Last week, a group of 31 Republican House Members reportedly submitted a letter to the DOJ and FDIC accusing the agencies of “intimidating some community banks and third party payment processors with threats of heightened regulatory scrutiny unless they cease doing business with online lenders.” According to reports, the letter argues that the government’s actions effectively cut off access to lawful, short-term, high-interest loans available online. Several prominent online lenders have reportedly ceased their lending operations in response to similar pressure from state regulators.
On September 24, the CFPB released an additional mortgage rule implementation resource, entitled the Small Creditor Qualified Mortgages Flowchart. The flowchart walks small creditors through a series of questions to help those institutions determine the types of qualified mortgages they can originate. The chart is included on the CFPB’s broader mortgage rule implementation resources website.
On August 6, the FDIC released a technical assistance video intended to provide community bank management teams with information about regulatory issues and proposed regulatory changes related to interest rate risk. The FDIC plans to release five additional videos over the next five months that will cover fair lending, appraisals and evaluations, troubled debt restructurings and the allowance for loan and lease losses, evaluation of municipal securities, and flood insurance coverage.
On July 11, the Federal Reserve Board announced that Governor Elizabeth Duke submitted her resignation effective August 31, 2013. She was appointed to the Board in August 2008 to fill a term that expired January 31, 2012. During her time on the Federal Reserve Board, Ms. Duke, a former community banker, focused on housing issues and financial regulation, including with regard to the impact of such regulation on community banks. For example, last year she cautioned regulators about the potential impact of the various mortgage and capital rules on small institutions. Ms. Duke, who also previously led the American Bankers Association, did not indicate her future plans.
On June 13, the OCC published a booklet titled “A Common Sense Approach to Community Banking,” which offers best practices the agency believes distinguish high-performing community banks from those that barely survive or fail. The booklet, which previously was distributed to national banks and federal thrifts and now is available on the OCC’s website, focuses on three interrelated areas: (i) risk assessment and management, (ii) strategic planning, and (iii) capital planning. Earlier in the week, the OCC hosted a webinar on cyber threats and vulnerabilities to raise awareness for community banks, and provided a collection of existing regulatory guidance that addresses actions banks should take to help mitigate the risks associated with information security.
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 April 12, the CFPB proposed a rule to amend aspects of its January 10, 2013 final rule on escrow account requirements for first-lien higher-priced mortgage loans (HPMLs). That rule expands existing escrow requirements for such loans and creates a new exemption for small creditors that operate predominantly in rural or underserved areas. The proposal explains that the CFPB did not intend for the escrow rule to state that the CFPB will designate or determine which counties are rural or underserved. Instead, the CFPB intended to require determinations of rural or underserved status to be made by creditors, but also intended for the CFPB to apply both tests to each U.S. county and publish an annual list of counties that satisfy either test for a given calendar year, which creditors may rely upon as a safe harbor. Further, the CFPB proposes clarifications to how rural or underserved status may be determined. The proposal notes that the amended factors also will apply to three other CFPB mortgage rules that provide rural and underserved exemptions. Finally, the proposal (i) notes that the final escrow rule inadvertently removed existing language that provided certain protections related to a consumer’s ability to repay and prepayment penalties for HPMLs, and (ii) seeks to establish a temporary provision to ensure the removed protections remain in effect until the expanded HPML protections take effect on January 10, 2014. The CFPB is accepting comments on the proposed amendments for 15 days following publication in the Federal Register. On April 18, the CFPB published a guide to help small entities comply with the escrow rule. More broadly, the CFPB believes the guide provides an “easy-to-use” summary of the rule for all creditors, as well as servicing market participants, software providers, and other creditor business partners. As with another compliance guide released last week, the CFPB notes that the guide is not a substitute for the rule and the Official Interpretations and does not consider other laws that may apply to the maintenance and administration of escrow accounts.
On April 3, the FDIC released the first in a series of videos to provide technical assistance to bank directors, officers, and employees on areas of supervisory focus and proposed regulatory changes. The initial set of videos cover (i) director responsibilities, (ii) fiduciary duties, (iii) acting in the best interest of the bank, (iv) the FDIC examination process, (v) risk management examinations, and (vi) compliance and community reinvestment act examinations. The FDIC plans to release by June 30, 2013 a second set of videos that will consist of six modules covering (i) interest rate risk, (ii) third party relationships, (iii) corporate governance, (iv) the Community Reinvestment Act, (v) information technology, and (vi) the Bank Secrecy Act. A third installment will follow later in the year and will provide technical assistance regarding (i) fair lending, (ii) appraisals and evaluations, (iii) interest rate risk, (iv) troubled debt restructurings, (v) the allowance for loan and lease losses, (vi) evaluation of municipal securities, and (vii) flood insurance. The FDIC also plans to continue the model introduced as part of prior rulemaking processes and provide overviews and instructions on more complex rulemakings.
On April 2, the CSBS released a letter it sent to encourage the CFPB to adopt an additional procedural mechanism for the CFPB to utilize when determining whether an area should be defined as “rural.” The CSBS explains that the Dodd-Frank Act confers Qualified Mortgage benefits on balloon loans if they are made in rural or underserved areas and that the CFPB has elected to utilize the USDA Economic Research Service’s Urban Influence Codes as the basis of their definition of “rural.” The letter identifies inconsistencies with the existing rural classification systems, and suggests that the CFPB adopt a petition process whereby institutions can seek a determination that a specific area be considered rural for purposes of certain Truth in Lending rural requirements.
NCUA Eases Regulatory Requirements for Certain Small Credit Unions; Finalizes Rule Regarding Troubled State Credit Unions
On January 18, the NCUA published a final rule to amend the definition of “small entities” from those with less than $10 million in assets to those with less than $50 million in assets. The change will allow more credit unions to be considered for relief from NCUA rules. The Regulatory Flexibility Act requires federal agencies to consider the impact of their rules on small entities and allows federal agencies to determine what constitutes a small entity. The NCUA proposed a $30 million threshold, which it adjusted upward following review of comments received on the proposal. The NCUA declined to adopt the $175 million threshold sought by some commenters and used by the Small Business Association and the CFPB. In addition to requiring the NCUA to assess the impact of future proposed and final rules on more small credit unions, the new threshold has the immediate effect of excluding more credit unions from certain requirements under NCUA’s Prompt Corrective Action rule and the requirement to implement interest rate risk policies. The rule requires the NCUA to review the threshold in two years, and every three years thereafter. The new threshold takes effect on February 19, 2013.
On the same day, the NCUA published a final rule to allow the agency to determine whether a state-chartered credit union is in “troubled condition.” Under current law, only a state supervisory authority is permitted to declare a federally insured, state-chartered credit union to be in troubled condition. The NCUA believes that the change will help protect the National Credit Union Share Insurance Fund by leveraging the federal regulator’s resources to increase the likelihood that problems at covered credit unions are addressed. The rule goes into effect on February 19, 2013.
On December 18, the FDIC released the results of a study of U.S. community banking and other community bank measures resulting from its year-long Community Banking Initiative. The study explores the definition of a community bank, structural changes among community and non-community banks, the geography of community banking, the performance of community banks compared to non-community banks, the performance of community bank lending specialty groups, and capital formation at community banks. Other materials developed by the FDIC as part of the Initiative include the findings of a review of the FDIC’s examination, rulemaking, and guidance processes.
On December 10, the FDIC issued Financial Institution Letter FIL-51-2012 to launch the final version of an online calendar to help community banks monitor changes in federal banking rules. The final calendar incorporates comments received from industry stakeholders and provides information regarding (i) notices of proposed, interim, and final rulemakings, (ii) supervisory guidance to financial institutions issued by the FDIC and FFIEC, (iii) joint issuances with other regulators who are not part of the FFIEC, (iv) select items from other regulators relevant to the FDIC’s supervisory examination programs, and (v) outreach and educational events.