Regulatory Developments
OCC Issues Guidance on Risk Management of “Buy Now, Pay Later” Lending
On December 6, the OCC issued guidance to address the risks associated with "buy now, pay later" (BNPL) lending. The guidance provides background information on BNPL loans, discusses risks associated with BNPL lending, and provides guidance to banks offering or considering offering BNPL loans, mainly focusing on the BNPL loans that are payable in four or fewer installments and carry no finance charges. The guidance notes that banks should maintain underwriting, repayment terms, pricing, and safeguards that minimize adverse customer outcomes and ensure that marketing materials and disclosures are clear and conspicuous. The OCC expects banks that offer BNPL loans to do so in a manner that is safe and sound, provides fair access to financial services, supports fair treatment of consumers, and complies with applicable laws and regulations. The details of the guidance and the other OCC resources can be found here.
“Supporting a fair and inclusive financial system is a priority for the OCC and is critical to maintaining trust in the banking system. As the buy-now-pay-later market grows and we enter the holiday shopping season, the guidance confirms our expectation that OCC-supervised institutions offering these products do so in a responsible manner.”
‒ Michael Hsu, Acting Comptroller of the Currency
FDIC Extends Comment Period for Proposed Addition of Appendix C to Part 364 of the FDIC’s Rules and Regulations
On November 30, the FDIC announced an extension to the comment period for its previously announced proposal to issue new corporate governance and risk management guidelines as Appendix C (the Guidelines) to FDIC’s standards for safety and soundness regulations in Part 364. These Guidelines would apply to (i) all insured state nonmember banks; (ii) state-licensed insured branches of foreign banks; and (iii) insured state savings associations that are subject to Section 39 of the Federal Deposit Insurance Act. These Guidelines do not apply to FDIC-insured and/or FDIC-supervised institutions with less than $10 billion in total consolidated assets or more on or after the effective date of the final Guidelines. See our previous discussion of the Guidelines here. The new deadline for the comment period on this proposal is February 9, 2024.
OCC Solicits Research on Depositor Behavior, Bank Liquidity, and Run Risk
On December 1, the OCC issued a call for research papers on depositor behavior, bank liquidity, and run risk in the banking system. The OCC indicated that topics related to the causes and consequences of funding risk are of particular interest, including qualification and determinants of deposit franchise value, presence and pricing of deposit insurance, networked, brokered, uninsured and institutional deposits, changing behavior of depositors, availability and pricing of deposit products and substitutes, roles of financial innovation and technology in deposit markets, effects of regulation and supervision on such markets, repurchase and reverse repurchase agreements on liquidity management, determinants and consequences of liquidity shortfalls, relationships between funding risk and assets, asset sales as source of liquidity.
The submission date for papers is January 15, 2024, and authors of selected papers will be invited to present to OCC staff, academics and government researchers June 5-7, 2024.
CFPB Expresses Support for Treating “Income-Based Advances” Like Loans
On November 27, the CFPB expressed its support for the California DFPI to treat “income-based advances” (IBAs) (i.e., products where repayment is related, at least in theory, to a worker’s next payday) as loans under the California Financing Law, to treat gratuities and expedited fees as finance charges, and to require providers of IBAs to be registered and examined for the full scope of existing state and federal consumer protection and lending laws, equating IBAs to earned wage access and other regulated payday lending products. The CFPB noted its own authority to examine providers of IBAs but acknowledged state supervision of these products is “critically important.” The CFPB concluded its letter by communicating its intent to issue further guidance to clarify the application of federal law, and the Truth in Lending Act specifically, to IBAs.
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