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  • House Financial Services Committee Issues Second Interim Report on Bureau’s Role in Fraudulent Accounts Scandal Investigation

    Federal Issues

    On September 19, the Majority Committee Staff of the House Financial Services Committee (Committee) released a second interim report and supporting documents on the investigation of the role the CFPB played in detecting and remedying a major national bank’s practice of opening unauthorized bank accounts. As previously covered in InfoBytes, the first interim report, issued June 6, accused Director Richard Cordray, among other things, of failing to cooperate with the Committee’s “comprehensive investigation.” The second interim report claims the CFPB and Director Cordray failed to comply with the Committee’s repeated requests for documents related to the investigation into the bank’s practices, never conducted its own independent investigation (but, instead, “relied primarily, if not exclusively,” on a third party report), and withheld a crucial Recommendation Memorandum from the Committee for over a year that disclosed analysis of the legal and factual components of the Bureau’s investigation, as well as an evaluation of whether to enter into a settlement. The Committee’s accusations also include claims that Director Cordray allegedly misled Congress about the agency's investigation into the bank’s illegal sales practices and may have “rushed” a settlement with the bank, which resulted in a $100 million fine when it was potentially liable for a statutory civil monetary penalty exceeding $10 billion. Chairman Jeb Hensarling (R-Tex.) said in a press release that “[t]he premature suspension of its investigation means that the CFPB also potentially lost the opportunity to discover recently revealed instances of further consumer harm.”

    Federal Issues CFPB House Financial Services Committee Settlement Enforcement Fraud Investigations

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  • President Trump Signs Government Funding Package, Temporarily Extends National Flood Insurance Program

    Federal Issues

    On September 8, President Trump signed a government-funding package (H.R. 601) that temporarily extends the National Flood Insurance Program (NFIP), which was set to expire September 30, through December 8. The extension provides Congress additional time to establish a long-term financial solution. (See previous InfoBytes coverage on the NFIP here.) The Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, also temporarily lifts the nation’s debt ceiling, funding the federal government through December 8, and delivers the first installment of emergency aid for victims of Hurricane Harvey.

    Federal Issues Federal Legislation National Flood Insurance Program Trump

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  • FDIC Issues First Quarter 2018 CRA Examination Schedule, Releases September List of CRA Compliance Examinations

    Federal Issues

    On August 31, the FDIC issued its Community Reinvestment Act (CRA) Examination Schedule for the Fourth Quarter of 2017 and First Quarter of 2018. The FDIC stated that the banks listed on the schedules were chosen for CRA examinations based on their asset size and CRA rating, and that absent reasonable cause, institutions with $250 million or less in assets and a CRA rating of “Satisfactory” would be examined no more than once every 48 months, and those institutions with a CRA rating of “Outstanding” would be examined no more than once every 60 months. The FDIC noted that due to recent natural disasters, some examinations may be delayed.

    Separately, the FDIC published its monthly list of state nonmember banks recently evaluated for CRA compliance. The list reports CRA evaluation ratings assigned to institutions in June 2017 as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Of the 67 banks evaluated, 6 were rated “Outstanding,” 59 received a “Satisfactory” rating, and 2 were rated “Needs to Improve.” Monthly lists of all state nonmember banks and their evaluations that have been made publically available can be accessed through the FDIC’s website.

    Federal Issues Bank Compliance CRA FDIC

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  • FDIC Releases Summer 2017 Supervisory Insights

    Federal Issues

    On August 30, the FDIC released its Summer 2017 Supervisory Insights (see FIL-39-2017), which contains articles discussing community bank liquidity risks and developments and changes to the Bank Secrecy Act. The first article, “Community Bank Liquidity Risk: Trends and Observations from Recent Examinations,” discusses, among other things, (i) an overview of trends in liquidity risk; (ii) the importance of liquidity risk management and contingency funding plans as bank management navigate funding, mitigate liquidity stress, and plan for the future; and (iii) “principles outlined in existing supervisory guidance.” The first article is “intended as a resource for bankers who wish to heighten awareness of prudent liquidity and funds management.” The second article, “The Bank Secrecy Act: A Supervisory Update,” emphasizes the role information collected through Bank Secrecy Act/Anti-Money Laundering (BSA/AML) programs plays in the U.S. government’s counter terrorist financing initiatives and other financial system protection measures. The article also provides an overview of the financial regulatory agency examination process, compliance program monitoring, recent trends in BSA/AML examination findings, and examples of significant deficiencies in BSA/AML compliance programs that necessitated formal remediation. In addition, the summer issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.

    Federal Issues FDIC Banking Bank Supervision Bank Secrecy Act Anti-Money Laundering Combating the Financing of Terrorism

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  • FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in July 2017

    Federal Issues

    On August 25, the FDIC released its list of 24 orders of administrative enforcement actions taken against banks and individuals in July. The FDIC issued consent orders against three banks, including one alleging “unsafe or unsound banking practices relating to [b]ank management and directors, capital maintenance, liquidity, credit administration, third-party risk management, audit, interest rate risk, and strategic and profit planning.”

    Ten enforcement actions identified by the FDIC related to unsafe or unsound banking practices and breaches of fiduciary duty leading to financial loss, including seven removal and prohibition orders and three assessments of civil money penalties. Also on the list are four Section 19 orders, which allow applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and seven terminations of consent orders.

    There are no administrative hearings scheduled for September 2017. The FDIC database containing all 24 of its enforcement decisions and orders may be accessed here.

    Federal Issues Enforcement FDIC

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  • FDIC Issues Quarterly Banking Profile for Second Quarter 2017

    Federal Issues

    On August 22, the FDIC released its latest Quarterly Banking Profile. The profile indicates that commercial banks and savings institutions reported an aggregate net income of $48.3 billion in the second quarter of 2017—a 10.7 percent increase from the previous year. The FDIC primarily attributed the rise in second quarter income to an increase in net interest income and noninterest income. Average return on assets rose to 1.14 percent, which is the highest in 10 years. Community bank net income increased 8.5 percent from a year earlier to $5.7 billion in the second quarter and community banks “continue[d] to report higher net interest margins than the overall industry,” although, the gap is narrowing. However, FDIC Chairman Martin J. Gruenberg noted in a statement released that same day that the annual rate of loan growth has slowed for three consecutive quarters and that “an extended period of low interest rates and an increasingly competitive lending environment have led some institutions to reach for yield,” which created “heightened exposure to interest-rate risk, liquidity risk, and credit risk.”

    Federal Issues Banking FDIC

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  • OCC Announces Recent Enforcement Actions and Terminations

    Federal Issues

    On August 18, the OCC released a list of new enforcement actions taken against national banks, federal savings associations, and institution-affiliated parties as well as a list of existing enforcement actions that were terminated recently. The actions include cease and desist orders, civil money penalties, removal/prohibition orders and restitution orders.

    Cease and Desist Order. On July 18, the OCC issued a consent order against a Florida-based bank for deficiencies related to its Bank Secrecy Act (BSA) rules and regulations. The consent order, among other things, requires the bank to: (i) appoint a compliance committee responsible for ensuring the bank adheres to the order; (ii) appoint a BSA officer who will “ensure compliance with the requirements of the [BSA] . . . and regulations of the Office of Foreign Assets Control (OFAC)”; (iii) acquire an independent third-party consultant to conduct a formal written assessment of the bank’s BSA oversight infrastructure to determine BSA/Anti-Money Laundering (AML) compliance; (iv) review and update a comprehensive BSA/AML compliance action plan and monitoring system, including implementing processes to timely identify and analyze suspicious activity and file suspicious activity reports (SARs); (v) create a comprehensive training program for “appropriate operational and supervisory personnel to ensure their awareness of their specific assigned responsibilities for compliance with” the BSA; (vi) develop policies and procedures related to the collection of customer due diligence and enhanced due diligence; (vii) monitor accounts for “high-risk customers/transactions”; (viii) implement an independent BSA/AML audit program and written risk assessment program; and (ix) conduct a “Look-Back” plan to determine whether suspicious activity was timely identified and reported by the bank and whether additional SARs should be filed for unreported suspicious activity. The bank, 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 Compliance SARs

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  • DOJ Formally Ends Operation Chokepoint; Judicial and Financial Services Committee Leaders and Acting Comptroller of the Currency Respond

    Federal Issues

    On August 16, the DOJ sent a letter to House Judiciary Committee Chairman Bob Goodlatte (R-Va.) formally announcing the DOJ’s commitment to end its initiative known as Operation Chokepoint, which was designed to target fraud by investigating U.S. banks and the business they do with companies believed to be a higher risk for fraud and money laundering. Assistant Attorney General Stephen Boyd wrote: “All of the [DOJ]’s bank investigations conducted as part of Operation Chokepoint are now over, the initiative is no longer in effect, and it will not be undertaken again.” Boyd further reiterated that “the [DOJ] will not discourage the provision of financial services to lawful industries, including businesses engaged in short-term lending and firearms-related activities.” However, criminal activity discovered as a result from responses to subpoenas may continue to be pursued by the DOJ. Additionally, the FDIC also rescinded a list identifying “purportedly ‘high-risk’ merchants” and the DOJ noted that it “strongly agrees with that withdrawal.”

    On August 18, Rep. Goodlatte’s office, along with other judicial and financial services committee leaders, issued praise for the DOJ’s decision: “Targeted industries, such as firearms dealers, were presumed guilty by the Obama Justice Department until proven innocent, and many businesses are still facing the repercussions of this misguided program.”

    Separately, on August 21, Acting Comptroller of the Currency Keith A. Noreika sent a letter to House Financial Services Committee Chairman Jeb Hensarling (R-Tex.) repudiating Operation Chokepoint and claiming “the [OCC] rejects the targeting of any business operating within state and federal law as well as any intimidation of regulated financial institutions into banking or denying banking services to particular businesses.” Noreika further stated that the OCC “expects the banks it supervises to maintain banking relationships with any lawful businesses or customers they choose, so long as they effectively manage any risks related to the resulting transactions and comply with applicable laws and regulations.”

    The DOJ’s announcement comes after years of attempts by Congressional Republicans to end the initiative as well as lawsuits filed by payday lenders over claims that regulator interpretations of “reputational risk” violated their rights to due process. (See previous InfoBytes coverage here.)

    Federal Issues DOJ Operation Choke Point Payday Lending OCC House Financial Services Committee

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  • Buckley Sandler Insights: Succession Scenarios at the CFPB

    Federal Issues

    Expectations that President Trump will fire CFPB Director Richard Cordray have given way to rumors that Cordray will soon resign to pursue elected office in Ohio. As a result, the uncertainty about his tenure has given way to uncertainty surrounding the selection of a successor. The law is not clear on whether current Acting Deputy Director David Silberman becomes the acting director pursuant to statute or whether the president has the authority to select someone else for that role. Buckley Sandler Chairman & Executive Partner Andrew L. Sandler and Partner Benjamin K. Olson examine the potential outcomes in a Law360 article “Personnel Is Policy: Succession Possibilities at the CFPB.”

    Federal Issues CFPB Cordray

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  • House Financial Services Committee Issues Report Accusing Bureau of Contempt Charges Relating to Investigation into Arbitration Rulemaking

    Federal Issues

    On August 4, the Majority Committee Staff of the House Financial Services Committee (Committee) released a report accusing CFPB Director Richard Cordray of failing to comply with an April 4, 2017 Congressional subpoena concerning the Committee’s on-going investigation into the Bureau’s arbitration rulemaking, and presenting a case for instituting contempt of Congress proceedings. According to the report, the Committee first requested documents relating to the CFPB’s pre-dispute arbitration rulemaking on April 20, 2016 but asserts it received a production that was “far from complete.” Subsequent document requests and “rolling” productions were also allegedly “incomplete.” In April 2017, the Committee issued a congressional subpoena in order to compel the CFPB to produce the relevant records, but the report claims that while Cordray was legally obligated to answer, he failed to adequately respond. Consequently, the Committee accused Cordray of defaulting on the subpoena and concluded that the CFPB’s argument regarding the burdensome nature of the request does not excuse the Bureau from producing records or “searching for and identifying sources of records in an effort to quantify the putative burden.” As a result, the Majority Committee Staff believes there is ample basis to proceed against Cordray for contempt of Congress.

    Federal Issues CFPB Arbitration House Financial Services Committee

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