Examinations for Risks to Active-Duty Servicemembers and Their Covered Dependents

CourtConsumer Financial Protection Bureau
Citation86 FR 32723
Published date23 June 2021
SectionRules and Regulations
Record Number2021-13074
32723
Federal Register / Vol. 86, No. 118 / Wednesday, June 23, 2021 / Rules and Regulations
1
This interpretive rule uses the terms
‘‘supervised nonbank’’ and ‘‘very large bank or
credit union’’ for convenience. The more precise
definitions of the persons that are subject to the
Bureau’s supervisory authority under sections 1024
and 1025 of the CFPA are set out in the statute. 12
U.S.C. 5514(a), 5515(a). The Bureau also has certain
additional supervisory authority regarding service
providers to these persons, and the reasoning of this
interpretive rule also extends to those service
providers. 12 U.S.C. 5514(e), 5515(d).
The Board’s meeting was widely
publicized throughout the California
walnut industry. All interested persons
were invited to attend the meeting and
participate in Board deliberations on all
issues. Like all Board meetings, the
September 11, 2020, meeting was a
public meeting and all entities, both
large and small, were able to express
views on this issue. Finally, interested
persons were invited to submit
comments on this rule, including the
regulatory and information collection
impacts of this action on small
businesses.
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
chapter 35), the Order’s information
collection requirements have been
previously approved by the OMB and
assigned OMB No. 0581–0178 Vegetable
and Specialty Crops. No changes in
those requirements will be necessary as
a result of this rule. Should any changes
become necessary, they would be
submitted to OMB for approval.
This rule will not impose any
additional reporting or recordkeeping
requirements on either small or large
California walnut handlers. As with all
Federal marketing order programs,
reports and forms are periodically
reviewed to reduce information
requirements and duplication by
industry and public sector agencies.
AMS is committed to complying with
the E-Government Act, to promote the
use of the internet and other
information technologies to provide
increased opportunities for citizen
access to Government information and
services, and for other purposes.
USDA has not identified any relevant
Federal rules that duplicate, overlap, or
conflict with this final rule.
A proposed rule concerning this
action was published in the Federal
Register on March 5, 2021 (86 FR
12837). The Board notified all California
walnut handlers of the proposed
assessment rate decrease. The proposed
rule was made available through the
internet by USDA and the Office of the
Federal Register. A 30-day comment
period ending April 5, 2021, was
provided for interested persons to
respond to the proposal. No comments
were received. Accordingly, no changes
will be made to the proposed rule.
A small business guide on complying
with fruit, vegetable, and specialty crop
marketing agreements and orders may
be viewed at: https://
www.ams.usda.gov/rules-regulations/
moa/small-businesses. Any questions
about the compliance guide should be
sent to Richard Lower at the previously
mentioned address in the
FOR FURTHER
INFORMATION CONTACT
section.
After consideration of all relevant
material presented, including the
information and recommendation
submitted by the Board and other
information available, it is hereby found
that this rule will tend to effectuate the
declared policy of the Act.
List of Subjects in 7 CFR Part 984
Marketing agreements, Reporting and
recordkeeping requirements, and
Walnuts.
For the reasons set forth in the
preamble, 7 CFR part 984 is amended as
follows:
PART 984—WALNUTS GROWN IN
CALIFORNIA
1. The authority citation for part 984
continues to read as follows:
Authority: 7 U.S.C. 601–674.
2. Section 984.347 is revised to read
as follows:
§ 984.347 Assessment rate.
On and after September 1, 2020, an
assessment rate of $0.0250 per
kernelweight pound is established for
California merchantable walnuts.
Erin Morris,
Associate Administrator, Agricultural
Marketing Service.
[FR Doc. 2021–13039 Filed 6–22–21; 8:45 am]
BILLING CODE P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Chapter X
Examinations for Risks to Active-Duty
Servicemembers and Their Covered
Dependents
AGENCY
: Bureau of Consumer Financial
Protection.
ACTION
: Interpretive rule.
SUMMARY
: The Bureau of Consumer
Financial Protection (Bureau) has
statutory authority to conduct
examinations, at those institutions that
it supervises, regarding the risks to
active-duty servicemembers and their
covered dependents that are presented
by conduct that violates the Military
Lending Act. This interpretive rule
explains the basis for that authority.
DATES
: This interpretive rule is effective
on June 23, 2021.
FOR FURTHER INFORMATION CONTACT
:
Christopher Shelton, Senior Counsel,
Legal Division, (202) 435–7700. If you
require this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION
:
I. Introduction
The Consumer Financial Protection
Act of 2010 (CFPA) authorizes the
Bureau to conduct examinations of
supervised nonbanks for the purposes of
assessing and detecting ‘‘risks to
consumers.’’ As explained below, the
risks to active-duty servicemembers and
their dependents from conduct that
violates the Military Lending Act (MLA)
fall squarely within that category. The
CFPA also authorizes the Bureau to
conduct examinations of very large
banks and credit unions for purposes of
detecting and assessing those ‘‘risks to
consumers’’ that are ‘‘associated’’ with
‘‘activities subject to’’ Federal consumer
financial laws, such as the Truth in
Lending Act (TILA) or the CFPA.
1
Because conduct that violates the MLA
is associated with activities that are
subject to TILA and the CFPA, that
standard is also satisfied here. The
Bureau’s interpretation is also entirely
consistent with the enforcement scheme
of the MLA, which by incorporating
TILA’s enforcement scheme authorizes
the Bureau to use formal administrative
adjudications, civil enforcement actions,
and other authorities to enforce the
MLA. That enforcement scheme is
complemented by the Bureau’s use of
the examination process to detect and
assess risks to consumers arising from
violations of the MLA. This reading also
avoids an unworkable gap in Bureau
examinations that can otherwise only be
potentially filled by the formal
enforcement process; based on the
Bureau’s experience, that gap leads to
wasteful inefficiencies for both the
Bureau and supervised institutions.
Additionally, the Bureau is no longer
persuaded by counterarguments that it
does not have the relevant authority, for
reasons that will also be discussed
below.
This part I is followed by part II,
which provides some general
background about the CFPA, the MLA,
TILA, and the history of Bureau
examinations regarding the MLA. Part
III sets out the Bureau’s analysis of its
authority with respect to supervised
nonbanks, including the statutory text;
the statutory scheme; and
counterarguments that the Bureau no
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2
CFPA section 1011(a), 12 U.S.C. 5491(a); see
generally Public Law 111–203, tit. X, 124 Stat. 1376,
1955–2113 (2010).
3
CFPA section 1002(14), 12 U.S.C. 5481(14).
4
CFPA section 1022(b)(1), 12 U.S.C. 5512(b)(1).
5
CFPA sections 1031, 1035, 12 U.S.C. 5531, 5535.
6
CFPA section 1013(e), 12 U.S.C. 5493(e).
7
12 U.S.C. 5514, 5515. As explained in note 1,
this interpretive rule uses the terms ‘‘supervised
nonbank’’ and ‘‘very large bank or credit union’’ for
convenience.
8
12 U.S.C. 5514(b)(1).
9
12 U.S.C. 5515(b)(1) (emphasis added).
10
Under the CFPA, the ‘‘prudential regulators’’
are the Board of Governors of the Federal Reserve
System (Federal Reserve), the Office of the
Comptroller of the Currency (OCC), the Federal
Deposit Insurance Corporation (FDIC), and the
National Credit Union Administration (NCUA). See
CFPA section 1002(24), 12 U.S.C. 5481(24). For
convenience, this interpretive rule also uses that
term anachronistically to refer to the Federal Home
Loan Bank Board, which existed until 1989, and the
Office of Thrift Supervision, which existed from
1989 until 2011.
11
As the legislative history of the CFPA explains,
the Bureau’s new authority with respect to these
nonbanks remedied the previous situation, where
the ‘‘lack of any effective supervision on
nondepositories led to a ‘race to the bottom’ in
which the institutions with the least effective
consumer regulation and enforcement attracted
more business . . . .’’ S. Rept. 111–176, at 10
(2010). At the same time, the Bureau’s authorities
are not limited to addressing the specific problems
that existed prior to the CFPA. See id. at 11 (‘‘The
CFPB will have enough flexibility to address future
problems as they arise. Creating an agency that only
had the authority to address the problems of the
past, such as mortgages, would be too short-sighted.
Experience has shown that consumer protections
must adapt to new practices and new industries.’’).
12
Note that the term ‘‘associated’’ in section
1025(b)(1)(C) is best read as meaning ‘‘associated’’
with ‘‘the activities subject to such laws’’ in section
1025(b)(1)(B), where ‘‘such laws’’ refers back to
‘‘Federal consumer financial laws’’ in section
1025(b)(1)(A). This reading flows naturally from the
order in which the provisions appear. However, as
discussed below, this interpretive rule would reach
the same conclusion if ‘‘associated’’ in section
1025(b)(1)(C) were read to mean ‘‘associated’’ with
violations of Federal consumer financial laws. MLA
violations are both associated with activities subject
to Federal consumer financial law and associated
with violations of Federal consumer financial law.
Also note that, since the Bureau concludes that the
above standards are satisfied, this interpretive rule
does not need to consider whether there are also
other statutory bases for the Bureau’s authority to
conduct examinations of supervised nonbanks and
very large banks and credit unions related to the
MLA.
13
10 U.S.C. 987.
14
152 Cong. Rec. S6406 (June 22, 2006)
(statement of Sen. Talent).
15
10 U.S.C. 987(h). Congress added the Bureau to
the list of agencies that the Department of Defense
consults in 2013.
longer finds persuasive. Part IV
addresses the parallel issue in the
context of very large banks and credit
unions. Part V concludes with some
regulatory matters.
II. Background
A. Consumer Financial Protection Act of
2010
The CFPA establishes the Bureau as
an independent bureau in the Federal
Reserve System and assigns the Bureau
a range of rulemaking, enforcement,
supervision, and other authorities.
2
Many of these authorities relate to the
body of ‘‘Federal consumer financial
law,’’ which the CFPA defines to
include the CFPA itself, TILA, and a
number of other statutes, rules, and
orders, but it does not include the
MLA.
3
For example, one of the Bureau’s
authorities is to ‘‘prescribe rules . . . as
may be necessary or appropriate to
enable the Bureau to administer and
carry out the purposes and objectives of
the Federal consumer financial laws,
and to prevent evasions thereof.’’
4
A
notable substantive provision of the
CFPA is its prohibition on unfair,
deceptive, or abusive acts or practices.
5
The CFPA also requires the Director of
the Bureau to establish several offices,
including an Office of Service Member
Affairs.
6
The key CFPA provisions that are
relevant to this interpretive rule are
sections 1024 and 1025. Section 1024
addresses Bureau supervision of
specified categories of nonbanks—for
example, any covered person who
‘‘offers or provides to a consumer a
payday loan’’—while section 1025
addresses Bureau supervision of ‘‘very
large’’ depository institutions and credit
unions, which are generally those with
more than $10 billion in total assets and
their affiliates.
7
Section 1024(b)(1) provides that the
Bureau ‘‘shall require reports and
conduct examinations on a periodic
basis of’’ a supervised nonbank for
purposes of: ‘‘(A) assessing compliance
with the requirements of Federal
consumer financial law; (B) obtaining
information about the activities and
compliance systems or procedures of
such person; and (C) detecting and
assessing risks to consumers and to
markets for consumer financial products
and services.’’
8
Section 1025(b)(1) contains parallel
but slightly different language. It
provides that the Bureau ‘‘shall have
exclusive authority to require reports
and conduct examinations on a periodic
basis of’’ very large banks and credit
unions for purposes of: ‘‘(A) assessing
compliance with the requirements of
Federal consumer financial laws; (B)
obtaining information about the
activities subject to such laws and the
associated compliance systems or
procedures of such persons; and (C)
detecting and assessing associated risks
to consumers and to markets for
consumer financial products and
services.’’
9
These differences in wording between
section 1024(b)(1) and section
1025(b)(1) are explained by the structure
of the statute. Very large banks and
credit unions have long been subject to
supervisory examinations by the
prudential regulators, who continue to
examine these institutions for a broad
range of purposes.
10
By contrast, the
supervised nonbanks that are covered
by section 1024(b)(1) were generally not
subject to examination by the Federal
government before the creation of the
Bureau.
11
The purposes of Bureau
examinations under sections 1024(b)(1)
and 1025(b)(1) are both broad. But it
was natural, to ensure thorough Federal
examination of supervised nonbanks,
for Bureau examinations of those
nonbanks to cover an even broader
range of subject matters than the
Bureau’s examinations of very large
banks and credit unions. (For example,
the Bureau can obtain information about
all of a supervised nonbank’s
compliance systems or procedures, not
only those that are ‘‘associated’’ with
activities subject to Federal consumer
financial laws.)
Accordingly, with respect to
supervised nonbanks that are covered
by section 1024(b)(1), the relevant
question here is whether there are ‘‘risks
to consumers’’ arising from conduct that
violates the MLA that the Bureau may
detect and assess. In the case of very
large banks and credit unions that are
covered by section 1025(b)(1), there is
the additional question of whether such
‘‘risks to consumers’’ are ‘‘associated’’
with ‘‘activities subject to’’ Federal
consumer financial laws, such as TILA
or the CFPA.
12
B. Military Lending Act
The MLA, also known as the Talent
Amendment, was bipartisan legislation
first enacted in 2006.
13
As Senator
Talent explained during the passage of
the MLA: ‘‘The fact is, predatory payday
lenders are targeting American troops
and are trying to make a buck off of their
service to our country.... This is a
national problem. Predatory payday
lenders set up shop near our military
bases throughout the country and prey
on our servicemembers.... Our troops
deserve uniform, national protection
against abusive financial practices that
target them.’’
14
The MLA establishes safeguards when
creditors extend consumer credit to
certain active-duty members of the
armed forces or their covered
dependents. The statute is implemented
through regulations issued by the
Department of Defense, in consultation
with other specified agencies including
the Bureau.
15
The Department of
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16
80 FR 43559, 43560 (July 22, 2015).
17
See, e.g., 32 CFR 232.3(f)(2) (exceptions from
definition of ‘‘consumer credit’’ for purposes of the
MLA).
18
10 U.S.C. 987(b); 32 CFR 232.4(c).
19
10 U.S.C. 987(e); 32 CFR 232.8.
20
10 U.S.C. 987(c); 32 CFR 232.6.
21
10 U.S.C. 987(f)(3).
22
32 CFR 232.9(c).
23
10 U.S.C. 987(f)(1).
24
Public Law 112–239, sec. 662(b), 126 Stat.
1631, 1786 (Jan. 2, 2013) (adding 10 U.S.C.
987(f)(6)). The provision of the MLA concerning
criminal penalties is excepted from this authority;
that provision is outside the scope of this
interpretive rule. Id. (cross-referencing 10 U.S.C.
987(f)(1)).
25
H.R. Conf. Rep. No. 112–705, at 775 (2012).
26
15 U.S.C. 1607(a), (c), as amended by Public
Law 111–203, title X, §1100A, 124 Stat. 1376,
2107–09 (2010). The agencies’ authority to enforce
TILA under section 108 is ‘‘subject to’’ subtitle B
of the CFPA. Id. Subtitle B, among other things,
allocates supervisory and enforcement authority
between the Bureau and the prudential regulators.
See 12 U.S.C. 5514–16.
27
15 U.S.C. 1607(a)(1), (a)(2) (citing section 8 of
the Federal Deposit Insurance Act, 12 U.S.C. 1818,
and the Federal Credit Union Act, 12 U.S.C. 1751
et seq.).
28
E.g., CFPA sections 1052–54, 12 U.S.C. 5562–
64.
29
15 U.S.C. 1607(b).
30
E.g., 12 U.S.C. 248, 325, 481, 1464(a),
(d)(1)(B)(ii), (d)(1)(B)(v), 1756, 1784(a),
1819(a)(Eighth), 1820(b), (c), (d)(1).
31
Federal Reserve, Truth in Lending for the Year
1971, reprinted in 118 Cong. Rec. 816, 817 (Jan. 24,
1972).
32
Federal Reserve, Annual Report to Congress for
1982 (Apr. 1983).
33
Statement by John C. Dugan, Comptroller of the
Currency, Before the H. Comm. on Fin. Servcs.
(June 13, 2007).
34
CFPB Examination Procedures, Short Term,
Small Dollar Lending, at Procedures 11 (Sept.
2013), https://files.consumerfinance.gov/f/201309_
cfpb_payday_manual_revisions.pdf. These
particular procedures are no longer applicable,
among other reasons because they do not reflect
subsequent revisions to the Department of Defense’s
regulations implementing the MLA.
Defense has explained that under its
implementing regulations, as revised in
2015, consumer credit for purposes of
the MLA is, in general, ‘‘defined
consistently with credit that for decades
has been subject to the disclosure
requirements of the Truth in Lending
Act (TILA), codified in [the Bureau’s]
Regulation Z.’’
16
However, there are
some instances where the definition of
consumer credit under the MLA and its
implementing regulations is narrower
than under TILA.
17
One of the MLA’s safeguards is a
prohibition on imposing interest at a
military annual percentage rate (MAPR)
of greater than 36 percent, where MAPR
is calculated by reference to TILA’s
annual percentage rate (APR), with
some specified differences.
18
The MLA
also establishes a number of other
limitations on the terms of credit
transactions, such as a prohibition on
rolling over credit under certain
circumstances; a prohibition on
requiring, as a condition for the
extension of credit that, the borrower
establish an allotment to repay an
obligation; and a prohibition on
prepayment penalties or fees.
19
The
MLA requires disclosures that are based
on TILA disclosures with additional
supplementary information, such as a
statement regarding the MAPR in
addition to the disclosure of the TILA
APR.
20
Conduct that violates the MLA may
also violate TILA’s disclosure
requirements, or occur concurrently
with violations of TILA’s disclosure
requirements, since the MLA’s
disclosure requirements incorporate and
supplement TILA’s. Conduct that
violates the MLA may also overlap with
violations of the CFPA’s prohibition on
deceptive acts or practices or other
violations of Federal consumer financial
law.
Congress provided that any contract
prohibited by the MLA ‘‘is void from the
inception of such contract.’’
21
As the
MLA’s implementing regulations further
explain, any contract with a covered
borrower that fails to comply with the
MLA or which contains one or more
provisions prohibited under the MLA is
void from the inception of the
contract.
22
The MLA also provides
criminal penalties for creditors that
knowingly violate the statute.
23
However, as originally enacted in 2006,
the MLA did not address administrative
enforcement.
In 2013, Congress amended the MLA
to provide that it ‘‘shall be enforced by
the agencies specified’’ in section 108 of
TILA, ‘‘in the manner set forth in that
section or under any other applicable
authorities available to such agencies by
law.’’
24
As the conference report
explained, ‘‘for the purposes of the
enforcement authority under this
section, a violation of the Military
Lending Act would be treated as though
it were a violation of the Truth in
Lending Act.’’
25
Thus, the authorities in
section 108 of TILA, which are
discussed below, are applicable to the
MLA.
C. Truth in Lending Act
Section 108 addresses administrative
enforcement of TILA. It provides that
TILA ‘‘shall be enforced’’ by a list of
enforcing agencies, including the
applicable prudential regulators and,
since 2010, the Bureau.
26
In the case of
the prudential regulators, section 108
specifies that they shall enforce TILA
under statutory provisions that
authorize, among other things,
administrative adjudications for cease-
and-desist orders and civil money
penalties.
27
In the case of the Bureau,
section 108 provides that TILA shall be
enforced under subtitle E of the CFPA.
Subtitle E authorizes the Bureau to,
among other things, conduct
administrative adjudications, initiate
civil enforcement actions, and send civil
investigative demands.
28
Section 108
further provides that each of the
enforcing agencies ‘‘may exercise, for
the purpose of enforcing compliance’’
with TILA, ‘‘any other authority
conferred on it by law.’’
29
As general background, since TILA’s
enactment in 1968, the prudential
regulators have relied heavily on bank
examinations in order to implement
TILA. As noted above, each of the
prudential regulators has longstanding
statutory authority to ‘‘examine’’ or
conduct ‘‘examinations’’ of banks or
credit unions.
30
As the Federal Reserve
reported to Congress in 1972, in its
capacity as the agency that wrote
regulations to implement TILA: ‘‘For the
most part, compliance [with TILA] is
determined by [the prudential
regulators] during the regular periodic
examinations of the creditors under
their jurisdiction.’’
31
The Federal
Reserve similarly reported to Congress
in 1983 that the five prudential
regulators ‘‘enforce compliance with
[TILA and three other consumer finance
statutes] mainly through periodic
examinations.’’
32
Along the same lines,
the Comptroller of the Currency testified
to Congress in 2007 that the ‘‘primary
method that federal banking agencies
use to implement consumer protection
standards is direct supervision—not
formal enforcement actions—of the
banks we supervise.’’
33
D. History of Bureau Examinations
Regarding the MLA
In September 2013, the Bureau
amended its short-term, small-dollar
lending examination procedures to
advise examiners that they ‘‘should
review for MLA violations, which
evidence risks to consumers and may
require supervisory or enforcement
action.’’
34
This was about two years into
the history of the Bureau’s examination
program and about nine months after
the MLA was amended to provide the
Bureau with authority to enforce the
MLA in the same manner as it is
authorized to enforce TILA. As far as the
Bureau is aware, no supervised entity
ever disputed the propriety of this
aspect of the Bureau’s examinations by
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35
See Letter from Kathleen L. Kraninger, Director
of the Bureau, to Senator Sherrod Brown (Feb. 1,
2019).
36
Letter from Kathleen L. Kraninger, Director of
the Bureau, to the Hon. Nancy Pelosi, Speaker,
House of Representatives (Jan. 17, 2019), https://
files.consumerfinance.gov/f/documents/cfpb_MLA-
legislative-proposal-to-Pelosi.pdf. No legal
conclusion can be drawn from the fact that this
particular proposal has not as yet been enacted.
37
The statute also includes the authority to
‘‘require reports.’’ CFPA sections 1024(b)(1),
1025(b)(1), 12 U.S.C. 5514, 5515. This analysis
focuses on the authority to conduct examinations
for simplicity, but the same analysis would be
applicable to requiring reports, because the same
operative statutory language is also applicable to
requiring reports.
38
City of Arlington, Tex. v. FCC, 569 U.S. 290,
296 (2013) (Scalia, J.).
39
Roberts v. Sea-Land Servs., Inc., 566 U.S. 93,
103 (2012) (quoting FDA v. Brown & Williamson
Tobacco Corp., 529 U.S. 120, 133 (2000) (quoting
Gustafson v. Alloyd Co., 513 U.S. 561, 569 (1995))).
40
See CFPA section 1055, 12 U.S.C. 5565.
41
See 32 CFR 232.5.
appealing a supervisory determination
regarding the MLA.
In 2018, the Bureau discontinued
examination activity regarding the MLA.
This was because the Bureau changed
its position, taking the view that it
lacked the authority to engage in MLA-
related examination activity, for reasons
that will be discussed below.
35
In 2019,
the Bureau wrote to Congress to suggest
legislation to ‘‘clarify the [Bureau’s]
authority to supervise for compliance
with the [MLA].’’
36
The Bureau is now returning to the
original position that it took from 2013
until 2018. The Bureau believes that it
does have the requisite authority, and
that the view that it originally took in
2013 was the correct one, for the reasons
discussed below.
III. Analysis of Section 1024(b)(1)(C)
(Supervised Nonbanks)
A. Statutory Text
Section 1024(b)(1)(C) of the CFPA, in
relevant part, straightforwardly
authorizes the Bureau to conduct
examinations of supervised nonbanks
for purposes of detecting and assessing
‘‘risks to consumers.’’
37
As the Supreme
Court has explained in another context:
‘‘Congress knows to speak in plain
terms when it wishes to circumscribe,
and in capacious terms when it wishes
to enlarge, agency discretion.’’
38
‘‘Risks to consumers’’ that arise from
conduct that violates the MLA fall well
within that capacious phrase. Such
conduct risks having adverse financial
consequences for active-duty service
members and their covered dependents.
One reason why these consequences can
be particularly significant for military
families is that financial status can
affect servicemembers’ ability to
maintain their security clearances and
therefore maintain their military careers.
Congress considered the risk of harm
from contracts made in violation of the
MLA so severe that it made such
contracts entirely void.
B. Statutory Scheme
A statute should be interpreted ‘‘as a
symmetrical and coherent regulatory
scheme.’’
39
Here, the statutory scheme
provides additional confirmation that
‘‘risks to consumers’’ include conduct
that violates the MLA, for three main
reasons.
First, the Bureau believes that risks of
harm to consumers that the Bureau can
address through its enforcement
authority, when that proves necessary,
are logically within the core of ‘‘risks to
consumers’’ that the Bureau can detect
and assess. There can be many types of
risks to consumers, and the Bureau’s
ability to use its range of authorities to
remedy those risks can vary in
effectiveness. But if ‘‘risks to
consumers’’ did not include, at the very
least, those risks that are so severe and
so central to the Bureau’s consumer-
protection mission that they can lead to
a Bureau enforcement action for civil
money penalties, restitution,
disgorgement, and other relief,
40
it is
unclear what remaining meaning the
category would have. It would be
anomalous to read out of the category of
‘‘risks to consumers’’ a type of risk that
the Bureau can—out of all the potential
risks to consumers—forcefully remedy
through enforcement action if that
becomes necessary. Thus, not only does
conduct that violates the MLA fall
within the plain language of ‘‘risks to
consumers,’’ in the Bureau’s view it is
not a borderline case, but sits within the
core of the provision.
Second, the Bureau’s textual
interpretation is the most effective way
of carrying out the statutory scheme of
the CFPA and MLA. When the Bureau
is already examining a supervised
nonbank or very large bank or credit
union for potential violations of TILA
that are intertwined with potential
violations of the MLA, it is especially
inefficient for both the Bureau and the
supervised institution if the Bureau
relies exclusively on enforcement tools
under Subtitle E of the CFPA to identify
and address MLA violations, closing off
any use of the Bureau’s supervisory
process to detect and assess these risks
to consumers. As one example, under
the contrary interpretation, verifying
TILA disclosures may be the work of a
Bureau examiner, but scrutinizing the
related MLA disclosures in the very
same document would be reserved to a
Bureau enforcement attorney, who
would normally obtain copies of those
disclosures by sending a civil
investigative demand. The Bureau
believes that the capacious reference to
‘‘risks to consumers’’ in section
1024(b)(1)(C)—when read according to
its plain terms—avoids this incongruous
result by allowing examiners to consider
the potentially overlapping MLA and
TILA issues together in one review.
A third reason why examinations
regarding the MLA complement the
Bureau’s enforcement authority under
Subtitle E is that such examinations can
play a role in preventing violations of
the MLA before they occur. In a Bureau
examination to detect and assess the
risk that consumers will be harmed by
violations of the MLA, the Bureau is
able to detect and assess not only fully
completed violations of the MLA, but
also practices by the supervised
institution that present a danger of
violations of the MLA and therefore risk
harm to consumers. For example, one
important practical step that creditors
generally need to take, in order to avoid
violations of the MLA, is to correctly
identify which of their borrowers are
active-duty servicemembers or covered
dependents and therefore protected by
the MLA.
41
If examiners observe an
error or deficiency in the processes that
a supervised institution uses to identify
borrowers that are covered by the MLA,
they can alert the institution of their
assessment in their examination report
or supervisory letter, and this may occur
before the danger manifests in an actual
violation of the MLA that in turn harms
consumers. When Bureau examiners
work cooperatively with supervised
institutions to identify and address risks
to consumers before they harm
consumers, both the Bureau and
supervised institutions can often avoid
an after-the-fact enforcement action
under Subtitle E of the CFPA. The
Bureau believes that this is a prime
example of a proper exercise of its
authority under section 1024(b)(1)(C) to
conduct examinations for the purpose of
detecting and assessing risks to
consumers.
C. Discussion of Counterarguments
During the period when it ceased
MLA-related examination activity, the
Bureau was persuaded by arguments
that it lacked this authority. But for the
following reasons, the Bureau no longer
finds these arguments persuasive.
First, the Bureau’s interpretation
during this period was informed by the
fact that the MLA is not a Federal
consumer financial law, which is the
focus of the examination authority in
the separate section 1024(b)(1)(A) of the
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42
City of Arlington, 569 U.S. at 296.
43
United States v. Gaubert, 499 U.S. 315, 319–20,
329–30 (1991).
44
10 U.S.C. 987(f)(6); 15 U.S.C. 1607(b).
45
B.H. ex rel. Hawk v. Easton Area Sch. Dist., 725
F.3d 293, 317 (3d Cir. 2013).
46
Little Sisters of the Poor Saints Peter & Paul
Home v. Pennsylvania, 140 S. Ct. 2367, 2381 (2020)
(Thomas, J.) (internal citations, brackets, and
quotation marks omitted).
CFPA. The Bureau asserted that
Congress confined the Bureau’s
authority to assess compliance to
Federal consumer financial law and not
compliance with other laws; that
Congress intended not to confer
examination authority with respect to
the MLA, since it did not add the MLA
to the definition of Federal consumer
financial law; and that the Bureau
would be circumventing Congress’s
intentions by conducting examinations
related to the MLA.
The Bureau no longer accepts this
argument, because the argument relies
on assumptions about Congress’s
intentions that are not expressed
anywhere in the statutory text or any
legislative history. There is nothing in
the statute to suggest that ‘‘risks to
consumers’’ can never include
violations of law. (Indeed, in the case of
the MLA, Congress enacted it precisely
because there were risks to active-duty
servicemembers and their families.)
Moreover, to the extent it is appropriate
to speculate about Congress’ choice to
not amend the definition of Federal
consumer financial law, it is
understandable why Congress would
not have added the MLA to that
definition. As noted above, the Bureau
has general rulemaking authority with
respect to Federal consumer financial
law, but Congress gave the Department
of Defense, not the Bureau, general
rulemaking authority for the MLA.
Adding the MLA to the definition of
Federal consumer financial law would
have led to potential confusion about
which agency, or both, has this
significant rulemaking authority. Lastly,
to assert that the Bureau is
circumventing Congress’s intentions is
conclusory. Again, had Congress wished
to more closely ‘‘circumscribe . . .
agency discretion,’’ it would not have
used the ‘‘capacious terms’’ that it did.
42
Second, the Bureau’s prior
interpretation was informed by the fact
that Congress conferred authority on the
Bureau to enforce the MLA through
subtitle E of the CFPA, by incorporating
TILA’s enforcement scheme, without
specifically addressing the Bureau’s
supervisory authority under section
1024. According to this line of
argument, this specific conferral of
certain enforcement authorities implies
an unstated exclusion of supervisory
authority. But the Supreme Court has
rejected just such an argument. The
Court has recognized that where
financial regulators have formal
enforcement powers regarding a specific
subject but also ‘‘broad statutory
authority to supervise financial
institutions,’’ there is nothing that
prevents ‘‘the regulators from invoking
less formal means of supervision of
financial institutions,’’ given that there
is ‘‘no prohibition against the use of
supervisory mechanisms not
specifically set forth in statute or
regulation.’’
43
This is particularly true
here, where Congress has expressly
authorized the Bureau to rely upon ‘‘any
other applicable authorities available
to’’ the Bureau to enforce the MLA, and
where TILA’s enforcement regime
likewise authorizes the Bureau to
exercise ‘‘any other authority conferred
on it by law’’ to aid in its enforcement
of that statute.
44
Thus, there is no reason
to infer that Congress’s conferral of
certain specific enforcement authorities
foreclosed the use of other authorities to
ensure conformity with the MLA and
securing its protections for
servicemembers and their families.
Moreover, when Congress incorporated
TILA’s enforcement scheme into the
MLA in 2013, there had been forty years
of consistent history of regulators taking
this kind of approach in the TILA
context—using their generally-framed
authorities to examine supervised
institutions in order to supplement the
formal enforcement measures that
section 108 of TILA specifically
references.
Third, the Bureau’s prior
interpretation was influenced by a
concern that reading the phrase ‘‘risks to
consumers’’ in sections 1024(b)(1)(C) to
include those risks to consumers that
arise from conduct that violates the
MLA might lead to a similar reading
with respect to other statutes that, like
the MLA, are not covered by sections
1024(b)(1)(A). But, as already explained,
there is nothing in the statutory text to
suggest that ‘‘risks to consumers’’ are
somehow limited to conduct that is
lawful and that ‘‘risks to consumers’’
can never include conduct that violates
the law. It is also appropriate to step
back and recognize that this is a
‘‘slippery slope’’ argument. ‘‘Like all
slippery-slope arguments, the . . . point
can be inverted with equal logical
force.’’
45
Not exercising the Bureau’s
authority to identify these important
risks to active-duty servicemembers and
their families would be a slippery slope
towards making the authority that
Congress expressly conferred on the
Bureau, to seek out ‘‘risks to
consumers,’’ a dead letter. As discussed
above, the Bureau believes that the very
harmful conduct that Congress sought to
prevent in the MLA, which the Bureau
has the authority to remedy through its
other authorities (specifically
enforcement action), sits within the core
of this authority. There could doubtless
be debate about the outer limits of the
authority, but that is simply because
Congress chose to frame it in such
flexible terms, and that is not a reason
for the Bureau to boycott this core
application of the authority.
The Bureau would note, in
conclusion, that a common feature of
the above arguments against the
Bureau’s authority is that they do not
dispute the plain fact that conduct that
violates the MLA presents risks to
consumers. Instead, the arguments all
implicitly rely on variations of a
mistaken premise: that Congress could
not have meant what it said when it
used the words ‘‘risks to consumers’’ to
confer examination authority on a
consumer protection agency in the
aftermath of a financial crisis. But it is
‘‘a fundamental principle of statutory
interpretation that absent provisions
cannot be supplied by the courts. This
principle applies not only to adding
terms not found in the statute, but also
to imposing limits on an agency’s
discretion that are not supported by the
text.’’
46
IV. Analysis of Section 1025(b)(1)(C)
(Very Large Banks and Credit Unions)
Section 1025(b)(1)(C) of the CFPA
authorizes the Bureau, in relevant part,
to conduct examinations of very large
banks and credit unions for purposes of
detecting and assessing ‘‘risks to
consumers’’ that are ‘‘associated’’ with
‘‘activities subject to’’ Federal consumer
financial laws. This requirement that
there be an association with activities
subject to Federal consumer financial
laws is present in section 1025(b)(1)(C)
but not section 1024(b)(1)(C), which
narrows section 1025(b)(1)(C) in
comparison to section 1024(b)(1)(C).
The Bureau previously assumed that
MLA-related issues could not be
‘‘associated’’ risks to consumers under
section 1025(b)(1)(C). But as explained
above, the activity of extending
‘‘consumer credit’’ under the MLA is a
subset of the activity of extending
‘‘consumer credit’’ under TILA. Indeed,
violations of the MLA can overlap with
violations of TILA’s disclosure
requirements, as well as the CFPA’s
prohibition on deceptive acts or
practices or other violations of Federal
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47
The Bureau’s previous concerns that it lacked
authority under section 1024(b)(1)(C) were also
applicable to section 1025(b)(1)(C). But for the
reasons already discussed in the context of section
1024(b)(1)(C), the Bureau no longer finds those
arguments persuasive.
48
12 U.S.C. 5512(b)(1).
49
5 U.S.C. 553(b).
50
5 U.S.C. 603(a), 604(a).
51
44 U.S.C. 3501–3521.
52
5 U.S.C. 801 et seq.
1
Public Law 101–73, title III, §308, Aug. 9, 1989,
103 Stat. 353, as amended by Public Law 111–203,
title III, §367(4), July 21, 2010, 124 Stat. 1556,
codified at 12 U.S.C. 1463 note.
consumer financial law. The analysis
under section 1025(b)(1)(C) of the CFPA
is otherwise similar to that under
section 1024(b)(1)(C) of the CFPA, and
so there is no need to repeat it here.
47
The Bureau recognizes the role of the
prudential regulators in conducting
MLA supervision, including
examinations, at very large banks and
credit unions. Applicable statutes grant
the prudential regulators broad
supervisory and examination powers,
which they use for various purposes,
including assuring the safety and
soundness of supervised institutions,
assuring compliance with laws and
regulations at those institutions, and
other purposes. By contrast, the
Bureau’s authority under section
1025(b)(1)(C) concerns a targeted
purpose: Detecting and assessing those
‘‘risks to consumers’’ that are
‘‘associated’’ with ‘‘activities subject to’’
Federal consumer financial laws, such
as TILA. Conducting examinations for
that particular purpose is distinct from
the prudential regulators’ authority to
conduct examinations for the purpose of
assessing compliance with the MLA (or
for safety and soundness or other
purposes) —including the fact that the
prudential regulators’ purposes are not
based on the association with Federal
consumer financial law discussed
above. Even though some of the
activities in Bureau examinations may
be similar to activities in prudential
regulators’ examinations, they are for a
different purpose. Nothing in the CFPA
or in this interpretive rule limits in any
way, or should be deemed to limit in
any way, the prudential regulators’
consumer compliance examinations of
very large banks or credit unions, or
their subsidiaries, for the purpose of
assessing compliance with the MLA.
Section 1025 has a number of
provisions that promote coordination
and efficiency among the Bureau and
the prudential regulators. The agencies
work with each other to minimize
regulatory burden that may result from
their complementary authorities, while
ensuring the efficient and effective
protection of covered borrowers.
V. Regulatory Matters
This is an interpretive rule issued
under the Bureau’s authority to interpret
the CFPA, including under section
1022(b)(1) of CFPA, which authorizes
guidance as may be necessary or
appropriate to enable the Bureau to
administer and carry out the purposes
and objectives of Federal consumer
financial laws, such as the CFPA.
48
As an interpretive rule, this rule is
exempt from the notice-and-comment
rulemaking requirements of the
Administrative Procedure Act.
49
Because no notice of proposed
rulemaking is required, the Regulatory
Flexibility Act does not require an
initial or final regulatory flexibility
analysis.
50
The Bureau has also
determined that this interpretive rule
does not impose any new or revise any
existing recordkeeping, reporting, or
disclosure requirements on covered
entities or members of the public that
would be collections of information
requiring approval by the Office of
Management and Budget under the
Paperwork Reduction Act.
51
Pursuant to the Congressional Review
Act,
52
the Bureau will submit a report
containing this interpretive rule and
other required information to the United
States Senate, the United States House
of Representatives, and the Comptroller
General of the United States prior to the
rule’s published effective date. The
Office of Information and Regulatory
Affairs has designated this interpretive
rule as not a ‘‘major rule’’ as defined by
5 U.S.C. 804(2).
Dated: June 16, 2021.
David Uejio,
Acting Director, Bureau of Consumer
Financial Protection.
[FR Doc. 2021–13074 Filed 6–22–21; 8:45 am]
BILLING CODE 4810–AM–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Chapter III
RIN 3064–ZA19
Statement of Policy Regarding Minority
Depository Institutions
AGENCY
: Federal Deposit Insurance
Corporation (FDIC).
ACTION
: Final statement of policy.
SUMMARY
: The FDIC is issuing its
Statement of Policy Regarding Minority
Depository Institutions. Section 308 of
the Financial Institutions Reform,
Recovery and Enforcement Act of 1989
established several goals related to
encouraging, assisting, and preserving
minority depository institutions. The
FDIC has long recognized the unique
role and importance of minority
depository institutions and historically
has taken steps to preserve and
encourage minority-owned and
minority-led financial institutions. The
Statement of Policy updates,
strengthens, and clarifies the agency’s
policies and procedures related to
minority depository institutions.
DATES
: The Statement of Policy is
effective August 23, 2021.
FOR FURTHER INFORMATION CONTACT
:
Misty Mobley, Senior Review Examiner,
Division of Risk Management and
Supervision, (202) 898–3771,
mimobley@fdic.gov; Lauren Whitaker,
Senior Attorney, (202) 898–3872,
lwhitaker@fdic.gov; Jason Pan, Senior
Attorney, (202) 898–7272, jpan@
fdic.gov; or Gregory Feder, Counsel,
(202) 898–8724, gfeder@fdic.gov, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429. For the hearing
impaired only, TDD users may contact
(202) 925–4618.
SUPPLEMENTARY INFORMATION
:
Table of Contents
I. Background
II. The Proposed Statement of Policy
A. Proposed Revisions
B. Comments
III. Final Statement of Policy Regarding
Minority Depository Institutions
IV. Administrative Matters
I. Background
Section 308 of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA)
1
established several goals related to
minority depository institutions (MDIs):
(1) Preserving the number of MDIs; (2)
preserving the minority character in
cases of merger or acquisition; (3)
providing technical assistance to
prevent insolvency of institutions not
now insolvent; (4) promoting and
encouraging creation of new MDIs; and
(5) providing for training, technical
assistance, and education programs.
On April 3, 1990, the Board of
Directors of the Federal Deposit
Insurance Corporation (FDIC Board and
FDIC, respectively) adopted the Policy
Statement on Encouragement and
Preservation of Minority Ownership of
Financial Institutions (1990 Policy
Statement). The framework for the 1990
Policy Statement resulted from key
provisions contained in Section 308 of
FIRREA. The 1990 Policy Statement
provided information to the public and
minority banking industry regarding the
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