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  • Agencies seek OMB approval on November 2017 Call Report revisions

    Agency Rule-Making & Guidance

    On April 11, the Federal Reserve Board, FDIC, and OCC—as members of the Federal Financial Institutions Examination Council (FFIEC)—published a joint notice and request for comment for OMB review and approval regarding revisions to the Consolidated Reports of Condition and Income (Call Reports) for financial institutions. The finalized changes modify Call Reports applicable to banks with (i) domestic offices only and less than $1 billion in total assets (FFIEC 051); (ii) domestic offices only (FFIEC 041); and (iii) domestic and foreign offices (FFIEC 031). The changes include removing or consolidating certain data items and adding a new or raising certain existing reporting thresholds in the three versions of the Call Report. Comments must be submitted by May 11. Subject to OMB approval, the revisions would take effect as of the June 30, 2018 report date. As previously covered by InfoBytes, the changes were originally proposed in November 2017.

    Agency Rule-Making & Guidance Call Report Federal Reserve FDIC OCC FFIEC OMB

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  • Court denies national bank’s motion to dismiss FDIC action seeking deposit insurance payments

    Federal Issues

    On April 4, the U.S. District Court for the District of Columbia denied a national bank’s motion to dismiss or strike an FDIC complaint seeking $1.12 billion in deposit insurance payments. In January 2017, the FDIC filed a complaint against the national bank for $542 million based on the bank’s alleged failure to pay sufficient mandatory assessments under the Federal Deposit Insurance Act (FDIA) for the second quarter of 2013 through the fourth quarter of 2014. In April 2017, the FDIC filed an amended complaint to add a claim of unjust enrichment and allege that the national bank owes an additional $583 million for underpayments predating the second quarter of 2013. In denying the bank’s motion, the court concluded that (i) the FDIC could plead alternative theories of liability at this stage and therefore could allege a claim for unjust enrichment even when an adequate legal remedy is available under the FDIA; (ii) the FDIC adequately pleaded a claim for unjust enrichment; and (iii) it was premature to determine if the FDIC’s FDIA and unjust enrichment claims are time-barred.

    Federal Issues Federal Deposit Insurance Act FDIC Courts

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  • FDIC proposes changes to annual stress test rule

    Agency Rule-Making & Guidance

    On April 2, the FDIC published proposed technical changes to its annual stress testing rule. Specifically, the proposed rule (i) changes the range of possible “as-of” dates used in the global market shock component to conform to changes already made by the Federal Reserve Board and the OCC to its annual stress testing regulations; (ii) extends the transition process for covered institutions with $50 billion or more in assets (“a national bank or federal savings association that becomes an over $50 billion covered institution in the fourth quarter of a calendar year will not be subject to the stress testing requirements applicable to over $50 billion covered institutions until the third year after it crosses the asset threshold”); and (iii) makes certain technical clarifications to the requirements of the FDIC’s stress testing rule. The FDIC proposed changes are intended to align with the changes made by the Federal Reserve and the OCC (see previously InfoBytes coverage here). Comments on the proposal must be received by June 1.

    Agency Rule-Making & Guidance FDIC Stress Test OCC Federal Reserve

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  • Federal banking agencies raise commercial real estate appraisal threshold to $500,000

    Agency Rule-Making & Guidance

    On April 2, the Federal Reserve Board, the OCC, and the FDIC (agencies) issued a joint press release announcing the adoption of a final rule, which would increase the threshold for commercial real estate transactions requiring an appraisal from $250,000 to $500,000. After receiving more than 200 comments to their July 2017 joint notice of proposed rulemaking (see previous InfoBytes coverage here), the agencies increased the threshold to $500,000, rather than $400,000 as originally proposed. The rulemaking initiative responded to financial industry concerns that adjustments had not been made to the current threshold amounts, which were set 24 years ago. In accordance with the final rule, commercial real estate transactions exempted by the $500,000 threshold will no long require appraisals, but will instead be subject to an evaluation, which is not required to comply with the Uniform Standards of Professional Appraiser Practices in order to provide a market value estimate of the real estate pledged as collateral and is not required to be completed by a state licensed or certified appraiser. However, the final rule stipulates that real-estate related transactions secured by a single one-to-four family residential property are excluded. The final rule will take effect immediately upon publication in the Federal Register.

    Agency Rule-Making & Guidance Commercial Lending Federal Reserve OCC FDIC Federal Register

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  • Treasury releases recommendations for modernizing the Community Reinvestment Act

    Agency Rule-Making & Guidance

    On April 3, the U.S. Treasury Department released recommendations to the Federal Reserve Board, the FDIC, and the OCC (CRA regulators) on suggestions for modernizing the Community Reinvestment Act (CRA). As previously covered in a Buckley Sandler Special Alert, Treasury released a report last June indicating that the CRA should be modernized to better target statutory and regulatory responses to financial risks faced by U.S. consumers and ensure that the benefits of the CRA investments are aligned with the needs of the communities being served. Last month the Government Accountability Office (GAO) released a report recommending Treasury consider GAO’s findings when conducting its review. (See previous InfoBytes coverage here.)

    The April memorandum of recommendations addresses findings from Treasury’s comprehensive assessment of the CRA framework and focuses on four key areas: assessment areas, examination clarity and flexibility, the examination process, and bank performance. Specifically, the recommendations include (i) updating the definitions of “geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors”; (ii) improving the flexibility of the CRA examination process to increase clarity in examiner guidance and improve evaluation criteria to increase CRA rating determination transparency and effectiveness; (iii) addressing the timing and issuance of performance evaluations to increase banks’ accountability when planning CRA activity; and (iv) identifying performance incentives to encourage banks to meet the credit and deposit needs of their entire communities, including low- and moderate-income areas. The memorandum solicited input from stakeholders such as consumer advocacy groups, financial industry members, and the CRA regulators.

    Agency Rule-Making & Guidance Department of Treasury CRA Federal Reserve OCC FDIC Examination GAO

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  • FFIEC finalizes November 2017 Call Report revisions

    Agency Rule-Making & Guidance

    On March 30, the Federal Reserve Board, FDIC, and OCC—as members of the Federal Financial Institutions Examination Council (FFIEC)—announced finalized plans to reduce data reporting requirements and other regulatory requirements associated with the Consolidated Reports of Condition and Income (Call Reports) for financial institutions. According to the FFIEC, the finalized changes modify Call Reports applicable to banks with (i) domestic offices only and less than $1 billion in total assets (FFIEC 051); (ii) domestic offices only (FFIEC 041); and (iii) domestic and foreign offices (FFIEC 031). The changes include removing or consolidating certain data items and adding a new or raising certain existing reporting thresholds in the three versions of the Call Report. The changes were originally proposed in November 2017 (previously covered by InfoBytes here) and are effective June 30.

    In January, the FFIEC also finalized other burden-reducing Call Report revisions based on a June 2017 proposal, as previously covered by InfoBytes.

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC Call Report

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  • FFIEC issues Examination Modernization Project update

    Federal Issues

    On March 22, the Federal Financial Institutions Examination Council (FFIEC) issued an update on the status of its Examination Modernization Project. According to FDIC FIL-11-2018 and the accompanying press release, the project’s objective is to identify and assess measures to improve the community bank safety and soundness examination process, pursuant to the Economic Growth and Regulatory Paperwork Reduction Act’s review of regulations. According to feedback from selected supervised institutions and examiners, agencies should ensure examiners understand the importance of clear, transparent communication objectives during the examination process. As a result, the FFIEC indicated the following four areas with the potential for “meaningful supervisory burden reduction”:

    • regulator communication objectives should be highlighted and reinforced before, during, and after examinations;
    • technology should be leveraged to “shift, as appropriate, examination work from onsite to offsite”;
    • examinations should continue to be tailored “based on risk”; and
    • electronic file transfer systems should be improved “to facilitate the secure exchange of information between institutions and supervisory offices or examiners.”

    The FFIEC also announced plans to take further action on other areas of improvement.

    Federal Issues FFIEC Community Banks EGRPRA FDIC Examination

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  • GAO recommends Treasury offer incentives to financial institutions to serve LMI communities

    Federal Issues

    On March 16, the Government Accountability Office (GAO) released a report identifying incentives to encourage financial institutions to provide banking services and small-dollar consumer loans in lower- and middle-income (LMI) communities. The report—issued in response to concerns raised by a 2015 FDIC survey, which found that “unbanked” or “underbanked” households tended to be located in LMI communities—assessed services provided by financial institutions in these areas, reviewed how regulators performed Community Reinvestment Act (CRA) evaluations, and solicited input from stakeholders such as consumer advocacy groups and financial industry members. 

    Currently, CRA evaluation procedures do not consistently require an assessment of banks’ provision of retail banking services or small-dollar, non-mortgage consumer lending. Rather, banks are evaluated for these criteria typically only “if consumer lending is a substantial majority of the lending or a major product of the institution, which generally is not the case across all institution types.” According to GAO’s report, a June 2017 Treasury report (previously covered in a Buckley Sandler Special Alert), indicated that the CRA should be modernized to better target statutory and regulatory responses to financial risks faced by U.S. consumers. Treasury announced plans to review the CRA, but a timeline is yet to be released. Meanwhile, GAO recommended—and Treasury concurred—that Treasury should consider the findings in this report when conducting its review. GAO also proposed several incentives for financial institutions, including the following:

    • modifying lending and service tests conducted as part of the CRA examination process to focus more on how institutions are offering basic banking services and small-dollar, non-mortgage loans;
    • expanding the scope of areas and entities assessed as part of the CRA examinations to capture more types of institutions, including all bank affiliates and nonbanks; and
    • providing clarifying guidance about the examination process.

    Federal Issues Department of Treasury GAO CRA FDIC

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  • 9th Circuit denies bank’s challenge to FDIC bank secrecy order

    Courts

    On March 12, the U.S. Court of Appeals for the 9th Circuit upheld a 2016 FDIC cease and desist order against a California bank arising out of alleged deficiencies in compliance management relating to the Bank Secrecy Act (BSA) and anti-money laundering laws. According to the opinion, FDIC examinations dating back to 2010 identified areas for BSA compliance improvement. While the bank made adjustments in response to the original findings, a 2012 FDIC examination found the bank’s BSA compliance program still was deficient, including because it did not “establish and maintain procedures designed to ensure adequate internal controls, independent testing, administration, and training”—known as the “four pillars”—and because the bank had not filed a necessary suspicious activity report. The bank argued that the BSA compliance standards were too vague, accused FDIC examiners of bias during the examination in a manner that violated its due process rights, and alleged that the decision was not supported by substantial evidence.

    The three-judge panel ruled that (i) there was no bias in the FDIC’s decision to assess a penalty against the bank because there was substantial evidence to support an administrative law judge’s findings that the bank’s failure to maintain adequate controls violated BSA regulations; and (ii) because the BSA and FDIC’s implementing regulations are “economic in nature and threaten no constitutionally protected rights,” vagueness is not an overriding concern. While the “four pillars” of BSA compliance are open to interpretation, the panel noted, the FDIC provides banks with a manual written by the Federal Financial Institutions Examination Council that sets forth a uniform compliance standard. Furthermore, FDIC Financial Institution Letter 17-2010 clarifies that the manual contains the FDIC’s BSA compliance supervisory expectations. “A BSA Officer at the Bank bearing the requisite ‘specialized knowledge’ would understand that compliance with the FFIEC Manual ensures compliance with the BSA. . . . The BSA and its implementing regulations are not unconstitutionally vague,” the panel stated. Therefore, the 9th Circuit held that the manual was entitled to Chevron deference and denied the bank’s petition for review.

    Courts Appellate Ninth Circuit Bank Secrecy Act Anti-Money Laundering Compliance FDIC FFIEC

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  • FDIC fines Delaware-based bank for unfair and deceptive practices

    Consumer Finance

    On March 7, the FDIC announced that a Delaware-based bank agreed to settle allegations of unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act for assessing transaction fees in excess of what the bank previously had disclosed. The FDIC also found that the bank’s practices violated the Electronic Funds Transfer Act, the Truth in Savings Act, and the Electronic Signatures in Global and National Commerce Act. According to the FDIC, from December 2010 through November 2014, the bank overcharged transaction fees to consumers who used prepaid and certain reloadable debit cards to make point-of-sale, signature-based transactions that did not require the use of a personal identification number. The transaction fees allegedly exceeded what the bank had disclosed to consumers. Under the terms of the settlement order, the bank will, among other things, (i) establish a $1.3 million restitution fund for eligible consumers; (ii) prepare a comprehensive restitution plan and retain an independent auditor to determine compliance with that plan; and (iii) provide the FDIC with quarterly written progress reports detailing its compliance with the settlement order. The settlement also requires the bank to pay a civil money penalty of $2 million.

    Consumer Finance FDIC UDAAP FTC Act EFTA Prepaid Cards Settlement

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