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Fed interest rate meeting minutes

The minutes of the Federal Reserve Board's interest rate meetings from April 5 – April 28, 2021. have been released.


OCC CRA evals scheduled for July-December

The Office of the Comptroller of the Currency has posted a list -- in alphabetic order by city within state -- of national banks and federal savings associations scheduled to be evaluated for compliance with the Community Reinvestment Act during the third and fourth quarters of 2021.


SBA veterans committees to hold public meetings

The Small Business Administration has announced its Interagency Task Force on Veterans Small Business Development (IATF) and Advisory Committee on Veterans Business Affairs (ACVBA) will hold virtual public meetings on June 2 and 3, respectively, via Microsoft Teams. Meeting access information and other details are included in the SBA's press release.


CFPB acts against auto lender for unfair practices

The CFPB issued a press release on Friday reporting it had issued a consent order against 3rd Generation, Inc., DBA California Auto Finance for illegally charging interest on late payments on its Loss Damage Waiver (LDW) product without its customers’ knowledge. The CFPB’s order requires California Auto to refund or credit customers harmed by the conduct, furnish corrected information to credit reporting agencies, and pay a civil penalty and also prohibits the company from charging interest on late payments without disclosing costs.

California Auto is an auto-loan finance company serving consumers in California. California Auto services subprime auto loans that were originated by car dealers and later assigned to California Auto. California Auto required its customers to agree that if they had insufficient insurance coverage for their automobiles, they would add “loss-damage-waiver” coverage to their accounts. LDW is a product that, for a monthly fee, covers cancellation of the customer’s debt in the event of a total vehicle loss or the cost of a repair if the vehicle was not a total loss.

The Bureau found that, when a customer’s LDW payment was late, California Auto would charge interest on the late payment, but it did not disclose this interest to the customer. Between 2016 and 2021, California Auto charged about 5,800 customer accounts a total of $565,813 in interest on late payments of loss-damage-waiver fees without disclosing the charges, a practice that the Bureau found to be unfair and a violation of the Consumer Financial Protection Act.

The Bureau's consent order requires California Auto to:

  • Provide a total of $565,813 of consumer relief to 5,782 customers, including refunds and account credits. California Auto is also correcting certain consumers’ credit records.
  • Pay a $50,000 penalty to be deposited in the CFPB’s Civil Penalty Fund
  • Stop its illegal practice of charging interest on late payments of LDW without disclosing to customers that interest and how it accrues
  • 05/24/2021

    Host state loan-to-deposit ratios issued

    On Friday, the Fed, FDIC, and OCC issued the host state loan-to-deposit ratios that are used to evaluate compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. These ratios replace the prior year's ratios from June 2020.

    By law, a bank is generally prohibited from establishing or acquiring branches outside of its home state primarily for the purpose of deposit production. Congress enacted section 109 to ensure that interstate branches would not take deposits from a community without the banks reasonably helping to meet the credit needs of that community. Additionally, branches of banks controlled by out-of-state bank holding companies are prohibited from operating primarily for the purpose of deposit production.

    The limits do not apply to wholesale or limited purpose CRA-designated banks, credit card banks, and special purpose banks.


    FHFA paper on mortgage risk from 1990-2019

    The Federal Housing Finance Agency has released a revised staff working paper, “A Quarter Century of Mortgage Risk," to improve policymakers' understanding of how mortgage risk has evolved over time and the role it played in the 2008 recession. Using a comprehensive dataset that contains aggregated results using more than 200 million purchase-money and refinance mortgages from 1990 to 2019, the paper provides a summary measure of mortgage risk by estimating a “stressed default rate." The stressed default rate takes a loan made at any time from 1990-2019 and measures that loan's risk as though it originated at the dawn of the 2008 financial crisis. The paper identifies three key findings related to the Great Recession:

    • Earlier mortgage risk accumulation: Mortgage risk started accumulating in the mid-1990s, sooner than previously thought. The new data shows that the buildup of mortgage risk in the nineties was a precursor to the market failing in 2008; previous research could not identify the fact that a refinance boom from 2000-2003 masked the mortgage risk accumulation.
    • Risk accumulated with borrowers across all credit scores: Leading up to the 2008 financial crisis, mortgage risk accumulated across the full spectrum of borrowers, not just those with low credit scores as some have previously asserted.
    • Relaxed lending standards: Mortgage rate spreads between not risky loans and very risky loans tightened for portfolio and private label securities mortgages in the mid-2000s indicating an expansion of credit supply right before the Great Recession.


    HUBZone program expansion

    The SBA has announced the expansion of HUBZone, a program that provides small businesses in low-income communities that hire low-income residents opportunities to compete in the federal marketplace.

    The announcement makes Illinois the first state to have the newly created Governor-Designated Covered HUBZones. Under the new HUBZone rule, a governor may submit one petition per year requesting that SBA designate certain qualifying areas, including Opportunity Zones as Governor-Designated Covered Areas. In reviewing a request for designation included in the petition, the Administrator may consider how the selections meet the objectives of the state’s economic development strategies. The newly designated areas will be added to the HUBZone map as “Governor-Designated Covered Areas.”

    To be eligible for this program, communities must have a population of 50,000 or fewer, an average unemployment rate at least 120 percent of the average unemployment rate for the U.S. or state (whichever is lower), and be located outside of an urbanized area.


    OCC to reconsider June 2020 CRA rule

    The OCC has announced it has determined that it will reconsider the final Community Reinvestment Act rule published on June 5, 2020. While this reconsideration is ongoing, the OCC will not object to the suspension of the development of systems for, or other implementation of, provisions with a compliance date of January 1, 2023, or January 1, 2024, under the 2020 rule.

    At this time, the OCC also does not plan to finalize the December 4, 2020, proposed rule that requested comment on an approach to determine the CRA evaluation measure benchmarks, retail lending distribution test thresholds, and community development minimums under the June 2020 rule. In addition, the OCC is discontinuing the CRA information collection pursuant to the Paperwork Reduction Act (PRA) notice published in the Federal Register in December 2020.

    While this reconsideration is ongoing, the OCC will not implement or rely on the evaluation criteria in the June 2020 rule pertaining to:

    • quantification of qualifying activities (12 CFR 25.07 and 25.08);
    • assessment areas (12 CFR 25.09);
    • general performance standards (12 CFR 25.10 through 25.13);
    • data collection (12 CFR 25.21);
    • recordkeeping (12 CFR 25.25); and
    • reporting (12 CFR 25.26).

    The OCC will continue to implement the provisions of the June 2020 CRA rule that had a compliance date of October 1, 2020. The OCC interpreted and explained these provisions in OCC Bulletin 2020-99. These implementation efforts include:

    • issuance of OCC Bulletin 2021-5 providing bank type determinations, lists of distressed and underserved areas, and the median hourly compensation value for community development service activities;
    • deployment of the CRA Qualifying Activities Confirmation Request process for banks and other stakeholders to request confirmation whether an activity meets the qualifying criteria under the June 2020 CRA rule; and
    • provision of training on provisions of the June 2020 rule with the October 1, 2020, compliance date in a series of webinars for examiners and bankers.


    OCC report on key risks and effect of pandemic

    The OCC has released a report on the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry in its Semiannual Risk Perspective for Spring 2021. Highlights from the report include:

    • Credit risk is elevated and transitioning as the economic downturn continues to affect some borrowers’ ability to service debts. Assistance programs and federal, state, and local stimulus programs have suppressed past-due levels.
    • Strategic risks associated with banks’ management of Net Interest Margin compression and efforts to improve earnings is elevated. Banks attempting to improve earnings may implement measures including cost cutting, increasing credit risk (both credit and investments) or extending duration.
    • Operational risk is elevated due to a complex operating environment and increasing cybersecurity threats.
    • Compliance risk is elevated as banks’ expedited efforts to implement assistance programs continue to challenge established change management, product, and service risk management practices.

    The report also highlights the low interest rate environment as a special topic in emerging risks.


    Enterprises' duty to serve underserved markets

    The FHFA yesterday published a request for input on the proposed 2022-2024 Underserved Markets Plans submitted by Fannie Mae and Freddie Mac (the Enterprises) under the Duty to Serve program. The FHFA will accept public input on the proposed plans during a 60-day public input period beginning on May 18 [ending on July 17, 2021].


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