On August 5, Federal Reserve announced that the Federal Reserve banks will develop a new round-the-clock, real-time payment and settlement service, called the FedNow℠ Service, to support faster payments in the United States. The Federal Reserve anticipates that the FedNow Service will be available in 2023 or 2024. The Federal Reserve also announced its intention to explore the expansion of Fedwire Funds Service and National Settlement Service hours, up to 24x7x365, to facilitate liquidity management in private-sector real-time gross settlement services for faster payments and to support a wide range of payment activities, beyond those related to faster payments.
The FedNow Service would conduct real-time, payment-by-payment, final settlement of interbank obligations through debits and credits to banks’ balances in their master accounts at Federal Reserve banks. The service would incorporate clearing functionality, allowing banks, in the process of settling each payment, to exchange information needed to make debits and credits to the accounts of their customers. The service’s functionality would support banks’ (or their agents’) provision of end-to-end faster payments to their customers. The FedNow Service would compete with the private-sector real-time payments network operated by The Clearing House, a big-bank owned payments company that was launched in 2017. Neither the Federal Reserve nor The Clearing House would commit to interoperability between the two real-time payments networks.
In connection with the announcement, the Federal Reserve requested comment on how the new service might be designed to most effectively support the full set of payment system stakeholders and the functioning of the broader U.S. payment system, and published a list of frequently asked questions regarding its efforts to bring about faster payments and the FedNow Service. Comments are due within 90 days of publication in the Federal Register.
On July 31, the OCC issued a bulletin to inform national banks, federal savings associations, and federal branches of foreign banking organizations (collectively, banks) subject to the Community Reinvestment Act (CRA) about guidelines for requesting a designation as a wholesale or limited purpose bank for CRA purposes. Under the CRA, banks are evaluated on the basis of the product lines they offer in the normal course of business. Accordingly, designated wholesale banks engaged in only incidental retail lending and designated limited purpose banks offering a narrow product line to a regional or broader market are assessed under the community development test provided in the CRA regulations. The bulletin includes information that the bank should provide to the OCC to substantiate its request to be designated as a wholesale or limited purpose bank for CRA purposes, instructions on submitting requests, and an overview of the OCC’s review and approval process. The bulletin rescinds and replaces an attachment to OCC Bulletin 1996-11, “Community Reinvestment Act: Guidelines for Requesting Designation as a Wholesale or Limited Purpose Institution.”
On the same day, the OCC issued a separate bulletin reminding banks of the current guidelines for requesting approval to be evaluated under the CRA using the strategic plan option. Banks may elect to have their performance under the CRA evaluated on the basis of a pre-approved strategic plan that addresses their CRA responsibilities. The guidelines do not represent new requirements but instead summarize the OCC’s process for addressing bank requests for approval or amendment of a CRA strategic plan, including information that a bank should provide to substantiate its request, the email address for banks to submit requests, and the OCC’s review and approval processes. The bulletin rescinds OCC Bulletin 1996-11, “Community Reinvestment Act: Guidelines for Approval for a Strategic Plan & Wholesale or Limited Purpose Institution” and Office of Thrift Supervision CEO Memo 268, “Strategic Plan and Wholesale/Limited Purpose Designations Under the CRA.”
The CFPB recently updated its list of frequently asked questions on the TILA-RESPA Integrated Disclosure Rule. The questions and answers are grouped into the following categories: Corrected Closing Disclosures and the Three Business-Day Waiting Period before Consummation, Model Forms, Construction Loans, and Providing Loan Estimates to Consumers.
On May 21, the CFPB published a notice of proposed rulemaking (NPRM) requesting comments on the CFPB’s proposed amendments to Regulation F, which implements the Fair Debt Collection Practices Act. Among other proposed amendments, the proposed rule limits the number of weekly calls debt collectors may make to consumers, applies prohibitions on abusive debt collection practices and false or misleading representations, and clarifies requirements for consumer-facing debt collection disclosures. The comment period for the NPRM was originally set to close on August 19, 2019. On August 2, 2019, the CFPB announced an extension of the comment period, so as to provide more time for interested persons to submit comments. Comments to the NPRM must now be received on or before September 18, 2019. More information on the extension and instructions for submitting comments can be found here.
On August 1, the CFPB issued a final rule amending the regulation text and official interpretations for Regulation Z, which implements the Truth in Lending Act (TILA). The CFPB is required to calculate annually the dollar amounts for several provisions in Regulation Z. The final rule revises the dollar amounts for provisions implementing TILA and amendments to TILA, including under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) based on the annual percentage change reflected in the Consumer Price Index (CPI) in effect on June 1, 2019. The changes will take effect on January 1, 2020. For credit cards, the penalty fees safe harbor for 2020 will increase by $1 to $29 for a first late payment. The subsequent late payment safe harbor fee will also grow by $1 to $40. The minimum interest charge disclosure threshold will remain unchanged for 2020 at $1. The loan amount at which HOEPA’s points-and-fees test comes into effect will increase to $21,980, and the HOEPA points-and-fees trigger will rise to $1,099. For qualified mortgages, points and fees cannot exceed 3% of loans of $109,898 or more; $3,297 for loans between $65,939 and $109,898; 5% for loans between $21,980 and $65,939; $1,099 for loans between $13,737 and $21,980; and 8% of loans of less than $13,737.
Enforcement & Litigation
On August 1, the SEC charged Commonwealth Equity Services, LLC (d/b/a Commonwealth Financial Network (Commonwealth)), a registered investment adviser and broker-dealer, with, among other things, failing to disclose material conflicts of interest related to revenue sharing Commonwealth received for certain client investments. According to the SEC's complaint, since at least 2007, Commonwealth had a revenue sharing agreement with its clearing broker requiring most of Commonwealth’s clients to use the broker for trades in their accounts. Under the agreement, Commonwealth received a portion of the money that certain mutual fund companies paid to the clearing broker to be able to sell their funds through the broker’s investment programs, if Commonwealth invested its clients’ assets in certain share classes of those funds. Between July 2014 and December 2018, Commonwealth received over $100 million in revenue sharing from the clearing broker related to client investments in certain share classes of "no transaction fee" and "transaction fee" mutual funds. The SEC's complaint alleges that Commonwealth negligently breached its fiduciary duty to its clients in violation of Section 206(2) of the Investment Advisers Act of 1940 because Commonwealth failed to tell its clients that there were (i) mutual fund share class investments that were less expensive to clients than some of the mutual fund share class investments that resulted in revenue sharing payments to Commonwealth, (ii) mutual fund investments that did not result in any revenue sharing payments to Commonwealth, and (iii) revenue sharing payments to Commonwealth under the clearing broker's "transaction fee" program. As a result of these material omissions, the complaint alleges that Commonwealth's advisory clients invested without a full understanding of the firm's compensation motives and incentives. The complaint also alleges that Commonwealth violated Section 206(4) and rule 206(4)-7 thereunder because it failed to adopt and implement policies and procedures reasonably designed to ensure that Commonwealth identified and disclosed these conflicts of interest. Commonwealth has not agreed to settle the SEC’s charges; therefore, the SEC is seeking a jury trial to adjudicate the claims.
On July 26, the Internal Revenue Service (IRS) published a release announcing that it has begun sending notices to virtual currency traders that potentially failed to: (i) report income and pay the resulting tax from virtual currency transactions; or (ii) properly report their virtual currency transactions. In its release, the IRS noted that, by the end of August 2019, more than 10,000 notices will be issued to relevant taxpayers, the names of whom were obtained through various ongoing IRS compliance efforts. Read the Digital Currency & Blockchain Perspectives blog post.