In apparent anticipation of the August slow-down, the agencies released several items last week covering a variety of different areas. The most notable proposals last week would affect banks and their third-party relationships. The FDIC proposed guidance on lending for or through third parties, and the CFPB issued a preliminary proposal that would "drastically" overhaul third-party debt collection. The CFPB also proposed relatively modest changes to the Know-Before-You-Owe disclosures. For banks with exposures to the oil and gas industry, the FDIC re-issued guidance on underwriting and loan management. All banks should note the OCC's update of its guidance on corporate governance.
The full set of developments over the past week includes:
- Meeting of Federal Open Market Committee (July 26-27).
- Target range for federal funds rate remains at ¼ to ½ percent.
- One dissenting vote from President of Kansas City Reserve Bank.
- "The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation."
- Statement available athttp://www.federalreserve.gov/newsevents/press/monetary/20160727a.htm.
- Target range for federal funds rate remains at ¼ to ½ percent.
Civil Money Penalties
- Federal Reserve issues interim final rule making annual adjustment to maximum CMPs (Aug. 1).
- Rule available at http://www.federalreserve.gov/newsevents/press/bcreg/20160801a.htm.
- Comment deadline: Aug. 30.
- OCC releases revised "Corporate and Risk Governance" booklet of the Comptroller's Handbook (July 29).
- Booklet available at http://www.occ.gov/news-issuances/bulletins/2016/bulletin-2016-25.html.
- Monthly CFPB Complaint Snapshot highlights credit card complaints (July 26).
- Complaints involve perceived unfairness in credit decisions, confusion over application of payments to accounts with multiple balances, inadequate disclosure of credit card fees, and misleading offers for reward programs.
- Snapshot available at http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-monthly-complaint-snapshot-spotlights-credit-card-complaints/.
- Banking agencies release Shared National Credits Program Review (July 29).
- "The level of adversely rated (i.e., special mention and classified) assets in the SNC portfolio continues to be higher than observed in previous periods of economic expansion, leading to concern that losses could rise considerably in the next downturn."
- "The high level of credit risk stems from a large share of risky leveraged finance loans underwritten based on weak practices, and the significant decline in oil prices since mid-2014 that has reduced the repayment capacity of obligors in the oil and gas sector."
- "Notwithstanding the riskiness of the existing portfolio, the agencies noted improved underwriting and risk management practices related to the most recent leveraged loan originations as underwriters continued to better align practices with regulatory expectations, and as investor risk appetite moderated away from transactions at the lower end of the credit spectrum."
- Review available at http://www.occ.gov/news-issuances/news-releases/2016/nr-ia-2016-87.html.
- CFTC publishes proposals under consideration to "drastically overhaul the debt collection market" (July 28).
- Proposals are not a notice of proposed rulemaking or even an advance notice of proposed rulemaking but instead are issued in advance of Small Business Review Panel Meeting.
- Proposals would require debt collectors to:
- Substantiate the debt before contacting consumer.
- Limit communication attempts to 6 contacts per week, with enhanced blocking opportunity for consumer.
- Include more specific information about debt in initial collection notices.
- Provide a written debt report to consumer in certain situations.
- In the event consumer disputes validity of debt, cease collection efforts until necessary documentation is checked.
- Cease collections on purchased debt subject to consumer dispute.
- Outline of proposals available at http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-considers-proposal-overhaul-debt-collection-market/.
- Other materials:
- Remarks of CFPB Director Cordray available athttp://www.consumerfinance.gov/about-us/newsroom/prepared-remarks-cfpb-director-richard-cordray-field-hearing-debt-collection/.
- Blogpost available at http://www.consumerfinance.gov/about-us/blog/were-working-improve-fairness-and-transparency-debt-collection-market-you/.
- To accompany proposal, CFPB publishes Study of third-party debt collection operations (July 28).
- Of surveyed forms, majority collected medical debt.
- Audits by clients varied widely.
- Client-imposed caps on telephone calls also varied widely.
- Study available at http://www.consumerfinance.gov/data-research/research-reports/study-third-party-debt-collection-operations/.
- Banking agencies release guidance on submission of self-assessments of diversity policies and practices (Aug. 2).
- Self-assessments and submissions are both voluntary.
- Institutions encouraged to display policies and self-assessments on their websites.
- Guidance available at https://www.fdic.gov/news/news/press/2016/pr16064.html.
- FDIC proposes changes to guidelines on appeal of material supervisory determinations (July 29).
- Changes designed to improve transparency and expand circumstances under which bank may file an appeal.
- Proposal, FIL-52-2016, available athttps://www.fdic.gov/news/news/financial/2016/fil16052.html.
- Comment deadline: 60 days after publication in Federal Register.
- FDIC also issues FIL-51-2016, updating and reissuing letter, "Reminder on FDIC Examination Findings" (July 29).
- Letter highlights importance of open communication about supervisory findings.
- Earlier letter was FIL-13-2011.
- FIL-51-2016 available at https://www.fdic.gov/news/news/financial/2016/fil16051.html.
Mortgage Loans -- Disclosures
- CFPB proposes updates to Know-Before-You-Owe disclosure rules (July 29).
- Substantive changes would include:
- Enhanced tolerances for treatment of finance charge in disclosure of total payments.
- Clarification of disclosure requirements for certain housing assistance loans with partial exemption.
- Extension of rule to all cooperative units.
- Application of rules on privacy and sharing of information with third parties.
- Proposal available at http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-proposes-updates-know-you-owe-mortgage-disclosure-rule/.
- Comment deadline: Oct. 18.
- Substantive changes would include:
Oil and Gas
- FDIC issues FIL-49-2016 to remind banks with oil and gas exposures to maintain sound underwriting, strong credit administration, and effective risk management (July 27).
- Complex factors such as global supply and demand, geopolitical uncertainty, weather-related disruptions, fluctuations and volatility in currency markets, and changes in environmental and other governmental policies create volatility for borrowers tied to or reliant on the O&G industry that will directly affect borrowers' financial condition and repayment capacity.
- Lending for O&G exploration and production activities in particular requires conservative underwriting, appropriate structuring, experienced and knowledgeable lending staff, and sound loan administration practices.
- For institutions doing business in O&G dependent areas that would be affected by volatility in commodity prices, prudent management of geographic, industry, and borrower concentrations is needed for sound risk management of such exposures. Higher capital levels may be necessary.
- FDIC-supervised banks encouraged to work with borrowers adversely affected by a severe or protracted downturn in commodity prices in accordance with a well-conceived workout plan and effective internal controls to manage these loans.
- FIL-49-2016 available at https://www.fdic.gov/news/news/financial/2016/fil16049.html.
- Banking agencies finalize rule exempting certain commercial and financial end users from margin requirements for certain swaps not cleared through a clearinghouse (Aug. 1).
- Rule adopts previous interim final rule (published Nov. 2015) without change.
- Rule available at http://www.occ.gov/news-issuances/news-releases/2016/nr-ia-2016-89.html.
- FDIC proposes guidance on third-party lending in FIL-50-2016 (July 29).
- Third-party lending defined as an arrangement that relies on a third party to perform a significant aspect of the lending process, including originations for third parties, originations through or jointly with third parties, and originations using platforms developed by third parties.
- Board and senior management ultimately responsible for arrangements as if all activities were performed within bank.
- Requirement for risk management program and compliance management system that address risk assessment, due diligence and oversight, and contracting structuring.
- For banks with significant third-party relationships, 12-month examination cycle, concurrent risk management and consumer protection examinations, offsite monitoring, and possible review of third parties.
- FIL-50-2016 available at https://www.fdic.gov/news/news/financial/2016/fil16050.html.
- Comment deadline: Sept. 12.
Too Big to Fail
- Federal Reserve and FDIC extend by one year, from Dec. 31, 2016, to Dec. 31, 2017, for 36 domestic bank holding companies and two designated nonbanks to submit resolution plans (Aug. 2).
- Announcement available at https://www.fdic.gov/news/news/press/2016/pr16063.html.
- OFR publishes Financial Stability Monitor with mid-year assessment of risks to financial stability (July 25).
- "Overall risks to U.S. financial stability remain in the medium range. However, they have been pushed higher by the vote in the United Kingdom to exit the European Union."
- Other key vulnerabilities include elevated credit risk, ultra-low interest rates, and "uneven resilience" in U.S. financial system.
- Monitor and accompanying "heat map" available at https://financialresearch.gov/press-releases/2016/07/25/ofr-financial-stability-assessment-risks-in-medium-range-but-uk-vote-weighs/.
- Federal Reserve extends until Sept. 16 the deadline for comments on ANPR on conceptual frameworks for capital standards for systemically important insurance companies and insurance companies that are bank or thrift holding companies (July 25).
- "Consolidated approach" for systemically important insurance companies.
- "Building block approach" for insurance companies that own a bank or thrift.
- Announcement available athttp://www.federalreserve.gov/newsevents/press/bcreg/20160725a.htm.
- ANPR available at 81 Fed. Reg. 38631 (June 14, 2016) and athttp://www.federalreserve.gov/newsevents/press/bcreg/20160603a.htm.
- Aug. 4
- FDIC 2016 Joint Mutual Forum, Arlington VA.
- Aug. 16
- OCC Director Workshop, "Risk Governance," Kansas City MO.
- Aug. 17
- OCC Director Workshop, "Credit Risk," Kansas City MO.
- Sept. 8-9
- FDIC 16th Annual Bank Research Conference.
- Sept. 13
- OCC Director Workshop, "Credit Risk," Duluth MN.
- Sept. 14
- OCC Director Workshop, "Compliance Risk," Duluth MN.
- Oct. 19
- FDIC Money Smart Train-the-Trainer Online Live Meeting.
- Oct. 27-28
- FDIC 6th Annual Consumer Research Symposium.
Regulatory Comment Deadlines
- Aug. 5
- Federal Reserve/FDIC/OCC: net stable funding ratio.
- Federal Reserve: amendment of QFCs to prevent immediate cancellation in event of bankruptcy or other resolution.
- Aug. 8 – Treasury/IRS: foreign-owned, single-owner entities required to obtain EIN.
- Aug. 22 – CFPB: ban on mandatory arbitration clauses.
- Aug. 29 – FDIC: replacement of references to credit ratings in international banking regulations.
- 30 days after publication in Federal Register
- Federal Reserve/CFPB: changes to exemption thresholds under Truth in Lending Act for consumer loans and leases.
- Federal Reserve/FDIC/OCC/CFPB: changes to threshold for exemption of small loans from higher priced mortgage loan appraisal requirements.
- Aug. 30
- OCC: adjustment of maximum CMPs to account for inflation.
- Federal Reserve: adjustment of maximum CMPs.
- Sept. 12 – FDIC: third-party lending guidance.
- Sept. 14 – CFPB: payday loans.
- Sept. 16 – Federal Reserve: capital requirements for certain insurance companies.
- 60 days after publication in Federal Register – FDIC: appeals of supervisory determinations.
- Oct. 18 – CFPB: changes to required Know-Before-You-Owe mortgage lending disclosures.