June 2017 Newsletters
Are Businesses the Next Fair Lending Priority?
By Victoria E. Stephen, Associate General Counsel
On May 10, 2017, the Consumer Financial Protection Bureau (CFPB) took its first step toward expanding the fair lending landscape by revealing plans to issue regulations on business lending. Although Section 1071 of the Dodd-Frank Act required financial institutions to track and report applications made by women-owned, minority-owned and small businesses, not much has developed in this arena since it was signed into law in 2010.
"Small businesses fuel America’s economic engine, create jobs and nurture communities. Yet little is known about how well the lending market serves their financing needs," said Director Richard Cordray in the CFPB’s press release. To this end, the Bureau has issued a Request for Information (RFI) asking for feedback to help develop implementing regulations for the estimated $1.4 trillion small business lending market.
The questions the CFPB explores in its RFI can be divided into five general categories:
Small Business Definition: The Bureau wants to know how the industry defines “small business.” Under Section 1071, the definition is generally based on industry-specific size standards as set out by NAICS codes. The CFPB, however, is considering developing an alternate “practical definition” that considers common practices and doesn’t just rely on NAICS codes.
Data Points: Section 1071 requires a whole host of data points, including but not limited to:
Loan type and purpose;
Loan amount applied for and approved;
Type of action taken;
Applicant’s gross annual revenue; and
Information about the race, sex and ethnicity of the business owners.
In addition, it gives the CFPB authority to require “any additional data that [it] determines would aid in fulfilling the purposes of [Section 1071].” The RFI requests more information on whether more or fewer data points should be required and, if so, what those should be.
Institutions Engaged in Business Lending: Although depository institutions in general would undoubtedly be covered new regulations, the CFPB may exempt certain institutions based on size, volume, or type, and it seeks more information on what those exemptions should be.
Access to Credit and Financial Products: While the CFPB understands that term loans, lines of credit, and credit cards are the main all-purpose products used by small businesses, it wants to know what other products are important sources of financing. In addition, the Bureau asks how an “application” is defined for business purposes and how credit reviews in this area typically operate.
Privacy: As with the recent HMDA amendments, privacy is a forefront concern. Just from the required data points, it’s clear that at least some of the data could involve sensitive, private or confidential information, and the CFPB is seeking input on how to balance these considerations with Section 1071 requirements.
The RFI was just recently published in the Federal Register, so those who wish to submit comments have until July 14, 2017. In addition to the RFI, the Bureau also published a white paper titled, “Key dimensions of the small business lending landscape” that details the preliminary research it has done in the area. Banks that lend to potentially-covered businesses should consider reviewing the research and submitting comments, especially given the unchartered frontier of the small business lending market.
by Chance Williams, Compliance Specialist
Regulation CC Expedited Funds Availability Act of 1987 is designed to ensure consumers receive prompt availability of funds for deposit accounts, and to promote improvements in check collections as well as the return process. As we in the industry have become accustomed to changes to regulations Regulation CC is no different. The Federal Reserve Board has proposed an amendment to clarify the UCC provision regarding Altered and Forged Checks that addresses disputes that involve the possibility of forgeries and/or altered checks for dispute purposes.
The question of whether a check is to be presumed to be altered and/or forged is currently not addressed in Regulation CC. Over the years as the check collection system has become much more electronic therefore requiring a clarification. The time of having the original check item available for inspection has become less feasible and has placed a larger burden on the banks to receive the original item. This amendment will attempt to clarify the process of disputing checks that have potentially been altered and/or forged when the original item is not physically able to be examined.
The rule would adopt a presumption for disputes concerning alternations and/or forgeries concerning whether the dollar amount or the payee of the substitute check or electronic check has potentially been altered or whether those same checks are derived from an original check that had been altered or forged. The intent of the amendment is to provide clarity as to the burden of proof required in these situations. Members of the industry have requested clarification and the Federal Reserve Board has requested comments on whether banks should be allowed to adopt an evidentiary presumption. If the answer is “yes” should banks then be allowed to presume a check has been altered and/or forged in cases of doubt?
Comments have been received and due to those comments the proposed rule has been drafted. The proposed rule would allow for the presumption of the alteration to be overcome by a preponderance of evidence that the substitute item accurately reflect the information contained on the original item.
This proposed amendment will affect banks of all sizes. The presumption of alteration would shift the burden to the bank that warrants that an item has not been altered; this could be either the depository bank or the collecting bank. A bank would be burdened by having to provide evidence that the item is accurately reflected in the substitute form or that the substitute item is derived from an original that had been altered and/or forged. The rule would also state that the presumption of alteration shall cease if the original item is made available for inspection by the parties involved. Additionally, the proposal would clarify that presumptions do not limit the ability for a bank to make a claim against another bank for losses allegedly incurred form an item alleged to be altered.
Stay tuned for more on the proposal and final rule.
To read the summary of the proposal visit:
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20170531a1.pdf - Full proposal
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20170531a2.pdf - Summary
Submit comments for Docket Number R-01564 by any of these following methods:
Agency Web site:
Follow the instructions for submitting comments at http://www.federalreserve.gov/apps/foia/proposedregs.aspx.
Include the docket number in the subject line of the message.
• FAX: (202) 452–3819 or (202) 452– 3102.
• Mail: Ann E. Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue N.W., Washington, DC 20551.