In this Issue. The Office of the Comptroller of the Currency (OCC) issued a bulletin to assist banks in effectively managing risks associated with "buy now, pay later" lending; the Federal Deposit Insurance Corporation (FDIC) extended the comment period for proposed addition of Appendix C to part 364 of the FDIC's rules and regulations; the OCC solicited research on depositor behavior, bank liquidity, and run risk; and the Consumer Financial Protection Bureau (CFPB) expressed its support for the California Department of Financial Protection and Innovation's (DFPI) treatment of income-based advances like loans. These and other developments are discussed in more detail below.
Regulatory Developments
OCC Issues Guidance on Risk Management of "Buy Now,
Pay Later" Lending
On December 6, the OCC issued guidance to address the risks
associated with "buy now, pay later" (BNPL) lending. The
guidance provides background information on BNPL loans, discusses
risks associated with BNPL lending, and provides guidance to banks
offering or considering offering BNPL loans, mainly focusing on the
BNPL loans that are payable in four or fewer installments and carry
no finance charges. The guidance notes that banks should maintain
underwriting, repayment terms, pricing, and safeguards that
minimize adverse customer outcomes and ensure that marketing
materials and disclosures are clear and conspicuous. The OCC
expects banks that offer BNPL loans to do so in a manner that is
safe and sound, provides fair access to financial services,
supports fair treatment of consumers, and complies with applicable
laws and regulations. The details of the guidance and the other OCC
resources can be found here.
"Supporting a fair and inclusive financial system is a
priority for the OCC and is critical to maintaining trust in the
banking system. As the buy-now-pay-later market grows and we enter
the holiday shopping season, the guidance confirms our expectation
that OCC-supervised institutions offering these products do so in a
responsible manner."
‒ Michael Hsu, Acting Comptroller of the Currency
FDIC Extends Comment Period for Proposed Addition of
Appendix C to Part 364 of the FDIC's Rules and
Regulations
On November 30, the FDIC announced an extension to the comment
period for its previously announced proposal to issue new corporate
governance and risk management guidelines as Appendix C (the
Guidelines) to FDIC's standards for safety and soundness
regulations in Part 364. These Guidelines would apply to (i) all
insured state nonmember banks; (ii) state-licensed insured branches
of foreign banks; and (iii) insured state savings associations that
are subject to Section 39 of the Federal Deposit Insurance Act.
These Guidelines do not apply to FDIC-insured and/or
FDIC-supervised institutions with less than $10 billion in total
consolidated assets or more on or after the effective date of the
final Guidelines. See our previous discussion of the Guidelines here. The new deadline for the comment period
on this proposal is February 9, 2024.
OCC Solicits Research on Depositor Behavior, Bank
Liquidity, and Run Risk
On December 1, the OCC issued a call for research papers on depositor
behavior, bank liquidity, and run risk in the banking system. The
OCC indicated that topics related to the causes and consequences of
funding risk are of particular interest, including qualification
and determinants of deposit franchise value, presence and pricing
of deposit insurance, networked, brokered, uninsured and
institutional deposits, changing behavior of depositors,
availability and pricing of deposit products and substitutes, roles
of financial innovation and technology in deposit markets, effects
of regulation and supervision on such markets, repurchase and
reverse repurchase agreements on liquidity management, determinants
and consequences of liquidity shortfalls, relationships between
funding risk and assets, asset sales as source of liquidity.
The submission date for papers is January 15, 2024, and authors
of selected papers will be invited to present to OCC staff,
academics and government researchers June 5-7, 2024.
CFPB Expresses Support for Treating "Income-Based
Advances" Like Loans
On November 27, the CFPB expressed its support for the California DFPI
to treat "income-based advances" (IBAs) (i.e., products
where repayment is related, at least in theory, to a worker's
next payday) as loans under the California Financing Law, to treat
gratuities and expedited fees as finance charges, and to require
providers of IBAs to be registered and examined for the full scope
of existing state and federal consumer protection and lending laws,
equating IBAs to earned wage access and other regulated payday
lending products. The CFPB noted its own authority to examine
providers of IBAs but acknowledged state supervision of these
products is "critically important." The CFPB concluded
its letter by communicating its intent to issue further guidance to
clarify the application of federal law, and the Truth in Lending
Act specifically, to IBAs.
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