This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.
Volcker Rule 2.0 re-do in the offing? As speculation mounts that federal banking agencies are planning to revisit their proposed rewrite of the Dodd-Frank-mandated Volcker Rule, key regulators indicated that they are mindful of industry and Congressional concerns and may only go forward with some of the less controversial proposed changes. FDIC Chairwoman Jelena McWilliams, in a March 11 speech before the Institute of International Bankers annual Washington conference, said Volcker is "overly complex" in its restrictions on bank ownership of funds based overseas and that agencies are considering options to ease some of those provisions, including limiting the Rule's extraterritorial reach when there are no implications for the US banking system. She praised the exemption of community banks from Volcker pursuant to the banking regulatory overhaul law enacted last year as "a good start" and stressed the need for more clarity, better tailoring to banks' individual profiles and reduced compliance burdens. "Our regulatory regime should reflect the fact that the overwhelming majority of activity covered by the rule is conducted by relatively few banks," she said. At the same event, Comptroller of the Currency Joseph Otting acknowledged that the proposed multi-agency Volcker rewrite unveiled last year was having the unintended effect of "encapsulating other trades that really weren't proprietary in nature." Otting suggested that some less controversial aspects could be implemented, such as extending exemptions from the trading ban – set to expire in July – for banks with foreign funds not considered a covered fund, while a broader redrafting of the proposal takes place. Another top official who spoke at the conference, Craig Phillips, counselor to the Treasury secretary, noting the high level of stakeholder input, said "the rule might have to be resubmitted" in order to "better calibrate" it. A March 6 Bloomberg report said the regulatory agencies behind the proposal – the Fed, FDIC, OCC, SEC and CFTC – "are poised to scrap" it. "For the record – and the reporters in the room – the regulatory agencies are still calling it 'a proposal' ...because that is exactly what it is," McWilliams said.
CFPB to issue new debt collection rule proposal. The Consumer Financial Protection Bureau will issue a notice of proposed rulemaking this spring to address issues related to debt collection, including communication practices and consumer disclosures, according to its annual report to Congress on the Fair Debt Collection Practices Act, released March 20. The report highlights ongoing efforts by the CFPB, in partnership with the Federal Trade Commission, to stop unlawful debt collection practices, including law enforcement, education and public outreach, and policy initiatives. Last month, the two agencies reauthorized their memorandum of understanding providing for coordination in enforcement, sharing of supervisory information and consumer complaints, and collaboration on consumer education. CFPB says it handled approximately 81,500 debt collection complaints related to first-party and third-party collections, and that debt collection is among the most prevalent topics of consumer complaints to the Bureau. FTC Commissioner Joseph J. Simons notes in an introduction to the report that military service members face unique challenges and that the agency is working to provide more outreach and assistance to those consumers. The Fair Debt Collection Practices Act, enacted in 1977, is intended "to eliminate abusive debt collection practices by debt collectors."
Regulators float CRA revamp proposals. Two of the nation’s leading bank regulators have outlined proposals for reforming and updating the Community Reinvestment Act, in separate speeches this month, leading some observers to speculate that the agencies are getting further along in developing a joint proposal. Fed Governor Lael Brainard, seen as the Fed's point person on CRA matters, focused on improved data collection, changes to the definition of assessment areas and performance test structure, better tailoring of requirements to a bank’s size and business plan, and more consistent and predictable application of rules, in a March 12 speech before the National Community Reinvestment Coalition. Two days later, FDIC Chairwoman Jelena McWilliams offered deeply personal testimony about how her family’s experiences as the financial system collapsed in the former Yugoslavia, where she grew up, impressed upon her the importance of expanding access to banking services to unbanked or under-banked individuals and communities. In her March 14 speech to the National Diversity Coalition, McWilliams listed as among her priorities leveraging technological innovations to reach more customers, incentivizing small-dollar lending and improving the application process for de novo banks. Last August, OCC issued an Advance Notice of Proposed Rulemaking to request comments on questions including how to define the areas in which regulators evaluate a bank's CRA performance, clarifying and expanding the types of activities that are eligible for CRA consideration, and establishing a metrics-based approach to rating a bank’s CRA performance. Nearly 1,500 comment letters have been received, Brainard said, adding "we have been reading those letters with great interest."
Fed issues debit card report. The Fed has published a report on debit card transactions in 2017, including information on volume and value, interchange fee revenue, certain issuer costs, and fraud losses. The report, published March 21, is the fifth in a series published every two years as required by the Electronic Fund Transfer Act, which also imposes limits on interchange fees that debit card issuers can receive on an electronic debit transaction. Debit-card fraud losses to all parties (merchants, cardholders, and issuers) were 11.2 basis points as a share of transaction value at covered issuers in 2017, up from 10.3 in 2015, according to the report. The median covered issuer’s average fraud loss as a share of transaction value was 5.3 basis points, down from 6.6 in 2015, while the median covered issuer had average fraud prevention and data security costs of 1.5 cents per transaction, down from 1.7 cents in 2015, the Fed states. The Fed conducts two mandated surveys to collect information about the debit card industry: the Payment Card Network survey, conducted every year on payment card networks that process debit card transactions; and the Debit Card Issuer survey, conducted every two years on issuers subject to the interchange fee standard.
ICBA calls for closing ILC "loophole". The Independent Community Bankers of America is urging lawmakers and regulators to crack down on fintech lenders and payment processors obtaining federal deposit insurance while operating under state industrial loan company charters. In a white paper published on March 11, ICBA argues that "policymakers should close a legal loophole that allows certain financial institutions and their parent companies to skirt regulatory oversight, endangering consumers and the economy." The paper calls on the FDIC to impose an immediate moratorium on approving deposit insurance for these companies and petitions Congress "to close the ILC loophole permanently." The Bank Holding Company Act allows commercial and fintech companies to own or acquire ILCs chartered in a few states – notably Utah – without being subject to federal consolidated supervision. In addition to what it sees as a gap in oversight, ICBA also claims that "commercial ownership of ILCs – which are the functional equivalent of full-service banks – violates the longstanding US policy of maintaining the separation of banking and commerce." ICBA has provided its report to the FDIC and plans to lobby members of the Senate Banking and House Financial Services committees. The Marketplace Lending Association, a fintech industry trade organization, in a rebuttal reported by the DC publication CQ Roll Call, noted that "digital banks" are helping to fill the gaps left by the closing of traditional bank branches, and that fintechs should be able to apply for the ILC charters, which it called a "well-regulated state banking option that has proven very durable."
Senate confirms NCUA board members. With the US Senate’s March 14 approval of the nominations of Rodney Hood and Todd Harper, the National Credit Union Administration’s Board of Directors will have the full complement of three members for the first time in three years. The Senate confirmed the nominees by voice vote. Hood, whose term extends to 2023, replaces board member Rick Metsger, whose five-year term expired in August 2017. He served a previous stint as an NCUA board member appointed by President George W. Bush and was corporate responsibility manager at JPMorgan Chase. Harper, whose term extends to 2021, will take the seat of former board chair Debbie Matz, who retired in April 2016. A former director of NCUA's Public and Congressional Affairs Division and one-time staffer on the House Financial Services Committee, Harper will fill a board position reserved for a Democrat. The Credit Union National Association (CUNA), an advocacy organization, praised the two new board members’ qualifications and welcomed the opportunity to work with a full three-member board.
Fed seeks provider data for payments usage study. Financial institutions and payments organizations can expect to receive invitations to take part in the seventh triennial Federal Reserve Payments Study (FRPS). In a March 14 announcement, the Fed indicated that the 2019 exercise will include two studies: one of commercial banks, savings institutions, and credit unions that process the majority of payments; and another of payment card networks, third-party payment processors, issuers of private-label cards, and providers of various alternative payment initiation methods and systems. Every three years since 2001, the FRPS has tracked the aggregate number and value of noncash payments made by US consumers and businesses, offering a periodic benchmark of developments in the US payments system to policymakers, the industry, and the public. The study estimates volumes of payments by general-purpose and private-label credit, non-prepaid and prepaid debit cards, automated clearinghouse, and checks. Recent studies have also collected information on payments fraud, cash withdrawals and deposits, wire transfers, and emerging and alternative payment methods and systems.