PPP Extended; CFPB Revokes Pandemic-Related Regulatory Relief

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REGULATORY DEVELOPMENTS

PPP EXTENDED TO MAY 31, 2021

On March 30, President Biden signed the PPP Extension Act of 2021, which extends the PPP for two months to May 31, 2021 and gives the SBA 30 additional days to process loan applications made by the new May 31 deadline.

CFPB REVOKES PANDEMIC-RELATED REGULATORY RELIEF

On March 31, the CFPB announced its rescission of seven policy statements issued between March 26, 2020 and June 3, 2020 by the Trump administration that offered regulatory flexibility to financial institutions in consumer financial markets, including mortgages, credit reporting, credit cards and prepaid cards, in response to the coronavirus pandemic. In part, these rescissions:

  • Leave intact the CFPB’s support for furnishers’ voluntary efforts to provide payment relief and to not cite in examinations or taking enforcement actions against those who furnish information to consumer reporting agencies that accurately reflect the payment relief measures they are employing;
  • Provide guidance as to how entities should now meet the specified information collections requirements relating to credit card and prepaid accounts;
  • Instruct all financial institutions required to file HMDA data quarterly to do so beginning with their 2021 first quarter data, due on or before May 31, 2021, for all covered loans and applications with a final action taken date between January 1 and March 31, 2021; and
  • Instruct land developers subject to ILSA and Regulation J to resume filing of annual reports of activity and financial statements as specified in Regulation J.

Notably, the rescission withdraws the CFPB as a signatory to the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (April 7, 2020) and the Interagency Statement on Appraisals and Evaluations for Real Estate Related Financial Transactions Affected by the Coronavirus (April 14, 2020) adopted by the four other federal banking regulators.

The CFPB characterized the rescissions as “focusing on COVID-19’s impact on individuals and families, prioritizing consumers over companies, and reaffirming its commitment to consumer protection.” In adopting the rescissions, the CFPB confirmed its intent to exercise the full scope of its supervisory and enforcement authority provided under the Dodd-Frank Act with respect to these regulatory adjustments.

CFPB RESCINDS BULLETIN 2018-01, DISCONTINUING SUPERVISORY RECOMMENDATIONS AND RECOMMITTING TO USE OF MRAS

On March 31, the CFPB rescinded Bulletin 2018-01: Changes to Types of Supervisory Communications issued during the Trump administration and replaced it with a revised bulletin (Bulletin 2021-01), which describes how CFPB examiners will articulate supervisory expectations going forward. These changes include discontinuing the CFPB’s use of Supervisory Recommendations, reaffirming its continued use of matters requiring attention (MRAs) and explaining the circumstances under which it will use MRAs.

ACTING CFPB DIRECTOR WARNS OF VIGOROUS REVIEW OF SMALL DOLLAR LENDING MARKET DESPITE REVOCATION OF PAYDAY LENDING RULE

After the CFPB filed a brief questioning a court’s jurisdiction to hear a case challenging the Trump administration’s partial revocation of the Payday Lending Rule, Acting CFPB Director Dave Uejio took to the CFPB’s blog to emphasize that the CFPB will continue to use its authority to address small dollar lending harms. In his blog post, Acting Director Uejio Director wrote, “The brief does not address the merits of the underlying rule, and the [CFPB’s] filing should not be regarded as an indication that the [CFPB] is satisfied with the status quo in this market. To the contrary, the [CFPB] believes that the harms identified by the 2017 rule still exist, and will use the authority provided by Congress to address these harms, including through vigorous market monitoring, supervision, enforcement, and, if appropriate, rulemaking.” Acting Director Uejio went on to write that “The [CFPB] continues to believe that ability to repay is an important underwriting standard. To the extent small dollar lenders’ business models continue to rely on consumers’ inability to repay, those practices cause harm that must be addressed by the CFPB.”

“The [CFPB] continues to believe that ability to repay is an important underwriting standard. To the extent small dollar lenders’ business models continue to rely on consumers’ inability to repay, those practices cause harm that must be addressed by the CFPB.”
Acting CFPB Director Dave Uejio

FED ADOPTS FINAL RULE ON USE OF SUPERVISORY GUIDANCE

On March 31, the Federal Reserve adopted a final rule outlining and confirming the use of supervisory guidance for regulated institutions. The final rule generally codifies a statement issued in September 2018 clarifying the differences between regulations and guidance and is substantially similar to the proposal issued last year. Unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance. Rather, guidance outlines expectations and priorities, or articulates views regarding appropriate practices for a specific subject. The rule will be effective 30 days after publication in the Federal Register and mirrors the rules issued by the CFPB, Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and Office of the Comptroller of the Currency (OCC).

FED TO LIFT TEMPORARY RESTRICTIONS ON DIVIDENDS AND REPURCHASES

On March 25, the Federal Reserve announced that the temporary and additional restrictions on dividends and share repurchases implemented by the Federal Reserve due to COVID-19 will end after June 30, 2021 for firms that remain above their minimum risk-based capital requirements in their annual stress tests this year, and such firms will instead be subject to the Federal Reserve’s normal stress capital buffer framework (SCB). Normally, the SCB, which is set by a firm’s individual stress test results, restricts a large bank’s capital distributions, such that a firm lacking sufficient capital to survive a severe recession becomes subject to automatic restrictions on such distributions. For firms on a two-year stress test cycle and not subject to testing this year, the Federal Reserve’s temporary and additional restrictions will end after June 30, 2021 and the June 2020 SCB requirements will instead apply. For firms falling below any of their minimum risk-based capital requirements in the stress test, the Federal Reserve’s temporary and additional restrictions will remain in place through September 30, 2021 and afterwards even stricter distribution limitations will be imposed if the firm remains below the minimum capital required by the stress testing at that time.

FED PUBLISHES FAQS INTERPRETING LONGSTANDING REGULATIONS

On March 31, the Federal Reserve published FAQs comprising legal interpretations related to a number of its longstanding regulations, including Regulations H, K, L, O, W and Y. The FAQs are intended to increase transparency and enhance accessibility to Federal Reserve and its staff’s legal interpretations.

AGENCIES SEEK VIEWS ON FINANCIAL INSTITUTIONS’ USE OF ARTIFICIAL INTELLIGENCE

The Federal Reserve, CFPB, FDIC, OCC and NCUA announced the request for information on the growing use of artificial intelligence (AI) by financial institutions. The agencies recognize that AI has the potential to improve efficiency, enhance performance and reduce costs for financial institutions, and want to understand financial institutions’ risk management practices related to the use of AI; barriers or challenges in developing, adopting, and managing AI; and benefits to financial institutions and their customers from the use of AI. The agencies also intend to use this opportunity to evaluate whether any clarification would be helpful for financial institutions’ use of AI in a safe and sound manner and in compliance with applicable laws and regulations, including but not limited to, the agencies’ safety and soundness regulations, the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and laws prohibiting unfair, deceptive, or abusive acts or practices. Comments are due within 60 days after the request for information is published in the Federal Register.

LITIGATION AND ENFORCEMENT

U.S. SUPREME COURT RULES AGAINST FORD IN PERSONAL JURISDICTION BATTLE

On March 25, the U.S. Supreme Court issued an important decision impacting personal jurisdiction yesterday in Ford Motor Co. v. Montana Eighth Judicial District Court et. al. and Ford Motor Co. v. Adam Bandemer, a pair of cases about whether due process requires a causal link between a defendant’s contacts with the forum state and a plaintiff’s claims. The Court ruled 8-0 against Ford, holding that the connection between the plaintiffs’ claims and Ford’s activities in the forum states was “close enough” to support specific jurisdiction. Read the client alert to learn more about the cases and the impact of the Court’s ruling.

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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