Legal Seminar, Chicago, IL

CSBS Legal Seminar Chicago, Illinois July 22-24, 2019

Monday, July 22, 2019

Breakfast

8:00 AM

Welcome Remarks Sebastien Monnet

8:30 AM

Vice President, Learning & Development Conference of State Bank Supervisors The Evolution and Future of FinTech Jason Henrichs Founder, FinTech Forge Co-Founder, FinTEx

8:45 AM

Break

9:45 AM

CRA / Consumer Compliance Issues Dory Rand President Woodstock Institute

10:00 AM

Joseph E. Silvia Partner Howard & Howard

Break

11:00 AM

Federal Agencies’ Counsel Panel John J. Schroeder Regional Director – Midwest Region Supervision, Enforcement and Fair Lending Consumer Financial Protection Bureau Monica Tynan Acting Regional Counsel Federal Deposit Insurance Corporation Angela Wu Vice President & Associate General Counsel Federal Reserve Bank of Chicago Margaret Liu (moderator) Senior Vice President & Deputy General Counsel Conference of State Bank Supervisors

11:15 AM

Lunch

12:30 PM

Docket Review Thomas Pinder Deputy General Counsel American Bankers Association

1:45 PM

Break

2:45 PM

Temporary Authority to Operate – A Conversation Kelly O’Sullivan, Chair of NMLS Policy Committee Deputy Commissioner Montana Division of Banking & Financial Institutions Lucinda Fazio, Chair of SRR Lawyers Committee Chief of Regulatory Affairs – Consumer Services Washington Department of Financial Institutions Matthew Nance Deputy General Counsel Texas Office of Consumer Credit Commissioner

3:00 PM

Lisa Tinsley (moderator) Director, NMLS Business Services Conference of State Bank Supervisors

Information Sharing & Collaboration Platform for State Regulatory Agencies’ Attorneys Tarcy Thompson Chief Privacy Officer and Senior Associate General Counsel Conference of State Bank Supervisors

4:00 PM

4:30 PM Adjourn 7:30 PM - 9:30 PM Dessert Reception

Tuesday, July 23, 2019

Breakfast

8:00 AM

Ethics and Professional Responsibility for State Government Attorneys Prentiss Cox Associate Professor of Law Co-Director, Law in Practice Program University of Minnesota Law School Clinic

8:30 AM

Break

10:30 AM

Legal Elements of Cybersecurity John E. Lande Chair – Cybersecurity, Data Breach & Privacy practice group Dickinson, Mackaman, Tyler & Hagen, P.C.

10:45 AM

Lunch

12:00 PM

Emerging Trends in Non-Depository Trust Companies Thomas C. Blank Partner, Shumaker, Loop & Kendrick LLP General Counsel, Association of Trust Organizations

1:15 PM

Break

2:15 PM

Emerging Risks and Trends for Mortgage Servicing Chuck Cross Senior Vice President, Consumer Protection and Non-Bank Supervision Kevin Byers Senior Director, Non-Depository Supervision Conference of State Bank Supervisors

2:30 PM

Break

3:30 PM

State Perspectives: A 10-Year Look Back at the Financial Crisis Paul Allred Deputy Commissioner Utah Department of Financial Institutions

3:45 PM

Elizabeth Bressler General Counsel Alabama State Banking Department Melissa Sneed Deputy Commissioner for Supervision Georgia Department of Banking & Finance Buz Gorman (moderator) General Counsel Conference of State Bank Supervisors

5:00 PM Adjourn 5:30 PM - 7:30 PM Networking Reception

Legal and Deputy Seminars’ Joint Networking Reception

Wednesday, July 24, 2019

Breakfast State Regulators Only

8:00 AM

State Regulatory Perspectives State Regulators Only

8:30 AM

Deborah A. Hagan Secretary Illinois Department of Financial and Professional Regulation

CSBS Policy and Legislative Update State Regulators Only

9:00 AM

Jim Cooper Senior Vice President, Policy

Chuck Cross Senior Vice President, Consumer Protection and Non-Bank Supervision Margaret Liu Senior Vice President, Legislative and Deputy General Counsel

Michael L. Stevens (moderator) Senior Executive Vice President

Break

10:30 AM

Contingency Planning Risks and Strategies for State Regulatory Agencies State Regulators Only

10:45 AM

Tim Kemp Acting Commissioner Kansas Office of State Bank Commissioner

Catherine Reyer General Counsel Texas Department of Banking

Ingrid White Deputy Superintendent for Banks Ohio Department of Financial Institutions

Conclusion of the 2019 Legal Seminar

12:00 PM

Legal Seminar Chicago, Illinois July 22-24, 2019

Attendees Alabama State Banking Department Elizabeth Bressler

elizabeth.bressler@banking.alabama.gov lindsey.ward@banking.alabama.gov

334-353-5200 334-353-4512

Lindsey Ward

California Department of Business Oversight Nancy Ashjian

nancy.ashjian@dbo.ca.gov stephanie.pham@dbo.ca.gov

916-322-5983 415-263-8503

Stephanie Pham

Consumer Financial Protection Bureau Vanessa Careiro

vanessa.careiro@cfpb.gov john.schroeder@cfpb.gov

202-435-9394 312-610-8948

John Schroeder

Delaware Office of the State Bank Commissioner Frank Broujos, Jr.

dawn.hollinger@delaware.gov

302-739-4235

District of Columbia Department of Insurance, Securities and Banking Jocelyn Bramble jocelyn.bramble@dc.gov

202-442-7758

Federal Deposit Insurance Corporation Frank Carella

fcarella@fdic.gov kecarver@fdic.gov krfox@fdic.gov mtynan@fdic.gov

816-234-8168 972-761-2466 972-761-2462 312-382-6555

Kevin Carver

Krystil Fox

Monica Maria Tynan

Federal Reserve Bank of Chicago Kara DeAngelis

kara.deangelis@chi.frb.org

312-322-5172

Georgia Department of Banking and Finance Elizabeth Harris

eharris@dbf.state.ga.us

770-986-1649

Hawaii Division of Financial Institutions Tara Murphy

tmurphy@dcca.hawaii.gov james.c.paige@hawaii.gov lsasaki@dcca.hawaii.gov

808-586-2814 808-586-1180 808-586-2820

James Paige Laura Sasaki

Idaho Attorney General's Office Thomas Donovan

tom.donovan@finance.idaho.gov brian.nicholas@finance.idaho.gov

208-332-8091 208-332-8092

Brian Nicholas

Idaho Department of Finance Mary Hughes

mary.hughes@finance.idaho.gov

208-332-8030

Illinois Department of Financial & Professional Regulation Lorelei Abrams

lorelei.botnerabrams@illinois.gov

312-793-3680 312-814-6161 312-814-1694 312-793-4921 217-785-2900 217-524-9789 312-814-3230 312-814-5340 312-793-2176 312-793-1454 312-814-4500 217-785-2900

Louis Butler John Crees Daniel Kelber

louis.butler@illinois.gov john.crees@illinois.gov daniel.kelber@illinois.gov helen.y.kim@illinois.gov paul.isaac@illinois.gov dina.masiello@illinois.gov

Helen Kim Paul Isaac

Dina Masiello

Francisco Menchaca

francisco.menchaca@illinois.gov vijay.raghavan@illinois.gov robert.stearn@illinois.gov hunter.wiggins@illinois.gov aaron.zivic@illinois.gov

Vijay Raghavan Robert Stearn Charles Wiggins

Aaron Zivic

Indiana Department of Financial Institutions Nicole Buskill

nbuskill@dfi.in.gov

317-232-3959

Iowa Division of Banking Zak Hingst

zak.hingst@idob.state.ia.us shauna.shields@idob.state.ia.us

515-281-4014 515-281-4014

Shauna Shields

Kansas Office of the State Bank Commissioner Tim Kemp

tim.kemp@osbckansas.org

785-296-1497 785-296-1379

Melissa Wangemann

melissa.wangemann@osbckansas.org

Louisiana Office of Financial Institutions Paul Melancon Maine Bureau of Financial Institutions David Laurendeau Maryland Office of Financial Regulation Sandra Small

pmelancon@ofi.la.gov

225-925-4660

david.g.laurendeau@maine.gov

207-624-8574

sandra.small@maryland.gov

410-230-6122

Mississippi Department of Banking & Consumer Finance Charles Plunkett

charles.plunkett@dbcf.ms.gov stephen.schelver@dbcf.ms.gov

601-321-6944 601-321-6935

Stephen Schelver

Montana Division of Banking and Financial Institutions Kelly O'Sullivan kosullivan@mt.gov National Association of State Credit Union Supervisors Brian Knight brian@nascus.org

406-841-2920

202-257-8038 703-528-0669

Nichole Seabron

nseabron@nascus.org

Nebraska Department of Banking and Finance Mike McDannel

michael.mcdannel@nebraska.gov

402-471-2171

North Carolina Office of Commissioner of Banks Ashley Holmes aholmes@nccob.gov

919-733-3016 919-733-1823

Kristin Rice

krice@nccob.gov

North Dakota Department of Financial Institutions Ryan Spah rrspah@nd.gov

701-328-9931

Ohio Division of Financial Institutions Kyle Evans

kyle.evans@com.state.oh.us

614-728-8400 614-644-4408

Jennifer Whitehurst

jennifer.whitehurst@com.state.oh.us

Oklahoma State Banking Department Dudley Gilbert

dudley.gilbert@banking.ok.gov matt.mowdy@banking.ok.gov

405-521-2782 405-521-2782

Matt Mowdy

Oregon Division of Financial Regulation TK Keen

tk.keen@oregon.gov

503-947-7226

South Dakota Division of Banking Bret Afdahl

bret.afdahl@state.sd.us brock.jensen@state.sd.us

605-773-3421 605-773-3421

Brock Jensen

Tennessee Department of Financial Institutions Marsha Anderson

marsha.anderson@tn.gov sarah.branch@tn.gov denise.e.cole@tn.gov daniel.espensen@tn.gov rachel.gatlin@tn.gov greg.gonzales@tn.gov mark.kilpatrick@tn.gov troy.mcpeak@tn.gov eric.rogers@tn.gov todd.staley@tn.gov

615-957-2265 615-428-0048 615-917-7512 615-854-6177 615-418-9743 615-532-1010 615-854-6480 615-854-0318 615-854-6893 615-428-2184

Sarah Branch Denise Cole

Daniel Espensen Rachel Gatlin Greg Gonzales Mark Kilpatrick Troy McPeak

Eric Rogers Todd Staley

Texas Department of Banking Everette Jobe

ejobe@dob.texas.gov

512-475-1321 512-475-1300 512-475-1300

Elisha Polk

elisha.polk@dob.texas.gov catherine.reyer@dob.texas.gov

Catherine Reyer

Texas Office of the Consumer Credit Commissioner Matthew Nance

512-936-7660 512-936-7623

matthew.nance@occc.texas.gov michael.rigby@occc.texas.gov

Michael Rigby

Utah Department of Financial Institutions Paul Allred

pallred@utah.gov

801-538-8837

Vermont Department of Financial Regulation Steven Knudson

steven.knudson@vermont.gov karla.nuissl@vermont.gov

802-828-4891 802-828-2963

Karla Nuissl

Washington Department of Financial Institutions Lucinda Fazio

lucinda.fazio@dfi.wa.gov amanda.herndon@dfi.wa.gov robert.jones@dfi.wa.gov joseph.vincent@dfi.wa.gov

360-902-8800 360-902-0523 360-725-7841 360-902-0516

Amanda Herndon Robert Jones Joseph Vincent

West Virginia Division of Financial Institutions Kathy Lawson

klawson@wvdob.org

304-558-2294

Wyoming Division of Banking Albert Forkner

albert.forkner@wyo.gov chris.land@wyo.gov

307-777-7797 307-777-7797

Chris Land

Speakers American Bankers Association Thomas Pinder

tpinder@aba.com

202-663-5123

Dickinson, Mackaman, Tyler & Hagen, P.C. John E. Lande

jlande@dickinsonlaw.com

515-246-4509

Federal Reserve Bank of Chicago Angela Wu

angela.wu@chi.frb.org

312-322-5322

FinTech Forge Jason Henrichs

jason@ftforge.com

Georgia Department of Banking & Finance Melissa Sneed

msneed@dbf.state.ga.us

770-986-1633

Howard & Howard Joseph E. Silvia

jsilvia@howardandhoward.com

312-456-3659

Ohio Department of Financial Institutions Ingrid White

ingrid.white@com.ohio.gov

614-644-7501

Shumaker Loop & Kendrick LLP Thomas C. Blank

tblank@slk-law.com

419-321-1394

University of Minnesota Law School Prentiss Cox

coxxx211@umn.edu

612-625-6810

Woodstock Institute Dory Rand

drand@woodstockinst.org

312-368-0310

CSBS Staff Kevin Byers Chuck Cross John Gorman Margaret Liu Tom McVey

kbyers@csbs.org ccross@csbs.org bgorman@csbs.org mliu@csbs.org tmcvey@csbs.org smonnet@csbs.org asears@csbs.org ssussman@csbs.org tthompson@csbs.org lisa.tinsley@csbs.org mtownsley@csbs.org

404-808-1721 202-728-5745 202-728-5726 202-808-3558 304-549-9584 202-549-2017 202-759-9403 202-407-7160 202-759-9401 202-559-1966 202-728-5738

Sebastien Monnet

Alisha Sears

Sandy Sussman Tarcy Thompson

Lisa Tinsley

Michael Townsley

Joseph E. Silvia jes@h2law.com (312)456-3659 CRA & Consumer Compliance Developments

Disclaimer: This presentation does not constitute legal advice or a legal opinion on any matter discussed. This presentation is for educational purposes only. If you have a specific legal question, please consult with an attorney of your own choice.

Overview

2

 CRA Developments  Current Structure of CRA Compliance  Treasury Recommendations (April 2018)  OCC Advanced Notice of Proposed Rulemaking (September 2018)  Public Comments  FRB Report on Public Feedback (June 2019)  Where do we go from here?  Consumer Compliance Developments

© 2019 Howard & Howard Attorneys PLLC

CRA Basics

3

 The Community Reinvestment Act (CRA) was enacted by Congress in 1977 to encourage depository institutions to help meet the credit needs of the communities in which they operate and to help stabilize deteriorating neighborhoods  Focus is on serving the credit needs of low- and moderate-income borrowers and geographies as well as small businesses and farms  The regulations require that information on business, farm, and community development lending by certain insured depository institutions is made available to the public  The Consumer Compliance Task Force of the FFIEC periodically publishes Interagency Q&A (2010, 2013 and 2016 versions)

© 2019 Howard & Howard Attorneys PLLC

Assessment Area

4

 Banks must delineate one or more assessment areas within which its federal regulator evaluates the bank's record of helping to meet the credit needs of its community  The appropriate federal banking regulator does not evaluate the bank's delineation of its assessment area, but reviews the delineation for compliance  The process for delineating the Bank’s assessment area will involve at least one director – it is the Board’s responsibility to ensure that the assessment area is appropriately delineated

© 2019 Howard & Howard Attorneys PLLC

Assesing CRA Performance

5

 Small Banks  Small Banks (that are not Intermediate Small Banks)  Intermediate Small Banks  Wholesale or Limited Purpose Banks  Community Development Test for wholesale or limited purpose banks  Large Banks  Lending, Investment and Service Tests  Alternative  Strategic plan

© 2019 Howard & Howard Attorneys PLLC

Reporting

6

 A bank, except a small bank or a bank that was a small bank during the prior calendar year, shall report annually by March 1 to the appropriate federal banking regulator the following data for the prior calendar year:  Small business and small farm loan data  Community development loan data  Home mortgage loans  Optional data collection and maintenance for consumer loans and other loan data  Affiliate lending data may be included if the bank has asked the regulator to consider the affiliate lending in the standard tests  CRA Disclosure Statement – prepared by the appropriate federal banking regulator for each bank that reports data

© 2019 Howard & Howard Attorneys PLLC

Ratings

7

 Outstanding – Excellent  Satisfactory – Good  Low Satisfactory – Adequate  Needs to improve – Poor  Substantial noncompliance – Very poor  A bank that receives an “outstanding” rating on the lending test receives an assigned rating of at least “satisfactory”;  A bank that receives an “outstanding” rating on both the service test and the investment test and a rating of at least “high satisfactory” on the lending test receives an assigned rating of “outstanding”; and  No bank may receive an assigned rating of “satisfactory” or higher unless it receives a rating of at least “low satisfactory” on the lending test

© 2019 Howard & Howard Attorneys PLLC

Effect of CRA Ratings

8

 CRA record is taken into account for:  Each applicant bank for establishing branches and for a merger, consolidation, acquisition of assets, or assumption of liabilities requiring approval under the Bank Merger Act if the acquiring, assuming, or resulting bank is to be a regulated bank; and  Each insured depository institution controlled by an applicant and subsidiary bank or savings association proposed to be controlled by an applicant to:  become a bank holding company;  own, control or operate a savings association in a transaction that requires approval under section 4 of the Bank Holding Company Act;  become a savings and loan holding company in a transaction that requires approval under section 10 of the Home Owners' Loan Act;  acquire ownership or control of shares or all or substantially all of the assets of a savings association, to cause a savings association to become a subsidiary of a savings and loan holding company, or to merge or consolidate a savings and loan holding company with any other savings and loan holding company in a transaction that requires approval under section 10 of the Home Owners‘ Loan Act;  For a federal thrift charter;  To relocate a main office or branch; and  Other specific applications outlined in the regulations

© 2019 Howard & Howard Attorneys PLLC

Recommendations from Treasury

9

 April 3, 2018 – Treasury Releases CRA Modernization Recommendations  4 key areas for modernization:  Assessment Areas  Examination Clarity and Flexibility  Examination Process  Performance

© 2019 Howard & Howard Attorneys PLLC

Recommendations from Treasury

10

 On Assessment Areas:  Revisit the approach to assessment areas  Take into the account the reality of the changing banking industry  Account for the current range of alternative channels for accepting deposits and providing services

© 2019 Howard & Howard Attorneys PLLC

Recommendations from Treasury

11

 On Exam Process:  Standardize exam schedules  Statuory changes, if necessary, to support more timely evaluations

© 2019 Howard & Howard Attorneys PLLC

Recommendations from Treasury

12

 On Performance:  Adopt uniform guidance re: a logical nexus between a CRA rating and evidence of discriminatory conduct  Don’t delay evaluations pending consumer protection law investigations or enforcement actions  Changes with respect to reviewing bank applications  Clarify that a community benefit plan is one way to demonstrate how a bank will meet the needs of the community

© 2019 Howard & Howard Attorneys PLLC

OCC ANPR

13

 Published in Federal Register on September 5, 2018  Soliciting “ideas for building a new framework to transform or modernize the regulations that implement the [CRA]”  align with the transformation of the banking industry  reduce complexity, ambiguity, and burden

© 2019 Howard & Howard Attorneys PLLC

OCC ANPR

14

 Goals of a new framework:  Help financial institutions by encouraging more lending, investing and activity where needed most  Provide greater clarity regarding CRA-qualifying activity  Facilitate more timely evaluations  Offer greater transparency regarding ratings  Promote a consistent interpretation of the CRA  Encourage increased community and economic development in low- and moderate-income areas

© 2019 Howard & Howard Attorneys PLLC

OCC ANPR

15

 Questions re: Current CRA Framework include:  Are regulations clear and easy to understand?  Applied consistently?  Objective, fair and transparent?  What aspects of the current framework are successful? Worth retaining?

© 2019 Howard & Howard Attorneys PLLC

OCC ANPR

16

 Questions re: a Modernized CRA focused on:  Revising the current approach, generally  Establishing a metrics-based approach  Redefining communities and assessment areas  Expanding types and categories of CRA-qualifying activities  Defining community and economic development  How to promote transparency and consistency in recordkeeping, reporting and exam requirements

© 2019 Howard & Howard Attorneys PLLC

Comments to the OCC ANPR

17

 Themes/Common Perspectives:  Work together! Need joint rulemaking  Increased regulatory clarity and transparent standards  Need more certainty re: CRA-eligible activities  Expand the CRA-eligible activities  Need to modernize for the digital transformation  Update the assessment area definition  Support for metrics-based framework  Subject other financial service providers to the CRA

© 2019 Howard & Howard Attorneys PLLC

FRB Report on Public Feedback

18

 FRB Report - “Perspectives from Main Street: Stakeholder Feedback on Modernizing the Community Reinvestment Act”  Summarizes the feedback received from the FRB’s roundtable outreach initiative – 29 roundtables hosted by the FRB and Reserve Banks – October 2018 and January 2019  More than 400 bankers and community group attendees

© 2019 Howard & Howard Attorneys PLLC

FRB Report on Public Feedback

19

 The FRB Report reviews the feedback received in the following areas, as discussed at the roundtables:  Assessment Areas  CRA in Underserved Communities  Performance Test Structure  Evaluating Performance  Defining Community Development Activities  Additional Comments  A consistent set of questions was used for banker attendees and for community group attendees

© 2019 Howard & Howard Attorneys PLLC

Where do we go from here?

20

 Comment period closed in November 2018  Agencies are reviewing comments  Next step likely a joint rulemaking  May have proposed rule within __ months  Minimum __ months/years before final or effective

© 2019 Howard & Howard Attorneys PLLC

Fintech and the Consumer

21

 Growth of financial technology has broad implications for consumer compliance issues  State and Federal regulators are paying close attention to fintech  Focus on how it currently is regulated and how it ought to be regulated

© 2019 Howard & Howard Attorneys PLLC

Fintech and the Consumer

22

 Focus areas:

 Vendor risk management  Fair lending  UDAP/UDAAP  Privacy  Data security  Compliance culture  AML

© 2019 Howard & Howard Attorneys PLLC

Consumer Compliance Developments

23

 CFPB Fair Lending Report

 CFPB Symposium on Abusive Acts or Practices

 FDIC Consumer Compliance Supervisory Highlights Publication

© 2019 Howard & Howard Attorneys PLLC

24

Joseph E. Silvia Howard and Howard

jes@h2law.com (312) 456-3659

© 2019 Howard & Howard Attorneys PLLC

CRA & C ONSUMER C OMPLIANCE D EVELOPMENTS

D ORY R AND , P RESIDENT J ULY 22, 2019 C ONFERENCE OF S TATE B ANK S UPERVISORS C HICAGO , I LLINOIS

W OODSTOCK I NSTITUTE • Founded in 1973 by the Scheinfeld family in Woodstock, Illinois, as a conference center • US Senator William Proxmire’s staff visited in drafting the Community Reinvestment Act (CRA) • Incorporated as a 501 (c ) (3) nonprofit and moved to Chicago Loop offices • Mission: Create a just financial system in which lower-wealth people and communities and people and communities of color can achieve economic security and community prosperity • Research, Policy, Coalitions, and Technical Assistance

C OMMUNITY R EINVESTMENT A CT • Congress enacted CRA in response to redlining and capital export (LMI deposits for MUI lending) • National Community Reinvestment Coalition (NCRC.org) report “HOLC Redlining Maps: The Persistent Structure of Segregation and Economic Inequality” • In the 1930s, HOLC deemed over 64% of LMI areas and over 81% of minority areas in Chicago “hazardous” and marked these areas red on maps used by lenders and FHA • As of 2010, 74% of LMI areas deemed “hazardous” remained LMI; 64% of areas deemed “hazardous” remained majority-minority; “best”= 94% MUI A CCESS TO C REDIT AND W EALTH G AP • Access to safe and affordable financial products is critical to building wealth • Most Americans’ biggest asset is home equity • Other ways to build assets: own a small business; acquire higher education; and save for retirement • Lack of access to safe and affordable financial products/credit exacerbates the racial wealth gap • Median white family in U.S. has about $171,000 in net wealth, while median African American family has about $17,000 ($1: 10 cents)

CRA P UBLIC I NPUT • At any time to bank CRA file or to regulator • “Community contacts” by CRA examiners • Comments in connection with CRA exams • Comments on CRA performance and community needs in M&A context • Comments on branch closings, option to request a “Waters” hearing

C OMMUNITY L ENDING F ACT B OOK • Identifies local mortgage and small business lending trends and number of bank branches in the City of Chicago, Chicago’s 77 community areas, and Cook, DuPage, Kane, Kendall, Lake, McHenry, and Will counties • Re-launched in 2019 as a complement to Woodstock Institute’s Data Portal and Technical Assistance Program • Data Portal has information by geographic area on mortgage and small business lending, foreclosures, income, employment, housing occupancy

C OMMUNITY B ENEFIT A GREEMENTS • Community groups and banks enter into CBAs voluntarily or as a regulator’s condition of approval of a proposed merger or acquisition • CBAs happen most often in M&A context • NCRC CBAs: B&T/SunTrust ($60B/3 yrs); Huntington ($16B/5 yrs); KeyBank ($16B/5 yrs). Other: CIBC ($3B/3 yrs) • CBAs also occur to get a bank back into good graces: after double downgrade, Fifth Third ($30B/5 yrs), plus $2B with MB Financial acquisition

CRA R ULES M ODERNIZATION • Remain true to legislative intent; do not expand beyond activities reasonably related to LMI and financial services • Adopt consistent rules and enforcement across OCC, FRB, and FDIC • Increase clarity and certainty • Adapt to changes in industry/technology • Assessment areas • Branches

CRA S TATUTE M ODERNIZATION • Level the playing field by extending CRA obligations to non-bank and fintech lenders • Affordable Housing and Economic Mobility Act (S. 3503; H.R. 7262) • Digitally Divided: Older Adult Banking Vulnerabilities in the Chicago Region ( April 2019): older adults are at risk of being left out of mainstream financial services • Closing the Disability Gap: Reforming the Community Reinvestment Act Regulatory Framework ( Michael Morris, et al., Georgetown Journal on Poverty Law and Policy, Volume XXVI, Number 3, Spring 2019) FRB R EPORT ON P UBLIC F EEDBACK • “Community group participants stressed the importance of maintaining a focus on physical branches and continuing to evaluate the geographic distribution of bank branches, even as banks expand their online presence.” • “…[T]hink more broadly about underserved populations and focus more on people than geography. …[T]he elderly, racial minorities, immigrants, students, veterans, and the physically and mentally disabled are also populations that are underserved by the banking system. …[S]ome … thought that the CRA should be revised to include an explicit racial lens.”

F INTECH C ONSUMER & SB I SSUES • Technology can help make financial services more accessible to underserved areas and populations • Technology can bring us closer to real-time payments; there is a role for government • Not everyone has access to or ability to use technology • Major concerns about fair lending, privacy, security • Non-bank fintech small business lenders are largely unregulated; many operate like payday for SB, with lack of disclosure, high rates, junk fees, etc. (CA SB 1235 is a first step toward TILA-like disclosure)

C ONTACT I NFORMATION :

WWW . WOODSTOCKINST . ORG D ORY R AND . P RESIDENT DRAND @ WOODSTOCKINST . ORG

Pinder Docket Review

Tom Pinder, Deputy General Counsel

CSBS Seminar July 23, 2019

aba.com 1-800-BANKERS

Deference Cheat Sheet

• Chevron Deference

• Most deferential standard. • Applies to an agency’s interpretation of a statute administered by that agency where the statute is silent or ambiguous regarding the issue in question. • Applies if Congress delegated authority to the agency to make rules carrying the force of law, and the interpretation is made pursuant to that authority. • Auer Deference • Applies where an agency is interpreting its own regulation rather than a statute. • Applies when the regulation at issue is ambiguous and the interpretation reflects the agency’s “fair and considered judgment on the matter in question” and is not “plainly erroneous or inconsistent with the regulation.” • Skidmore Deference • Addresses how much weight to give to an agency interpretation that is not a formal adjudication, a notice-and-comment rulemaking, or an interpretation of the agency’s own regulation. • Skidmore deference is less formulaic than either Chevron or Auer deference.

Kisor v. Wilkie – Auer Deference Survives

• Issue: Whether a court must defer to an administrative agency’s plausible interpretation of its own ambiguous regulation. • Facts: The Department of Veterans Affairs (VA) denied James Kisor retroactive benefits because he failed to identify the “relevant official service department records” crucial to his claim. The Board of Veterans’ Appeals (Board) interpreted the term “relevant official service department records” to mean records relevant to the VA’s reason for the original denial. Federal Circuit affirmed by applying Auer deference. • Holding: Supreme Court unanimously vacated Federal Circuit’s decision and remanded for reconsideration. Five-justice majority (Roberts, Kagan, Sotomayor, Ginsburg, Breyer) ruled Auer limited, but not overruled; six-part test must be satisfied for deference to be possible.

Kisor’s Six-Part Test

(1) A regulation is genuinely ambiguous after exhausting all traditional tools of interpretation. (2) The agency’s interpretation is reasonable. (3) The interpretation must be the agency’s authoritative or official position, rather than an ad-hoc statement. (4) The agency’s interpretation must in some way implicate its substantive expertise. (5) The agency’s interpretation must reflect its fair and considered judgment, rather than a convenient litigation position. (6) The agency’s interpretation cannot create an unfair surprise to regulated parties.

Lucia v. SEC - Recap

• In Lucia v. SEC , the Supreme Court held that SEC ALJs are “Officers” of the United States and their appointment by SEC staff violated the Appointments Clause of the US Constitution. • Under the Appointments Clause, the power to appoint “Officers” is vested exclusively in the President, a court of law, or the head of a "Department." • The Court looked to its decision in Freytag v. Commissioner , 501 U.S. 868 (1991), which concluded that US Tax Court special trial judges qualified as officers not employees. • The Supreme Court found the SEC ALJs to be "near-carbon copies" of the special trial judges examined in Freytag .

Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB) - Recap

• On June 28, 2010, the Supreme Court held that Sarbanes-Oxley's limitations on the SEC's authority to remove members of the PCAOB violate Article II of the Constitution. • The Court declined to issue an injunction preventing the PCAOB from continuing its operations (or to declare the entire statute unconstitutional), holding that the violation is remedied by the SEC receiving authority to remove members of the PCAOB at will.

Lucia v. SEC Fallout – Phase 2

• The Office of the Solicitor General issued a memo titled “Guidance on Administrative Law Judges After Lucia v. SEC. ” • Guidance expanded the Lucia holding to give Executive Branch more power over ALJs. • Solicitor General will defend ALJs’ statutory removal protections (not at issue in Lucia ) only if the protection mechanism is “suitably deferential” to department heads. • Guidance expands Lucia in two key ways: • First, by understanding “inferior officers” to include both non-ALJ adjudicators and adjudicators who oversee non-adversarial proceedings. • Second, by reading Lucia as giving a green light to the Solicitor General’s position regarding removal of administrative adjudicators.

Lucia v. SEC Fallout – Phase 2 (cont.)

• Is the Environmental Protection Agency’s Environmental Appeals Board (EAB) and the Department of Interior’s Interior Board of Land Appeals (IBLA) Unconstitutionally Structured? • EAB and IBLA are the entities within the agency to which a person may appeal the agency’s ALJ decisions. Both have delegated authority from the head of the agency to make final decisions on behalf of the agency. • Neither, however, is staffed with ALJs. Congress did not create the EAB or IBLA and their decision are not subject to review by the respective Agency heads.

Lucia v. SEC Fallout – Phase 2 (cont.)

• In Lucia v. SEC , No. 18-cv-2692 (S.D. Cal. 2019), Lucia is trying to collaterally attack the constitutionality of SEC ALJs (double protection). • Lucia filed his complaint on November 28, 2018, followed by a motion for preliminary injunction on December 6, 2018. • On March 18, 2019, Judge Dana Sabraw vacated oral argument for the preliminary injunction, which was scheduled for March 22, 2019. Judge Sabraw found this matter was suitable for a decision without oral argument. • On April 4, 2019, Judge Sabraw ordered that if the parties could not reach a settlement, the court would defer Lucia’s motion for preliminary injunction and address it simultaneously with SEC’s motion to dismiss. The parties did not reach a settlement, because SEC filed its motion to dismiss the complaint on June 3, 2019. • However, Thunder Basin Coal Co. v. Reich , 510 U.S. 200 (1994), is an obstacle. Must Lucia exhaust all administrative remedies? • Before Lucia , five U.S. Circuit Courts (Second, Fourth, Eleventh, Seventh, and DC) have answered yes. • Such hardship is “‘part of the social burden of living under government,’ rather than a form of irreparable injury justifying immediate judicial review.” Tilton v. SEC, 824 F.3d 276, 286 (2 nd Cir. 2016) (quoting FTC v. Standard Oil Co. of Cal . , 449 U.S. 232, 244–45 (1980)).

Should Banks Sue Washington?

• SHB 2167 increased Washington business & occupation tax on financial institutions earning at least $1 billion in net income from 1.5 percent to 2.7 percent. Expected to raise $133 million in state revenue over the next two years. • “Title Only” Bill Under State Constitution • Issue: Did the procedure by which it was passed, using a “title-only” bill, violate Article 2, Section 36 of the Washington Constitution, which requires a 10-day waiting period between introduction of a bill and its passage? • No language was provided in the original bill. • Victory could be temporary - legislature could simply follow the proper timetable and pass the same legislation.

Should Banks Sue Washington? (cont.)

• File Declaratory Judgment? Or File a Refund Suit After Tax is Paid in January 2020 (Tax Protest)?

• Declaratory Judgement: Limited case law and statute suggests that tax must be paid before contesting. • “Any person . . . having paid any tax . . . and feeling aggrieved by the amount of the tax may appeal to the superior court of Thurston county . . . . ”). • RCW 82.32.150 restates the payment requirement: “All taxes, penalties, and interest shall be paid in full before any action may be instituted in any court to contest all or any part of such taxes, penalties, or interest.” • Most Washington State tax cases are brought by a single taxpayer after it has been required to pay the tax. This statutory requirement is the reason, for example, why courts have held that tax actions in Washington State cannot be brought in the form of a class action lawsuit . Lacey Nursing Center v. Department of Revenue , 128 Wn.2d 40 (1995). • TracFone case • In 2007, TracFone, a wireless telephone service provider sought a partial summary judgment in the trial court finding that it was not responsible for collecting the Enhanced 911 tax. State argued that RCW 82.32.150 provided no basis for initiating suit, even on a constitutional claim, when there was no assessment. Appellate court never resolved issue and the case was rendered moot by change in the law. Tracfone Wireless, Inc. v. Washington State Department of Revenue , No. 43805-4-II (Wash. Ct. App. 2014). • However, plaintiffs successfully challenged a 2017 2.25 percent tax on total income above $250,000 for individuals and above $500,000 for married couples. Washington State law bans taxes on net income. Filed declaratory judgement action but State did not challenge standing on failure to pay the assessment. • File a Tax Protest After Tax is Paid in January 2020 • Each bank would have to file individually. But if one bank were successful, it would be relatively easy for subsequent banks to seek relief. Cheaper and quicker than declaratory relief route but also have to wait to file because tax must be paid first.

Should Banks Sue Washington? (cont.)

• National Bank Act Violation? • No! • Commerce Clause Violation? • For a state tax to be valid under the commerce clause it must satisfy four requirements set forth in Complete Auto Transit :

• (1) The tax must be applied to an activity that has a substantial nexus with the state;

• (2) The tax must be fairly apportioned to activities carried on by the taxpayer in the state;

• (3) The tax must not discriminate against interstate commerce; and

• (4) The tax must be fairly related to services provided by the state.

• Only the third and fourth requirements are at issue. The fourth requirement is almost never used to strike a tax. • Evidence of discrimination. • There are the things said by the legislators in enacting the provision. What evidence is there that the legislators intended to discriminate against big banks operating in interstate commerce and headquartered out of state? • In Great Atlantic & Pacific Tea Co. v. Grosjean , 301 U.S. 412 (1937), the U.S. Supreme Court upheld a Louisiana tax that imposed a higher tax on each Louisiana store depending upon how many total stores were under the same management everywhere.

Attorney Client Privilege

• Common law doctrine • Emerged in English law in the early 1500s, around the same time as the right to trial by jury. American courts imported the Privilege "relatively unchanged," and by 1830 the Privilege had become firmly established in American common law. • “ The purpose of the Privilege is to encourage full and frank communication between attorneys and their clients, and thereby promote broader public interests in the observance of law and administration of justice.” Upjohn Co. v. United States , 449 U.S. 383, 389 (1981)

Attorney Client Privilege – Exam Authority

• DOJ and SEC limit their access to privileged information. In 2008, DOJ ended its practice of requesting ““voluntary” privilege waivers as a condition of cooperation credit. • “The staff must respect legitimate assertions of the attorney-client privilege and attorney work product protection. As a matter of public policy, the SEC wants to encourage individuals, corporate officers and employees to consult counsel about the requirements and potential violations of the securities laws.” 2008 SEC Enforcement Manual. • Federal bank regulators and CFPB claim they have the legal authority to override the privilege and compel the institutions that they supervise, or with respect to which they have enforcement authority, to produce information protected by the privilege. • Regulators claim statutory examination authority and the need to obtain privileged material to fulfill the Agencies’ prudential duties.

12 U.S.C. § 1828(x)(1)

• “The submission by any person of any information to the Bureau of Consumer Financial Protection, any Federal banking agency, State bank supervisor, or foreign banking authority for any purpose in the course of any supervisory or regulatory process of such Bureau, agency, supervisor, or authority shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information under Federal or State law as to any person or entity other than such Bureau, agency, supervisor, or authority.” 12 U.S.C. § 1828(x)(1). • Regulators best argument. However, nothing in Section 1828(x) gives the Agencies the authority to compel a waiver of the Privilege. • Statute does not supersede common law rights unless that override is expressly stated. Avgoustis v. Shinseki , 639 F.3d 1340, 1341 (Fed. Cir. 2011). • Broad investigatory and examination authority does not override the privilege absent clear Congressional intent. Unidted States v. Louisville & Nashville Railroad Co ., 236 U.S. 318, 325 (1915). • In Civil Aeronautics Board (CAB) v. Air Transport Association , 201 F. Supp. 318 (D.D.C. 1961), the court rejected CAB’s effort to enforce a subpoena and compel production of materials protected by the privilege. • “The Court is of the opinion that the attorney-client privilege may be asserted in the proceeding pending before the Civil Aeronautics Board and involved in this action. The attorney-client privilege is deeply imbedded and is part of the warp and woof of the common law. In order to abrogate it in whole or in part as to any proceeding whatsoever, affirmative legislative action would be required that is free from ambiguity. The very existence of the right of counsel necessitates the attorney-client privilege in order that a client and his attorney may communicate between themselves freely and confidentially.”

Regulatory Policy vs. Rules of Discovery

• In a lawsuit, a party may want to uncover examination records and use them as evidence. • SBAV LP v. Porter Bancorp. Inc ., No. 3:13-CV-00710 (W.D. Ky.) • Diversity-jurisdiction case. • Party seeks records of examinations conducted by FDIC and Federal Reserve. • Mar. 31, 2015 decision: The court defers to Kentucky privilege law – which does not shield bank examinations – so the records are non-privileged. • Nov. 20, 2015: FDIC and Federal Reserve move for reconsideration, arguing that bank examination privilege isn’t just a privilege: It’s a substantive federal policy and therefore should override state law. • Dec. 1, 2015 decision: Based on settlement of case, the court vacates the Mar. 31 decision as moot – does not resolve the motion for reconsideration.

Crime Doesn’t Pay?

• Jun Ying, a former Equifax executive, was sentenced to four months in prison for cashing in stock options as he helped the company deal with a massive breach of consumers’ personal information in 2017. • Ying was charged in March 2018 with trading on inside information about a cyberattack that stole the names, Social Security numbers, addresses and other personal information of more than 145 million people. He pled guilty a year later to one count of securities fraud. • Ying was ordered to forfeit more than $117,000 and pay a $55,000 fine. • Ying also settled a parallel civil case with the SEC, agreeing to pay around $8500 on top of the criminal penalties.

July 22, 2019

Introductions

• Kelly O’Sullivan , Deputy Commissioner, Montana (Chair, NMLS Policy Committee) • Lucinda Fazio , Chief of Regulatory Affairs – Consumer Services, Washington DFI, (Chair, SRR Lawyers Committee) • Matthew Nance , Deputy General Counsel Texas Office of Consumer Credit Commissioner • Lisa Tinsley , Director NMLS Business Services

AGENDA • Part One: Background • Part Two: MLO Trends

• Part Three: Streamlining MLO Licensure • Part Four: Implementation Conversation

Temporary Authority to Operate

• Amendment to the 2008 SAFE Act, effective November 24, 2019 • Will allow qualified MLOs to continue originating loans while completing any state-specific requirements for licensure such as testing and education • Streamlining the MLO license application process

Temporary Authority to Operate: Who is an “Eligible MLO?” • Previously Licensed or Registered MLO • Licensed continuously during the past 30 days • Registered continuously for the past year • Break in service of 14 calendar days when transitioning to a new license • W-2 employee of a licensed mortgage company • No disqualifying criminal history • Has not had: • License application denied • License revoked or suspended • A cease & desist order

How Long Does Temporary Authority Last? Temporary Authority begins when a qualified MLO submits a complete MLO license application. It ends when the earliest of the following occurs: • The MLO withdraws the application • The state denies or issues a notice of intent to deny the application • If the application remains incomplete after 120 days • The state grants the license

Mortgage License Stats: Individual MLOs

• Significant increase in licenses per individual over the life of NMLS • 2010-2018 license growth of 198%

MLOs and MLO licenses in NMLS

600,000

All mortgage agencies on NMLS

UST introduced

MLO Licenses

400,000

200,000

MLOs

-

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

MLOs

MLO Licenses

9

Number of State Licenses Held Per MLO

10

Number of Depository RMLOs

500,000

400,000

415,517

398,187 404,239 398,492 407,529 422,579 421,743

375,062

300,000

200,000

100,000

Federally Registered MLOs

0

2011 2012 2013 2014 2015 2016 2017 2018

11

Streamlining MLO Licensure

Streamlining MLO Licensure Harmonizing multistate supervision

Background • States have used a change in the Federal SAFE Act (S.2155 Temporary Authority to Operate) to significantly streamline MLO licensing without lowering standards. • These changes, taking effect in November 2019, are estimated to reduce authorization times for 70% of MLO applicants from an average of 18 days to 1 day . • The NMLS Policy Committee has created a uniform implementation program that ensures strong standards are maintained.

Streamlining MLO Licensure The genesis of streamlining:

Since 2008, state regulators have continually undertaken initiatives to reduce friction in a multistate licensing environment while maintaining high standards.

Single Criminal & Credit History Check 2010 - 2011

“Approved Inactive” license approval for de novo MLOs 2012

Limited Access to MLO testing & education Information 2012

National Test with Uniform State Content 2013 - 2018

MLO Streamlining /NMLS 2019

AARMR Universal

NMLS Launch 2008

Forms ≈ 1999

Expedited Processing for MLOs/RMLOs

A first in/first out approach or treating every MLO applicant as new will give way to viewing applicants in two distinct groups.

“Eligible MLOs”

“de novo MLOs”

Streamlining MLO Licensure: New NMLS License Statuses Pending Deficient (Temporary Authority Eligible)

• Pending CBC Results or Sponsorship • Meets other eligibility requirements Pending Deficient (Temporary Authority) • CBC Results satisfied • Pending Testing & Education requirements • Pending License Item Pending Review (Temporary Authority) • Testing & Education requirements met Pre-Approved (Temporary Authority) • Pending Testing & Education

Streamlining MLO Licensure Data supports streamlining MLO licensing. A 2016 study found that: • 93% of all applications are ultimately approved by state agency, including: • 40% were “clean” (no CHRI, credit flags, no disclosures) • 60% were “unclean” (at least one of above) • Criminal history review is not different between banks and state regulators. Applications with CHRI: 90% approval rate:

• State-to-state: 90% approval • Fed-to-state: 90% approval • Median turn times show current system is not risk-based: • All Applicants: 18 days • Currently Licensed MLOs: 17 days

Streamlining MLO Licensure: CHRI Review Period For TA eligible licenses, the applicant state will have a limited time to complete the RAP sheet review.

• During this review period, the state agency must receive adequate response to the request for clarification. • If the agency does not receive an adequate response, it will be incumbent on the agency to take action (e.g., intent to deny) to end TA eligibility. • If the applicant remains in the TA eligible status at the end of the 9 business day review period, the system will update the status to TA granted.

• If the applicant has a RAP sheet, the state agency will be given 2 business day to review the CHRI. • If the state agency requests additional information from the applicant, posting a “CBC” license item will extend the review period to 9 business days total. • If a license item is not posted, at the end of the 2 business day period, the system will update the status to TA.