and develop policies to address problems of financial inclusion in rural communities;
- Research consumer reporting issues that arise in connection with a consumer’s bankruptcy;
- Identify opportunities to coordinate regulatory efforts. For example, the Bureau and prudential regulators should eliminate overlapping examination subject areas and reconcile inconsistent examination standards that unnecessarily expend multiple resources and can cause confusion;
- Continue to increase dialogue with state regulators to bridge knowledge gaps and streamline regulation;
- Work with other agencies to create a unified regulatory regime for new and innovative technologies providing services similar to banks;
- Establish independent review of the Bureau’s regulatory cost-benefit analyses;
- Exercise caution in restricting the use of nonfinancial alternative data because it can be a useful tool to evaluate creditworthiness; and
- Clarify the obligations of consumer reporting agencies and furnishers for disputes under the Fair Credit Reporting Act and periodically assess the accuracy and completeness of consumer credit reports.
The report is available in Volume 1 and Volume 2.
The Bureau issues a final rule to exempt eligible banks and credit unions from the requirement to establish an escrow account for certain higher-priced mortgage loans (HPMLs).
The Bureau published a final rule in the Federal Register on February 17, 2021, which also serves as the rule’s effective date, to implement ⸹108 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (codified at 15 U.S.C. §1639d(c)(2)), which creates an additional exemption for certain banks and credit unions from the requirement in the Truth in Lending Act, as implemented by Regulation Z, to establish escrow accounts for certain HPMLs. See 15 U.S.C. §1639d; 12 C.F.R. §1026.35(b). Under the final rule, insured depository institutions or insured credit unions meeting the following requirements are exempt from having to establish an escrow account for HPMLs that are not subject to a forward commitment:
- an institution with assets of $10 billion or less (adjusted annually for inflation);
- an institution and its affiliates that together originated no more than 1,000 covered loans (including portfolio and nonportfolio loans) secured by a first lien on a principal dwelling during the preceding calendar year;
- an institution that originated at least one first-lien loan in the preceding calendar year on a property in a rural or underserved area; and
- an institution and its affiliates do not maintain an escrow for HPMLs unless the escrow was established on or after April 1, 2010, and before February 17, 2021, to comply with the regulation, or established postconsummation as an accommodation for distressed borrowers.
This new exemption is in addition to the existing HPML escrow exemption under §1026.35(b)(2)(iii) that is available for an institution with less than $2 billion in assets (including its mortgage lending affiliates), that originates no more than 2,000 first-lien, nonportfolio loans secured by a dwelling in the prior year and meets certain other requirements.
Agencies propose computer-security incident notification requirements.
On January 12, 2021, the Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) published a rulemaking proposal in the Federal Register to require supervised banking organizations to promptly notify their primary federal regulator of any computer-security incident that rises to the level of a ‘‘notification incident.’’ The proposal defines these as incidents that could result in the organization being unable to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the organization, or impact the stability of the financial sector. The proposal would require organizations to notify their regulator as soon as possible and no later than 36 hours after determining an incident has occurred. In addition, the proposal would require service providers to notify affected organizations immediately when the service provider experiences computer security incidents that materially disrupt, degrade, or impair certain services they provide. The comment period closed on April 12, 2021.
The Board and the FDIC release annual Community Reinvestment Act (CRA) asset-size threshold adjustments for small and intermediate small institutions.
On December 23, 2020, the Board and the FDIC published in the Federal Register the annual adjustments to the CRA asset-size thresholds used to define small banks and intermediate small banks. The annual adjustments are required by the agencies’ CRA regulations. Effective January 1, 2021:
- Small bank means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.322 billion, and
- Intermediate small bank means a small institution with assets of at least $330 million as of December 31 of both of the prior two calendar years and less than $1.322 billion as of December 31 of either of the prior two calendar years.
Financial institutions are evaluated under different CRA examination procedures based upon their asset-size classification. In addition, financial institutions meeting the small and intermediate small institution asset-size thresholds are not subject to the reporting requirements for large institutions unless they choose to be evaluated as a large institution.
The Bureau announces its Advisory Opinions Policy (AOP).
On December 3, 2020, the Bureau published in the Federal Register its AOP, which sets forth procedures to allow interested parties to request that the Bureau issue an advisory opinion to resolve regulatory uncertainty and the manner in which the Bureau will evaluate and respond to such requests. Although the opinions will not be subject to notice and comment rulemaking, interested parties can comment on them after they are published in the Federal Register or on the Bureau’s website. The AOP indicates the following factors will support issuing an advisory opinion:
- the Bureau indicated during examinations that additional regulatory clarity would be beneficial;
- the issue has significant importance or would provide significant benefit; or
- the issue involves an ambiguity not previously addressed by an authoritative source.
The following factors will weigh against issuing an advisory opinion:
- the Bureau has a current investigation or enforcement action relating to the issue;
- the issue is the subject of a current or planned rulemaking;
- the issue is better addressed through notice-and-comment rulemaking;
- the issue could more effectively be addressed through a Compliance Aid; or
- the issue is addressed in clear existing Bureau or court precedent.
One of the advisory opinions the Bureau recently issued is summarized next.
The Bureau issued an advisory opinion to clarify the requirements of one of the special purpose credit programs under the Equal Credit Opportunity Act (ECOA) and Regulation B.
On January 15, 2021, the Bureau published an advisory opinion in the Federal Register to clarify the requirements of a special purpose credit program to meet special social needs. Under ECOA and Regulation B, a creditor may extend special purpose credit in three circumstances, including a program to meet special social needs. See 12 C.F.R. §1002.8(a)(3). To qualify, the program must be administered under a written plan, identify the class of persons it is designed to benefit, and set forth the procedures and standards for extending credit. The regulation also requires that the program is administered to extend credit to a class of persons who under the creditor’s lending standards likely would not receive credit, or on less favorable terms, than are ordinarily available to other applicants applying for credit under similar terms. The advisory opinion clarifies these requirements. The opinion was effective on January 15, 2021.