CURRENT MONTH (December 2021)
OCC Releases Final Rule Rescinding 2020 CRA Rule
By Christopher Greenidge, McGlinchey Stafford, PLLC
On December 15, 2021, the Office of the Comptroller of the Currency (OCC) issued a final rule that rescinds the June 2020 Community Reinvestment Act (CRA) final rule and replaces it with a rule based on the rules that were previously adopted jointly by the federal banking agencies in 1995. The OCC states, in bulletin 2021-61, that this final rule applies to national banks and federal and state savings associations, including community banks, covered by the CRA.
The OCC also highlights in the bulletin that:
- Newly designated large banks (banks that were small banks before the June 2020 CRA rule but are large banks under the final rule) will be provided with one year to comply with the final rule’s data collection, record-keeping, and reporting requirements.
- With respect to the qualifying activities criteria or retail or community development definitions, banks will receive consideration in their CRA examinations for activities in effect at the time the banks conducted the activities or entered into legally binding commitments to conduct the activities, including under the June 2020 rule.
- Bank strategic plans approved before January 1, 2022, will be allowed to remain in effect except for any provisions that are inconsistent with the final.
OCC Issues Guidance on Climate-Related Financial Risks, Requests Feedback
By Christopher Greenidge, McGlinchey Stafford, PLLC
On December 16, 2021, the Office of the Comptroller of the Currency (OCC) released a framework of principles regarding how banks with more than $100 billion in assets should manage climate risk. The OCC plans to elaborate on these principles in future guidance and is requesting feedback from the industry on this framework and the included questions by February 14, 2022.
The principles are as follows:
- Governance: Banks should demonstrate an appropriate understanding of climate-related financial risks and their impacts. This includes reviewing information necessary to oversee the bank, allocating appropriate resources, assigning climate-related financial risk responsibilities throughout the organization (i.e., committees, reporting lines, and roles), and clearly communicating to staff regarding climate-related impacts to the bank’s risk profile.
- Policies, Procedures, and Limits: Banks should incorporate climate risks into policies, procedures, and limits to provide detailed guidance on the bank’s approach to these risks.
- Strategic Planning: Banks are encouraged to consider material climate risk exposures when setting their overall business strategy, risk appetite, and financial, capital, and operational plans.
- Risk Management: Banks should employ a comprehensive process to identify, measure, monitor, and control climate risk exposures within their existing risk management frameworks. The OCC goes on to recommend tools for measuring and monitoring climate risk exposure including exposure analysis, heat maps, climate risk dashboards, and scenario analysis.
- Data, Risk Measurement, and Reporting: The OCC urges banks to incorporate climate risk information into their internal reporting, monitoring, and escalation processes to facilitate timely and sound decision-making.
- Scenario Analysis: Banks are encouraged to implement climate-related scenario analysis frameworks. These could include exploring the impacts of climate-related risks on the bank’s strategy and business model, and estimating climate-related exposures and potential losses across a range of plausible scenarios.
CFPB Releases Fall 2021 Rulemaking Agenda
As part of the Fall 2021 Unified Agenda of Federal Regulatory and Deregulatory Actions, the CFPB published its Fall 2021 Rulemaking Agenda on December 13, 2021. The agenda lists the regulatory matters the Bureau plans to pursue between November 1, 2021, and October 31, 2022:
- Per its November 6, 2021, advanced notice of proposed rulemaking, the CFPB is developing rules to implement Section 1033 of Dodd-Frank, which relates to consumer access to data in the possession of financial services providers.
- The Bureau cited its October 8, 2021, notice of proposed rulemaking that would require financial institutions to report data on small business credit applications, including the credit applied for, applicants’ demographics, and the price of credit offered.
- In accordance with the Bureau’s 2019 advanced notice of proposed rulemaking, the CFPB noted that it is collecting information on the effects of property-assessed clean energy financing, a form of lending secured by real property but repaid as special state property tax assessments.
- The CFPB intends to issue a joint notice of proposed rulemaking with the Federal Reserve, OCC, FDIC, NCUA, and FHFA to promulgate quality control standards for automated valuation models to protect against the manipulation of data, avoid conflicts of interest, and require random sample testing.
- Finally, the CFPB described its efforts to facilitate the LIBOR transition. The Bureau recently released a final rule governing how lenders must select replacement indices for existing LIBOR-linked loans to avoid triggering the loans’ refinancing provisions.
An accompanying blog post by Susan M. Bernard, the Assistant Director for Regulations in the Research, Markets and Regulation Division, noted that the CFPB had submitted this agenda to the Office of Management and Budget prior to Rohit Chopra’s confirmation as Director. The post indicated that “Director Chopra’s regulatory priorities will be more fully reflected in the Spring 2022 Agenda.”
CFPB Joins Amicus Brief Urging the Application of the ECOA Adverse Action Notice Requirements to Cancellations of Credit
On December 16, 2021, the CFPB filed a joint amicus brief with the DOJ, Federal Reserve, and FTC in Fralish v. Bank of America, N.A., a case pending in the U.S. Court of Appeals for the Seventh Circuit. The case arose from a consumer’s allegation that his bank violated the Equal Credit Opportunity Act (“ECOA”) by terminating his credit card account without providing an adequate notice of adverse action. The U.S. District Court for the Northern District of Indiana dismissed the consumer’s complaint, holding that the ECOA’s adverse action notice requirement applies to “applicants,” but not to existing customers no longer actively seeking credit. Urging the Seventh Circuit to reverse the district court, the agencies claimed that customers are still “applicants” under the ECOA after they receive credit. The agencies observed that Regulation B treats existing customers as applicants and argued that this interpretation warrants Chevron deference.
CFPB Releases Supervisory Highlights Report
On December 8, 2021, the Consumer Financial Protection Bureau issued its Supervisory Highlights Report, which summarizes findings from the Bureau’s examinations from the first half of 2021. The blog post announcing the release of the report highlights three findings:
- mortgage servicers charged improper fees to borrowers enrolled in CARES Act forbearance;
- mortgage lenders violated ECOA by lacking oversight of and controls over how loan officers granted pricing exceptions to customers; and
- payday lenders improperly debited consumer bank accounts.
The report itself covered examinations between January 2021 and June 2021 in the areas of credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. In addition to the findings highlighted by the Bureau, examiners found examples of:
- credit card account management issues, including problems with billing error resolution and the deceptive marketing of credit card bonus offers;
- deceptive efforts to collect debts by third-party debt collectors;
- violations of Regulation E in error resolution processes;
- violations of Reg E and the Electronic Funds Transfer Act in connection with prepaid accounts; and
- violations of Reg E in remittance transfers.
Director Chopra Addresses the National Association of Attorneys General (NAAG)
On December 7, 2021, CFPB Director Chopra addressed NAAG and discussed how the Bureau under his direction would assist enforcement of federal consumer financial protection law by state attorneys general. He stated that efforts to preempt state consumer protection laws are “fundamentally wrong,” and that “[r]ather than discouraging, obstructing, or preempting state enforcement or stronger state laws, the CFPB will be taking steps to promote enforcement of federal consumer financial protection law by state attorneys general.” This includes exploring whether the Bureau’s victim redress funds could be made available to compensate victims in state enforcement actions. Director Chopra closed by singling out “repeat offenders” as “an insidious problem” that the Bureau and state attorneys general must “forcefully address” through “remedies directed at the senior management and . . . structural reforms.”
7th Circuit Affirms Summary Judgment for Collector under the FCRA
By Patrick Huber, Pilgrim Christakis LLP
In Persinger v. Southwest Credit Systems, L.P. (Dec. 22, 2021), the Seventh Circuit affirmed summary judgment for a debt collector that had allegedly accessed a consumer’s credit information after the consumer’s debt had been discharged in bankruptcy. The court held that the consumer failed to establish any evidence of actual damages for a negligent violation of the Fair Credit Reporting Act, and, based on the evidence and the procedures in place by the collector, the consumer could not show a willful violation of the Act to support statutory or punitive damages.
In 2017, Persinger and her husband filed for bankruptcy. The bankruptcy discharge order listed Persinger’s four former names. Southwest Credit Systems received a copy of the discharge order because it was servicing an AT&T debt incurred by Persinger’s husband. Following notice of Persinger’s bankruptcy, in 2018, Southwest received a delinquent account in one of Persinger’s former names. Although this debt had been delinquent since 2014, it was not listed on Persinger’s 2017 bankruptcy petition. Upon receiving the account, Southwest ordered a bankruptcy scrub from LexisNexis that didn’t come up with any results.
After the scrub, Southwest began collection procedures by ordering a “propensity-to-pay” score from a consumer reporting agency, which is a form of a “soft pull.” Several months later, Lexis updated its results by including Persinger’s 2014 debt. Upon notice of Persinger’s bankruptcy, Southwest closed the account.
Persinger sued Southwest alleging that it violated the FCRA by accessing her credit information without a permissible purpose. On appeal, the court began by assessing Persinger’s standing. After a lengthy discussion, the court found that Persinger had standing to sue because she claimed that Southwest invaded her privacy by accessing her credit information. But Persinger didn’t show any pecuniary harm because she disclaimed “any loss of credit, housing, employment, money, or insurance.” And her mere conclusory statements of “stress” and “anger” were insufficient to show damages for emotional distress. Thus, the court held that Persinger failed to show a negligent violation of the Act because she could not show actual damages.
Nevertheless, the court recognized that, absent actual damages, Persinger could still collect statutory or punitive damages if she could show that Southwest willfully accessed her credit report in violation of the Act. This she could not do. Although the court held that Southwest’s credit inquiry was “outside the parameters” of the FCRA, Persinger could not show that Southwest acted willfully for several reasons. First, she omitted the 2014 account from her bankruptcy petition, which prevented Southwest from being notified about the account. The court dismissed Persinger’s argument that Southwest should have documented her name, as well as all of her former names, when it received the bankruptcy order tied to her husband’s account, saying there were “practical peculiarities” with Persinger’s expectations. Second, despite Persinger’s claims, there was no genuine dispute that Southwest only received actual notice of Persinger’s bankruptcy after it pulled her credit information. Accordingly, Persinger could not show willfulness, and therefore Southwest was entitled to summary judgment on her claims.
SCOTUS to Hear Arguments for DOL’s ETS and Healthcare Worker Vaccine Mandates
By Andrew Albritton, McGlinchey Stafford, PLLC
The Supreme Court announced on December 22, 2021, that it would hear oral arguments in cases determining the fates of two government vaccine rules. The first, the healthcare worker vaccine mandate issued by the Department of Health and Human Services, was subject to injunctions out of Missouri and Louisiana courts. The second, the OSHA emergency rule requiring employees to either be vaccinated or undergo weekly testing, was put back into place by the Sixth Circuit just two weeks ago, after the rule was temporarily stayed by the Fifth Circuit.
Both lower court decisions were quickly challenged by activist groups, businesses, religious organizations, and individuals, arguing the rules were either valid or invalid. The two cases remain separate, but oral argument is set for the same day, January 7. Until then, the healthcare worker mandate remains blocked in about half of states, and the OSHA rule is actively in effect. That rule requires employers to comply by implementing policies by January 10, so employers should still prepare in case the rule is upheld.
Once arguments are held, the Court will likely issue an opinion quickly due to the emergency nature of the rules and the recent uptick in cases.
IRS Says No Form 1099-C Required for Certain Student Loan Discharges
Acting to clarify the practical impact of a COVID relief provision enacted earlier this year, the IRS has announced in Notice 2022-1 (Notice) that lenders are not required to, and should not, issue Forms 1099-C when certain student loans are discharged. Lenders and their servicers should act now to review their tax reporting procedures for compliance with the Notice.
By way of background, the American Rescue Plan Act of 2021 (ARPA) amended Section 108 of the Internal Revenue Code (Code) to expand the types of discharges of student loan debt that will be excluded from income. Before the enactment of ARPA, Section 108 of the Code provided narrow exceptions to the general rule requiring the inclusion of cancellation of indebtedness (COD) income. The exceptions applied to COD income from the discharge of student loans:
- in exchange for a provision requiring certain work for a certain period by certain professionals (e.g., a doctor in a public hospital in a rural area), or
- on account of the death or total and permanent disability of a student.
Relief also was provided for COD income resulting from certain other student loan discharges, such as loans discharged under the Department of Education’s Closed School process or the Defense to Repayment discharge process.
ARPA added further relief by excluding from gross income certain discharges of student loans occurring after December 31, 2020, and before January 1, 2026. The new “student loan discharge” exclusion applies to the following types of loans:
- Loans provided expressly for post-secondary educational expenses if the loan was made, insured, or guaranteed by a federal, state, or local governmental entity or an eligible educational institution.
- Private education loans (as defined in Section 140(a)(7) of the Truth in Lending Act).
- Any loan made by any educational institution qualifying as a 50% charity (for purposes of the income tax charitable deduction) (most nonprofit colleges and universities) if the loan is made under an agreement with any governmental entity (described in item (1)) or any private education lender that provided the loan to the educational organization, or under a program of the educational institution that is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt charitable organization.
- Any loan made by an educational organization qualifying as a 50% charity or by a tax-exempt organization to refinance a loan to an individual to assist the individual in attending any educational organization, but only if the refinancing loan is under a program of the refinancing organization that is designed as described in item (3).
The discharge of a loan made by either an educational institution or a private education lender is not excluded under the above rules, however, if the discharge is on account of services performed for either the organization or for the private education lender.
It is important to note that that this provision of ARPA did not, by itself, require any student loan to be discharged. The change that ARPA made to the Code with respect to the expanded exception to COD income applies only to how a student loan discharge is treated for tax reporting purposes.
To summarize, normally, IRS Form 1099-C is used by lenders to report the discharge of indebtedness upon the occurrence of certain identifiable events. When applicable, the lender must file Form 1099-C with the IRS and furnish the borrower with a copy. If the debt that is discharged is a student loan described above, however, the Notice provides that the IRS does not want:
- the lender filing a Form 1099-C with the IRS, as this could result in an IRS computer-generated notice to the borrower of unreported income, or
- furnishing a Form 1099-C to the borrower, as this could cause confusion for the borrower.