REGULATORY DEVELOPMENTS

OCC TO RECONSIDER NEW CRA RULE AND SUSPEND CERTAIN COMPLIANCE OBLIGATIONS

On May 18, the OCC announced that it will reconsider its June 2020 final rule revising the agency’s CRA rules and that, while this reconsideration is ongoing, the OCC will not object to the suspension of compliance with certain provisions of the June 2020 final rule with a compliance date of January 1, 2023 or January 1, 2024. The OCC also announced that it 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. However, the OCC will continue to implement the provisions of the CRA Rule that had a compliance date of October 1, 2020. 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.

FDIC ISSUES REQUEST FOR INFORMATION ON DIGITAL ASSETS

On May 17, the FDIC issued a Request for Information (RFI) on digital assets, pursuant to which the FDIC requested information and solicited comments from interested parties about insured depository institutions’ current and potential digital asset activities. Notably, the RFI, which asks 17 specific questions across five subject headings, requests information from “all interested parties” regarding the digital activities of “all insured depository institutions,” not just nonmember banks supervised by the FDIC. The FDIC stated that it “recognizes that there are novel and unique considerations related to digital assets. Given that banks are increasingly exploring the emerging digital asset ecosystem, the FDIC is issuing this request for information to help inform its understanding of the industry’s and consumers’ interests in this area.” The FDIC encouraged all interested parties to submit comments by July 16, 2021.

“At the FDIC, we are laying the foundation for the next chapter of banking by ensuring we have a regulatory framework that allows responsible innovation to flourish. Digital assets is one area in which we have seen rapid expansion and innovation in recent years. This RFI gives us an opportunity to gain additional insight into the market, and what role banks might play in the future.”
- FDIC Chairman Jelena McWilliams

CFPB ISSUES UPDATED TRID FAQS

On May 14, the CFPB updated its TRID FAQ to clarify its guidance on housing assistance loans. Specifically, the CFPB confirmed that housing assistance loans are covered by the TRID Rule if they are non-exempt, non-reverse mortgage, closed-end consumer credit transactions made by a creditor, and secured by real property or a cooperative unit. The FAQ also provides:

• criteria for a housing assistance loan to qualify for a Regulation Z Partial Exemption under 12 CFR 1026.3(h);
• criteria for the Building Up Independent Lives and Dreams Act (BUILD Act) Partial Exemption from TRID’s loan estimate and closing disclosure requirements;
• disclosure requirements from which a transaction is exempt if a creditor opts for a partial exemption; and
• permission for a creditor to provide a loan estimate and closing disclosure for a loan that qualifies for the BUILD Act Partial Exemption, as long as the creditor complies with all applicable disclosure requirements pertaining to those disclosures.

AGENCIES EXTEND COMMENT PERIOD ON REQUEST FOR INFORMATION ON ARTIFICIAL INTELLIGENCE

On May 17, the Board of Governors of the Federal Reserve System, the CFPB, the FDIC, the National Credit Union Administration, and the OCC (Agencies) issued a joint press release notifying the public that the comment period on the request for information on financial institutions’ use of artificial intelligence (AI) would be extended until July 1, 2021. In their initial request for comments on March 31, 2021, the Agencies acknowledged that financial institutions are increasing their use of AI-based applications and machine learning to, among other things, (a) flag unusual transactions, (b) personalize customer service and (c) enhance credit monitoring, payment collections and loan restructuring. The request for comment seeks information regarding financial institutions’ risk management practices related to AI, benefits of AI to financial institutions and their customers as well as the barriers such financial institutions are facing when developing and using AI. Additionally, the Agencies posed a number of specific questions within certain highlighted categories seeking information for a better understanding of how AI and machine learning is being applied in all areas for these financial institutions. Comments and information may be submitted to any one of the Agencies, in accordance with details provided in the initial request for comment.

OCC PUBLISHES SEMIANNUAL RISK PERSPECTIVE

On May 18, the OCC published its Semiannual Risk Perspective for Spring 2021, a report covering risks facing national banks and federal savings associations based on data as of December 31, 2020. Highlights from the report are listed below.

• 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.