FEDERAL GOVERNMENT RELATIONS
Federal Judge Delays Section 1071 Compliance Dates
A federal judge in Texas issued an order Monday blocking enforcement of the Consumer Financial Protection Bureau's Section 1071 final rule while the Supreme Court hears a challenge to the constitutionality of the CFPB's funding structure. The injunction came at the request of the American Bankers Association, the Texas Bankers Association, and McAllen, Texas-based Rio Bank, in litigation brought challenging the Section 1071 rule.
While the judge granted ABA and TBA's request for an injunction, the judge did not accept ABA's and TBA's request for the injunction to apply to all lenders covered by the rule but chose to provide relief only to TBA- and ABA-member banks across the country.
The relief applies while the Supreme Court hears the constitutional challenge to the CFPB in CFPB v. Community Financial Services Association of America, which is scheduled to be argued in October and whose decision could be released any time before the end of June 2024, at which point new compliance deadlines would be issued for ABA and TBA members. "Defendants are ordered to extend Plaintiffs and their members' deadlines for compliance with the requirements of the Final Rule to compensate for the period stayed," the judge's order said. The ruling would thus allow ABA and TBA members to limit Section 1071 implementation costs until the question of the CFPB's constitutionality is resolved.
Former Banker to Lead Kansas City Fed
The Federal Reserve Bank of Kansas City has selected Jeffrey Schmid to serve as its new president effective Aug. 21. Schmid is the former chairman and CEO of Mutual of Omaha Bank. Prior to that role, he served as a bank examiner for the Federal Deposit Insurance Corp. He replaces Esther George, who retired on Jan. 31.
Minnesota Bankers Association Sues FDIC Over Guidance on Multiple NSF Fees
Last month, the Minnesota Bankers Association and Annandale, Minnesota-based Lake Central Bank sued the Federal Deposit Insurance Corp., alleging that the agency's guidance addressing banks' practice of charging multiple nonsufficient-funds fees for represented transactions violates the Administrative Procedures Act (APA).
The guidance – issued in August 2022 – emphasized that the FDIC expects institutions self-identifying re-presentment NSF fee issues take full corrective action, including paying full restitution; correct NSF fee disclosures, and provide revised disclosures to customers; consider whether additional risk mitigation practices are needed to reduce potential unfairness risk; and monitor ongoing activities and customers' feedback to ensure lasting corrective action.
MBA and Lake Central Bank's lawsuit alleges that the guidance constitutes a rule, given the new legal obligations it imposes, and that the FDIC did not follow notice-and-comment rulemaking in violation of the APA. The plaintiffs also alleged that the guidance is arbitrary and capricious, and that in issuing it, the FDIC exceeded its statutory authority because no provision of federal law gives the agency authority to promulgate rules identifying specific UDAP violations or rules governing disclosure requirements for customers' deposit accounts or ACH transactions.
FHA Proposes Removing Face-to-Face Requirement for Borrowers in Default
The Federal Housing Administration proposed making permanent a pandemic-related rule that waives the Department of Housing and Urban Development's requirement for mortgagees to meet in person with borrowers who default on their mortgage payments.
In early 2020, HUD waived the face-to-face meeting requirement for mortgagees because of the COVID-19 pandemic. FHA said that mortgagees have since demonstrated their ability to communicate with borrowers who prefer to meet using remote communication tools. The proposed rule would make the change permanent by allowing servicers to use remote communication methods for conducting interviews with borrowers to satisfy FHA's early default intervention requirements.
In addition, the proposed rule would eliminate the requirement that mortgagees make at least one trip to the mortgaged property to schedule a meeting with the borrower. It also would expand the meeting requirement to include borrowers who do not reside in the mortgaged property or have a mortgaged property that is not within 200 miles of their mortgagee, its servicer or a branch office.
Fitch Downgrades US Credit Rating to AA+
The U.S. government’s debt has been downgraded by Fitch Ratings to AA+ from a long-standing AAA, with Fitch citing factors such as "erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades," "expected fiscal deterioration over the next three years" and "a high and growing general government debt burden." In response, Treasury Secretary Janet Yellen said that "Fitch's decision does not change what Americans, investors and people all around the world already know: that Treasury securities remain the world's preeminent safe and liquid asset, and that the American economy is fundamentally strong."