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FDIC releases December enforcement actions
On January 28, the FDIC released a list of administrative enforcement actions taken against banks and individuals in December. During the month, the FDIC made public eight orders, including one order issued in October 2021, and one notice. The administrative enforcement actions in the orders and notice consisted of “two Orders to Pay Civil Money Penalty, one Consent Order, one order terminating consent order, one voluntary termination of deposit insurance, two Section 19 Orders, one adjudicated cease and desist order, and one Notice of Charges.” Among the actions is an order to pay a civil money penalty imposed against a North Dakota-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank: (i) “made, increased, extended, or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; and (ii) “made, increased, extended or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral.” The order requires the payment of a $4,500 civil money penalty.
FDIC joins Operation HOPE to promote financial education
On January 24, the FDIC announced a collaboration with Operation HOPE, Inc. to promote financial education. The collaboration will utilize the FDIC’s Money Smart curriculum and other resources to help educate minority- and/or women-owned businesses on how to do business with the agency. According to the FDIC, in 2001, the agency recognized “the importance of financial education, particularly for persons with little or no banking experience,” and created Money Smart. According to the FDIC and Operation Hope Collaboration Arrangement, the FDIC, among other things, will provide training for Operation Hope’s staff on how to teach the Money Smart curriculum and will help the nonprofit identify outreach initiatives to educate minority- and women-owned businesses on how to conduct business with the FDIC. According to FDIC Chairman Jelena McWilliams, the organization and the FDIC “share a common purpose to help every person belong to our nation’s financial system,” and together, “make certain our nation’s economy works for everyone.”
FDIC approves final rule for trust, mortgage servicing accounts
On January 21, the FDIC published a final rule that amends the deposit insurance regulations for trust accounts and mortgage servicing accounts. According to the FDIC, the final rule is “intended to make the deposit insurance rules easier to understand for depositors and bankers, facilitate more timely insurance determinations for trust accounts in the event of a bank failure, and enhance consistency of insurance coverage for mortgage servicing account deposits.” The final rule, among other things: (i) establishes a formula to calculate deposit insurance coverage for all revocable and irrevocable trust accounts; (ii) “provides a maximum amount of deposit insurance coverage of $1,250,000 per owner, per insured depository institution for trust deposits”; and (iii) establishes that “a deposit owner’s trust deposits will be insured in an amount up to $250,000 per beneficiary, not to exceed five beneficiaries, regardless of whether a trust is revocable or irrevocable, and regardless of contingencies or the allocation of funds among the beneficiaries.” Additionally, the final rule allows principal and interest funds advanced by a mortgage servicer to be included in the deposit insurance calculation. The rule is effective April 1, 2024. In addition, the FDIC released a fact sheet on the final rule.
FDIC announces Tennessee disaster relief
On January 19, the FDIC issued FIL-06-2022 to provide regulatory relief to financial institutions and facilitate recovery in areas of Tennessee affected by severe storms, straight-line winds, and tornadoes. The FDIC acknowledged the unusual circumstances faced by institutions and their customers affected by the weather and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans, so long as these measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
CSBS drops suit against OCC fintech charter after revised application
On January 13, the Conference of State Bank Supervisors (CSBS) announced that it has withdrawn its complaint challenging the OCC’s Special Purpose National Bank (SPNB) Charters and a financial services provider’s application for an OCC nonbank charter. CSBS filed a notice of voluntary dismissal without prejudice in the U.S. District Court for the District of Columbia asking the court to close the case. According to its press release, CSBS voluntarily took this action after the company, which had previously filed an application for an OCC SPNB charter, “amended its application to include seeking FDIC deposit insurance, thus complying with the legal requirement that national banks obtain federal deposit insurance before operating as a bank.”
As previously covered by InfoBytes, CSBS filed a complaint in December 2020, to oppose the OCC’s potential approval of the company’s SPNB charter application. CSBS argued that the company was applying for the OCC’s nonbank charter, which was invalidated by the U.S. District Court for the Southern District of New York in October 2019 (the court concluded that the OCC’s SPNB charter should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” covered by InfoBytes here). At the time, CSBS argued that “by accepting and imminently approving” the company’s application, the “OCC has gone far beyond the limited chartering authority granted to it by Congress under the National Bank Act (NBA) and other federal banking laws,” as the company is not engaged in the “business of banking.” CSBS sought to, among other things, have the court declare the agency’s nonbank charter program unlawful and prohibit the approval of the company’s charter under the NBA without obtaining FDIC insurance.
OCC acting Comptroller of the Currency Michael J. Hsu issued a statement following the withdrawal of the legal challenge. “We must modernize the regulatory perimeter as a prerequisite to conducting business as usual with firms interested in novel activities. Modernizing the bank regulatory perimeter cannot be accomplished by simply defining the activities that constitute ‘doing banking,’ but will also require determining what is acceptable activity to be conducted in a bank. Consolidated supervision will help ensure risks do not build outside of the sight and reach of federal regulators.”
FDIC and FinCEN launch Tech Sprint to help digital identity proofing
On January 11, the FDIC’s technology lab, FDiTech, and FinCEN announced the launch of a Tech Sprint challenging participants “to develop solutions for financial institutions and regulators to help measure the effectiveness of digital identity proofing—the process used to collect, validate, and verify information about a person.” According to the Tech Sprint program, Measuring the Effectiveness of Digital Identity Proofing for Digital Financial Services, solutions developed from this Tech Sprint will inform future FDIC, FinCEN, and industry-led efforts, plans, and programs to: (i) increase efficiency and account security; (ii) decrease fraud and other forms of identity-related crime, money laundering and terrorist financing; and (iii) foster customer confidence in the digital banking environment. According to the agencies, digital identity proofing is “challenged by the proliferation of compromised personally identifiable information, the increasing use of synthetic identities, and the presence of multiple, varied approaches for identity proofing.” The FDIC and FinCEN will open registration in the coming weeks, and stakeholders interested in participating will have approximately two weeks to submit applications.
Agencies adjust civil penalties to account for inflation
Recently, the CFPB, CFTC, FDIC, FinCen, FHFA, and OCC provided notice in the Federal Register regarding adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule (see CFPB here, CFTC here, FDIC here, FinCen here, FHFA here, and OCC here) adjusts the maximum amounts of civil money penalties and provides a chart reflecting the inflation-adjusted maximum amounts associated with the penalty tiers for particular types of violations within each regulator’s jurisdiction. The OCC’s adjusted civil money penalty amounts are applicable to penalties assessed on or after January 12. The new CFPB, CFTC, FDIC, and FHFA civil money penalty amounts are applicable to penalties assessed on or after January 15. FinCEN's adjusted civil money penalty amounts are effective January 24.
FDIC announces Washington, Arkansas, and Colorado disaster relief
On January 12, the FDIC issued FIL-05-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Washington state affected by flooding and mudslides. The FDIC acknowledged the unusual circumstances faced by institutions and their customers affected by the severe weather events in certain counties of Washington and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” The FDIC noted that it will consider the unusual circumstances when examining efforts to work with borrowers in affected communities and that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements. Earlier on January 5, the FDIC also issued FIL-01-2022 and FIL-02-2022 to provide the same regulatory relief to financial institutions and help facilitate recovery in areas of Arkansas and Colorado affected by severe storms, tornados, winds, and wildfires.
FDIC releases November enforcement actions
On December 30, the FDIC released a list of administrative enforcement actions taken against banks and individuals in November. During the month, the FDIC made public fourteen orders consisting of “three Orders to Pay Civil Money Penalty, one Consent Order, three Termination of Consent Orders, one Order Terminating Supervisory Prompt Corrective Action Directive, one Amended Supervisory Prompt Corrective Action Directive, two Orders of Prohibition from Further Participation, and three Section 19 Orders.” Among the orders is an order to pay a civil money penalty imposed against a Nebraska-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank: (i) “made, increased, extended, or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; (ii) “made, increased, extended or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral”; and (iii) “failed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $6,500 civil money penalty.
The FDIC and the California Department of Financial Protection and Innovation also issued a consent order to a California-based bank, which alleged that the bank had unsafe or unsound banking practices relating to management, capital, asset quality, liquidity and funds management, and violations of law. The bank neither admitted nor denied the alleged violations but agreed to, among other things, retain qualified management and “maintain its total risk-based capital ratio in such an amount as to equal or exceed 12 percent.”
FDIC publishes new primary purpose exception to the brokered deposit rule
On December 31, the FDIC published a notice in the Federal Register of a new business relationship that may now qualify for the primary purpose exception to the brokered deposits rule through a new designated exception. According to the notice, the following additional business arrangement meets the primary purpose exception: “[t]he agent or nominee is ‘engaged in the business of placing’ customer funds at IDIs [insured depository institutions], in a custodial capacity, based upon instructions received from a depositor or depositor’s agent specific to each IDI and deposit account, and the agent or nominee neither plays any role in determining at which IDI(s) to place any customers’ funds, nor negotiates or set rates, terms, fees, or conditions, for the deposit account.” Notice or application to the FDIC is not required to rely on this exception. The notice also pointed out “that a depositor or depositor’s agent that meets the deposit broker definition and uses the services of a custodial agent that meets this designated exception to place deposits would result in such deposits being classified as brokered deposits,” and that “[t]he involvement of the non-discretionary custodial agent does not change the classification of deposits placed by, or through the facilitation of, an entity that otherwise meets the deposit broker definition.” Full compliance with the new brokered deposit rule became required on January 1, 2022.