Weekly RoundUp
June 11, 2020

Financial Services Weekly Roundup: The OCC Proposes New Rulemaking and Changes to Address Innovation and Consumer Needs

In This Issue. The Office of the Comptroller of the Currency (OCC) released an advanced notice of proposed rulemaking seeking comments on several issues related to digital technology and innovation, as well as proposed changes to its rules for national bank and federal savings association activities and operations to ensure that they can continue to meet the shifting needs of consumers, businesses and communities; the Consumer Financial Protection Bureau (CFPB) announced its intention to take a “flexible supervisory and enforcement approach” with card issuers during the pandemic and announced recent steps taken to facilitate the transition away from LIBOR for consumers and regulated entities; the Federal Reserve Bank of New York (New York Fed) released updated Frequently Asked Questions (FAQs) and form documents for the Term Asset-Backed Securities Loan Facility (TALF 2020); the Board of Governors of the Federal Reserve System (Federal Reserve) expanded the Main Street Lending Program (MSLP) to allow more small- and medium-sized businesses to be able to receive support under the program; and the President signed into law the Paycheck Protection Program Flexibility Act of 2020. 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 to fully understand and assess the ramifications of COVID-19,  navigate the potential effects of the outbreak on their businesses and evaluate whether and how to safely reopen. 

Regulatory Developments

OCC Seeks Comments on Rules Relating to Digital Activities and Innovation

On June 4, the OCC released an Advance Notice of Proposed Rulemaking (ANPR) on national banks’ and federal savings associations’ digital activities. The ANPR asks for comment on issues related to digital technology and innovation, including: hurdles to innovation specific to digital banking activities or issues that the OCC should address; cryptocurrency, cryptoasset and distributed ledger technologies and the barriers around further adopting these technologies in the banking industry; artificial intelligence and machine learning for banking-related activities; payments technologies and processes; “regtech” and other innovative tools for complying with regulations and supervisory expectations; unique issues facing smaller banks in adopting innovative products, services or processes; changes to the banking system in response to the COVID-19 pandemic; and other changes to the development and delivery of banking products and services. Comments responding to the ANPR must be received by August 3, 2020.

OCC Issues Proposal on Bank Activities

On June 4, the OCC issued a notice of proposed rulemaking (NPR) that would amend various regulations affecting the activities and operations of national banks and federal savings associations by codifying certain OCC interpretations, integrating regulations for national banks and federal savings associations, and updating or eliminating outdated regulatory requirements. The wide-ranging NPR addresses regulations impacting a variety of permissible activities, including new provisions addressing tax equity finance transactions, derivatives activities and payment system memberships. The NPR also addresses regulations impacting a variety of corporate governance matters, including additional flexibility to adopt the state corporate governance laws of a state where a branch is located or those of an institution’s holding company; new provisions governing the adoption of anti-takeover provisions; function-over-title rules impacting board membership requirements potentially applicable to presidents, chief executive officers or other officers performing similar functions; broadening a federal savings association’s ability to indemnify institution-affiliated parties; and new provisions addressing the issuance of authorized common stock, the issuance, repurchase and redemption of preferred stock pursuant to blank check procedures and share repurchase programs.

Although the NPR applies only to federally-chartered institutions, state-chartered banks should also closely monitor the NPR, since the scope of activities permissible for national banks impacts activities permissible for state-chartered banks through application of other federal laws, such as Section 24 of the Federal Deposit Insurance Act, and of state laws, such as parity, wild card or similar provisions available in many states authorizing state-chartered banks to engage in activities permissible for national banks.

Comments on the NPR must be received on or before August 3, 2020.

CFPB Relaxes Requirements on Card Issuers Obtaining E-Sign Consent from Consumers During COVID-19 Pandemic

On June 3, in response to the effects of the COVID-19 pandemic on both consumers and card issuers, the CFPB announced its intention to take a “flexible supervisory and enforcement approach” with card issuers during the pandemic and not to cite as a violation in an examination or bring an enforcement action against any card issuer that, during a phone call, does not obtain a consumer’s E-Sign consent to electronic provision of written disclosures required for non-home secured, open-end credit under Regulation Z (e.g., account opening disclosures, temporary rate or fee reduction disclosures) to open a new credit card account for a consumer, to provide certain temporary reductions in APRs or fees applicable to an existing account, or to offer a low-rate balance transfer. However, to qualify for this supervisory and enforcement flexibility, a card issuer, during the phone call, must:

  • Obtain the consumer’s oral consent to electronic delivery of the written disclosures;
  • Obtain oral affirmation of the consumer’s ability to access and review the electronic written disclosures; and
  • Take reasonable steps during the phone call to verify consumers’ electronic contact information (e.g., clearly and understandably read the email address back to the consumer or state the on-file email address to the consumer, as applicable, so that the consumer can verify it is correct).

CFPB Announces Steps for LIBOR Transition

On June 4, the CFPB announced recent steps taken to facilitate the transition away from LIBOR for consumers and regulated entities. Those steps include the release of (i) an updated Consumer Handbook on Adjustable Rate Mortgages (CHARM), (ii) a Notice of Proposed Rulemaking regarding the discontinuation of LIBOR and proposed examples of replacement indices, and (iii) frequently asked questions providing guidance on LIBOR transition topics that do not require amendments to Regulation Z.

The CHARM booklet, which is meant to provide information to consumers regarding risks of adjustable rate mortgage loans, was updated for clarity and to remove references to the LIBOR benchmark index. The CFPB issued the Notice of Proposed Rulemaking, which proposes replacement indices for open-end products and allows creditors and issuers for home equity lines of credit and credit cards to select a replacement index, so long as the rate is substantially similar to the rate using the LIBOR index. For closed-end credit provisions, the CFPB has proposed specific indices as replacement comparable indices for LIBOR. Public comments on the Notice of Proposed Rulemaking will remain open until August 4, 2020.

New York Fed Releases Updated FAQs and Documents for TALF 2020

On June 8, the New York Fed released updated Frequently Asked Questions (FAQs) for TALF 2020, along with an updated Form of Issuer and Sponsor Certification as to TALF Eligibility for ABS; Form of Sponsor Indemnity Undertaking, an updated Form of Auditor Attestation; Form of Management Report on Compliance and updated Guidance for Accounting Firms in Determining TALF Collateral Eligibility for ABS. Among other changes, the FAQs specify that with respect to asset-backed securities issued on or after March 23, 2020 and before May 22, 2020, in advance of submitting any loan requests for only the June 17, 2020 subscription date, the CUSIP number and a copy of the final prospectus or offering document must be submitted by the issuer to the New York Fed by June 11, 2020, and all other documentation by June 15, 2020. A redlined copy of the FAQs showing changes from the May 26 version was posted on the New York Fed’s website.

Federal Reserve Provides Changes, Guidance and Additional Documents with Respect to the Main Street Lending Program

On June 8, the Federal Reserve announced additional changes to the MSLP with a press release and the posting of updated term sheets for each of the three MSLP facilities, which are available here, and an updated FAQ, which is available here. Read the client alert for more information on the primary changes made to MSLP as well as other changes and guidance highlighted in the chart.

The Paycheck Protection Program Flexibility Act of 2020: Summary of Key Changes to PPP

On June 5, the President signed into law the “Paycheck Protection Program Flexibility Act of 2020”, which makes several substantial modifications to the Paycheck Protection Program (PPP). The final bill is identical to H.R. 7010, which was passed by the House on May 29 and covered in last week’s edition of the Roundup. Read the client alert for a detailed summary of the key changes this bill makes to the PPP, including changes to loan forgiveness, issuance period, payment deferral, maturity date and employment tax deferral.

SEC Adopts Amendments to Rules Governing Financial Disclosures on Material Acquisitions and Dispositions of Business

On May 21, the Securities and Exchange Commission (SEC) adopted amendments to, among other things, the financial disclosure requirements in Rule 3-05 of Regulation S-X (Rule 3-05), Rule 3-14 of Regulation S-X (Rule 3-14) and Article 11 of Regulation S-X (Article 11), which relate to the historical and pro forma financial reporting requirements for the acquisition and disposition of businesses (collectively, the Amendments). The Amendments, which were first proposed in 2019 and written about in a previous Goodwin client alert, were adopted in an effort to reduce the complexity and compliance costs of financial disclosures for significant acquisitions or dispositions of businesses. The final amendments also modernize certain inputs and metrics in the required disclosures, which the SEC believes will facilitate more timely access to capital and provide investors with more relevant information than the current requirements. Read the client alert for more information on the changes specifically to Rule 3-05 and Article 11 and their related rules and forms.

Enforcement & Litigation

FTC Obtains Temporary Restraining Order Against Tribal Payday Lending Enterprise

On May 22, the Federal Trade Commission (FTC) announced that it had obtained a temporary restraining order against a payday lending enterprise for alleged violations of the Federal Trade Commission Act, the Telemarketing Sales Rule, the Truth in Lending Act and Regulation Z, and the Electronic Funds Transfer Act and Regulation E. The order was issued on May 19 by the U.S. District Court for the District of Nevada, freezing the defendants’ assets and halting their business activity. Ready the Consumer Finance Enforcement Watch blog to learn more about the complaint and alleged liability for the defendants.

This week’s Roundup contributors: Josh Burlingham, Alex Callen, Jessica Craig, Christina Hennecken and Carl Owens.