Regulators Issue Interagency Statement Clarifying the Role of Supervisory Guidance

Unlike a law or regulation, supervisory guidance does not have the force and effect of law.

9/18/18

Rules and Regulations StampsThe Bureau of Consumer Financial Protection (BCFP), the National Credit Union Administration (NCUA), along with the other prudential agencies, issued a joint statement to explain the role of supervisory guidance and to describe the agencies’ approach to supervisory guidance.

The statement explains that unlike a law or regulation, supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement action based on supervisory guidance.  Rather, supervisory guidance outlines the agencies’ supervisory expectations and priorities and provides examples of practices that the agencies consider consistent with safety-and-soundness standards.

The guidance clarifies certain policies and practices related to supervisory guidance:

  • The agencies intend to limit the use of numerical thresholds or other “bright-lines” in describing expectations in supervisory guidance. Where numerical thresholds are used, the agencies intend to clarify that the thresholds are exemplary only and not suggestive of requirements. The agencies will continue to use numerical thresholds to tailor, and otherwise make clear, the applicability of supervisory guidance or programs to supervised institutions, and as required by statute.
  • Examiners will not criticize a supervised financial institution for a “violation” of supervisory guidance. Rather, any citations will be for violations of law, regulation, or non-compliance with enforcement orders or other enforceable conditions. During examinations and other supervisory activities, examiners may identify unsafe or unsound practices or other deficiencies in risk management, including compliance risk management, or other areas that do not constitute violations of law or regulation. In some situations, examiners may reference (including in writing) supervisory guidance to provide examples of safe and sound conduct, appropriate consumer protection and risk management practices, and other actions for addressing compliance with laws or regulations.
  • The agencies also have at times sought, and may continue to seek, public comment on supervisory guidance. Seeking public comment on supervisory guidance does not mean that the guidance is intended to be a regulation or have the force and effect of law. The comment process helps the agencies to improve their understanding of an issue, to gather information on institutions’ risk management practices, or to seek ways to achieve a supervisory objective most effectively and with the least burden on institutions.
  • The agencies will aim to reduce the issuance of multiple supervisory guidance documents on the same topic and will generally limit such multiple issuances going forward.
  • The agencies will continue efforts to make the role of supervisory guidance clear in their communications to examiners and to supervised financial institutions, and encourage supervised institutions with questions about this statement or any applicable supervisory guidance to discuss the questions with their appropriate agency contact.

Question of the Week

For closed-end loans covered by Reg Z, are we required to provide disclosures to all borrowers on the loan? Or is delivery to one of the primary borrowers sufficient?

The answer to this question depends on the type of transaction.

In most cases, when there are two or more primary obligors on a loan, delivery of disclosures to one of them will suffice under Reg Z, specifically 12 CFR 1026.17(d). However, if the transaction is rescindable under 1026.23, then all of those subject to the right of rescission must receive the Closing Disclosure (if applicable to the loan) and notice of their right to rescind.

The commentary to 1026.17(d) states:
2. Multiple consumers. When two consumers are joint obligors with primary liability on an obligation, the disclosures may be given to either one of them. If one consumer is merely a surety or guarantor, the disclosures must be given to the principal debtor. In rescindable transactions, however, separate disclosures must be given to each consumer who has the right to rescind under §1026.23, although the disclosures required under §1026.19(b) need only be provided to the consumer who expresses an interest in a variable-rate loan program. When two consumers are joint obligors with primary liability on an obligation, the early disclosures required by §1026.19(a), (e), or (g), as applicable, may be provided to any one of them. In rescindable transactions, the disclosures required by §1026.19(f) must be given separately to each consumer who has the right to rescind under §1026.23. In transactions that are not rescindable, the disclosures required by §1026.19(f) may be provided to any consumer with primary liability on the obligation. See §§1026.2(a)(11), 1026.17(b), 1026.19(a), 1026.19(f), and 1026.23(b).

Of course, credit unions should also ensure that their delivery of disclosures is not only in compliance with Reg Z requirements, but also with its only internal policies and procedures. And if the loan is sold on the secondary market, the credit union will want to determine how disclosures should be handled when there are multiple consumers with a primary obligation on the loan.

Related Links:

12 CFR 1026.17(d)
Commentary to 1026.17(d)

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA, jointly with federal and state financial regulatory agencies, issued a statement on Supervisory Practices Regarding Financial Institutions Affected by Hurricane Florence.

Bureau of Consumer Financial Protection (BCFP)

The BCFP, in conjunction with the FRB, FDIC, NCUA, and OCC, issued a statement reaffirming the role of supervisory guidance for regulated institutions.

The BCFP announced the issuance of an interim final rule that updates two model disclosures contained in the FCRA, which was changed by recent legislation.

The BCFP issued a notice of proposed policy guidance and request for comment regarding a proposal to create a Disclosure Sandbox.

Federal Reserve Board (FRB)

The FRB issued a final rule that amends the liability provisions contained in Reg CC regarding altered checks or checks issued with unauthorized signature when the original paper check is not available for inspection. The FRB also released its newest issue of the Beige Book.

Federal Deposit Insurance Corporation (FDIC)

The FDIC issued a proposed rule on the treatment of reciprocal deposits, which implements Section 202 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.

Federal Housing Finance Agency (FHFA)

The FHFA issued a notice of proposed rulemaking that would require Fannie Mae and Freddie Mac to align their programs, policies, and practices that affect the prepayment rates of “To-Be-Announced” (TBA)- eligible mortgage-backed securities.

Financial Crimes Enforcement Network (FinCEN)

FinCEN issued a final ruling that grants permanent exceptive relieve from the Beneficial Ownership Rule requirements for legal entity customers that have accounts opened prior to May 11, 2018 that either rollover, renew, or modify on or after May 11, 2018.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of September 14,2018. The last update prior to this was Sept. 13, 2018.

Questions? Contact the Compliance Hotline: 1.800.546.4465; compliance@nwcua.org.