Financial Services Weekly News - August 2016

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Regulatory Developments

FDIC Seeks Comments on Third-Party Lending Guidance

On July 29, the FDIC announced that it is seeking comments on proposed Guidance for Third-Party Lending addressing steps FDIC-supervised institutions should take when lending through a business relationship with a third party that performs a significant aspect of the lending process, such as originating loans for third parties, through third parties, jointly with third parties, or by using platforms developed by third parties. Given the applicability of the existing Guidance for Managing Third-Party Risk to an institution’s third-party relationships, the proposed guidance suggests a fresh regulatory focus on the special risks of relationships like those arising in the context of online or marketplace lending. The proposed guidance recommends a risk management program based upon a multi-factor, risk-based framework, and ultimately places management responsibility upon an institution’s board of directors. Of particular note, the proposed guidance suggests that institutions should establish limits as a percentage of total capital for each third-party arrangement and for its program overall, relative to origination volumes, credit exposures (including pipeline risk), growth, loan types, and levels of credit quality. Comments are due by September 12, 2016.

CFPB Considering Debt Collection Reform Proposals

On July 28, the Consumer Financial Protection Bureau (the CFPB) released a summary of proposals it is considering to reform debt collection practices. At the same time, it released a Study of Third Party Debt Collection Operations that the CFPB undertook to better understand how debt collection firms operate. The debt collection reforms under consideration would apply only to debt collectors that are subject to the Fair Debt Collection Practices Act (the FDCPA); however, if adopted, it is likely that these proposals would have significant implications not only for buyers of distressed debt and debt collectors but also potentially for first party creditors and loan servicers who are not debt collectors under the FDCPA. Further, the CFPB has stated that it intends to address consumer protection issues involving first party debt collectors and creditors in the near future, and the proposals outlined by the CFPB may offer some insight into reforms that the agency may propose with respect to creditors and others engaged in debt collection who are not “debt collectors” under the FDCPA as well as insight into practices that that CFPB may regard as constituting unfair, deceptive or abusive acts or practices under the Dodd-Frank Act.

CFPB Proposes Updates to the Know Before You Owe Rule

On July 29, the Consumer Financial Protection Bureau (CFPB) issued proposed updates to the Know Before You Owe mortgage disclosure rule. The proposed amendments to the rule, which originally took effect on October 3, 2015, are intended to formalize prior guidance and provide additional clarity and certainty to the industry and other stakeholders. The proposed changes include: extending the rule’s coverage to all cooperative units, whether or not cooperatives are classified under state law as real property; creating express tolerances for the total of payments that would parallel existing provisions regarding finance charges; providing additional guidance on permissible sharing of disclosures with sellers, real estate agencies, and other third parties; expanding the reach of a partial exemption mainly affecting housing finance agencies and nonprofits; and other changes. Notably, the proposal did not include the industry’s request for additional amendments that would allow lenders to correct errors after a loan had closed. Comments to the proposed rule must be received by October 18, 2016.

FinCEN Expands GTOs Requiring Disclosure of Beneficial Owners in Certain Real Estate Sales

On July 27, FinCEN announced Geographic Targeting Orders (GTOs) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies purchasing high-end residential real estate in six major metropolitan areas. The geographic areas and monetary thresholds for each area are in this table. Under specific circumstances, the GTOs will require title insurance companies subject to an order to record and report to FinCEN the beneficial ownership information of legal entities purchasing residential real estate without external financing when the purchase price is funded in whole or in part by currency, cashier’s check, certified check, traveler’s check, personal check, business check or money order in any form. The information gathered from the GTOs will advance law enforcement’s ability to identify the natural persons involved in transactions vulnerable to abuse for money laundering. The GTOs will be in effect for 180 days beginning on August 28, 2016, and expand upon GTOs that have been effective since March 1, as covered in the January 20 edition of the Roundup.

Federal Reserve Extends Comment Period for Proposed Insurance Company Capital Rules

In June, the Roundup reported that the Board of Governors of the Federal Reserve System (FRB) was seeking comments on proposed capital standards for systemically important and FRB-supervised insurance companies, including the consolidated and the building block approaches to capital. On August 1, the FRB extended the comment period by an additional month. Comments are now due by September 16, 2016.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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