Regulatory Developments

Federal Banking Agencies Finalize CECL Policy Statement

On March 2, the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and National Credit Union Administration (collectively, the Agencies) finalized an Interagency Policy Statement on Allowances for Credit Losses (Policy Statement), which is intended to promote consistency in the interpretation and application of CECL methodology. The final Policy Statement does not prescribe requirements for estimating expected credit losses but rather describes the measurement of expected credit losses in accordance with FASB ASC Topic 326; the design, documentation, and validation of expected credit loss estimation processes, including the internal controls over these processes; the maintenance of appropriate accounting for credit losses; the responsibilities of boards of directors and management; and examiner reviews of accounting for credit losses.

As previously covered in the October 23 edition of the Roundup, the Agencies previously had sought comment on the proposed Policy Statement. In response to public comments on the October proposal, the Agencies revised the Final Policy Statement to:

• indicate that the list of qualitative factor adjustments that maybe considered for debt securities are specific to held-to-maturity debt securities;
• align the terminology of the Policy Statement with FASB ASC Topic 326 to clarify that accounting policy elections related to accrued interest receivable may be made by class of financing receivable or major security-type; and
• clarify that external auditor independence may be impaired if the external auditor performs validation activities for management when the external auditor also conducts the institution's independent financial statement audit.

The Agencies also noted that the Federal Financial Institutions Examination Council will reconsider whether to modify the instructions for the Consolidated Reports of Condition and Income (Call Report) regarding the reporting of expected credit losses on off-balance sheet exposures to ensure consistency with U.S. Generally Accepted Accounting Principles (GAAP). The Policy Statement will become effective upon publication in the Federal Register.

SEC Amends Rules to Improve Disclosure and Encourage Issuers to Conduct Debt Offerings on a Registered Basis

On March 2, the SEC adopted final rules amending the financial disclosure requirements for registered debt offerings that include subsidiary guarantees, collateralization and other credit enhancements. The amendments, which affect Rule 3-10 and Rule 3-16 of Regulation S-X, are intended to reduce current disclosure burdens that apply to subsidiary guarantees, pledges of affiliate securities as collateral, and other credit enhancements in registered debt offerings, thereby making registered debt offerings more attractive to issuers. The amendments will be effective on January 4, 2021, but the SEC will accept voluntary compliance with the amendments in advance of the effective date. In its announcement of the final rules, the SEC included a fact sheet summarizing the final rules.

CFPB Updates TRID FAQs on Lender Credits

On February 26, the CFPB released an update to its TILA-RESPA Integrated Disclosure Rule FAQs. The updates relate to lender credits, which the FAQs define as (1) payments, such as credits, rebates, and reimbursements, that a creditor provides to a consumer to offset closing costs the consumer will pay as part of the mortgage loan transaction and (2) premiums in the form of cash that a creditor provides to a consumer in exchange for specific acts, such as for accepting a specific interest rate, or as an incentive, such as to attract consumers away from competing creditors.

Goodwin Alert: Practical Considerations When Contemplating the Community Bank Leverage Ratio Framework

The community bank leverage ratio framework (CBLR Framework) is available for use beginning with the March 31, 2020 Call Report and Form FR Y-9C (consolidated financial statements for holding companies). A qualifying community banking organization may elect to opt in or out of the CBLR Framework at any time and for any reason through the organization’s Call Report or Form FR Y-9C. Opting into the CBLR Framework alleviates the burdens of periodically calculating and reporting risk-weighted measures of capital. On the other hand, the CBLR Framework could require more capital, given that the minimum required capital under the CBLR Framework will often be greater than the minimum that would be required to satisfy the generally applicable risk-based and leverage capital requirements. For more information, read the client alert issued by Goodwin’s Banking practice.

Enforcement & Litigation

On February 20, the CFPB, South Carolina Department of Consumer Affairs, and Arkansas Attorney General’s Office announced that they had filed a lawsuit in the U.S. District Court for the District of South Carolina against a group of defendants who brokered contracts offering high-interest credit to consumers, primarily disabled veterans. The agencies allege that these credit offers violate the Consumer Financial Protection Act (CFPA) and South Carolina state law. Read the Enforcement Watch blog post.