From the federal financial institution regulators
Regulators issue final rule on private flood insurance acceptanceOn Jan. 25, 2019, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve Board, the National Credit Union Administration, and the Farm Credit Administration released a final rule governing the acceptance of private flood insurance. The final rule amends the regulations governing loans secured by properties in special flood hazard areas to implement the provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act). The agencies had issued an initial proposal in 2013 and a significantly revised proposal in 2016 based on comment letters received. The final rule concludes the lengthy rulemaking process and is effective July 1, 2019.
Per the final rule, regulated financial institutions must accept policies that meet the statutory definition of “private flood insurance” in the Biggert-Waters Act. The rule also helps regulated lending institutions evaluate whether flood insurance policies meet the definition, and it lets the institutions choose to accept certain policies issued by private insurers, even if the flood insurance policies do not meet the private flood insurance definition. Last, the final rule “allows regulated lending institutions to exercise their discretion to accept certain plans providing flood coverage issued by ‘mutual aid societies,’” subject to certain conditions.
FDIC announces assessment credit for small banks
The FDIC, on Jan. 24, 2019, notified eligible institutions of the preliminary estimate of their individual amounts of small-bank assessment credits, which the FDIC will use to reduce future FDIC insurance assessments. Since the Deposit Insurance Fund reserve ratio exceeded 1.35 percent as of Sept. 30, 2018, the large-bank (assets greater than $10 billion) surcharges end and the small-bank (assets less than $10 billion) credits begin. The total assessment credit award for the industry is approximately $765 million.
In Financial Institution Letter FIL-78-2018, “Deposit Insurance Fund Reserve Ratio Exceeds Minimum 1.35 Percent,” on Nov. 28, 2018, the FDIC announced the credit would be forthcoming. At the Dec. 18, 2018, FDIC open meeting, the board received a briefing, dated Nov. 30, 2018, including an estimate of the total credit. Information about the credits, including the calculation, can be found on the FDIC website.
In 2006, the FDIC issued similar credits and provided call report guidance, “One-Time Assessment Credit and Revisions to the Deposit Insurance Assessment Collection Process,” in the December 2006 quarterly supplemental call report instructions, which states:
“For Call Report purposes, an eligible institution should not recognize an asset (or a corresponding credit to income) in 2006 for the amount of the one-time assessment credit that the FDIC has allocated to it. An eligible institution should recognize its assessment credit, to the extent it remains available and is allowed to be used, as a reduction in the insurance assessment expense the institution would otherwise be required to accrue each quarter beginning in 2007.”
The credit will be offset against future assessments, and if a credit remains after the initial quarter, the credit will be used to offset assessments in subsequent quarters.
Forthcoming guidance from the FDIC presumably will be posted on the Federal Financial Institutions Examination Council website.
From the Consumer Financial Protection Bureau (CFPB)
CFPB proposes to rescind payday lending rule’s ability-to-repay standardsThe CFPB issued, on Feb. 6, 2019, a proposal to remove the mandatory underwriting provisions from the Payday, Vehicle Title, and Certain High-Cost Installment Loans rule (commonly referred to as the payday lending rule) that was finalized in November 2017. Full implementation was scheduled for August 2019; however, the CFPB issued a related proposal to extend the rule’s effective date by 15 months to Nov. 19, 2020.
The significant provisions that the CFPB is proposing to eliminate relate to the onerous underwriting requirements for lenders in determining a borrower’s ability to repay a loan covered under the rule. The proposal retains the broader exemption from the payday lending rule for financial institutions that made 2,500 or fewer small-dollar loans in both the current and previous years and for which those loans comprise less than 10 percent of revenues.
Comments on the proposal to rescind the underwriting requirements are due May 15, 2019.
Comments on the proposal delaying the rule’s effective date are due March 18, 2019.
CFPB publishes TILA-RESPA Integrated Disclosure FAQOn Jan. 25, 2019, the CFPB issued an FAQ to assist financial institutions in understanding and complying with the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Disclosure (TRID) rule. Topics covered in the FAQ include corrected closing disclosures and three-business-day waiting periods before the loan consummates as well as when the use of model forms provide safe harbor.
From the Financial Accounting Standards Board (FASB)
FASB proposes ASU to elect the fair value option upon adoption of credit losses standardOn Feb. 6, 2019, the FASB issued a proposed Accounting Standards Update (ASU) that would provide an option to elect fair value upon the adoption of Topic 326, “Financial Instruments – Credit Losses.” This ASU would – in order to ease the transition to the credit losses standard – grant the option to measure certain types of assets at fair value.
According to the news release, some preparers, particularly subprime auto financers, “have begun (or are planning) to elect the fair value option on newly originated or purchased financial assets that have historically been measured at amortized cost.”
Under the proposed ASU, preparers would be able to irrevocably elect the fair value option “on an instrument-by-instrument basis, for eligible financial assets measured at amortized cost basis upon adoption of the credit losses standard.” As proposed, the option would not be available for held-to-maturity debt securities. Without the ability to elect the fair value option at transition for those assets recorded at amortized cost, the result would be a mixed attribute model.
Comments are due March 8, 2019.
FASB holds CECL roundtableThe FASB held a public roundtable discussion on the credit losses standard on Jan. 28, 2019. The primary topic discussed was an agenda request to present a portion of credit losses in accumulated other comprehensive income (AOCI) rather than earnings. On Nov. 5, 2018, a group of primarily regional banks submitted an agenda request to the FASB. The proposed approach would retain the allowance for credit losses under the current expected credit loss (CECL) methodology on the balance sheet but would allocate credit loss expense between earnings and AOCI. Representatives from the largest banks, community banks, and credit unions expressed concern with operational complexity and additional cost associated with the proposal. The FASB staff plans to make a recommendation to the board later this quarter.
The second topic discussed was whether disclosure of gross charge-offs and recoveries within the vintage disclosures are required as presented in the illustrative disclosure in example 15 in the ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” Preparers expressed concern with obtaining the information given system limitations.
The agenda, summary, and webcast audio are available on the FASB website.
From the Securities and Exchange Commission (SEC)
SEC returns to normal staffing and operating levelsSEC Chairman Jay Clayton released a statement on Jan. 26, 2019, announcing that the SEC is returning to normal operations and normal staffing levels after the partial government shutdown. Clayton said that leaders of the SEC’s divisions and offices are determining the best ways to transition to normal operations and will be publishing statements regarding their plans on the SEC website.
SEC names deputy general counselOn Feb. 4, 2019, the SEC announced that Elizabeth McFadden has been named deputy general counsel for general law and management. McFadden spent more than 15 years at the U.S. Department of Education, where she was deputy general counsel since 2011.
According to the SEC, “the Deputy General Counsel for General Law and Management provides daily oversight into representation of the Commission, its members and employees in litigation and advises the Commission and Divisions and Offices within the Commission with respect to general law responsibilities, personnel management and budget.”
SEC names senior policy adviser to the chairmanThe SEC announced on Jan. 29, 2019, that Manisha Kimmel has been named to the new role of senior policy adviser for regulatory reporting to Chairman Clayton. Responsibilities of this role include coordinating the SEC’s oversight of the self-regulatory organizations’ creation and implementation of the Consolidated Audit Trail (CAT), as well as working with SEC offices and divisions on other regulatory reporting.
The CAT will offer a comprehensive database to help regulators more accurately and efficiently track equities and options trading throughout U.S. markets. Implementation of the CAT is expected to help the SEC improve its ability to reconstruct trading activity following a market disruption or other event, thereby more quickly understanding the event’s causes and responding accordingly.