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OCC report on key risks for banking system

An OCC press release has reported the agency's publication of its Semiannual Risk Perspective for Spring 2020, listing the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry.

Banks entered the national health emergency related to COVID-19 in sound condition but face weak economic conditions resulting from the economic shutdown in response to the pandemic that will stress financial performance in 2020. The OCC reported weak financial performance, and increasing credit, operational, and compliance risks, among the key risk themes in the report.

Highlights from the report include:

  • Financial performance will be affected by higher credit losses, overhead expenses, and lower net interest income.
  • The onset of the national health emergency created an uncertain credit environment that will test the resiliency of commercial and retail loan portfolios. Credit risk management practices will need to be flexible and proactive to meet the challenges of the current environment.
  • Operational risk is heightened as banks amended business processes and engaged third parties to support widespread remote work capabilities, increased technological capacity, and solutions to maintain operations under elevated operational volumes.
  • Compliance risk is elevated because of a combination of altered operations, employees working remotely, and several new federal and state programs designed to support consumers such as the CARES Act, Paycheck Protection Program, and a variety of forbearance and deferred payment programs. Among other challenges, these conditions complicate the compliance responsibilities associated with managing high volumes and various programs of consumer and business lending in a weakened economy.


FinCEN guidance on due diligence for hemp-related customers

FinCEN has issued Guidance FIN-2020-G001 to address questions related to Bank Secrecy Act/Anti-Money Laundering (BSA/AML) regulatory requirements for hemp-related business customers. The guidance:

  • Explains how financial institutions can conduct due diligence for hemp-related businesses
  • Identifies the type of information and documentation financial institutions can collect from hemp-related businesses to comply with BSA regulatory requirements
  • Is intended to enhance the availability of financial services for, and the financial transparency of, hemp-related businesses in compliance with federal law
  • Supplements the December 3, 2019, interagency statement on providing financial services to customers engaged in hemp-related businesses
  • Does not replace or supersede FinCEN’s previous guidance on the BSA expectations regarding marijuana-related businesses

Join Deborah Crawford on July 20, 2020, for a special one-hour update on FinCEN's new guidance to address questions related to Bank Secrecy Act/Anti-Money Laundering (BSA/AML) regulatory requirements for hemp-related business customers.


Fed releases new terms sheet and FAQ for PMCCF

The Federal Reserve Board has released a new term sheet and FAQ for the Primary Market Corporate Credit Facility, adding pricing and other information. As detailed in the FAQ, pricing will be issuer-specific and informed by market conditions. Prices will also be subject to minimum and maximum spreads over comparable maturity Treasury securities.


SCOTUS rules on CFPB constitutionality

The Supreme Court, in a 5-4 decision delivered by Chief Justice John G. Roberts, Jr., has ruled that the CFPB's leadership by a sole director removable only for cause violates the separation of powers rule under the U.S. Constitution.

The Court ruled that the Bureau can continue operating, because the provision of the law providing for removal only for cause is severable, but the director must be removable by the president "at will." The earlier judgment of the Ninth Circuit Court of Appeals (in Seila Law LLC v. Consumer Financial Protection Bureau) that the CFPB's structure did not violate the separation of powers was vacated and remanded. The Ninth Circuit must now revisit the case but analyze it in light of the Supreme Court's decision.

Justice Kagan filed an opinion concurring in the judgment with respect to severability and dissenting in part, in which Justices Ginsburg, Breyer and Sotomayor joined.


Enterprises allow forbearance extensions for multifamily loans

The Federal Housing Finance Agency has announced that Fannie Mae and Freddie Mac are allowing servicers to extend forbearance agreements for multifamily property owners with existing forbearance agreements for up to three months, for a total forbearance of up to six months. While the properties are in forbearance, the landlord must suspend all evictions for renters unable to pay rent. The forbearance extension is available for qualified properties with an Enterprise-backed multifamily mortgage experiencing a financial hardship due to the coronavirus national emergency.

According to the FHFA, If a forbearance is extended, once the forbearance period concludes the borrower may qualify for up to 24 months to repay the missed payments. Additionally, if the forbearance is extended, the repayment schedule is modified, or a new forbearance agreement is executed, the borrower is required to provide the following tenant protections during the repayment period:

  • Give the tenant at least a 30-day notice to vacate;
  • Not charge the tenant late fees or penalties for nonpayment of rent; and
  • Allow the tenant flexibility to repay back rent over time and not in a lump sum.


Proposed updates to flood insurance Q&As

The federal regulators on Friday requested public comment on new and revised Interagency Questions and Answers Regarding Flood Insurance. The Q&As, which provide information addressing technical flood insurance-related compliance issues, were last updated in 2011. The proposed revision of the Q&As incorporates new questions and answers in several areas, including:

  • The escrow of flood insurance premiums;
  • The detached structure exemption to the mandatory purchase of flood insurance requirement; and
  • Force-placement procedures.

The proposal also revises existing questions and answers to improve clarity and reorganizes questions and answers by topic to make it easier for users to find and review information related to technical flood insurance topics. The proposal is intended to help reduce the compliance burden for lenders related to the federal flood insurance laws. Comments will be accepted for 60 days after publication in the Federal Register.

PUBLICATION UPDATE: Published at 85 FR 40442 on July 6, 2020, with a comment period ending September 4, 2020.


FDIC approves 'valid when made' interest rate rule

The FDIC Board of Directors has approved a final rule to clarify the law governing the interest rates that state-chartered banks and insured branches of foreign banks may charge.

  • The final rule codifies certain guidance contained in FDIC General Counsel"s Opinion No. 11, which was adopted by the FDIC"s Board of Directors in 1998, and addresses legal uncertainty that followed the decision of the U.S. Court of Appeals for the Second Circuit in Madden v. Midland Funding, LLC.
  • Consistent with section 27 of the Federal Deposit Insurance Act, the final rule allows a state-chartered bank or insured branch of a foreign bank to charge interest of up to the greater of 1 percent more than the rate on 90-day commercial paper rate or the rate allowed by the law of the State where the bank is located.
  • Under the final rule, whether interest on a loan is permissible under section 27 will be determined as of the date the loan was made.
  • Interest on a loan permissible under section 27 would not be affected by changes in state law, changes in the commercial paper rate after the loan was made, or the sale, assignment, or other transfer of the loan, in whole or in part.

The final rule will take effect 30 days after publication in the Federal Register.

PUBLICATION UPDATE: Published 7/22/2020 at 85 FR 44146, with effective date of 8/21/2020.


Warning for misleading marketing of coronavirus relief loans

The FTC and the SBA have sent warning letters to six companies that may be misleading small businesses seeking SBA loans as a result of the coronavirus 2019 pandemic. The letters warn the recipients to take immediate action to ensure all deceptive claims are removed and to remediate any harm to small business consumers as a result of the claims. The letters also instruct the recipients to notify the FTC within 48 hours about the specific actions they have taken to address the agency’s concerns.


2019 mortgage lending data

The Federal Financial Institutions Examination Council (FFIEC) announced yesterday the availability of data on 2019 mortgage lending transactions at 5,508 U.S. financial institutions covered by the Home Mortgage Disclosure Act (HMDA). Covered institutions include banks, savings associations, credit unions, and mortgage companies.


Distressed or underserved nonmetro mid-income geographies

The federal financial institution regulators announced yesterday the availability of the 2020 list of distressed or underserved nonmetropolitan middle-income geographies, which are geographic areas where revitalization or stabilization activities are eligible to receive Community Reinvestment Act consideration under the community development definition.


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