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OCC Supplements Exam Procedures Covering Third-Party Relationships: Risk Management Guidance
On January 24, the OCC released Bulletin 2017-7 advising national banks, federal savings associations and technology service providers of examination procedures issued to supplement Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” issued October 30, 2013. As previously summarized in BuckleySandler’s Special Alert, Bulletin 2013-29 requires banks and federal savings associations (collectively “banks”) to provide comprehensive oversight of third parties, and warns that failure to have in place an effective risk management process commensurate with the risk and complexity of a bank’s third-party relationships “may be an unsafe and unsound banking practice.” Bulletin 2013-29 outlined a “life cycle” approach and provided detailed descriptions of steps that a bank should consider taking at five important stages of third-party relationships: (i) planning; (ii) due diligence and third party selection; (iii) contract negotiation; (iv) ongoing monitoring; and (v) termination. Following the OCC's issuance of Bulletin 2013-29, the Federal Reserve Board, on December 5, 2013, issued Supervision and Regulation Letter 13-19, which details and attaches the Fed’s Guidance on Managing Outsourcing Risk (SR 13-19). The FRB Guidance is substantially similar to Bulletin 2013-29.
Bulletin 2017-7 outlines procedures designed to help prudential bank examiners: (i) tailor supervisory examinations of each bank commensurate with the level of risk and complexity of the bank’s third-party relationships; (ii) assess the quantity of the bank’s risk associated with its third-party relationships; (iii) assess the quality of the bank’s risk management of third-party relationships involving critical activities; and (iv) determine whether there is an effective risk management process throughout the life cycle of the third-party relationship. Consistent with the life cycle approach established in Bulletin 2013-29, the examination procedures identify steps examiners should take in requesting information relevant to assessing the banks’ third-party relationship risk management relative to each phase of the life cycle.
For additional background, please see our Spotlight Series: Vendor Management in 2015 and Beyond.
Mnuchin Open to Rethinking Regional, Midsize, Community Bank Regulations
Treasury secretary nominee Steven Mnuchin told members of the Senate Finance Committee that he supports rethinking regulatory requirements for regional banks in written responses following his confirmation hearing last week. Mr. Mnuchin, a former regional bank chief executive, strongly endorsed efforts to provide regulatory relief for regional, midsize and community banks, stating: “It is important that we have a regulatory environment that supports credit flows to all aspects of our economy, particularly in rural and less populated areas, and that small- and mid-sized institutions are not suffering from an inappropriate regulatory burden.” Mnuchin also questioned “whether it is appropriate for financial institutions that engage almost exclusively in traditional banking activities with consumers and businesses to be subject to measures intended for our largest and most complex financial institutions.” Moreover, when asked his thoughts concerning the Dodd-Frank Act, the nominee stated that he would focus on “addressing regulatory issues that limit banks' abilities to lend to small and medium-sized business that will create economic growth and create more jobs.”
NCUA Issues Guidance on CFPB Mortgage Servicing Rule, FDCPA Interpretive Rule
The National Credit Union Administration (NCUA) has issued a regulatory alert to federally insured credit unions regarding recent amendments to the CFPB's 2013 Mortgage Servicing Rule, issued on August 4, 2016, and the Bureau’s FDCPA interpretive rule concerning safe harbors from FDCPA liability. The recent amendments to the Mortgage Servicing Rule clarify (i) Regulation X (RESPA) provisions regarding force-placed insurance notices, mortgage servicing policies and procedures, early intervention, and loss mitigation requirements, and (ii) Regulation Z (TILA) provisions regarding prompt payment crediting and periodic statement requirements. The FDCPA interpretive rule provides safe harbor for servicers acting in compliance with specified mortgage servicing rules set forth in Regulations X and Z.
District Court Dismisses Bank Trade Group's Lawsuit Regarding Credit Union Business Lending Rule
On January 24, the U.S. District Court for the Eastern District of Virginia issued an order dismissing a suit seeking to overturn a rule that allows federally regulated credit unions to expand their business lending activities. The complaint, filed in September 2016, claimed the NCUA exceeded the plain language of its statutory authority by permitting such business lending activities The bank trade group further alleged that because credit unions are tax-exempt, they offer commercial loans at a lower price than the trade group’s community bank members, resulting in injury to those institutions. The court, however, stated that the bank trade group failed to prove its claim or show that injury was caused to its members. “Merely codifying an extant rule in part of a new regulation does not effectuate a reopening. If anything, this reflects the agency’s view that its earlier rule is ... settled to the point that it may serve as a foundation for further rule-making,” Judge Cacheris wrote.
CFPB Files Suit Against Bank Regarding its OverDraft Services
On January 19, the CFPB initiated an enforcement action against a U.S. bank alleging it mislead consumers regarding its overdraft services. In a complaint filed with the United States District Court for the District of Minnesota, the Bureau claims the bank created an application process that obscured fees and made an optional opt-in overdraft service appear to be mandatory for both new and existing consumers. Furthermore, the complaint alleges that the bank relied on overdraft fee revenue to a greater degree than most other banks its size and recognized that the opt-in rule could negatively impact its business by virtue of reducing overdraft revenue. The CFPB seeks “redress for consumers, injunctive relief, and penalties.”
Nation's Biggest Bank Agrees to $55 Million Settlement with DOJ Regarding Allegations of Discriminatory Lending Practices
On January 18, the DOJ filed a lawsuit in the United States District Court for the Southern District of New York accusing a national bank of discriminating against minorities in home lending. According to the government’s complaint, the DOJ alleges, among other things, that the bank “failed to adequately monitor for and fully remedy the effects of race and national origin disparities in APR” and did not “maintain adequate data to determine whether it was discriminating” before ending its wholesale lending practice in late 2009. Two days later, on January 20, the bank agreed to settle the matter and will pay $55 million, while denying any wrong doing. The bank maintains its view that the DOJ’s case is based on legacy allegations that concern pricing decisions of independent third-party brokers. The details of the settlement have not been released as of the publication date of this post.
Global Money Service Business Settles Alleged AML and Consumer Fraud Allegations; Fined $586 Million in Settlement
On January 19, the DOJ announced that it had entered into Deferred Prosecution Agreement with a global money services business regarding allegations the company failed to maintain effective anti-money laundering program and aiding and abetting wire fraud. The announcement claims that between 2004 and 2012, the company “violated U.S. laws—the Bank Secrecy Act (BSA) and anti-fraud statutes—by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme.” Under the terms of the Agreement, the business must forfeit $586 million and “implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates, monitoring to detect and prevent fraud-induced money transfers, due diligence on all new and renewing company agents, and suspension or termination of noncompliant agents.”
In a related case, the company also agreed to a consent order with the FTC to resolve parallel allegations by the FTC in a complaint filed on January 19 in the U.S. District Court for the Middle District of Pennsylvania. The complaint alleges that the company’s conduct violated Section 5 of the FTC Act and the Telemarketing Sales Rule.
Prudential Regulators Fine Mortgage Company Over "Significant Deficiencies" in Foreclosure-Related Services
On January 24, the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency filed an amended Consent Order fining a foreclosure services provider $65 million for “improper actions” conducted by the company’s predecessor. The fine replaces all obligations to complete the “Document Execution Review” required in the original 2011 consent order between the same agencies and the servicer’s predecessor. In the 2011 order, the agencies claimed, among other things, that the predecessor company’s actions resulted in significant deficiencies in the foreclosure-related services it provided to mortgage servicers.
McWatters Named Acting NCUA Chairman
On January 25, President Trump appointed J. Mark McWatters as the acting chairman of the National Credit Union Administration (NCUA). McWatters succeeds Rick Metsger, who will remain a NCUA Board Member. McWatters was nominated to the NCUA Board by then-President Barack Obama on January 7, 2014 and took office following Senate confirmation on August 26, 2014. Prior to joining NCUA’s Board, McWatters—a licensed attorney and CPA—worked in a variety of public and private sector roles, including serving on the Governing Board of the Texas Department of Housing and Community Affairs and as a member of the Troubled Asset Relief Program Congressional Oversight Panel. He also served as counsel to House Financial Services Committee Chairman Jeb Hensarling (R-Texas), who, following McWatters’ appointment, issued the following statement:
“I commend President Trump for appointing Mark McWatters to this key position. Mark is highly capable and extremely well qualified for this role. He brought a free market-oriented, transparent and accountable perspective to the NCUA Board. At a time when the regulatory burden of the Dodd-Frank Act has led to a drastic decline in the number of credit unions serving Americans, Mark’s leadership as Acting Chairman is greatly needed.”
Senate Banking Committee Announces Subcommittee Assignments for 115th Congress
On January 17, the Senate Committee on Banking, Housing and Urban Affairs Chairman Mike Crapo (R-Idaho) and Ranking Member Sherrod Brown (D-Ohio), announced subcommittee assignments for the 115th Congress. The Senators named to head each subcommittee are listed below:
- Dean Heller of Nevada will be the new chairman of the Securities, Insurance and Investment subcommittee. Sen. Mark Warner of Virginia will continue to serve as ranking member.
- Pat Toomey of Pennsylvania will remain chairman of the Financial Institutions and Consumer Protection subcommittee. Sen. Elizabeth Warren of Massachusetts will be the new ranking member.
- Tom Cotton of Arkansas will become chairman of the Economic Policy subcommittee. Sen. Heidi Heitkamp of North Dakota will be the new ranking member.
- Ben Sasse of Nebraska will chair the National Security and International Trade and Finance subcommittee. Sen. Joe Donnelly of Indiana will serve as ranking member.
Sen. Tim Scott of South Carolina will continue to chair the Housing, Transportation and Community Development subcommittee. Sen. Robert Menendez of New Jersey will remain ranking member.