Posts

June 1, 2021–May 31, 2022

This year, attorneys Heather MacKinnon, Scott Birrenkott, and President/CEO Rose Oswald Poels submitted 16 comment letters in response to requests for comment on rulemaking affecting the banking industry.

Through this process, the WBA Legal Team was able to advocate on behalf of all WBA members for the betterment of the banking industry. From digital assets to examinations and fees, comment letters are a great opportunity for members of the banking industry to inform agencies about the impact of rulemaking and provide examples.

As part of the rulemaking process within the Administrative Procedure Act (APA), all agencies are required to allow the public an opportunity to comment on proposed rules for a prescribed period (minimally 30 days). All WBA members are encouraged to share their comments with federal and state agencies as requested. Information regarding comment letters, or WBA-created letter templates — when available — are typically shared with the membership in the Wisconsin Banker Daily. Additional rulemaking developments at the federal level are compiled in the monthly WBA Compliance Journal.

Once the public has commented, each agency must determine how to proceed given the feedback received. This year, the WBA Legal Team addressed five federal agencies and further helped inform said agencies on the impact of their proposed rulemaking.

Six Comment Letters Filed with the FDIC

Over the past year, WBA filed six comment letters with Federal Deposit Insurance Corporation (FDIC). Two of WBA’s letters commented on FDIC’s actions regarding examinations. In the first, WBA commented on the FDIC’s proposed hybrid approach to bank examinations and in the second, WBA commented on the post-examination surveys related to FDIC Safety and Soundness and Consumer Compliance examinations. In each letter, WBA emphasized the importance of the FDIC establishing consistent coordination and communication with banks.

Three Comment Letters Filed with the CFPB

WBA wrote three letters this year to the Consumer Financial Protection Bureau (CFPB). Most recently, WBA responded to CFPB’s concerns regarding products which feature “junk fees,” assuring CFPB that the Wisconsin financial services marketplace is competitive, featuring a diverse range of high-quality, convenient, innovative, and competitively priced products and services. Additionally, WBA highlighted that, despite CFPB’s concerns, the market is highly regulated, and that further rulemaking is unnecessary as fees are already subject to disclosure requirements.

Four Comment Letters Filed with the FRB

This year, WBA also filed four comment letters with Board of Governors of the Federal Reserve System (FRB). In one of the letters, WBA addressed FRB’s request for comment regarding the evaluation of account and services requests. WBA acknowledged FRB’s attempt to create consistency, but ultimately expressed concern with allowing access to the payment system by entities with little or no regulatory oversight, lack of protection, and minimal capital and liquidity requirements, among others. WBA proposed that FRB establish standards or requirements for users, maintain ongoing review of those involved, as well as coordinate an FRB-led evaluation committee.

One Comment Letter Filed with the HUD

In late May, WBA expressed support of the Department of Housing and Urban Development’s (HUD) proposal to extend a term for loan modifications. The modification would allow mortgagees to modify Federal Housing Administration (FHA) insured mortgage loans by recasting the total unpaid amount due for a new term limit of 480 months — an increase from a term limit of 360 months; allow FHA-loan borrowers similar flexibility and benefits as is available for Fannie-/Freddie-loan borrowers; and  creates yet another tool for Wisconsin’s financial institutions to use in their continued work to help find solutions for struggling borrowers to retain their homes.

One Comment Letter Filed with the OCC

In a letter filed with the Office of the Comptroller of the Currency (OCC), WBA was able to comment on a final rule to adopt a new Community Reinvestment Act (CRA) framework. This regulation facilitated the issuance of joint CRA to an interagency basis which would allow for greater coordination on all CRA ruling between the OCC, FRB, and FDIC for the benefit of banks serving low- and moderate-income communities.

One Interagency Comment Letter Filed

Some rulemakings are issued on an interagency basis. This year, WBA commented on the FRB, FDIC, and OCC’s proposed interagency guidance on third-party relationships related to risk management. In the letter, WBA commented that this effort would promote consistency in their guidance as well as clearly articulate risk-based principles. In addition, WBA identified several ways Wisconsin banks will be impacted by the new guidance during final implementation.

Conclusion

Industry comment is a critical aspect to the rulemaking process. It is an opportunity for the industry’s voice to be heard, and it is important that the agencies hear from banks about how rulemaking affects you. WBA welcomes feedback on comment letters because it is key that we, and the agencies, hear directly from members.

For more information on the rulemaking process, comments, and upcoming rules, contact the WBA Legal Department at wbalegal@wisbank.com. For a full list of the comment letters filed during the 2021–22 fiscal year, visit www.wisbank.com/advocacy/comment-letter-library.

*This article has been updated from previous published editions

Earlier this year the CFPB issued its long-awaited proposal for implementing Section 1071 of the Dodd-Frank Act, which requires collection of credit application data for small businesses, including women-owned and minority-owned small businesses. Comments on the proposal are due January 6, 2022. WBA will be creating a draft comment letter for use by members to reply to CFPB regarding concerns and impact of the proposal on banks. WBA encourages each bank to consider submitting its own letter reflecting bank-specific information. In preparation for these comments, WBA has prepared the following considerations regarding the rule.

What specific burdens will your institution face as a result the proposal? Some examples might include:

  • Costs, technology, training, staffing, customer-facing educational information needs.
  • Review of application process (based upon the rule’s definition of application).
  • Is the proposed “firewall” process workable for the bank?
  • What sort of implementation period will be necessary?

More specifically you might consider:

  • Will bank need to hire new staff (compliance, processor, etc.)?
  • Technology costs, such as a new platform, or 1071 data software.
  • Costs associated with updating existing systems, testing, applications, training, development of new policies and procedures, legal consultation, review of implementation, etc.
  • New annual costs related to collection such as customer service, data management, resolution of errors, exam prep, etc.

In preparation for filing comments, banks should plan to provide specific estimates where possible. For example, if bank predicts new software will be necessary to capture the data, be prepared to provide CFPB with a specific cost if possible.

As mentioned above, WBA will be creating a draft comment letter for use by members to reply to CFPB. The letter will be released shortly to allow banks time to personalize their letter with bank-specific information. For more information about CFPB’s Section 1071 proposal, please see the WBA Toolkit and PowerPoint materials.

By Scott Birrenkott

WBA filed comments this week with FRB, FDIC, and OCC (agencies) on their proposed guidance on managing risks associated with third-party relationships (proposal).

Over the years, the agencies have issued guidance on third-party management for their respective supervised institutions. The agencies have issued the proposal in an effort to promote consistency in their third-party risk management guidance and to clearly articulate risk-based principles on third-party risk management. The proposal is based on the OCC’s existing third-party risk management guidance from 2013.

WBA commented that the proposal presents a welcome opportunity to consolidate and update each agency’s individual existing guidance, and generally supported the effort. In addition to general comments reflecting member experiences in third-party management, WBA did recommend that the agencies consider specific examination procedures in accordance with the guidance, and provide banks with sufficient time to adapt to any final guidance.

Click here to view the letter.

WBA filed comments yesterday with FDIC regarding proposed amendments to its regulation governing deposit insurance coverage, Part 330. WBA offered general support to FDIC to provide depositors and bankers with a rule for trust account coverage that is easy to understand and to facilitate the prompt payment of deposit insurance in accordance with the Federal Deposit Insurance Act.

FDIC has proposed to change rules for informal revocable trusts (a/k/a payable on death, POD), formal revocable trust, and irrevocable trusts. In particular, FDIC has proposed to combine these two sections of regulation, Part 330.10 and 330.13, to create a new “trust account” category. The proposal also provides uniform insurance calculation rules across the two categories for trusts. The number of “eligible beneficiaries” for purposes of calculating deposit insurance for such trusts would be limited to no more than five natural persons, charitable organizations, or other non-profit entities recognized under the Internal Revenue Code. If a trust were to have more than five beneficiaries, the deposit insurance available for such trust would be computed on the basis of a maximum of five without regard to the actual number of beneficiaries.

WBA recommended a substantial implementation period for banks to incorporate changes to operating and infrastructure systems, train staff, and update policies and procedures —recommending no less than two years before mandatory compliance with new Part 330 rules and no Part 370 examinations until at least three years after initial certification.

Read comment letter here.

The WBA Legal Team was particularly busy this fiscal year. Attorneys Heather MacKinnon, Scott Birrenkott, and President/CEO Rose Oswald Poels wrote 27 comment letters in response to federal agencies’ requests for comment on rulemaking affecting the banking industry, significantly more than last year’s 16 letters. 

The Process

Congress delegates authority to federal agencies to develop regulations (or rules). Part of the rulemaking process within the Administrative Procedure Act requires that the public receive opportunity to comment on proposed rules for a prescribed period (minimally 30 days). Agencies then use those comments to determine how, or whether, to proceed.

WBA monitors rulemaking developments at the federal level and compiles that information in the monthly WBA Compliance Journal. You will find descriptions of proposed rules, public comment deadlines, and key information to track the rule in the Federal Register (https://www.federalregister.gov).

The WBA Legal Team is always on the lookout for issues that merit comment and, because it’s important that the agencies hear directly from the industry, encourages members to compose a letter of their own, or use a template created by WBA when available. Filing the letter is a simple process outlined in a tip sheet which can be found here.

To find detailed FAQs on the process, visit https://www.regulations.gov/faq.

Why Comment Letters Matter and Where to Find Them

Comment letters are an excellent opportunity for the banking industry to inform the federal agencies about the impact of rulemaking, and provide examples.

It is crucial that WBA represent the best interests of members at the federal level, whether that means pointing out potentially onerous, unfair, or burdensome rules, suggesting tweaks or improvements, or expressing satisfaction when positive changes are implemented. The goal is to advocate on behalf of members by conveying information in an impactful, yet concise manner.

Information about comment letters is typically shared in the Wisconsin Banker Daily soon after filing, with a brief summary, including a link to the letter. Reading the letters, or the synopses, can help you stay abreast of important issues and engage in WBA’s advocacy efforts on the always evolving regulations your bank faces.

Below, you will find some of the topics addressed in comment letters filed between June 2020 – May 2021.

7 Comment Letters Filed With CFPB

Over the past year, WBA filed seven comments with the Consumer Financial Protection Bureau (CFPB). CFPB was active in a variety of areas including COVID-19 matters and adjusting certain Regulation Z provisions to prepare for the LIBOR transition. CFPB also undertook a series to rules related to its Ability to Repay and Qualified Mortgage (ATR/QM) rules. CFPB took actions to extend the temporary QM category, revise the General QM definition, and create an entirely new category of QM known as a seasoned QM. WBA commented on all aspects of this process, providing valuable industry perspectives shared by the membership.

5 Comment Letters Filed With FRB

One of WBA’s five comment letters to the Board of Governors of the Federal Reserve System (FRB) supported the deletion of the six-transfer limit from the definition of “savings deposit.” The deletion reflected a shift in FRB’s monetary policy, and eases outdated consumer burden while permitting flexibility for banks to administer accounts as appropriate.

3 Comment Letters Filed With OCC

WBA filed three letters with the Office of the Comptroller of the Currency (OCC), one of which related to a proposal regarding the new CRA performance standards. The letter recognized Wisconsin banks’ commitment to meeting the needs of LMI communities, but highlighted some of the burdens presented by implementation costs with the new CRA rules. WBA also urged all three banking agencies (OCC, FDIC, and FRB) to develop a CRA rule on an interagency basis.

3 Comment Letters Filed With FDIC

In one of three letters filed with the Federal Deposit Insurance (FDIC), WBA commented on the agency’s proposal to modernize its brokered deposit rules. WBA recognized the effort as a step in the right direction, but joined the other trades in pointing out that broad definitions of “facilitation” and “deposit broker” would improperly increase the scope of deposits classified as brokered. WBA supplied more precise definitions and urged FDIC to provide examples of persons not considered deposit brokers.

2 Comment Letters Filed With FinCen

WBA wrote two letters to the Financial Crimes Enforcement Network (FinCEN), one of which addressed an advanced notice of proposed rulemaking to existing customer due diligence (CDD) requirements. The letter identified various aspects of the CDD rule which remain unclear, and recommendations for clarifications.

3 Comment Letters Filed With NCUA

WBA vigilantly monitored proposals from the National Credit Union Administration (NCUA) and filed three letters. In early 2021, WBA opposed a proposed rule that sought to expand the field of membership for multiple common bond credit unions. Recently, WBA also commented that NCUA should withdraw its proposal to allow credit union service organizations to engage in broader lending and investments.

4 Comment Letters Filed With Interagency

Some rulemakings are issued on an interagency basis. In one example, the FRB, FDIC, and OCC proposed to allow deferral of obtaining appraisals, to which WBA expressed appreciation of the agencies’ proactive efforts, but cautioned against too narrowly defining certain terms. WBA filed four interagency letters total.

As discussed above, industry comment is a critical aspect to the rulemaking process. It is an opportunity for the industry’s voice to be heard, and it is important that the agencies hear from banks about how rulemaking affects you. WBA welcomes your feedback on comment letters because it is key that we, and the agencies, hear directly from members. For more information on the rulemaking process, comments, and upcoming rules, contact the WBA Legal Department at wbalegal@ wisbank.com. For a full list of the comment letters filed during the 2020-21 fiscal year, visit www.wisbank.com/commentlibrary.

By, Alex Paniagua

WBA filed comments with FRB, FDIC, and OCC on Monday regarding a new process whereby financial institutions could apply for exemptions for filing SARs. Each agency proposed their own rule to amend applicable SAR regulations to allow each agency the ability to issue exemptions from the requirements of the SAR regulations. The proposed rules would allow each agency to grant relief to supervised institutions that develop innovative solutions intended to meet Bank Secrecy Act (BSA) requirements more efficiently and effective. WBA made a number of recommendations to each agency, including:   

  • The agencies, together with FinCEN, need to create one standard and one system for any institution to use when applying for an exemption;  
  • The agencies, together with FinCEN, need to create a single-filing process whereby an institution files solely with its prudential federal regulator and any need for FinCEN approval involving the same application be obtained by the regulator;   
  • The agencies need to provide more information about the application itself, including what questions need be answered when applying, what factors are to be considered in decisions, and what supplemental information need be provided with the application;   
  • The agencies need provide a clear timeline for response to an application filing;   
  • The agencies need create an appeal process so that an applicant may make changes and re-submit without having to completely re-apply for an exemption; and  
  • The agencies need publish exemption decisions, so the industry is aware of agency analysis and decision regarding a particular process or new technology.  

  WBA is hopeful the agencies will take the recommendations into consideration when finalizing the proposals.   

By, Alex Paniagua

On January 11, 2021, NCUA issued a proposed rule to expand the field of membership for multiple common bond credit unions. WBA filed comments on February 10, 2021, in opposition to this expansion.  

The proposal would modify the definition of service facility for select groups and underserved areas to include any shared branch, shared ATM, or shared electronic facility regardless of whether the credit union is an owner of the shared branch network. In addition, the proposal would erase the distinction between service to select groups and service to underserved areas as delineated in the Act. 

WBA commented that the proposal is another example of NCUA fueling the growth of the credit union industry, which undermines congressional intent to demand a heightened standard of in-person service for underserved communities. Further, WBA expressed concern that the proposal encourages abandonment of credit unions’ statutorily mandated physical presence and common bond requirements, which destroys the nexus between the credit union charter and the federally subsidized mission to provide financial services to underserved communities and people of modest means. 

WBA recommended that NCUA withdraw the proposal in its entirety. 

Click here to view the letter.

By, Ally Bates

The Board of Governors of the Federal Reserve System and the Financial Crimes Enforcement Network (agencies) issued a joint notice of proposed rulemaking on October 27, 2020 to lower the threshold for rules related to recording and transmitting information on certain funds transfers and transmittals of funds. The Recordkeeping Rule requires financial institutions to collect and retain information related to funds transfers and transmittals. The Travel Rule requires financial institutions to transmit information on certain funds transfers and transmittals of funds to other financial institutions participating in the transmittal. Both Rules apply to amounts of funds in amounts of $3,000 or more. The agencies have proposed to reduce this threshold to $250. 
 
WBA submitted comments to oppose the threshold reduction, pointing to increased burdens it would create as a result of necessary procedure and software changes. The proposal would also redefine the term “money” for purposes of defining “payment order” and “transmittal order” in order to clarify those terms include convertible virtual currency. Because Wisconsin law does not define virtual currency, WBA requested the agencies provide a better definition of virtual currencies. Click here to view the letter. 

By, Ally Bates

An interagency proposal was issued oSeptember 1, 2020, to reorganize, revise, and expand the questions and answers regarding flood insurance. WBA filed comments in support of the interagency efforts to help lenders meet their responsibilities under Federal flood insurance law and increase understanding of the flood insurance regulations. Additionally, WBA urged the agencies to issue supervisory expectations regarding private flood insurance and sought additional clarity regarding exemptions for detached structures. Click here to view the letter. 

By, Ally Bates

On August 28 CFPB issued a proposed rule to create a new category of qualified mortgages (Seasoned QMs). To be considered a Seasoned QM under the proposal, loans would have to be first-lien, fixed-rate covered transactions that have met certain performance requirements over a 36-month seasoning period. Covered transactions would also have to be held on the creditor’s portfolio during the seasoning period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements. The proposal would also require that the creditor consider and verify the consumer’s debt-to-income ratio or residual income at origination. 

Seasoned QMs would only be available for covered transactions that have no more than two 30-day delinquencies and no delinquencies of 60 or more days at the end of the seasoning period. Also, should there be a disaster or pandemic-related national emergency and as long as certain conditions are met, the proposal would not disqualify a loan from becoming a Seasoned QM for the failure to make full contractual payments if the consumer receives a temporary payment accommodation. 

WBA filed comments in support of CFPB’s efforts to create a new category of QM but noted that few Wisconsin banks would be able to utilize the rule as proposed. In addition, WBA provided suggestions and requests for clarification on certain aspects of the rule such as factors affecting eligibility during the seasoning period. Click here to view the letter.

By, Ally Bates