Dodd-Frank’s “designated transfer date” has arrived, making July 21, 2011 the effective date for a number of new laws of interest to our clients. Please look over the following topics to ensure you are up-to-date on how Dodd-Frank may affect your business today. Contact any member of our Dodd-Frank Survival Guide Team – Carla Witzel, Margie Corwin, John Morton, or Andy Bulgin – to discuss these topics in greater detail.
Transfer of Authority from the OTS to the OCC
Savings associations: get ready for a new regulator. All functions of the Office of Thrift Supervision relating to federal savings associations are now transferred to the OCC. As a result, the OCC will assume responsibility for the ongoing examination, supervision, and regulation of federal thrifts. The OCC also has rulemaking authority relating to all savings associations; however, all OTS orders, resolutions, determinations, agreements, regulations, interpretive rules, other interpretations, guidelines, procedures, and other advisory materials in effect on July 20, 2011 continue in effect, and the OCC will enforce these issuances with respect to federal savings associations, unless the OCC modifies, terminates, or sets aside such guidance or until superseded by the OCC, a court, or operation of law. The OCC published final rules regarding this transfer of authority in the July 21, 2011 Federal Register (just in the nick of time).
Federal Preemption: Clear as Mud
The OCC’s July 21, 2011 final rules also address the OCC’s position on federal preemption and visitorial powers under the National Bank Act. While much of what was in the OCC’s proposed rules regarding Dodd-Frank federal preemption (published in the May 26 Federal Register) is found in the final rules, the OCC reconsidered its position as to certain existing preemption precedent. Specifically, the OCC explained: “To the extent that an existing preemption precedent relies exclusively on the phrase ‘obstructs, impairs, or conditions’ as the basis for a preemption determination, the preamble [to the final rule] states that the validity of the precedent would need to be reexamined to ascertain whether the determination is consistent with the Barnett conflict preemption analysis.” Clearly, there is uncertainty and there will be more to come on preemption.
Balloon Payment Mortgages and AMTPA
Not all Dodd-Frank preemption changes arise from the same law and, thus, not all federal preemption determinations will be subject to the OCC’s new final rule. Specifically, Dodd-Frank Section 1083 changes the federal preemption afforded certain mortgage loans under the Alternative Mortgage Transaction Parity Act (AMTPA). In a nutshell, due to Dodd-Frank changes in the definition of “alternative mortgage transaction,” AMTPA will no longer preempt Maryland’s law that prohibits balloon payments in connection with home equity lines of credit. It also will no longer preempt Maryland's law that imposes restrictions on balloon payments in connections with closed-end second mortgage loans. This change to AMTPA is now effective and applies to loans and lines entered into after July 21, 2011. In the months leading up to July 21, we have assisted many lenders with revisions to their Maryland HELOC plans in light of this balloon payment issue.
Adverse Action/Risk-Based Pricing
The Federal Reserve and the Federal Trade Commission finalized rules implementing Dodd-Frank Section 1100F requirements that credit score information be included in both Fair Credit Reporting Act (FCRA) adverse action notices and risk-based pricing notices. While the Dodd-Frank Section 1100F requirements become effective by law on July 21, 2011, these final rules were published in the Federal Register (adverse action) (risk-based pricing) on July 15, 2011, with an effective date of August 15, 2011 (“Final Rules”). We have been working with financial institutions to make sure that all adverse action and risk-based pricing notices are compliant with the Final Rules as close to July 21 as reasonably possible.
Here are a few tips. In cases where a credit score is not used in taking an adverse action or making a credit decision requiring a risk-based pricing notice, credit score information is not required to be disclosed.
However, if a creditor obtains a credit score, but does not use it in either of the above situations and chooses to not include credit score information in the applicable notice, the creditor should have detailed documentation to support its position that the adverse action or credit decision was not taken or made based on the credit score.
Additionally, with respect to risk-based pricing notice requirements, if a creditor takes advantage of the exception to the risk-based pricing rule and provides the Credit Score Exception Notice to all credit applicants, that creditor is already providing consumers with their credit scores and does not need to make any changes to its “risk-based pricing” disclosures. That creditor will, of course, need to update its adverse action notices.
In addition to the Final Rules, the Federal Reserve revised its form of adverse action notice contained in FRB Regulation B, which implements the Equal Credit Opportunity Act. The revisions allow a creditor to continue to use the model adverse action notice in Regulation B to comply with the requirements of both the ECOA (which have not changed) and the FCRA (which have changed).
Dodd-Frank Section 1086 amends the Expedited Funds Availability Act by increasing, from $100 to $200, the amount of deposited funds that an institution must make available for withdrawal by the next business day (for funds not otherwise subject to next day availability). This change becomes effective on July 21, 2011. The FRB issued proposed rules, published in the March 25, 2011 Federal Register, which we assume will become final very soon. Financial institutions should ensure their disclosures reflect this new amount and take steps to provide existing account holders with change in terms notices.
Demand Deposit-Payment of Interest
Beginning July 21, 2011, financial institutions have the ability to pay interest on demand deposit accounts. Dodd-Frank Section 627 repealed statutory prohibitions against payment of interest on demand deposits, effective July 21, 2011. On July 14, 2011, the FDIC published revisions to its rules to address these changes. In addition, on July 18, 2011, the Federal Reserve published rules repealing Regulation Q and its interpretations of Regulation Q, making Dodd-Frank’s repeal of the prohibition against payment of interest on demand deposits possible. Please note, demand deposit accounts where interest is paid are not eligible for the unlimited deposit insurance coverage available on noninterest-bearing accounts. Should any demand deposit account be modified to provide for the payment of interest, affected customers should be notified of the impact that such modification will have on the availability of deposit insurance coverage.
Scope Of CFPB’s Regulatory Authority
Want a convenient reference source for the very long list of rules that the new federal Consumer Financial Protection Bureau is expected to enforce? That list is published in the July 21, 2011 Federal Register. It includes regulations currently enforced by the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, National Credit Union Administration, Federal Trade Commission, and the Department of Housing and Community Development. If anyone had any doubt about the awesome scope of the CFPB’s oversight and enforcement authority, that doubt is eliminated by this list.