The Consumer Financial Protection Bureau (CFPB or Bureau) recently released its Spring Supervisory Highlights summarizing findings from supervisory exams it conducted between July and December 2021.
LATEST REGULATORY DEVELOPMENTS IMPACTING
THE FINANCIAL SERVICES INDUSTRY
THE FINANCIAL SERVICES INDUSTRY
More than six years after it was decided, the practical consequences of the US Court of Appeals for the Second Circuit’s Madden v. Midland Funding, LLC decision continue to diminish. The decision—which held that, under some circumstances, a loan originated by a bank became subject to state usury laws once transferred to a non-bank—implicitly rejected the long-standing doctrine of “valid when made” and once threatened to upend the lending industry. It has been repeatedly narrowed and rarely expanded.
FINRA is proposing to extend the ability of firms to have remote inspections until June 30, 2022. As discussed in the rule filing, FINRA Rule 3110.17 provide firms the option of satisfying their inspection obligations under Rule 3110(c) remotely for calendar years 2020 and 2021, subject to specified conditions. The rule was to automatically sunset on December 31, 2021. FINRA has extended the rule in light of the COVID-19 delta variant, inconsistent vaccination rates, and an uptick in infections. The filing includes a request for immediate effectiveness, with the rule change being operative on January 1, 2022.
As highlighted previously, three federal banking agencies (the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency) recently issued proposed risk management guidance regarding third-party relationships (Proposed Guidance). Among other things, the Proposed Guidance specifies that banking organizations should adopt third-party risk management processes that are commensurate with the identified level of risk and complexity from the third-party relationships, and with the organizational structure of each banking organization.
The proposed guidance also identifies principles that are applicable to each stage of the third-party risk management life cycle, including: (1) developing a plan that outlines the banking organization’s strategy, identifies the inherent risks of the activity with the third party, and details how the banking organization will identify, assess, select, and oversee the third party; (2) performing proper due diligence in selecting a third party; (3) negotiating written contracts that articulate the rights and responsibilities of all parties; (4) having the board of directors and management oversee the banking organization’s risk management processes, maintaining documentation and reporting for oversight accountability, and engaging in independent reviews; (5) conducting ongoing monitoring of the third party’s activities and performance; and (6) developing contingency plans for terminating the relationship in an effective manner. The proposed guidance provides extensive details on all the above identified principles.
The Consumer Financial Protection Bureau (CFPB or Bureau) issued a Statement of Policy (Statement) on March 8 making it clear that going forward it will exercise its full authority to penalize covered persons found to have engaged in abusive acts or practices, 12 U.S.C. §5536(a)(1)(B), in violation of its core consumer protection authority. In doing so, the Bureau’s acting director rescinded a January 20, 2020, Policy Statement (2020 Statement) issued by a director appointed by former President Donald Trump, in which the Bureau advised, among other things which we have previously discussed, that it would generally not seek civil penalties for “abusive conduct” unless there had been a lack of a good faith effort to comply with the law.
We previously reported on recent mortgage rulemakings that were finalized by the Consumer Financial Protection Bureau (CFPB or Bureau) late last year. Of the two final rules from the Bureau, one drastically simplifies the definition of a “qualified mortgage” (QM) (the General QM Final Rule), and the other provides an alternate pathway to QM safe harbor status for certain seasoned mortgage loans (the Seasoned QM Final Rule). Both of these final rules—with potentially major impacts on the housing market—were published in the Federal Register on December 29, 2020, with effective dates of March 1, 2021 (although the General QM Final Rule contains a mandatory compliance date of July 1, 2021).
The California Department of Financial Protection and Innovation (DFPI) announced in its January 2021 monthly bulletin that it will begin exercising its enhanced powers under the California Consumer Financial Protection Law (CCFPL) that came into effect January 1.
The Office of the Comptroller of the Currency (OCC) issued a final rule on October 27 that determines when a national bank or federal savings association (bank) makes a loan and is the “true lender” in the context of a partnership between a bank and a third party, such as a marketplace lender.
The five federal banking agencies (Federal Reserve, CFPB, FDIC, NCUA, and OCC – collectively Agencies) issued a proposed rule on October 20 on the role of supervisory guidance. The proposal codifies and expands upon a 2018 statement from the same agencies about which we previously reported. In November 2018, the Agencies (aside from the NCUA) received a petition for a rulemaking, as permitted under the Administrative Procedure Act, requesting that the Agencies codify the 2018 statement.