Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • California Supreme Court Holds Borrowers Can Bring State Law Claims Based on TISA Violations

    Consumer Finance

    On August 1, the California Supreme Court held that the federal Truth in Savings Act (TISA), which does not provide a private right of action, does not similarly bar state law claims derived from alleged TISA violations. Rose v. Bank of Am., N.A., No. S199074, 2013 WL 3942612 (Cal. Aug. 1, 2013). In this case, a putative class filed suit claiming a bank violated the state’s Unfair Competition Law (UCL) when it failed to provide certain disclosures required by TISA. The trial and appellate courts held that because Congress amended TISA in 2001 to remove its private right of action, before the borrowers filed their TISA-based class claims, those claims were barred. The appellate court explained that Congress’s repeal of the private right of action reflected its intent to bar any private action to enforce TISA. The Supreme Court disagreed and held that Congress’s decision to leave TISA’s savings clause in place explicitly allowed for the enforcement of state laws relating to the disclosures at issue here, except to the extent that those laws are inconsistent with the relevant TISA provision. The court rejected the bank’s argument that the UCL may not be employed to borrow directly from a federal statute where Congress has not provided a private right of action, holding instead that “when Congress permits state law to borrow the requirements of a federal statute, it matters not whether the borrowing is accomplished by specific legislative enactment or by a more general operation of law.” The court reversed the appeals court’s judgment.

    Bank Compliance TISA

    Share page with AddThis
  • Prudential Regulators Propose Stress Test Guidance for Mid-Size Institutions

    Consumer Finance

    On July 30, the OCC, the FDIC, and the Federal Reserve Board proposed guidance for stress tests conducted by institutions with more than $10 billion but less than $50 billion in total consolidated assets. Under Dodd-Frank Act mandated regulations adopted by the regulators last October, such firms are required to conduct annual company-run stress tests starting in October 2013. The guidance discusses supervisory expectations for stress test practices, provides examples of practices that would be consistent with those expectations, and offers additional details about stress test methodologies. It also underscores the importance of stress testing as an ongoing risk management practice that supports a company’s forward-looking assessment of its risks and better equips the company to address a range of macroeconomic and financial outcomes. Comments on the proposed guidance are due by September 25, 2013.

    FDIC Dodd-Frank Federal Reserve OCC Bank Compliance Capital Requirements

    Share page with AddThis
  • FinCEN Creates CTR Exemption for Armored Car Transactions

    Consumer Finance

    On July 12, FinCEN issued a ruling to exempt financial institutions from collecting data about certain armored car transactions required for Currency Transaction Reports (CTR). Under a 2009 ruling, FinCEN clarified that when a financial institution customer hires an armored car service (ACS) to conduct business on its behalf, the customer’s financial institution is subject to the same CTR requirements as it would be with any other third-party facilitating a transaction for a customer. FinCEN now recognizes that the 2009 ruling created practical issues in application – financial institutions have had difficulty differentiating transactions conducted by a given ACS on behalf of the institution from those the ACS conducted on behalf of a customer, and have had trouble obtaining drivers’ personal information required for the CTR. With its current ruling, FinCEN authorized an exception to the CTR data collection and aggregation requirements that applies only to deposits or withdrawals conducted by an ACS employee pursuant to instructions from the financial institution’s customer or from a third party.

    FinCEN Bank Compliance

    Share page with AddThis
  • NACHA Bulletin Addresses Reinitiation of Returned Debits

    Fintech

    On July 15, the Electronic Payments Association (NACHA), the organization that manages the ACH Network, issued a bulletin that describes the provisions of NACHA’s operating rules regarding the “reinitiation” of returned ACH debit entries and the collection of return fees. With respect to the “reinitiation” of returned ACH debit entries the bulletin outlines  the limited circumstances under which the rules permits originators and originating depository financial institutions (ODFIs) to reinitiate returned entries. First, an originator or an ODFI may reinitiate a returned entry up to two times if the entry was returned for reasons of insufficient or uncollected funds. Second, an originator or an ODFI may reinitiate a returned entry for reason of stop payment, but only if the receiver of the entry reauthorized the reinitiation after the return of the original entry. Finally, unless authorization has been revoked, an originator or an ODFI may reinitiate an entry returned for any other reason, as long as the originator or ODFI has corrected or remedied the reason for the return. In instances where authorization has been revoked, an originator or ODFI may not be reinitiated. Additionally, in order for a reinitiation of a returned entry to take place within the ACH Network, it must take place within 180 days of the settlement date of the original entry. With respect to the collection of return fees, the bulletin explains that (i) a return fee entry may be initiated only to the extent permitted by applicable law, and only for an entry that was returned for reasons of insufficient or uncollected funds; (ii) originators and ODFIs must provide specific prior notice prior to charging return fees; (iii) return fees must be specifically labeled as return fees in any entry description; (iv) only one return fee may be assessed with respect to any returned entry; and (v) a return fee may not be assessed with respect to the return of a return fee entry (i.e., no “fees on fees”).

    Payment Systems Bank Compliance NACHA

    Share page with AddThis
  • FDIC Releases Technical Assistance Videos For Bank Officers and Directors

    Consumer Finance

    On April 3, the FDIC released the first in a series of videos to provide technical assistance to bank directors, officers, and employees on areas of supervisory focus and proposed regulatory changes. The initial set of videos cover (i) director responsibilities, (ii) fiduciary duties, (iii) acting in the best interest of the bank, (iv) the FDIC examination process, (v) risk management examinations, and (vi) compliance and community reinvestment act examinations. The FDIC plans to release by June 30, 2013 a second set of videos that will consist of six modules covering (i) interest rate risk, (ii) third party relationships, (iii) corporate governance, (iv) the Community Reinvestment Act, (v) information technology, and (vi) the Bank Secrecy Act. A third installment will follow later in the year and will provide technical assistance regarding (i) fair lending, (ii) appraisals and evaluations, (iii) interest rate risk, (iv) troubled debt restructurings, (v) the allowance for loan and lease losses, (vi) evaluation of municipal securities, and (vii) flood insurance. The FDIC also plans to continue the model introduced as part of prior rulemaking processes and provide overviews and instructions on more complex rulemakings.

    FDIC Bank Compliance Directors & Officers Community Banks

    Share page with AddThis
  • Banking Agencies Update Leveraged Lending Guidance

    Consumer Finance

    On March 21, the Federal Reserve Board, the OCC, and the FDIC issued final interagency guidance to ensure institutions provide leverage lending in a safe and sound manner by: (i) identifying the institution's risk appetite for leveraged finance, establishing appropriate credit limits, and ensuring prudent oversight and approval processes; (ii) establishing underwriting standards that clearly define expectations for cash flow capacity, amortization, covenant protection, collateral controls, and the underlying business premise for each transaction, and consider whether the borrower’s capital structure is sustainable; (iii) concentrating valuation standards on the importance of sound methods in the determination and periodic revalidation of enterprise value; (iv) accurately measuring exposure on a timely basis, establish policies and procedures that address failed transactions and general market disruptions, and ensure periodic stress tests of exposures to loans not yet distributed to buyers; (v) developing information systems that accurately capture key obligor characteristics and aggregate them across business lines and legal entities on a timely basis, with periodic reporting to the institution’s board of directors; (vi) considering in risk rating standards the use of realistic repayment assumptions to determine a borrower’s ability to de-lever to a sustainable level within a reasonable period of time; (vii) establishing underwriting and monitoring standards similar to loans underwritten internally; and (viii) performing stress testing on leveraged loans held in portfolio as well as those planned for distribution. The new guidance took effect on March 22, 2013, and institutions have until May 21, 2013 to comply.

    FDIC Federal Reserve OCC Bank Compliance

    Share page with AddThis
  • House Passes Gramm-Leach-Bliley Privacy Disclosure Exemption

    Consumer Finance

    On March 12, the U.S. House of Representatives passed H.R. 749, a bill that would exempt from the Gramm-Leach-Bliley Act’s annual privacy policy notice requirements any financial institution that (i) provides nonpublic personal information only in accordance with specified requirements and (ii) has not changed its policies and practices with regard to disclosing nonpublic personal information from its most recent disclosure. The bill is identical to one passed by the House last year, H.R. 5817, but which the Senate never addressed. H.R. 749 now awaits consideration by the Senate.

    Bank Compliance Privacy/Cyber Risk & Data Security

    Share page with AddThis
  • Basel Committee Relaxes Liquidity Standards

    Federal Issues

    On January 7, the Basel Committee released its revised Liquidity Coverage Ratio (LCR), a component of the comprehensive Basel III accords that also address capital standards. The committee’s LCR is intended to promote short-term resilience of a bank's liquidity risk and reduce the risk of the banking sector harming the broader economy by failing to absorb shocks arising from financial and economic stress. The LCR requires that a bank have an adequate stock of unencumbered high-quality liquid assets that can be converted into cash easily and immediately in private markets to meet a 30-day liquidity stress scenario. The revised LCR updates standards originally adopted by the Committee in 2010. Given slower than expected strengthening of the banking system and the broader economy, and in response to industry requests, the Committee decided to expand the range of eligible assets to include corporate debt, unencumbered equities, and highly-rated residential mortgage-backed securities. The Committee also clarified its intention to allow banks use their high-quality liquid assets in times of stress. Finally, the Committee revised the timetable for phase-in of the standard. The standard will take effect as planned on January 1, 2015, but the minimum requirement will begin at 60%, rising 10 percentage points each year until full implementation on January 1, 2019.

    Bank Compliance Liquidity Standards Basel

    Share page with AddThis
  • Federal Banking Regulators Launch Next Round of Stress Testing

    Consumer Finance

    On November 15, the Federal Reserve Board, the OCC, and the FDIC released the macroeconomic and financial market scenarios to be used in annual stress tests conducted by covered institutions pursuant to rules the regulators finalized last month. The economic scenarios are the same for each regulator and their covered institutions and include baseline, adverse, and severely adverse scenarios with variables that reflect, among other things, economic activity, unemployment, exchange rates, prices, incomes, and interest rates. The baseline scenario represents expectations of private-sector forecasters, while the adverse and severely adverse scenarios present hypothetical conditions designed to assess the strength and resilience of financial institutions, as well as their ability to continue to meet the credit needs of households and businesses in stressful economic and financial environments. The Federal Reserve Board also published a proposed policy statement and the OCC issued interim guidance to describe how those agencies will develop and distribute stress test scenarios in future years. Comments are due on the Federal Reserve Board policy statement by February 15, 2013, and on the OCC interim guidance within 60 days after publication in the Federal Register. Finally, last week, the Federal Reserve Board issued instructions and guidelines for covered institutions, including timelines for submissions. In a shift from prior years, the Federal Reserve Board will provide covered firms an opportunity to adjust planned capital distributions based on the stress test results before the Federal Reserve Board makes a final decision on their capital adequacy.

    Bank Compliance Capital Requirements

    Share page with AddThis
  • Federal Banking Regulators Issue Guidance Regarding Supervision of Technology Service Providers

    Consumer Finance

    On October 31, the Federal Financial Institutions Examination Council (FFIEC) issued a revised Supervision of Technology Service Providers Booklet (TSP Booklet). The revised TSP Booklet, which is part of the FFIEC Information Technology Examination Handbook, provides guidance for examiners and financial institutions on the supervision of technology service providers by describing the federal banking regulators’ statutory authority to supervise third-party service providers, outlining the regulators’ risk-based supervision program, and providing the Uniform Rating System for examinations. The TSP Booklet clarifies that outsourced activities should be subject to the same risk management, security, privacy, and other internal controls and compliance policies as if such functions were performed internally, and that a financial institution’s board of directors and management have the responsibility for ensuring that outsourced activities are conducted in a safe and sound manner and in compliance with applicable laws and regulations.

    Concurrent with the release of the updated TSP Booklet, the Federal Reserve Board, the FDIC, and the OCC issued new Administrative Guidelines for the Implementation of Interagency Programs for the Supervision of Technology Service Providers. The Guidelines are separate from the FFIEC IT Examination Handbook and describe how the agencies implement their interagency supervisory programs. The Guidelines are primarily a resource for examiners and include the reporting templates used by examiners.

    FDIC Federal Reserve OCC Bank Compliance Directors & Officers FFIEC

    Share page with AddThis

Pages