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5th Circuit: District courts lack jurisdiction over claims arising from FDIC enforcement proceedings
On March 28, the U.S. Court of Appeals for the 5th Circuit held that federal district courts lacked subject matter jurisdiction over claims arising out of certain FDIC enforcement proceedings. According to the opinion, the FDIC brought two enforcement actions against the bank and its directors (plaintiffs), alleging violations of various banking laws and regulations, which resulted in civil money penalties and cease-and-desist orders. The plaintiffs petitioned the 5th Circuit for review. While the first appeal was pending, the plaintiffs filed a lawsuit in federal district court alleging the FDIC committed constitutional violations during the enforcement actions. Specifically, the plaintiffs alleged that the FDIC (i) targeted the bank due to the bank president’s age and denied it equal protection; and (ii) violated due process by preventing the plaintiffs from offering certain evidence and preventing the president’s ability to talk with his counsel at certain times. These allegations were raised and rejected during the FDIC’s second enforcement proceeding. The FDIC moved to dismiss the action for a lack of subject matter jurisdiction, asserting that the statutory review process precludes district court jurisdiction over actions arising from enforcement proceedings. The district court agreed and dismissed the action without prejudice, indicating that the bank could assert its claims in the district court on direct review of the agency’s final order. The bank appealed.
On appeal, the 5th Circuit noted that the language in the statute “virtually compels” it to concede that Congress intended to preclude district court jurisdiction over claims against the FDIC arising from enforcement proceedings. The appellate court then addressed whether the claims raised by the plaintiffs were the type of claims Congress intended to be reviewed within the statutory scheme. The appellate court determined that the Federal Deposit Insurance Act allows for “meaningful judicial review,” by authorizing review of challenges to a final agency order by a federal circuit court. Moreover, the court rejected the plaintiffs’ argument that its claims are “wholly collateral” to the administrative order because they did not challenge the merits of the order but rather, the claims “arise directly from alleged irregularities in the agency enforcement proceedings.” Lastly, the court found that the plaintiffs’ constitutional claims do not fall outside of the agency’s expertise. Based on the foregoing, the court found that the district court correctly dismissed the action.
On September 12, the FDIC issued a notice of proposed rulemaking (NPRM) and request for comments on the treatment of certain institutions’ reciprocal deposits to implement Section 202 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). According to the accompanying Financial Institution Letter, FIL-47-2018, Section 202 of EGRRCPA amends Section 29 of the Federal Deposit Insurance Act to except a capped amount of reciprocal brokered deposits from treatment as brokered deposits for certain insured depository institutions. Under the proposal, well-capitalized and well-rated institutions are not required to treat reciprocal deposits as brokered deposits up to the lesser of 20 percent of their respective total liabilities or $5 billion. Additionally, institutions that are not well capitalized or well rated also may exclude reciprocal deposits from their brokered deposits by maintaining reciprocal deposits at or below a special cap equal to the average amount of their reciprocal deposits held at quarter-end during the last four quarters preceding the quarter that the institution fell below well capitalized or well rated. Comments are due within 30 days of publication in the Federal Register.
On April 4, the U.S. District Court for the District of Columbia denied a national bank’s motion to dismiss or strike an FDIC complaint seeking $1.12 billion in deposit insurance payments. In January 2017, the FDIC filed a complaint against the national bank for $542 million based on the bank’s alleged failure to pay sufficient mandatory assessments under the Federal Deposit Insurance Act (FDIA) for the second quarter of 2013 through the fourth quarter of 2014. In April 2017, the FDIC filed an amended complaint to add a claim of unjust enrichment and allege that the national bank owes an additional $583 million for underpayments predating the second quarter of 2013. In denying the bank’s motion, the court concluded that (i) the FDIC could plead alternative theories of liability at this stage and therefore could allege a claim for unjust enrichment even when an adequate legal remedy is available under the FDIA; (ii) the FDIC adequately pleaded a claim for unjust enrichment; and (iii) it was premature to determine if the FDIC’s FDIA and unjust enrichment claims are time-barred.
On March 6, the House passed H.R. 2226, the “Portfolio Lending and Mortgage Access Act,” amending TILA and expanding the safe harbor provisions provided to qualified residential mortgages held in portfolio by banks with less than $10 billion in assets. Under the bill, a mortgage lender would not be subject to civil liability for violating specified ability-to-repay requirements if, among other things, the loan was originated and held continuously in portfolio by a covered institution and complies with certain limitations and requirements related to prepayment penalties and points and fees..
On the same day, the House also passed H.R. 4725, the “Community Bank Reporting Relief Act,” to amend the Federal Deposit Insurance Act to reduce the regulatory reporting burden on community banks. Specifically, federal banking agencies would be required to issue regulations allowing qualified depository institutions with less than $5 billion in assets to submit abbreviated call reports (consolidated reports of condition and income) every other quarter rather than submitting full call reports every quarter.
Finally, by a vote of 264-143, the House passed H.R. 4607, the “Comprehensive Regulatory Review Act,” a measure to amend the Economic Growth and Regulatory Paperwork Reduction Act of 1996’s regulatory review process. Among other things, the bill requires federal financial regulators to perform a comprehensive review at least every seven years, instead of every ten years as currently required, to identify regulations that may be tailored to limit burdens on insured depository institutions.
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