CFPB Finalizes Rule To Remove Medical Bills From Credit Reports

In this issue. The Consumer Financial Protection Bureau (CFPB) finalized its rule to remove medical bills from credit reports; the Board of Governors of the Federal Reserve System (Federal Reserve), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) revised their interagency statement on the extension of credit to certain investment funds and portfolio investments; the Securities and Exchange Commission (SEC) adopted amendments to Rule 15c3-1 (the Broker-Dealer Net Capital Rule) and 15c3-3 (the Customer Protection Rule); the OCC revised thresholds defining "small" and "intermediate small" bank or savings associations under the Community Reinvestment Act (CRA); the CFPB released its 37th issue of Supervisory Highlights; the Federal Reserve announced that Michael S. Barr will step down as Vice Chair for Supervision of the Federal Reserve; and the Federal Reserve is seeking public comment on bank stress tests. These and other developments are discussed in more detail below.

Regulatory Developments

CFPB Finalizes Rule to Remove Medical Bills from Credit Reports
On January 7, the CFPB issued a final rule amending Regulation V, which implements the Fair Credit Reporting Act, to remove a regulatory exception that had permitted creditors to obtain and use medical information in making lending decisions. The final rule also prohibits consumer reporting agencies from including medical debt information on credit reports and credit scores sent to lenders, while still allowing them to consider medical information to verify medical-based forbearances, verify medical expenses that a consumer needs a loan to pay, consider certain benefits as income when underwriting, and other legitimate uses. Already, two groups representing the credit reporting and credit union industries have filed a lawsuit in federal court in Texas challenging the rule.

Federal Reserve, OCC, and FDIC Revise Interagency Statement on Certain Investment Funds and Portfolio Investments
On December 27, the Federal Reserve, OCC, and FDIC (collectively, the Agencies) issued a revised interagency statement (Revised Statement) to supersede the "Extension of the Revised Statement Regarding Status of Certain Investment Funds and their Portfolio Investments for Purposes of Regulation O and Reporting Requirements under Part 363 of FDIC Regulations" that the Agencies issued previously on December 15, 2023, which was set to expire on January 1, 2025. The Revised Statement explains that the Agencies will continue to exercise discretion not to take action against banks or certain companies that sponsor, manage, or advise investment funds and institutional accounts (i.e., fund complexes) that become principal shareholders of banks (i.e., principal shareholder fund complexes). This discretion applies to certain extensions of credit by banks to portfolio companies of the principal shareholder fund complexes that otherwise would violate Regulation O (12 CFR 215), provided certain eligibility criteria are satisfied. The eligibility criteria require that: (1) the fund complex (A) own 15% or less of any class of the bank's voting securities (or 20% or less under certain circumstances), (B) does not have or seek to have a representative of the fund complex serve as a director, officer, agent, or employee of the bank, and (C) does not exercise or attempt to exercise a controlling influence over the management or policies of the bank; and (2) the bank does not knowingly make an extension of credit to a fund complex-controlled portfolio company, unless the terms of that extension of credit are on substantially the same terms as those prevailing for comparable transactions with unaffiliated third parties and do not involve more than normal risk of repayment or present other unfavorable features.

SEC Adopts Amendments to the Customer Protection Rule and Broker-Dealer Net Capital Rule
On December 20, the SEC adopted amendments to the Customer Protection Rule and Broker-Dealer Net Capital Rule to (1) require certain broker-dealers to increase, from weekly to daily, the frequency with which they perform computations of the net cash they owe to customers and other broker-dealers (known as proprietary account of a broker-dealer (PAB) account holders), and (2) to permit certain broker-dealers that perform a daily customer reserve computation to decrease the required 3% "buffer" in the customer reserve bank account by reducing the customer-related receivables, or "aggregate debit items," charge from 3% to 2% in the computation. These amendments will be in effect 60 days after the date of publication of the adopting release in the Federal Register. Broker-dealers that exceed the $500 million threshold using each of the 12 filed month-end FOCUS Reports from July 31, 2024 through June 30, 2025 must perform the customer and PAB reserve computations daily beginning no later than December 31, 2025.

"Our markets have dramatically evolved since the 1972 adoption of Rule 15c3-3, otherwise known as the Customer Protection Rule. I'm pleased to support this adoption because it helps protect customers and the Securities Investor Protection Corporation Fund, while promoting greater trust in the markets."
— Gary Gensler, SEC Chair

OCC Revises Small and Intermediate Small Bank and Savings Association Asset Thresholds
On December 23, the OCC announced revisions to the asset-size threshold amounts used to define "small bank or savings association" and "intermediate small bank or savings association" under CRA regulation 12 CFR 25. Based on an increase of 2.91% in the Consumer Price Index for Urban Wage Earners and Clerical Workers, the OCC adjusted dollar thresholds to define a "small bank or savings association" as a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.609 billion, and an "intermediate small bank or savings association" as a small bank or savings association with assets of at least $402 million as of December 31 of both of the prior two calendar years and less than $1.609 billion as of December 31 of either of the prior two calendar years. These new thresholds became effective January 1, 2025.

CFPB Releases Supervisory Highlights, Issue 37
On December 20, the CFPB released Issue 37 of its Supervisory Highlights, reporting on supervisory findings identified on select examinations generally completed between January 1, 2024 and October 1, 2024. The Supervisory Highlights noted violations of federal consumer financial laws in the areas of deposits, furnishing, and short-term small dollar lending, including: unanticipated and unfair overdraft and non-sufficient funds fees and re-presentment practices; failing to maintain reasonable procedures to respond to identity theft block request notifications from consumer reporting companies, to conduct reasonable investigations of indirect disputes, and to establish and implement reasonable policies and procedures concerning the accuracy and integrity of furnished information; failing to timely resolve consumer disputes; misrepresenting loan costs or terms; denying credit based on payment processing deficiencies on earlier loans; designing consumer interfaces to include misrepresentations about uses and benefits of tips and tipping; and blocking loan account closure while continuing to debit deposit accounts.

Federal Reserve Announces Michael S. Barr to Step Down as Federal Reserve's Vice Chair for Supervision, Continue to Serve as Member
On January 6, the Federal Reserve announced that Michael S. Barr will step down from his role as Vice Chair for Supervision, effective February 28, or upon the confirmation of a successor, but will continue to serve as a Federal Reserve governor. The Federal Reserve has not yet announced a successor for the Vice Chair for Supervision role, and it confirmed that it does not intend to engage in any major rulemakings until a new Vice Chair for Supervision successor is confirmed.

Federal Reserve to Seek Public Comment on Bank Stress Tests
On December 23, the Federal Reserve announced that it plans to make changes to how it conducts stress tests of large banks holding $100 billion or more in assets. Proposed modifications to the testing process announced by the Federal Reserve include disclosing and seeking public comment on the models used to run the tests and averaging results for banks over a period of two years. The move comes amid criticism from some industry actors that the stress tests as previously conducted violated the Administrative Procedure Act, which requires public notice and comment on significant regulatory changes. As of December 23, the Federal Reserve had intended to seek public comment on the changes in the early part of the year; however, in light of the later announcement of Michael S. Barr stepping down from his role as the Federal Reserve's Vice Chair for Supervision, the Federal Reserve may not engage in any major rulemakings until a new Vice Chair for Supervision successor is confirmed.

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