California Prohibits Clinics from Using Deferred Interest Provisions
California signed into law SB-639 that prohibits medical and veterinary clinics and their agents and employees from establishing open-end credits or loans that include deferred interest provisions in an effort to protect patients and pet owners from signing up for certain credit, including credit products that accrue interest during a 0% introductory period. Additionally, clinics and their agents and employees cannot complete any portion of an application for credit or a loan for the patient or arrange for or establish an application that has not been completely filled out by the patient.
Senator Holly Mitchell commented on the new law that she co-authored stating “while third-party financing may have a place when patients need services they can’t immediately afford, products with deferred interest clauses have no place in medical practice.”
SB-639 takes effect on July 1, 2020.
CFPB Director Hosts Symposium on Small-Business Loan Information
The Director of the Consumer Financial Protection Bureau (CFPB), Kathy Kraninger, spoke at a symposium on Section 1071 of the Dodd-Frank Act, which requires financial institutions to collect, report, and make public certain information concerning credit applications made by women-owned, minority-owned, and small businesses. Specifically, the law directs the CFPB to develop a rule for collection, reporting, and publication of certain data.
To develop an effective rule, the symposium put together several panels to explore the definition of small business, identify what data points are important to collect, and what information lenders are currently using to evaluate credit to small businesses, in addition to the state of the small business lending marketplace and the implementation of Section 1071.
CFPB States that Small Business Loan Data Rule Outline is Forthcoming
A few days after the symposium, the CFPB, in a brief filed in the Northern District of California, told a California federal court that it plans to release an outline of a proposal for rules implementing the mandate within one year. In its brief, the CFPB noted that it “intends to release a detailed outline” of the much anticipated small-business lending data rule mandated by Section 1071 of the Dodd-Frank Act.
The underlying lawsuit saw the plaintiffs seeking a remedy of mandamus to force the CFPB to propose and finalize this rule within 6 months. Although the CFPB argued that the plaintiffs are not entitled to this type of relief, the CFPB did say that it will complete its policy decision-making process over the next 6 months, including which financial institutions and small business are covered by the rule, and then take an additional 6 months to complete its recommendation and briefing process. Another 6 months is needed to prepare and publicly release a detailed outline of the rulemaking proposal for the Small Business Regulatory Enforcement Fairness Act (SBREFA) panel to review. The SBREFA panel will then issue a report within 2 months of convening the panel. Following the SBREFA report, the CFPB states that it will move expeditiously to issue a proposed rule, which should take place roughly 3 months after the SBREFA report. The proposed rule and comment process could take another year, and then the CFPB anticipates that it will be at least 9 more months after the close of the comment period before the rule is finalized. According to the CFPB’s proposed timeline, a final rule may not be issued for close to 3 years.
The case before the Northern District of California is: California Reinvestment Coalition et al. v. Kraninger, No. 4:19-cv-02572-JSW.
Fed Chairman Thinks FedNow Will Roll Out Quicker Than Anticipated
On November 14, 2019, Federal Reserve Chairman Jerome Powell testified before the House Budget Committee. In that testimony, Chairman Powell noted that the rollout of the FedNow real-time payments system was a “very high priority” at the Federal Reserve Board of Governors (FRB) and could take place in the next 3 to 4 years, rather than the 5-year period originally outlined in the FedNow project announcement.
FTC Commissioner Supports the Development of the FedNow Real-Time Payment System
On November 7, 2019, Federal Trade Commission (FTC) Commissioner Rohit Chopra wrote a letter to the FRB supporting the FRB’s FedNow Service real-time payments system. In his letter, he notes that the FedNow Service is “a natural extension of the Federal Reserve’s existing role” in the payment system to be a public competitor to The Clearing House’s Real-Time Payment System, and to “prevent a megabank monopoly over a core function of our financial system.” His letter goes on to focus on the benefits of real-time payments to consumers, particularly low-income consumers and small businesses, stressing how such control and speed of payments could help avoid delays and associated fees. Chopra notes that without a public competitor, the “fate of faster payments is uncertain.” He is especially concerned because he believes the private sector has also only shown “lagging efforts to meet the demand for immediate funds transfers.” As a result, he notes that companies will endeavor to meet the demand for real-time payments, but the benefits will not flow to those that need it most and would be served by a public option.
FDIC Requests Comment on Proposed Innovation Pilot Program
Like many other financial regulators, the Federal Deposit Insurance Corporation (FDIC) is developing an innovation pilot program to engage with banks and fintech developers and provide them with tailored regulatory and supervisory assistance to facilitate the testing of innovate technologies. On November 7, 2019, the FDIC issued a notice and request for comment on the FDIC’s collection of pilot program proposals submitted by innovators. This comment period is designed to garner feedback on the quality and accuracy of the FDIC’s collection of information related to the pilot programs. Details of the innovation pilot program framework will be announced later. Comments on the notice and request for comment are due by January 6, 2020.
According to the notice, the FDIC may operate multiple pilot programs concurrently. FDIC-supervised institutions wishing to participate in a future pilot program must meet certain eligibility qualifications, including that these institutions have shown a history of appropriate risk management, are well capitalized, are well-rated for compliance and safety and soundness, and do not have significant pending supervisory or enforcement actions
FDIC Requests Comment on CAMELS Rating System
The FDIC and the FRB have solicited public comment on the consistency of ratings assigned by the agencies under the Uniform Financial Institutions Rating System. The assigned ratings are more commonly known as CAMELS ratings because they assess a bank’s Capital adequacy, Assets, Management capability, Earnings, Liquidity, and Sensitivity to market risk.
The CAMELS ratings were first adopted by the Federal Financial Institutions Examination Council (FFIEC) in 1979 to provide supervisors with a methodology for evaluating the soundness of depository institutions on a uniform basis. Examiners assign CAMELS rating scores on a scale of “1” to “5,” with “1” indicating the strongest performance, strongest risk management practices, and the least degree of supervisory concern. The CAMELS ratings and the reports are property of the issuing agencies, and the agencies generally prohibit disclosure of an institution’s CAMELS rating or report of examination.
The request for public comment includes 10 questions on topics such as the consistency of CAMELS ratings over time and between agencies, the manner in which CAMELS ratings are communicated, the flexibility of CAMELS rating criteria, and the implications of CAMELS ratings on business activities and enforcement actions. The agencies acknowledge that the confidential nature of CAMELS ratings limit the specificity of feedback that may be provided but they “welcome general comments” that do not breach confidentiality requirements.
The FDIC and FRB have stated the request for public comment on the CAMELS ratings is not a proposal to modify the CAMELS rating definitions. Comments in response to the release are due by December 30, 2019.