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OCC bulletin discusses preemption and Covid-19
On June 17, the OCC issued Bulletin 2020-62 discussing Covid-19-related relief programs and preemption, reminding stakeholders that banks are governed primarily by federal standards and generally are not subject to state law limitations. While the OCC recognizes the “well-intended” efforts by state and local governments to respond to the economic disruptions caused by the spread of Covid-19, the Bulletin states the agency is “concerned that the proliferation of a multitude of competing requirements will conflict with banks’ ability to operate effectively and efficiently,” which could harm consumers by risking the banks’ safety and soundness. The Bulletin cites to the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson to remind stakeholders that federal law preempts state and local laws that prevent or largely interfere with a national bank’s ability to exercise its powers. The Bulletin provides specific examples of the types of state laws that do not apply to banks’ lending and deposit activities, including limitations on (i) terms of credit; (ii) disbursement and repayments; and (iii) processing, originating, and servicing mortgages. Additionally, the Bulletin notes that any state action that limits banks’ foreclosure activities beyond what is required by the CARES Act is preempted by OCC regulations. Lastly, the OCC reminds stakeholders of Bulletin 2020-43, which details its exclusive visitorial authority of banks (covered by InfoBytes here) and encourages banks to “consult with counsel to determine the applicability of any particular state or local law.”
Waters and Meeks introduce Congressional Review Act resolution to reverse OCC’s CRA rule
On June 11, Chair of the House Financial Services Committee, Maxine Waters (D-CA) and Chair of the Subcommittee on Consumer Protection and Financial Institutions, Gregory Meeks (D-NY), introduced a Congressional Review Act resolution to reverse the OCC’s final rule to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). The OCC’s final rule (covered by a Buckley Special Alert), while technically effective October 1, provides for at least a 27-month transition period for compliance based on a bank’s size and business model. However, Waters criticized the OCC’s decision to move forward with the rule “despite the Federal Reserve and the FDIC—the other regulatory agencies responsible for enforcing CRA—declining to join in the rulemaking.” Waters argued that the final rule “will result in disinvestment in many low- and moderate-income communities,” with Meeks stating that the OCC’s decision to “put forward a rushed, incomplete rule. . .will harm the very communities the CRA is meant to support.”
OCC addresses technology advances in rulemaking issuances
On June 4, the OCC announced two rulemaking issuances: a Notice of Proposed Rulemaking (NPR) that is intended to eliminate outdated regulatory requirements, and an Advance Notice of Proposed Rulemakings (ANPR) seeking comments on banking issues related to digital technology and innovation.
Specifically, the NPR would amend 12 CFR part 7 to update or eliminate outdated regulatory requirements and clarify and codify recent OCC interpretations related to the modern financial system. Among other things, the changes would include (i) codifying interpretations which permit covered institutions to engage in certain tax equity finance transactions; (ii) clarifying anti-takeover provisions; and (iii) expanding the ability of national banks to choose corporate governance provisions under state law.
The ANPR seeks comment on regulations 12 CFR part 7, subpart E and 12 CFR part 155, and, among other things, asks commenters to discuss (i) whether, in light of technological advances, the legal standards of both regulations are flexible enough; (ii) whether there are digital banking activities not covered by these rules that the OCC should address; (iii) the barriers or obstacles to further adoption of crypto-related activities in the banking industry; and (iv) the potential implications of new payments technologies and processes for the banking industry.
Comments on both issuances are due August 3.
Federal agencies release host state loan-to-deposit ratios
On June 2, the FDIC, the Federal Reserve Board, and the OCC released the current host state loan-to-deposit ratios for each state or U.S. territory, which the agencies use to determine compliance with Section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Under the Act, banks are prohibited from establishing or acquiring branches outside of their home state for the primary purpose of deposit production. Branches of banks controlled by out-of-state bank holding companies are also subject to the same restriction. Determining compliance with Section 109 requires a comparison of a bank’s estimated statewide loan-to-deposit ratio to the yearly host state loan-to-deposit ratios. If a bank’s statewide ratio is less than one-half of the yearly published host state ratio, an additional review is required by the appropriate agency, which involves a determination of whether a bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches.
Acting Comptroller Brooks will focus on responsible innovation, fintech charters
On May 29, Acting Comptroller of the Currency Brian P. Brooks issued a statement focusing on four priorities intended to help meet the challenges facing banks today. As previously covered by InfoBytes, Brooks was named Acting Comptroller following the departure of former Comptroller Joseph Otting. These priorities include building upon responsible innovation to provide regulatory certainty, flexible frameworks, and oversight that will allow banks to “evolve and capitalize on technology and innovation to deliver better products and services, to operate more efficiently, and to reduce risk in the system.” Brooks reiterated that the OCC has the authority to issue bank charters to companies engaged in “the business of banking on a national scale, including taking deposits, lending money, or paying checks,” and emphasized that the OCC will work to “clarify what true lender means, to underscore that the terms of a lawfully made contract remain valid for the duration of that contract even if it is sold by a bank to another investor, and to specify what the parameters of the ‘fintech charter’ and other special purpose charters should be.” The same day the OCC issued a final rule (covered by a Buckley Special Alert), which establishes that when a bank transfers a loan, the interest rate permissible before the transfer will still be valid after the transfer.
Among other topics, Brook also discussed the OCC’s recent issuance of a final rule to strengthen the Community Reinvestment Act (covered by a Buckley Special Alert), stating that the OCC will work to ensure that banks provide “fair access” to all customers and stressing that the agency “should not tolerate lawful entities being denied access to our federal banking system based on their popularity among a powerful few.”
Special Alert: OCC adopts final rule addressing Madden
On Acting Comptroller of the Currency Brian Brooks’ first day in that role, the OCC issued a final rule designed to effectively reverse the Second Circuit’s 2015 Madden v. Midland Funding decision.[1] As published in yesterday’s Federal Register, the rule, titled “Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred,” provides that “[i]nterest on a loan that is permissible under [12 U.S.C. 85 for national bank or 12 U.S.C 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.” This rule contrasts with the Madden decision’s conclusion that a purchaser of a loan originated by a national bank could not charge interest at the rate permissible for the bank if that rate would be impermissible under the lower usury cap applicable to the purchaser. More specifically, the Madden court found that subjecting assignees to state usury law under these circumstances does not “significantly interfere” with the exercise of national bank powers -- the general preemption standard set forth in the Dodd Frank Act.[2]
Acting Comptroller Brooks warns of lockdown effects on banks
On June 1, Acting Comptroller, Brian Brooks, wrote to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors warning of the adverse impact the regional economic shutdowns due to the Covid-19 pandemic will have on the nation’s banks. In the letter addressed to the U.S. Conference of Mayors, Brooks emphasizes the risks to the banking industry associated with state and local lockdown orders, including (i) physical risks associated with commercial real estate loan collateral, should businesses be forced to remain closed indefinitely; (ii) inability for businesses to generate revenue needed to repay loans; (iii) difficulties forecasting future delinquencies and losses with shifting definitions of “essential” businesses; and (iv) increased risks in bank robberies due to potentially permanent face mask requirements. The letter states, “[n]ational banks and federal savings associations entered the Covid-19 crisis extremely well capitalized and with strong liquidity,” and many aspects of the CARES Act rely on a strong banking system. Brooks urges state and local officials to “consider the impact of their lockdown orders on the health and functioning of our shared national financial structure” as they make plans to unwind, narrow, or end lockdowns.
OCC issues Comptroller’s Handbook booklet updating sampling methodologies
On May 26, the OCC issued Bulletin 2020-56 announcing the revision of the Sampling Methodologies booklet of the Comptroller’s Handbook. Among other things, the revised booklet (i) discusses the differences between statistical and judgmental sampling; (ii) details the OCC’s statistical sampling methodologies; and (iii) includes look-up tables covering statistical sample sizes and upper confidence bounds. The revised booklet is effective for supervisory activities beginning on or after June 15.
OCC releases recent enforcement actions
On May 21, 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. Included among the actions is an April 14 consent order to resolve the OCC’s claims that a California-based bank engaged in Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program violations. According to the consent order, an OCC examination identified deficiencies in the bank’s BSA/AML compliance program, including failure to implement a compliance program that “adequately covered the required BSA/AML program elements,” and failure to correct a previously identified BSA/AML compliance program problem. The consent order requires the bank to, among other things, (i) appoint a compliance committee of independent directors ; (ii) submit a written strategic plan to the OCC covering at least the next three years; (iii) ensure competent management and staff is in place to ensure compliance with the order, applicable laws, and rules and regulations; (iv) appoint a “permanent, qualified, and experienced BSA Officer”; (v) create and adopt a “written program of policies and procedures to provide for compliance with the BSA”; (vi) adopt a “written risk-based program of internal controls and processes to ensure compliance with the requirements to file SARs”; (vi) develop policies and procedures for performing customer due diligence; (vii) implement a program to manage BSA/AML and Office of Foreign Assets Control risk associated with processing wire transfers; and (viii) conduct a SAR “look-back” review, implement an independent BSA/AML audit program, and develop a comprehensive training program for bank employees.
Brian Brooks named acting Comptroller, Otting steps down
On May 21, the OCC announced that Comptroller of the Currency, Joseph Otting will step down from office on May 29, and Brian P. Brooks will become acting Comptroller of the Currency. Brooks currently serves as First Deputy and Chief Operating Officer. Prior to joining the OCC, Brooks was Chief Legal Officer of a digital currency exchange, and prior to that, he served as Executive Vice President, General Counsel, and Corporate Secretary of Fannie Mae.