Regulatory Developments—August in Review

By Michael Emancipator

Although August is typically a sleepy month in D.C., policymakers were still hard at work last month—which meant that the ICBA’s regulatory affairs team was also hard at work keeping up with the latest developments. Below are some of this month’s regulatory highlights.

S. 2155 Rulemakings Issued

The agencies are moving forward to implement the regulatory relief mandated by S. 2155 and signed into law in May. The FDIC, OCC and Federal Reserve Board issued the first set of formal regulations in August: 18-month exam cycles for banks with assets up to $3 billion, expanded applicability of the Small Bank Holding Company Policy Statement to banks up to  $3 billion in assets, and classification of certain municipal bonds as high-quality liquid assets under the liquidity coverage ratio rule.

These rulemakings came on the heels of ICBA letters to the agencies and the Bureau of Consumer Financial Protection on June 11 urging swift implementation of S. 2155 rules. Additionally, the bureau issued an interpretive and procedural rule that implements the law’s Home Mortgage Disclosure Act provisions (discussed more fully below).

Although several of the law’s provisions are self-executing, many more need rulemakings by the agencies. Community bankers can stay informed of the latest rulemakings that stem from S. 2155 by checking ICBA’s new implementation tracker. ICBA will continue working with policymakers on the swift implementation of the law as part of its ongoing push for comprehensive regulatory relief.

Bureau Advances Partial HMDA Exemptions

The bureau issued an interpretive and procedural rule on Aug. 31 that implements and clarifies HMDA exemption provisions from S. 2155. Inspired by ICBA’s Plan for Prosperity, the provision exempts banks with “satisfactory” CRA ratings that originate fewer than 500 closed-end mortgage loans or 500 open-end lines of credit from HMDA data fields added by the bureau in 2015. Lenders are still required to collect and report the data fields in place prior to the 2015 rule.

The interpretive rule clarifies that only loans and lines of credit that are otherwise HMDA reportable count toward the exemption thresholds. It also details which data points are and are not covered by the exemption and indicates that the bureau will initiate notice-and-comment rulemaking at a later date to incorporate these interpretations into Regulation C. ICBA is reviewing the rule and updating its HMDA summary.

Senate Panel Approves New Bureau Director

Kathy Kraninger, President Trump’s nominee to serve as the next director of the BCFP, cleared a procedural hurdle on Aug. 23 when the Senate Banking Committee advanced her nomination. The full Senate must now vote on her nomination before she can be confirmed. ICBA has congratulated Ms. Kraninger on her nomination. 

Modernizing the Community Reinvestment Act

The OCC published an advance notice of proposed rulemaking on Aug. 28 seeking stakeholder responses to a series of questions on how the Community Reinvestment Act could be modernized. The ANPR can be broken down into several main categories of inquiry, including the proper treatment and delineation of assessment areas, how examiners could increase consistency and transparency, and whether an objective, metrics-based approach to the exam would be helpful.

Comments are due to the OCC by Nov. 19. Over the next several weeks, ICBA will provide resources that will help community bankers understand the main points in the ANPR and how to provide input.

OCC and Treasury Developments in Fintech

On the same day, OCC and Treasury published significant policy documents regarding the future of fintech. First, Treasury issued a 200+ page report that discussed how federal regulatory and legislative policies could be improved to foster innovation and the use of fintech.

Much broader in scope than the OCC’s release, Treasury explored how fintechs could partner with banks and other incumbents to deliver products and services to consumers. The report makes more than 80 recommendations, comprising four broad categories: (1) embracing digitization, data, and technology, (2) aligning the regulatory framework to promote innovation, (3) updating activity-specific regulations, and (4) enabling the policy environment. 

The OCC published a Licensing Manual Supplement for special-purpose national bank charters and said it will begin accepting applications for charters from fintech companies. The fintech special-purpose banks are required to be neither FDIC-insured nor CRA compliant.

ICBA continues to have serious concerns with the OCC’s proposal to issue special-purpose fintech charters, which could be used to access the banking system and avoid state consumer protection laws. Any new federal charter should be subject to the same standards of safety, soundness, and fairness as other federally chartered institutions.

ICBA Tells HUD to Amend Disparate-Impact Rule

On Aug. 20, ICBA urged HUD to amend its fair lending disparate-impact rule to meet the limitations imposed by the U.S. Supreme Court in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc. Under the disparate-impact theory, lenders may be held liable for neutral practices that have a disparate impact on certain classes of borrowers, even if the lenders have no intent to discriminate.

ICBA advocated for HUD to conform the rule to the 2015 Supreme Court decision, in which the high court held that disparate-impact cases cannot rely on statistics alone. “We urge HUD to amend its disparate impact rule to align with the limitations set forth in Inclusive Communities to prevent the unnecessary and onerous costs placed on community banks to defend against frivolous claims inappropriately based on statistical disparities,” ICBA wrote.

Meanwhile, ICBA thanks the many community bankers who submitted comment letters to HUD using ICBA’s Be Heard grassroots action center.

Bureau Finalizes Reg P

On Aug. 10, the bureau (finally) finalized its proposal to amend Regulation P to conform with the FAST Act amendments to Gramm-Leach-Bliley privacy requirements. The FAST Act, signed into law in December 2015, created an exception to the general requirement that banks need to provide annual privacy notices to customers, so long as certain conditions are met.

Although this exception became law of the land upon enactment, the bureau proposed a regulation in July 2016 to codify the FAST Act’s provisions. In August 2016, ICBA wrote to the bureau, largely supporting the proposal. Finally, two years later, the bureau finalized the rule as proposed. 

As fall arrives, ICBA expects the regulatory action to keep coming—and we’ll be sure to keep community bankers informed and up-to-date.

Michael Emancipator is ICBA assistant vice president and regulatory counsel.