Banking and Consumer Regulatory Digest

Editor's Note

The following newsletter provides a roundup summarizing enforcement actions, guidance, rulemakings, and other public statements taken by a federal and/or state financial services regulatory agency, specifically focusing on: (1) the source of the development (regulator, legislative body, etc.), (2) the subject matter (consumer lending, money transmission, capital markets, etc.), and (3) the general issue covered.

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Regulatory Developments

• Consumer Financial Protection Bureau. Revised Supervisory Appeals Process. On February 16, 2024, CFPB issued a procedural rule that updates the process for financial institutions to appeal supervisory findings. The updated rule broadens the options for resolving an appeal and the matters that are subject to appeal, among other changes. Additionally, financial institutions may now appeal any compliance rating or finding, not only an adverse rating.
• Federal Housing Administration. New Loss Mitigation Home Retention Option. On February 21, 2024, FHA announced a new loss mitigation home retention option. The "Payment Supplement" provides mortgage servicers with an additional tool to temporarily reduce a borrower's monthly mortgage payment by up to 25% without modifying the mortgage's current interest rate. The provisions of the mortgagee letter may be implemented starting May 1, 2024, but must be implemented by January 1, 2025.
• Federal Housing Administration. Expanded Financing Options for Manufactured Housing. On February 29, 2024, FHA published a draft Mortgagee Letter announcing the creation of the Manufactured Home Community Program (MHCP), which will allow for the provision of permanent financing on transactions that might otherwise be ineligible for financing. MHCP will permit applications for permanent financing processed under Section 223(f) for properties that are being refinanced or purchased.
• Financial Crimes Enforcement Network. Updated Jurisdiction List. On February 29, 2024, FinCEN informed financial institutions about updates to the intergovernmental Financial Action Task Force (FATF) list of Jurisdictions Under Increased Monitoring that have severe strategic AML/CFT/CPF deficiencies. Kenya and Namibia were added to the list. Barbados, Gibraltar, Uganda, and United Arab Emirates were removed from the list. FinCEN advises that U.S. financial institutions should consider FATF's stance toward these jurisdictions when reviewing their obligations and risk-based policies, procedures, and practices.
• House Financial Services Committee. Financial Services Innovation Act. On February 23, 2024, HFSC Chairman Patrick McHenry (NC-10) reintroduced the Financial Services Innovation Act. This legislation establishes federal regulatory "sandboxes" through Financial Services Innovation Offices within federal financial regulators, which would "[allow] entrepreneurs to test new products and services without sacrificing critical consumer protections." This is the fourth attempt to pass this bill, which did not come to the floor in any previous attempt.

Enforcement and Litigation

• Consumer Financial Protection Bureau. Federal Supervision for Installment Lenders. On February 23, 2024, CFPB published an order establishing supervisory authority over installment lender World Acceptance. This order is CFPB's first supervisory designation order in a contested matter. The proceeding addresses whether CFPB has reasonable cause to determine that the conduct of a covered person under the Consumer Financial Protection Act "poses risks to consumers with regard to the offering or provision of consumer financial products or services," for the purpose of designating the entity for supervision. CFPB made this order public to provide transparency about how it assesses risks using consumer complaints and other factors. The order does not constitute a finding that World Acceptance has engaged in wrongdoing.
• Department of the Treasury. Enhanced Fraud Detection. On February 28, 2024, DOT announced that it had implemented an AI-enhanced process to mitigate check fraud in near real-time by strengthening and expediting processes to recover potentially fraudulent payments from financial institutions. These efforts have led to the recovery of more than $375 million.

Rulemaking Updates

• Federal Housing Finance Agency. Updates for Implementation of Enterprise Credit Score Requirements. On February 29, 2024, FHFA announced updates to the implementation of new credit score requirements for single-family loans acquired by Fannie Mae and Freddie Mac. It is aligning the implementation date of the bi-merge credit reporting requirement with the transition from the Classic FICO credit score model. Under a bi-merge approach, credit reports from two, rather than three, of the nationwide consumer reporting agencies may be used. The transition is expected to occur in the fourth quarter of 2025.

Research and Analysis

• Federal Reserve Board. Shared National Credit Program Report. On February 16, 2024, FRB, FDIC, and OCC jointly released its 2023 Shared National Credit Report. The report indicates that credit quality associated with large, syndicated bank loans remains moderate, but notes declining credit quality trends due to the pressure of higher interest rates on leveraged borrowers and compressed operating margins in some industry sectors.

Other News of Note

• Federal Reserve Board. Counterparty Credit Risk Management. On February 27, 2024, FRB Vice Chair for Supervision Michael S. Barr gave a speech on "The Importance of Counterparty Credit Risk Management" in which he spoke about risk management practices on which the FRB plans to focus in 2024. These practices relate to: due diligence and transparency; and identifying, measuring, and mitigating counterparty credit risks, among other topics.
• Federal Reserve Board. Reflections on Bank Regulation. On February 28, 2024, FRB Governor Michelle Bowman spoke to the Florida Bankers Association in Tampa, Florida. Her speech focused on current trends in financial regulation and specifically discussed: the Basel III Endgame Proposal; the Community Reinvestment Act's expansion of some regulations to small banks; the debit card interchange fee cap; and the bank merger application process. Bowman said that she "expect[s] that the regulatory agenda will remain very active for the foreseeable future."

Jonathan Cristol is a regulatory analyst with Davis Wright Tremaine LLP.