Liquidity profile disclosure requirements adopted for large institutions

By Andrew A. Turner, J.D.

Large banking organizations will be required to publicly disclose their liquidity coverage ratios (LCRs) and some of the factors that go into calculating that ratio with Federal Reserve Board approval of a final rule. Large financial institutions that are subject to the liquidity coverage ratio rule will be required to disclose publicly, on a quarterly basis, quantitative information about its LCR calculation and a discussion of the factors that have a significant effect on its LCR. The implementation timeline for the disclosure requirements includes compliance dates ranging from April 2017 through October 2018.

The amendments require large banking organizations to disclose their consolidated LCRs each quarter based on averages over the prior quarter. Firms also are required to disclose their consolidated high-quality liquid assets (HQLA) amounts, broken down by HQLA category. Additionally, firms are required to disclose their projected net stressed cash outflow amounts, including retail inflows and retail deposit outflows, derivatives inflows and outflows, and several other measures.

The LCR rule applies to bank holding companies and certain savings and loan holding companies that, in each case, have $50 billion or more in total consolidated assets or $10 billion or more in total consolidated on-balance sheet foreign exposure. Nonbank financial companies the Financial Stability Oversight Council has designated for Fed supervision are also covered if the Fed has made the companies subject to the rule. A modified LCR requirement applies to certain smaller, less complex banking organizations.

Transition and timing. While generally similar to the rule proposed in November 2015, in response to comments, the final rule extends the implementation timeline of the public disclosure requirements by nine months. The effect of this extension will be:

• covered companies that have $700 billion or more in total consolidated assets or $10 trillion or more in assets under custody will be required to comply with the public disclosure requirements beginning on April 1, 2017;

• other covered companies, other than modified LCR holding companies, will be required to comply with the public disclosure requirements beginning on April 1, 2018;

• modified LCR holding companies that are currently subject to the modified LCR rule will be required to comply with the public disclosure requirements beginning on Oct. 1, 2018; and

• a covered company that becomes subject to the LCR rule in the future will be required to make its first public disclosures for the calendar quarter that starts on its LCR rule compliance date (i.e., three months after the company becomes subject to the LCR rule).

Modified LCR holding companies also would benefit from an extended LCR rule compliance requirement. They would not become subject to the modified LCR rule until one year after they passed the $50 billion threshold.

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CFPB has busy regulatory 2016, but possible end looms

By Richard A. Roth, J.D.

The Consumer Financial Protection Bureau adopted two major final rules in 2016, one addressing mortgage servicer conduct and the other regulating prepaid accounts. The bureau also proposed rules on permissible predispute arbitration clauses and on short-term or payday loans, and it outlined its ideas for governing third-party debt collections. However, the Republican election victory and a decision by the U.S. Court of Appeals for the District of Columbia Circuit combine to cast doubt on whether the bureau will be able to finalize these rules before presidential or congressional action either restructure it or simply block further action.

This article previously appeared in the Banking and Finance Law Daily.

Top 5 CFPB enforcement actions in 2016, by the numbers

By Lisa M. Goolik, J.D.   

This year marked the fifth anniversary of the Consumer Financial Protection Bureau, and the bureau’s enforcement activity did not slow in its quinquennial year. In 2016, the CFPB continued to secure large dollar judgments and settlements in its mission to protect consumers from unfair and deceptive acts or practices. The CFPB brought actions against credit card companies, for-profit colleges, auto lenders, and debt collectors, among others, while the activities at issue encompassed the entire lending process, from questionable assurances and disclosures to illegal debt collection practices.

This article, previously published in the Banking and Finance Law Daily, highlights the five largest monetary recoveries by the CFPB in 2016.



For more information about CFPB enforcement actions, subscribe to the Banking and Finance Law Daily.

New White Paper: Trump’s Win Expected to Bring Significant Legal and Regulatory Changes

In a white paper produced by WK editorial staff, "Trump’s Win Expected to Bring Significant Legal and Regulatory Changes," contributor John M. Pachkowski, J.D. discusses the impact of the Trump Administration on the Dodd-Frank Act and the Consumer Financial Protection Bureau, among other issues:

Banking & Financial Services

By John M. Pachkowski, J.D.

With an unconventional campaign that resulted in the election of [Donald J.] Trump, along with Republican control of Congress, the stage is set to bring about changes in regulation of the banking and financial services industries.

On the campaign trail, as he secured the delegates needed to become the Republican nominee, Trump called the reforms in the Dodd-Frank Act harmful to the economy and said he planned to overhaul Dodd-Frank. In an August 2016 speech before the Detroit Economic Club, he called for a temporary moratorium on new agency regulations and stated that every federal agency will be required to prepare a list of all of the regulations that are “not necessary, do not improve public safety, and which needlessly kill jobs.”

Dodd-Frank Act

After winning the presidential election, the Financial Services Policy Implementation team, which is part of the Trump presidential transition, said the “Dodd-Frank economy does not work for working people.” The team added it will be working “to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.” Steven Mnuchin, the nominee for Treasury Secretary, said the incoming Trump Administration will strip back parts of Dodd-Frank that prevent banks from lending.

Total repeal

Although Republicans control both houses of Congress, the entirety of the Dodd-Frank Act will probably not be repealed once the Trump Administration takes office. Total repeal on “Day 1” probably will not occur due to the small majority the Republicans hold in the Senate. For any legislation to move forward, roughly eight or nine Democrat senators will need to side with the Republican senators. It is possible that Senate Majority Leader Mitch McConnell (R-Ky) could remove the 60-vote cloture rule for legislation to move forward, but he is also deemed to be an “institutionalist” and may retain the cloture rule.

However, total repeal of Dodd-Frank maybe a possibility following the 2018 mid-term elections. At that point in time, Democrats will have to defend 25 of the 33 seats being contested.

Roll back of Dodd-Frank

Rolling back provisions of the Dodd-Frank Act maybe more feasible. Legislation introduced by Rep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee in the 114th Congress, could be used as a template. The Financial CHOICE Act, which Hensarling labeled a “new legislative paradigm” for banking and the capital markets, would allow strongly capitalized banks to opt out of burdensome regulations, end too-big-to-fail, and impose greater accountability on regulatory agencies. The plan also would repeal Dodd-Frank’s controversial Volcker Rule.

Other provisions of the Financial CHOICE Act would: incorporate a new “bankruptcy not bailout” chapter into the Bankruptcy Code so that a large financial institution that takes on unsustainable risks could fail without disrupting the financial system; require cost-benefit tests of new regulations; convert financial regulatory agencies now headed by single directors, such as the Office of the Comptroller of the Currency, into bipartisan commissions; and require that the Federal Reserve Board “describe the strategy or rule of the Federal Open Market Committee for the systematic quantitative adjustment” of its policy instruments.

A precursor to the roll back or repeal of the Dodd-Frank Act once Republicans take control of the White House and Congress occurred late in the 114th Congress. The House of Representatives approved H.R. 6392, the Systemic Risk Designation Improvement Act of 2016. The legislation would have specified when bank holding companies may be subject to certain enhanced supervision by the Federal Reserve Board. Among other things, the bill would have replaced the $50 billion asset threshold with business activity standards to determine an institution’s systemic risk.

What the industry is saying

Recently, in an investor presentation, JPMorgan Chase’s James Dimon remarked that “We’re not asking for wholesale throwing out Dodd-Frank.” Also, John Gerspach of Citigroup Inc. added, “The first thing I would ask for is nothing new, no new rules. If you haven’t figured out yet how all the existing rules work together, don’t put on anything else.”

Fate of CFPB

Since its inception, Republican lawmakers have sought to abolish or diminish the role of the Consumer Financial Bureau; in fact the 2016, Republican platform called the CFPB a “rogue agency” with a director exercising “dictatorial powers unique in the American Republic.” Republican lawmakers have consistently sought to replace the single directorship with a commission and to make the bureau subject to normal congressional appropriations process.

The October 2106 case of PHH Corporation v. Consumer Financial Protection Bureau called into question the constitutionality of the bureau’s structure, with the U.S. Circuit Court of Appeals for the District of Columbia “remedying” the constitutional deficiency by placing the CFPB under the Executive Branch, thereby allowing the President to
dismiss the director at will.

This ruling in the PHH case could allow President Trump to dismiss the current director, Richard Cordray, and replace him with a person that would take a less vigorous approach to enforcement of consumer financial laws. Since the CFPB has filed a petition for the full appeals court to rehear the case, it might be unlikely that Trump would dismiss Cordray until the case is fully resolved, which may include an appeal to the U.S. Supreme Court. Depending upon how the full court of appeals rules in the PHH case, since CFPB may have a difficult time with an appeal to the Supreme Court since the bureau is required to seek concurrence from the U.S. Attorney General, who under the Trump Administration, would be Jeff Sessions, currently A U.S. Senator from Alabama. Without the Attorney General’s concurrence, the Trump administration effectively blocks the CFPB's decision to appeal to the Supreme Court.

On the other hand, if Trump does succeed in removing Cordray in favor of a person less inclined to pursue enforcement actions, it is conceivable that states such as California, Illinois, Massachusetts, and New York, which all have Democrats as attorneys general,
could fill any void left by the CFPB’s inaction.

Staffing of agencies

Even if Congress is not successful in making changes to the Dodd-Frank Act, the incoming president’s appointments to various independent financial regulatory agencies could, as noted by Justin Schardin, director of the Bipartisan Policy Center’s Financial Regulatory Reform Initiative, provide “wide latitude to reinterpret or roll back new rules and regulations.”

Although some of the agencies may be headed up by members that could reinterpret or roll back regulations, any type of action would still need to go through the normal proposal and comment process.

It was also observed with the various agency appointments that the role of the Financial Stability Oversight Council could change, with the new Treasury Secretary using FSOC’s statutory mandate as a means for coordinating regulators to streamline existing regulations.

Housing finance reform

As the conservatorships of Fannie Mae and Freddie Mac begin their ninth year, Congress may address housing finance reform. The last time Congress attempted to tackle the issue was in 2013 and 2014. It expected that Sen. Mike Crapo (R-Idaho) will assume the chairmanship of the Senate Banking Committee. He was one of the senators who drafted legislation that passed the committee on a bipartisan vote in 2014.

Capital and liquidity

To address the causes and effects of the global financial crisis, the Basel Committee on Banking Supervision established the Basel III capital framework which set higher levels for capital requirements and introduced new global liquidity requirements.

The U.S. bank regulatory agencies have implemented most of the Basel III capital and liquidity requirements, and banks, depending on their size, have been complying with the new capital and liquidity requirements. 

Banks have argued these various requirements have hampered lending, and other stakeholders have contended that these requirements have put U.S. banks at a competitive disadvantage on the world stage. Some have called for the U.S. not to adhere to these international standards, since other countries seek “capital neutrality.” The Vice Chairman of the Federal Deposit Insurance Corporation, Thomas M. Hoenig, cautioned, “The United States should not follow this path nor allow its capital mandates to be compromised in this fashion.”

For more information about the impact of the election on the banking and financial services industry, subscribe to the Banking and Finance Law Daily.

CFPB brings the axe down on payday lender Moneytree for misleading consumers

By Stephanie K. Mann, J.D.

The Consumer Financial Protection Bureau has entered into a consent order and stipulation with Moneytree, Inc., a financial services company that offers payday loans and check-cashing services, for misleading consumers with deceptive online advertisements and collections letters. According to the bureau, the company also made unauthorized electronic transfers from consumers’ bank accounts. The CFPB has ordered the company to cease its illegal conduct, provide $255,000 in refunds to consumers, and pay a civil penalty of $250,000.

"Consumers deserve honesty and transparency from the financial institutions they rely on," said CFPB Director Richard Cordray. "Moneytree’s practices meant consumers were making decisions based on false and deceptive information, and today’s action will give the company’s customers the redress they are owed."

Moneytree, Inc., is a financial services company based in Seattle, Wash., that offers payday loans, check-cashing, and other services to consumers. After conducting multiple supervisory examinations of Moneytree’s lending, marketing, and collections activities, the CFPB has identified significant weaknesses in the company’s compliance-management system in each of them. The Consent Order states that the company failed to address those weaknesses and deceived consumers about the price of check-cashing services, made false threats of vehicle repossession when collecting overdue unsecured loans, and withdrew funds from consumers’ accounts without written authorization. Specifically, the CFPB found that Moneytree:

• Used deceptive online ads: In early 2015, Moneytree ran advertisements online offering to cash consumers’ tax refund checks for "1.99." The actual fee for the service was 1.99 percent of the amount of the check cashed, rather than $1.99, as the company’s advertisements implied. Consumers were required to visit one of Moneytree’s physical branches to take advantage of the advertisement’s offer, which appeared online tens of thousands of times.
• Deceptively told consumers their vehicles could be repossessed: From late 2014 through early 2015, Moneytree mailed letters to hundreds of consumers indicating that their vehicles could be repossessed if they did not make past-due payments on their installment loans. But none of these consumers had loans secured by their vehicles, and Moneytree had no right or ability to repossess them.
• Withdrew money from consumers’ accounts without authorization: Moneytree failed, in over 700 instances, to obtain preauthorization from consumers for withdrawals from their bank accounts, in violation of federal law.

Moneytree stipulated to the CFPB’s findings.

This article previously appeared in the Banking and Finance Law Daily.

Schools and banks scolded for not putting students first

By Andrew A. Turner, J.D.

 

Colleges continue to maintain deals with large banks to market products with costly features that are not in the best financial interests of their students, according to a Consumer Financial Protection Bureau report analyzing marketing deals for school-sponsored accounts. The CFPB also reminded colleges and universities they are required to publicly disclose marketing agreements with credit card companies (CFPB Bulletin 2016-04).

 

“Deals between big banks and schools can drive students into accounts that contain high fees,” said CFPB Director Richard Cordray. “Today’s report shows that many schools are more focused on their bottom line than their students’ well-being when they agree to sponsor financial accounts. Many young people struggle to manage money while at school and we urge schools to put students’ financial interest first.”

 

Key findings. The CFPB’s analysis of roughly 500 college marketing deals for prepaid and debit accounts found that many deals allow for risky features that can lead students to rack up hundreds of dollars in fees per year. The analysis revealed:

• Dozens of deals with banks for school-sponsored accounts do not place limits on account fees, such as overdraft fees, out-of-network ATM fees, or other common charges.
• College students may pay hundreds per year in overdraft fees when using student banking products.
• Marketing agreements between colleges and banks often contain extensive details about how the school and the bank can profit, but offer few financial benefits for students.

Some schools have not complied with Department of Education requirements to disclose key details of marketing deals with banks. The CFPB found some agreements publicly announced by banks or colleges missing from the DoE’s public database of agreements.

 

College credit card agreements. The report also examines trends in the school-sponsored credit card market, showing a continuing market decline, with a shift to college-sponsored checking and prepaid accounts. The CFPB noted its concern about the lack of transparency in these contracts. A prior year review of 25 colleges and universities with active credit card agreements found most did not provide copies of these agreements on their websites or provide ways to access the agreements.

The CFPB bulletin outlines options for disclosing this information and warns that marketing agreements with credit card issuers must be disclosed publicly without delay. Schools are advised to begin publishing these agreements on their websites if they are not already doing so.

The CFPB promised that it will continue to monitor the accessibility of college student credit card agreements. Industry participants are encouraged to contact the CFPB if not in compliance, with the bureau promising that self-reporting and cooperation “will be taking into account when resolving such matters.”

For more information about student credit card issues, subscribe to the Banking and Finance Law Daily.

ICYMI: Fed raises federal funds rate, primary credit ‘discount’ rate

By Thomas G. Wolfe, J.D.

Based on information it has received since it last met in November, the Federal Open Market Committee has unanimously decided to raise the target range for the federal funds rate to a .50- to .75-percent range, a .25 percent increase in the target range previously set a year ago. Similarly, the Federal Reserve Board unanimously voted to approve a .25 percentage increase to the primary credit "discount" rate to establish a new 1.25 percent level, effective Dec. 15, 2016.

The FOMC stated that economic activity has been "expanding at a moderate pace since mid-year" and that inflation has "increased" since earlier this year. According to the FOMC, near-term risks to the economic outlook appear "roughly balanced," and the "the labor market has continued to strengthen." Still, the Committee expects inflation to "rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further."

Economic outlook. The FOMC reported that the unemployment rate "has declined" and job gains "have been solid." In addition, household spending has been "rising moderately" while business fixed investment has "remained soft."

The FOMC further observed that while inflation increased, it still is "below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports." Further, while market-based measures of inflation compensation "have moved up considerably" but "are still low," most survey-based measures of longer-term inflation expectations "are little changed, on balance, in recent months." The Committee will continue to closely monitor inflation indicators as well as global economic and financial developments.

In communicating its economic outlook, the FOMC released charts and graphs depicting its economic projections.

Asset purchases. The FOMC stated that it is "maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction." Moreover, the FOMC anticipates continuing this policy "until normalization of the level of the federal funds rate is well under way." In the FOMC’s view, by keeping the Committee's holdings of longer-term securities at sizable levels, the policy "should help maintain accommodative financial conditions."

Federal funds rate. In view of realized and expected labor market conditions and inflation, the FOMC decided to raise the target range for the federal funds rate to a .50- to .75-percent range. In connection with future determinations of the timing and size of an adjustment, the Committee "will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation." According to the FOMC, this assessment "will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments."

Primary credit rate. As reflected in its Dec. 14, 2016, "Decisions Regarding Monetary Policy Implementation," the Fed raised the primary credit "discount" rate, which is the interest rate charged for short-term credit extensions to depository institutions. The discount rate was increased to the 1.25 percent level, effective Dec. 15, 2016. In taking this action, the Fed approved requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco.




For more information about the FOMC's actions, subscribe to the Banking and Finance Law Daily.