Dodd-Frank News Center

Waters 'deeply troubled' over CFPB settlement with State Farm Bank

This story appeared in Bank Digest.                                   

House Financial Services Committee Ranking Member Maxine Waters (D-Calif) has issued a statement on the Consumer Financial Protection Bureau's settlement with State Farm Bank, FSB, over the alleged misuse of consumer credit information, in which the Bureau did not impose a civil penalty. In her statement, Waters said, "To cap off his harmful tenure at the Consumer Bureau, Mick Mulvaney has chosen to once again turn a blind eye to predatory behavior."

She added that she was "deeply troubled by the Consumer Bureau's announcement that State Farm Bank will not be held accountable for violating the law by improperly obtaining consumer reports and providing credit bureaus with inaccurate information. Financial institutions that abuse consumers need to face real consequences and State Farm Bank, which has over $16 billion in assets, is no exception."

Senators request update on FSOC's progress in reforming nonbank designation process

This story appeared in Bank Digest.  

Senators Thom Tillis (R-NC), Mike Rounds (R-SD), Tom Cotton (R-Ark), and David Perdue (R-Ga) have written a letter to Treasury Secretary Steven Mnuchin requesting an update on the progress being made by the Financial Stability Oversight Council to reform the systematically important designation process for nonbank financial companies in accordance with recommendations the Treasury Department made in a November 2017 report.

The Dodd-Frank Act established the FSOC with the authority to determine that certain nonbank financial companies would be supervised by the Federal Reserve Board and subject to enhanced prudential standards.

In their letter, the senators said Treasury "should prioritize the enactment of reforms recommended in its report as soon as possible" and that the FSOC must make "fundamental changes to the way in which it operates." They went on to say, "Particularly troubling is its history of flawed designations that have subjected individual companies to inappropriate and burdensome regulation by the Federal Reserve." The senators asked for answers to several questions on the implementation of the recommended reforms.

Waters expresses concerns over CFPB proposal to revise no-action letter policy

This story appeared in Bank Digest.                                     

House Financial Services Committee Ranking Member Maxine Waters (D-Calif) has issued a statement regarding the Consumer Financial Protection Bureau's proposed Policy on No-Action Letters and the BCFP Product Sandbox. Waters said she was "very concerned" by the Bureau's proposal, which she said would "significantly loosen its 'no-action letter' policy in a way that could let bad actors that abuse consumers off the hook entirely from enforcement action by the agency."

The Bureau is proposing to revise its 2016 Policy on No-Action Letters and proposing the BCFP Product Sandbox, which would provide no-action relief substantially the same as that available under the No-Action Letter policy, as well as two additional forms of relief. The proposed policy contains revised information collection requirements which consist of the information that should be submitted in applications for admission to the BCFP Product Sandbox. Written comments on the proposal must be received by Feb. 11, 2019.

GAO issues report on GSIB actions to mitigate obstacles to orderly resolution

This story appeared in Bank Digest.

The Government Accountability Office has issued a report regarding actions U.S. global systemically important bank holding companies took to mitigate financial and legal obstacles they could face under the Bankruptcy Code that could undermine an orderly resolution. The GAO focused on five U.S. GSIBs with large portfolios of derivatives (because of resolution obstacles such financial contracts pose).

According to the report, the five U.S. GSIBs in the GAO's review incorporated procedures and other controls in their 2017 resolution plans to mitigate financial and legal obstacles to orderly resolution under the Bankruptcy Code. In their review, the Federal Deposit Insurance Corporation and Federal Reserve Board found no deficiencies with the GSIBs' 2017 plans.

Most experts the GAO interviewed viewed GSIB controls to mitigate financial obstacles as potentially somewhat effective, but these experts had mixed views on the potential effectiveness of GSIB controls to mitigate creditor challenges and other legal obstacles.

Brainard speaks in Washington on assessing financial stability

This story appeared in Bank Digest.

Federal Reserve Board Governor Lael Brainard spoke at the Peterson Institute for International Economics in Washington, D.C., on Dec. 7, 2018. The subject of her prepared remarks was "Assessing Financial Stability over the Cycle."

In her prepared remarks, Brainard said that if anything has been learned from the financial crisis, "it is that we must be especially vigilant to safeguard the resilience of our financial system in good times when vulnerabilities may be building." She went on to describe the state of the economy, highlight areas where she saw financial imbalances building, and discuss the implications for policy.

According to Brainard, while the U.S. financial system is much more resilient than before the crisis, "the appetite for risk among financial market participants rose notably over 2017 and much of 2018, and corporate borrowing has reached new heights amid rapid growth and deteriorating underwriting standards in riskier segments, such as leveraged lending." She went on to say, "At a time when cyclical pressures have been building and bank profitability has been strong, it might be prudent to ask large banking organizations to fortify their capital buffers, which could subsequently be released if conditions warrant."

Perdue introduces bill to provide relief from costs of 'duplicative capital buffers'

This story appeared in Bank Digest.                                   

Senator David Perdue (R-Ga) has introduced a bill (S. 3682) intended to provide relief from financial regulatory burdens and extra costs that are passed down to small business owners, farmers, and consumers. According to Perdue's press release, after the 2008-2009 financial crisis, federal bank regulators increased the amount of capital held by banks for certain "risky" activities. This included the supplemental leverage ratio (SLR), which requires banks to hold a certain amount of capital.

But according to the release, the SLR did not account for the initial margin that customers pay, and as a result, duplicative capital buffers were built as banks had to hold additional capital aside. The cost of this trapped capital was ultimately passed on to the end users, such as farmers and business owners.

Senate confirms Kraninger nomination by one-vote margin

This story appeared in Bank Digest.                                   

The nomination of Kathy Kraninger to be director of the Consumer Financial Protection Bureau was confirmed by the Senate by a vote of 50 to 49 on Dec. 6, 2018. Kraninger will be the second Senate-confirmed CFPB director, following Richard Cordray. Mick Mulvaney has been serving as acting director since Cordray's resignation. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) congratulated Kraninger on her confirmation and said he was "confident that with her experience and knowledge of budget management, Kathy will excel as Director of the Bureau."

Committee Ranking Member Maxine Waters (D-Calif) said Mulvaney had taken "a series of actions to weaken the agency's ability to carry out its important mission" and called on Kraninger "to put consumers first by rolling back the anti-consumer actions taken by her predecessor and allowing the Consumer Bureau to resume its work of protecting hardworking Americans from unfair, deceptive or abusive practices."

CFPB issues 'Fair Lending Report'

This story appeared in Bank Digest.                                     

The Consumer Financial Protection Bureau has issued its "Fair Lending Report of the Bureau of Consumer Financial Protection," which "describes the Bureau's fair lending activities for 2017, consistent with its statutory mandate to ensure that consumers are protected from discrimination," according to an introductory message from CFPB Acting Director Mick Mulvaney.

The report, from the Bureau's Office of Fair Lending and Equal Opportunity, is intended to fulfill the Dodd-Frank Act's requirement that the Bureau file an annual report to Congress describing the administration of its functions under the Equal Credit Opportunity Act, summarizing public enforcement actions taken by other agencies with administrative enforcement responsibilities under ECOA, and providing an assessment of the extent to which compliance with ECOA has been achieved. The act also requires the Bureau, in consultation with the Department of Housing and Urban Development, to report annually on the utility of the Home Mortgage Disclosure Act's requirement that covered lenders itemize certain mortgage loan data.

According to a related Bureau blog post by Patrice Ficklin, the director of the Office of Fair Lending and Equal Opportunity, the report "highlights how in 2017 we continued to focus on promoting fair, equitable, and nondiscriminatory access to credit in mortgage lending, continued fair lending supervision of servicing and small business lending, and embarked on new efforts to encourage innovation in expanding credit access."

OCC issues 'Semiannual Risk Perspective'

This story appeared in Bank Digest.                                   

The Office of the Comptroller of the Currency has issued its "Semiannual Risk Perspective for Fall 2018," which covers risks facing national banks and federal savings associations based on data as of June 30, 2018. It focuses on issues that pose threats to financial institutions regulated by the OCC.

The OCC said that according to the report, credit quality remains strong, but the OCC is monitoring the origination quality of new loans, the potential for increased lender complacency within credit risk identification and management, and the potential embedded risks from successive years of eased underwriting.

In addition, the agency said, operational and compliance risks are elevated, and rising interest rates and increased competition for deposits may result in changes in funding mix or costs. The report also highlights the emerging risk posed by the growth in nonfinancial corporate debt and includes a credit underwriting assessment supplement.

FDIC's Reserve Ratio exceeds minimum, large bank surcharges to end

This story appeared in Bank Digest.                                   

The Deposit Insurance Fund Reserve Ratio has reached 1.36 percent, exceeding the statutorily required minimum reserve ratio of 1.35 percent ahead of the Sept. 30, 2020, deadline required under the Dodd-Frank Act. As a result, surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large banks) will cease and small banks will receive assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from between 1.15 percent and 1.35 percent, to be applied when the reserve ratio is at or above 1.38 percent.

The Federal Deposit Insurance Corporation said the last quarterly surcharge will be reflected in large banks' December 2018 assessment invoices, which cover the assessment period from July 1 through September 30.

The agency's guidance included links to four documents: (1) Final Rule on Assessments (large bank pricing) (2) Final Rule on Assessments (surcharges); (3) Final Rule on Assessments (small bank pricing); and (4) Third Quarter 2018 "Quarterly Banking Profile".