Consumer Compliance Outlook: Third Issue 2021

News from Washington: Regulatory Updates

The Consumer Financial Protection Bureau (Bureau) issues interpretive rule under Regulation Z addressing the effect of the Juneteenth federal holiday on two mortgage rules. 

On June 17, President Joseph Biden signed the Juneteenth National Independence Day Act (Pub. L. 117–17) into law, which designated June 19, 2021, as a new federal holiday. On August 12, 2021, the Bureau published an interpretive rule in the Federal Register to clarify whether creditors should treat June 19 as a federal holiday or a business day for the purposes of certain compliance timing requirements under Regulation Z, including the right of rescission for a closed-end mortgage and certain provisions in the TILA RESPA Integrated Disclosure (TRID).1 The Bureau also noted that if Juneteenth falls on a Saturday, as it did in 2021, an observed federal holiday the preceding Friday is still considered a business day under the regulation.

Because the Juneteenth holiday was signed into law on the afternoon of June 17, 2021 (two days before the 2021 official date of the holiday), the Bureau issued guidance on June 18, 2021, to address concerns that financial institutions had insufficient time to adjust their systems to recognize the new holiday for compliance purposes.

In response to the Bureau’s guidance on this issue, the Federal Reserve issued CA letter 21-12 on September 3, 2021, to discuss its supervisory expectations for the effect of the Juneteenth Federal Holiday on certain provisions of Regulation Z. The CA letter states that “the Federal Reserve does not intend to cite a violation in an examination or initiate an enforcement action due to compliance issues that arose out of the implementation period for the new federal holiday.” The Federal Reserve supervises state member banks with $10 billion or less in consolidated assets for compliance with Regulation Z.

Agencies issue a statement on interagency action for Community Reinvestment Act (CRA) modernization.

On July 20, 2021, the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Comptroller of the Currency (OCC) released a statement on the status of CRA modernization, noting that they “are committed to working together to jointly strengthen and modernize regulations implementing the [CRA]. The agencies have broad authority and responsibility for implementing the CRA. Joint agency action will best achieve a consistent, modernized framework across all banks to help meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods.”

In addition, Federal Reserve Board Governor Lael Brainard issued a statement supporting an interagency rulemaking: “We are delighted to work together to develop a joint Notice of Proposed Rulemaking building on the Board’s September 2020 Advance Notice of Proposed Rulemaking, which was intended to provide a framework for a joint rulemaking that ensures the CRA remains a strong and effective tool to address inequities in access to credit and meet the needs of low- and moderate-income communities and garners broad support.”

Agencies issue proposed guidance on managing the risk of third-party relationships.

On July 19, 2021, the agencies published proposed interagency guidance in the Federal Register on managing third-party risk for the institutions they supervise. If adopted, the guidance would replace the agencies’ existing individual guidance, including the FDIC’s Guidance for Managing Third-Party Risk (2008), the OCC’s Third-Party Relationships: Risk Management Guidance (2013), and the Board’s Guidance on Managing Outsourcing Risk (2013). The preamble notes that third parties can provide significant benefits and advantages to banking organizations — for example, helping to use innovative technology. But the use of third parties also creates risks. The guidance is intended to help banking organizations identify and manage these risks throughout the risk management life cycle.

The proposed guidance addresses many third-party issues, including:

The proposal sought comments on 18 questions. The comment period closed on September 17, 2021. The Board also provided a memo that staff prepared for the Governors.

Agencies release a list of distressed or underserved nonmetropolitan middle-income geographies.

On June 25, 2021, the Board and FDIC announced the availability of the 2021 list of distressed or underserved nonmetropolitan middle-income geographies. These are geographic areas where revitalization or stabilization activities are eligible to receive CRA consideration under the community development definition. The agencies apply a one-year lag period for geographies that were listed in 2020 but are no longer designated as distressed or underserved in the current release. Revitalization or stabilization activities in these geographies are eligible to receive CRA consideration for 12 months after publication of the current list.

Bureau issues interpretive rule to resume examinations of the Military Lending Act (MLA).

On June 23, 2021, the Bureau published an interpretive rule to revisit its prior position that it was not authorized to conduct MLA compliance examinations. The rule clarifies that the Bureau has the authority under the Dodd‒Frank Act (DFA) to conduct MLA examinations of large banks, savings associations, credit unions, and certain nonbanks under its supervisory jurisdiction. The Bureau began conducting MLA compliance examinations in 2013. However, it discontinued them in 2018 because it believed it could only examine institutions for compliance with “Federal consumer financial laws,” a term defined in the DFA that does not include the MLA. In 2019, the Bureau asked Congress to amend the MLA to provide this authority.

The interpretive rule clarifies that the Bureau can conduct MLA examinations under §§1024 and 1025 of the DFA. These sections authorize the Bureau to conduct examinations of very large banks, credit unions, savings associations, and certain nonbanks not only for compliance with federal consumer financial laws, but also for the purposes of “detecting and assessing associated risks to consumers and to markets for consumer financial products and services.” Because under the Bureau’s interpretation, violations of the MLA pose significant risks to consumers that are associated with activities subject to federal consumer financial laws, the Bureau concluded it has the legal authority to conduct MLA examinations. The Bureau’s interpretive rule recognizes the role of the prudential regulators in conducting MLA examinations and notes that applicable statutes grant the prudential regulators broad supervisory and examination powers, which the regulators use for various purposes, including assuring the safety and soundness of supervised institutions, assuring compliance with laws and regulations at those institutions, and other purposes.

On a related note, the U.S. Department of Defense (DoD), which has rulemaking authority for the MLA, published an interpretive rule on February 28, 2020, in the Federal Register to withdraw a prior interpretation. The MLA generally applies to consumer credit transactions, with certain defined exceptions, including an exception for the financing of the purchase of personal property secured by the property being purchased. The DoD issued an initial set of interpretations that included questions-and-answers relating to this exception in August 2016. In December 2017, the DoD expanded the Q&As to encompass the purchase of motor vehicles as well as the purchase of personal property. Subsequent to the publication of the December 2017 interpretations, the DoD received requests to reconsider the amended Q&A. With this issuance, the DoD is withdrawing the December 2017 version of the Q&A and is reverting to the August 2016 version to allow the DoD to conduct additional analysis on this issue. The current version of the Q&As clarifies that a hybrid loan providing both purchase money and a cash advance is not expressly intended to finance the purchase of personal property because the loan provides additional financing unrelated to the purchase. Therefore, this type of transaction does not qualify for the coverage exception under the MLA to purchase personal property secured by the property being purchased. The interpretive rule issued in February 2020 also added a new Q&A regarding the use of an Individual Taxpayer Identification number when an individual does not possess a Social Security number.


1 The Bureau noted that “other provisions of Regulation Z rely on the specific business-day definition and therefore were also affected by the legislation. Those provisions are outside the scope of this interpretive rule.” 86 Federal Register at 44267, 44268 fn 5 (August 12, 2021).