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Nutter Bank Report: May 2019 

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  1. OCC Adopts Final Rule to Allow Federal Thrifts to Exercise National Bank Powers
  2. CFPB Proposes Amendments to Reduce HMDA Reporting Burden for Smaller Banks
  3. OCC Report Highlights Risks for the Federal Banking System Related to New Technologies
  4. CFPB Proposes to Allow Debt Collectors to Contact Borrowers by Email, Text
  5. Other Developments: Special Purpose Charters and Innovation Pilot Program

1. OCC Adopts Final Rule to Allow Federal Thrifts to Exercise National Bank Powers

The OCC has issued a final rule that will allow federal savings associations with total consolidated assets of $20 billion or less as of December 31, 2017 to elect to operate as a “covered savings association,” and exercise the same rights and privileges as a national bank that has its main office situated in the same location as the home office of the covered savings association. For example, a covered savings association would no longer be required to satisfy the Qualified Thrift Lender test under the final rule published on May 24. Qualifying federal savings associations will be able to make the election by submitting a notice to the OCC in writing. An election to operate as a covered savings association will automatically take effect 60 days after the OCC receives the notice, unless the OCC notifies the federal savings association that it is not eligible. A federal savings association that elects to operate as a covered savings association will be subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to a national bank. Under the final rule, a covered savings association retains its federal savings association charter and continues to be treated as a federal savings association for purposes of corporate governance matters. A covered savings association also will be treated as a federal savings association under the final rule for purposes of consolidation, merger, dissolution, mutual-to-stock and charter conversion, conservatorship, and receivership, and for any other purpose determined by OCC regulation. The final rule becomes effective on July 1, 2019. Click here for a copy of the final rule.

Nutter Notes: The final rule generally requires a covered savings association to divest, conform, or discontinue nonconforming subsidiaries, assets, and activities—i.e., those that would not be permissible for a national bank, subject to certain limited exceptions—not later than two years after the effective date of the election to operate with national bank powers. The final rule also allows the OCC to require a covered savings association to submit a plan to divest, conform, or discontinue a nonconforming subsidiary, asset, or activity, to assist OCC supervisory staff in assessing compliance with the final rule. The OCC may grant extensions of the divestiture and conformance period if the OCC determines that the covered savings association has made a good faith effort to comply, divestiture, conformance, or discontinuance would have a material adverse financial effect on the association, and retention or continuation of the nonconforming subsidiaries, assets, or activities is consistent with safety and soundness principles. Under the final rule, an institution that was a credit union or state-chartered bank or thrift as of December 31, 2017, but that later converted to a federal savings association charter, and federal savings associations chartered after December 31, 2017 will not be eligible to make an election to operate as a covered savings association.

2. CFPB Proposes Amendments to Reduce HMDA Reporting Burden for Smaller Banks

The CFPB has issued two alternative proposals to amend its Regulation C, which implements the Home Mortgage Disclosure Act (“HMDA”) reporting requirements, that would permanently increase the threshold for reporting data about closed-end mortgage loans so that institutions, including banks, originating fewer than either 50 or, alternatively, 100 closed-end mortgage loans in either of the two preceding calendar years would not have to report HMDA data for those transactions. In connection with the proposed amendments published on May 2, the CFPB is requesting comments from the public about whether either of the two proposed alternative closed-end coverage thresholds, or some other alternative, would more appropriately balance the benefits and burdens of covering institutions based on their closed-end lending. The proposed amendments, if approved, also would adjust the threshold for reporting HMDA data about open-end lines of credit by extending to January 1, 2022 the current temporary threshold of 500 open-end lines of credit, and would set the threshold permanently at 200 open-end lines of credit upon the expiration of the proposed extension of the temporary threshold. Comments on the proposed rule are due by June 12, 2019. Click here for a copy of the proposed rule.

Nutter Notes: Separately, the CFPB issued an advance notice of proposed rulemaking on May 2 seeking comments from the public about the costs and benefits of the 2015 expanded HMDA data reporting requirements and certain preexisting data points that the 2015 amendments to Regulation C revised. In its 2015 amendments to Regulation C, the CFPB added a number of new HMDA data points to implement specific provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), including property address, age, rate spread for all loans, credit score, total loan costs or total points and fees, and prepayment penalty term, among others. The 2015 amendments also revised existing HMDA data points to require additional information be reported for those data points, such as the purpose of the loan or application, occupancy type, ethnicity, race, and legal entity identifier. The advance notice of proposed rulemaking also is seeking comments about the costs and benefits of requiring that institutions report certain commercial-purpose loans made to business entities and secured by a multifamily dwelling. Comments in response to the advance notice of proposed rulemaking are due by July 8, 2019. Click here for a copy of the advance notice of proposed rulemaking.

3. OCC Report Highlights Risks for the Federal Banking System Related to New Technologies

The OCC’s recent report, Semiannual Risk Perspective for Spring 2019, identified rapid growth in financial technology (“Fintech”) and regulatory technology as a key source of operational and strategic risks in the federal banking system. The report released on May 20 warned that common drivers for operational risk in this area include cybersecurity threats and increasing use of third party vendors to provide and support operations that are not effectively understood, implemented, and controlled by federal banking institutions. The report also emphasized that changing business models or offering new products and services can elevate strategic risk if such measures are not accompanied by appropriate corporate governance and risk management policies and procedures. The OCC recommends that management of federally chartered banks consider reliance on third parties and any concentration of service providers by the industry as a whole as part of each bank’s risk management assessments. At the same time, the report warns that banks that do not assess business relevancy and impacts from technological advancement or innovation, or are slow to adapt to industry changes, may be exposed to increasing strategic risk. Click here for a copy of the report.

Nutter Notes: The OCC’s report is the first time that risks associated with financial innovation or Fintech have been highlighted since Comptroller of the Currency Joseph Otting took office in November 2017. The report cited, among others, the burden of legacy technology systems, reliance on core processing firms, and resource limitations as drivers of higher strategic risk to the federal banking system. It re-emphasized longstanding guidance related to strategic planning, evaluating new products and services, and managing third-party relationships. The report recommended that federally chartered banks focus on their core competencies and identify Fintech opportunities and adopt technologies that increase their efficiency and ability to retain and attract customers. The report also urged federally chartered banks to conduct proper due diligence and confirm that appropriate controls are in place for third-party relationships and warned that the lack of proper planning and due diligence, oversight, and controls over third-party relationships can result in elevated reputational, strategic, operational, and compliance risks.

4. CFPB Proposes to Allow Debt Collectors to Contact Borrowers by Email, Text

The CFPB has issued a proposal to amend its Regulation F, which implements the Fair Debt Collection Practices Act (“FDCPA”), to clarify that newer communication technologies, such as emails and text messages, may be used to contact consumers for debt collection communications. The proposed amendments issued on May 7 also would provide that a consumer may restrict the media through which a debt collector communicates by designating a particular medium, such as email, as one that cannot be used for debt collection communications. The proposed amendments would also include certain limitations to protect consumer privacy and to prevent harassment or abuse, such as a requirement that a debt collector’s emails and text messages include instructions for a consumer to opt out of receiving further emails or text messages. While a bank collecting its own debt in its own name is not considered a debt collector under the FDCPA, the federal banking agencies generally expect banks to avoid abusive collection practices and comply with the spirit of the FDCPA. The federal banking agencies also expect banks to oversee compliance by third party debt collectors with the FDCPA and Regulation F under certain circumstances. Comments on the proposed amendments to Regulation F are due by August 19, 2019. Click here for a copy of the proposed amendments.

Nutter Notes: In developing the proposed amendments to Regulation F, the CFPB relied in part on its authority under the Dodd-Frank Act to identify unfair, deceptive, or abusive acts or practices (“UDAAPs”) in connection with consumer financial products, rather than its authority under the FDCPA. The CFPB stated that it does not take a position on whether certain practices identified in the proposed rule as UDAAPs for debt collectors would also constitute UDAAPs under the Dodd-Frank Act for banks and other creditors engaged in the collection of debts that they own. As a result, banks that are not otherwise subject to the FDCPA could be required to comply with certain requirements of the proposed amendments to Regulation F, if adopted, to the extent that such requirements identify UDAAPs under the Dodd-Frank Act.

5. Other Developments: Special Purpose Charters and Innovation Pilot Program

  • Court Rules Lawsuit Against Special Purpose National Bank Charters May Proceed

In response to a motion by the OCC to dismiss a lawsuit brought by the New York State Department of Financial Services (“NYDFS”) to prevent the OCC from issuing special purpose national bank (“SPNB”) charters to Fintech companies, the U.S. District Court for the Southern District of New York ruled on May 2 that two claims brought by the NYDFS against the OCC are ripe for consideration and may proceed. Click here for a copy of the court’s ruling.

Nutter Notes: Earlier this year, the OCC filed a motion to dismiss the NYDFS’s lawsuit. The NYDFS has made three claims against the OCC. The first two claims assert that the OCC’s decision to issue SPNB charters to Fintechs and its regulation implementing that decision exceeded the OCC’s authority under the National Bank Act. The court’s ruling allows these claims to proceed. The NYDFS’s last claim asserts that the OCC’s SPNB charter decision violates the Tenth Amendment of the U.S. Constitution, but the court disagreed and dismissed the last claim.

  • OCC Seeks Input on Proposed Innovation Pilot Program

The OCC on April 30 announced a proposed Innovation Pilot Program that would allow national banks and federal thrifts to receive regulatory input early in the testing of innovative activities that could present significant opportunities or benefits to consumers, businesses, financial institutions, and communities, including those in which a third party vendor would be involved in the innovative product, service, or process. Comments on the proposed program are due by June 14, 2019. Click here for a copy of the OCC’s announcement and information about the proposed program.

Nutter Notes: According to the OCC, the proposed program is intended to provide a consistent and transparent framework for OCC-regulated institutions to engage with the OCC on small-scale, short-term tests to determine the feasibility of a new activity or consider how a large-scale activity might work in practice. The proposal contemplates that the OCC would work with each institution to tailor the terms of engagement, including appropriate parameters for each pilot test.

Nutter Bank Report
Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, after interviewing our clients and our peers in the profession, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. Visit the U.S. rankings at The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Jason J. Cabral and Heather F. Merton. The information in this publication is not legal advice. For further information, contact:

Thomas J. Curry

Tel: (617) 439-2087

Kenneth F. Ehrlich

Tel: (617) 439-2989

Michael K. Krebs

Tel: (617) 439-2288

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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