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08.31.2016 | Legal Update

The Nutter Bank Report is a monthly publication of the firm's Banking and Financial Services Group.

Headlines
1. FDIC Proposes Expansion of Third-Party Lending Examinations
2. U.S. Supreme Court Split Over Whether Spousal Guarantors Can Sue Under ECOA
3. CFPB Amends Mortgage Servicing Rules to Include Additional Consumer Protections
4. FFIEC Proposes Streamlined Call Report for Small Banks
5. Other Developments: Massachusetts Truth in Lending and Diversity Policies

1. FDIC Proposes Expansion of Third-Party Lending Examinations

The FDIC has extended the public comment period on proposed examination guidance that would significantly expand the scope of examinations of banks’ third-party lending relationships. Under the proposed guidance, Examination Guidance for Third-Party Lending, published on July 29, the FDIC would evaluate a bank’s lending activities “conducted through third-party relationships as though the activities were performed by the institution itself,” and the FDIC may examine banks with third-party lending relationships more frequently. According to the proposed guidance, FDIC examiners expect that a bank’s board of directors and senior management would be responsible for identifying and controlling risks arising from third-party lending relationships as if activities conducted by the third-party were conducted by the bank. The proposed guidance supplements the FDIC’s Guidance for Managing Third-Party Risk issued in 2008, which applies to a bank’s lending and other arrangements with third-parties. The deadline for submission of comments on the proposed guidance has been extended from September 12 to October 27 to allow the public additional time to consider and respond to the proposal. Click here for a copy of the proposed guidance.

    Nutter Notes: According to the proposed guidance, the FDIC will examine banks with “significant third-party lending programs” at least once every 12 months, with concurrent risk management and consumer protection examinations. The proposed guidance also states that more frequent examination activities, such as visitations or ongoing examinations, may be performed “if significant risk is identified.” Such risks include significant increases in origination volumes or the number of third-party arrangements, third-party arrangements that represent a material portion of the bank’s operations and strategy, or where examiners identify material weaknesses in the management of third-party relationships. The proposed guidance was released as part of a package of updated examination policies and procedures that the FDIC said is meant to “improve the transparency and clarity of the FDIC's supervisory policies and practices.” That package also included updates to the FDIC’s guidelines for banks appealing certain material supervisory determinations, for which public comments are still due by September 12.

2. U.S. Supreme Court Split Over Whether Spousal Guarantors Can Sue Under ECOA

The U.S. Supreme Court, in a split decision, has let stand a ruling by the Eighth Circuit Court of Appeals that spouses who guarantee commercial loans are not “applicants” under the Equal Credit Opportunity Act (“ECOA”), and therefore may not sue a creditor for alleged violations of ECOA’s prohibition against marital-status discrimination. The Court on June 27 denied a petition to rehear its one-sentence decision issued on March 22, which read, “[t]he judgment is affirmed by an equally divided Court.” ECOA prohibits a lender from requesting a spousal guaranty for consumer or commercial credit if the loan applicant otherwise qualifies under the lender’s “standards of creditworthiness.” Only an applicant can sue a creditor for marital-status discrimination under ECOA. The Federal Reserve’s rules implementing ECOA, Regulation B, expand the statutory definition of an applicant to include “guarantors, sureties, endorsers, and similar parties.” The Eighth Circuit refused to defer to the Federal Reserve’s interpretation under Regulation B, and ruled that a spouse-guarantor is not an applicant within the meaning of ECOA. That ruling is at odds with an earlier ruling by the Sixth Circuit Court of Appeals, which deferred to the inclusion of spouse-guarantors under the Regulation B definition of an applicant. The First Circuit Court of Appeals, which includes Massachusetts, has also previously ruled that the expanded Regulation B definition of an applicant applies in ECOA cases. However, unless and until the Supreme Court revisits the issue, courts in other federal circuits may continue to differ on whether spouse-guarantors have standing to sue a creditor for marital-status discrimination under ECOA.

    Nutter Notes: Since the death of Justice Antonin Scalia, the Supreme Court has been functioning with eight justices. When the justices split 4-4 on a decision about a circuit court ruling, as they did in this case, the ruling of the lower court is automatically upheld. However, the result of such a split decision is not binding on courts in other federal circuits. Therefore, courts in the Eighth Circuit are bound by its ruling that spouse-guarantors are excluded from the ECOA definition of an applicant, while courts in the First and Sixth Circuits are bound by previous rulings deferring to the expanded Regulation B definition so that spouse-guarantors must be included within the ECOA definition of an applicant. The result is that spouse-guarantors in some parts of the country can sue for ECOA discrimination, and those in other parts cannot. Adding to the potential inconsistencies, in jurisdictions where the federal circuit court of appeals has not had an opportunity to consider the issue, state and federal courts may choose to follow either the Eighth Circuit decision or the Sixth Circuit decision until there is a binding precedent set by a higher court or the Supreme Court finally resolves the split among the circuit courts.

3. CFPB Amends Mortgage Servicing Rules to Include Additional Consumer Protections

The CFPB has released final amendments to certain mortgage servicing rules that require servicers, including banks, to provide certain borrowers with foreclosure protections more than once over the life of a home mortgage loan, clarify borrower protections when the servicing of a home mortgage loan is transferred, and requires servicers to provide certain loan information to borrowers in bankruptcy. The final amendments issued on August 4 change provisions of the Real Estate Settlement Procedures Act (“RESPA”) rules (“Regulation X”) related to force-placed insurance notices, policies and procedures, early intervention and loss mitigation requirements. The final amendments also change provisions of the Truth in Lending Act (“TILA”) rules (“Regulation Z”) related to prompt crediting and periodic statement requirements. The final amendments also apply the Regulation X and Regulation Z mortgage servicing rules to successors in interest once a servicer has confirmed the successor in interest’s status. The final amendments generally will become effective 12 months after publication in the Federal Register, and certain amendments will become effective 18 months after publication in the Federal Register, which is expected shortly. Click here for a copy of the final amendments.

    Nutter Notes: Concurrently with the final amendments of its mortgage servicing rules, the CFPB issued a new interpretive rule under the Fair Debt Collection Practices Act (“FDCPA”) relating to compliance with certain mortgage servicing rules. The new interpretive rule clarifies the interaction of the FDCPA and certain mortgage servicing rules in Regulation X and Regulation Z. The new interpretive rule provides safe harbors from liability for a mortgage loan servicer, including a bank, that acts in compliance with mortgage servicing rules in the following situations: the servicer does not violate the FDCPA when communicating about a mortgage loan with confirmed successors in interest in compliance with Regulation X or Regulation Z, the servicer does not violate the FDCPA when providing a written early intervention notice required by Regulation X to a borrower who has invoked the cease communication right under the FDCPA, and the servicer does not violate the FDCPA when responding to borrower-initiated communications concerning loss mitigation after the borrower has invoked the cease communication right under the FDCPA. The new interpretive rule constitutes an advisory opinion for purposes of the FDCPA. Click here for a copy of the new interpretive rule.

4. FFIEC Proposes Streamlined Call Report for Small Banks

The federal banking agencies, through the FFIEC, have released a proposed new version of the Consolidated Report of Condition and Income (“Call Report”) for eligible small institutions that is meant to be streamlined and less burdensome. The proposed new Call Report issued on August 17 would be available to banks with total assets less than $1 billion and domestic offices only. The proposed Call Report would include a new supplemental schedule to collect data on certain complex and specialized activities that would replace all or part of six schedules and other related items currently included in the Call Report. The FFIEC also released revisions to the other two versions of the Call Report that are also meant to reduce reporting burdens. The Call Report revisions would take effect on March 31, 2017. Public comments on the proposal are due by October 14. Click here for a copy of the proposed Call Report revisions.

    Nutter Notes: The proposed new Call Report for eligible small institutions would also eliminate data items that were identified during interagency reviews as items that are no longer necessary for collection from banks with total assets less than $1 billion and domestic offices only. The proposed Call Report would reduce the frequency of collection for certain data items that the agencies have determined are needed less often than quarterly from eligible small institutions, and would remove all data items that are required only from banks with assets of $1 billion or more. For Call Reports required from larger banks, the agencies have proposed to eliminate some data items and increase existing reporting thresholds or impose new reporting thresholds for other data items.

5. Other Developments: Massachusetts Truth in Lending and Diversity Policies

• Division of Banks Amends Massachusetts Truth in Lending Rules to Conform to TRID

The Division of Banks has issued final amendments to the Massachusetts Truth in Lending rules (209 CMR 32.00) that became effective on August 26. The final amendments add new sections that correspond to the federal rules that implement the TILA-RESPA Integrated Disclosure rule, known as TRID, for the Loan Estimate and Closing Disclosure forms, among other changes.

    Nutter Notes: The Division’s final amendments also amend the disclosure requirements for variable-rate interest adjustments to align more closely with the timing of such disclosures under Regulation Z, and permit creditors, including banks, to use a uniform billing statement for all types of open-end credit accounts in compliance with Regulation Z. Click here for a copy of the final amendments.

• Federal Banking Agencies Issue FAQs on Self-Assessment of Diversity Policies

The federal banking agencies on August 4 issued guidance in the form of answers to frequently asked questions (“FAQs”) about how banks and bank holding companies may begin to submit self-assessments of their diversity policies and practices as of year-end 2015. The agencies said that banking organizations are “strongly encouraged” to disclose their diversity policies and practices on their websites and provide self-assessment information to their primary federal regulator.

    Nutter Notes: The agencies published the Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies on June 10, 2015, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. According to that policy statement, self-assessments of diversity policies and practices are voluntary, and submissions of information regarding those self-assessments to primary federal regulators are also voluntary. Click here for a copy of the FAQs.

Nutter Bank Report

Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, after interviewing our clients and our peers in the profession, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. Visit the U.S. rankings at ChambersandPartners.com. The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Bridget L. Vellucci. The information in this publication is not legal advice. For further information, contact:

Kenneth F. Ehrlich
kehrlich@nutter.com
Tel: (617) 439-2989

Michael K. Krebs
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Tel: (617) 439-2288

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.