United States: Nutter Bank Report, February 2016

The Nutter Bank Report is a monthly publication of the firm's Banking and Financial Services Group.

1. CFPB Issues FCRA Compliance Guidance for Furnishers of Consumer Information
2. Joint Advisory Explains Potential Effects of New Massachusetts Title Clearing Law
3. CFPB Announces No-Action Letter Policy for New Consumer Financial Products
4. OCC Updates Guidance on Installment Lending and Country Risk Management
5. Other Developments: 18-Month Exam Cycle and TRID Rule 

1. CFPB Issues FCRA Compliance Guidance for Furnishers of Consumer Information

The CFPB has issued new compliance guidance on the obligation of furnishers of consumer credit information to establish and implement reasonable written policies and procedures concerning the accuracy and integrity of the consumer information that they furnish to consumer reporting agencies ("CRAs"). The new guidance, published as CFPB Compliance Bulletin 2016 01 on February 3, resulted from recent supervisory experience of the CFPB suggesting that some financial institutions are not compliant with their obligations under Regulation V with regard to furnishing to specialty CRAs. Regulation V implements the Fair Credit Reporting Act ("FCRA"), and requires furnishers of consumer information to consider the factors listed in the "Interagency Guidelines Concerning the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies" and incorporate those guidelines that are appropriate when developing their policies and procedures. According to the CFPB's new guidance, if an institution furnishes both credit information to nationwide CRAs and deposit account information to nationwide specialty CRAs, the institution's policies and procedures must address the appropriate approach to each type of furnishing in order to comply with Regulation V. Click here for a copy of the compliance bulletin.

     Nutter Notes: The CFPB's new compliance bulletin summarizes existing requirements under the FCRA and Regulation V, as well as findings made by the CFPB in the course of exercising its supervisory and enforcement authority. The obligation to establish and implement written policies and procedures concerning the accuracy and integrity of information furnished to CRAs has been required under Regulation V since July 2010. It applies to all furnishers of consumer information, including banks. According to the new guidance, furnishers must have written policies and procedures with respect to all CRAs to which they furnish consumer information, and must be appropriate to the nature, size, complexity and scope of each furnisher's activities. The regulation also requires that each furnisher periodically review and update its policies and procedures to ensure their continued effectiveness. The CFPB's new guidance warned that if the CFPB determines that a furnisher has engaged in any acts or practices that violate Regulation V or other federal consumer financial laws and regulations, it will take appropriate supervisory and enforcement actions to address violations and seek all appropriate remedial measures, including redress to consumers.

2. Joint Advisory Explains Potential Effects of New Massachusetts Title Clearing Law

The Massachusetts Attorney General has issued an advisory in collaboration with the Division of Banks about the potential effects of a new Massachusetts title clearing law, Chapter 141 of the Acts of 2015. According to the advisory released earlier this month, the new law affects potential title defects relating to homes that were foreclosed upon and subsequently sold to a new purchaser. Under the new law, the new purchaser will receive clear title to the foreclosed property even if the underlying foreclosure contained was defective. The new law will not remedy title defects created by other circumstances. After the new purchaser receives clear title to the property, the former homeowner will be unable to bring an action in court to invalidate the foreclosure. According to the advisory, the former homeowner may be able to bring an action seeking monetary or other relief for a defective foreclosure. Click here for a copy of the advisory.

     Nutter Notes: There are some notable exceptions to the new title clearing law, which became effective on December 31, 2015. The title will not clear in favor of the new purchaser if the new purchaser was the foreclosing bank or servicer, a subsidiary, affiliate or agent of the foreclosing bank or servicer, or the mortgage note holder or an investor or guarantor of the mortgage note (including Fannie Mae, Freddie Mac and the Federal Housing Administration). In addition, the title will not clear in favor of the new purchaser if the former homeowner has affirmatively brought an action in court challenging the validity of the foreclosure before the deadline described in the advisory and that challenge has been recorded in the appropriate registry of deeds or land court. Finally, the title will not clear in favor of the new purchaser if the former homeowner continues to live in the foreclosed property and has challenged the validity of the foreclosure as a defendant in court (e.g., an eviction proceeding), regardless of when that challenge was raised, and that challenge has been recorded in the appropriate registry of deeds or land court within 60 days of the challenge.

3. CFPB Announces No-Action Letter Policy for New Consumer Financial Products

The CFPB has announced a new no-action letter policy under which banks and other financial services providers can apply for a statement from CFPB staff indicating that the staff have reviewed the institution's application and have no present intention to recommend enforcement or supervisory action with respect to the particular aspects of a financial product under the specified statutes or regulations that are the subject of the no-action letter. According to the CFPB, the no-action letter policy released on February 18 is intended to enhance regulatory compliance in circumstances where a new product holds the promise for significant consumer benefit and there may be uncertainty about how the product fits within an existing regulatory scheme, such as a case where an innovative product is being developed that involves technology that did not exist and may not have been contemplated at the time existing regulations were adopted. When assessing no-action letter applications, the CFPB said that its staff will take into account certain factors described in the policy statement, including the institution's relevant government supervision and enforcement history. Under the policy, no-action letters are not binding on the CFPB and are also revocable at any time. If the CFPB issues a no-action letter, it will be posted on the CFPB's website along with a version or summary of the institution's application. Click here for a copy of the policy statement.

     Nutter Notes: According to the CFPB, a no-action letter may be limited as to time, volume of transactions, or otherwise. Whether to provide a no-action letter or otherwise respond to such a request, including any limitations or conditions, is within the sole discretion of CFPB staff. Since no-action letters sometimes will be conditioned on compliance with specified consumer protections designed to satisfy or exceed applicable disclosure and substantive requirements, the CFPB said that it expects the new policy will benefit consumers. According to the new policy, no-action letter applications should be submitted in writing via e-mail to ProjectCatalyst@cfpb.gov. The CFPB requires that applications include a description of the consumer financial product involved, how it functions, the terms on which it will be offered, the manner in which it will be offered to and used by consumers, and any consumer disclosures. No-action letter applications must also contain an explanation of how the product is likely to provide substantial benefits to consumers differently than those provided in the present marketplace, suggested metrics for evaluating whether such benefits are realized and an explanation of potential consumer risks posed by the product, as well as certain additional information described in the CFPB's policy statement.

4. OCC Updates Guidance on Installment Lending and Country Risk Management

The OCC has updated the Comptroller's Handbook with a new booklet entitled "Installment Lending" and with a revised version of the "Country Risk Management" booklet, both of which apply to national banks and federal savings associations. The new "Installment Lending" booklet, issued on February 12, updates and replaces the "Installment Loans" booklet issued in March 1990 and the related examination procedures, and replaces the OTS Supervision Examination Handbook section 217, "Consumer Lending," for federal savings associations. The booklet provides updated guidance on assessing and managing the risks associated with installment lending activities, including assessing the quantity of risk associated with installment lending activities and the quality of installment lending risk management. The guidance includes guidance on examiners' expectations about the controls and processes necessary to effectively manage those risks, such as policies, procedures and monitoring to avoid becoming involved with a third party engaged in discriminatory, unfair, deceptive, abusive or predatory lending practices. Click here for a copy of the new "Installment Lending" booklet.

     Nutter Notes: The revised "Country Risk Management" booklet, issued on February 12, replaces the booklet of the same title issued in March 2008. The booklet provides guidance on assessing a bank's exposure to country risk and includes procedures to evaluate the adequacy of a bank's country risk management framework. The revised booklet updates the risks associated with international activities by providing more details of the effects of country risk, cross-border risk, and sovereign risk on the OCC's eight risk categories (credit, interest rate, liquidity, price, operational, compliance, strategic and reputation), adds an internal control questionnaire and a glossary, and addresses the risk management of third-party providers. For example, the revised booklet provides guidance on examiners' expectations about controlling risks related to third-party relationships, such as information technology servicing and other outsourcing arrangements, with foreign service providers or with service providers that use foreign subcontractors. According to the revised booklet, OCC examiners expect a depository institution's board of directors to be responsible for periodically reviewing and approving policies governing the institution's international activities to assess whether they are appropriate and consistent with the institution's strategic plans, goals, risk appetite and capital and management strength. Click  here for a copy of the revised "Country Risk Management" booklet.

5. Other Developments: 18-Month Exam Cycle and TRID Rule

  • Federal Reserve Approves Rules to Expand Availability of Extended Exam Cycle

The Federal Reserve on February 19 joined the FDIC and OCC in approving an interim final rule that will increase the number of small banks and savings associations eligible for an 18-month examination cycle rather than a 12-month cycle. Under the interim final rule, qualifying well-capitalized and well-managed banks and savings associations—with a composite rating of 1 or 2—with less than $1 billion in total assets may be eligible for an 18-month examination cycle.

     Nutter Notes: The interim final rule implementing the expanded examination cycle for certain small banks will become effective as soon as it is published in the Federal Register, which is expected shortly. Click  here for a copy of the interim final rule.

  • CFPB Corrects Error in Supplementary Information for Integrated Disclosure Rule

The CFPB on February 10 issued a correction to its TILA-RESPA integrated disclosures ("TRID") rule to clarify that property insurance premiums, property taxes, homeowner's association dues, condominium fees and cooperative fees are not subject to tolerances. The correction was made to the Supplementary Information accompanying the TRID rule, which contained a typographical error.

     Nutter Notes: The TRID rule lists certain charges for which variations are permissible within specified tolerances, and the original Supplementary Information accompanying the 2013 release of the TRID rule mistakenly indicated that property insurance premiums, property taxes, homeowner's association dues, condominium fees and cooperative fees are subject to tolerances, when in fact they are not. Click  here for a copy of the correction.

Originally published February 29, 2016.

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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