On July 20, the Federal Register published the Department of the Treasury’s Request For Information on Expanding Access to Credit Through Online Marketplace Lending (RFI). The RFI seeks public comment on the three specific areas relating to the online marketplace lending industry: (i) business models of and products offered to consumers and small businesses; (ii) potential expansion of access to credit to the historically underserved; and (iii) the ways in which the financial regulatory framework can develop to support safe growth within the industry. According to the RFI, online marketplace lending delivers lower costs and faster decision times than traditional lenders, but, so far, the loans are usually only originated to prime or near-prime consumers. However, some online marketplace lenders are developing product structures and underwriting models that may allow for originating loans to non-prime borrowers at lower interest rates. With the rapid growth occurring in the online lending industry, the RFI aims to assist the Treasury Department in examining online lenders’ potential “to expand access to credit, and how the financial regulatory framework can develop to ensure the industry grows safely.” Comments are due August 31, 2015.
Department of Treasury Extends Comment Period on Expanding Access to Credit Through Online Marketplace Lending
On August 18, the Department of Treasury extended the comment period for the public to respond to its Request for Information (RFI) on online marketplace lending, entitled Public Input on Expanding Access to Credit Through Online Marketplace Lending. Originally published on July 20, the RFI seeks public input on three areas relating to the online marketplace industry: (i) business models of and products offered to consumers and small businesses; (ii) potential expansion of access to credit to the historically underserved; and (iii) the ways in which the financial regulatory framework can develop to support safe growth within the industry. Since the July 20 publication of the RFI, only four (4) comments have been received. Earlier this month, Treasury held a public forum to discuss online marketplace lending, with roughly 80 participants from the marketplace lending industry, consumer advocates, nonprofit public policy organizations, and the financial services industry. Per the August 18 extension, the public will now have until September 30 to provide comments on the RFI.
On July 14, Deputy Secretary of the Treasury Sarah Bloom Raskin delivered remarks at the American Bankers Association Summer Leadership meeting in Baltimore. Speaking on cybersecurity and cyber-resiliency in banking and the financial sector generally, Raskin’s remarks continued her December 2014 remarks in Austin at the Executive Leadership Cybersecurity Conference regarding three main areas, including (i) baseline protections, (ii) information sharing, and (iii) response recovery. According to Raskin, since December the growing number of cyberattacks – including against health insurers and the federal government’s Office of Personnel Management – has made the government and public more mindful of the serious threat posed by cyberattacks. Accordingly, cybersecurity has seen a “profoundly positive cultural change,” moving beyond just the purview of IT specialists. Deputy Secretary Raskin’s most recent remarks added 10 follow-up questions for banks and financial entities to consider, including whether cybersecurity is incorporated into the bank’s governance systems, security controls are tailored to specific cyber risks presented (as opposed to a “one-size fits all” approach), enhanced controls are implemented and adequate training provided, and basic “cyber hygiene” practices (including multi-factor authentication) are followed. Raskin also emphasized the need to appropriately tailor cyber risk insurance.
On April 1, President Obama issued an executive order granting the Department of Treasury new authority to impose sanctions against individuals or entities that engage in activities which benefit from cyber attacks against U.S. including financial institutions. The executive order is a response to an increase of malicious cyber-enabled activities that continue to pose a threat to the United States’ national security, foreign policy, and economy. As noted in a statement released by Treasury Secretary Jack Lew, the executive order “allows [Treasury] to expose and financially isolate those who hide in the shadows of the Internet to conduct malicious cyber activities that threaten the national security, foreign policy, or economic health or financial stability of the United States.” The announcement follows earlier measures made by the White House to combat against cyber attacks, including the creation of a new federal agency to facilitate the sharing of information about potential threats.
On March 25, Department of the Treasury’s Deputy Secretary Raskin delivered remarks regarding the agency’s efforts to enhance cybersecurity as the number of cyber-attacks continue to increase. Raskin outlined three specific areas where financial institutions can better prepare for cyber threats and enhance “cyber resilience” in the event of a cyberattack: (i) increase information sharing among financial institutions, thereby making this a priority for the financial sector worldwide; (ii) ensure that safeguards are in place for all third-party vendors with access to the financial institution’s data and systems; and (iii) design a cyber-preparedness “playbook” that has a “detailed, documented plan so that the firm can react quickly to minimize internal and external damage, reduce recovery and time costs, and instill confidence in outside stakeholders and the public.”
On February 24, the White House released a number of intended nominations for key Administration posts. Among the anticipated nominations were (i) Amias Gerety as Assistant Secretary for Financial Institutions, Department of the Treasury; and (ii) Cono R. Namorato as Assistant AG for the Tax Division, Department of Justice. Gerety began his career at Treasury in 2009 as Senior Advisor in the Office of Financial Institutions, and since June 2014, has served as Counselor in the Office of Domestic Finance. Namorato, currently in private practice, previously held various positions within the DOJ’s Tax Division and the Department of Treasury including serving as Deputy Assistant Attorney General and Director of the Office of Professional Responsibility for the IRS, respectively.
On January 15, the FDIC announced Charles Yi as the agency’s new general counsel. Previously, Yi served as staff director and chief counsel on the Senate Committee on Banking, Housing, and Urban Affairs, as Deputy Assistant Secretary for Banking and Finance at the Department of Treasury, and as Counsel for the Committee on Financial Services of the U.S. House of Representatives. Richard Osterman, who has served as acting General Counsel, will return to his previous position as Deputy General Counsel.
On January 15, the Department of Treasury’s Office of Foreign Assets Control (OFAC) announced a final rule amending its Cuban Assets Control Regulations (CACR) to reflect policy changes previously announced by President Obama on December 17. The amendments (i) allow U.S. financial institutions to maintain correspondent accounts at Cuban financial institutions; (ii) allow U.S. financial institutions to enroll merchants and process credit and debit card transactions for travel-related and other transactions consistent with the CACR; (iii) increase the limit of remittances to $2,000 from $500 per quarter; and (iv) under an expanded license, allow U.S. registered brokers or dealers in securities and registered money transmitters to process authorized remittances without having to apply for a specific license. In addition, OFAC released a FAQ sheet to help explain the new amendments, which are effective January 16.
On December 3, Deputy Secretary Raskin delivered remarks at the Texas Bankers’ Association Executive Leadership Cybersecurity Conference. During her prepared remarks, Raskin noted recent data security breaches across many business sectors, including financial services, and presented ten questions for bank CEOs to consider when assessing their institutions’ cybersecurity readiness. Notably, Raskin urged the bank executives to consider relatively new cyber risk insurance for the financial recovery it provides because the underwriting processes could enhance other cybersecurity controls and provide helpful information for assessing a bank’s risk level. Currently, over 50 insurance carriers offer some form of cyber insurance coverage. Raskin’s remarks come only weeks after Congressional leaders sent a letter to financial institutions requesting that they provide information about their ability to protect consumers and safeguard personal information in the event of a data breach or cyber-attack.
On November 12, the Obama administration nominated Antonio Weiss as Under Secretary for Domestic Finance at the Department of Treasury. If confirmed as Under Secretary, Weiss would be responsible for coordinating policies on banking, debt financing, capital markets, and financial regulation – specifically overseeing implementation of the Dodd-Frank Act. Currently, Weiss serves as the global head of investment banking at a financial advisory and asset management firm.
On October 6, the GAO released a report recommending that the Treasury Department improve its analysis of data it collects on HAMP. As of June, Treasury has disbursed only about one-third of the $38.5 billion in TARP funds allocated to housing programs and fewer borrowers have received first-lien modifications under HAMP than Treasury originally estimated. Treasury does collect data on HAMP denial and redefault rates, but its evaluation of data to help explain differences in these rates between servicers is limited. For example, some variations may be caused by differences in servicer practices that would not necessarily be caught by Treasury’s compliance reviews or analyses of reporting errors. The GAO report recommends more sophisticated analysis of the data in order to identify the reasons for variations in denial rates and redefaults among servicers. The GAO hopes more robust data analysis will help Treasury increase oversight and transparency, improve its policies and guidance, and ensure that HAMP reaches the greatest number of eligible borrowers.
On September 29, Deputy Treasury Secretary Sarah Bloom Raskin delivered remarks on student loans and their macroeconomic consequences at the National Association for Business Economics. With over $1 trillion in outstanding student loan debt, the U.S. has the highest level of student loan debt when compared to any country in the world. Deputy Treasury Secretary Raskin indicated that student loans surpassed credit cards and auto loans as the largest source of unsecured consumer debt. Recognizing that student loan debt is not inherently bad, Deputy Treasury Secretary Raskin emphasized that its impact on the economy cannot be understood without considering both the economic and societal benefits of a more educated workforce. Deputy Treasury Secretary Raskin expressed concern that student loan debt has become a “serious burden for far too many borrowers,” noting that student loan delinquency and default could undermine the country’s economic growth by “crowding out other kinds of investment.” She commented on the number of complaints and testimonials reported by distressed borrowers and advocated for “accuracy and fairness in the loan servicing industry, and transparency and disclosure for borrowers in the loan process.”
On July 24, the OFAC released a settlement agreement with a large bank to resolve apparent violations of narcotics sanctions regulations. The settlement agreement states that during separate periods from September 2005 through March 2009, the bank allowed transactions to be processed for certain individuals designated under the narcotics sanctions regulations, and failed to timely file blocked property reports regarding accounts owned by other designated individuals. The bank did not admit to any allegation made or implied by the apparent violations, but agreed to pay approximately $16.5 million to resolve the matter. The agreement explains that most of the apparent violations were disclosed by the bank to OFAC as a result of remedial action designed to correct a screening deficiency giving rise to the apparent violations, but that such disclosures do not qualify as voluntarily self-disclosed to OFAC within the meaning of OFAC’s Economic Sanctions Enforcement Guidelines because they were substantially similar to apparent violations of which OFAC already was aware.
On July 14, the OMB’s Office of Information and Regulatory Affairs (OIRA) concluded its review of a long-awaited FinCEN proposal to establish customer due diligence requirements for financial institutions, sending the rule back to FinCEN. In its spring 2014 rulemaking agenda, Treasury updated the timeline for the rule to indicate it could be proposed in July with a 60 day comment period. OIRA’s public records do not provide information about what, if any, changes OIRA sought or required prior to FinCEN finalizing the proposal. The public portion of the FinCEN rulemaking has been ongoing since February 2012 when FinCEN released an advance notice of proposed rulemaking to solicit comment on potential requirements for financial institutions to (i) conduct initial due diligence and verify customer identities at the time of account opening; (ii) understand the purpose and intended nature of the account; (iii) identify and verify all customers’ beneficial owners; and (iv) monitor the customer relationship and conduct additional due diligence as needed. FinCEN subsequently held a series of roundtable meetings, summaries of which it later published.
On June 26, Treasury Secretary Jack Lew announced (i) a new financing partnership between Treasury and HUD designed to support the FHA’s multifamily mortgage risk-sharing program; (ii) an extension of the Making Home Affordable (MHA) program for at least one year; and (iii) a new effort to help jumpstart the private label securities market. Under the Treasury-HUD partnership, the Federal Financing Bank (FFB) will finance FHA-insured mortgages that support the construction and preservation of rental housing. The extended MHA program is aimed at allowing the Administration to continue assisting borrowers facing foreclosure and with underwater homes. Finally, the Treasury Department will publish a Request for Comment and plans to host a series of meetings with investors and securitizers to explore ways to increase private lending.