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On March 15, the Massachusetts Division of Banks issued guidance for financial institutions on working with consumers affected by Covid-19 and regulatory assistance available from the Division. The Division encourages financial institutions to work with affected customers and communities, including by: (i) waiving fees; (ii) increasing ATM cash withdrawal limits; (iii) easing restrictions on cashing checks; (iv) increasing credit card limits; and (v) offering payment accommodations to assist members having payment difficulty. The guidance notes that “prudent efforts” to modify loan terms would not be subject to examiner criticism, and institutions can ease their terms for new loans consistent with prudential banking practices. In the guidance, the Division also committed to work with affected institutions to reduce the burden when scheduling examinations and inspections, utilize off-site reviews, and work with institutions experiencing difficulties fulfilling reporting requirements. It further acknowledged that institutions may need to temporarily close facilities and encouraged them to offer alternative service options where practical and notify the Division regarding business disruptions or other significant developments, such as staff shortages, rapid withdrawal of deposits or other signs of erosion in consumer confidence.
On March 6, the Federal Reserve, FDIC, OCC, NCUA, Conference of State Bank Supervisors, and the CFPB—through the Federal Financial Institutions Examination Council—issued an Interagency Statement on Pandemic Planning, which, among other things, updates 2006 and 2007 guidance on the need for business continuity plans (BCPs) that address the effects of pandemics. The interagency statement encourages banks to develop plans that, among other things, limit disruption of operations, minimize staff contact by utilizing remote access, and plan for staffing challenges by cross-training bank staff. The statement recommends that the BCPs of financial institutions should include: (i) a preventive program; (ii) a documented strategy that applies to the stages of the pandemic; (iii) a “comprehensive framework of facilities, systems, or procedures to ensure that the institution’s critical operations will continue” (iv) a testing program; and (v) an oversight program to ensure ongoing review and updates to the plan.” The statement also lists websites that offer information on pandemic planning activities. The FDIC and the OCC also published advisories, FIL-14-2020, and OCC 2020-13, respectively.
On March 9, the agencies issued a joint press release encouraging the financial institutions to “meet the financial needs of customers and members affected by” COVID-19. Also, the U.S. Senate sent a letter to trade associations encouraging them to provide job security for employees who self-quarantine or must miss work to take care of sick family members, and to ensure staff will not be required to use all sick leave/vacation leave or “report for work when such leave is exhausted.” The letter urges the entities to work with their customers by waiving late fees and overdraft fees among other measures. The Connecticut Department of Banking issued its own guidance as well regarding temporary remote work, and on March 5, the Washington Department of Financial Institutions issued similar guidance.
On December 10, the U.S. District Court for the Eastern District of New York issued a memorandum and order denying an international bank’s motion to dismiss a DOJ suit filed in 2018. As previously covered in InfoBytes, the DOJ alleges the bank and several affiliates violated the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) by misleading investors and rating agencies in offering documents and presentations regarding the underwriting quality and other important attributes of the mortgages they securitized into residential mortgage-backed securities (RMBS) for sale to investors during the financial crisis. Specifically, the complaint alleges (i) “mail fraud affecting federally-insured financial institutions (FIFIs)”; (ii) wire fraud affecting FIFIs; (iii) bank fraud; (iv) “fraudulent benefit from a transaction with a covered financial institution (FI)”; and (v) “false statements made to influence the actions of a covered FI.” The DOJ seeks the maximum civil penalty.
According to the district court’s memorandum, the bank’s motion to dismiss sets forth a number of arguments, including, among other things, a failure to sufficiently plead fraudulent intent and the particular circumstances constituting fraud, and a lack of personal jurisdiction, all with which the court rejected. Specifically, the bank suggested that the DOJ’s complaint did not show that the bank “acted with fraudulent intent,” or that the bank committed “bank fraud, [made] fraudulent bank transactions, and [made] false statements to banks.” The memorandum rejects the bank’s claims, adding that personal jurisdiction over the bank and its affiliates is shown “based on [the bank’s] origination of loans” in New York.
On September 28, the Commodity Futures Trading Commission (CFTC) announced a concurrent filing and settling of charges against a large financial institution/clearing firm (Firm) for failing to adequately supervise fee processing. The Order alleges that between 2009 and 2016, the Firm did not implement and maintain adequate procedures and systems that could account for and help prevent the risk of overcharging customers for exchange and clearance fees. In 2015, according to the Order, the Firm modified its processes to prevent future overcharges to customers.
The settlement requires the Firm to pay a $500,000 civil penalty.
CFTC Director of Enforcement Offers Incentives to Regulated Companies for Self-Reporting and Cooperation
On September 25, the U.S. Commodity Futures Trading Commission Director of the Division of Enforcement James McDonald spoke before the New York University Institute for Corporate Governance & Finance to address the Division’s priorities and outline its self-reporting and cooperation program. Director McDonald described the Division’s enforcement actions as part of a “broader mission to facilitate healthy, robust, and resilient markets,” with the goal of deterring misconduct. “Optimal deterrence,” he stressed, requires receiving buy-in from regulated companies and financial institutions, which is the premise of the Division’s cooperation and self-reporting program. The Division’s program requires companies to comply with three specific criteria: (i) voluntarily report wrongdoing to the Division in a timely and fully disclosed manner prior to the announcement of a government investigation; (ii) proactively cooperate with the Division throughout the investigation; and (iii) engage in timely and appropriate remedial measures to prevent future misconduct, and implement fixes to internal compliance and control programs. Should a company follow these steps, Director McDonald stated, the Division “will recommend a substantial reduction in the penalty,” and in “extraordinary circumstances . . . may recommend declining to prosecute a case.”
On April 26, 2017, the Conference of State Bank Supervisors (CSBS) initiated a lawsuit against the Office of the Comptroller of the Currency (OCC) in the U.S. District Court for the District of Columbia challenging the OCC’s statutory authority to create a special purpose national bank (SPNB) charter for financial technology (fintech) companies.
Prior to this lawsuit, CSBS had publicly opposed the fintech SPNB charter on numerous occasions, asserting last month that the OCC has acted beyond the legal limits of its authority and that providing SPNB charters to fintech companies “exposes taxpayers to the risk of inevitable FinTech failures.”
In the press release announcing the lawsuit, CSBS President John Ryan referred to the OCC’s action as “an unprecedented, unlawful expansion of the chartering authority given to it by Congress for national banks,” and stated that “if Congress had intended it to be used for another purpose, it would have explicitly authorized the OCC to do so.”
Citing violations of the National Bank Act (NBA), Administrative Procedure Act (APA), and the U.S. Constitution, CSBS seeks declaratory and injunctive relief that would declare the fintech SPNB charter to be unlawful and prohibit the OCC from taking further steps toward creating or issuing an SPNB fintech charter, without express Congressional authority.
If you have questions about the charter or other related issues, visit our Financial Institutions Regulation, Supervision & Technology (FIRST) and FinTech practice pages for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
Joint Final Rules on Expanded Examination Cycle for Certain Small Insured Depository Institutions and U.S. Branches and Agencies of Foreign Banks
On January 4, 2017, the FDIC and the other federal financial institution regulatory agencies announced that they had adopted final rules permitting Insured Depository Institutions (“IDIs”) with up to $1 billion in total assets (and that meet certain other criteria) to qualify for an 18-month on-site examination cycle. The rule modification is aimed at allowing banking regulators to better focus supervisory resources on IDIs that present capital, managerial, or other issues of supervisory concern while reducing regulatory burden on small, well-capitalized and well-managed institutions.
On December 8, Congress passed the Global Magnitsky Human Rights Accountability Act as part of the National Defense Authorization Act for 2017, which now awaits President Obama's signature. Championed by U.S. Senators Ben Cardin (D-Md.), Ranking Member of the Foreign Relations Committee, and John McCain (R-Ariz.), Chairman of the Armed Services Committee, the bill gives the President of the United States the authority to deny human rights abusers and corrupt officials entry into the United States or access to our financial institutions. The bipartisan legislation builds on the Russia-specific Sergei Magnitsky Rule of Law Accountability Act of 2013 to apply sanctions globally, and makes significant acts of corruption sanctionable offenses.