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The Examiner

"When you win, say nothing, when you lose say less."

- Wayne Gretzky, American Hockey Player
who broke the NHL Goals Record this day in 1994

New York Times Back State Arguments in Student Loan Protections

In a Sunday editorial, "Student Loan Industry Finds Friends in Washington," the New York Times took the Education Department to task. The issue: asserting authority to preempt state consumer protection laws and shield wayward companies that service student loans. Key points in the editorial:

The document claims that the federal government can preempt state laws that rein in student loan servicing companies if such a law 'undermines uniform administration of' the student loan program.
The statement clearly is intended to intimidate state legislators across the country that are considering proposals to curb well-documented abuses by this industry.
The loan servicing industry's longtime failures...[include] pushing struggling borrowers into default -- which essentially ruins their financial lives -- by giving them misinformation, by making it difficult for them to refinance their loans and pay lower rates, and by withholding information about affordable payment options.
What is striking is that the Education Department released the preemption statement even after leading regulatory experts had condemned the idea as harmful and legally unsustainable. Earlier this month, the Conference of State Bank Supervisors, which represents regulators in all 50 states, shredded the legal arguments behind the preemption idea, pointing out that education officials were not empowered to strip the states of their traditional -- and primary -- authority over debt collection and other aspects of the financial services industry

In a letter to Secretary Betsy Devos, CSBS President and CEO John Ryan wrote: "This effort at preemption by regulatory fiat runs counter to the Congressionally mandated state-federal balance in financial regulation and exceeds the Department's authority...Responsibility for regulating and supervising debt collectors -- like other nonbank financial services -- has historically resided at the state level...Consumers benefit because the proximity of the state regulatory framework has proven to be more accountable to local concerns...State regulators firmly oppose this attempt at preemption through a mere interpretive notice. This decision rests with Congress, and not with a federal agency." 

FFIEC Provides Update of Examination Modernization Project

The members of the Federal Financial Institutions Examination Council (FFIEC) announced an update on its Examination Modernization Project that was undertaken as a follow-up to the review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA).

The objective of the project is to identify and assess ways to improve the effectiveness, efficiency, and quality of community financial institutions safety and soundness examination processes, particularly through increased leveraging of technology. The agencies expect these efforts to help reduce unnecessary regulatory burden on community financial institutions.

The FFIEC members have, in the past, taken a number of steps to enhance the efficiency of the safety and soundness examination process, including:

  • Moving from a one-size-fits-all examination process to a risk-based approach that tailors examinations to the size, complexity, risk profile, and business model of each institution; and
  • Leveraging technology to improve offsite surveillance systems and improve the efficiency of onsite and offsite reviews.

To further improve the examination process, the FFIEC members have compared current processes, including the staff involved, technology utilized, products generated, and the work that is completed on-site versus off-site. To gain additional perspectives, the FFIEC members sought feedback from selected supervised institutions and examiners. Based on these feedback sessions, the FFIEC members plan to focus initial efforts on the following four areas that have the potential for the most meaningful supervisory burden reduction:

  • Highlight and reinforce regulator communication objectives before, during, and after examinations;
  • Leverage technology and shift, as appropriate, examination work from onsite to offsite;
  • Continue to tailor examinations based on risk; and
  • Improve electronic file transfer systems to facilitate the secure exchange of information between institutions and supervisory offices or examiners.

Although, the members’ initial efforts will be focused on the above four themes, the Examination Modernization Project is expected to be a long-term endeavor and other areas of improvement may emerge. As a first step, and to address the first theme, the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the State Liaison Committee (SLC) have each committed to issue reinforcing and clarifying guidance to its examination staff about the importance of being clear and transparent to community bankers during examination processes. While the National Credit Union Administration (NCUA) is not required to participate in the EGRPRA process, it does so voluntarily. The NCUA in 2016 launched a similar effort, its exam flexibility initiative, and the agency has incorporated parts of that initiative into its examination process.

Examiner guidance will cover the following community bank examination communication or transparency practices:

  • Assist community financial institutions to prepare for the examination by providing prior notification and addressing spacing needs, staffing, and logistics.
  • Tailor the examination request list and scope to the unique risk profile and business model of the institution.
  • Facilitate the secure exchange of information between institution management and examiners.
  • Inform institution management of areas under review and provide management the opportunity to communicate any additional information or clarification before the conclusion of the examination.
  • Establish clear expectations regarding items the financial institutions are expected to address.

The FFIEC expects to take further actions on the other themes listed above and other areas of improvement that may emerge.

The FFIEC was established in March 1979 to prescribe uniform principles, standards, and report forms and to promote uniformity in the supervision of financial institutions. It also conducts schools for examiners employed by the five federal member agencies represented on the FFIEC and makes those schools available to employees of state agencies that supervise financial institutions. The Council consists of the following six voting members: a member of the FRB; the Chairman of the FDIC; the Director of the Consumer Financial Protection Bureau; the Comptroller of the Currency; the Chairman of the NCUA; and the Chairman of the SLC.

CSBS Support of S. 2155 Highlighted by Senate Banking Committee

The Senate Banking Committee highlighted state regulators' support of the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) as part of their outreach on the bill.

According to the Senate Banking Committee:

The Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) has received widespread support from commentators, regulators, businesses and institutions representing millions of hard working Americans and consumers, including over 10,000 community bankers, more than 100 million credit union consumer members, and thousands of small business owners and entrepreneurs, among others.

Specifically, the Senate Banking Committee highlighted a passage from a letter CSBS sent earlier this month:

Community banks have been weighed down by the cumulative effect of post-crisis regulatory reforms, which inadvertently prevent them from delivering innovative and flexible services and products to their customers. S. 2155 would help correct this imbalance and provide meaningful relief to community banks.