Weekly RoundUp
May 20, 2020

Financial Services Weekly Roundup: OCC Finalizes New CRA Rule; Regulators Continue to Provide COVID-19-Related Relief

In This Issue. The Office of the Comptroller of the Currency (OCC) finalized a rule to strengthen and modernize regulations under the Community Reinvestment Act; the Securities and Exchange Commission (SEC) voted to adopt amendments to the national market system plan governing the consolidated audit trail to bring additional transparency, governance, oversight and financial accountability to its implementation; the Small Business Administration (SBA) and Treasury Department released the loan forgiveness application and instructions for the Paycheck Protection Program (PPP); the Consumer Financial Protection Bureau (CFPB) released three documents addressing the COVID-19 pandemic; the CFPB and the Conference of State Bank Supervisors (CSBS) released a Consumer Relief Guide to provide guidance to homeowners with federally backed mortgage loans to obtain mortgage relief under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); and the federal banking agencies temporarily adjusted the supplemental leverage ratio. These and other developments are discussed in more detail below.

We also invite you to visit Goodwin’s Coronavirus Knowledge Center and Consumer Financial Services Industry COVID-19 Hub, which are updated regularly, to learn how cross-industry teams at Goodwin are helping clients fully understand and assess the ramifications of COVID-19 and navigate the potential effects of the outbreak on their businesses. The Knowledge Center includes new thought leadership, some of which is reproduced below, on topics such as Reopening Massachusetts: Next Steps for Employers as the Four-Phase Journey Begins, the SEC’s COVID-19-related enforcement priorities, how broker-dealers should prepare for the upcoming Regulation Best Interests and Form CRS deadline and PPP borrowers’ potential exposure under the False Claims Act.

Please note: The Roundup will be on hiatus next week due to the Memorial Day holiday. We will resume publication on June 3.

Regulatory Developments

OCC Finalizes Rule to Strengthen and Modernize CRA Regulations

On May 20, the OCC released a final rule designed to strengthen and modernize the agency’s regulations under the Community Reinvestment Act (CRA). According to the OCC, the final rule reflects careful consideration of the more than 7,500 comments that stakeholders submitted in response to the notice of proposed rulemaking announced on December 12, 2019, which was covered in the December 18, 2019 edition of the Roundup. In the final rule, the OCC made several changes from the proposed rulemaking in response to stakeholders’ comments, including:

  • Clarifying the importance of the quantity and quality of activities as well as their value;
  • Increasing credit for mortgage origination to promote availability of affordable housing in low- and moderate-income areas;
  • Clarifying credit for athletic facilities to ensure they benefit and support low- and moderate-income communities; and
  • Deferring establishment of thresholds for grading banks’ CRA performance and delineating banks’ deposit-based assessment areas until the OCC assesses improved data required by the final rule.

The OCC also released a list of qualifying CRA activities under the final rule.

The final rule is effective on October 1, 2020. Compliance deadlines range from January 1, 2023 to January 1, 2024, depending on the specific provision and size of the institution. The final rule permits national banks and federal savings associations with less than $2.5 billion in assets to choose to be evaluated under the new general performance standards or under the specific performance standards consistent with current regulations.

The Federal Deposit Insurance Corporation (FDIC), which had joined the OCC in the proposed rulemaking, did not join in the final rule. The Federal Reserve did not join the proposed rulemaking or the final rule.

SEC Adopts Amendments to the CAT NMS Plan to Improve Transparency and Financial Accountability

On May 15, the SEC voted to adopt amendments to the national market system plan governing the consolidated audit trail (the CAT NMS Plan) to bring additional transparency, governance, oversight and financial accountability to its implementation. The amendments to the CAT NMS Plan require the Financial Industry Regulatory Authority (FINRA) and the exchanges, the self-regulatory organizations that are participants to the CAT NMS Plan (the Participants), to publish and file with the Commission a complete implementation plan for the Consolidated Audit Trail (CAT) and quarterly progress reports. Each of the reports must be approved by the Operating Committee established by the CAT NMS Plan and submitted to the CEO, President, or an equivalently situated senior officer at each Participant. In addition, the amendments include financial accountability provisions that establish target deadlines for four critical implementation milestones and reduce the amount of fee recovery available to the Participants if those target deadlines are missed.

The amendments will become effective 30 days after publication of the adopting release in the Federal Register.

SBA Releases PPP Loan Forgiveness Application and Instructions and Extends Form 1502 Deadline

On May 15, the SBA and Treasury Department released the loan forgiveness application and instructions for the PPP. The loan forgiveness application and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:

  • Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles;
  • Flexibility for borrowers to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan;
  • Step-by-step instructions on how to perform the calculations to confirm eligibility for loan forgiveness;
  • Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30, 2020; and
  • The addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.

In addition, on May 19, the SBA announced, in an update to the PPP’s FAQs, that it was extending the deadline for lenders to electronically upload the initial SBA Form 1502 reporting information to the SBA to the later of: (1) May 29, 2020 or (2) ten calendar days after disbursement or cancellation of the PPP loan. Form 1502 (which has not yet been released by the SBA) must be completed in order for lenders to receive their processing fee.

CFPB Outlines Responsibilities of Financial Firms During Pandemic

On May 13, the CFPB released three documents addressing the COVID-19 pandemic – a statement on Regulation Z billing error resolution timeframes and FAQs on rules for payments and deposits and on open-end (not home-secured) credit.

The CFPB’s statement on Regulation Z billing error resolution timeframes acknowledged that significant operational disruptions caused by the COVID-19 pandemic may make it difficult for certain entities to respond to creditors’ inquiries or investigations regarding consumer billing errors. The CFPB expressed its intent to consider a creditor’s circumstances and to not cite a violation in an examination or bring an enforcement action against a creditor that takes longer than required by Regulation Z to resolve a billing error notice, so long as the creditor:

  • makes good faith efforts to obtain the necessary information;
  • makes a determination as quickly as possible; and
  • complies with all other requirements pending resolution of the error.

The CFPB’s FAQ on payments and deposits clarified that financial or depository institutions may:

  • change account terms for consumer checking, savings, or prepaid accounts due to the pandemic, so long as they provide appropriate notice to consumers under Regulations E for financial institutions and Regulation DD for depository institutions;
  • immediately make changes to account terms for consumer checking, savings, or prepaid accounts that are favorable for the consumer and to provide relief to the consumer; and
  • choose to assist consumers by using discretion to waive fees or proactively engage with consumers, so long as the practice is consistent with other law.

The CFPB’s FAQ on open-end (not home-secured) credit clarified that a creditor that extends open-end (not home-secured) credit (e.g., a credit card issuer):

  • may change account terms, if the creditor provides the consumer with 45 days’ written notice of a significant change. However, no notice is required  for changes that help the consumer (e.g., extending grace periods, reducing finance or other charges, temporary reduction of a consumer’s APR for the duration of a hardship arrangement);
  • ·need not provide advance written notice of any increase in charges or payments that will follow completion or failure of a hardship arrangement, so long as the creditor provides the consumer with an oral disclosure of the terms of the arrangement, including those that will apply at the end of the arrangement, over the phone followed by a written disclosure of those terms mailed or delivered to the consumer as soon as reasonably practicable after the oral disclosure is provided.  However, the terms that begin to apply at the end of the hardship arrangement must be as favorable to the consumer as the terms that applied prior to the beginning of the hardship arrangement; and
  • may communicate with consumers proactively and in advance of unexpected problems to provide helpful information and resources, including CFPB.

CFPB and CSBS Issue Consumer Guide on Mortgage Relief Options

On May 15, the CFPB and the CSBS released a Consumer Relief Guide (Guide) to provide guidance to homeowners with federally backed mortgage loans to obtain mortgage relief under the CARES Act. Specifically, the Guide provides homeowners includes information about how to request mortgage payment forbearance from their mortgage servicer and what foreclosure protections are available.

The CFPB also announced that it launched a joint website with other federal regulators addressing housing and mortgage related issues. Additionally, CSBS announced that its website includes a state tracker for use by homeowners and addressing issues such as mortgage forbearance, modification of loan terms, stays on evictions, restrictions on overdraft fees and more plus some common COVID-19-related scams.

CFPB to Provide Additional Extension of Comment Period for Supplemental Notice of Proposed Rulemaking on Time Barred Debt

On May 19, the CFPB announced that it will provide an additional 60 days for the public to comment on its Supplemental Notice of Proposed Rulemaking (NPRM) on time-barred debt disclosures, which was discussed in the February 26 edition of the Roundup. The extension is intended to allow all interested parties with additional time to comment on the rulemaking as a result of the impact of the COVID-19 pandemic. The deadline was June 5, 2020; the comment period will now close on August 4, 2020.

Federal Banking Agencies Temporarily Adjust Supplementary Leverage Ratio

On May 15, the Board of Governors of the Federal Reserve System (Federal Reserve), FDIC and OCC issued an interim final rule (Rule) that permits institutions to choose to exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio. The move is expected to relieve balance sheet stresses caused by a recent “flight to liquidity” by institutions’ customers in light of COVID-19, resulting in deposit inflows, customer draws on credit lines and institutions’ holdings of significant amounts of U.S. Treasury securities. The supplementary leverage ratio generally requires the depository institution subsidiary of a U.S. global systemically important bank holding company, or a Category II or Category III institution, to maintain a minimum supplementary leverage ratio of 3%, measured as tier 1 capital against total leverage exposure, with more stringent requirements for larger and more systemically important institutions. Absent the Rule’s relief, an institution might require a sudden and significant increase in its regulatory capital to satisfy the minimum supplementary leverage ratio requirements amidst conditions related to COVID-19, which may be temporary. An institution changing its supplementary leverage ratio calculation consistent with the Rule will be required to seek approval from its primary federal banking regulator before making capital distributions. The Rule does not affect the tier 1 leverage ratio. The Rule has immediate effect and will remain in effect until March 31, 2021. Public comments on the Rule will be accepted for 45 days after its publication in the Federal Register.

Fed Publishes FAQs on Regulation D, Savings Deposits Interim Rule Amendments

On May 13, the Federal Reserve published Frequently Asked Questions (FAQs) on recent Regulation D changes regarding savings deposits. On April 24, the Federal Reserve issued an interim final rule amending Regulation D to delete the six-per-month limit on convenient transfers from the definition of “savings deposits.” The interim final rule allows depository institutions immediately to suspend enforcement of the six transfer limit and to allow their customers to make an unlimited number of convenient transfers and withdrawals from their savings deposits at a time when financial events associated with the coronavirus pandemic have made such access more urgent. The FAQs address, among other things, the impact of the interim rule on reservation rights in Regulation D, impacts to FR 2900 reports, and effects on Regulation CC.

FHFA Takes Action to Help Homeowners in COVID-19 Related Forbearance

This past week, the Federal Housing Finance Agency (FHFA) took several actions to help homeowners who are in COVID-19 forbearance. Specifically:

  • On May 13, the FHFA announced that Fannie Mae and Freddie Mac (the Enterprises) are making available a new payment deferral option. The payment deferral option allows borrowers, who are able to return to making their normal monthly mortgage payment, the ability to repay their missed payments at the time the home is sold, refinanced, or at maturity. Servicers will begin offering the payment deferral repayment option starting July 1, 2020.
  • On May 14, the FHFA announced that the Enterprises were extending their moratorium on foreclosures and evictions until at least June 30, 2020. The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only and was set to expire on May 17, 2020.  
  • On May 19, the FHFA issued temporary guidance regarding the eligibility of borrowers who are in forbearance, or have recently ended their forbearance, looking to refinance or buy a new home. Under the guidance, borrowers are eligible to refinance or buy a new home if they are current on their mortgage (i.e. in forbearance but continued to make their mortgage payments or reinstated their mortgage). Borrowers are eligible to refinance or buy a new home three months after their forbearance ends and they have made three consecutive payments under their repayment plan, or payment deferral option or loan modification. 
  • Also on May 19, the FHFA extended the Enterprises’ previously announced ability to purchase single-family mortgages in forbearance. The Enterprises are now able to buy forborne loans, with note dates on or before June 30, 2020, as long as they are delivered to the Enterprises by August 31, 2020 and where only one mortgage payment has been missed. The previous policy was set to expire on May 31, 2020.

U.S. SEC Enforcement Co-Director Discusses Agency’s COVID-19-Related Enforcement Priorities, Highlights Formation of Coronavirus Steering Committee

In a May 12 Keynote Address at the Securities Enforcement Forum West 2020, SEC Co-Director of Enforcement Steven Peikin discussed the SEC’s COVID-19-related enforcement priorities and ongoing efforts to detect and combat potential misconduct in this highly volatile market environment. Read the client alert for highlights discussed by Peikin, including the formation of a Coronavirus Steering Committee, insider trading considerations and disclosure-related considerations.

U.S. Broker-Dealers and Investment Advisers: Prepare for Fast-Approaching Regulation Best Interest and Form CRS Deadline

The compliance date of June 30, 2020, is looming for U.S. broker-dealers subject to Regulation Best Interest (Reg. BI) and broker-dealers and investment advisers required to prepare and provide relationship summaries pursuant to Form CRS and related rules. Staff of the SEC have provided answers to several FAQs and guidance regarding related exam priorities. Read the client alert for a brief overview of Reg. BI and Form CRS requirements and highlights on a few areas of continued focus (and potential pitfalls) for firms.

Enforcement & Litigation

U.S. Paycheck Protection Program Loan Recipients: Risks of Qui Tam Actions Under the False Claims Act

Following the depletion of the initial $350 billion in SBA loan funding to small businesses impacted by the COVID-19, a part of the CARES Act, the federal government breathed new life into the PPP with the with authorization of an additional $310 billion in funding under the Paycheck Protection Program and Health Care Enhancement Act. Now, as of May 14, 2020, more than 2.7 million loans to small businesses, totaling nearly $193.7 billion, have been approved in Round Two of the PPP—on top of the nearly 1.7 million loans approved during Round One. With millions of businesses applying for and receiving PPP loans, these businesses and private equity firms should be aware of the potential regulatory and legal risks as civil actions on behalf of the government, or “qui tam” lawsuits, have become authorized under the False Claims Act (FCA). Read the client alert to learn more about the potential risks for private citizen suits under the FCA and what to do if a qui tam action is filed against you.

FCC to Stop Warning Illegal Robocallers Before Issuing Penalties

To enhance consumer protections against illegal robocalls, on May 1, 2020, the Federal Communications Commission (FCC) issued an Order (Order) amending 47 CFR § 1.80 (Section 1.80) of its Telephone Consumer Protection Act (TCPA) rules. The Order: (i) removes the TCPA’s initial warning requirement prior to issuing penalties for illegal robocalls; (ii) extends the statute of limitations period to four years for the FCC to pursue TCPA violators; and (iii) increases the maximum fine the FCC can propose for robocall violations to $10,000. Read the LenderLaw Watch blog to access the FCC’s press release accompanying the order and to learn more about how these amendments will help the FCC speed up enforcement to better protect consumers from robocall scam operators.

This week’s Roundup contributors: Josh Burlingham, Alex Callen, Jessica Craig, William McCurdy and Angelica Rankins.