We are excited to announce the date for our 2nd quarter clients-only webinar which will be Tuesday, June 18th, at 9:30 am EST. This will be a Deposit Compliance focused webinar where we discuss FDIC signage changes, the CFPB’s recent NSF proposal, overdraft practices, deposit hot topics, recent exam findings, and more. We will send out more details about sign-up closer to the webinar date but wanted to announce this to ensure you all have time to get it on your calendar. We look forward to seeing you all there.

Author: W. Brad Washburn, CRCM, CAMS

On March 21, 2024, the joint federal agencies issued an interim final rule and final rule related to the 2023 CRA final rule issued on October 24, 2023. Effective April 1, 2024, the interim final rule extends the applicability date of certain provisions and the final rule issued technical, non–substantive amendments to the final rule.

The interim final rule extends the applicability date of the facility–based assessment areas and public file provisions from April 1, 2024, to January 1, 2026. Therefore, banks will not have to make changes to their assessment areas or their public files because of the 2023 CRA final rule until January 1, 2026. This extension aligns these provisions with other substantive parts of the 2023 CRA final rule that are applicable on January 1, 2026. As a result, all provisions about where banks are evaluated will now apply on the same date.

In addition, the final rule issued technical, non–substantive amendments to the 2023 CRA final rule and related agency regulations that reference it. For example, one of these technical amendments clarifies that banks do not need to make changes to their public notices until January 1, 2026.

The entire interim final rule and technical amendments can be viewed here:
pr24018a.pdf (fdic.gov)

Author: Kyle Tucker

Appraisal bias has been coined as another term for illegal discrimination within the property valuation process. This type of discrimination occurs when protected class factors are considered in the fair market value of the property. Forms of bias against protected class factors, such as race or gender, can significantly impact lending decisions, and may even lead to unfair practices. Unfair lending practices can lead to disparities in access to credit, hinder opportunities for marginalized applicants, and erode the public’s trust in the banking industry. Legal repercussions and reputational damage can follow in the wake of these practices.

The FDIC is working collaboratively with the other federal agencies on the Property Appraisal and Valuation Equity (PAVE) Task Force to address property appraisal bias that negatively affects wealth building opportunities for homeowners and communities of color. To help combat appraisal bias, the FDIC is expanding its consumer protection examination approach to include consideration of appraisal-related matters in their existing fair lending review process. Specifically, this includes enhancing the risk scoping process to evaluate a bank’s compliance management system for appraisals and the prevention of bias.

Examples of Appraisal Bias:

1. In real estate appraisals, bias can occur if the appraiser is influenced by factors such as the neighborhood, the race or ethnicity of the residents, or the perceived quality of the schools in the area.
2. Other indicators of appraisal bias could include discussions of the neighborhood’s racial and/or ethnic mix, comments about residents’ birthplace in neighborhood descriptions (indicating national origin), references to a common language spoken in the area, mentions of area businesses and amenities geared towards specific groups, and/or attributing rising housing prices to gentrification.

 
How Banks Can Avoid Appraisal Bias:

1. Ensure all bank personnel involved in the appraisal process have undergone training to recognize and mitigate bias.
2. Establish clear policies and procedures, and clearly relay the criteria for evaluating creditworthiness, collateral, and other relevant factors (objective and standardized criteria).
3. Incorporate controls into lending processes to identify and prevent appraisal bias.
4. Monitor and audit the appraisal process for fairness and accuracy.
5. Require outside appraisers and appraisal management companies to provide evidence of their commitment and training around avoiding appraisal bias.
6. Consider adding anti-bias language to all appraisal reports that are provided to applicants and provide a means for applicants to contact the bank to report any concerns or complaints.
7. Diversify decision-making teams or committees to bring in varied perspectives.
8. Review Reconsideration of Value (ROV) requests to identify possible appraisal bias as the reason for the request and look for whether the ROVs were accepted (or not) and in what areas, as well as differences from the original appraised value when an ROV is performed.
9. Perform appraisal-related statistical analysis on mortgage loan files using HMDA data. Differentiate the review and analysis by loan purpose (such as purchases and refinancings). For purchases, determine if there are disparities based upon a prohibited factor where the appraised value is less than the contract price. For refinances, review situations where both AVMs and human-performed appraisals were performed on the same property and look for any differences in valuation. If any are identified, determine the reason for the difference as well as where the property is located.

Author: W. Brad Washburn, CRCM, CAMS

On October 24, 2023, the OCC, the Federal Reserve Board, and the FDIC (the agencies) issued a final rule to strengthen and modernize regulations implementing the Community Reinvestment Act (CRA) to better achieve the purposes of the law which for years has required federally insured banks to help meet the credit needs of the communities in which they do business, especially low- and moderate-income (LMI) communities.

The final rule is based upon the joint agency proposed rule issued on May 5, 2022, and consideration of approximately 950 unique comments received from stakeholders. The last major interagency update to CRA was completed in 1995.

The final rule will implement a revised regulatory framework for the CRA that, like the current framework, is based on bank asset size and business model that recognizes the capacity and resource differences among banks.

Several areas impacted by the new rule include:

• New asset classifications for determining Small bank, Intermediate bank, and Large bank CRA performance standards.
• New rules regarding assessment areas where performance is evaluated, including traditional facilities-based assessment areas, new Retail Lending Assessment areas (large banks only) and outside retail lending areas comprised of nationwide component geographic areas.
• New performance tests and data collection requirements for Large banks including the Retal Lending Test, Retail Services and Products Test, Community Development Financing Test, and Community Development Services Test.
• New performance tests for Intermediate banks include the Retail Lending Test, and the option to continue being evaluated under the current Community Development Test or opt-in to the new Community Development Financing Test.
• New guidance and methods for confirming Community Development activities.

New asset size classifications effective January 1, 2026, are:

• Small banks: Assets of less than $600 million as of December 31 in either of the prior two calendar years;
• Intermediate banks: Assets of at least $600 million as of December 31 in both of the prior two calendar years and less than $2 billion in either of the prior two calendar years; and
• Large banks: Assets of at least $2 billion as of December 31 in both of the prior two calendar years.   

 
Small banks will be allowed to continue under the current Small Bank Lending Test and are able to opt-in to the new Retail Lending test if they choose; however, Intermediate and Large banks and Small bank’s that opt-in to the new Retail Lending Test will be subject to the new performance tests. The Retail Lending Test not only will evaluate lending activity for major product lines in the facilities-based assessment areas but will also include evaluation of lending in areas including certain parts of nationwide areas outside of the bank’s facility-based assessment areas. Under the new testing rules, performance will be measured by complex metrics as well as market and community-based benchmarks.

In developing the final rule, the agencies’ stated objectives included updating the CRA regulations to strengthen the achievement of the core purpose of the statute and adapting to changes in the banking industry including the expanded role of mobile and online banking. However, one key objective that is evident but not being publicly acknowledged is that the standards for obtaining a satisfactory rating under the new tests will be much more difficult to achieve for banks subject to the new performance standards. The final rule and preamble are over two thousand pages long and includes numerous technical and complex calculations for determining metrics, benchmarks, and ratings for determining bank performance under the new tests. New standards for ratings can also make it more difficult as applicable banks must receive at least a “Low satisfactory” component rating in the Retail Lending Test to achieve an overall satisfactory rating for the institution. In addition, the agencies published data in the final rule that shows when lending activity from 2018-2020 is applied to the new standards, overall unsatisfactory ratings would increase to 10% which has historically been only 1%.

One positive aspect of the new rule would be that all banks will receive consideration for any qualified Community Development (CD) loans, investments, or services, regardless of location. The final rule also provides additional certainty on eligible CD activities and recognizes activities that are responsive to community needs by:

• Defining standards for receiving full and partial credit for CD activities;
• Maintaining and periodically updating a publicly available illustrative list of qualified CD activities;
• Developing a process for a bank to request confirmation of an activity’s CD eligibility with its regulatory agency; and
• Defining standards for an activity’s impact and responsiveness.

The final rule is effective and limited provisions are applicable April 1, 2024. Most provisions such as definitions, new performance tests, new asset-size thresholds, and data collection are applicable January 1, 2026. Large bank data reporting requirements are effective January 1, 2027, with annual data reporting required every April 1st, starting April 1, 2027.

The key provisions that are effective April 1, 2024, include:

• Facility-based assessment areas
  
  • Large banks assessment areas are limited to whole counties, including a single MSA, one or more counties within an MSA, or one or more contiguous counties within nonmetropolitan areas of a state.
    
  • Intermediate banks and Small banks will have continued flexibility to use partial county designations to include only the portion of a county that it can reasonably be expected to serve, consistent with current practice and reflecting their smaller service areas.

• Content and availability of public file
  
  • For banks that maintain a website, all information required for the public file must be maintained on the bank’s website.
    
  • Quarterly updates will be required for certain current year elements (e.g., written comments, branches opened or closed, etc.).

• Public Notice by banks
  
  • Banks may continue to post the notice in the current rule until January 1, 2026, when Appendix F is applicable.

Banks of all asset sizes should now begin planning and implementing a strategy to comply with the new CRA standards to ensure it can be successful in the years to come. We are committed to being a valuable resource to our clients in preparing for these changes and will be offering training opportunities, review, and consulting on the new CRA rules in the future. If there are any ways that we can assist your institution, please reach out to Brad Washburn at [email protected].

The Georgia Bankers Association is offering a brand new 2-year compliance school!  We are proud to announce that our team members Stewart Thigpen, CPA; Brad Washburn, CRCM, CAMS; and James Moore, CRCM are scheduled to teach several courses in the year 1 portion of the school.  The school is offered to bankers outside of Georgia in addition to members of the GBA.  We hope we have the opportunity to see you there!

The GBA Compliance School is scheduled for April 28, 2024 to May 3, 2024 in Athens, Georgia on the UGA campus.  Year 1 is not just for compliance people.  It is also a great opportunity for bank officers or managers to build a basic understanding of consumer regulatory compliance.  A solid understanding of consumer compliance will help decision makers outside of the compliance process set policies and goals for the entire institution!
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Don’t delay!  Sign up today! You can review the registration website here:
https://web.cvent.com/event/1cc0c78c-fbe8-49eb-9c57-80a0095dace4/summary

Author: Andrew Howard

On December 20, 2023, the FDIC released FIL-65-2023 addressing FDIC official signs, advertising requirements, and misrepresentation of insured status. In recent years, the ability to utilize technology for accessing financial institution products and services has led to an exponential growth in financial technology or Fintech. With this growth comes the potential for customer confusion regarding the FDIC’s deposit insurance coverage. This ruling, which will take effect April 1, 2024, and have a mandatory compliance date of January 1, 2025, will allow customers to better understand when they are conducting business with a covered institution. This new rule will address several amendments to FDIC’s part 328 including a new sign related to deposit insurance.

The rule will allow flexibility to the placement of deposit insurance signs at teller windows. If no non-deposit products are offered on the premises, the option to display one or more signs that are visible and legible from anywhere in the area is available. If non-deposit products are offered on the premises, a deposit insurance sign must be displayed at each teller window. In addition to this portion of the final rule, Insured Deposit Institutions (IDIs) that have non-traditional teller or CSR locations, such as café-style locations, would be required to display the required signage in one or more locations, large enough to be seen from anywhere in the area, if insured deposits are usually and normally received in that location.

This first section of the new rule will require IDIs to post signage, not in close proximity to official signs, that non-deposit products: are not insured by the FDIC; are not deposits; and may lose value. Non-deposit products are defined as any product that is not a “deposit”, including but not limited to: insurance products, annuities, mutual funds, securities, and crypto-assets. There are no official design or size requirements for the non-deposit products sign, but the “non-deposit product” definition was updated to inform us that credit products and safe deposit boxes were not included in the definition. This section will apply to branches and non-traditional locations.

Further, the rule will add the requirement that IDIs display the new official digital sign on the website’s homepage, landing and login pages, and transactional screening involving deposits on all mobile deposit and banking platforms. A picture of the new digital sign is provided below. Requirements for the new digital sign include “FDIC” being displayed with a wordmark size of 37.36 x 15.74px in the color navy blue and the “FDIC-Insured – Backed by the full faith and credit of the U.S. Government” display in 12.8px Source Sans Pro Web font (regular 400 italic) with black lettering. If, due to background color, the digital sign would be illegible, then the text can be displayed in white.  Also, under this section of the rule, requirements are set forth for non-deposit signs on digital deposit-taking channels. The non-deposit digital sign is required to be continuously displayed on each IDI page in relation to non-deposit products indicating that they are: not insured by the FDIC; are not deposits; and may lose value. The non-deposit sign is prohibited from being displayed in close proximity to the official FDIC signage. This section also requires a one-time notification of the non-deposit language for a bank customer who has logged into their account on the IDI’s website and accesses a third party’s non-deposit products via the IDI’s website (e.g., hyperlink). The one-time notification is required to be displayed during each web session after the customer clicks the link and before the customer leaves the IDI’s webpage.

ATMs that receive deposits but do not offer access to non-deposit products are required to display either a physical FDIC official sign on the machine or an FDIC official digital sign on the home screen and any deposit or transactional screens. ATMs that receive deposits and allow access to non-deposit products must display the official digital sign on the home page and each transaction page relating to deposit products, and state that non-deposit products are not insured by the FDIC, are not deposits, and may lose value on each transaction page relating to non-deposit products. Any ATMs accepting deposits that go into service after January 1, 2025, are required to display the new official FDIC digital sign on screen.

In addition to the above sections, the new rule also addresses the FDIC official advertising statement, misrepresentations of FDIC insurance, and crypto-assets. The new rule will allow the use of “FDIC-insured” or the current standard “Member FDIC” in any advertisement that requires the official FDIC-insured advertising statement. The FDIC also set forth requirements for policies and procedures regarding part 328. An insured depository institution must establish and maintain written policies and procedures to achieve compliance with this part.

Along with scenarios in which misrepresentation or material omissions can take place, the rule also covers pass-through insurance stating the final rule does not prescribe specific information but does require disclosure language stating that certain conditions must be satisfied to obtain pass-through insurance. Additionally, crypto-assets have been added to the definition of “non-deposit product”, subjecting them to section 18(a) and part 328.
 
FDIC digital sign:

​At Powell & Company, we are always looking for ways to provide the highest level of service to our clients and as a part of that mission we are now offering free quarterly webinars to clients to help keep you all informed of regulatory changes and hot topics.  We are excited to announce the date for our inaugural quarterly clients-only webinar series which will be Tuesday, March 12, at 9:30 am EST. This will be a BSA/AML focused webinar where we discuss Beneficial Ownership changes, recent BSA/AML enforcement actions, best practices and recent exam findings, and AML system validations. We will send you more details about sign-up closer to the webinar date but wanted to announce this to ensure you all have time to get it on your calendar. We look forward to seeing you all there.      

By: James M. Moore, CRCM
 
The following is a list of reminders and updates to make sure you are heading in the right direction for the New Year. 
 
Deposit Compliance:

• Regulation CC training should have been provided during 2023 and make plans to provide Reg. CC training during 2024.
• Regulation CC hold thresholds remain at $225 (next day) and $5,525 (exception) until July 1, 2025.
• Consider providing annual privacy training to all employees and directors.
• Ensure annual privacy disclosures will be mailed during 2024 or verify the institution’s exemption status for 2024.   
• Determine the number of remittance transfers under Regulation E from the previous calendar year to ensure the institution has not exceeded the threshold for “normal course of business” of 500 consumer transfers.
• Ensure the ID Theft Program administrator has reported to the Board annually on the status of the ID Theft Program.

 
Loan Compliance:

• The 2023 HMDA LAR for all institutions and CRA LAR for large institutions must be submitted by March 1, 2024.
• Check the historic examples for HELOC and ARM application disclosures to ensure the most recent 15 years are used in the examples.
• The CRA Public File should be updated by April 1, 2024.
• Check the accuracy of the affiliated business disclosures to ensure all affiliated businesses are disclosed along with the current range of fees and the current ownership interest of each affiliated business.
• The 2024 HOEPA points and fees test will use the following:
  • 5% of loan amounts of $26,092 or more
  • For a loan amount less than $26,092, the lesser of 8% or $1,305
• The 2024 QM points and fees test will use the following:
  • For a loan amount greater than or equal to $130,461: 3% of the total loan amount
  • For a loan amount greater than or equal to $78,277 but less than $130,461: $3,914
  • For a loan amount greater than or equal to $26,092 but less than $78,277: 5% of the total loan amount
  • For a loan amount greater than or equal to $16,308 but less than $26,092: $1,305
  • For a loan amount less than $16,308: 8% of the total loan amount
• The 2024 General QM threshold will use the following:
  • 2.25 or more percentage points for a first lien covered transaction with a loan amount greater than or equal to $130,461
  • 3.5 or more percentage points for a first lien covered transaction with a loan amount greater than or equal to $78,277 but less than $130,461
  • 6.5 or more percentage points for a first lien covered transaction with a loan amount less than $78,277
  • 6.5 or more percentage points for a first lien covered transaction secured by a manufactured home with a loan amount less than $130,461
  • 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $78,277 and
  • 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $78,277.
• The 2024 Truth In Lending threshold is $69,500 for loans not secured by real property, not secured by personal property expected to be used as a primary dwelling, and are not private education loans.
• The 2024 “small creditors that operate predominantly in rural or underserved areas” asset threshold is $2.640 billion as of December 31, 2023.
• The 2024 “insured creditor” asset threshold is $11.835 billion as of December 31, 2023.
• The 2024 “small loan” exemption for HPML appraisal rules is $32,400.
• Until further notice, the safe harbor credit card penalty fee is $30 for the first and $41 for subsequent late fees.  This remains unchanged from 2022.  The CFPB has not announced the inflation update for 2023 or 2024.
• If the creditor allows borrowers to shop for any required services for TRID loans, it should update (as necessary) the written list provided with the Loan Estimate to identify at least one available provider for each settlement service for which the consumer is permitted to shop. 
• Ensure that employees and Directors have received fair lending and CRA training for 2023.  Training should be planned for 2024.
• Review the CRA asset size thresholds for 2024:
  • CRA asset size thresholds as of December 31, 2023, are under $391 million for small bank (based on both of the last two calendar years), at least $391 million up to $1.564 billion for intermediate small bank (based on either of the two last calendar years), and $1.564 billion and over for large bank (based on both of the last two calendar years).
• The HMDA asset size threshold for depository institutions for 2024 is $56 million.
• Ensure a review of 2022 and 2023 transaction data is conducted for 2024 reporting requirements.  In addition to meeting the above HMDA asset threshold:
  • An institution must have in each of the two preceding calendar years, originated at least 25 or more covered closed-end dwelling secured loans to report closed-end loans. 
  • Dwelling secured open-end lines of credit must be reported if a covered institution originated 200 or more covered dwelling secured open-end lines of credit in each of the previous two calendar years. 
• Review HMDA small filer exemption for reduced field reporting criteria for 2024:
  • Originated less than 500 closed-end mortgages in each of the two preceding calendar years and received a “Satisfactory” or better CRA rating.
  • Originated less than 500 open-end mortgages in each of the two preceding calendar years and received a “Satisfactory” or better CRA rating.
• Ensure procedures are in place for performing escrow account analyses and that the financial institution has implemented procedures for providing annual escrow account notices.
• Ensure loan officers completed S.A.F.E. Act license renewal procedures.
• Ensure an annual independent S.A.F.E. Act audit has been performed.
• Ensure lenders who receive compensation based on insurance sales (credit life/disability) complete license renewal procedures.
• Ensure the financial institution has documented whether they meet the definition of a small servicer, and that documentation of the determination is retained for record retention.
• Ensure the financial institution has documented whether they meet the definition of a small creditor, and that documentation of the determination is retained for record retention.
• Review the final list or rural or underserved counties for 2023, calculate rural or underserved status by address on the CFPB’s website for covered loans, and ensure the financial institution has documented whether it qualifies for the rural / underserved TILA exemption by originating at least one covered loan in a rural or underserved area and that documentation of the determination is retained for record retention.

 
BSA Compliance:

• Schedule a Board review and approval of current BSA/AML/CFT and OFAC program policies.
• Update the BSA/AML/CFT and OFAC Risk Assessments.
• Ensure annual training was conducted for all employees during 2023 and is scheduled for 2024.  Furthermore, the Board of Directors should also be receiving annual BSA training, which should be documented in the Board minutes.
• Consider annual elder abuse training for 2024. This has been a hot exam topic.   
• Annual reviews should be conducted of all CTR exempt customers for suspicious activity and continued eligibility.
• Ensure any annual due diligence is completed for MSBs, MRBs, remote deposit capture, private ATM customers, coin operated amusement customers, etc. in accordance with the financial institution’s BSA/AML/CFT program.
• Review 314(a) contact information transmitted with the call report for accuracy.
• For institutions that voluntarily share information, ensure 314(b) registration is completed annually.

Author: Jeremy Clifton, CRCM, CAMS

FinCEN came through with a Christmas present of sorts on December 21, 2023, by finalizing the long-awaited Access Rule for beneficial ownership information. FinCEN is continuing to target January 1, 2024, for the release date of the BO IT system and the effective date of the Access Rule will be February 20, 2024. The final rule weighs in at 247 pages and might have you wondering if you should cancel your holiday plans for some light reading. Luckily, the FFIEC provided a “Statement for Banks” which is a short and informative summary on general expectations for banks. Here is the main information from the BOI “Statement for Banks”.

“The Access Rule does not create a new regulatory requirement for banks to access BOI from the BO IT System or a supervisory expectation that they do so.  Therefore, the Access Rule does not necessitate changes to Bank Secrecy Act (BSA)/anti-money laundering (AML) compliance programs designed to comply with the existing Customer Due Diligence rule (the “current CDD Rule”)  and other existing BSA requirements, such as customer identification program requirements and suspicious activity reporting.  However, any access to and use of BOI obtained from the BO IT System must comply with the requirements of the CTA and the Access Rule.

To date, FinCEN has issued two rules—and will be issuing a third rule—to implement the CTA.  The first rule regarding the reporting of BOI to FinCEN (the “Reporting Rule”) was issued on September 30, 2022.  The second rule is the Access Rule, which governs access to and use of BOI.  The third rule, which has not yet been proposed, will revise the current CDD Rule.  In particular, the CTA directs FinCEN to revise the current CDD Rule to: (i) bring it into conformity with the AML Act of 2020, including the CTA; (ii) account for financial institutions’ access to BOI reported to FinCEN so financial institutions may confirm BOI provided directly to them for the purpose of facilitating their compliance with AML, countering the financing of terrorism, and customer due diligence requirements; and (iii) reduce any burdens on financial institutions and legal entity customers that are, in light of the CTA, unnecessary or duplicative.”

As we take a deeper dive into the final Access Rule, we will keep you all informed via blog posts; however, there are a few things to keep in mind and some steps to consider at this point.

• Keep completing your beneficial ownership forms as you have since May of 2018. The current CDD rule (beneficial ownership) requirements are still in place.

 

• It is likely that more guidance documents and possible rule changes/clarifications will be published once the BO IT system gets up and running.

 

• We do not have a proposed or final rule for the CDD rule yet and likely won’t have it until 2025. This is the rule making which will significantly change what FIs do on a daily basis for beneficial ownership.

 
“The CTA requires that FinCEN revise the 2016 CDD Rule within one year of the BOI reporting requirements taking effect. In particular, the CTA directs FinCEN to revise the 2016 CDD Rule to: (1) bring it into conformity with the AML Act as a whole, including the CTA; (2) account for financial institutions’ access to BOI reported to FinCEN “in order to confirm the beneficial ownership information provided directly to the financial institutions” for AML/CFT and customer due diligence purposes; and (3) reduce unnecessary or duplicative burdens on financial institutions and legal entity customers.”
 

• High level frontline training: Frontline staff should be aware that any entity formed after 1/1/24 will have 90 days to register with FinCEN. It would be a good idea to inform any newly formed entity customers of the requirements as they are opening accounts. You could have a printout with FinCEN’s website information noted for customers as they have tons of information for small businesses that should help them understand the requirements. Existing companies have until 1/1/25 to report BOI data to FinCEN.

 

• Determine the level of assistance that will be provided to customers: We need to consider how much assistance we are going to provide to customers, we suggest giving them the information and informing them to get help, if needed, from their legal counsel or accountants. Banks may not want to assume any liability by getting too involved with registering entity customers with FinCEN. Banks have no requirements to help entities register their BOI with FinCEN.

 

• Determine if your financial institution will access the BOI database: Accessing the BOI database is clearly not required but some will find it useful for suspicious activity investigations and cases.

 

• If your FI does choose to access the database:
  • Deposit and loan account agreements will likely need to be updated to request access as specific customer consent is required.
  • Consideration will need to be given to tracking access as customers have the right to revoke consent to access.
  • Training is required for employees that have access to the database.
  • Policies and procedures will need to be developed.

On October 31, 2023, the U.S. District Court for the Southern District of Texas expanded the prior injunction that prevents the CFPB from enforcing the 1071 Small Business Rule to financial institutions who were not named in the original lawsuit.  Chief Justice Crane indicated that the injunction would be in effect until the United States Supreme Court rules on the constitutionality of the independent funding of the CFPB. The United States Supreme Court heard oral arguments on October 3, 2023, in the case of Community Financial Services of America vs CFPB but is not expected to rule on the case until late Spring of 2024.

The expanded injunction applies to all financial institutions, banks, credit unions, and fintechs under the CFPB’s purview.
​
It is possible the rule could be modified from its current format, removed in its entirety, or delayed.  It is least likely that the rule will be removed in its entirety, so financial Institutions should be diligent in preparing for the rule but responsive to any fundamental changes to the application of the rule.  Steve H. Powell & Company will continue to update clients on any changes or progress made in the legal system.

Author: ​Steve Shepherd, CRCM