As discussed here, on October 24, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency finally issued their long-awaited final rule modernizing how they assess lenders’ compliance under the Community Reinvestment Act (CRA). The CRA regulations had not been updated since 1995.
We are pleased to share our annual review of regulatory and legal developments in the consumer financial services industry. With active federal and state legislatures, consumer financial services providers faced a challenging 2023. Courts across the country issued rulings that will have immediate and lasting impacts on the industry. Our team of more than 140 professionals has prepared this concise, yet thorough analysis of the most important issues and trends throughout our industry. We not only examined what happened in 2023, but also what to expect — and how to prepare — for the months ahead.
On January 29, the Office of the Comptroller of the Currency (OCC) issued a notice of proposed rulemaking regarding its review of business combinations under the Bank Merger Act (BMA). Specifically, the OCC proposed: (i) amendments to 12 C.F.R. § 5.33 to remove provisions related to expedited review and the use of streamlined business combination applications subject to BMA review; and (ii) the adoption of an official policy statement setting forth general principles the OCC will use in its review of applications subject to the BMA. If adopted as proposed, the rulemaking will likely lead to longer approval timelines for certain national bank transactions, particularly for mergers involving well-managed, well-capitalized community banks, internal corporate reorganizations, and branch acquisitions that would have otherwise been able to take advantage of expedited review. Currently, assuming certain criteria are met, a BMA filing that qualifies as a business reorganization eligible for a streamlined application is deemed approved on the 15th day after the close of the comment period, unless the OCC notifies the applicant that the filing is not eligible for expedited review or the expedited review process is extended. However, if the rulemaking is adopted as proposed, § 5.33 would be amended to remove the procedures for expedited review and the use of streamlined applications.
In the absence of comprehensive federal action, states and regulators are enacting legislation and issuing guidance requiring climate-related disclosures, stepping in to fill the void left by the U.S. Securities Exchange Commission’s (SEC) delay on a climate risk disclosure rule.
In November 2022, the Financial Industry Regulatory Authority (FINRA) launched a targeted crypto asset sweep, reviewing more than 500 retail communications related to crypto assets from member firms.
On January 18, at an event hosted by Columbia University Law School, Acting Comptroller of the Currency Michael J. Hsu discussed liquidity risk at banks and described potential “targeted regulatory enhancements” that would require midsize and large banks to have sufficient liquidity to cover “ultra-short-term” stress outflows over a five-day period. The rationale for the enhancements stem from last year’s large bank failures and are intended to ensure that updated liquidity and risk management practices are implemented and sustained across midsize and large banks.
On January 17, the Office of the Comptroller of the Currency (OCC) issued a bulletin advising banks on how to prepare for the upcoming shortening in the standard securities settlement cycle for most U.S. securities transactions. This is in response to the Securities and Exchange Commission (SEC) adoption of final rules that shorten the standard settlement cycle for most broker-dealer transactions from the second business day after the trade date (T+2) to the first business day after the trade date (T+1). The SEC has approved a similar rule change by the Municipal Securities Rulemaking Board (MSRB) to the settlement cycle for municipal securities, which has shortened the regular-way settlement for municipal securities transactions to T+1. The OCC expects banks to be prepared to meet T+1 standards as of May 28, 2024.
On January 8, the Office of the Comptroller of the Currency (OCC) announced adjustments to the maximum amount of each civil money penalty (CMP) within its jurisdiction. The 2015 Adjustment Act requires federal agencies with CMP authority to annually adjust each CMP to account for inflation in accordance with the guidance published by the Office of Management and Budget. The adjusted maximum penalties are effective immediately for violations occurring on or after November 2, 2015. The OCC adjustment does not affect the OCC’s discretion to assess a CMP lower than the maximum allowed. Further, with respect to community banks, the OCC retains discretion to impose inflation-adjusted maximum CMPs, as appropriate
On January 2, New York Governor Kathy Hochul unveiled her 2024 consumer protection agenda, which includes plans to regulate the “buy now, pay later” (BNPL) industry. Specifically, Governor Hochul plans to propose legislation to require BNPL providers to be licensed in the state and to authorize the New York State Department of Financial Services to propose and issue regulations for the industry. According to Governor Hochul, “New Yorkers are increasingly turning to [BNPL] loans as a low-cost alternative to traditional credit products to pay for everyday and big-ticket purchases. This legislation and regulations will establish strong industry protections around disclosure requirements, dispute resolution and credit reporting standards, late fee limits, consumer data privacy, and guidelines to curtail dark patterns and debt accumulation and overextension.”
On December 21, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Financial Crimes Enforcement Network (FinCen), the National Credit Union Administration, along with state bank and credit union regulators (collectively, the agencies) announced issuance of the final Access Rule regarding access by authorized recipients to beneficial ownership information (BOI) that will be reported to FinCen, pursuant to the Corporate Transparency Act (CTA). In their announcement, the agencies emphasized that the Access Rule does not create new regulatory requirements or supervisory expectations for banks and that banks’ responsibilities under the Customer Due Diligence (CDD) Rule and Bank Secrecy Act (BSA) remain unchanged. However, the agencies did note that if banks access and use BOI, they must comply with the requirements of the CTA and the Access Rule.