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  • OCC encourages banks to offer short-term, small-dollar installment lending

    Consumer Finance

    On May 23, the OCC released Bulletin 2018-14, which encourages banks to meet the credit needs of consumers by offering short-term, small-dollar installment loans subject to the OCC’s core lending principles. The Bulletin acknowledges the CFPB’s final rule on Payday, Vehicle Title, and Certain High-cost Installment Loans (Payday Rule) – which generally covers loans with maturities shorter than 45 days or longer-term loans with balloon payments – and states the OCC intends on working with the Bureau to ensure banks can “can responsibly engage in consumer lending, including lending products covered by the Payday Rule.”

    Specifically, the Bulletin encourages banks to offer loans without balloon payments and with maturities greater than 45 days subject to three core lending principles: (i) the product should be consistent with safe and sound banking, treat customers fairly, and comply with all applicable laws and regulations; (ii) banks should effectively manage risks associated with the product; and (iii) the product should be underwritten based on reasonable policies and practices, such as amount and repayment terms aligning with eligibility, use internal and external data sources to assess a consumer’s creditworthiness, and loan servicing processes that assist distressed borrowers. Additionally, with regard to pricing, the Bulletin stated that the “OCC views unfavorably an entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).”

    Immediately after the OCC’s release, the CFPB issued a statement applauding the Bulletin because “[m]illions of Americans desperately need access to short-term, small-dollar credit.” In January, the CFPB stated it plans to reconsider the Payday Rule and the Spring 2018 rulemaking agenda indicates the Bureau expects a notice of proposed rulemaking to be issued by February 2019 (previously covered by InfoBytes here and here).

    Consumer Finance Payday Lending Installment Loans OCC CFPB Payday Rule

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  • California branch sentenced in BSA/AML obstruction case

    Financial Crimes

    On May 18, the U.S. District Court for the Southern District of California sentenced a Netherlands-based financial institution’s U.S. subsidiary for “impairing, impeding and obstructing” the OCC during its 2012 examination by concealing deficiencies in its Bank Secrecy Act and anti-money laundering (BSA/AML) compliance programs. As previously covered by InfoBytes, the branch plead guilty in February to one count of conspiracy to defraud the U.S. Government and agreed to pay over $368 million as a result of allowing “hundreds of millions of dollars in untraceable cash, sourced from Mexico and elsewhere, to be deposited into its rural bank branches” without conducting adequate BSA/AML review. In addition to the February plea agreement, the court sentenced the bank to a two-year term of probation and fined the bank $500,000, the maximum statutory fine.

    Financial Crimes OCC DOJ Bank Secrecy Act Anti-Money Laundering Settlement

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  • 9th Circuit will not rehear interest on escrow preemption decision


    On May 16, a panel of three judges on the U.S. Court of Appeals for the 9th Circuit denied the petition for an en banc rehearing of its March decision, which held that a California law that requires a bank to pay interest on escrow funds is not preempted by federal law. In addition to the national bank’s appeal for a rehearing, the OCC notably filed an amicus brief supporting the rehearing, arguing that the court “comprehensively misinterpreted” the Supreme Court’s 1996 decision Barnett Bank of Marion County v. Nelson. (Previously covered by InfoBytes here.) The panel noted that the full court had been advised of the bank’s petition for rehearing, and no judge had requested a vote on rehearing.

    Courts Ninth Circuit Appellate Mortgages Escrow Preemption National Bank Act Dodd-Frank OCC State Issues

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  • Federal banking agencies seek comments on proposal to revise regulatory capital rules

    Agency Rule-Making & Guidance

    On May 14, the Federal Reserve Board, FDIC, and OCC published a joint notice and request for comment on a proposal to revise regulatory capital rules to, among other things, identify which credit loss allowances are “eligible for inclusion in regulatory capital” under changes made to U.S. generally accepted accounting principles (U.S. GAAP), described within Accounting Standards Update No. 2016-13 (ASU 2016-13). The proposed rulemaking would provide (i) banking organizations subject to the agencies’ regulatory capital rules with “the option to phase in the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard;” (ii) amendments to certain regulatory disclosure requirements to reflect applicable changes to U.S. GAAP covered under ASU 2016-13; (iii) amendments to stress testing regulations, which would grant covered banking organizations that have adopted ASU 2016-13 an extension until the 2020 stress test cycle to “include the effect of ASU 2016-13 on their provisioning for purposes of stress testing;” and (iv) conforming amendments to other regulations referencing credit loss allowances. Comments must be submitted by July 13.

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC GAAP

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  • FFIEC releases customer due diligence and beneficial ownership examination procedures

    Financial Crimes

    On May 11, the Federal Financial Institutions Examination Council released updated examination procedures for FinCEN’s final rule, “Customer Due Diligence Requirements for Financial Institutions” (CDD rule). Compliance with the CDD rule became mandatory on  May 11. The updated customer due diligence exam procedures were developed in close collaboration with FinCEN and replace those in the current Bank Secrecy Act/Anti-Money Laundering Examination Manual. Additionally, a new set of exam procedures address the CDD rule’s beneficial ownership requirements.

    According to an OCC bulletin released the same day, the examination procedures reflect federal and state banking agencies’ “ongoing commitment to examine financial institutions for compliance with the Bank Secrecy Act . . . in accordance with uniform standards and principles.”

    See here for continuing InfoBytes coverage of the CDD rule.

    Financial Crimes FFIEC CDD Rule OCC FinCEN Beneficial Ownership

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  • OCC updates Comptroller’s Handbook to include Military Lending Act booklet

    Agency Rule-Making & Guidance

    On May 11, the OCC issued the “Military Lending Act” (MLA) booklet of the Comptroller’s Handbook. According to the announcement, the booklet reflects the 2015 Department of Defense amendments, as well as the interpretive guidance published in 2016 and updated in 2017 (covered by InfoBytes here and here), and applies to the examinations of OCC-supervised institutions that establish consumer credit products covered by the MLA. The booklet includes, among other things, (i) rules for determining fees and charges included in the calculation of the military annual percentage rate (MAPR); (ii) rules for calculating the MAPR; (iii) required disclosures to be provided to covered borrowers; and (iv) consumer credit limitations for covered borrowers.

    Agency Rule-Making & Guidance OCC Military Lending Act Comptroller's Handbook Department of Defense

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  • Judge dismisses CSBS challenge to OCC fintech charter on ripeness grounds


    On April 30, a U.S. District Court judge dismissed the Conference of State Bank Supervisors’ (CSBS) challenge to the OCC’s proposed federal charter for fintech firms. (See previous InfoBytes coverage here.) According to the court, the suit is not “constitutionally or prudentially ripe for determination” and cannot proceed because the OCC has yet to issue a fintech charter to any firm. “This dispute would benefit from a more concrete setting and additional percolation. In particular, this dispute will be sharpened if the OCC charters a particular [f]intech—or decides to do so imminently,” the judge wrote.

    As previously covered in InfoBytes, last December the U.S. District Court for the Southern District of New York dismissed a lawsuit filed by the New York Department of Financial Services against the OCC, citing to lack of subject matter jurisdiction over the claims because the OOC had yet to finalize its plans to actually issue fintech charters.

    Fintech Courts OCC NYDFS Litigation

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  • OCC updates Comptroller’s Handbook to include recovery planning standards for large financial institutions

    Agency Rule-Making & Guidance

    On April 26, the OCC released the “Recovery Planning” booklet as part of its Comptroller’s Handbook. The booklet explains the purpose of effective recovery planning and provides guidance for OCC examiners to use when assessing the “appropriateness and adequacy of [a] covered bank’s recovery planning process and the integration of that process into the covered bank’s overall risk governance framework.” According to the OCC, unless determined otherwise, a bank is subject to the Recovery Planning guidelines if the bank has average total consolidated assets of (i) $50 billion or more; (ii) less than $50 billion, if the bank was previously a covered bank; or (iii) less than $50 billion, if the OCC determines that the bank is highly complex or otherwise presents a heightened risk. Recovery plans are designed to identify triggers and options for responding to a range of “severe internal and external stress scenarios” for the purpose of timely restoring financial strength and viability, and should, among other things, include measures to reduce risk as well as strategies to develop and maintain plans specific and appropriate to the size and complexity of the covered bank. The booklet states that recovery plans “may not assume or rely on any extraordinary government support.”

    Agency Rule-Making & Guidance OCC Comptroller's Handbook Risk Management

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  • OCC files amicus brief in support of rehearing in 9th circuit preemption decision


    On April 24, the OCC filed an amicus curiae brief in support of an en banc rehearing of the U.S. Court of Appeals for the 9th Circuit’s March decision, which held that a California law that requires the bank to pay interest on escrow funds is not preempted by federal law.  As previously covered by InfoBytes, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing National Bank Act (NBA) preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson. 

    In a strongly worded brief, the OCC states that the court “errs in matters of fundamental importance to the national banking system” and “comprehensively misinterpreted” Barnett Bank and the cases upon which that decision rests.  The OCC specifically argues that the court misinterpreted the legal standard for preemption articulated by Barnett Bank, ignored applicable Supreme Court standards prescribing a test for reviewing preemptive regulations, improperly created a burden of proof on national banks to demonstrate Congressional intent as to preemption, and inappropriately imposed a higher bar for “large corporate banks” to show state law interference.  The OCC also argues that the court’s reliance on the effective dates of the Dodd-Frank provisions relied upon by the Court pre-date the transactions that were at issue in the case, and would therefore have no application to the facts of the case.

    This filing supports the national bank’s petition for en banc rehearing filed April 13 and previously covered by InfoBytes here.

    Courts Ninth Circuit Appellate Mortgages Escrow Preemption National Bank Act Dodd-Frank OCC State Issues

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  • OCC announces enforcement actions targeting BSA/AML compliance deficiencies

    Federal Issues

    On April 19, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include cease and desist orders, civil money penalty orders, and removal/prohibition orders. The consent orders described below were among those in the OCC’s list:

    Cease and Desist Consent Order. On February 28, the OCC issued a consent order against a Washington-based bank for deficiencies related to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. Among other things, the consent order requires the bank to (i) maintain a Compliance Committee consisting of at least three board members; (ii) develop and implement an ongoing BSA/AML risk assessment program; (iii) create and implement BSA internal controls to mitigate risks; (iv) develop and implement policies and procedures for an automated suspicious activity monitoring system; (v) conduct a “Look-Back” to determine whether suspicious activity was timely identified and reported by the bank and whether additional SARs should be filed for previously unreported suspicious activity; (vi) adopt an independent third-party audit program to conduct a review of the bank’s BSA/AML compliance program; and (viii) create a comprehensive training program for appropriate bank personnel. The bank has neither admitted nor denied the findings.

    Civil Money Penalty Consent Order. On March 3, the OCC issued a consent order (2018 Order) against an officer of a California-based bank for violating consent orders issued in 2010 and 2014 related to deficiencies identified in the bank’s BSA/AML rules and regulations and for violations of 12 C.F.R. § 21.21 (Procedures for Monitoring Bank Secrecy Act Compliance). According to the 2018 Order, the officer, who was responsible for overseeing the bank’s operations department, allegedly engaged in “unsafe or unsound practices”; made false statements to the OCC and advised other bank employees to corroborate the statements; and “failed to take the necessary actions to ensure that the [b]ank corrected the deficiencies. . .” The 2018 Order requires the officer to, among other things, pay a $5,000 civil money penalty, and—under the cease and desist terms—participate in BSA/AML compliance training and refrain from making any BSA/AML staffing decisions. The officer, while agreeing to the terms of the consent order, has not admitted or denied any wrongdoing.

    Federal Issues OCC Enforcement Bank Secrecy Act Anti-Money Laundering Risk Management

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