Banking and Finance Law Daily Wrap Up, WORTH NOTING—Other regulatory, legislative, litigation, and industry developments, (May 31, 2024)

By WK Editorial Staff

A weekly roundup of other items of interest to the banking and finance law community.

BANKING OPERATIONS—Insured depositories continued to see net income growth in the first quarter, according to the FDIC Quarterly Banking Profile, released May 29. FDIC Chair Martin Gruenberg attributed the nearly 80 percent rise in net income over the previous quarter to lower expenses from the special assessment, among other items, adding that without those factors, the industry would still have seen a 14.3 percent increase. “The banking industry continued to show resilience in the first quarter,” Gruenberg said of the report. “However, the industry’s net interest margin declined as competition continued to pressure rates paid on deposits and asset yields declined.” The net interest margin fell 10 basis points to a pre-pandemic low of 3.17 percent.

CRIMES AND OFFENSES—The Office of the Comptroller of the Currency warned of a new scam involving claims of beneficiary or similar funds being held by the agency. Variations of the scam email and Google Chat messages were identified, with the OCC providing samples of three variations, but all generally included requests for detailed personal information as well as instructing victims to pay certain fees or taxes to receive the purportedly OCC-held funds. The OCC said anyone receiving message seeking fees or personal information for held funds should “not respond in any manner,” and advised anyone who had responded to such request to immediately contact their financial institution.

CONSUMER FINANCIAL PROTECTION BUREAU—An individual has petitioned the Consumer Financial Protection Bureau for a rulemaking requiring financial institutions to state their reasoning in the event of an account closure. Cameron Heffelfinger submitted the rulemaking petition proposing more transparency from financial institutions regarding consumer account closures. Currently, according to the petition, financial institutions often list any closure as a “business decision” without elaboration. This means the consumer cannot appeal the decision if it was based on incorrect information. Heffelfinger states that the petitioned-for rule “would offer more transparency to consumers, allowing them to appeal decisions with factually incorrect information listed, and make the process feel less like a ‘black box’ with no recourse.” Heffelfinger further argues that his proposal for a new rule by the Bureau would allow consumers to have adequate information to seek any damages incurred. According to the CFPB, comments on Heffelfinger’s petition for the CFPB rulemaking are due by July 22, 2024.

CREDIT, DEBIT AND GIFT CARDS—5th Cir.: In litigation previously launched by banking and business groups challenging the Consumer Financial Protection Bureau’s “CARD Act late-fee rule,” the U.S. Court of Appeals for the Fifth Circuit issued an unpublished order on May 29, 2024, staying any transfer of the case from the U.S. District Court for the Northern District of Texas to the U.S. District Court for the District of Columbia. Previously, the Fifth Circuit had vacated the lower court’s first attempt to transfer venue to the District of Columbia and kept the case in the Northern Texas, determining that the Texas federal district court had lacked the necessary jurisdiction to make any transfer (see Banking and Finance Law Daily, May 7, 2024). Shortly afterward, the CFPB renewed its motion for transferring the case. Considering the private and public interest factors involved, the federal district court in Northern Texas granted the Bureau’s recent request and ordered that the case be transferred to the District of Columbia’s federal district court (see Banking and Finance Law Daily, May 29, 2024). However, in this latest go-round, the Fifth Circuit, in a one-sentence unpublished order, again halted any transfer of the case to the District of Columbia, stating that the lower court’s May 29, 2024, order is “administratively STAYED until 5:00 p.m. on Tuesday, June 18, 2024” (In re Fort Worth Chamber of Commerce v. CFPB, No. 24-10463 (May 29, 2024)).

CRIMES AND OFFENSES—The Office of Foreign Assets Control (OFAC) has issued a final rule amending to its Cuban Assets Control Regulation. The final rule further implements policy announced by the White House in 2022 to increase support for internet freedom for the people of the island nation with expanded authorization related to internet-based service and a range of financial transactions. The amendments also included additional and updated cross references and an updated definition. The final rule is effective May 29, 2024, the scheduled date of publication in the Federal Register.

ENFORCEMENT ACTIONS—The Office of the Comptroller of the Currency has announced enforcement actions taken against national banks and federal savings associations, as well as individuals affiliated with these banks. Comerica Bank & Trust, National Association entered into a Formal Agreement with the OCC to correct unsafe or unsound practices relating to the risk governance framework and internal controls. Illinois-based Lemont National Bank also entered into a Formal Agreement to address deficiencies in the bank's capital planning, strategic planning, succession planning, and liquidity risk management. The OCC also imposed a number of Orders of Prohibition against bank employees that prohibit these individuals from any participation in the affairs of a bank or other institution. The Orders of Prohibition were imposed upon: Stanley Acosta for stealing approximately $27,449 from cash deposit bags provided by customers; Bahtia Greene for misappropriating confidential information of bank customers and selling it to a third party, resulting in fraudulent transactions and a loss of approximately $688,000 for the bank; Sabina Prince for taking $15,000 in cash from the bank and manipulating cash shipment processing receipts to conceal her actions; and Stephanie Sanders for misappropriating approximately $30,650 from her bank by crediting her own checking and savings accounts over 100 times. Finally, a Notice of Charges was filed against Gerald E. Milligan II which alleged that he knowingly made false attestations and provided false supporting documentation for a Paycheck Protection Plan (PPP) loan application, receiving $141,530 in PPP loan proceeds and using the funds for personal gain.

FINANCIAL STABILITY—A group of trade organizations, including the American Bankers Association, have requested the Federal Trade Commission to stay and delay the implementation of the agency’s Non-Compete Clause Final Rule. According to the organizations, “[a] brief, voluntary delay would provide invaluable certainty as to the Rule’s potential effective date and conserve significant resources.” The groups also cited the rule’s legal uncertainty, as well as significant costs that the rule has already imposed on U.S. businesses.

FINANCIAL TECHNOLOGY——The Office of the Comptroller of the Currency has updated its Roundtable for Economic Access and Change (Project REACh) to version “2.0.” The change replaces the initiative’s “workstreams” with working groups, in what Acting Comptroller Michael Hsu said would provide “more agility to engage in a broader range of initiatives that not only address barriers but accelerate solutions to financial inclusion.” Existing REACh project cities would begin transition to the new approach, according to the OCC’s announcement.

FINANCIAL TECHNOLOGY—The U.S. House of Representatives has passed a bill that would prevent the Federal Reserve from issuing a “Central Bank Digital Currency” (CBDC). Speaking prior to the vote, House Financial Services Committee Chair Patrick McHenry (R-NC) said the bill, titled as the “CBDC Anti-Surveillance State Act,” seeks to protect Americans’ financial privacy from the kind of CBDC-based surveillance that reportedly is part of China’s CBDC. “If not open, permissionless, and private, a CBDC is no more than a CCP-style surveillance tool waiting to be weaponized,” McHenry said. The House Financial Services Committee’s top Democrat, Rep. Maxine Waters (D-Calif), warned in her own floor remarks that the legislation would not only stifle innovation and international competitiveness, but would also potentially hinder the Federal Reserve’s use of bank reserves. “This means that H.R. 5403 would undermine the Federal Reserve’s set of tools needed to ensure our economy does not enter a recession as inflation comes down,” she said. “It also means that the bill could disrupt our banking system by preventing the Fed from using payment systems, like Fedwire, to quickly move funds between financial institutions.”

GOVERNMENT SPONSORED ENTERPRISES—The Federal Housing Finance Agency (FHFA) announced “enhancements” to policies at Fannie Mae and Freddie Mac’s (the Enterprises) for borrowers facing financial hardship May 29. The changes to the Flex Modification program—including borrower-eligible reductions in interest rate, extended terms, and forbearance for mark-to-market loan-to-value (LTV) ratios of 50 percent or greater—were intended to achieve 20 percent reduction to Principal and Interest (P&I) payments. “The Flex Modification enhancements will support sustainable homeownership by allowing more eligible borrowers facing hardships to remain in their homes by achieving a meaningful mortgage payment reduction in the current environment of elevated interest rates and home prices,” FHFA Director Sandra Thompson said in the announcement. The new policies will go into effect on December 1. Fannie Mae separately released a Lender Letter (LL-2024-02) directed to all Fannie Mae single-family servicers describing the updates to the Fannie Mae Flex Modification terms, while Freddie Mac released a bulletin (Bulletin 2024-E) directed to Freddie Mac servicers describing the updated requirements for the Freddie Mac Flex Modification. (cam).

MORTGAGES—An individual has petitioned the Consumer Financial Protection Bureau for a rulemaking related to private mortgage insurance (PMI) that he states would benefit financial institutions and homeowners. PMI is determined based on a home's sales price and is not typically removed until the Loan To Value (LTV) is reduced to at or below 80 percent LTV. According to the petitioner, David Petroni, with real estate valuations increasing, local government property tax re-evaluations are significantly increasing, and he is proposing that these changes would “reflect a reasonable and fair approach” to PMI. Under the proposal, homeowners would be allowed to petition their financial institutions for the removal or reduction of PMI if they can demonstrate either that: the local property assessment has increased such that the outstanding mortgage balance is at or below an 80 percent loan-to-value (LTV) ratio; renovations or improvements, as verified by an MAI appraisal, have increased the property's value to a level that results in an 80 percent LTV ratio; or the homeowner is willing to obtain an appraisal showing that the current market conditions place the LTV at or below 80 percent.

OVERSIGHT AND INVESTIGATION—As previously reported, in December 2023, a “Special Committee” that had been formed by the Federal Deposit Insurance Corporation Board appointed Cleary Gottlieb Steen & Hamilton LLP, a law firm, to independently review allegations of sexual harassment and interpersonal misconduct at the FDIC (see Banking and Finance Law Daily, Dec. 12, 2023). In early May 2024, the Cleary Gottlieb firm published its findings in a 234-page report, determining that the FDIC “failed to provide a workplace safe from sexual harassment, discrimination, and other personal misconduct.” The report further determined that “management’s responses to allegations of misconduct, as well as the culture and conditions that gave rise to them, have been insufficient and ineffective” (see Banking and Finance Law Daily, May 8, 2024). Now that the independent third-party review by the Cleary Gottlieb firm has been completed, the FDIC Board of Directors terminated the “Special Committee” that was formed to appoint the firm. That termination is effective May 30, 2024, and, according to the FDIC’s press release (PR-42-2024), “going forward, any inquiries and other matters relating to the recently completed independent review will be handled by the FDIC’s staff.”

SERVICEMEMBERS CIVIL RELIEF ACT—The Consumer Financial Protection Bureau touted its work for servicemembers in a post to its website on May 23, 2024. Noting complaints from active military, veterans and family members crested the 400,000 mark, the CFPB’s post primarily discussed failures by credit companies to adhere to 6 percent interest rate caps under Servicemembers Civil Relief Act (SCRA) and punishment of companies violating the Military Lending Act (MLA).

Attorneys: Michael F. Murray (Paul Hastings, L.L.P.) for Chamber of Commerce of the U.S., Fort Worth Chamber of Commerce, Longview Chamber of Commerce, Consumer Bankers Association, and Texas Association of Business. Jennifer B. Dickey, U.S. Chamber Litigation Center, for the Chamber of Commerce of the United States. Stephanie Garlock for the Consumer Financial Protection Bureau and Rohit Chopra.

Companies: American Bankers Association; Chamber of Commerce of the U.S.; Cleary Gottlieb Steen & Hamilton LLP; Comerica Bank & Trust, National Association; Consumer Bankers Association; Fannie Mae; Freddie Mac; Fort Worth Chamber of Commerce; Lemont National Bank; Longview Chamber of Commerce; Texas Association of Business

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