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Consumer Finance Newsletter - June 2013

June 14, 2013 | Banking & Financial Services

   


CFPB’s First Allegation of an “Abusive” Act Leaves Questions Unanswered

Issue: On May 30, 2013, the Consumer Financial Protection Bureau (“CFPB” or “bureau”) filed its first lawsuit alleging that a party committed an “abusive” act in violation of §1031 of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). [1] The bureau filed the suit against a debt settlement company (“Company”) that allegedly told debtors that, in exchange for significant upfront fees—an enrollment fee equal to approximately 15% of their debt and a monthly service fee of $99—the Company would enter them into a 24 to 48 month program that would result in an initial settlement of debt in three to six months. The CFPB also alleged that the Company failed to settle the consumers’ debts within the promised time, forcing consumers to drop out of the program and forfeit their enrollment fees. [2]

The fact pattern in this case is similar to past suits filed by the Federal Trade Commission (“FTC”) and, to a lesser extent, the CFPB, typically under the Telemarketing Sales Rule, [3] the FTC Act §5(a), [4] and/or the ban on “deceptive” practices in Dodd-Frank §1031. In this case, the CFPB asserted claims under the Telemarketing Sales Rule and both the “deceptive” and “abusive” prongs of §1031, which authorizes the bureau to take action to prevent covered providers from engaging in any “unfair, deceptive, or abusive act or practice.” [5]

Under Dodd-Frank §1031, an act is “abusive” if it falls within one of two categories: (1) it “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service,” or (2) it “takes unreasonable advantage” of a consumer. The CFPB brought this lawsuit under the latter category, which requires proof that the provider took unreasonable advantage of: (a) the consumer’s lack of understanding of the material risks, costs, or conditions of a product or service; (b) the consumer’s inability to protect his interests in selecting or using the product; or (c) the consumer’s reasonable reliance on the provider to act in the consumer's interest. [6]

In this case, the CFPB asserted that the Company collected “enrollment” fees from consumers despite receiving financial information showing that the consumers ultimately would not be able to afford the monthly payments of the program.[7] That practice, the bureau contended, took “unreasonable advantage” of the consumers’ lack of understanding of how long it would take the Company to settle their debts and how much money they would spend before realizing any benefits from the program.[8] In addition, the CFPB asserted that consumers reasonably relied on the Company (1) to act in their interest by enrolling them in a debt-relief program that they reasonably could be expected to complete, and (2) to settle their debts as soon as possible—in particular, within the first three to six months of enrollment as represented by the Company.[9] The bureau added in a related press release that it believed the Company engaged in an “abusive” practice by charging fees to “vulnerable customers who [the Company] knew had inadequate incomes to complete the debt-relief programs in which they were enrolled.”[10].

Why You Should Care: This case provides some initial insight into how the CFPB intends to define the nebulous term “abusive” in Dodd-Frank § 1031, and particularly what it means to “take[] unreasonable advantage” of a consumer. The complaint and accompanying press release indicate that both consumer “vulnerability” and a provider’s actual knowledge that a product is not suitable for a particular consumer may be relevant to the bureau’s calculus.

But the suit also leaves many questions unanswered. The complaint provides little guidance as to what standard a service provider should use to judge whether a potential customer can reasonably be expected to make successful use of its products, or which consumers the bureau considers “vulnerable.” Nor does the complaint clarify how (if at all) the bureau plans to distinguish between “deceptive” and “abusive” acts going forward—for example, the complaint does not make clear whether the CFPB is likely to deem “abusive” any action that relates to a misrepresentation or omission that allegedly takes unreasonable advantage of consumers’ lack of understanding. Thus, although this suit takes a first step in outlining what practices the CFPB will deem “abusive,” it also leaves many issues unresolved and calls for continued monitoring of the bureau’s enforcement actions under Dodd-Frank §1031.

If You Want Further Information: The CFPB’s May 30, 2013 press release, along with a copy of the complaint, can be found here.

If You Want Further Analysis: Contact Brian Boyle, (202) 383-5327 bboyle@omm.com.

[1] 12 U.S.C. §§ 5531(d), 5536(a)(1)(B).
[2] Complaint at 6, CFPB v. American Debt Settlement Solutions Inc. et al., (S.D.Fla.) (No. 13-80548).
[3] See, e.g., 16 C.F.R. § 310.3(a)(1). In addition to alleging a deceptive act, the agencies typically file a claim under 16 C.F.R. § 310.4(a)(5)(i), which prohibits the collection of fees for debt relief services before debt relief is provided to the consumer.
[4] 15 U.S.C. § 45(a).
[5] 12 U.S.C. § 5531(a).
[6] 12 U.S.C. § 5531(d)(1)-(2).
[7] Complaint at 14, CFPB v. American Debt Settlement Solutions Inc. et al.
[8] Id. at 15.
[9] Id.
[10] Press Release, Consumer Financial Protection Bureau, CFPB takes action to stop Florida company from engaging in illegal debt-relief practices (May 30, 2013).


The Solicitor General Argues for Deference to HUD’s Regulations on Disparate Impact

Issue:
On May 17, 2013, nearly a year after petitioner requested certiorari in the case of Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., 11-1507 (U.S.) — which would present to the Court for the first time the issue of whether disparate impact claims are cognizable under the Fair Housing Act(“FHA”) [1] — the Solicitor General filed its brief asking the Supreme Court to deny certiorari. Petitioner filed its response the following week, on May 24, 2013.[2] In addition to addressing whether disparate impact claims are available for alleged violations of the FHA, the case presents the related question of, if such claims are cognizable, which of the several tests employed by the numerous circuit courts of appeals to have addressed the issue is appropriate for determining whether a plaintiff has made the requisite prima facie showing to support a disparate impact claim under the statute.

In the case, defendant-petitioner, the Township of Mount Holly (“the Township”), proposed to redevelop the struggling neighborhood, of Mt. Holly Gardens (“Gardens”) by purchasing all of the homes in the neighborhood, demolishing them and replacing them with newly built homes. Plaintiff-respondent, Mount Holly Gardens Citizens in Action, argued that the plan would have a disproportionately adverse impact on minority households in violation of Section 804(a) of the FHA, which makes it unlawful to “refuse to sell or rent . . ., or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status or national origin,”[3] because a disproportionate number of African American and Hispanic homeowners would be unable to afford the newly built homes. In support of its FHA claim, plaintiff-respondent presented an expert report indicating that 22.54% of the Township's African American households and 32.31% of its Hispanic households would be adversely affected by the redevelopment program, while only 2.73% of white households would be affected.

The district court held that the respondent failed to establish a prima facie case of disparate-impact discrimination under Section 804(a) of the FHA. The district court rejected the statistical analysis in part because it analyzed the impact on minorities who resided in the Gardens as opposed to the impact on minorities in the full county and further noted that the respondent had “fail[ed] to demonstrate that the redevelopment plan would affect minority households in the Gardens in a different way than it would affect white households in the Gardens.” The district court also ruled that, regardless of whether there was a disparate impact, the Township had a legitimate purpose for the plan — alleviating blight — which respondent had not rebutted by offering a less discriminatory alternative plan. The Third Circuit Court of Appeals reversed, holding that the statistical evidence presented by respondent established a prima facie case of disparate impact and that a factual dispute existed regarding whether there was a less discriminatory alternative means of addressing blight.

If the Court grants certiorari, the case could be the first time the Supreme Court addresses whether the FHA permits disparate impact claims to any extent. Though the Solicitor General has argued that all 11 federal appellate courts to have addressed the issue have held that such claims are viable under the FHA, as the Township pointed out in its petition, the FHA lacks the effect-based language present in the Americans with Disabilities Act, and Title VII, under which the Supreme Court has held that disparate impact claims may be brought.[4]

In response, the Solicitor General argues that to the extent the test of the FHA is unclear, the Court should defer to the regulations promulgated by the Department of Housing and Urban Development (“HUD”), which is authorized to “make rules . . . to carry out [the Fair Housing Act].” [5] HUD recently issued a final rule stating that liability may be established under the FHA based on “discriminatory effect” even without discriminatory intent.[6] The Solicitor General argues that HUD’s interpretation is reasonable and should be granted deference under Chevron.[7] The Township counters that Chevron deference is inapplicable here because HUD’s interpretation is contrary to the plain text of the statute and is therefore unreasonable. The Township further contends that HUD’s attempt to create a right not provided for in the statute is an improper exercise of HUD’s rule-making authority. Specifically, the Township argues “HUD’s new regulation codifies the judicial case law of the Circuit Courts in an effort to forestall Supreme Court review on this issue. This is not the proper function of rulemaking authority.” [8]

With respect to the question of which method to use when analyzing a disparate impact claim, the Solicitor General again argues that certiorari should be denied because HUD’s recent rule prescribes a method — the burden-shifting framework.[9] To the extent HUD’s framework leaves unresolved ambiguities, the Solicitor General argues that such flexibility is necessary because “different factual scenarios necessarily require different types of evidence.” [10] The Township responds that HUD’s standards are inadequate because they “do not establish any evidentiary standard for evaluating statistical evidence of disparate impact.” [11]

Why You Should Care: The FHA bars not just discrimination in the sale or rental of housing, but also discrimination in residential real estate transactions such as loan origination.[12] HUD’s new rule further states that discrimination in the “[s]ervicing of loans . . . which are secured by residential real estate” is prohibited by the FHA.[13] Thus Mt. Holly could have far-reaching impact on mortgage originators and servicers in terms of the potential viability of disparate impact putative class actions asserted under the FHA. Mt. Holly could further provide significant guidance regarding the requirements for the statistical analysis on which such cases often depend.

If You Want Further Information: The Township’s petition for writ of certiorari can be found here.[14] The Solicitor General’s amicus brief can be found here.[15] The Township’s response to the Solicitor General’s amicus brief can be found here.[16]

If You Want Further Analysis: Contact Elizabeth L. McKeen, (949) 823-7150 emckeen@omm.com, or Danielle N. Oakley, (949) 823-7921 doakley@omm.com.

[1] 42 U.S.C. § 3604
[2] Petitioners’ petition for writ of certiorari was filed June 11, 2012, and some speculated certiorari would be granted last fall, but on October 29, 2012, the Court requested that the Solicitor General file a brief regarding whether certiorari should be granted.
[3] 42 U.S.C. § 3604(a).
[4] See Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000e-2(a) (“It shall be an unlawful employment practice for an employer . . . to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's race, color, religion, sex, or national origin.”) (emphasis added); Age Discrimination in Employment Act of 1967, 29 U.S.C. §623(a) (“It shall be unlawful for an employer . . . to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's age.) (emphasis added).
[5] 42 U.S.C. § 3614a.
[6] 24 C.F.R. 100.500; the final rule was published in 78 FR 11460 (Feb. 15, 2013).
[7] Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984).
[8] Petitioners' Reply to the United States Amicus Brief at 6, Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., No. 11-1507, 2013 WL 2352225 (U.S. May 24, 2012).
[9] Under the regulation’s burden shifting method, the plaintiff has an initial burden of proving that a challenged practice “caused or predictably will cause a discriminatory effect.” If the plaintiff meets that burden, then the defendant must show that the practice is necessary to achieve a “substantial, legitimate, nondiscriminatory interest.” If the defendant meets that requirement, then the plaintiff can still win a ruling barring the challenged practice by demonstrating how that legitimate interest can “be served by another practice that has a less discriminatory effect.” 24 C.F.R. §100.500(c).
[10] Brief for the United States as amicus curiae at 19, Township of Mount Holly, New Jersey v. Mt. Holly Gardens Citizens in Action, Inc., No. 11-1507, 2013 WL 2152643 (U.S. May 17, 2012).
[11] Petitioners' Reply to the United States Amicus Brief, supra note 8, at 11.
[12] 42 U.S.C.A. §3605(a).
[13] 24 C.F.R. §100.130(b)(3).
[14] Petition for a Writ of Certiorari, Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., No. 11-1507, 2012 WL 2151511 (U.S. June 11, 2012).
[15] Brief for the United States as amicus curiae, supra note 10.
[16] Petitioners' Reply to the United States Amicus Brief, supra note 8.

 


The CFPB’s Final Remittance Rule Provides Limited Relief to Providers and Consumers

Issue: On April 30, 2013, the Consumer Financial Protection Bureau (“CFPB”) published its final rule imposing various disclosure and error resolution obligations on providers of remittance transfer services. Remittance transfers are electronic transfers of funds to a foreign person or business,[1] for a personal, family or household purpose,[2] which are performed in the normal course of the provider’s business.[3]

The CFPB had originally published a final rule on remittance transfers in February 2012,[4] but the bureau has revised the rule repeatedly due to concerns by industry and consumers.

The latest revision makes two key changes:

First, the rule no longer requires precise disclosure of third party fees so long as those fees are collected by someone other than an agent of the provider; similarly, the rule no longer requires precise disclosure of taxes that are collected by someone other than the remittance provider. Specifically:

 

  • 12 C.F.R. §1005.30(h) defines two new terms: “Non-covered third-party fees” are fees imposed by the recipient’s institution, so long as that institution is not acting as an agent of the remittance provider. Mirroring that definition, “Covered third-party fees” are all other fees imposed by someone other than the remittance provider.
  • 12 C.F.R. §1005.31(b)(1)(vii) was changed to state that a remittance provider is no longer required to precisely disclose non-covered third party fees, or taxes collected by a person other than the remittance provider.
  • 12 C.F.R. §1005.31(b)(1)(viii) was added to require a disclaimer stating that non-covered third party fees or taxes collected by someone other than the provider may reduce the amount of funds received by the recipient.

Second, the rule no longer holds the remittance provider responsible for correcting a transfer that went to the wrong account because the consumer provided the wrong account number or recipient institution identifier. Specifically:

  • 12 C.F.R. §1005.33(a)(1)(iv)(D) and §1005.33(h) were added to create an exception to the requirement that a remittance provider remediate erroneous transfers. The exception applies if the error was due to the consumer providing an incorrect account number or an incorrect recipient institution identifier, so long as the provider used reasonably available means to verify the institution identifier.

The final rule is effective on October 28, 2013.

Why You Should Care: The CFPB’s numerous modifications to its remittance regulation give financial institutions and other providers greater flexibility around the content of their disclosures about fees and taxes. The latest amendments to the remittance rule were reportedly motivated by a joint effort from industry and consumer groups. Consumer groups, in particular, were reportedly concerned that providers would stop offering international remittance services if they would have to bear the burden of making accurate disclosures regarding sometimes indeterminable fees collected by the recipient institution and taxes collected by foreign countries.[5] The amendments may reflect the bureau’s evolving views as to how it can best balance providing protections to consumers with facilitating continued availability of consumer financial services. As Director Cordray stated on April 30, 2013, the final remittance rule balances “protecti[on] for consumers” while “preserving their access to [remittance] services[.]”

If You Want Further Information: The CFPB’s final remittance rule, published in the Federal Register on May 22, 2013, can be found here.

If You Want Further Analysis: Contact Brian Boyle, (202) 383-5327 bboyle@omm.com, or Dixie Noonan, (415) 984-8973 dnoonan@omm.com.

[1] 12 C.F.R. §1005.30(c),(e).
[2] 12 C.F.R. §1005.30(g).
[3] An entity that provided 100 or fewer remittance transfers in the prior calendar year and 100 or fewer remittance transfers in the current calendar year is exempted from the rule, because they are deemed not to be providing remittance transfers in the normal course of their business. 12 C.F.R. §1005.30(f)(2).
[4] 77 FR 6194 (Feb. 7, 2012).
[5] See e.g. Kate Berry, Consumer Groups Help Banks Score Victory on Remittance Rule, American Banker, May 3, 2013.

 


 

The CFPB Continues to Publicize and Reject Petitions to Modify or Set Aside Civil Investigative Demands

Issue: Consumer Financial Protection Bureau (“CFPB” or “bureau”) Director Richard Cordray issued his third public[1] rejection of a petition to modify or set aside a civil investigative demand (“CID”).[2] The CFPB has thus far denied every petition to modify or set aside a CID.[3]

In refusing to modify or set aside its CIDs, the Bureau has emphasized that reviewing courts apply a “deferential standard of review” to administrative agency subpoenas.[4] The CFPB has categorically refused to consider legal arguments that the subpoenaed party would have a defense to liability as a ground for narrowing the scope of the CID. The CFPB explained that facts and arguments relating to legal defenses against claims the CFPB has yet to assert are not relevant to the CFPB’s enforcement of a CID, even if they may foreclose the imposition of liability.[5]

In response to petitions to modify CIDs filed by PHH and Aspire, the Bureau summarily rejected the argument that a CID failed to sufficiently identify “the nature of conduct constituting the alleged violation that is under investigation” as is required by 12 U.S.C. § 5562(c)(2).[6] In both cases, the CFPB held, without much elaboration, that the “Notification of Purpose” section of the CID adequately put the subpoenaed party on notice as to the nature of the investigation. In its response to PHH’s petition the CFPB also held that correspondence between PHH and the Bureau fulfilled the statutory requirement,[7] whereas in response to the Aspire petition, the CFPB asserted that the CFPB’s publicized interest in mortgage advertising together with the content of the requests within the CID independently satisfied the statutory notice requirement.[8]

The CFPB has also rejected the argument that a CID is overbroad where it relates to investigation of conduct that occurred too long ago to be actionable. PHH objected to its CID on the grounds that the CFPB sought to investigate conduct for which the statute of limitations had passed. Aspire argued that its CID was overbroad in that it sought information regarding acts committed before the effective date of the statutes and regulations the CFPB seeks to enforce. The CFPB rejected this argument in both cases, stating that “the issue here is not whether all such information is itself actionable; rather the issue is whether such information is relevant to conduct for which liability can be lawfully imposed.”[9]

The CFPB has been similarly unsympathetic to arguments that CIDs should be set aside as unduly burdensome. Nevertheless, in response to both the PHH and Aspire petitions, the Bureau expressed a willingness to negotiate through the informal meet-and-confer process. In response to the PHH request, the CFPB noted that it had previously modified the CID in response to discussions with PHH, and that it was amenable to further modifications, such as providing specific search terms, if appropriate. In response to the Aspire petition, the CFPB also expressed a willingness to engage in further discussions, including affording additional time to respond.

Why You Should Care: While it remains important to file a formal petition to modify or set aside a CID in order to preserve the right to raise objections to potential judicial enforcement of CID,[10] the experiences of early objectors underscore that the likelihood of formal administrative relief in response to such petitions is low. As a practical matter, efforts to narrow the scope of an unduly burdensome CID are more likely to be successful through discussions with the enforcement team.

If You Want Further Information: All three petitions to modify the CFPB’s CIDs and the denial orders can be found here.

If You Want Further Analysis: Contact Brian Boyle, (202) 383-5327 bboyle@omm.com.

 

[1] Unless the petitioner provides good cause for keeping the CID modification request and resulting order private at or before filing the petition requesting modification, both documents will be made public. 12 C.F.R. §1080.14; 12 C.F.R. §1080.6(g).
[2] The procedures for responding to a CFPB CID are described in our prior alert, The CFPB Defines its Investigative Powers, July 24, 2012, available here. As noted in that alert, the Director of the CFPB has authority to rule on all requests to modify or set aside a CID. 12 C.F.R. §1080.6(e)(4).
[3] See Decision and Order on PHH Corporation’s Petition To Modify Or Set Aside Civil Investigative Demand, 2012-MISC-PHH Corp-0001, Sep. 20, 2012, (“PHH Order”) available here;
Decision and Order on Next Generation Debt Settlement, Inc.’s Petition To Modify Or Set Aside Civil Investigative Demand, Oct. 5, 2012 (“Next Generation Order”), available here;
Decision and Order on Aspire Financial Services Inc.’s Petition To Modify Or Set Aside Civil Investigative Demand, Apr. 16, 2013, (“Aspire Order”) available here.
[4] See e.g. PHH Order at p. 5.
[5] Next Generation Order at p. 2.
[6] See also 12 C.F.R. §1080.5.
[7] PHH Order at p. 5.
[8] Aspire Order at p. 2.
[9] See Aspire Order at p. 3 (quoting the PHH Order).
[10] As described in our prior alert, supra note 2, a failure to petition the CFPB for a modification of a CID may bar the recipient from raising objections in response to the CFPB’s effort to judicially enforce the CID.


Stakeholders and Others Respond to Proposed Changes to Interagency Guidance Regarding the Community Reinvestment Act

Issue:
The Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Board (“FRB”), and the Federal Deposit Insurance Corporation (“FDIC”) recently proposed revisions to their “Interagency Questions and Answers Regarding Community Reinvestment” document (“Q&A Document”). The Q&A Document is the primary document used by these agencies to interpret their Community Reinvestment Act (“CRA”) regulations. Financial institutions that accept deposits insured by the FDIC are subject to the requirements of the CRA, including periodic examinations by their supervisory agency with the objective of ensuring that such institutions are helping to meet the credit needs of the entire communities in which they operate, in a safe and sound manner.

The proposed revisions to the Q&A Document focused on community development, one of several areas evaluated in CRA examinations.[1] According to the agencies, the proposed revisions were intended to, among other things:

(i) provide more clarity regarding when financial institutions would receive CRA consideration for community development activities provided outside of their CRA assessment areas;

(ii) provide greater flexibility for documenting community development investment and services;[2]

(iii) address the treatment of qualified investments to organizations that only use a portion of the investment to directly support community development activities; and

(iv) clarify that community development lending should be evaluated so that it may have a positive, neutral, or negative impact on the large institution lending test rating.[3]

The agencies requested comment on their proposed revisions to the Q&A Document and more than 145 financial institutions, industry groups, community organizations, and individuals submitted letters in response .[4] While many commenters supported the agencies’ efforts to emphasize the importance of community development activities and to promote additional community development activities by financial institutions outside of their assessment areas, they also expressed various concerns with the proposed changes. For example, some commenters expressed concern that the agencies’ proposed revisions did not provide the intended clarity regarding the circumstances under which financial institutions would receive CRA consideration for community development activities outside of their assessment areas.[5] Other commenters indicated that that proposed guidance that would limit the amount of CRA consideration for certain qualified investments (by excluding from consideration amounts that a community development organization invests in Treasury securities or other instruments that do not have community development as their primary purpose) could inadvertently discourage worthwhile community development activities.[6] Commenters also expressed concern that some changes, such as permitting negative CRA assessments for community lending activities (as opposed to simply positive or neutral consideration) could encourage unsustainable practices that ultimately do not benefit underserved communities.[7] Many commenters proposed further changes to the Q&A Document to address their indicated concerns.

In addition to providing comments on the agencies’ specific proposed changes to the Q&A Document, several commenters pressed the agencies to expand the scope of CRA assessment areas – which are currently based on an institution’s physical branch presence – to include geographies where banks engage in significant lending but do not necessarily have branches.[8] Such commenters asserted that the current regulatory definition of assessment areas does not reflect the reality that financial institutions offer credit through many channels other than physical branches. Regulators and others, however, have indicated that the question of whether the definition of assessment areas should be expanded raises difficult issues and does not have a straightforward answer.[9] For example, financial institutions have commented in the past that imposing CRA responsibilities on institutions beyond their branch-based assessment areas may dilute institutional resources and ultimately undermine the impact of the CRA.[10]

Whether the definition of assessment areas should be expanded is an issue that is likely to receive further regulatory consideration.[11] As the agencies have indicated, the proposed revisions to the Q&A Document are simply a “first step to addressing substantive and significant issues raised by commenters” during a series of public hearings in 2010 regarding improvements to the CRA.[12] The agencies are likely to propose additional changes to the Q&A Document and may also propose formal changes to their CRA regulations.

Why You Should Care: Because the Q&A Document is the primary document used by the agencies to interpret their CRA regulations, the Q&A Document plays an important role in the agencies’ development of CRA examination procedures. It will be important to stay up to date on changes to the Q&A Document in order to anticipate forthcoming examination changes and to develop practices that maximize CRA performance. Further changes to the agencies’ CRA guidance and regulations – in particular, any changes that redefine the scope of institutional assessment areas – could have significant impact on CRA examinations.

If You Want Further Information: The interagency request for comment regarding the proposed changes to the Q&A Document is available here. Many comment letters regarding these proposed changes are available via the FDIC website at this link. Finally, the existing Q&A Document is available via this link.

If You Want Further Analysis: Elizabeth L. McKeen, (949) 823-7150 emckeen@omm.com.

[1] For more information regarding the scope of CRA examinations, see 12 C.F.R. parts 25, 195, 228, and 345.
[2] 76 Fed. Reg. 16765 at 16767; Thomas J. Curry, Comptroller of the Currency, Office of the Comptroller of the Currency, Before the National Community Reinvestment Coalition (Mar. 20, 2013).
[3] See FRB, OCC, and FDIC, Agencies Release Proposed Revisions to Interagency Questions and Answers Regarding Community Reinvestment, Joint Press Release (March 18, 2013), available here.
[4] See, e.g., comments submitted to FDIC, available here.
[5] See, e.g., Letter from Robert G. Rowe, III, Vice President/Senior Counsel, Center for Regulatory Compliance, American Bankers Association to OCC, Federal Reserve Board, and FDIC (May 17, 2013), at pp. 2-6; Letter from Community Development Bankers Association to OCC, Federal Reserve Board, and FDIC (May 16, 2013), at p. 2.
[6] See, e.g., Letter from Eileen M. Fitzgerald, NeighborWorks America, to OCC, Federal Reserve Board, and FDIC (May 17, 2013) at p. 4; Letter from Ellen Seidman to OCC, Federal Reserve Board, and FDIC (May 13, 2013), at p. 4.
[7] See, e.g., Letter from Steven I. Ziesel, Executive Vice President & General Counsel, Consumer Bankers Association, to OCC, Federal Reserve Board, and FDIC (May 17, 2013), at pp. 3-6; Letter from John H. Dalton and Richard Whiting, The Financial Services Roundtable, to OCC, Federal Reserve Board, and FDIC (May 17, 2013) at pp. 3-4.
[8] See, e.g., Letter from Eileen M. Fitzgerald, NeighborWorks America, to OCC, Federal Reserve Board, and FDIC (May 17, 2013) at p. 2.
[9] Thomas J. Curry, Comptroller of the Currency, Office of the Comptroller of the Currency, Before the National Community Reinvestment Coalition (Mar. 20, 2013) (“It is my view that one of the most important issues that we have yet to address is whether banks that draw deposits or engage in significant lending beyond their branch-based assessment areas should have increased CRA responsibilities in these outlying areas. As you can imagine, this is not a simple issue to resolve.”).
[10] Letter from Lela Wingard Hughes, Senior Vice President, JPMorgan Chase Bank, N.A. to OCC, et al. (Aug. 31, 2010), at 4 (“To expand the bank’s CRA assessment areas . . . would stretch resources, as the bank would need to have a local presence and staff on the ground, and risk diluting some of the most positive impacts of the CRA”); Lisa Glover, Senior Vice President, Directory of Community Affairs, U.S. Bank, on Behalf of the Consumer Bankers Association, CRA Public Hearing, Los Angeles, CA (Aug. 17, 2010) at p. 5 (“For traditional branch-based banks, the expansion of assessment areas to include geographies without branches or physical deposit taking entities would undermine much of the value of CRA to local communities”).
[11] See, e.g., Curry, supra (“We must engage in a serious discussion regarding how to define assessment areas and achieve the right balance to ensure that CRA keeps pace with the banking industry we have today.”).
[12] 76 Fed. Reg. 16765 at 16767; Thomas J. Curry, Comptroller of the Currency, Office of the Comptroller of the Currency, Before the National Community Reinvestment Coalition (Mar. 20, 2013) (“I want to emphasize that these proposed changes represent the first steps were taking to addressing the substantive and significant issues that were raised during the comment period . . . We will continue to work on additional Questions and Answers that address other CRA issues.”).

 

 


This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Brian D. Boyle, an O'Melveny partner licensed to practice law in California and the District of Columbia, Elizabeth McKeen, an O'Melveny partner licensed to practice law in California, Danielle Oakley, an O'Melveny counsel licensed to practice law in California, and Dixie Noonan, an O'Melveny counsel licensed to practice law in California, New York, and the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York's Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, Phone:+1-212-326-2000. © 2013 O'Melveny & Myers LLP. All Rights Reserved.