Bank Regulatory News and Trends

Bank Regulatory News and Trends

Fed Reserve

Bank Regulatory News and Trends

Bank Regulatory News and Trends

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This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.

  • State attorneys general object to proposed OCC rule on loans that are sold, assigned or otherwise transferred (aka the "Madden Fix"). New York Attorney General Letitia James has led a bipartisan coalition of attorneys general from 21 states and Washington, DC objecting to a rule proposed by the OCC intended to clarify that the longstanding understanding that the interest rate on a loan made by a bank is still valid after being sold to a non-bank (aka the "valid-when-made doctrine"). The OCC proposal, announced in November, was hailed by the banking industry as providing greater certainty for online lenders, but the coalition of state attorneys general expressed concern that payday lenders will encourage some banks to originate high interest loans and then sell those loans to the payday lender. In a January 21 comment letter on the proposed rule, the attorneys general urged OCC to reject the proposed rule that they said would enable predatory lenders to circumvent state caps – or usury laws – through "rent-a-bank" schemes, in which regulated national banks act as lenders in name only and enter into what the AGs call "sham partnerships with unregulated entities so that they can receive exemptions that allow them to issue loans at interest rates that exceed state caps." Presumably, the OCC response would be that comprehensive regulation of national banks’ operations and risk profiles would prevent or deter such occurrences. As reported in the November 25 edition of Bank Regulatory News and Trends, OCC issued the rule, in conjunction with a parallel proposal by the FDIC, in response to concerns arising from the Madden v. Midland Funding case, in which the US Court of Appeals for the Second Circuit ruled that debt collectors and other non-banks are subject to state usury laws limiting high rates. "The OCC has no authority to unilaterally rewrite federal and constitutional law to suit its policy preferences," the AGs wrote. "Unfortunately, that is precisely what the Proposed Rule does."  In a related development, the House Financial Services Committee had scheduled for January 30 – but then postponed – a hearing titled "Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps." A new date has not yet been announced.
  • Fed to host fintech innovation office hours, launches fintech innovation online resource. The Federal Reserve will hold a series of "fintech innovation office hours" across the country to meet with banks and companies engaged in emerging financial technologies. Co-hosted by the Fed and regional Reserve Banks, the sessions are intended as an opportunity for supervised financial institutions and technology firms providing services to banks to speak with Fed staff with expertise in fintech issues and developments. In particular, the Fed hopes community banks and their potential fintech partners will benefit from these sessions. The first of the series will be at the Federal Reserve Bank of Atlanta on Wednesday, February 26. Firms interested in participating in the Atlanta meetings can sign up here. The Fed says the meetings are limited to 50 minutes and are by appointment only. Interested parties are asked to specify their topics of interest or objectives. The Fed will not provide supervisory review or approval as part of the discussions.
  • In a related development, the Fed on December 17 launched a new section of its website specifically focused on fintech innovation. The Fed said the new online feature is intended to be "a central hub of information for stakeholders interested in learning about and engaging with the Board on innovation-related matters," and includes the latest Fed Consumer Compliance Supervision Bulletin.
  • OCC annual report highlights CRA modernization and BSA/AML compliance. The OCC has published its 2019 annual report, providing an overview of the agency’s strategic priorities, key regulatory and policy initiatives, the state of OCC’s internal organization and its interactions with supervised institutions. The report opens with Comptroller of the Currency Joseph Otting listing his core strategic priorities, including efforts to modernize the Community Redevelopment Act (CRA) along the lines of the proposal offered jointly by the OCC and FDIC in December (see the January 14 edition of Bank Regulatory News and Trends for more information). CRA modernization steps highlighted by Otting include clarifying which activities qualify for CRA credit, expanding assessment areas to reflect changes in the delivery of banking services, creating more objective methods for measuring CRA performance and standardizing reporting requirements. Otting also prioritized reducing the burden of compliance with Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations while protecting the financial system. "The regulations should be updated to address rapidly evolving risks, including the inappropriate use of shell companies, and to make better use of technology to protect the financial system from illicit activity," Otting said. Other priorities emphasized by the Comptroller include encouraging the federal banking system to meet short-term, small-dollar credit needs; operating the agency as efficiently and effectively as possible; and empowering OCC staff to meet agency strategic objectives.
  • House Financial Services Committee plans critical look at OCC’s CRA proposal. On Wednesday, January 29, the full Committee will convene for a hearing titled, "The Community Reinvestment Act: Is the OCC Undermining the Law’s Purpose and Intent?"
  • White House officially announces Shelton and Waller for Fed Board. Following a six-month vetting period, the White House has formally announced two nominations to the Federal Board of Governors that were originally announced by President Trump on Twitter last July. In a January 16 statement, the White House formally nominated Dr. Judy Shelton and Dr. Christopher Waller to the Board. Shelton most recently served as US executive director of the European Bank for Reconstruction and Development. Her nomination has attracted attention and some controversy because of her support for tying the dollar’s value to gold. Waller is currently director of research at the Federal Reserve Bank of St. Louis and has had a long career in academia. Both nominees have recently spoken in support of keeping interest rates low, putting them on the side of the president and potentially at odds with Federal Reserve Chairman Jerome Powell.
  • EBA proposes new stress test framework. The European Banking Authority (EBA) has proposed a new framework that would separate stress tests into two separate parts for supervisors and banks and allow banks to publish their own results alongside the EBA’s. The EBA Discussion Paper, "On the future changes to the EU-wide stress test," published January 22, proposes changes to the widely used tool for supervisors to assess the resilience of banks and banking sector solvency that would not take effect before 2022, leaving the current system in place for at least two more years. The proposal calls for two components: a "supervisory leg," based on the current "bottom-up" EU methodology; and a "bank leg" – "less prescriptive" than the current approach, though banks would have to explain their rationale for deviating from the current methodology. Both legs would use the same common scenarios and starting points for projecting the stress test results, to ensure that the two metrics are comparable. "The framework we are proposing today aims at making the EU-wide stress test more informative, flexible and cost-effective," said EBA Chair José Manuel Campa. "It is the first time we embark on a comprehensive discussion on the future of EU stress testing, and we are keen to receive feedback from a wide range of stakeholders." April 30 is the deadline for stakeholder feedback.
  • Fed plans January 30 votes on new Volcker rule covered funds proposal and bank ownership rule. At its public meeting on Thursday, January 30, the Fed Board will vote on releasing a proposal to modify the "covered funds" portion of the Volcker rule. Regulators last year finalized a rollback of the proprietary trading ban section of the Dodd-Frank-mandated rule, named for former Fed Chair Paul Volcker who passed away in December. But the banking industry has sought greater streamlining or simplification of the restrictions intended to prevent banks from having stakes in certain private equity, hedge and similar funds that meet the definition of "covered funds," leading the Fed and other regulators to seek a remedy for relevant provisions in a new rule.
  • At the same meeting, the Fed Board will also vote to finalize a proposed rule announced last April that would clarify what type of ownership constitutes "control" under the Bank Holding Company Act.
  • ABA forecasts continued economic growth, stable interest rates. The American Bankers Association’s Economic Advisory Committee is offering a more optimistic prediction for economic growth in 2020 than its previous outlook suggested, though this year’s growth rate is expected to be lower than that of 2019. ABA’s 2020 economic forecast, released January 16, foresees economic expansion, new jobs and wage gains in 2020 and beyond. It predicts a growth rate of 1.9 percent, down from the estimated 2.3 percent in 2019, but higher than the 1.7 percent growth contained in ABA’s 2020 estimate from a year ago. The advisory committee’s consensus view is that the Fed will hold interest rates steady this year, but the panel was split on whether in 2021 the Fed would continue the status quo, hike rates or lower rates. ABA expects "very modest increases" in 30-year mortgage rates, to 4 percent at the end of 2021, "which will not undermine housing starts, sales or prices," given expected gains in construction, sales and home prices. Looking further, the committee expects growth rates of 4.1 percent for consumer credit and 3.4 percent for business credit. "Sustained job gains, low unemployment and strong wage growth will enable consumers to continue supporting the economy, although less robustly than last year, said Catherine Mann, chair of the committee and chief economist at Citigroup.
  • Fed announces chairs and deputies for Reserve Banks in 2020. The Fed Board on January 10 announced the designation of the chairs and deputy chairs of the 12 Federal Reserve Banks for 2020. Each Reserve Bank has a nine-member board of directors. The Fed Board in Washington appoints three of these directors and each year designates one of its appointees as chair and a second as deputy chair.
  • Financial Services Committee fintech task force to hold hearing on mobile payments. The House Financial Services Committee has announced a hearing of its Financial Technology Task Force to review the relevance of cash as the US and many other countries become less dependent on printed currency. Titled "Is Cash Still King? Reviewing the Rise of Mobile Payments," the hearing has been rescheduled for Thursday, January 30, at 9:30 a.m. More information about the hearing and the task force are available at the Committee’s website.