(Jan. 22, 2021) The new president’s administration was at work reworking the federal regulatory process on the same day that Joe Biden took the oath of office, issuing a “regulatory freeze” order and taking other action.
The regulatory moratorium requires that no new rules be proposed or issued by federal regulatory agencies until a Biden-appointed official has reviewed or approved the rule. The order also requires that all new rules or proposals sent to the Federal Register but not yet published be immediately withdrawn, and that agencies “consider” postponing for 60 days the effective dates of those rules, and also consider reissuing the rules for 30-day comment periods.
However, the impact of the freeze on NCUA actions is not clear. The Trump administration issued a similar freeze four years ago, and the agency asserted that, as an independent agency it did not have to comply. However, the agency agreed to go along with the moratorium (or, as NCUA put it in 2017, “adhere to its spirit”).
There could be much on the line for the agency if the freeze goes into effect for its recent actions, especially those on Jan. 14 when the NCUA Board issued:
- a final rule (effective Jan. 1, 2022) on corporate credit unions’ purchase of subordinated debt (approved 3-0 by the board);
- a proposal, with a 30-day comment period, on lending by credit union service organizations (CUSOs, issued on a 2-1 vote with Board Member Todd Harper dissenting);
- a proposal to add an “S” component (for market risk sensitivity) to the CAMEL rating system (approved 3-0);
- a proposal, with a 30-day comment period, to raise from $50 million to $500 million the asset threshold for defining a credit union as “complex” for purposes of being subject to any risk-based net worth requirement in agency regulations (approved 2-1, Harper dissenting);
- an advance notice of proposed rulemaking (ANPR), with a 60-day comment period, on two approaches to simplify risk-based capital requirements (approved, 2-1, again with Harper dissenting).
None of those actions have yet been published in the Federal Register, which serves as the federal government’s official public notice of its regulatory actions.
Such regulatory freezes do not generally apply to independent agencies such as NCUA (or the FDIC, for example).
Legal analysis from four years ago also noted that such freezes are routine and only apply to executive departments and agencies, and not independent agencies (which make up most of the financial regulators). NCUA, in its own analysis in 2017, agreed with that view and said it would continue to move forward with rules already approved and slated to take effect after that moratorium went into effect. In 2017, that included a new rule on membership eligibility for federal credit unions and an advance notice of proposed rulemaking on capital proposals.
Aside from the moratorium, Congress also has a tool for overturning federal rules through the Congressional Review Act (CRA). Through the statute, Congress may overturn rules issued by federal agencies through special procedures, typically tied to 60 “legislative days” (days that Congress is in session) to take action on a rule once it is issued by an agency. However, it is also unclear if Congress would consider any of the rules finalized by NCUA under the act.
LINK:
White House memo: Regulatory Freeze Pending Review
(Jan. 22, 2021) There was more change this week in Washington as Consumer Financial Protection Bureau Director Kathleen (“Kathy”) Kraninger resigned Wednesday, shortly after President Joe Biden took the oath of office.
Kraninger had served about 25 months of a five-year term that began in 2018. She was succeeded by Dave Uejio, the chief strategy officer of CFPB since 2015, who is now the bureau’s acting director. Biden made the appointment later in the day Thursday.
In her resignation letter addressed to Biden, Kraninger said she supports “the Constitutional prerogative of the President to appoint senior officials within the government who support the President’s policy priorities, which ensures our government is responsive to the will of the people.” She said she wished the best for new president and the nation going forward.
Meanwhile, Biden has nominated former CFPB Assistant Director Rohit Chopra to be the next director. Since 2018, he has been a member of the Federal Trade Commission (FTC). Chopra has made a name for himself as an advocate for fair student lending, including serving as student loan ombudsman while at the agency (a post mandated by the Dodd-Frank Act). Chopra was also instrumental in “standing up” the agency in 2011 after its creation.
If ultimately confirmed by the Senate, Chopra would be the fourth CFPB director or acting director. Richard Cordray was the first, followed by Acting Director John (“Mick”) Mulvaney, and then Kraninger.
In the meantime, Acting Director Ueijo is apparently ready to work: In a memo to staff Wednesday, he said he will take action quickly. “The magnitude of the challenges facing the country is simply too great to wait,” Uejio reportedly wrote.
LINK:
Kraninger resignation letter
(Jan. 22, 2021) A new rule codifying that supervisory guidance does not have the force of law, and that enforcement actions are not based on the guidance, was finalized Tuesday by the CFPB, NCUA and two of the three federal banking agencies.
The rule codifies a 2018 interagency statement on the role of supervisory guidance that was intended to clarify the differences between regulations and guidance. The final rule also states that the statement is binding on the agency that adopted it. (The Federal Reserve, as of Thursday, had not yet finalized the rule, but is expected to.)
In their individual final rules, the agencies, noted that supervisory guidance does not create binding, enforceable legal obligations; that each agency does not issue supervisory criticisms for “violations” of or “non-compliance” with supervisory guidance; and describes the appropriate use of supervisory guidance.
In other action this week, the bureau released a small entity compliance guide that summarizes the October 2020 debt collection rule regarding communications between collectors and debtors. (That rule Regulation F to implement most of the Fair Debt Collection Practices Act’s (FDCPA) most substantive provisions.) Those include provisions, the bureau said, that generally restate the FDCPA’s prohibitions and requirements. “Section 2 provides a summary that highlights the October 2020 Final Rule’s key interpretations and clarifications of the FDCPA,” the bureau stated.
The debt collection rule takes effect Nov. 30, 2021, the guide notes. It applies to attempts to communicate, communications, and other conduct by debt collectors occurring on or after that date, regardless of when the underlying debt was incurred.
LINK:
Debt Collection Rule Small Entity Compliance Guide
(Jan. 22, 2021) An exemption from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs) for smaller banks and credit unions was issued as a final rule this week by the CFPB. The rule, proposed in July, takes effect upon publication in the Federal Register. It exempts from the HPML escrow requirement any loan made by a credit union or bank and secured by a first lien on the principal dwelling of a consumer if:
- the institution has assets of $10 billion or less;
- the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and
- certain of the existing HPML escrow exemption criteria are met.
When the proposal was issued, the bureau noted that HPMLs are generally closed-end consumer credit transactions secured by the consumer’s principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction by specific amounts as of the date the interest rate is set.
The bureau also asserted that the rule, as proposed, would reduce costs associated with escrow requirements.
LINK:
Consumer Financial Protection Bureau issues rule on higher-priced mortgage loan escrow exemption
(Jan. 22, 2021) The latest summary from NASCUS focuses on the new rule from CFPB on debt collection practice, which revises Regulation F (which, in turn, implements the Fair Debt Collection Practices Act, FDCPA). The summary is available to members only.
The bureau said the final rule, issued late last year, is intended to “restate and clarify” prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt. It revises the bureau’s Regulation F, focusing on the timing and means of communications between consumers and debt collectors and clarifying how the protections of the FDCPA, enacted in 1977, apply to newer communication technologies, such as email and text messages.
Not included in the final rule is a safe harbor for debt collectors against claims that an attorney falsely represented the attorney’s involvement in the preparation of a litigation submission, the bureau said. “That provision was proposed to bring greater clarity to this issue but, after receiving questions and comments from many stakeholders concerning the proposal, the Bureau has decided not to finalize that provision,” the bureau said.
However, the final rule summary does note inclusion of a safe harbor for debt collectors from civil liability “for an unintentional third-party disclosure if the debt collector follows the procedures identified in the rule when communicating with a consumer by email or text message.”
LINK:
NASCUS Summary: CFPB Final rule, debt collection practices (members only)
(Jan. 22, 2021) President Biden has reportedly determined that Michael S. Barr – a former assistant Treasury secretary for financial institutions (a position that interfaces with credit unions and banks) – will be the next comptroller of the currency. If confirmed, Barr, 56, would serve a five-year term … In other OCC developments, the agency last week issued a national digital bank charter, one of the last acts of outgoing Acting Comptroller Brian P. Brooks. The national trust bank charter for Anchorage Digital Bank of Sioux Falls, S.D., would allow it to continue the custody services it offered as a state bank primarily to institutional investors that transact in digital assets and cryptocurrencies, including but not limited to certain tokenized securities and cryptocurrencies (including Bitcoin and others).
LINK:
OCC Conditionally Approves Conversion of Anchorage Digital Bank
(Jan. 22, 2021) Veteran NCUA attorney Frank Kressman has had the “acting” moniker removed from his title as the agency late last week named him general counsel. He had been serving in the “acting” role for the past 13 months.
Previously deputy general counsel, Kressman was elevated to acting general counsel in November 2019 following the retirement from the GC post by Mike McKenna, then the subject of an internal investigation of allegations of misconduct.
Kressman joined NCUA in 1998, having worked previously at the FDIC and the Commodity Futures Trading Commission (CFTC). He holds a bachelor’s degree from Dickinson College in Carlisle, Pa., a Juris Doctor from the Gonzaga University School of Law in Spokane, Wash., and a Master of Laws degree from The American University Washington School of Law in Washington, D.C.
Also this past week, the agency said Melane Conyers-Ausbrooks has been selected as the agency’s board secretary. She was previously acting board secretary and worked in the agency’s Office General Counsel (OGC). She previously served as legal counsel at law firm Brown Foss and as vice president and chief counsel-retail channel at CitiMortgage Inc. She received a Bachelor of Science from the University of Maryland, College Park, and a Juris Doctor from Howard University School of Law in Washington, D.C.
LINK:
NCUA Names Frank Kressman General Counsel, Melane Conyers-Ausbrooks Board Secretary
(Jan. 22, 2021) Improving coordination between NCUA and the CFPB over the consumer protection supervision of credit unions with more than $10 billion in assets is the stated purpose of a “memorandum of understanding” announced by the two agencies late last week.
In a joint release, the two agencies said that under the agreement they will “pursue opportunities to proactively and efficiently share supervisory information, including drafts of Covered Reports of Examination and final Reports of Examination for credit unions” with more than $10 billion dollars in assets.
The agencies said they would use “secure, two-way electronic means” to accomplish that and that they will “jointly collaborate in semi-annual strategy planning sessions to identify and address areas of alignment and coordination in examinations for covered institutions.”
CFPB and NCUA also asserted that the agreement would “better facilitate coordinated examinations” to increase efficiency, and that the two agencies would share information on training activities and content, as well as on supervisory activities and potential enforcement actions.
The text of the agreement was not made publicly available.
(Jan. 22, 2021) Suspicious activity reporting and other anti-money laundering (AML) requirements are subjects of new frequently asked questions (FAQs) issued by NCUA, federal banking regulators and the Treasury’s Financial Crimes Enforcement Network (FinCEN) this week.
The questions were developed, the agencies said, in response to recent Bank Secrecy Act Advisory Group (BSAAG) recommendations, as described in last September’s Advance Notice of Proposed Rulemaking on Anti-Money Laundering Program Effectiveness, published by FinCEN.
According to the agencies, the FAQs clarify the regulatory requirements related to suspicious activity reporting to assist credit unions and other financial institutions with their compliance obligations. The FAQs also enable financial institutions to focus resources on activities that produce the greatest value to law enforcement agencies and other government users of Bank Secrecy Act (BSA) reporting, the agencies said.
The FAQs also address questions about maintaining accounts at the request of law enforcement, suspicious activity report (SAR) filing and the receipt of grand jury subpoenas or other law enforcement inquiries, maintaining customer relationships following the filing of an SAR, SAR filing and monitoring on negative media alerts, data fields, the SAR narrative, and SAR character limits.
The agencies said the FAQs do not alter existing BSA/AML legal or regulatory requirements and they do not establish new supervisory expectations.
LINK:
NCUA, Federal Banking Agencies, FinCEN Issue FAQs on SAR and Other AML Requirements
(Jan. 22, 2021) Producing a set of recommendations for improving and modernizing federal regulatory review was ordered by President Biden Wednesday, with an aim of ensuring “swift federal action,” according to a memorandum issued by the White House.
The recommendations, according to the memo, “should provide concrete suggestions on how the regulatory review process can promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations.”
The memo was addressed to the heads of executive departments and agencies, including (presumably), NCUA and other federal financial institution agencies. It also called for proposals designed to ensure that regulatory review “serves as a tool to affirmatively promote regulations” that advance the values outlined. The memo also notes that recommendations should be informed by public engagement with relevant stakeholders.
More specifically, the memo said the recommendations should:
- Identify ways to modernize and improve the regulatory review process;
- Propose procedures that consider the “distributional consequences” of regulation (including in cost/benefit analysis) to ensure regulatory initiatives “appropriately benefit” and do not “inappropriately burden disadvantaged, vulnerable, or marginalized communities;
- Consider ways that the White House’s Office of Information and Regulatory Affairs (OIRA) “can play a more proactive role in partnering with agencies to explore, promote, and undertake regulatory initiatives that are likely to yield significant benefits;”
- identify reforms to promote efficiency, transparency, and inclusiveness of the interagency review process, and determine an appropriate approach with respect to the review of guidance documents.
LINK:
Modernizing Regulatory Review
(Jan. 22, 2021) Focusing on challenges to credit unions posed by the ongoing coronavirus pandemic and steps to enhance the agency’s offsite monitoring of credit unions’ condition are key priorities for 2021 laid out by NCUA in a letter to credit unions issued late last week.
Also in the letter to all federally insured credit unions (21-CU-02), the agency stated that examiners will not be assessing credit unions’ efforts to transition to the current-expected-credit-losses (CECL) standard “until further notice.”
Regarding the coronavirus crisis, the agency said it planned to continue to focus examination activities on areas posing the highest risk to the credit union industry and that it will continue with its extended examination cycle, with qualifying credit unions to be scheduled “accordingly” in 2021.
The targeted exam procedures in the agency’s Small Credit Union Exam Program, NCUA wrote, remain in place for most federal credit unions with assets under $50 million. “For all other credit unions, NCUA examiners will conduct risk-focused examinations, which concentrate on areas of highest risk, new products and services, and compliance with applicable laws and regulations.”
Along that line, the agency said it is incorporating an exam planning questionnaire into the exam planning process. It said examiners will provide the questionnaire – which will collect information on certain products and services, significant events, insider activities, and fraud awareness – to credit unions in advance of their scheduled exams. Responses will be used to refine the exam scope, increase offsite-monitoring capabilities, and incorporate efficiencies to the exam. (More information on this questionnaire will be “forthcoming,” it said.)
Meanwhile, the agency noted that it will continue to pilot its new examination tool, the Modern Examination and Risk Identification Tool (MERIT), until the broader rollout in the second half of this year.
Regarding CECL, the agency said examiners would not assess credit unions’ efforts to transition to the CECL standard until further notice, given the ongoing economic impact of the pandemic and the Financial Accounting Standards Board’s (FASB) decision to delay its requirement to comply with the current expected credit losses (CECL) standard until January 2023. The agency said it does, however, encourage credit unions to continue to assess their needs and evaluate methodologies for the eventual implementation of the CECL standard.
Other priorities listed by the agency include continuing to:
- Conduct BSA/AML reviews during every examination and take appropriate action when necessary to ensure credit unions meet their regulatory obligations.
- Review compliance with provisions of the last year’s CARES Act and Consolidated Appropriations Act of 2021, including a provision that suspended the requirement to categorize certain loan modifications as troubled debt restructurings (TDRs), which was extended through Jan. 1, 2022; and requirements for financial institutions related to the administrative provisions for the additional 2020 recovery rebates for individuals.
- Examine for compliance with applicable consumer financial protection regulations during every federal credit union examination. The scope of each examination’s consumer compliance reviews, the agency said, is largely risk-focused and based on the credit union’s compliance record, products and services provided, and any new or emerging concerns. Examiners will assess a credit union’s Fair Lending Compliance Management System, the agency added.
- Not criticize credit unions’ efforts to provide prudent relief for borrowers, when such efforts are conducted in a reasonable manner with proper controls and management oversight. The agency said examiners will emphasize review of policies and practices related to helping borrowers affected by COVID-19 and will verify that credit unions evaluated the potential impact their COVID-19 response and relief efforts will have on their capital position and financial stability.
Also mentioned in its priority list were: cybersecurity; the transition away from the London Interbank Offered Rate (LIBOR) as a benchmark in transactions and contracts; liquidity risk (including, for example, that posed by “sudden and significant” share outflows); and serving hemp-related businesses.