CFPB Request for Information Regarding Consumer Credit Card Market 

Summary re: CFPB Request for Information Regarding Consumer Credit Card Market 

Docket No. CFPB-2023-0009

Section 502(a) of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act or Act) requires the Consumer Financial Protection Bureau (CFPB) to conduct a review of the consumer credit card market, within limits of its existing resources available for reporting purposes.  In connection with conducting that review, and in accordance with Section 502(a) of the Act, the CFPB is soliciting information from the public about a number of aspects of the consumer credit card market.

Comments must be received no later than April 24, 2023.  The RFI can be accessed here.

Summary:

The CARD Act was signed into law in May 2009.  The Act was intended to “establish fair and transparent practices related to the extension of credit” in the credit card market. 

Section 502(a) of the CARD act requires the CFPB to conduct a review, within the limits of its existing resources available for reporting purposes, of the consumer credit market every two years.  The CFPB published its last review in September 2021. To inform its next review, the CFPB invites members of the public, including consumers, credit card issuers, industry analysts, consumer groups and other interested parties to submit information and other comments relevant to the questions posed as well as any additional information they believe is relevant to a review of the credit card market.

The CFPB seeks information from members of the public about how the credit card market is functioning. Specifically, the CFPB seeks comments on the experiences of consumers and credit card issuers in the credit card market as well as the overall health of the market.  The Bureau is seeking responses to the specific questions listed below but welcomes commenters to provide any additional information they believe is relevant.

Terms of credit card agreements and the practices of credit card issuers:

  • How have the substantive terms and conditions of credit card agreements or the length and complexity of such agreements changed over the past two years?
  • How have issuers changed their pricing, marketing, underwriting, or other practices?
  • How are the terms of, and practices related to, major supplementary credit card features (such as credit card rewards, deferred interest promotions, balanced transfers, and cash advances) evolving? What are the terms of, practices related to, and prevalence of emerging supplementary credit card features (such as credit card installment plans)?
  • How have issuers’ marketing practices changed since the CFPB reported on the credit card market in 2021? Has this impacted consumers’ ability to comparison shop? If so, in what ways?
  • What practices of credit card issuers may uniquely affect special populations (such as servicemembers and their dependents, low and moderate-income consumers, old Americans, and students)? What are the effects of protections specific to special populations (for example, the Servicemembers Civil Relief Act or the Military Lending Act)? How are these changing and what, if any, trends are evolving?
  • How have practices related to collecting on delinquent and charged-off credit card debt changed over the past two years?
  • Has the use of electronic communication (e.g., email or SMS) by creditors and debt collectors in connection with credit card debt grown or otherwise evolved? If so, in what ways?
  • How are the terms of, and practices related to, partnerships between credit card issuers and merchant partners (such as hospitality, airline, healthcare, and/or retail companies) evolving?

The effectiveness of disclosure of terms, fees, and other expenses of credit card plans 

  • How effective are current disclosures of rates, fees, and other cost terms of credit card accounts in conveying to consumers the costs of credit card plans?
  • What further improvements in disclosure, if any, would benefit consumers and what costs would card issuers or others incur in providing such disclosures?
  • How well are current credit card disclosure rules and practices adapted to the digital environment? What adaptations to credit card disclosure regimes in the digital environment would better serve consumers or reduce industry compliance burden?

The adequacy of protections against unfair, deceptive, or abusive acts and practices relating to credit cards plans 

  • What unfair, deceptive, or abusive acts and practices exist in the credit card market? How prevalent are those acts and practices and what effect do they have? With regard to any unfair, deceptive, or abusive acts and practices that exist in the credit card market, how might any such conduct be prevented and at what cost?

The cost and availability of consumer credit cards

  • How have the cost and availability of consumer credit cards (including with respect to non-prime borrowers) changed since the CFPB reported on the credit card market in 2021?
  • What is responsible for changes (or absence of changes) in cost and availability? Has the impact of the CARD Act on cost and availability changed over the past two years?
  • How, if at all, are the characteristics of consumers with lower credit scores changing? How are groups of consumers in different score tiers faring in the market? How do other factors relating to consumer demographics or financial lives affect consumers’ ability to successfully obtain and use credit cards?

The safety and soundness of credit card issuers

  • What, if any, safety and soundness risks related to the credit cycle are present or growing in this market, and which entities are disproportionately affected by these risks? Has the impact of the CARD Act on safety and soundness changed over the past two years?
  • How have current dynamics related to funding sources (such as asset-backed securities or deposits) for credit card receivables affected issuers’ profitability and lending operations?
  • What changes, if any, in capital markets for credit cards have there been since the last biennial report? How do capital requirements for different types of institutions affect competition in the credit card market or consumer’s access to and cost of credit? How might these trends positively or negatively impact consumers?

The use of risk-based pricing for consumer credit cards

  • How has the use of risk-based pricing for consumer credit cards changed since the CFPB reported on the credit card market in 2021? What has driven those changes or lack of changes? Has the impact of the CARD Act on risk-based pricing changed over the past two years?
  • How have CARD Act provisions relating to risk-based pricing impacted (positively or negatively) the evolution of practices in this market?

Consumer credit card product innovation and competition

  • How has credit card product innovation changed since the CFPB reported on the credit market in 2021? What has driven those changes or lack of changes? Has the impact of the CARD Act on product innovation changed over the past two years?
  • How is the competition in the credit card market changing? How has the CARD Act (positively or negatively) impacted competition between credit card issuers? How, if at all, do these changes and impacts relate to the cost or availability of consumer credit cards?
  • What barriers to entry, if any, exist in the consumer credit market? What obstacles may smaller financial institutions face when launching a credit card product? How are these impediments changing and what, if any, trends are evolving? To what extent are financial institutions adopting “credit card-as-a-service” offerings? How might these changes affect competition, promote innovation, or introduce risk, if at all?
  • How have broader innovations in finance, such as (but not limited to) new products and entrants offering unique features (like rewards redemption for cryptocurrency, environmental causes, and other categories beyond cash-back or points), evolving digital tools, greater availability of and new applications for consumer data, and new technological tools (like machine learning), impacted the consumer credit card market, either directly or indirectly? In what ways do CARD Act provisions encourage or discourage innovation? In what ways do innovations increase or decrease the impact of certain CARD Act provisions, or change the nature of those impacts?
  • How do innovations by firms offering other consumer financial products and services (such as buy-now-pay-later credit, mobile payments, or non-card point-of-sale loans) compete with credit cards, and to what extent do consumers view them as effective alternatives to or substitutes for credit cards?

The Consumer Financial Protection Bureau issued a circular that asked if “persons” that engage in negative option marketing practices violate the prohibition on unfair, deceptive, or abusive acts or practices in the Consumer Financial Protection Act (CFPA).

The circular was issued on January 19, 2023 and can be accessed here.

Summary

The Bureau answered the question affirmatively and noted the circular was issued to reiterate that covered persons and service providers who engage in negative option marketing are required to comply with the Consumer Financial Protection Act (CFPA)’s prohibition on unfair, deceptive, and abusive acts or practices.

The Bureau further emphasizes that its approach to negative option marketing is generally in alignment with the FTC’s approach to Section 5 of the FTC Act as set forth in its recent policy statement.  According to the circular, the phrase “negative option” refers to a term or condition under which a seller may interpret a consumer’s silence, failure to take an affirmative action to reject a product or service, or failure to cancel an agreement as acceptance or continued acceptance of the offer.  The circular notes that negative option programs can cause harm to consumers who do not wish to receive the products/services for which they are charged.  Harm is “most likely to occur when sellers mislead consumers about terms and conditions, fail to obtain consumers’ informed consent or make it difficult to consumers to cancel.”

The Bureau notes that a seller offering a negative option program risks violating the law if the seller (i) misrepresents or fails to clearly and conspicuously disclose the material terms of a negative option program; (ii) fails to obtain consumers’ informed consent; (iii) misleads consumers who want to cancel, erects unreasonable barriers to cancellation, or fails to honor cancellation requests that comply with its promised cancellation procedures.

Failure to Disclose

Sellers may violate the CFPA’s prohibition on deceptive acts or practices if they misrepresent or fail to clearly and conspicuously disclose the material terms of an offer for a product/service with a negative option feature.  Under the CFPA, a representation or omission is deceptive if it is likely to mislead a reasonable consumer and is material.  A “material” representation or omission “involves information that is important to consumers and, hence is likely to affect their choice of, or conduct regarding, a product.”

Consent

Sellers engaged in negative option marketing would likely violate the CFPA where they fail to obtain the consumer’s informed consent before charging the consumer.  Consent will generally not be informed if, for example, a seller mischaracterizes or conceals the negative option feature, provides contradictory or misleading information, or otherwise interferes with the consumer’s understanding of the agreement.

Enforcement

The Bureau has used its authority under the CFPA’s UDAAP provisions to halt a variety of harmful negative option practices.  The Bureau has also relied on other Federal consumer financial laws (such as the Electronic Fund Transfer Act (EFTA) and Regulation E) that it enforces to address certain harmful negative option marketing practices.

Letter to Credit Unions 23-CU-01
NCUA’s 2023 Supervisory Priorities

NASCUS Legislative and Regulatory Affairs Department
January 19, 2023

On January 18, the NCUA issued Letter to Credit Unions 23-CU-01 outlining the agency’s Supervisory Priorities for 2023. The letter also includes updates to the agency’s examination program for 2023. Not unexpectedly the letter indicates the agency’s focus will be on the areas posing the highest risk to credit union members, the credit union industry, and, the National Credit Union Share Insurance Fund (NCUSIF). The letter also includes links to various NCUA resources applicable to each area of supervisory focus.

NCUA will continue a hybrid examination posture in which examiners will be both onsite and offsite, as appropriate with some examination activity remaining offsite as long as it can be completed “efficiently and effectively at credit unions that can accommodate offsite work.  The extended examination cycle for certain credit unions will also continue in 2023. Eligibility criteria for an extended exam cycle can be found here. NCUA will also continue its Small Credit Union Exam Program in most federal credit unions with assets under $50 million.

Summary

NCUA has indicated the following areas of supervisory focus for 2023.

Interest Rate Risk

As to be expected Interest Rate Risk (IRR) is at the top of the list. Due to the significant rise in interest rates in 2022 and the addition of the Sensitivity “S” component to the CAMELS rating system, NCUA has formalized a focus on IRR as a specific rating category, separate from liquidity risk. Examiners will be reviewing credit unions’ IRR program for the following risk management and controls:

  • Key assumptions and related data sets are reasonable and well-documented.
  • The credit union’s overall level of IRR exposure is properly measured and controlled.
  • Results are communicated to decision-makers and the board of directors.
  • Proactive action is taken to remain within safe and sound policy limits.

Liquidity Risk 

Higher interest rates and the significant increase in share balances from 2020 – 2022. Because of these and other factors, examiners will evaluate the adequacy of a credit union’s liquidity risk management framework relative to the size, complexity, and risk profile of the credit union as well as evaluation of the following:

  • The potential effects of changing interest rates on the market value of assets and borrowing capacity.
  • Scenario analysis for liquidity risk modeling.
  • Scenario analysis for changes in cash flow projections for an appropriate range of relevant factors.
  • The appropriateness of contingency funding plans to address any unexpected liquidity shortfalls.

Credit Risk

Due to high inflation and rising interest rates putting financial pressure on credit union members credit risk is a priority for 2023.  Examiners will review:

  • The soundness of existing lending programs;
  • Adjustments a credit union has made to loan underwriting standards; and
  • Portfolio monitoring practices and loan workout strategies for borrowers facing financial hardship.

Examiners will consider all factors in evaluating credit unions’ efforts to provide relief to borrowers, including whether the efforts were reasonable and conducted with proper controls and management oversight.

Fraud Prevention and Detection

The NCUA remains concerned with fraud risks, particularly given the remote posture of examinations since 2020.  Due to this concern, NCUA will continue efforts to review internal controls and separation of duties. New for 2023, the agency will be implementing a management questionnaire designed to enhance the identification of fraud red flags, material supervisory concerns, or other potential new risks to which a credit union may be exposed.

The questionnaire will be sent to credit unions as part of the pre-examination planning stage for ALL full-scope exams along with the Items Needed List. This will also be included in joint exams with State Supervisory Authorities (SSAs).  Credit unions will only need to complete one questionnaire per examination. If an SSA uses a similar questionnaire NCUA indicates the federal and state examiners will coordinate to decide which questionnaire will be completed.  The questionnaire will be sent through MERIT’s survey function, completed by the credit union CEO or senior executive, and returned through the survey function.  The scope of the examination may be refined based on the responses received.

Information Security (Cybersecurity)

Cybersecurity remains an examination priority for the NCUA. Examiners will be evaluating whether credit unions have established adequate information security programs to protect members and the credit union. The agency has developed and tested updated Information Security Examination procedures tailored to credit unions of varying size and complexity.

Credit unions are encouraged to utilize the Automated Cybersecurity Evaluation Toolbox in preparation for examinations.

Consumer Financial Protection

The agency will continue to review compliance with applicable consumer financial protection laws and regulations for federal credit unions that the NCUA has under its consumer financial protection supervisory authority. Examiners will review credit unions for compliance with:

  • Flood Disaster Protection Act including disclosure requirements, as the agency continues to evolve its understanding of the impact of climate-related financial risks on the industry and the NCUSIF;
  • Overdraft programs, including a review of how these programs are advertised, how account balances are calculated, and transaction settlement;
  • Fair lending, including the review of residential real estate appraisals for any bias, and review of policy and procedures with a focus on steering and possible price discrimination;
  • The Truth in Lending Act, specifically disclosures for auto loans for credit unions that have experienced high auto loan growth in the past year;
  • The Fair Credit Reporting Act, specifically accuracy in data reported, risk-based pricing, and consumer rights disclosures.

Other Updates

Current Expected Credit Loss Implementation

Examiners will evaluate the adequacy of credit union Allowance for Credit Losses (ACL) on loans and leases by reviewing:

  • ACL policies and procedures;
  • Documentation of ACL reservation methodology
  • Adherence to Generally Accepted Accounting Principles (GAAP) (if applicable).

Federally Insured State Chartered Credit Unions (FISCUs) should refer to state law on GAAP requirements and CECL standard applicability (those requirements may be more restrictive).

Succession Planning

In 2023 examiners will be requesting information about a credit union’s approach to succession planning for executive leadership, including written succession plans. The plans will not be considered beyond the current process in assigning the Management “M” component of the CAMELS rating and no Examiner’s Findings or Document of Resolution will be issued if the credit union has not conducted succession planning or the planning is not adequate unless the credit union is in violation of its own policy.

Support for Small and Minority Depository Institutions

The NCUA is committed to continuing its support of Small and Minority Depository Institutions (MDIs) through its support program. The program focuses on providing training and guidance to these institutions and their leadership. The agency expects the program benefits to also include:

  • Greater awareness of the unique needs of small credit unions and MDIs and their role in serving underserved communities.
  • Expanded opportunities for these credit unions to receive support through NCUA grants, training, and other initiatives.
  • Furthering partnerships with organizations and industry mentors that can support small credit unions and MDIs.

The NCUA has also developed MDI-specific exam procedures to assist examiners in their supervision of MDIs.

Post-Examination Survey

The NCUA will continue to gather feedback on examinations through the post-examination survey process. Also of note, federal credit unions may record their exam exit meetings provided they comply with applicable laws and regulations for recording and provide a copy of the recording to the NCUA. These recordings can be useful to both credit unions and the NCUA. NCUA examiners will agree to the recording of the exam exit meetings, and the NCUA will monitor how often exam exit meetings are recorded.

Final Rule Summary
Federal Reserve: Regulation D – Reserve Requirements of Depository Institutions

NASCUS Legislative and Regulatory Affairs Department
January 17, 2023

The Board of Governors of the Federal Reserve System (Board) has adopted final amendments to Regulation D (Part 204) revising the rate of interest paid on balances (IORB) maintained at Federal Reserve Banks by or on behalf of eligible institutions[1]. The IORB is now 4.40 percent, a 0.50 percentage point increase from the prior level. The final rule states the amendment is intended to “enhance the role of IORB in maintaining the federal funds rate in the target range established by the Federal Open Market Committee (FOMC).

The amendment took effect on January 13, 2023.

Summary

On December 14, 2022, the Board voted unanimously to raise the interest rate paid on balances to 4.40 percent as a result the Board is amending §204.10(b)(1) of Regulation D to establish the new rate.

Section 19 of the Federal Reserve Act[2] imposes reserve requirements on certain types of deposits and other liabilities of depository institutions. Regulation D implements Section 19 and requires that a depository institution meet reserve requirements by holding cash in its vault or by maintaining a balance in an account at a Federal Reserve Bank.[3] Section 19 also provides balances maintained by eligible institutions in an account at a Federal Reserve Bank are eligible to receive earnings on balances held. Finally, Section 19 permits the Board may prescribe regulations concerning the payment of earnings on these balances. Prior to this latest amendment, the IORB was 3.90 percent.

The amendment to the IORB was not subject to notice and comment under the Administrative Procedures Act[4], as the Board determined that good cause existed for finding that a notice, public comment, and delayed effective date provisions were unnecessary, impracticable, or contrary to public interest.

The final rule indicates that the rate change for IORB was made to accommodate commerce and business and “with regard to their bearing upon the general credit situation of the country.”  The Board determined that notice, public comment, and a delayed effective date would “create uncertainty about the finality and effectiveness of the Board’s action and undermine the effectiveness of that action.”

[1] 12 CFR 204.1(c)(1)(i-v)

[2] 12 U.S.C. 461(b)

[3] 12 CFR 204.5(a)(1)

[4] 12 U.S.C. 551

Notice of Proposed Rulemaking and Request for Comment
FinCEN: Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities

NASCUS Legislative and Regulatory Affairs Department
January 13, 2023

On December 16, 2022, FinCEN issued a notice of proposed rulemaking (NPRM) and request for comment and an accompanying Fact Sheet regarding access by authorized recipients to beneficial ownership information (BOI) that will be reported to FinCEN pursuant to Section 6403 of the Corporate Transparency Act (CTA)[1], enacted under the Anti-Money Laundering Act of 2020 (AML Act).  This proposed rule is the second rulemaking under the CTA addressing BOI and would implement protocols on security and confidentiality required by the CTA in order to protect personally identifiable information (PII) reported to FinCEN as required under the BOI final rule. NASCUS summary of the BOI final rule can be found here.

The NPRM explains the circumstances in which specific recipients (financial institutions for example) would have access to BOI and outlines data protection protocols and oversight mechanisms applicable to each category of those who will have access to BOI. The NPRM will also specify when and how reporting companies can use FinCEN identifiers to report the BOI of entities.

The intent of the proposed regulation is to ensure:

  1. Only authorized users have access to BOI;
  2. Authorized access only for purposes permitted by the CTA; and
  3. Authorized users only re-disclose BOI in ways that balance protection of the security and confidentiality of the BOI with furtherance of the CTA’s objective of making BOI available for purposes specified in the CTA.

The proposed rule and request for comment can be found here.

Comments are due on or before February 14, 2023

Summary

The CTA imposes strict confidentiality on the storage, access, and use of BOI, restricting FinCEN disclosure to a statutorily defined group of governmental authorities and financial institutions under limited circumstances. It further defines that such information is to be maintained in a secure, nonpublic database.

The CTA authorizes five categories of “recipients” (users) who may receive BOI from FinCEN.

  1. Federal, State, local, and Tribal government agencies.
    • Agencies engaged in national security, intelligence, or law enforcement activity.
    • Federal agency access is “activity-based” meaning a Federal functional regulator may be engaged in “law enforcement activity” and therefore still request BOI from FinCEN
    • State, local, and Tribal law enforcement agencies may also obtain BOI, if “a court of competent jurisdiction” has authorized the agency to seek the information.
  2. Foreign law enforcement agencies, judges, prosecutors, central authorities, and competent authorities.
    • Requests must come through an intermediary Federal agency.
    • Must meet certain criteria and are made under;
      • An international treaty, agreement, or convention
      • Via a request made by law enforcement, judicial, or prosecutorial authority in a trusted foreign country.
  3. Financial Institutions (FI) using BOI to facilitate compliance with Customer Due Diligence (CDD) requirements under applicable law.
    • FI requesting the BOI has the reporting company’s consent for such disclosure.
  4. Federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity assessing FIs for compliance with CDD.
    • These agencies may access the BOI that the FIs they supervise received from FinCEN.
  5. U.S. Department of Treasury
    • CTA provides “unique” access to BOI tied to an officer or employee’s official duties requiring BOI inspection or disclosure, particularly tax information.

Access Capabilities

Access by Federal, State, and local Tribal government agencies:

FinCEN expects three types of domestic agency users to be able to access and query the beneficial ownership IT system directly: (1) Federal agencies engaged in national security, intelligence, and law enforcement activity; (2) Treasury officers and employees who require access to BOI to perform their official duties or for tax administration; and (3) State, local, and Tribal law enforcement agencies. This access would permit authorized individuals within an authorized “recipient” agency to log in, run queries using multiple search fields, and review results returned immediately.  These agencies will be required to submit a justification to FinCEN for the respective searches and would be subject to FinCEN oversight and audit.

State, local, and Tribal law enforcement would be required to upload court documents authorizing the search for FinCEN’s review and approval. As part of the IT system protocols, each agency would need to enter into a memorandum of understanding (MOU) with FinCEN before being allowed access to the system.

The remaining authorized “recipient” categories will NOT have access to the broad search capabilities discussed above.

Access by Financial Institutions and Regulatory Agencies for CDD Compliance

Financial institutions and their regulators (Federal functional regulators and other appropriate regulatory agencies, when assessing FI’s compliance with CDD requirements) would both have direct access to BOI contained in the beneficial ownership IT system. However, it would be more limited than that of federal agencies and others as previously discussed.

Financial Institutions

The CTA permits FinCEN to only disclose a reporting company’s BOI to an FI if the disclosure facilitates the FI’s compliance with CDD requirements and only if the reporting company has provided consent prior to accessing the information.

FinCEN is not planning to permit FIs to run broad or open-ended searches in the beneficial ownership IT system or receive multiple search results. Instead, FinCEN anticipates, with the consent of the reporting company, that an FI would submit identifying information specific to the reporting company and receive an electronic transcript with the entity’s BOI.  FinCEN does not want to open greater search capabilities and access due to the potential number of FIs requesting BOI on a reporting company.

Additionally, FIs would be permitted to only search the consenting entity customer and not individual beneficial owners.

Under the proposed rule, an FI would be responsible for obtaining the reporting company’s consent to access their BOI information in the IT system. Additionally, the proposal would define “customer due diligence under applicable law” to mean FinCEN’s CDD regulations, requiring FIs to identify and verify beneficial owners of legal entity customers. Of particular note, the proposed rule would NOT permit FIs to request BOI access for other BSA compliance purposes, such as compliance with relation to Customer (Member) Identification (CIP) requirements. Additionally, this limitation would mean that many FIs subject to the Bank Secrecy Act but not subject to the CDD, such as money service businesses (MSBs), would not have access to the BOI database.

Request for comment

FinCEN believes this approach will be easier to administer, however, they are seeking comments specifically as to whether a broader reading of the phrase “customer due diligence requirements” is warranted under the framework of the CTA, and, if so, how customer due diligence requirements should be defined in order to provide regulatory clarity, protect the security and confidentiality of BOI, and minimize the risk of abuse.

Regulators

Similar access limitations are permitted for Federal functional regulators and other appropriate supervisory agencies. Federal and state agencies may request BOI from FinCEN that the FIs they supervise have already obtained. The information may only be requested for assessing an FI’s compliance with CDD requirements under applicable law.

FinCEN is still developing this access model but expects regulators to be able to retrieve any BOI that their supervised institutions received from FinCEN during a particular period, as opposed to data that might reflect subsequent updates. Therefore, regulators would receive the same BOI that FIs received for purposes of their CDD reviews.

FinCEN also expects that Federal functional regulators responsible for bringing civil enforcement actions also will be able to obtain BOI under “activity-based” access. The NPRM proposes that an agency that is not traditionally understood as a “law enforcement” agency, such as a Federal functional regulator (e.g., NCUA), may receive BOI because “law enforcement activity” may encompass civil law enforcement by the agency, including civil forfeiture and administrative proceedings.

Verification of Beneficial Ownership Information

The proposed rule indicates that FinCEN “continues to evaluate options for verifying reported BOI.”  “Verification” means confirming that the reported BOI submitted to FinCEN is accurately associated with a particular individual, creating doubt for FIs and regulators about they ability to rely upon the information in the system.

Request for Comment

FinCEN is seeking feedback on 30 specific requests for comment under six subheadings.

  • Understanding the Rule
  • Disclosure of Information
  • Use of Information
  • Security and Confidentiality Requirements
  • Outreach
  • FinCEN Identifiers

The complete list of specific comments can be found on page 77425 of the NPRM found here.

Of particular note under the subheading of “Disclosure of Information” FinCEN is seeking comments on the following:

(7) FinCEN requests comments discussing how State, local, and Tribal law enforcement agencies are authorized by courts to seek information in criminal and civil investigations. Among the particular issues that FinCEN is interested in are: how State, local, and Tribal authorities gather evidence in criminal and civil cases; what role a court plays in each of these mechanisms, and whether in the commenter’s opinion it rises to the level of court “authorization”; what role court officers (holders of specific offices, not attorneys as general-purpose officers of the court) play in these mechanisms; how grand jury subpoenas are issued and how the court officers issuing them are “authorized” by a court; whether courts of competent jurisdiction, or officers thereof, regularly authorize subpoenas or other investigative steps via court order; and whether there are any evidence-gathering mechanisms through which State, local, or Tribal law enforcement agencies should be able to request BOI from FinCEN, but that do not require any kind of court?

(11) FinCEN proposes that FIs be required to obtain the reporting company’s consent in order to request the reporting company’s BOI from FinCEN. FinCEN invites commenters to indicate what barriers or challenges FIs may face in fulfilling such a requirement, as well as any other considerations.

(12) FinCEN proposes to define “customer due diligence requirements under applicable law” to mean the bureau’s 2016 CDD Rule, as it may be amended or superseded pursuant to the AML Act. The 2016 CDD Rule requires FIs to identify and verify beneficial owners of legal entity customers. Should FinCEN expressly define “customer due diligence requirements under applicable law” as a larger category of requirements that includes more than identifying and verifying beneficial owners of legal entity customers? If so, what other requirements should the phrase encompass? How should the broader definition be worded? It appears to FinCEN that the consequences of a broader definition of this phrase would include making BOI available to more FIs for a wider range of specific compliance purposes, possibly making BOI available to more regulatory agencies for a wider range of specific examination and oversight purposes and putting greater pressure on the demand for the security and confidentiality of BOI. How does the new balance of those consequences created by a broader definition fulfill the purpose of the CTA?

(13) If FinCEN wants to limit the phrase “customer due diligence requirements under applicable law” to apply only to requirements like those imposed under its 2016 CDD Rule related to FIs identifying and verifying beneficial owners of legal entity customers, are there any other comparable requirements under Federal, State, local, or Tribal law? If so, please specifically identify these requirements and the regulatory bodies that supervise for compliance with or enforce them.

(14) Are there any State, local, or Tribal government agencies that supervise FIs for compliance with FinCEN’s 2016 CDD Rule? If so, please identify them.

Also, of particular note under the category of “Use of Information” FinCEN is seeking comment on:

(19) Could a State regulatory agency qualify as a “State, local, or Tribal law enforcement agency” under the definition in proposed 31 CFR 1010.955(b)(2)(ii)? If so, please describe the investigation or enforcement activities involving potential civil or criminal violations of law that such agencies may undertake that would require access to BOI.

NASCUS would also like feedback on a handful of other items not specifically addressed in the NPRM including whether an FI is obligated to access the BOI database for purposes of CDD Rule compliance, or may it choose to do so and what an FI should do if there is a discrepancy between the BOI it received from an entity customer under the CDD Rule and the BOI it receives from FinCEN under the CTA?

[1] 31 U.S.C. 5336

Federal Reserve/FDIC/OCC
Joint Statement on Crypto-Asset Risks to Banking Organizations

Summary
January 8, 2023

The Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) have issued a Joint Statement on Crypto-Asset Risks to Banking Organizations outlining the agencies’ concerns with the volatility and vulnerabilities of crypto-assets and the risks of which banking entities engaged with crypto-assets should be aware. The banking agencies use “crypto-asset” to refer to a digital asset implemented using cryptographic techniques.

NCUA is not a participant to the Joint Statement.

In the Joint Statement, the bank agencies emphasize:

  • The need to prevent crypto-asset sector risks that cannot be mitigated from infecting the banking sector.
  • That the banking agencies continue to take a cautious approach to crypto-asset related activities in banks.
  • That banks are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.
  • That a bank issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system was likely inconsistent with safety and soundness.
  • That the banking agencies have significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector.
  • Banks are advised to implement appropriate risk management related to crypto-assets such as board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring.

In the Joint Statement, the bank agencies highlight the following risks related to crypto-assets:

  • Risk of fraud and scams among crypto-asset sector participants
  • Legal uncertainties related to custody practices, redemptions, and ownership rights
  • Inaccurate or misleading representations and disclosures by crypto-asset companies and unfair, deceptive, or abusive acts and practices
  • Significant volatility in crypto-asset markets
  • Susceptibility of stablecoins to run risk and potential deposit outflows for banks holding stablecoin reserves
  • Contagion risk within the crypto-asset sector resulting from interconnections among certain crypto-asset participants
  • Concentration risk for banks resulting from the interconnected nature of the crypto-asset sector
  • Lack of maturity and robustness of risk management and governance practices in the crypto-asset sector
  • Heightened risks associated with open, public, and/or decentralized networks:
  • Absence of formal internal governance/system oversight
  • Lack of contractual established ownership/roles/responsibilities/liabilities
  • Vulnerability to cyber attacks
  • Potential for illicit finance
NCUA Proposed Rulemaking Summary 2022-0185
NCUA Rules 701 AND 714: Financial Innovation: Loan Participations, Eligible Obligations, and Notes of Liquidating Credit Unions

NASCUS Legislative and Regulatory Affairs Department
January 6, 2023

Background

The NCUA Board[1] approved for publication NPRM NCUA 2022-0185[2]. Published in the Federal Register on December 29, 2022[3], the proposal entitled Financial Innovation: Loan Participations, Eligible Obligations, and Notes of Liquidating Credit Unions seeks to amend 12 CFR Parts § 701 and § 714.  Comments on the NPRM are due February 28, 2023.

The proposed amendments apply to §§701.21, 701.22, 701.23, and 714.9 related to loans and lines of credit to members; the purchase of loan participations and the purchase, sale, and pledge of eligible obligations (including notes from liquidating credit unions).

The proposed amendments are intended to add clarity to the NCUA’s regulations and provide additional flexibility to federally insured credit unions (FICUs) in the use of advanced technologies and other opportunities provided by the financial technology (Fintech) sector.

The proposed amendments attempt to conform NCUA’s rules regarding the aforementioned investment/loan related rules by amending definitions of indirect lending and indirect leasing arrangements to be consistent with concepts outlined in NCUA Legal Opinion 15-0813, Loan Participations in Indirect Loans – Originating Lender[4].

The majority of the proposed changes only apply to FCUs with the exception of amendments to specific sections of §701.22 (participations).  However, the proposed amendments could indirectly impact FISCUs in cases where state agencies use similarly defined state regulations related to the determination of a purchased investment being classified as a loan to member, a participation, or a purchased obligation of a member.  Of particular interest are the proposed amendments found in §701.21.

This summary will highlight the material implications of the changes that directly affect FISCUs and those with the potential to indirectly impact FISCUs through indirect, definitional and/or SSA adoption of NCUA like rules and regulations.

Summary

The following summarizes the material changes proposed to each applicable section as part of the NPRM.

701.21 (Loans to members and lines of credit to members)

Provisions of § 701.21 apply to FCUs with only the following provisions applying to FICUs:

  • Insider lending restrictions as outlined in (c)(8);
  • Non-preferential treatment requirements to FISCU officials or related parties outlined in (d)(5); and
  • Third-party servicing of indirect vehicle loan limitations found in (h).

The NCUA Board is proposing to amend the rule by adding a new paragraph §701.21(c)(9) clarifying the definition of indirect lending and indirect leasing arrangements.  None of these changes relate directly to state-chartered credit unions but may impact state language similarly adopted or bound by definitions in §701.21.  This new language is intended to replace language currently found in §701.23(b)(4)(iv), which would be removed.

Under the proposed §701.21(c)(9) indirect lending and leasing agreements would be defined as written agreements to purchase loans or leases from an originating entity where the purchaser (1) makes the final underwriting decision, and (2) the loan or lease agreement is assigned to the purchaser very soon after it is signed by the member and the originating entity.   It is presumed that loans assigned “very soon after” the agreement between the consumer and the third-party retailer indicate the retailer acts as a facilitator of the loan as opposed to the true initial lender.

The length of time that satisfies the “very soon after” depends on the nature of the loan, the practical realities of assigning certain kinds of loans in the current marketplace and in accordance with prevailing industry standards.[5]  The NPRM states that while “very soon after” is generally determined on a case-by-case basis as described above, the longer the period between the formation of the contract and its assignment, the more likely the program will be viewed as involving the purchase of an eligible obligation rather than the making of a loan.[6]

Presuming such indirect lending or leasing arrangement requirements are met would indicate such investments would be classified as loans to members, as authorized by §701.21, and not as the purchase of an eligible obligation of a member as authorized by §701.23.

701.22 (Loan Participations)

FISCUs must comply with all provisions of §701.22, except (b)(4) which requires a borrower to become a member of one of the participating credit unions before the purchasing federally insured credit unions purchases a participation interest in the loan.

The NCUA Board is proposing to amend the rule by adding clarification to the introductory paragraph and codify NCUA Legal Opinion 15-0813.  This language would clarify that a FICU engaged in an indirect lending relationship can meet the definition of an “eligible organization” under §701.22, provided the FICU meets certain conditions.

Specifically, a FICU would be considered the originating lender and meet the definition of an “eligible organization” if the FICU (1) makes the final underwriting decision regarding the loan, and (2) the loan is assigned to the purchaser very soon after the inception of the obligation to extend credit.  An “originating lender” is defined as a participant with which the borrower initially or originally contracts for a loan and who, thereafter or concurrently with the funding of the loan, sells participations to other lenders.  An originating lender specifically includes a participant that acquires a loan through an indirect lending arrangement as defined under §701.21(c)(9).

The NPRM states the change is intended by the NCUA Board to clarify that a FICU can meet the definition of “originating lender” in certain transactions where the FICU is engaging in indirect lending arrangements with Fintech companies and other third-party loan acquisition channels, such as Credit Union Service Organizations (CUSOs) or other loan-originating retailers.

701.23 (Purchase, sale, and pledge of eligible obligations)

The NCUA Board is proposing to amend the rule through certain clarifying and conforming amendments to the introductory paragraph of §701.23.  No part of §701.23 applies to FISCUs.

Proposed amendments include the deletion of §701.23(b)(4) which excludes certain loans acquired through indirect lending and leasing arrangements from the 5-percent limit on the aggregate of the unpaid balance of certain loans purchased under §701.23.  Excluded loans include student loans, real estate loans, and eligible obligations purchased in accordance with §701.23(b)(4)(b)(1)(iii), (iv), or (i) or purchased through indirect lending arrangements defined in §701.23(b)(4)(iv).  These limitations would be removed and instead, such investments may meet the definition of a loan to a member under the proposed language of §701.21(c)(9).  The 5-percent limitation to unimpaired capital and surplus of the FCU purchaser would still apply to purchases of eligible obligations from liquidating FCUs and FICUs under §701.23(b)(1)(ii) and (2)(ii)

This change, in conjunction with the other changes in §701.21, is intended to provide clarification on the long-standing interpretation[7] that credit instruments acquired by an FCU pursuant to an indirect lending arrangement are considered loans made by the FCU under §701.21, if the aforementioned conditions of underwriting and timeliness of assignment are met, rather than eligible obligations purchased under §701.23.

Amendments to §701.23 would also include removing the CAMELS ratings and well-capitalized requirement found under §701.23(b)(2) for FCU purchases of certain non-member loans from FICUs and add principle-oriented safety and soundness requirements to section §701.23(b)(i)-(vi) concerning the purchase of eligible obligations.  These new safety and soundness requirements are proposed to offset the removal of the CAMELS/ well-capitalized requirements and the 5-percent limit constraints.

The proposed safety and soundness requirement additions on the purchasing FCU related to eligible obligations or notes from a liquidating credit union include:

  • Establishing written, board-approved policies, risk assessments, and risk management process requirements commensurate with the size, scope, type, complexity, and level of risk posed by the planned purchase activities.
  • Conducting due diligence on the seller prior to purchase.
  • Initiating written loan purchase agreements with provisions established in §701.22.
  • Conducting a legal review and assessment of applicable loan purchase agreements or contracts to protect the FCU’s legal and business interests from undue risk

Additional safety and soundness requirements to §701.23(c) relate to the selling FCU and include:

  • Obtaining a legal review and assessment of all applicable loan sale agreements on contracts.
  • Identifying the specific loan(s) being sold either directly in the written loan sale agreement or through a document incorporated by reference in the loan sale agreement.

The NPRM proposes to amend §701.23(b)(5) to broaden the grandfather provision of that section to include purchased obligations where the investments were made in compliance with the current rule so long as updated risk assessments, established concentration limits, and risk monitoring appropriate for safety and soundness are still effective.

Finally, the addition of §701.23(b)(6) implies requirements that purchases of eligible obligations from liquidating credit unions must comply with the purchasing FCUs internal written purchase policies, which must:

  • Require that the purchasing FCU conduct due diligence on the seller of the loans and other counterparties to the transaction prior to purchase.
  • Establish risk assessment and management process requirements that are commensurate with the size, scope, type, complexity, and level of risk posed by the panned loan purchase activities.
  • Establish internal underwriting and ongoing monitoring standards commensurate with the size, scope, type, complexity, and level of risk posed by the activities.
  • Require that the written agreement include (1) the specific loans purchased, the location and custodian of the original loan documents, an explanation of the duties and responsibilities of the seller, servicer, and all parties with respect to all aspects of the loans being purchased, and the circumstances and conditions under which the parties to the agreement may replace the servicer when the seller retains the servicing rights.
  • Establish portfolio concentration limits by loan type and risk category in relation to net worth commensurate with the size, scope, and complexity of the credit unions loan purchases.
  • Address when a legal review of agreements or contracts will be performed to ensure that the legal and business interests of the credit union are protected.

714.9 (Indirect leasing arrangements subject to the purchase of eligible obligation limit set forth in § 701.23)

The NCUA Board is seeking amendments to the rule proposing certain clarifying and conforming amendments. No part of §714.9 applies to state-chartered credit unions.

Proposed amendments would eliminate §714.9 completely as the amendments to the NPRM proposed under §701.23 to remove (b)(4)(iv) would no longer apply the 5-percent limitation to any purchases of eligible obligations, therefore, the current §714.9 would be rendered unnecessary.  Further, the definition of indirect leasing arrangements, previously addressed here, is now defined in §701.21(c)(9).

[1] Board agenda available at https://ncua.gov/files/agenda-items/financial-innovation-proposed-rule-20221215.pdf

[2] Available at https://www.regulations.gov/document/NCUA_FRDOC_0001-0309

[3] Available at https://www.federalregister.gov/documents/2022/12/30/2022-27607/financial-innovation-loan-participations-eligible-obligations-and-notes-of-liquidating-credit-unions

[4]NCUA Legal Op. 15-0813 (Aug. 10, 2015) available at https://www.ncua.gov/regulation-supervision/legal-opinions/2015/loan-participations-indirect-loans-originating-lenders.

[5] The preamble to the 1998 proposal to amend the eligible obligations rule requested public comment on whether the NCUA should specify a certain number of days as constituting “very soon.” 63 FR 41976, 41977 (Aug. 6, 1998). After considering the comments, however, the NCUA Board determined not to specifically define it because it wanted to provide FCUs with flexibility under various circumstances. The NCUA Board also clarified that assignment of the loan means acceptance of the loan and not necessarily the physical receipt of the loan documentation, recognizing that acceptance and payment are often done electronically. However, physical receipt of the loan documents by the FCU should occur within a reasonable time following acceptance of the loan. 63 FR 70997, 70998 (Dec. 23, 1998); see also NCUA Legal Op. 97-0546 (Aug. 6, 1997) (Concluding that an indirect lending arrangement where the retailer made a loan and assigned it to the purchasing credit union within one business day met the “very soon after” timing requirement.).

[6] 63 FR 41976, 41977 (Aug. 6, 1998).

[7] See, e.g., NCUA Legal Op. 97-0546 (Aug. 6, 1997), available at https://www.ncua.gov/regulation-supervision/legal-opinions/1997/indirect-lending.

NCUA Letter to Federal Credit Unions 22-FCU-03

NASCUS Legislative and Regulatory Affairs Department
December 10, 2022

On December 7, 2022, NCUA issued NCUA Letter 22-FCU-03[1] regarding the Expiration of Emergency Exemption from Certain In-Person Meeting Requirements.

The letter discusses the implications of three NCUA letters issued on March 2020, November 2020, and November 2021[2] providing federal credit unions (FCU) flexibility during the pandemic related to annual meetings. Specifically, the NCUA recognized the challenges intrinsic to the pandemic to physically conducting member meetings.  As a result of the letters, FCUs were allowed to conduct membership and board meetings completely virtually.  These emergency exemptions were set to expire on December 31, 2022.

Additionally, the NCUA allowed FCUs to approve, with a 2/3 board passage, bylaw language changes to article IV that would allow FCUs to invoke virtual-only meetings if a majority of the directors passed a resolution for each such meeting.  The letters provided specific wording for this bylaw amendment.

Summary

With this letter, NCUA is providing notice that the emergency conditions present to justify the flexibility enjoyed by FCUs to invoke virtual-only meetings is no longer present, and those emergency provisions will expire. FCUs that have adopted the bylaw amendment may retain it in their bylaws, but it will not be applicable after 2022 unless NCUA issues a new notification allowing it to be invoked.

NCUA also states that while “virtual-only” meetings will no longer be an option, FCUs will still have the option to best meet their needs[3] by conducting hybrid meetings that include an in-person AND virtual element.

While NCUA will permit a hybrid format, federal credit unions will still be required to meet the general quorum requirements, including counting participants in both the in-person and virtual aspects of the hybrid meeting.

NCUA believes that using a hybrid meeting format could preserve FCU resources and reduce the effort required to hold meetings without disenfranchising members for whom virtual attendance is difficult or impossible.

NCUA cautions its institutions to consider whether their current bylaws authorize hybrid meetings or whether bylaw changes would be necessary.

Finally, NCUA reminded FCUs of certain related bylaws provisions including:

  • Bylaws that permit FCU boards to conduct “virtual-only” meetings for all but one of their board meetings per calendar
  • If a quorum is obtained by “in person” attendees at the one required in-person meeting, the remaining board members could continue to attend virtually[4],
  • FCU bylaws permit flexibility for distributing member notices, including the option to provide such notices electronically if a member chooses to opt in[5].

[1] www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/expiration-emergency-exemption-certain-person-meeting-requirements?utm_medium=email&utm_source=NCUAgovdelivery#ftn_2

[2]Letter to Federal Credit Unions, 20-FCU-02, “NCUA Actions Related to COVID-19 – Annual Meeting Flexibility;” Letter to Federal Credit Unions, 20-FCU-04, “Federal Credit Union Meeting Flexibility During the COVID-19 Pandemic;” Letter to Federal Credit Unions, 21-FCU-06, “Federal Credit Union Meeting Flexibility in 2022 Due to the COVID-19 Pandemic.”

[3]12 C.F.R. Part 701, Appendix A, Official NCUA Commentary, Article V.

[4]Id. Article VI, § 5.

[5]Id. Article IV, § 2.

Summary re: CFPB Consumer Financial Protection Circular 2022-07: Reasonable Investigation of Consumer Reporting Disputes

12 CFR Chapter X

The Consumer Financial Protection Bureau (CFPB) issued this circular to respond to two questions regarding the responsibilities of consumer reporting agencies.

The Bureau released this circular on its website on November 10, 2022, and the circular can be accessed here.

Summary

Congress enacted the Fair Credit Reporting Act (FCRA) to “prevent consumers from being unjustly damaged because of inaccurate or arbitrary information in a credit report. The Bureau notes that a central component of the protections against inaccurate information is the requirement to conduct a reasonable investigation of consumer disputes.  Since its enactment, the FCRA has required consumer reporting agencies to investigate consumer disputes.  Additionally, in 1996 Congress amended the FCRA to also impose “duties on the sources that provide credit information to CRAs (consumer reporting agencies) called “furnishers” in the statute.

In the circular, the Bureau responds to the questions:

  1. Are consumer reporting agencies and the entities that furnish information to them (furnishers) permitted under the Fair Credit Reporting Act (FCRA) to impose obstacles that deter the submission of disputes?
    • Consumer reporting agencies and furnishers are liable under the FCRA if they fail to investigate any dispute that meets the statutory and regulatory requirements, as described in more detail below. Enforcers may bring claims if consumer reporting agencies and furnishers limit consumers’ dispute rights by requiring any specific format or requiring any specific attachment, such as a copy of a police report or consumer report, beyond what that statute and regulations permit.
  2. Do consumer reporting agencies need to forward to furnishers consumer-provided documents attached to a dispute?
    • It depends. Enforcers may bring a claim if a consumer reporting agency fails to promptly provide to the furnisher “all relevant information” regarding the dispute that the consumer reporting agency receives from the consumer. While there is not an affirmative requirement to specifically provide original copies of documentation submitted by consumers, it would be difficult for a consumer reporting agency to prove they provided all relevant information if they fail to forward even an electronic image of documents that constitute a primary source of evidence.

 

 

High Level Summary and Discussion Guide of Outline of Proposals and Alternatives Under Consideration for SBREFA: Required Rulemaking on Personal Financial Data Rights

Section 1033(a) of the Dodd Frank Act authorizes the Consumer Financial Protection Bureau (CFPB) to prescribe rules requiring a “covered person to make available to a consumer (upon request) information in the control or possession of the covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including information relating to any transaction, series of transactions or to the account including costs, charges and usage data.

The Bureau is in the process of drafting regulations to implement Section 1033.  During the process, the Bureau is required to consult with representatives of small entities likely to be affected directly by the regulations the Bureau is considering proposing and to obtain feedback on the likely impacts the rules the Bureau is considering would have on small entities.

The summary document provides a high-level summary of regulatory provisions the CFPB is considering proposing.  The proposals address the following topics:

  • Coverage of data providers who would be subject to the proposals under consideration
    • The proposals would require a defined subset of Dodd Frank Act covered persons to be considered “data providers” such as those defined as financial institutions and card issuers.
  • Recipients of information, including consumers and authorized third parties
    • The proposals would make available information (upon request) directly to consumers and to authorized third parties.
    • The proposals would require a third party requesting information to (i) provide an authorization disclosure to inform the consumer of the terms of access; obtain the consumer’s informed, express consent and certify to the consumer that it will abide by certain obligations regarding collection, use and retention of the consumer’s information.
  • The types of information that would need to be made available
    • The proposals set forth six categories of information the Bureau is considering requiring covered data providers to make available: periodic statement information; information regarding prior transactions and deposits that have not yet settled; information about prior transactions not typically shown on periodic statements or online financial account management portals; online banking transactions that the consumer has set up but that have not yet occurred; account identity information and other information, including consumer reports obtained/used by the covered product/service to a consumer, etc.
    • The proposals also provide for four exceptions to the Section 1033(a) requirement to make information available.
  • How and when information would need to be made available, including when information made available to consumers directly and to third parties authorized to access information on their behalf
    • The proposals would require a covered data provider would be required to make information available if it has enough information from the consumer to reasonably authenticate the consumer’s identity and reasonably identify the information requested.
    • The proposals would require that covered data providers be required to make available all the information that would be covered by the proposals under consideration through online financial account management portals and to allow consumers to export the information in both human and machine readable formats.
  • Third party obligations
    • The proposals would require authorized third parties to limit their collection, use and retention of consumer information to what is reasonably necessary to provide the product/service the consumer has requested.
    • The proposals would also require authorized third parties provide consumers with a simple way to revoke authorization at any point, consistent with the consumer’s mode of authorization.
  • Record retention obligations
    • The proposals would provide for record retention requirements for covered data providers and authorized third parties to demonstrate compliance with certain requirements of the rule.
  • Implementation period
    • The Bureau seeks to ensure that consumers have the benefit of a final rule within a short timeframe, while also ensuring that covered data providers and authorized third parties have sufficient time to implement the rule.

The summary also includes questions drawn from the Outline to solicit feedback from small entity representatives on specific topics.  However, the CFPB is interested in input from SERs (small entity representatives) on all aspects of the proposals under consideration and any alternatives the CFPB should consider. The summary also includes an appendix that illustrates how the CFPB’s proposals under consideration would apply to a hypothetical transaction involving data access to an authorized third party.

The Bureau’s summary and discussion guide can be found here.  The larger, more comprehensive “Outline of Proposals and Alternatives under Consideration” can be found here and the CFPB is requesting non-SER stakeholder feedback by no later than January 25, 2023.  Stakeholders are welcome to provide written feedback on the CFPB’s proposals under consideration by emailing it to [email protected].

Final Rule Summary:
Appraisal Subcommittee; Appraiser Regulation; Temporary Waiver Requests 

NASCUS Legislative and Regulatory Affairs Department
November 21, 2022

The Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (FFIEC) adopted a final rule amending temporary waiver proceedings, promulgated in 1992 pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (Title XI). On January 13, 2022, the ASC published a related proposed rule with a 60-day public comment period.

The final rule adopts the rules of practice and procedure substantially as proposed, with the following modifications:

  • Definition of “Petition” to include State financial institutions’ regulatory agencies as potential petitioners; and
  • Clarification that either a mandatory or discretionary waiver termination requires publication in the Federal Register and that a discretionary waiver termination requires such publication with a 30-day comment period.

Summary

Section §1101.1 of the final rule clarifies the distinction between:

  • A request from a state appraiser regulatory agency (Request for Temporary Waiver in the proposed rule); and
  • Information received from other persons or entities (which could include a state appraiser regulatory agency) is referred to as “Petition” in the proposed rule.

Section §1102.2: Definitions

Petition

The proposed rule failed to include state financial institution regulators in the definition of “petition.” “Petition” in the final rule now includes State financial institution regulatory agencies as a potential petitioner.

Scarcity of Certified or Licensed Appraisers and Significant Delays in the Performance of Appraisals

The final rule retained the proposed definition of scarcity of certified or licensed appraisers and adopted the definition as the number of active certified or licensed appraisers within a State or a specified geographical, political subdivision is insufficient to meet the demand for appraisal services, and such appraisers are difficult to retain.

The final rule also adopted the definition of significant delays in the performance of appraisals which is defined as delays that are substantially out of the ordinary when compared to the performance of appraisals for similarly situated Federally Related Transactions (FRTs) based on factors such as geographic location (e.g., rural versus urban) and assignment type, and the delay is not the result of intervening circumstances outside the appraiser’s control or brought about by the appraiser’s client (e.g., inability to access the subject property).[1]

Section §1102.3: Request for Temporary Waiver

Section 1102.3(a) states that the State Appraisal Agency for the State where temporary waiver relief is sought may file a Request for Temporary Waiver.  Section 1102.3(b) sets out a complete list of requirements for a temporary waiver to be deemed received by the ASC. The list includes:

  1. A written determination by the State Appraisal Agency that there is a scarcity of certified or licensed appraisers leading to significant delays in the performance of appraisal for FRTs or a specified class of FRTs within either a portion of, or the entire State;
  2. The requirement(s) of State law from which relief is being sought;
  3. The nature of the scarcity of certified or licensed appraisers (including supporting documentation, statistical or otherwise verifiable);
  4. The extent of the delays anticipated or experienced in the performance of appraisals by certified or licensed appraisers (including supporting documentation, statistical or otherwise verifiable);
  5. How complaints concerning appraisals by persons who are not certified or licensed would be processed in the event a temporary waiver is granted; and
  6. Meaningful suggestions and recommendations for remedying the situation.

Amendments to paragraph (b) also modify the requirement for a State Appraisal Agency to provide “a specific plan for expeditiously alleviating the scarcity and service delays” to “meaningful suggestions and recommendations for remedying the situation”.  This change recognizes a situation creating scarcity and delay may be outside the control of the State Appraisal Agency.

Amendments to the final rule also include the phrase “supporting documentation, statistical or otherwise verifiable.” A Request for Temporary Waiver should include clear and specific data to support a claim that there is a scarcity of appraisers leading to significant delays in the performance of appraisals for FRTs, or a specified class of FRTs, for either a portion of or the entire State.

The final rule indicates some specific information related to the following could assist the ASC in reviewing a request for a temporary waiver:

  1. Geography – location(s) of the scarcity leading to significant delay.
  2. Transactions – types of FRTs impacted (i.e., property and transaction type(s) and transaction amount(s)).
  3. Time – length of time for waiver requested.

Section 1102.3(b) of the final rule also includes that a Request for Temporary Waiver address how complaints concerning appraisals by persons who are not certified or licensed would be processed in the event a temporary waiver is granted.

Section 1102.3(c) clarifies that a Request for Temporary Waiver will be deemed received for purposes of publication in the Federal Register for notice and comment if the ASC determines that the information submitted meets the requirements of 1102.3(b) detailed above.

Section 1102.3(d) indicates that in the event a request is deemed “not received”, it may be denied in its entirety or referred to the State Appraisal Agency for further action. In either case, the ASC is to provide written notice to the State Appraisal Agency providing an explanation for the determination.

Section §1102.4: Petition Requesting the ASC Initiate a Temporary Waiver Proceeding

For consistency with amendments to Section 1102.2(c) and the definition of “petition,” Section 1102.4(a) has been amended to include State financial institutions’ regulatory agencies as a potential petitioner.  The final rule also clarifies that a petition is a request for the ASC to exercise its discretionary authority to initiate a temporary waiver proceeding. A petition may be filed by the Federal or State financial institutions’ regulatory agencies, the regulated financial institutions, or other persons or institutions with a “demonstrable” interest in appraiser regulation, including a State Appraisal Agency.

Petitions should include:

  1. Information (statistical or otherwise verifiable) to support the existence of a scarcity of certified or licensed appraisers leading to significant delays in the performance of appraisals for FRTs or a specified class of FRTs for either a portion of, or the entire State; and
  2. The extent of the delays anticipated or experienced in the performance of appraisals by certified or licensed appraisers (including supporting documentation, statistical or otherwise verifiable).
  3. A petition may also include meaningful suggestions and recommendations for remedying the situation.

In the event a petition is submitted by a party other than a State Appraisal Agency, the party must promptly provide a copy of its petition to the State Appraisal Agency.  If further action is needed on a petition, the ASC may refer a petition back to the State Appraisal Agency, where the temporary waiver relief is sought for further evaluation, or the ASC may take further action without referring.

Section §1102.5: Order Initiating a Temporary Waiver Proceeding

Under the final rule, the ASC may exercise discretion in determining whether to issue an Order initiating a temporary waiver proceeding in response to a petition, or the ASC may exercise discretion to initiate a proceeding without the submission of a petition.

Section §1102.6: Notice and Comment

Under the final rule, the ASC will:

  • Publish promptly in the Federal Register a notice respecting:
  • A received request for a temporary waiver; or
  • An ASC Order initiating a temporary waiver proceeding

The notice of the request for temporary waiver or ASC Order shall have a 30-calendar day comment public comment period.

Section §1102.7 ASC Determination

The final rule requires the ASC, within 90 calendar days of the date of publication of the notice in the Federal Register, by Order, to grant or deny a waiver, in whole or in part, and upon specified terms and conditions, including provisions for waiver termination.

The Order shall be published in the Federal Register. In the case of an Order approving a waiver, it will only be published upon approval of the FFIEC.

Section §1102.8 Waiver Extension

Under the final rule, the ASC may initiate an extension of a temporary waiver. A State Appraisal Agency may also seek an extension by forwarding an additional written request to the ASC.

Section §1102.9 Waiver Termination

The final rule provides two types of waiver terminations.

  • Mandatory waiver termination: ASC shall terminate a temporary waiver order when the ASC determines that significant delays in the performance of appraisals by certified or licensed appraisers no longer exist.
  • Discretionary waiver termination: The ASC, at any time, may terminate a waiver Order on the finding that the terms and conditions of the waiver order are not being satisfied.

Waiver terminations are to be posted in the Federal Register. Discretionary waiver terminations require a 30-day comment period. If no further action is taken by the ASC, a discretionary waiver termination becomes final 21 calendar days after the close of the comment period.

Summary re: CFPB Consumer Financial Protection Circular 2022-06: Unanticipated Overdraft Fee Assessment Practices

12 CFR Chapter X

The Consumer Financial Protection Bureau (CFPB) has issued Consumer Financial Protection Circular 2022-06, titled “Unanticipated Overdraft Fee Assessment Practices” to respond to a question posed about whether the assessment of overdraft fees under certain instances would be considered an unfair act or practice under the Consumer Financial Protection Act (CFPA), even if the entity complies with the Truth in Lending Act (TILA) and Regulation Z and the Electronic Fund Transfer Act (EFTA) and Regulation E.

The circular became effective on October 26, 2022 and can be found here.

Summary:

The Consumer Financial Protection Act (CFPA) prohibits conduct that constitutes an unfair act or practice.  An act or practice is unfair when: (i) it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers; and (ii) the injury is not outweighed by countervailing benefits to consumers or to competition.  Overdraft fee practices must comply with TILA, EFTA, Regulation Z, Regulation E and the prohibition against unfair, deceptive and abusive acts or practices in Section 1036 of the CFPA.

According to the circular, overdraft fees assessed by financial institutions on transactions that a consumer would not reasonably anticipate are likely unfair. These unanticipated overdraft fees are likely to impose substantial injury on consumers that they cannot reasonably avoid and that is not outweighed by countervailing benefits to consumers or competition.  The circular highlights potentially unlawful patterns of financial institution practices regarding unanticipated overdraft fees and provides some examples of practices that might trigger liability under the CFPA.  The circular notes that the examples provided are illustrative and not exhaustive.