FDIC Announces Iowa Bank Failure – 5th Bank to Fail in 2023

Regulatory Developments

FDIC Announces Iowa Bank Failure – 5th Bank to Fail in 2023
On November 3, the FDIC announced that a community bank in Sac City, Iowa, called Citizens Bank (CB), was closed by the Iowa Division of Banking, and the FDIC was appointed as receiver. The FDIC entered into a Purchase and Assumption Agreement with Iowa Trust & Savings Bank, a bank based in Emmetsburg, Iowa, to assume all of the deposits of CB and to reopen the two existing branches of CB under the new name. CB had approximately $66 million in total assets and $59 million in total deposits, all of which have been assumed by Iowa Trust & Savings Bank. The FDIC anticipates that the cost to the Deposit Insurance Fund will be approximately $14.8 million. CB is the fifth U.S. bank to fail in 2023. For more information please see the press release.

CFPB Proposes New Rule to Supervise and Examine Payment App and Digital Wallet Providers
On November 7, the CFPB issued a proposed rule to supervise larger nonbank companies that provide services like funds transfer or wallet functionalities through a digital application for consumers’ general use in making consumer payments transactions (e.g., payment apps, funds transfer apps, person-to-person payment apps, P2P apps, digital wallets). Large nonbank companies would include those with an annual volume of at least 5,000,000 consumer payment transactions and that are not a small business concern based on the applicable Small Business Administration size standard. The proposed rule is intended to promote fair competition and ensure consistent application of federal consumer financial laws across the marketplace. Comments must be received on or before the later of January 8, 2024 or 30 days after publication of the proposed rule in the Federal Register.

“Payment systems are critical infrastructure for our economy. These activities used to be conducted almost exclusively by supervised banks. Today’s rule would crack down on one avenue for regulatory arbitrage by ensuring large technology firms and other nonbank payments companies are subjected to appropriate oversight.”

‒ Rohit Chopra, Director of the Consumer Financial Protection Bureau

CFPB Issues Report on State Community Reinvestment Laws
On November 2, the CFPB published a report analyzing how states (specifically, Connecticut, Illinois, Massachusetts, New York, Rhode Island, Washington, and West Virginia) and the District of Columbia have adopted laws similar to the federal Community Reinvestment Act (CRA) to collect data to better understand changes in financial markets and to ensure that the lending, services, and investment activities of financial institutions, including nonbank mortgage companies, meet the credit needs of their communities. The CFPB’s research and report is intended to identify existing areas of collaboration between state and federal supervisory agencies, identify where federal consumer financial protection laws and other protections are incorporated into state CRA evaluations, compare performance evaluation factors among certain state CRAs, and inform further development and publication of market information used as part of state performance evaluations. The report summarizes key factors of each law and offers considerations for states interested in establishing reinvestment obligations.

SEC Adopts Rules for the Registration and Regulation of Security-Based Swap Execution Facilities
On November 2, the SEC adopted new Regulation SE under the Securities Exchange Act of 1934 (Exchange Act) to create a regime for the registration and regulation of security-based swap execution facilities (SBSEF). The new regulatory framework is required under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) relating to the over-the-counter derivatives market. Regulation SE addresses the Exchange Act’s trade execution requirement for security-based swaps and the cross-border application of that requirement, implements Section 765 of the Dodd-Frank Act to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade security-based swaps, and promotes consistency between Regulation SE and existing rules under the Exchange Act. In adopting Regulation SE, the SEC has sought to harmonize as closely as practicable with parallel rules of the Commodity Futures Trading Commission that govern swap execution facilities and swap execution generally. The new Regulation SE becomes effective 60 days following the date of publication in the Federal Register.

FSOC Approves New Analytic Framework For Financial Stability Risks and Issues Guidance On Nonbank Financial Company Determinations
On November 3, FSOC voted to adopt the final version of its “Analytic Framework for Financial Stability Risk Identification, Assessment, and Response” (Analytic Framework) which describes the approach FSOC expects to take in identifying, assessing, and responding to certain potential risks to U.S. financial stability, as well as the final version of interpretive guidance (Interpretive Guidance) regarding its procedures for designating nonbank financial companies for prudential standards and Federal Reserve supervision under section 113 of the Dodd-Frank Act. 

Key changes made to the Analytic Framework in response to public comments include providing an interpretation of the phrase “threat to the financial stability of the United States” and examples of the types of quantitative metrics FSOC may consider in its analysis of the vulnerabilities that contribute to risks to financial stability, identifying vulnerabilities that may be particularly relevant to the channels FSOC has identified as being most likely to transmit risk through the financial system, and elucidating FSOC’s approach for extensive engagement with state and federal financial regulatory agencies regarding potential risks and the extent to which existing regulation may mitigate those risks.

The Interpretive Guidance replaces the interpretive guidance approved by FSOC in December, 2019 (2019 Interpretive Guidance). As FSOC explained, the Interpretive Guidance “aims to establish a durable process for [FSOC’s] use of its nonbank financial company designation authority, maintain rigorous procedural protections for nonbank financial companies reviewed for potential designation, and remove unwarranted hurdles to designation imposed by the 2019 Interpretive Guidance.”

Litigation and Enforcement Developments

CFPB Updates Exam Manual in Light of the United States District Court for the Eastern District of Texas’s Ruling in the U.S. Chamber of Commerce Litigation
As previously reported, on September 8, the United States District Court of the Eastern District of Texas granted plaintiff U.S. Chamber of Commerce’s (the Chamber) motion for summary judgment, which invalidated the CFPB’s Exam Manual changes from March 2022 that stated that discriminatory conduct may be a UDAAP violation. In light of this decision, the CFPB updated its Supervision and Examination Manual to remove the March 2022 updates relating to discriminatory conduct and reverted the Examination Manual’s section relating to UDAAP back to the October 2012 version. The October 2012 version of the Examination Manual did not include discrimination as a possible ground for a UDAAP violation.

Further, the CFPB did not file an appeal from the Court’s decision in the Chamber of Commerce matter by the October 8 deadline and has not filed a notice of appeal or sought an extension of the deadline to appeal. Additionally, the CFPB removed a reference on its “Supervision and examinations” webpage from September 2023 that said that the Bureau was “reviewing the ruling.” Instead, the current “Supervision and examinations” webpage links to the October 2012 version of the UDAAP section of the Examination Manual as the operative and current version. 

Accordingly, it appears that, at least for the time being, the CFPB has taken a step back from its position that discriminatory conduct is a basis for a UDAAP violation.

Check Out Goodwin’s Latest Industry Insights

Banking Agencies Finalize Community Reinvestment Act Rules
On October 24, the Board of Governors of the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (collectively, the Agencies) approved long-awaited final rules to modernize the Community Reinvestment Act (CRA) regulations. The CRA was enacted to address illegal redlining and evaluate banks’ performance in serving the credit needs of their entire communities, including low- and moderate-income (LMI) people and neighborhoods. The new regulations maintain the existing CRA ratings (Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance) but completely overhaul the evaluation framework and potentially make the achievement of Satisfactory and Outstanding ratings more difficult. This client alert provides a summary of the most significant changes.

Reviewing the Industry Groups’ Opening Brief Challenging the Private Funds Rules
On November 1, the industry groups (the Petitioners) challenging the new Private Fund Adviser Rules filed in the US Court of Appeals for the Fifth Circuit their opening brief (the Brief) setting forth their legal arguments for why the rules should be vacated. To read the summary of the brief’s arguments, notable aspects of the brief and the upcoming schedule, click here.

On-Demand Webinar: Corporate Transparency Act (CTA) Compliance for Private Investment Funds
On November 7th, Goodwin hosted an overview of the CTA specific to Private Investment Funds. You can view a recording of that webinar and the materials can be found here.

Corporate Transparency Act (CTA) Resource Center
Go-to resource with on-demand webinars and compliance toolkit.

Consumer Finance Insights (CFI) Blog
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Bank Failure Knowledge Center
Timely updates on important developments following the March 2023 US bank failures.

2022 Consumer Financial Services Year in Review
This in-depth report summarizes major regulatory, litigation, and enforcement activity that impacted the consumer financial industry in 2022, and identifies the key trends for 2023.