Buckley Sandler, LLP--InfoBytes Blog

In February, the CFPB released an updated version of the Supervision and Examination Manual, which includes changes to the examination and targeted reviews section of the manual. The Bureau noted that the purpose of a risk-focused review is to direct Bureau resources toward the areas with higher risk. The updated manual section covers the review process from start to finish, beginning with the pre-review planning and concluding with the transmission of the final report or letter. The February updates also include the release of new examination report and supervisory letter templates.

Yesterday, the Bureau issued technical specifications regarding the agreement submission requirements of the prepaid accounts rule. You can read the technical specifications here.

The Bureau has also issued resources to help prepaid account issuers make submissions using Collect, the Bureau’s online channel for submissions. You can access those resources here.

Thank you,

Consumer Financial Protection Bureau 

AGENCY:

National Credit Union Administration (NCUA).

ACTION:

Notice of proposed rulemaking and request for comment.

SUMMARY:

The NCUA Board (Board) proposes to amend its regulations governing the responsibilities of a federally insured credit union (FICU) to obtain an annual supervisory committee audit of the credit union. The proposal implements recommendations outlined in the agency's Regulatory Reform Task Force's Regulatory Reform Agenda (Agenda) and will provide additional flexibility to FICUs.

DATES:

Comments must be received on or before April 26, 2019.

ADDRESSES:

You may submit comments by any of the following methods, but please send comments by one method only:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
• NCUA Website: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the instructions for submitting comments.
• Email: Address to regcomments@ncua.gov. Include “[Your name]—Comments on Proposed Rule—Supervisory Committee Audits and Verifications” in the email subject line.
• Fax: (703) 518-6319. Use the subject line described above for email.
• Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
• Hand Delivery/Courier: Same as mail address.

Description: Final Rule

Summary

On February 14, 2019, the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System, and Federal Deposit Insurance Corporation (collectively, the agencies) published a final rule in the Federal Register to implement the Financial Accounting Standards Board’s Accounting Standards Update (ASU) 2016-13, “Financial Instruments—Credit Losses,” in the agencies’ rules. The final rule conforms definitions in the agencies’ capital and non-capital rules to the current expected credit losses (CECL) standard and provides an optional regulatory capital transition for banks that experience a decrease in capital as a result of adopting the CECL standard.

Highlights

The final rule

• updates references in the agencies’ risk-based capital rules to conform with the new terminology used in ASU 2016-13.
• updates references to allowances in the OCC’s non-capital regulations to conform with the new terminology used in ASU 2016-13.
• provides an option to elect a three-year regulatory capital transition under the risk-based capital rules for banks that experience a capital decrease as a result of implementing ASU 2016-13.

Further Information

Please contact Jung Sup Kim, Risk Specialist, Capital Policy Division, at (202) 649-6370; Jeffrey Geer, Associate Chief Accountant, Office of the Chief Accountant, at (202) 649-6280; or Kevin Korzeniewski, Counsel, Office of the Chief Counsel, at (202) 649-5490.

Jonathan V. Gould Senior Deputy Comptroller and Chief Counsel

Related Link

• Regulatory Capital Rule: Implementation and Transition of the Current Expected Credit Losses Methodology for Allowances and Related Adjustments to the Regulatory Capital Rule and Conforming Amendments to Other Regulations

Summary

On February 8, 2019, the Office of the Comptroller of the Currency, the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, and the Securities and Exchange Commission (collectively, the agencies) published a notice of proposed rulemaking in the Federal Register to implement amendments to section 13 of the Bank Holding Company Act, commonly known as the Volcker Rule, contained in sections 203 and 204 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The agencies will accept comments on this notice of proposed rulemaking through March 11, 2019.

Highlights

The proposed rule would

• exclude from the definition of “banking entity” certain firms that have total consolidated assets equal to $10 billion or less and total trading assets and liabilities equal to 5 percent or less of total consolidated assets.
• permit, under certain circumstances, a hedge fund or private equity fund to share the same name or a variation of the same name with an investment adviser that is not an insured depository institution, company that controls an insured depository institution, or bank holding company.

Further Information

Please contact Roman Goldstein, Risk Specialist, Treasury and Market Risk Policy, at (202) 649-6360; Tabitha Edgens, Senior Attorney; or Mark O’Horo, Attorney, Office of the Chief Counsel, at (202) 649-5510.

Jonathan V. Gould Senior Deputy Comptroller and Chief Counsel

Related Link

• “Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds”

The Bureau has released a small entity compliance guide that summarizes the payment-related provisions of the Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule (Payday Lending Rule). The guide is available here.

The Bureau has released a small entity compliance guide that summarizes the payment-related provisions of the Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule (Payday Lending Rule). The guide is available here.

Thank you,

Consumer Financial Protection Bureau 

Troutman Sanders LLP--Alan D. Wingfield, Virginia Bell Flynn, and Brooke K. Conkle

The Federal Trade Commission has announced that it is retaining the CAN-SPAM Rule as is, deciding to keep the Rule unchanged as a result of a regulatory review. Hence, any business that sends marketing email must redouble efforts to comply with the CAN-SPAM Rule.

What is the CAN-SPAM Rule?

The CAN-SPAM Rule establishes requirements for unsolicited commercial e-mail messages and provides consumers with the right to opt out of receiving those e-mail messages. The Rule requires businesses to use accurate header and subject lines in e-mails, identify the message as an advertisement, include a valid physical address, and offer consumers a way to discontinue receiving messages in the future. The CAN-SPAM Rule preempts conflicting state laws, establishing uniform federal requirements.

What are the CAN-SPAM requirements?

At a high level, CAN-SPAM’s requirements fit into three buckets:

• First, the message must accurately identify the sender both in header information and in the body of the message.
• Second, the message must accurately identify the subject matter of the email, including that it is an advertisement.      
• Third, the message must provide recipients with the ability to opt-out of receiving future communications.

What did the FTC review?

The FTC sought public comment on the Rule in June 2017 as part of its regular review of all rules and guidance. The FTC specifically asked the public for commentary on whether the Rule is still necessary, the costs and benefits of the Rule, and whether changes needed to be made to the Rule to respond to technological and economic developments. The Commission also requested comments on whether the FTC should change the categories of messages categorized as “transaction or relationship messages,” shorten the time period for businesses to address opt-out requests, or specify additional activities or practices that the FTC might consider as aggravated violations of the Rule.

What was the decision?

Of the 92 comments the FTC received, virtually all were in favor of keeping the Rule. In its review, the FTC found that the Rule benefits consumers and does not impose a substantial economic burden on businesses. Consequently, the Commission decided to keep the Rule as-is, without any changes. All Commissioners voted in favor of publication of the Rule’s confirmation in the Federal Register.

Practical Implications

While CAN-SPAM issues do not generally trigger consumer litigation, lack of compliance can lead to complaints filed by consumers, agency action by the FTC, and be a trigger point for litigation and other consumer issues. The most important rule for CAN-SPAM is to have an active and easy to use unsubscribe link for your consumers to opt out of commercial emails.

Troutman Sanders regularly advises consumer-facing clients on an array of regulatory and compliance issues, including CAN-SPAM and other technology focused issues. We will continue to monitor these regulatory developments.

The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration (FCA), and the National Credit Union Administration (NCUA) are amending their regulations regarding loans in areas having special flood hazards to implement the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act).

OCC Final Rule

Farm Credit Administration Final Rule

FDIC Final Rule

Federal Reserve System Final Rule

National Credit Union Administration Final Rule

Ballard Spahr LLP--Pavitra Bacon

The CFPB has published its 2019 final lists of Rural and Rural or Underserved Counties on its website. The CFPB has previously posted lists of such counties for calendar years 2011-2018. The CFPB has also updated the rural and underserved areas website tool for 2019.

The lists and tool are relevant to exemptions from certain regulatory requirements of the Truth in Lending Act, including the following CFPB mortgage rules:

• Escrows Rule, which requires a creditor to establish an escrow account for certain first-lien higher-priced mortgage loans (HPMLs), but exempts HPMLs consummated during a calendar year (or next-to-last calendar year for loans where the application was received before April 1 of the current calendar year) if the creditor extended a first-lien covered transaction in the preceding calendar year secured by a property located in a rural-or-underserved area, and meets certain additional conditions.
• Ability to Repay and Qualified Mortgage Standards Rule, which treats certain balloon-payment mortgages as qualified mortgages if they are originated and held in portfolio by small creditors that meet the rural-or-underserved test above and certain additional conditions
• Home Ownership and Equity Protections Act of 1994 (HOEPA) rule, which generally bans balloon payments for mortgages that fall within HOEPA’s high-cost mortgage coverage test, unless they meet the rural-or-underserved test and certain additional conditions
• Appraisals for HPMLs rule, which exempts HPMLs made in “rural” counties from its additional appraisal requirement

Note that if a creditor makes a first-lien mortgage loan secured by a property located in a rural or underserved area during 2019, the creditor will satisfy the rural and underserved test for the rules noted above during all of 2020 and for loan applications received before April 1, 2021.

Ballard Spahr LLP--Christopher D. Ford & Judy Mok

A new executive order signed by President Trump on February 11, 2019 is intended to maintain American leadership in artificial intelligence (AI) research and development (R &D).  The order directs certain federal agencies to pursue various strategic objectives to promote and protect American advancement in AI.  Those agencies are to be identified by the National Science and Technology Council Select Committee on Artificial Intelligence Select Committee.  In addition, any of such agencies that perform R&D are directed to make AI an R&D priority.

Among other things, the executive order also:

• directs the heads of all federal agencies to “review their Federal data and models to identify opportunities to increase access and use by the greater non-Federal AI research community in a manner that benefits that community, while protecting safety, security, privacy, and confidentiality.”  More specifically, the agencies are directed to “improve data and model inventory documentation to enable discovery and usability, and [to] prioritize improvements to access and quality of AI data and models based on the AI research community’s user feedback.”
• directs the OMB Director, in coordination with other officials, to issue a memorandum to the heads of all agencies that (1) informs the development of regulatory and non-regulatory approaches by such agencies regarding technologies and industrial sectors that are either empowered or enabled by AI and advance American innovation, and (2) considers ways to reduce barriers to the use of AI.  A draft of the memorandum is to be issued for public comment before it is finalized.
• directs the Secretary of Commerce, through the Director of the National Institute of Standards and Technology, to issue a plan for federal engagement in the development of technical standard and related tools in support of reliable, robust, and trustworthy systems that use AI technologies.

Last summer, the U.S. Treasury Department issued a report that recommended sweeping regulatory changes intended to promote innovation in the consumer financial services market, reduce regulatory burdens on consumer financial services providers, and update regulations applicable to various types of consumer lending and related consumer financial products and services.  That report included a section focused on big data, machine learning, and AI in which the Treasury stated that it recognized the significant benefits that the increased application of AI and machine learning technologies can provide.  It urged regulators not to impose unnecessary burdens or obstacles to the use of AI and to provide greater regulatory clarity that would enable further testing and responsible deployment of such technology.

Members of Ballard Spahr’s Consumer Financial Services Group have counseled clients on issues arising from applications of AI in the consumer finance space.  In July 2018, the Group conducted a webinar, “Artificial Intelligence in the Consumer Financial Services Industry,” in which the topics included (1) applications of AI to marketing, underwriting, servicing, and collections, and (2) compliance issues arising from the use of AI, including managing fair lending and discrimination risks, delivering adverse action notices, handling of data sharing and data security risks.