By Andrew A. Turner, J.D.
The Federal Deposit Insurance Corporation closed the year by issuing a variety of rulemaking adoptions and proposals, some in concert with other regulators. Highlights are listed below.
Brokered deposits. The FDIC took two actions related to brokered deposits. It amended its regulations on brokered deposits and interest rate caps to except a capped amount of reciprocal deposits from being treated as brokered deposits for certain banks. The agency also, through an Advance Notice of Proposed Rulemaking, asked for information to be used in a broader review of brokered deposit and interest rate cap rules.
Current expected credit losses implementation. The Office of the Comptroller of the Currency, Federal Reserve Board, and FDIC have revised regulatory capital rules to address changes to credit loss accounting under a new accounting standard, including banking organizations’ implementation of the current expected credit losses methodology (CECL). Banking organizations have been given the option to phase in over a three-year period the day-one adverse effects of CECL on the banking organization’s regulatory capital ratios.
The final rule also revises the agencies' stress testing rules and regulatory disclosure requirements to reflect CECL. Conforming changes were made to other regulations that reference credit loss allowances. The final rule is effective on April 1, 2019, but a banking organization may choose to adopt the final rule starting as early as first quarter 2019.
Volcker Rule restriction easing. The federal banking, securities, and commodities regulatory agencies are proposing changes to their Volcker Rule regulations that will exclude small banks with limited trading activities and permit some investment advisors to share a name with a hedge or private equity fund they advise.
Stress test requirements. The FDIC and OCC are proposing to amend their stress test regulations to: increase the asset threshold to $250 billion, up from the current $10 billion; reduce the requirement for annual tests; and reduce the necessary scenarios to two, down from the current three.
Deposit insurance assessment system. The FDIC issued a proposal that would amend its deposit insurance assessment regulations to apply the community bank leverage ratio (CBLR) framework to the deposit insurance assessment system. The primary objective is to incorporate the alternative measure of capital adequacy established under the CBLR framework into the current risk-based deposit insurance assessment system in a manner that: (1) maximizes regulatory relief for small institutions that use the CBLR framework; and (2) minimizes increases in deposit insurance assessments that may arise without a change in risk.
To assist banks in understanding the impact, the FDIC plans to provide on its website a spreadsheet calculator that estimates deposit insurance assessment amounts under the proposal.
Management interlocks. The federal banking regulatory agencies are proposing to change their management interlock rules to ease the burden on community banks. Currently, an individual who has a management position or is a director at an institution with more than $2.5 billion in assets cannot hold a comparable position at an unaffiliated institution with more than $1.5 billion in assets. The proposal would increase both thresholds to $10 billion.
For more information about FDIC regulatory actions, subscribe to the Banking and Finance Law Daily.
Friday, December 21, 2018
Tuesday, December 18, 2018
Debt collector’s ‘validation notice’ placement in letter did not violate FDCPA
By Thomas G. Wolfe, J.D.
In a December 2018 opinion, a three-judge panel of the U.S. Court of Appeals for the Seventh Circuit ruled that a debt collector’s placement of its “validation notice” in a collection letter to a consumer did not overshadow the consumer’s rights under the federal Fair Debt Collection Practices Act (FDCPA), nor did the letter misrepresent the importance of the validation notice required by the FDCPA. The consumer had claimed that the collection letter to her violated the FDCPA because the letter stated that “additional important information” was on the back of the first sheet of the letter, but the consumer-rights validation notice appeared on the top of the second sheet of the letter. In affirming the dismissal of the consumer’s proposed class-action lawsuit (O’Boyle v. Real Time Resolutions, Inc.), the Seventh Circuit panel determined that, from the standpoint of an “unsophisticated consumer,” the collector did not provide the validation notice in a manner that could be construed as false, deceptive, misleading, or confusing in violation of the FDCPA.
Further, the federal appellate court upheld the lower court’s denial of the consumer’s request to amend her complaint, determining that the consumer’s proposed amendments would not transform her original claim “into the realm of plausibility” and would cause “undue delay and unfair prejudice” to the debt collector.
Collection letter. In April 2017, Real Time Resolutions, Inc. (RTR), a debt collector, sent its first letter to the consumer to collect an alleged credit-card debt from her. In the middle of the front sheet of the first page, the letter communicated that this “is an attempt to collect a debt, and any information obtained will be used for that purpose.” Farther down on the front sheet, a box directed the consumer to view the reverse side of the first sheet, stating “Please see the back of this page for additional important information regarding this account.”
The back side of the first sheet of the letter provided information about particular consumer-rights notices in 10 states, including the consumer’s home state of Wisconsin, and prominently indicated that the applicable listing “is not a complete list of rights consumers may have under state and federal law.” Then, on the top front of the second sheet (page 2) of the collection letter, the FDCPA-required validation notice appeared: “Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days of receiving this notice, this office will obtain verification of the debt or obtain a copy of a judgment if applicable and mail you a copy of such verification or judgment. If you make a written request to this office within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor.”
According to the Seventh Circuit’s opinion, the text of RTR’s validation notice “is clear, prominent, and readily readable. The font is normal in shape and size—essentially the same font as most of the letter.” Still, as pointed out by the court, while the front of the first page directs the reader to the back of that page for “additional important information,” that additional important information does not include the validation notice, which appears instead on the front top of the second page.
Complaint. In her proposed class action against RTR, the consumer alleged that the debt collector’s letter would mislead “the unsophisticated consumer” by telling the reader that important information was on the back of the first page, but instead providing the FDCPA-required validation notice on the front of the second page. According to the complaint, the letter from RTR violated the FDCPA (15 U.S.C. §§ 1692e and 1692g) by: “overshadowing” the consumer’s FDCPA rights; (ii) failing to communicate her FDCPA rights effectively; (iii) misdirecting a consumer’s attention away from the validation notice; and (iv) causing the misdirection to falsely and misleadingly represent that the validation notice was unimportant.
After the federal trial court declined to certify the proposed class, dismissed the FDCPA claims, and refused the consumer’s request to amend her complaint, the consumer appealed to the Seventh Circuit.
FDCPA provisions. Under section 1692e of the FDCPA, a debt collector is prohibited from using any “false, deceptive, or misleading representation or means in connection with the collection of any debt.” Meanwhile, section 1692g of the FDCPA requires debt collectors to notify consumers of their validation rights and sets forth the rules pertaining to that notification.
Court’s ruling. After noting these applicable FDCPA provisions, the Seventh Circuit asserted, “The FDCPA does not say a debt collector must put the validation notice on the first page of a letter. Nor does the FDCPA say the first page of a debt-collection letter must point to the validation notice if it is not on the first page. Nor does the FDCPA say a debt collector must tell a consumer the validation notice is important. Nor does the FDCPA say a debt collector may not tell a consumer that other information is important.”
In applying the pertinent “unsophisticated consumer” standard in the case, the court noted that an “unsophisticated consumer can be expected to read page two of a two-page collection letter.” In the court’s view, the scanning of the material on the reverse side of page one of the letter was a temporary “speed bump, not a road barrier,” to the validation notice at the top of page two; moreover, the validation notice itself was a “continuation of the letter.” The Seventh Circuit agreed with the lower court that “a consumer who reads the front and back of the first page of a short letter and then completely disregards the second page has not read the letter with care.”
Underscoring that RTR’s validation notice still occupied “a prominent place” in the letter even though it did not appear on the reverse side of page one, the court determined that the collector did not imply that the validation notice was unimportant by referencing other important information on the reverse side. Indeed, the reverse side of the first page discussed the consumer’s rights under Wisconsin law, which was pertinent to the consumer, and communicated that it was not a complete list of all rights consumers might have under federal law. Contrary to the consumer's FDCPA claims, “not even a significant fraction of the population would be misled” by RTR’s collection letter, the court concluded.
For more information about court opinions impacting the financial services industry, subscribe to the Banking and Finance Law Daily.
In a December 2018 opinion, a three-judge panel of the U.S. Court of Appeals for the Seventh Circuit ruled that a debt collector’s placement of its “validation notice” in a collection letter to a consumer did not overshadow the consumer’s rights under the federal Fair Debt Collection Practices Act (FDCPA), nor did the letter misrepresent the importance of the validation notice required by the FDCPA. The consumer had claimed that the collection letter to her violated the FDCPA because the letter stated that “additional important information” was on the back of the first sheet of the letter, but the consumer-rights validation notice appeared on the top of the second sheet of the letter. In affirming the dismissal of the consumer’s proposed class-action lawsuit (O’Boyle v. Real Time Resolutions, Inc.), the Seventh Circuit panel determined that, from the standpoint of an “unsophisticated consumer,” the collector did not provide the validation notice in a manner that could be construed as false, deceptive, misleading, or confusing in violation of the FDCPA.
Further, the federal appellate court upheld the lower court’s denial of the consumer’s request to amend her complaint, determining that the consumer’s proposed amendments would not transform her original claim “into the realm of plausibility” and would cause “undue delay and unfair prejudice” to the debt collector.
Collection letter. In April 2017, Real Time Resolutions, Inc. (RTR), a debt collector, sent its first letter to the consumer to collect an alleged credit-card debt from her. In the middle of the front sheet of the first page, the letter communicated that this “is an attempt to collect a debt, and any information obtained will be used for that purpose.” Farther down on the front sheet, a box directed the consumer to view the reverse side of the first sheet, stating “Please see the back of this page for additional important information regarding this account.”
The back side of the first sheet of the letter provided information about particular consumer-rights notices in 10 states, including the consumer’s home state of Wisconsin, and prominently indicated that the applicable listing “is not a complete list of rights consumers may have under state and federal law.” Then, on the top front of the second sheet (page 2) of the collection letter, the FDCPA-required validation notice appeared: “Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days of receiving this notice, this office will obtain verification of the debt or obtain a copy of a judgment if applicable and mail you a copy of such verification or judgment. If you make a written request to this office within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor.”
According to the Seventh Circuit’s opinion, the text of RTR’s validation notice “is clear, prominent, and readily readable. The font is normal in shape and size—essentially the same font as most of the letter.” Still, as pointed out by the court, while the front of the first page directs the reader to the back of that page for “additional important information,” that additional important information does not include the validation notice, which appears instead on the front top of the second page.
Complaint. In her proposed class action against RTR, the consumer alleged that the debt collector’s letter would mislead “the unsophisticated consumer” by telling the reader that important information was on the back of the first page, but instead providing the FDCPA-required validation notice on the front of the second page. According to the complaint, the letter from RTR violated the FDCPA (15 U.S.C. §§ 1692e and 1692g) by: “overshadowing” the consumer’s FDCPA rights; (ii) failing to communicate her FDCPA rights effectively; (iii) misdirecting a consumer’s attention away from the validation notice; and (iv) causing the misdirection to falsely and misleadingly represent that the validation notice was unimportant.
After the federal trial court declined to certify the proposed class, dismissed the FDCPA claims, and refused the consumer’s request to amend her complaint, the consumer appealed to the Seventh Circuit.
FDCPA provisions. Under section 1692e of the FDCPA, a debt collector is prohibited from using any “false, deceptive, or misleading representation or means in connection with the collection of any debt.” Meanwhile, section 1692g of the FDCPA requires debt collectors to notify consumers of their validation rights and sets forth the rules pertaining to that notification.
Court’s ruling. After noting these applicable FDCPA provisions, the Seventh Circuit asserted, “The FDCPA does not say a debt collector must put the validation notice on the first page of a letter. Nor does the FDCPA say the first page of a debt-collection letter must point to the validation notice if it is not on the first page. Nor does the FDCPA say a debt collector must tell a consumer the validation notice is important. Nor does the FDCPA say a debt collector may not tell a consumer that other information is important.”
In applying the pertinent “unsophisticated consumer” standard in the case, the court noted that an “unsophisticated consumer can be expected to read page two of a two-page collection letter.” In the court’s view, the scanning of the material on the reverse side of page one of the letter was a temporary “speed bump, not a road barrier,” to the validation notice at the top of page two; moreover, the validation notice itself was a “continuation of the letter.” The Seventh Circuit agreed with the lower court that “a consumer who reads the front and back of the first page of a short letter and then completely disregards the second page has not read the letter with care.”
Underscoring that RTR’s validation notice still occupied “a prominent place” in the letter even though it did not appear on the reverse side of page one, the court determined that the collector did not imply that the validation notice was unimportant by referencing other important information on the reverse side. Indeed, the reverse side of the first page discussed the consumer’s rights under Wisconsin law, which was pertinent to the consumer, and communicated that it was not a complete list of all rights consumers might have under federal law. Contrary to the consumer's FDCPA claims, “not even a significant fraction of the population would be misled” by RTR’s collection letter, the court concluded.
For more information about court opinions impacting the financial services industry, subscribe to the Banking and Finance Law Daily.
Friday, December 14, 2018
FDIC initiatives seek to improve deposit insurance application process
By Andrew A. Turner, J.D.
The Federal Deposit Insurance Corporation is looking for information on how it can improve the deposit insurance application process and on factors that discourage potential applicants from beginning or finishing applications. Specific aspects under review include improvements that might benefit community banks and improvements in technology. The agency also has created a process that will allow potential applicants to request a review of a draft deposit insurance proposal.
As part of its efforts to increase transparency, efficiency, and accountability, the Federal Deposit Insurance Corporation has announced multiple initiatives and resources related to the deposit insurance application process for organizers of de novo banks. The changes are intended to promote a more transparent, streamlined, and accountable process for all applications submitted to the agency. FDIC Chairman Jelena McWilliams stated that a pipeline of new banks “is critical to the long-term health of the industry and communities across the country. The application process should not be overly burdensome and should not deter prospective banks from applying.”
The FDIC requested comments on all aspects of the deposit insurance application process, including ways in which the FDIC could or should support the continuing evolution of emerging technology and Fintech companies; aspects of the application process that may discourage potential applications; possible changes to the application process for traditional community bank proposals; and other suggestions for improving the effectiveness, efficiency, or transparency of the application process. Comments on the Notice and Request for Information are due by Feb. 11, 2019.
The FDIC has also created a new, designated mailbox as an additional means by which bankers, applicants, and other interested parties may pose questions regarding specific applications or the application process in general.
Updated publications. The FDIC has also updated two publications related to the deposit insurance application process. The publications, Applying for Deposit Insurance—A Handbook for Organizers of De Novo Institutions, which was developed to facilitate the process of establishing new banks and originally issued on Dec. 22, 2016, and Deposit Insurance Applications Procedures Manual, which was issued for public comment on July 10, 2017, provide comprehensive instruction to staff regarding the deposit insurance application process. Together, the documents address the informational needs of organizers and provide comprehensive instruction to FDIC staff.
Draft insurance review proposal. The FDIC announced that it is establishing a process to allow prospective organizers the option to request FDIC review of a draft deposit insurance proposal prior to filing an official application. The FDIC will review draft proposals to identify potential issues, provide preliminary feedback, and work with organizers on their submissions before submitting a formal application. The draft review process is intended to provide the FDIC and organizing groups the opportunity to better understand and work through possible challenges with a proposal through a collaborative process before a formal application is filed. The agency noted that feedback is limited to matters raised in the review of the submitted materials.
Review requests should be made in writing to the appropriate FDIC regional office and should be accompanied by a draft application filing. The FDIC expects to provide interim feedback to the organizers as soon as practicable, but no later than 30 days after receiving a draft proposal, and to communicate overall feedback within 60 days of receipt.
Timeframe guidelines. The FDIC has also updated and is republishing its timeframe guidelines for applications. The FDIC is republishing its timeframe guidelines for processing applications, notices, requests, and other filings submitted on behalf of existing and proposed institutions and other parties.
According to the FDIC, the timeframe guidelines apply to filings processed by Regional Offices under delegated authority. The timeframe guidelines do not apply to filings that:
- raise legal or policy issues;
- establish or change FDIC policy;
- could attract unusual attention or publicity; or
- involve an issue of first impression.
For more information about federal deposit insurance issues, subscribe to the Banking and Finance Law Daily.
Thursday, December 13, 2018
Justice Department tells Supreme Court CFPB organization is unconstitutional
A Justice Department brief filed in response to the petition for certiorari in a case addressing the constitutionality of the Consumer Financial Protection Bureau concedes that the Justice Department and the Bureau still have different points of view on the issue. The CFPB, to date, maintains that its organization under the Dodd-Frank Act is constitutionally valid, the Justice Department says. However, according to the Justice Department brief, the Bureau’s organization is unconstitutional because an independent agency led by a single director who can be removed by the president only for cause infringes on the president’s power to ensure that federal laws are faithfully executed. The petition for certiorari is State National Bank of Big Spring v. Mnuchin (No. 18-307).
State National Bank of Big Spring was an early challenger to the CFPB’s organization, filing suit in 2012. By early 2018, the issues in the bank’s suit had been narrowed to the constitutionality question. When the U.S. Court of Appeals for the District of Columbia Circuit, in an en banc opinion in PHH Corp. v. CFPB, resolved that question in favor of the CFPB, the parties to the bank’s suit agreed the U.S. district judge hearing the suit could not reach a contrary opinion and agreed to an order of dismissal.
The bank’s subsequent appeal to the D.C. circuit appellate court was rejected, setting the stage for the bank’s Supreme Court petition.
Effect of PHH Corp. The D.C. Circuit three-judge panel that initially decided PHH Corp. v. CFPB determined that the single-director organization was unconstitutional. However, rather than completely striking down the Bureau as the company asked, the panel decided to sever the Dodd-Frank Act section that provided the director could be discharged only for cause. The constitutionality problem would be solved by treating the Bureau as an executive branch agency whose director could be discharged at the president’s discretion.
However, the full circuit overturned that result. According to the en banc majority opinion, the Dodd-Frank Act did not violate constitutional separation of powers principles.
The PHH Corp. decision was not appealed to the Supreme Court.
Justice Department argument. The Justice Department prefers the result reached in PHH Corp. v. Corp. by the three-judge panel and the opinion written by Judge, and now Associate Justice, Kavanaugh. This approach, essentially a middle ground between eliminating the Bureau and continuing it as it currently is constituted, would allow the CFPB to function under the president’s control.
According to the brief, the separation of powers issue is important and deserves Supreme Court review, but in a different case. One problem is that Justice Kavanaugh probably would not participate in the decision due to his earlier involvement as an appellate court judge. Having the full court participate would be preferable, the Justice Department says.
Additionally, the nature of the challengers raises a jurisdictional problem. Two petitioners are associations that are not regulated by the CFPB. The bank, due to its size, is supervised by the Office of the Comptroller of the Currency, not the Bureau, and the Bureau apparently has never tried to assert any supervisory authority over the bank. The petitioners’ standing to sue "is sufficiently questionable to present a significant vehicle problem," the brief says.
The Justice Department maintains that the Dodd-Frank Act, as written, violates the Constitution, and the brief relies heavily on the points made by Justice Kavanaugh in his appellate court opinion—the for-cause removal clause restricts the president’s powers; the single-director organization lacks the advantages of a multi-member commission that would justify the removal restriction; the single-director organization is "a relatively novel innovation"; and there would be no limit on other, future single-director agencies that could infringe further on presidential removal authority.
Severing the for-cause restriction would resolve the problem while doing the least violence to the Dodd-Frank Act, the Justice Department continues. The Act includes a severability clause, and there is no indication that Congress would have wanted the Bureau to disappear without the removal restriction.
Representation complication. The brief also directs the Court’s attention to the question of who would present the argument in favor of the CFPB’s constitutionality. The Justice Department disagrees with the result of the PHH Corp. suit and thus will not argue in favor of constitutionality. In such a case, the Supreme Court could appoint an amicus curiae; however, there is another available route. Under the Dodd-Frank Act, the CFPB can—with Justice Department consent—represent itself before the Court.
As a result, the Justice Department is recommending that if the Court grants certiorari, it should delay appointing an amicus curiae until newly approved CFPB Director Kathy Kraninger has an opportunity to decide whether the Bureaus intends to defend the D.C. Circuit judgment and the Acting Solicitor General can decide whether to permit the Bureau to do so.
State National Bank of Big Spring was an early challenger to the CFPB’s organization, filing suit in 2012. By early 2018, the issues in the bank’s suit had been narrowed to the constitutionality question. When the U.S. Court of Appeals for the District of Columbia Circuit, in an en banc opinion in PHH Corp. v. CFPB, resolved that question in favor of the CFPB, the parties to the bank’s suit agreed the U.S. district judge hearing the suit could not reach a contrary opinion and agreed to an order of dismissal.
The bank’s subsequent appeal to the D.C. circuit appellate court was rejected, setting the stage for the bank’s Supreme Court petition.
Effect of PHH Corp. The D.C. Circuit three-judge panel that initially decided PHH Corp. v. CFPB determined that the single-director organization was unconstitutional. However, rather than completely striking down the Bureau as the company asked, the panel decided to sever the Dodd-Frank Act section that provided the director could be discharged only for cause. The constitutionality problem would be solved by treating the Bureau as an executive branch agency whose director could be discharged at the president’s discretion.
However, the full circuit overturned that result. According to the en banc majority opinion, the Dodd-Frank Act did not violate constitutional separation of powers principles.
The PHH Corp. decision was not appealed to the Supreme Court.
Justice Department argument. The Justice Department prefers the result reached in PHH Corp. v. Corp. by the three-judge panel and the opinion written by Judge, and now Associate Justice, Kavanaugh. This approach, essentially a middle ground between eliminating the Bureau and continuing it as it currently is constituted, would allow the CFPB to function under the president’s control.
According to the brief, the separation of powers issue is important and deserves Supreme Court review, but in a different case. One problem is that Justice Kavanaugh probably would not participate in the decision due to his earlier involvement as an appellate court judge. Having the full court participate would be preferable, the Justice Department says.
Additionally, the nature of the challengers raises a jurisdictional problem. Two petitioners are associations that are not regulated by the CFPB. The bank, due to its size, is supervised by the Office of the Comptroller of the Currency, not the Bureau, and the Bureau apparently has never tried to assert any supervisory authority over the bank. The petitioners’ standing to sue "is sufficiently questionable to present a significant vehicle problem," the brief says.
The Justice Department maintains that the Dodd-Frank Act, as written, violates the Constitution, and the brief relies heavily on the points made by Justice Kavanaugh in his appellate court opinion—the for-cause removal clause restricts the president’s powers; the single-director organization lacks the advantages of a multi-member commission that would justify the removal restriction; the single-director organization is "a relatively novel innovation"; and there would be no limit on other, future single-director agencies that could infringe further on presidential removal authority.
Severing the for-cause restriction would resolve the problem while doing the least violence to the Dodd-Frank Act, the Justice Department continues. The Act includes a severability clause, and there is no indication that Congress would have wanted the Bureau to disappear without the removal restriction.
Representation complication. The brief also directs the Court’s attention to the question of who would present the argument in favor of the CFPB’s constitutionality. The Justice Department disagrees with the result of the PHH Corp. suit and thus will not argue in favor of constitutionality. In such a case, the Supreme Court could appoint an amicus curiae; however, there is another available route. Under the Dodd-Frank Act, the CFPB can—with Justice Department consent—represent itself before the Court.
As a result, the Justice Department is recommending that if the Court grants certiorari, it should delay appointing an amicus curiae until newly approved CFPB Director Kathy Kraninger has an opportunity to decide whether the Bureaus intends to defend the D.C. Circuit judgment and the Acting Solicitor General can decide whether to permit the Bureau to do so.
This story previously appeared in the Banking and Finance Law Daily.
Monday, December 10, 2018
Senate confirms Kraninger nomination by one-vote margin; reactions follow political lines
By Richard A. Roth, J.D. and Jacob
Bielanski
The nomination of Kathy Kraninger to be Director of the Consumer Financial Protection Bureau was confirmed by the Senate by a vote of 50-to-49 on Dec. 6, 2018. Kraninger will be the second Senate-confirmed CFPB Director, following Richard Cordray. Mick Mulvaney has been serving as Acting Director since Cordray’s resignation.
As the narrow margin for confirmation implies, Kraninger’s nomination was very controversial, with public interest and industry advocacy groups lining up to oppose each other. For example, the Center for Responsible Lending charged that she would “continue [Acting Director] Mulvaney’s destructive course. Kraninger has no track record at all of consumer protection, or of standing up for vulnerable people.” During debate, Sen. Sherrod Brown (D-Ohio) complained that “Her one and only qualification is that she will be a rubber stamp for special interests. That is unconscionable.”
Kraninger’s tenure as Program Associate Director at the Office of Management and Budget came in for severe criticism, with Democrats attempting to link her to the separation of families at the U.S. southern border and with what they asserted were inadequate hurricane responses. (Acting CFPB Director Mulvaney also is Director of the OMB.)
Post-vote comments. Following the contentious confirmation of the new Bureau Director, reactions were divided, mostly among political lines. American Bankers Association President and CEO Rob Nichols said that Kraninger “believes in promoting competition and appropriately tailoring regulations by taking into account both costs and benefits.”
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said that “As Congress continues its efforts to reform the Bureau into a law enforcement agency that truly protects consumers and is accountable to the people, I am confident that with her experience and knowledge of budget management, Kathy will excel as Director of the Bureau.”
Other comments were less positive. Bartlett Naylor of Public Citizen said “Watch your wallets, protect your purses and batten down your bank accounts. With the confirmation of Kathleen Kraninger, Trump and Senate Republicans are putting Americans at the mercy of predatory lenders and abusive financial firms. Kraninger has absolutely no training or experience relevant to consumer protection.”
“Mick Mulvaney’s disastrous tenure as Acting-Director of the Consumer Bureau had a devastating impact on the financial security and economic stability of millions of Americans,” Rep. Nancy Pelosi (D-Calif) said in a statement following the confirmation. “Director Kraninger must abandon the Administration’s shameful campaign to destroy this vital consumer watchdog.”
“In the year that Mulvaney headed the [CFPB], he made it responsive to consumers rather than to the bureaucrats and busybodies who thought they knew best and wanted to dictate consumers’ financial choices,” Competitive Enterprise Institute Senior Fellow John Berlau said. “This was in sharp contrast to Mulvaney’s predecessor, Richard Cordray, under whose tenure the bureau arbitrarily and retroactively applied regulatory punishments against certain financial firms without due process.”
Center for Responsible Lending Senior Legislative Counsel Yana Miles countered this assessment, saying “Mulvaney’s tenure at the CFPB wasn’t public service—it was service to predatory lenders.”
Despite this, consumer advocacy groups seized the opportunity to criticize the new director for a past that appeared to lack consumer advocacy positions. Senator Cortez Masto (D-Nev) said Kraninger “fails to understand [CFPB]’s core functions,” while the National Association for Consumer Advocates (NACA) said Kraninger “does not fit the profile for the role.” Better Markets President and CEO Dennis Kelleher added that Kraninger has demonstrated a “disqualifying lack of experience or qualifications for leading the consumer protection bureau and an inexcusable lack of genuine commitment to protecting consumers.”
“Ms. Kraninger’s career has zero ties to consumer protection or financial services,” NACA executive director Ira Rheingold said. “Instead, her government background is plagued with links to controversial decisions that are an affront to human rights and justice.”
Both NACA and Americans for Financial Reform made references to the White House family separation program. Some critics claimed Kraninger had a “hidden” role in the program, which detained children of those arrested for illegally crossing the U.S. border separately from their parents or guardians, as part of her duties while serving as associate director for general government programs at the Office of Management and Budget.
Republicans, including Reps. Patrick McHenry (R-NC) and Blaine Luetkemeyer (R-Mo), largely focused on what Kraninger’s confirmation means for the future of the organization. Luetkemeyer, who is currently the chair of the House Subcommittee on Financial Institutions and Consumer Credit, noted that he looked forward to the new director prioritizing “transparency.” McHenry, a member of the House Financial Services Committee, sees expansion of family and small business access to the financial system. “With a full-time Director in place, the BCFP can focus on their important work protecting American consumers,” McHenry added.
Many comments took a muted approach. Some, like the Consumer Bankers Association (CBA), congratulated Kraninger, but used largely non-committal wording with regards to the CFPB future. “We look forward to working with Ms. Kraninger on common-sense regulations that protect consumers while also allowing our well-regulated banking system to serve families and small businesses,” CBA President and CEO Richard Hunt said. The Independent Community Bankers of America added their support and commitment to work with Kraninger.
House Democrats, meanwhile, avoided overt partisan attacks against Kraninger, specifically, but laid out expectations for Kraninger’s term. Similar to Pelosi, Ranking Member on the House Financial Services Committee, Rep. Maxine Water (D-Calif) called on the new director to “roll back” what she said were “anti-consumer” policies instituted by Mulvaney.
Meanwhile, the Consumer Federation of America (CFA) referenced the “turmoil” of the confirmation, but expressed hope for the new director. “Director Kraninger has an opportunity to prove her [skeptics] wrong by setting a bold consumer protection agenda,” CFA director of financial services Christopher Peterson said. “We hope she seizes this vital opportunity.”
For more information about the Consumer Financial Protection Bureau, subscribe to the Banking and Finance Law Daily.
The nomination of Kathy Kraninger to be Director of the Consumer Financial Protection Bureau was confirmed by the Senate by a vote of 50-to-49 on Dec. 6, 2018. Kraninger will be the second Senate-confirmed CFPB Director, following Richard Cordray. Mick Mulvaney has been serving as Acting Director since Cordray’s resignation.
As the narrow margin for confirmation implies, Kraninger’s nomination was very controversial, with public interest and industry advocacy groups lining up to oppose each other. For example, the Center for Responsible Lending charged that she would “continue [Acting Director] Mulvaney’s destructive course. Kraninger has no track record at all of consumer protection, or of standing up for vulnerable people.” During debate, Sen. Sherrod Brown (D-Ohio) complained that “Her one and only qualification is that she will be a rubber stamp for special interests. That is unconscionable.”
Kraninger’s tenure as Program Associate Director at the Office of Management and Budget came in for severe criticism, with Democrats attempting to link her to the separation of families at the U.S. southern border and with what they asserted were inadequate hurricane responses. (Acting CFPB Director Mulvaney also is Director of the OMB.)
Post-vote comments. Following the contentious confirmation of the new Bureau Director, reactions were divided, mostly among political lines. American Bankers Association President and CEO Rob Nichols said that Kraninger “believes in promoting competition and appropriately tailoring regulations by taking into account both costs and benefits.”
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said that “As Congress continues its efforts to reform the Bureau into a law enforcement agency that truly protects consumers and is accountable to the people, I am confident that with her experience and knowledge of budget management, Kathy will excel as Director of the Bureau.”
Other comments were less positive. Bartlett Naylor of Public Citizen said “Watch your wallets, protect your purses and batten down your bank accounts. With the confirmation of Kathleen Kraninger, Trump and Senate Republicans are putting Americans at the mercy of predatory lenders and abusive financial firms. Kraninger has absolutely no training or experience relevant to consumer protection.”
“Mick Mulvaney’s disastrous tenure as Acting-Director of the Consumer Bureau had a devastating impact on the financial security and economic stability of millions of Americans,” Rep. Nancy Pelosi (D-Calif) said in a statement following the confirmation. “Director Kraninger must abandon the Administration’s shameful campaign to destroy this vital consumer watchdog.”
“In the year that Mulvaney headed the [CFPB], he made it responsive to consumers rather than to the bureaucrats and busybodies who thought they knew best and wanted to dictate consumers’ financial choices,” Competitive Enterprise Institute Senior Fellow John Berlau said. “This was in sharp contrast to Mulvaney’s predecessor, Richard Cordray, under whose tenure the bureau arbitrarily and retroactively applied regulatory punishments against certain financial firms without due process.”
Center for Responsible Lending Senior Legislative Counsel Yana Miles countered this assessment, saying “Mulvaney’s tenure at the CFPB wasn’t public service—it was service to predatory lenders.”
Despite this, consumer advocacy groups seized the opportunity to criticize the new director for a past that appeared to lack consumer advocacy positions. Senator Cortez Masto (D-Nev) said Kraninger “fails to understand [CFPB]’s core functions,” while the National Association for Consumer Advocates (NACA) said Kraninger “does not fit the profile for the role.” Better Markets President and CEO Dennis Kelleher added that Kraninger has demonstrated a “disqualifying lack of experience or qualifications for leading the consumer protection bureau and an inexcusable lack of genuine commitment to protecting consumers.”
“Ms. Kraninger’s career has zero ties to consumer protection or financial services,” NACA executive director Ira Rheingold said. “Instead, her government background is plagued with links to controversial decisions that are an affront to human rights and justice.”
Both NACA and Americans for Financial Reform made references to the White House family separation program. Some critics claimed Kraninger had a “hidden” role in the program, which detained children of those arrested for illegally crossing the U.S. border separately from their parents or guardians, as part of her duties while serving as associate director for general government programs at the Office of Management and Budget.
Republicans, including Reps. Patrick McHenry (R-NC) and Blaine Luetkemeyer (R-Mo), largely focused on what Kraninger’s confirmation means for the future of the organization. Luetkemeyer, who is currently the chair of the House Subcommittee on Financial Institutions and Consumer Credit, noted that he looked forward to the new director prioritizing “transparency.” McHenry, a member of the House Financial Services Committee, sees expansion of family and small business access to the financial system. “With a full-time Director in place, the BCFP can focus on their important work protecting American consumers,” McHenry added.
Many comments took a muted approach. Some, like the Consumer Bankers Association (CBA), congratulated Kraninger, but used largely non-committal wording with regards to the CFPB future. “We look forward to working with Ms. Kraninger on common-sense regulations that protect consumers while also allowing our well-regulated banking system to serve families and small businesses,” CBA President and CEO Richard Hunt said. The Independent Community Bankers of America added their support and commitment to work with Kraninger.
House Democrats, meanwhile, avoided overt partisan attacks against Kraninger, specifically, but laid out expectations for Kraninger’s term. Similar to Pelosi, Ranking Member on the House Financial Services Committee, Rep. Maxine Water (D-Calif) called on the new director to “roll back” what she said were “anti-consumer” policies instituted by Mulvaney.
Meanwhile, the Consumer Federation of America (CFA) referenced the “turmoil” of the confirmation, but expressed hope for the new director. “Director Kraninger has an opportunity to prove her [skeptics] wrong by setting a bold consumer protection agenda,” CFA director of financial services Christopher Peterson said. “We hope she seizes this vital opportunity.”
For more information about the Consumer Financial Protection Bureau, subscribe to the Banking and Finance Law Daily.
Tuesday, December 4, 2018
Minneapolis Fed opposes Board’s proposal to relax liquidity-related regulations for large banks
By Thomas G. Wolfe, J.D.
In response to the Federal Reserve Board’s request for comments on its proposal to modify the “Prudential Standards for Large Bank Holding Companies and Savings and Loan Holding Companies,” the Federal Reserve Bank of Minneapolis is opposing the Board’s plan to relax liquidity-related regulations for large banks. The Minneapolis Fed’s November 2018 comment letter asserts, “In short, the proposed rule-making would weaken the resiliency of large banks at a time when it should be strengthened.”
In October 2018, in keeping with the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” the Federal Reserve Board generated two proposals to establish a revised framework for applying prudential standards to large U.S. banking organizations based on risk. Generally, the proposals seek to more closely align the regulatory requirements that apply to large banking organizations with their risk profiles. The proposed framework would not apply to the U.S. operations of foreign banking organizations.
While the first proposal seeks to tailor the application of prudential standards to U.S. bank holding companies and to apply enhanced standards to certain large savings and loan holding companies, the Board’s second proposal (posed jointly with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation) seeks to tailor the application of the agencies’ capital and liquidity rules.
Comment letter. In its Nov. 19, 2018, comment letter, the Minneapolis Fed maintains that the Federal Reserve Board is forgetting lessons learned from the financial crisis and the Great Recession. “In this specific case, we are concerned about the unnecessary relaxation of liquidity-related regulations for large banks,” the letter states. Moreover, the Minneapolis Fed agrees with Federal Reserve Board Governor Lael Brainard’s analysis of the Board’s proposal and agrees with Brainard that the Board’s “proposed changes should not move forward.”
Viewing the Board’s proposal as a potential threat to the financial stability of the U.S. financial system by “rolling back” existing regulations, the comment letter also indicates that the Minneapolis Fed is “deeply troubled by ongoing efforts of the Board of Governors to change rules in a way that reduces the equity funding of the largest banks.” Large banks “should have enough skin in the game, through equity funding, to ensure that their shareholders bear the risk of their investments, rather than taxpayers,” the Minneapolis Fed asserts.
For more information about federal regulatory proposals impacting the financial services industry, subscribe to the Banking and Finance Law Daily.
In response to the Federal Reserve Board’s request for comments on its proposal to modify the “Prudential Standards for Large Bank Holding Companies and Savings and Loan Holding Companies,” the Federal Reserve Bank of Minneapolis is opposing the Board’s plan to relax liquidity-related regulations for large banks. The Minneapolis Fed’s November 2018 comment letter asserts, “In short, the proposed rule-making would weaken the resiliency of large banks at a time when it should be strengthened.”
In October 2018, in keeping with the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” the Federal Reserve Board generated two proposals to establish a revised framework for applying prudential standards to large U.S. banking organizations based on risk. Generally, the proposals seek to more closely align the regulatory requirements that apply to large banking organizations with their risk profiles. The proposed framework would not apply to the U.S. operations of foreign banking organizations.
While the first proposal seeks to tailor the application of prudential standards to U.S. bank holding companies and to apply enhanced standards to certain large savings and loan holding companies, the Board’s second proposal (posed jointly with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation) seeks to tailor the application of the agencies’ capital and liquidity rules.
Comment letter. In its Nov. 19, 2018, comment letter, the Minneapolis Fed maintains that the Federal Reserve Board is forgetting lessons learned from the financial crisis and the Great Recession. “In this specific case, we are concerned about the unnecessary relaxation of liquidity-related regulations for large banks,” the letter states. Moreover, the Minneapolis Fed agrees with Federal Reserve Board Governor Lael Brainard’s analysis of the Board’s proposal and agrees with Brainard that the Board’s “proposed changes should not move forward.”
Viewing the Board’s proposal as a potential threat to the financial stability of the U.S. financial system by “rolling back” existing regulations, the comment letter also indicates that the Minneapolis Fed is “deeply troubled by ongoing efforts of the Board of Governors to change rules in a way that reduces the equity funding of the largest banks.” Large banks “should have enough skin in the game, through equity funding, to ensure that their shareholders bear the risk of their investments, rather than taxpayers,” the Minneapolis Fed asserts.
For more information about federal regulatory proposals impacting the financial services industry, subscribe to the Banking and Finance Law Daily.
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