On November 6, the OCC issued two bulletins to announce an addition and revisions to the Comptroller’s Handbook. The OCC also rescinded certain Handbook provisions. Bulletin OCC 2013-30 adds to the Handbook the “Qualified Thrift Lender” (QTL) booklet, which includes the “Qualified Thrift Lending Test,” issued June 2002 as part of the Office of Thrift Supervision’s Examination Handbook. The revisions are statutory in nature and include, among other things, new language pursuant to the Dodd–Frank Act regarding QTL failure and the violation of HOLA section 5 and additional limitations in the payment of dividends. Bulletin OCC 2013-31 updates the “Insider Activities” booklet and provides guidance for examiners and bankers on how national banks and federal savings associations may legally and prudently engage in transactions with insiders. The booklet explains how to implement risk management processes that provide for the appropriate control and monitoring of insider activities and how examiners review and assess insider activities during the supervisory process.
This morning, the CFPB hosted an auto finance forum, which featured remarks from CFPB staff and other federal regulators, consumer advocates, and industry representatives.
Some of the highlights include:
- Patrice Ficklin (CFPB) confirmed that the CFPB, both before issuing the March bulletin and since, has conducted analysis of numerous finance companies’ activities and found statistically significant disparities disfavoring protected classes. She stated that there were “numerous” companies whose data showed statistically significant pricing disparities of 10 basis points or more and “several” finance companies with disparities of over 20 or 30 basis points.
- Much of the discussion focused on potential alternatives to the current dealer markup system. The DOJ discussed allowing discretion within limitations and with documentation of the reasons for exercising that discretion (e.g., competition). The CFPB focus was exclusively on non-discretionary “alternative compensation mechanisms”, specifically flat fees per loan, compensation based on a percentage of the amount financed, or some variation of those. The CFPB said it invited finance companies to suggest other non-discretionary alternatives. Regardless of specific compensation model, Ms. Ficklin stated that in general, nondiscretionary alternatives can (i) be revenue neutral for dealers, (ii) reduce fair lending risk, (iii) be less costly than compliance management systems enhancements, and (iv) limit friction between dealers on the one hand and the CFPB on the other.
- There was significant debate over whether flat fee arrangements, or other potential compensation mechanisms, actually eliminate or reduce the potential for disparate impact in auto lending. There was also criticism of the CFPB’s failure to empirically test whether these “fixes” would result in other unintended consequences. Industry stakeholders asserted that such arrangements fail to mitigate fair lending risk market-wide while at the same time potentially increase the cost of credit and constrain credit availability. Industry stakeholders also questioned the validity of the large dollar figures of alleged consumer harm caused by dealer markups. When assessing any particular model, the CFPB’s Eric Reusch explained, finance companies should determine whether (i) it mitigates fair lending risk, (ii) creates any new risk or potential for additional harm, and (iii) it is economically sustainable, with sustainability viewed through the lens of consumers, finance companies, and dealers.
- Numerous stakeholders urged the CFPB to release more information about its proxy methodology and statistical analysis, citing the Bureau’s stated dedication to transparency and even referencing its Data Quality Act guidelines. The DOJ described its commitment to “kicking the tires” on its statistical analyses and allowing institutions to do the same. The CFPB referenced its recent public disclosure of its proxy methodology, noting that this was the methodology the CFPB intended to apply to all lending outside of mortgage.
- Steven Rosenbaum (DOJ) and Donna Murphy (OCC) pointedly went beyond the stated scope of the forum to highlight potential SCRA compliance risks associated with indirect auto lending.
Additional detail from each panel follows. Read more…
On August 16, the Federal Reserve Board issued a final rule establishing the process by which it will assess annual fees for its supervision and regulation of large financial companies. The Dodd-Frank Act directed the Board to collect assessment fees equal to the expenses it estimates are necessary or appropriate to supervise and regulate bank holding companies and savings and loan holding companies with $50 billion or more in total consolidated assets and nonbank financial companies designated by the Financial Stability Oversight Council. The final rule outlines how the Board will (i) determine which companies are assessed, (ii) estimate the total anticipated expenses, (iii) determine the assessment for each of the covered companies, and (iv) bill for and collect the assessment from the companies. For the 2012 assessment period, the first year for which assessment fees will be collected, the Board will notify each company of the amount of its assessment when the rule becomes effective in late October. Payments for the 2012 assessment period will be due no later than December 15, 2013. The Board estimates it will collect about $440 million for the 2012 assessment period. Beginning with the 2013 assessment period, the Federal Reserve will notify each company of the amount of its assessment fee no later than June 30 of the year following the assessment period. Payments will be due by September 15.
This afternoon, the CFPB released its summer 2013 Supervisory Highlights report, which covers supervisory activity from November 2012-June 2013. This is the second such report the CFPB has released; the first report came out in October 2012 and covered activity from July 2011 through September 2012.
The report provides a brief review of the CFPB’s public enforcement actions and non-public supervisory actions and developments in the supervision program, including the issuance of bulletins, the issuance of new fair lending examination procedures, and the reorganization of supervision staff. The report also reviews the CFPB’s risk-based approach to examinations, including the “Institution Product Lines” approach, and outlines the factors that influence examination priorities. The report does not identify any planned supervisory activities.
The bulk of the report, however, summarizes the CFPB’s examination findings. Key findings are discussed below. Read more…
Over the past year, the CFPB has started to publicly outline its supervisory approach to student lending and servicing. In doing so, it repeatedly has identified similarities between the lending practices that led to the subprime mortgage crisis and the escalating default rate in the burgeoning level of student loan debt. Rather than wait for a student loan crisis, the CFPB is attempting to put in place a program it hopes can help prevent one.
As part of that program, at the end of 2012, the CFPB released its student loan examination procedures. Also in 2012 the CFPB released two reports (July 2012 and October 2012) aimed at curbing purported violations of law, and it has continued to highlight student loan issues this year, including in a recent update on student loan complaints. In addition, in March of 2013, partly to address the complaints of student loan debtors, the CFPB announced its intention to supervise and examine the larger non-bank education loan servicers. That rule should be finalized next month.
Student lenders and servicers also should take note of the CFPB’s recently issued debt collection guidance, which, among other things, holds CFPB-supervised creditors accountable for engaging in acts or practices the CFPB considers to be unfair, deceptive, and/or abusive (UDAAP) when collecting their own debts. Many of the guideposts set forth in the guidance reflect the standards to which third-party debt collectors are held accountable under the FDCPA.
For more information about the CFPB’s debt collection guidance, please see a recent article by BuckleySandler Partner Valerie Hletko. Over the coming months, look for additional articles from BuckleySandler attorneys about the CFPB’s activities in the area of student loans and other non-mortgage consumer financial products and services.
Today, the CFPB published a notice indicating that it will review bundled financial products and services. The CFPB is seeking comments on its plans to survey “low-income, underserved consumers” about their savings, credit score, and size of their debt to income ratio for the purpose of understanding whether such bundled products and services have an impact on asset building and financial capability. The CFPB is accepting comments on the planned survey through September 30, 2013.
On July 10, the OCC named Martin Pfinsgraff as Senior Deputy Comptroller for Large Bank Supervision. Mr. Pfinsgraff has been filling that role on an acting basis since Michael Brosnan left the position to become Examiner-in-Charge of an OCC-supervised institution. Mr. Pfinsgraff previously served as Deputy Comptroller for Credit and Market Risk and prior to joining the OCC held senior positions with iJet International, Prudential Insurance Company, and Prudential Investment Corporation.
On May 23, Alabama enacted a bill that clarifies the Alabama Banking Department’s authority to examine subsidiaries and affiliates of state banks and bank holding companies when the Banking Superintendent believes such a company is not operating in compliance with state laws or safe and sound banking practices. The bill, HB 529, also grants the Banking Department authority to examine bank service companies on the same as-needed basis. Finally, the bill clarifies the Superintendent’s right to promulgate regulations and adds bank holding companies in as an entity that may rely on interpretations of banking laws and regulations. The bill took effect immediately.
On May 21, the CFPB and the CSBS released an agreement to coordinate supervision of entities subject to concurrent jurisdiction of the CFPB and one or more state regulators. The Supervisory Coordination Framework is a nonbinding guide that builds off of the parties’ 2011 Memorandum of Understanding, which has since been signed by 59 state regulators. The Framework establishes processes for information sharing, consulting on corrective actions, and coordinating exam schedules and supervisory plans. The Framework also includes a general process for resolving disputes between the CFPB and state regulators, and directs the parties to develop additional processes and procedures to ensure standardization and consistency in implementing the Framework.
On May 2, the CSBS released its 2012 annual report, which aggregates and reviews the organization’s activities in the prior year, identifies future goals for the organization, and outlines specific priorities for 2013. The paper also incorporates more focused reports on past and future activities by various CSBS divisions and boards, including a report from the Policy and Supervision Division that reviews bank supervision, consumer protection and non-bank supervision, and legislative and regulatory policy, including the CSBS positions on community bank regulatory relief and federal proposed capital rules.
On December 17, the CFPB released its Student Lending Examination Procedures, which are an extension of the CFPB’s General Supervision and Examination Manual and will be used as a field guide by CFPB examiners to review student lender compliance with federal consumer financial laws. The Student Lending Examination Procedures are organized in seven modules: (i) Advertising, Marketing, and Lead Generation, (ii) Application, Qualification, Loan Origination, and Disbursement, (iii) Loan Repayment, Account Maintenance, Payoff Processing, and Payment Plans, (iv) Customer Inquiries and Complaints, (v) Collections, Accounts in Default, and Credit Reporting, (vi) Information Sharing and Privacy, and (vii) Examination Conclusion and Wrap-up. Under the first module, for example, CFPB examiners will assess whether a lender’s advertising and marketing practices are deceptive, misleading, or discriminatory by sampling all of the lender’s marketing and advertising materials, including print, electronic and other media, such as the Internet, email and text messages, telephone solicitation scripts, agreements and disclosures. With regard to borrower complaints, examiners will assess, among other things, the systems, procedures, and policies used by a lender for tracking, handling, investigating, and resolving consumer inquiries, disputes, and complaints. The CFPB has the authority to supervise large bank and nonbank student lenders, and, as with its other procedures, the CFPB will use the same examination procedures across both types of institutions.
On December 17, the CFPB announced a reorganization of part of its Division of Supervision, Enforcement, and Fair Lending. Effective immediately, CFPB staff members responsible for supervision activities are organized in two offices: Examinations and Policy. Previously, supervision staff were organized into offices for Nonbank Supervision and Large Bank Supervision. According to the CFPB’s announcement, the Examinations team will (i) recruit, train, and commission examiners, (ii) ensure policies and procedures are followed, and (iii) plan and execute examinations appropriately in light of resources and priorities. The CFPB’s four regional offices will report to the Examinations team, which is being led, on an acting basis, by Paul Sanford. Mr. Sanford had been Acting Assistant Director for Large Bank Supervision. The CFPB explains that its Policy team will ensure that policy decisions for supervision are consistent with both the law and the CFPB’s mission, and that such decisions are consistent across markets, charters, and regions. The Policy team will be further organized by product or service market, rather than by the type of financial institution. Each market team will be responsible for developing supervision strategy and policy across both bank and nonbank markets. Peggy Twohig, formerly the head of the CFPB’s Nonbank Supervision office, will be the Assistant Director of Supervision Policy.