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  • NYDFS Files Independent Lawsuit Against OCC Fintech Charter


    Following the April 26 lawsuit filed by the Conference of State Bank Supervisors (CSBS) opposing the OCC’s fintech charter (see previous InfoBytes post), the New York Department of Financial Services (NYDFS) filed its own lawsuit on May 12, asking the court to block the OCC from creating a new special purpose fintech charter. “The OCC’s charter decision is lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York and other state regulators,” NYDFS Superintendent Maria T. Vullo said in a statement announcing the lawsuit. “This charter puts New York financial consumers . . . at great risk of exploitation by newly federally chartered entities seeking to be insulated from New York’s strong consumer protections.” NYDFS’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that the OCC’s charter would include “vast preemptive powers over state law.” Specific concerns include the risk of (i) weakened regulatory controls on usury, payday loans, and other predatory lending practices; (ii) consolidation of multiple non-depository business lines under a single federal charter, thus creating more “too big to fail” institutions; and (iii) creating competitive advantages for large, well-capitalized fintech firms that could overwhelm smaller market players and thus restrict innovation in financial products and services. The complaint also asserts that the “OCC’s action is legally indefensible because it grossly exceeds the agency’s statutory authority.” Finally, the complaint claims that the proposed fintech charter would injure NYDFS monetarily because the regulator’s operating expenses are funded by assessments levied by the OCC on New York licensed financial institutions. According to NYDFS, every non-depository financial firm that receives a special purpose fintech charter from the OCC in place of a New York license deprives NYDFS of crucial resources that are necessary to fund its regulatory function.

    Citing violations of the National Bank Act and conflicts with state law in violation of the Tenth Amendment of the U.S. Constitution, NYDFS seeks declaratory and injunctive relief that would declare the fintech charter proposal to be unlawful and prohibit the OCC from taking further steps toward creating or issuing the charter without express Congressional authority.

    In a press release issued the same day, the CSBS said it “strongly supports the [NYDFS] lawsuit” and reiterated that the OCC “does not have the authority to issue federal charters to non-banks, and its unlawful attempt to do so will harm markets, innovation and consumers.”

    Fintech OCC NYDFS CSBS Licensing Agency Rulemaking & Guidance

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  • OCC Places Wisconsin-Based Bank into Receivership

    Federal Issues

    On May 5, the OCC announced that it had put a Wisconsin-based a federal savings association (Bank) with branches in five states into receivership and appointed the FDIC as receiver. According to the OCC, the decision to close the Bank was made after determining that the Bank: (i) had experienced substantial dissipation of assets or earnings due to unsafe or unsound practices; (ii) was significantly undercapitalized; and (iii) failed to submit a capital restoration plan acceptable to the OCC.

    To protect the depositors, the FDIC announced it has entered into a purchase and assumption agreement with a North Carolina-based bank to assume all of the failed Bank’s deposits and to purchase approximately $892 million of the failed Bank’s assets. The remaining assets will be retained by the FDIC for later disposition. The North Carolina bank announced that it will reopen 12 of the failed Bank’s brick-and-mortar locations but will not reopen any of the failed Bank’s 107 branches in retail outlets. Current FDIC estimates are that this failure—the fifth FDIC-insured institution to fail this year—will cost the Deposit Insurance Fund (DIF) $146.4 million. This closely follows the April 28 closure of a New Orleans-based bank, which the FDIC estimates will cost the DIF almost $1 billion.

    Federal Issues OCC FDIC

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  • OCC to Host Workshops for Community Bank Directors in June

    Agency Rule-Making & Guidance

    On June 20 and 21, the OCC will be hosting two workshops in Nashville for directors of national community banks and federal savings associations supervised by the OCC. The June 20 “Credit Risk” workshop will focus on ways to identify trends and recognize problems within a loan portfolio. In addition, the workshop will discuss board and management roles, how to stay informed of changes in credit risk, and how to effect change. The June 21 “Operational Risk” workshop will focus on the key components of operational risk, and also cover governance, third-party risk, vendor management, and cybersecurity.

    Additionally, from June 26 to 28, the OCC will be hosting a “Building Blocks for Directors” workshop in Atlanta for directors, senior management team members, and other key executives of national community banks and federal savings associations supervised by the OCC. The workshop will: (i) focus on the duties and core responsibilities of directors and management; (ii) discuss major laws and regulations; and (ii) provide insight on the examination process.

    Agency Rulemaking & Guidance OCC Risk Management

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  • OCC Issues Revised Comptroller’s Licensing Manual Booklets

    Agency Rule-Making & Guidance

    On May 8, the OCC announced the release of a revised Fiduciary Powers booklet of the Comptroller’s Licensing Manual, which replaces the version issued in June 2002, and applies to all national banks and federal savings associations proposing to exercise fiduciary powers. This revised booklet incorporates updated procedures and requirements following the integration of the Office of Thrift Supervision (OTS) into the OCC in 2011 and the revisions to 12 C.F.R. § 5 (effective July 1, 2015), which address applications for national banks and federal savings associations proposing to exercise fiduciary powers. Specifically, the revised booklet addresses the: (i) policies and procedures to guide a bank in submitting a request to exercise fiduciary powers or submitting a notice to the OCC that it is exercising fiduciary powers in a new state; and (ii) procedures for a bank to surrender its fiduciary powers and for the OCC to revoke those powers. The booklet also lists references and links to informational resources to assist applicants during the filing process.

    That same day, the OCC also released a revised Public Notice and Comments booklet of the Comptroller’s Licensing Manual, which replaces the version updated in March 2007. This revised booklet incorporates public notice and comments procedures and requirements that were updated following the integration of OTS into the OCC, and the issuance of revised 12 CFR Part 5, and applies to national banks and federal savings associations, unless otherwise noted, as well as federal branches and agencies of foreign banks. In particular, the booklet addresses the “general requirements related to the public notice process, impact of Community Reinvestment Act (CRA) performance on certain applications or notices (filings), application of the convenience and needs standard under the Bank Merger Act, and requirements and procedures for conducting public hearings, public meetings, and private meetings.”

    Agency Rulemaking & Guidance OCC Licensing

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  • Conference of State Bank Supervisors Announce Initiatives to Obviate Need for Fintech Charter, New York Joins Nationwide Mortgage Licensing System for Fintechs


    On May 10, the Conference of State Bank Supervisors (CSBS) announced a “series of initiatives to modernize state regulation of non-banks, including financial technology [fintech] firms.” The raft of initiatives, branded “Vision 2020,” appear to be generally geared towards streamlining the state regulatory system so that it is capable of supporting business innovation, while still protecting  the rights of consumers. As explained by CSBS Chairman and Texas Commissioner of Banking Charles G. Cooper, the CSBS is “committed to a multi-state experience that is as seamless as possible,” and, to this end, “state regulators will transform the licensing process, harmonize supervision [and] engage fintech companies.”

    The initial set of actions that CSBS and state regulators are taking includes the following: 

    • Redesign the Nationwide Multistate Licensing System (NMLS). CSBS plans to redesign the NMLS, which is a web-based system that allows non-depository companies, branches, and individuals in the mortgage, consumer lending, money services businesses, and debt collection industries to apply for, amend, update, or renew a license online. In particular, the CSBS’s redesign will “provide a more automated licensing process for new applicants, streamline multi-state regulation, and shift state resources to higher-risk cases.”
    • Harmonize multi-state supervision. CSBS has created “working groups to establish model approaches to key aspects of non-bank supervision,” to “enhance uniformity in examinations, facilitate best practices,” and “capture and report non-bank violations at the national level.” CSBS also intends to “create a common technology platform for state examinations.”
    • Form an industry advisory panelCSBS will “establish a fintech industry advisory panel to identify points of friction in licensing and multi-state regulation, and provide feedback to state efforts to modernize regulatory regimes.”
    • Assist state banking departments. CSBS intends to start “education programs” that “will make state departments more effective in supervising banks and non-banks.”
    • Make it easier for banks to provide services to non-banksCSBS is also “stepping up efforts to address de-risking—where banks are cautious about doing business with non-banks, due to regulatory uncertainty – by increasing industry awareness that strong regulatory regimes exist for compliance with laws for money laundering, the Bank Secrecy Act, and cybersecurity.”
    • Make supervision more efficient for third parties. CSBS also intends to “support[] federal legislation that would allow state and federal regulators to better coordinate supervision of bank third-party service providers.”

    By harmonizing the supervision and licensing system and working more closely together, state regulators appear to want to eliminate a key reason to seek the OCC charter, namely the ability to deal with one federal agency and follow a single set of rules. As previously covered in InfoBytes, the CSBS and a number of individual stakeholders have fiercely opposed the OCC’s other main fintech initiative—the development of a special purpose national bank charter for payments processors, online lenders and other new entrants in the financial industry. CSBS sued the OCC last month, arguing it lacked the legal power to move forward. The overall initiative appears to be a response to the OCC’s own “responsible innovation” efforts, which—as previously covered in InfoBytes—culminated in the creation of a new office last year to correspond with fintechs and the banks interested in partnering with them.

    Concurrent with CSBS’s Vision 2020 initiatives, on May 11, the New York State Department of Financial Services (NYDFS) announced that beginning July 1, 2017, it will transition to the NMLS to manage the license application and ongoing regulation of all nondepository financial institutions conducting business in the state, commencing with money transmitters. Specifically, on July 1, 2017, financial services companies holding New York money transmitter licenses will have the opportunity to transition those licenses to NMLS, and companies applying for new licenses will be able to apply through NMLS. As previously covered in InfoBytes, NMLS—a secure, web-based licensing system—will allow for easier on-line licensing renewal and enable NYDFS to “provide better supervision of the money transmitter industry by linking with other states to protect consumers.” Financial Services Superintendent Maria T. Vullo stressed that “[b]y working with the CSBS, which is leading the modernization of state regulation through Vision 2020, DFS is supporting the strong nationwide regulatory framework created by states to provide improved licensing and supervision by State regulators.”

    Additional information about NMLS can be accessed through the NMLS Resource Center.

    Fintech Licensing NYDFS NMLS Agency Rulemaking & Guidance CSBS OCC

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  • OCC Appoints Six New Members to Mutual Savings Association Advisory Committee

    Federal Issues

    On May 4, the OCC announced the appointment of six new members to its Mutual Savings Association Advisory Committee (MSAAC). The committee—which is presided over by Michael R. Brickman, the Deputy Comptroller for Thrift and Special Supervision—is tasked with assessing the condition of mutual savings associations, regulatory changes and other actions the OCC may take to ensure the health and vitality of mutual savings associations, and other issues of concern to such institutions.

    The six new members appointed to the committee are:

    • J.R. Buckner, President and CEO, First Federal Bank of Kansas City, Kansas City, MO;
    • Thomas Fraser, President and CEO, First Federal Lakewood, Lakewood, OH;
    • Shirley Hughes, President and CEO, Elizabethton Federal Savings Bank, Elizabethton, TN;
    • James McQuade, President and CEO, Dollar Bank, Pittsburgh, PA;
    • James Wainwright, CEO, Freehold Savings Bank, Freehold, N.J.; and
    • William White, President and CEO, Dearborn Federal Savings Bank, Dearborn, MI.

    They join the following current MSAAC members:

    • Jeffrey Hyde, President and CEO, Evergreen Federal Savings and Loan Association, Grants Pass, OR;
    • Dan Moore, President and CEO, Home Bank, Martinsville, IN.; and
    • Charles Timpa, President and CEO, First Federal Bank of Louisiana, Lake Charles, LA.

    Additional information concerning the MSAAC, including committee meeting documents, can be accessed through the OCC’s website.

    Federal Issues OCC

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  • Financial CHOICE Act of 2017 Approved by House Financial Services Committee

    Federal Issues

    On May 4, GOP efforts to overhaul existing financial regulations took a step forward as the House Financial Services Committee approved H.R. 10, a revised version of the “Financial CHOICE Act of 2017” in a party-line vote, 34-26. The vote concluded a two week period that included both a three-day markup, of the GOP-backed legislation—during which several Democrat committee members sought, unsuccessfully, to remove various provisions of the bill—and, a two-day hearing that included testimony from 18 different witnesses.

    • An Executive Summary of the proposed legislation is available here.
    • A Comprehensive Summary of the proposed legislation is available here.
    • A copy of the Legislative Text of the proposed legislation is available here.

    Originally introduced by Committee Chairman Jeb Hensarling (R-TX) in September 2016, the main focus of the CHOICE Act was to give financial institutions the option of avoiding many of the rules set up by the 2010 Dodd-Frank law if they maintain a high level of capital and are “well-managed” as defined in the bill. The legislation, if enacted, would also end the Dodd-Frank Act’s taxpayer-funded bailouts of large financial institutions and would impose greater penalties on those who commit fraud and insider trading, while also demanding greater accountability from banking regulators. A summary of changes incorporated in the latest iteration of the proposed legislation—recently referred to as “CHOICE Act 2.0”—was released by the Committee last week and included, among other things:

    • the elimination of the CFPB supervisory and examination authority;
    • a restructuring of the CFPB, FHFA, OCC, and FDIC into bipartisan commissions appointed by the President;
    • an opt-out of many regulatory requirements for banks and other financial institutions if they maintain a 10% leverage ratio (among other conditions);
    • subjecting the federal banking regulators to greater congressional oversight and tighter budgetary control;
    • reforms in bank stress tests;
    • materially reducing the authority of the Financial Stability Oversight Council (FSOC) and the establishment of a new process of identifying financial institutions as "systemically important";
    • a repeal of the Orderly Liquidation Authority and the creation of a new bankruptcy process for banks;
    • a repeal of the Volcker Rule; and
    • facilitated capital raising by small companies, including through crowd-funding.

    Looking ahead, the House could vote to pass the bill later this month. While a party-line vote would pass the House, the bill will likely need to pick up a minimum of 60 votes—including support from several Democrats—in order for it to pass in the Senate.

    Federal Issues House Financial Services Committee Financial CHOICE Act Congress Dodd-Frank CFPB FHFA OCC FDIC

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  • Comptroller Curry Shares Departing Thoughts on the Fintech “Wave of Innovation” at Conference


    In prepared remarks delivered on April 28 at a fintech conference hosted by Northwestern University, Thomas J. Curry—who on May 5, will be stepping down from his role as Comptroller after completing his five-year term—took the opportunity to “share [his] perspective on where financial innovation is today,” as well as what he believes the OCC “is doing to encourage responsible innovation within the banking system.” In so doing, the departing Comptroller also addressed some of the criticism received by the OCC over its recent efforts to move forward with developing a special purpose national bank charter for fintech companies. (See related InfoBytes coverage here.) Among other things, Curry noted that, for him, “one of the most exciting parts of this [fintech] wave of innovation is the potential for technology to expand access to the unbanked and underserved, in the same way that the Internet helped democratize information.” On this point, he explained further that “[d]ata from the FDIC and others show that minorities and other traditionally underserved populations may embrace fintech at even higher rates than the general population.” The outgoing Comptroller also highlighted several ways the OCC’s Office of Innovation is already working to enhance the delivery of financial products and make banking more efficient, including, for instance, its recently-unveiled “Office Hours” initiative, which was created to provide a new means by which stakeholders can seek regulatory guidance. Curry did, however, caution the audience about the importance of proceeding “cautiously,” so as to avoid “compromis[ing] the integrity of the banking system” and/or “allow[ing] untested products to result in unintended consumer harm.”

    According to an OCC press release, Curry will be replaced by Keith Noreika, who is slated to become Acting Comptroller of the Currency on May 5, until President Trump appoints, and the Senate confirms, a new comptroller. Noreika began his career in private practice and has advised banks on Volcker Rule, Bank Secrecy Act, and consumer protection regulation compliance and has worked extensively with all of the federal bank regulatory agencies.

    Fintech Federal Issues OCC

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  • OCC Names New Senior Leadership in Midsize and Community Bank Supervision

    Federal Issues

    On May 2, the OCC announced the promotion of two long-time OCC employees to leadership roles within its Community Bank Supervision unit. Starting this May, Scott Schainost will serve as one of two deputies responsible for overseeing the supervision of midsize national banks and federal savings associations where he will oversee a portfolio of companies with assets generally ranging from $5 billion to $60 billion, as well as a number of nationally chartered institutions. This is a new position created to enhance the supervision of midsize banks. Schainost – who has held a variety of positions at the OCC during his 33 years at the agency – started his career as an Assistant Bank Examiner in Kansas City, before moving on to supervise banks of all sizes.

    Beginning this June, Troy Thornton will serve as the head of one of the OCC’s four districts that make up community bank supervision, where he will oversee the supervision of more than 390 national banks, federal savings associations, and trust companies, while also overseeing 28 technology service providers spread over nine states from Texas to Florida. His responsibilities will include managing staff in 21 field and satellite offices throughout the district. Thornton began his career at the OCC 31 years ago as a Field Examiner in Texas. He is filling a vacancy left by Gilbert Barker’s retirement in November 2016.

    Federal Issues Agency Rulemaking & Guidance OCC Community Banks

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  • Following Hearing, House Financial Services Committee Chairman Formally Introduces Financial CHOICE Act of 2017

    Federal Issues

    On April 26, the House Financial Services Committee held a hearing to discuss The Financial CHOICE Act – a GOP proposal to “reform the financial regulatory system” that was initially introduced and considered, though differing in a number of respects from the current version, but not adopted in the last Congress. The hearing debated the merits of a discussion draft, which was released on April 19 by Committee Chairman Jeb Hensarling (R-TX). Shortly after Wednesday’s hearing, Chairman Hensarling formally introduced H.R. 10, The Financial CHOICE Act of 2017. An Executive Summary of the proposed legislation has also been released. 

    The April 26 hearing – a video of which can be accessed here – included testimony from the following witnesses:

    • Mr. Peter J. Wallison, a Senior Fellow and Arthur F. Burn Fellow, Financial Policy Studies with the American Enterprise Institute (prepared statement)
    • Dr. Norbert J. Michel, a Senior Research Fellow, Financial Regulations and Monetary Policy, with the Heritage Foundation (prepared statement)
    • The Honorable Michael S. Barr, a Professor of Law at University of Michigan Law School (prepared statement)
    • Mr. Alex J. Pollock, a Distinguished Senior Fellow with the R Street Institute (prepared statement)
    • Dr. Lisa D. Cook, an Associate Professor of Economics and International Relations at Michigan State University (prepared statement)
    • Ms. Hester Peirce, a Director in the Financial Markets Working Group and Senior Research Fellow at the Mercatus Center at George Mason University (prepared statement)
    • Mr. John Allison, Former President and Chief Executive Officer with the Cato Institute (prepared statement)

    On April 28, Democrats held a separate hearing pursuant to Clause (d)(5) of Rule 3 of the Committee rules, which entitles members of the minority party to call its own hearing on any matter that is the subject of a majority hearing. The second hearing day – a video of which can be accessed here – included testimony from the following witnesses:

    • The Honorable Elizabeth Warren, United States Senator
    • Rohit Chopra, Senior Fellow, Consumer Federation of America
    • Corey Klemmer, Corporate Research Analyst, Office of Investment, AFL-CIO
    • Rev. Willie Gable, Pastor, National Baptist Convention USA, Inc. (prepared statement)
    • John C. Coffee Jr., Adolf A. Berle Professor of Law, Columbia University (prepared statement)
    • Rob Randhava, Senior Counsel, Leadership Conference on Civil and Human Rights (prepared statement)
    • Melanie Lubin, Maryland Securities Commissioner, North American Securities Administrators Association (prepared statement)
    • Emily Liner, Senior Policy Advisor, Economic Program, Third Way (prepared statement)
    • Amanda Jackson, Organizing and Outreach Manager, Americans for Financial Reform
    • Ken Bertsch, Executive Director, Council of Institutional Investors (prepared statement)
    • Sarah Edelman, Director, Housing Policy, Center for American Progress (CAP)

    Ranking Minority Member Maxine Waters (D-CA) also used the hearing to express her strong disapproval of what she has dubbed the “Wrong Choice Act.” Among other things, the ranking member alleged that the proposed legislation would “destroy[] Wall Street reform, gut[] the Consumer Financial Protection Bureau, and returns us to the financial system that allowed risky and predatory Wall Street practices and products to crash our economy.” 

    Federal Issues Financial CHOICE Act House Financial Services Committee Congress Dodd-Frank CFPB FDIC FSOC OCC FHFA

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