BPInsights: May 23, 2020

BPInsights: May 23, 2020

Top of the Agenda

Banks Receive ‘Go-Ahead’ to Meet Consumer Small-Dollar Lending Needs

The Consumer Financial Protection Bureau (CFPB) approved a No-Action Letter Template on May 22 submitted by the Bank Policy Institute that would establish the underlying criteria and operating guardrails for a bank to offer small-dollar loan products for amounts of up to $2,500 in the form of an installment loan or line of credit product. The No-Action Letter Template provides for a small-dollar loan product framework that allows banks that request a No-Action Letter the flexibility to design their own product, but also provide further information regarding the specific product they intend to offer. New products established under the No-Action Letter Template will feature safety guardrails designed to protect borrowers, such as providing for clear, simple and transparent terms and conditions, and providing parameters for repayment terms and underwriting requirements. Earlier this month, BPI released a research note that compared small-dollar lending products and proposed a design of a responsible small-dollar lending product that would provide temporary liquidity at relatively low cost, with transparent terms that are fully understood by the borrower.

Banks that wish to take advantage of the No-Action Letter Template are still required to request a No-Action Letter with the CFPB for any new small-dollar loan product but can base their application on this framework, which outlines the product’s structure, terms, conditions and disclosure requirements. The No-Action Letter Template will allow banks applying for a No-Action Letter to expedite the approval of their product, and also provides the benefit of regulatory clarity for both borrowers and lenders with respect to small-dollar credit products. The CFPB’s announcement follows a joint statement by the Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency establishing core lending principles for a responsible small-dollar loan product. Learn More >>

Stories Driving the Week

Powell and Mnuchin Testify Before Senate Banking Committee on COVID-19 Relief

Treasury Secretary Mnuchin and Fed Chair Powell appeared before the Senate Banking Committee on May 19 to field questions on the status of Treasury’s direct loan programs, the Fed’s emergency lending facilities, and the SBA’s Paycheck Protection Program (PPP). In his remarks, Powell predicted that the Fed would have the Main Street Lending Program (MSLP) and “all of the other facilities . . . stood up and ready to go by the end of this month.”

Secretary Mnuchin reported that he has “allocated about half” of the funds appropriated for use in connection with the Fed’s 13(3) facilities, and commented that Treasury has not yet allocated the remaining amount; however, Mnuchin emphasized that Treasury is “prepared to allocate the rest of that” once it has a “better idea as to which one of the facilities needs more capital” and considers “the potential for adding additional facilities.”

In addition to these efforts to increase capital availability, Powell concurred with a recent suggestion made by Vice Chair Quarles that Congress consider amending section 171 of the Dodd-Frank Act (the so-called “Collins Amendment”) to allow the banking agencies to provide temporary flexibility under tier 1 leverage requirements as banks experience “growth in their balance sheet[s]” due to an influx of “very low-risk assets.” Learn More >>

OCC Issues Final Community Reinvestment Act Rule

The OCC issued a final rule implementing changes to the Community Reinvestment Act’s (CRA) regulatory framework on May 20. The notice of proposed rulemaking was issued by both the FDIC and the OCC; however, the FDIC did not join the OCC in the release of the final rule, instead issuing a short statement indicating that the agency was not prepared to finalize the rule at this time. In addition to issuing a statement on the finalization of the CRA proposal, Comptroller Otting wrote an op-ed in the American Banker in defense of the final rule. Following the release of the rule, Otting announced his resignation and revealed that Chief Operating Officer Brian Brooks would assume the role of Acting Comptroller of the Currency on May 29.

Some notable changes and clarifications incorporated include:

  • The final rule streamlines the compliance period;
  • The final rule does not set thresholds and benchmarks for the level of performance necessary to achieve each rating category;
  • The final rule retains the definition of wholesale and limited purpose banks as the current regulations and will subject those banks to the same community development test to which they are currently subject;
  • A bank will receive credit for any activity that satisfies the qualifying activities criteria, regardless of whether it is on the list;
  • Under the final rule, banks may change their assessment area delineations once per year;
  • The final rule will increase both the loan size and revenue thresholds for small business and small farms to $1.6 million instead of the proposed $2 million;
  • Under the final rule, a bank will only be required to have at most two major retail lending product lines; and
  • The final rule modifies the criteria for when a bank may receive a presumptive “satisfactory” or “outstanding” rating.

The revised rule will go into effect on October 1, 2020 with banks — except small banks — expected to comply by January 1, 2023. Learn More >>


ECB Releases Consultation Guide Setting Expectations for How Banks Manage Climate-Related Risk

The European Central Bank (ECB) issued a consultation guide on May 20, setting expectations for how banks should manage climate-related and environmental risks when implementing business strategies, governance, risk management and public disclosures. The announcement is part of a series of action plans and implementation efforts to meet the European Green Deal’s objectives of making Europe the first climate-neutral continent by 2050. The guide is non-binding but is intended to serve as a basis for supervisory dialogue as the ECB moves toward incorporating climate-related risk within the current prudential regulatory framework. The deadline to submit public comments is September 25. Learn More >>

EPA Leads the Way with a Formal Rulemaking Around Supervisory Guidance; Banking Agencies Next?

The Environmental Protection Agency (EPA) released a proposed rule on May 19 that would substantially increase transparency related to supervisory guidance by subjecting “significant guidance” documents to a notice and comment period, creating a petition process to modify or withdraw issued guidance and requiring the approval of any guidance documents by a political appointee. The proposed rule defines “significant guidance” as any guidance that would have a $100 million or more effect on the economy.

In 2018, BPI formally requested that each banking agency similarly issue a formal rule on the use and enforceability of supervisory guidance. The agencies issued an Interagency Statement in September 2018 confirming that supervisory guidance does not have the force of law and cannot be used as a basis for enforcement action against a bank. And although the banking agencies have informally indicated that a formal rulemaking on supervisory guidance is in the works, nothing has been issued yet. Learn More >>



In Case You Missed It

New York Fed Releases Additional Information for Term Asset-Backed Securities Loan Facility

On Wednesday the Federal Reserve Bank of New York announced additional information on the Term Asset-Backed Securities Loan Facility (TALF), a program aimed at increasing credit availability to businesses and households by facilitating renewed issuance of asset-backed securities (ABS). Specifically, they announced that TALF’s first subscription date for loans backed by eligible asset-backed securities (ABS) will be June 17, 2020, and the first loan closing date will be June 25, 2020. They also published expanded Frequently Asked Questions (FAQs) as well as a Master Loan and Security Agreement (MSLA), which provides further details on the terms that will apply to TALF loans. Of note, they also provided a specific borrower due diligence policy for TALF agents, which sets forth different expectations than currently apply to banks and can be found here.


Plaid Launches ‘Plaid Exchange’ Seeking to Help Financial Institutions Manage System Integration

On May 19, fintech middleman Plaid announced the launch of the Plaid Exchange, an API interface designed to allow financial service companies to manage and integrate data sharing between disparate products and applications. The interface would allow a financial service provider to view integrations and usage of its API in a central dashboard, making it easier to keep track of usage and manage integrations.

Plaid is commonly used by consumer financial applications, including Venmo and Square, to obtain access to a user’s bank account information to power these services. The company has been criticized, however, for an unsafe practice known as screen scraping that requires the user to provide username and password information, which services like Plaid then store and repeatedly use to collect, save and share data from the consumer’s account. Plaid’s efforts to improve utilization of APIs as opposed to screen scraping is a positive development in terms of enhancing safety; however, the company has yet to publicly commit to completely ending the practice.


BankThink: An Insider Account of JPMorgan’s PPP Approach

On May 21, American Banker published a BankThink op-ed authored by Jennifer Roberts, CEO of Business Banking for JPMorgan Chase & Co, illustrating her bank’s experience implementing the PPP loan program to help provide relief to small businesses. Roberts lauded the success of the program, indicating that as of May 8, Chase had successfully funded more than $30 billion to roughly 250,000 small businesses, the average loan size was $122,000, and roughly half of all loans went to businesses with less than five employees. “The obstacles were daunting. There was limited time to deploy funds, teams were working almost entirely from home, the PPP rules were constantly evolving, while we were developing infrastructure to support a program of this scale,” described Roberts. “But small-business owners faced even more haunting obstacles, desperate to keep their businesses open, pay their employees and feed their families. For us, failing to deliver was simply not an option.” To read the article, please click here.


BPI-BITS Hires Brian Anderson as Senior Vice President, Regulatory Technology

On May 18, Brian Anderson joined BITS, the technology policy division of BPI, in the role of Senior Vice President, Regulatory Technology. He will oversee regulatory, advocacy and policy efforts on issues related to cybersecurity, critical infrastructure protection, cloud security and resilience, data security and privacy, financial technology, and developing technologies. Anderson most recently served as Senior Director, Financial Services at the U.S. India Strategic Partnership Forum.


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