Matters of importance from the federal financial institution regulators
OCC issues semiannual interest-rate risk report
The Office of the Comptroller of the Currency (OCC) on April 12, 2023, released its spring 2023 “Interest Rate Risk Statistics Report.” The report provides interest-rate risk statistics and limits for different midsize and community bank populations, which were gathered during OCC examinations. The report is intended as a stakeholder resource and not as guidance about OCC-suggested risk exposures or limits.
CFPB issues final small-business lending data rule
The Consumer Financial Protection Bureau (CFPB) on March 30, 2023, released a final rule implementing Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1071 amended the Equal Credit Opportunity Act to require financial institutions to collect and report certain credit application data for small businesses, including women-owned and minority-owned small businesses. The final rule, which covers closed-end loans, lines of credit, business credit cards, online credit products, and merchant cash advances, applies to banks, credit unions, and nonbank lenders. Under the final rule, a small business is defined as one with gross revenue under $5 million in the preceding fiscal year.
The final rule is effective 90 days after publication in the Federal Register; however, the rule contains tiered compliance dates that vary depending on the number of covered originations a financial institution had in 2022 and 2023. Financial institutions that originated at least 2,500 covered loans in both 2022 and 2023 must begin collecting data and complying with the final rule on Oct. 1, 2024. Financial institutions that originate at least 500 covered loans in both 2022 and 2023 but fewer than 2,500 loans in each of those years and also originate at least 100 loans in 2024 must begin data collection by April 1, 2025. Lastly, a financial institution must begin complying with the final rule on Jan. 1, 2026, if it originated at least 100 covered originations in both 2024 and 2025.
Along with the final rule, the CFPB issued a policy statement noting that it intends to focus its oversight on ensuring that lenders do not discourage small-business loan applicants from providing responsive data, including demographic information about their ownership. The bureau also issued a fact sheet and executive summary of the 880-plus-page rule. On April 5, the CFPB also established a help line to provide oral and written assistance to financial institutions regarding their data collection and reporting obligations under its final rule. Additional compliance resources are available on the CFPB website.
CFPB provides guidance to define abusive acts
The CFPB on April 3, 2023, issued a policy statement to clarify what constitutes abusive acts or practices as defined by the Consumer Financial Protection Act of 2010. The new CFPB guidance summarizes previous actions to enforce the abusiveness standard and offers insight into how the bureau, under its current leadership, plans to analyze the statutory elements of abusiveness to identify violative acts or practices. In the policy statement, the CFPB lists two categories it finds generally abusive:
- Actions that obscure important features of a product or service
- Actions that take unreasonable advantage of consumers in certain circumstances
In the policy statement the CFPB notes that institutions may not take “unreasonable advantage” of consumers’ lack of understanding of the risks, costs, or conditions of a product or service; consumers’ inability to protect their interests in using or selecting a consumer financial product or service; or consumers’ reasonable reliance that the institution will act in the consumers’ interest. The CFPB further asserts that advantages can include market share, revenue, cost savings, profits, reputational benefits, and other operational benefits. The policy statement will be published in the Federal Register and does not indicate that it is proposed guidance, even though public comments will be received until July 3, 2023.
OCC establishes Office of Financial Technology
The OCC announced on March 30, 2023, the creation of the Office of Financial Technology (OFT) and selected Prashant Bhardwaj to lead the office as deputy comptroller and chief financial technology officer, effective April 10, 2023. In October 2022 the OCC announced plans to expand its Office of Innovation to bolster the agency’s expertise and ability to adapt to rapidly changing technology in the banking industry. In the March 30 release, the OCC said the OFT “broadens the OCC’s focus in this area and ensures the agency’s leadership and agility in providing high-quality supervision of bank-fintech partnerships.” In this new role, Bhardwaj will lead a team responsible for analysis, evaluation, and discussion of relevant fintech trends, emerging and potential risks, and the potential implications for OCC supervision.
Federal Reserve issues FAQ on Bank Term Funding Program
The Federal Reserve Board (Fed) on March 13, 2023, released a set of frequently asked questions on its recently announced Bank Term Funding Program (BTFP). The program is designed to provide an additional source of liquidity by permitting eligible banks to borrow against the high-quality securities pledged as collateral. The questions cover the design of the program, including how it differs from the Fed’s discount window borrowing; program eligibility and documentation; eligible collateral; rates, fees, and maturities; and other mechanics of the program.
Fed announces July launch for FedNow
The Fed announced on March 15, 2023, that the FedNow instant payments service will begin operating in July 2023. The Fed began the formal certification of participants the first week of April in preparation for the launch of the service. Beginning in June, early adopters will complete a robust testing and certification program to prepare for sending live transactions through the system. The testing period will include a defined operational readiness and network experience during which the Fed and certified participants will conduct product validation activities prior to the July launch.
FinCEN releases guidance on upcoming beneficial ownership reporting
The Financial Crimes Enforcement Network (FinCEN) on March 24, 2023, published the initial set of materials to aid the public and small businesses in understanding upcoming beneficial ownership information reporting requirements scheduled to go into effect on Jan. 1, 2024. The materials include an FAQ, one-pagers related to filing dates and questions, an introductory video, and a detailed informational video. The Corporate Transparency Act, part of the Anti-Money Laundering Act of 2020, established uniform beneficial ownership information reporting requirements and authorized FinCEN to collect the information and disclose it to authorized government authorities and financial institutions, subject to effective safeguards and controls. The regulations will require many corporations, limited liability companies, and other entities created in or registered to do business in the U.S. to report information about their beneficial owners (the persons who ultimately own or control the company) to FinCEN. Details and related resources are on the FinCEN website.