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Financial Services Law Insights and Observations


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  • NYDFS proposes check-cashing fee regulations

    State Issues

    On June 15, NYDFS issued a proposed check cashing regulation following an emergency regulation announced in February that halted annual increases on check-cashing fees and locked the current maximum fee set last February at 2.27 percent (covered by InfoBytes here). The proposed regulation establishes a new fee methodology which evaluates the needs of licensees and consumers who use check cashing services. Two tiers of fees for licensed check cashers are recommended: (i) the maximum fee that a check casher may charge for a public assistance check issued by a federal or state government agency (including checks for Social Security, unemployment, retirement, veteran’s benefits, emergency relief, housing assistance, or tax refunds) is set at 1.5 percent; and (ii) the maximum fee a check casher is permitted to charge for all other checks, drafts, or money orders is $1 or 2.2 percent, whichever is greater. NYDFS added that starting January 31, 2027 (and annually every five years thereafter), licensed check cashers may request an increase in the maximum fees established. Comments on the proposed regulation will be accepted for 60 days.

    State Issues Bank Regulatory State Regulators NYDFS Consumer Finance New York Check Cashing Fees

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  • Acting FDIC Chairman Gruenberg outlines CRA NPRM

    On June 13, acting FDIC Chairman Martin J. Gruenberg provided remarks before the National Community Reinvestment Coalition (NCRC) regarding the Community Reinvestment Act (CRA). In his remarks, Gruenberg discussed “ten important provisions” in the rule proposed by the Federal Reserve Board, FDIC, and OCC in May. As previously covered by InfoBtytes, the notice of proposed rulemaking (NPRM) updates how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. Calling the CRA “the foundation of responsible finance for low- and moderate-income communities in the United States,” Gruenberg noted that the “NPRM would significantly expand the scope and rigor of CRA and assure its continued relevance for the next generation.” To expand the scope of the CRA, he explained that the NPRM would “establish new retail lending assessment areas to allow for CRA evaluation in communities where a bank may be engaging in significant lending activity but where the bank does not have a branch.” He also noted that the NPRM would “raise the bar for CRA performance on the retail lending test in order for a bank to earn an outstanding or high satisfactory rating.” With respect to greater clarity for CRA evaluations, Gruenberg said that the NPRM would “clearly define community development activities by establishing eleven proposed categories of community development.” Regarding minority depository institutions, Gruenberg said that the NPRM “creates a specific community development definition for eligible activities, such as investments, loan participations, and other ventures conducted by all banks with these institutions.” Additionally, he noted that the NPRM would address credit or banking deserts, including rural areas, native lands, and areas of persistent poverty, and would encourage the retention or establishment of branches in low-to-moderate-income communities and low-cost transaction accounts.

    Bank Regulatory Federal Issues FDIC Federal Reserve OCC CRA MDI

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  • Hsu highlights importance of MDIs, CDFIs

    On June 9, acting Comptroller of the Currency Michael J. Hsu spoke before the 2022 Community Development Bankers Association Peer Forum to discuss agency efforts to support underserved communities, as well as initiatives for revitalizing Minority Depository Institutions (MDIs) and increasing investments in Community Development Financial Institutions (CDFIs). Emphasizing the important role MDIs and CDFIs play in providing mortgage credit, small business lending, and other banking services to minority and low-to-moderate-income (LMI) communities, Hsu discussed ongoing challenges facing MDIs in terms of accessing capital and meeting customer needs. He noted that these challenges have caused many MDIs to close, fail, or be acquired by larger banks. Ensuring the survival of the remaining MDIs is important, Hsu said, since these are often the only financial institutions fulfilling minority communities’ financial needs. He further explained that the OCC is “doubling down” on Project REACh, which brings together leaders from the banking industry, national civil rights organizations, and various businesses and technology organizations to identify and reduce barriers to accessing capital and credit (covered by InfoBytes here), and stated that Project REACh has “challenged large and midsize banks to sign a pledge to revitalize MDIs with capital investments, technical assistance, business opportunities, executive training, and other resources.” Hsu also discussed recently proposed interagency rules to modernize enforcement of the Community Reinvestment Act (CRA), which will also benefit MDIs and CDFIs. As previously covered by InfoBytes, the Federal Reserve Board, FDIC, and OCC issued a joint notice of proposed rulemaking (NPRM) in May 2022 to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.

    Bank Regulatory Federal Issues OCC CDFI MDI Underserved CRA Agency Rule-Making & Guidance Federal Reserve FDIC

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  • Special Alert: Fed finalizes rule for FedNow platform

    The Federal Reserve Board recently issued a final rule for its FedNow instant-payments platform that offers more clarity on how the new service will work while essentially adopting the proposed rule. FedNow will stand alongside private sector initiatives and, like more modern payments systems, will feature credit payments to push funds rather than debit payments to pull funds, offering faster processing.

    Highlights of the new rule and FedNow

    • Not yet open for business. The Fed continues to target release of FedNow for sometime in 2023. It will implement the 24x7x365 real-time payments service in stages, each with additional features and enhancements.
    • Not a consumer or business app or service. Depository institutions that are eligible to hold Reserve Bank accounts will be able to use FedNow, which will be administered by the 12 Reserve Banks. Consumers and businesses may not participate in FedNow directly, and therefore, could not send payment orders to a Reserve Bank through it. They would instead send instant payments through their depository institution accounts.
    • Bank vnonbank direct participation in FedNow. Eligible institutions include banks, savings associations, credit unions, U.S. branches and agencies of non-U.S. banks, Edge or agreement corporations, some systemically important financial market utilities, and government-sponsored entities (including Fannie Mae and Freddie Mac). We use the term “banks” throughout to simplify the discussion.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Special Alerts Federal Reserve FedNow Payments Regulation J Bank Compliance

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  • Fed publishes financial sector liabilities

    On June 6, the Federal Reserve Board published a notice in the Federal Register regarding Regulation XX (Concentration Limit) to announce that the Fed will publish the aggregate financial sector liabilities by July 1 of each year. Regulation XX generally “prohibits a merger or acquisition that would result in a financial company that controls more than 10 percent of the aggregate consolidated liabilities of all financial companies (‘aggregate financial sector liabilities’).” The Fed explained in the notice that aggregate financial sector liabilities are “equal to the average of the year-end financial sector liabilities figure (as of December 31) of each of the preceding two calendar years.”

    Bank Regulatory Federal Issues Federal Reserve Federal Register Regulation XX Bank Mergers

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  • FDIC releases April enforcement actions

    On May 27, the FDIC released a list of administrative enforcement actions taken against banks and individuals in April. During the month, the FDIC made public eight orders consisting of “three consent orders, one order of prohibition, one order to pay civil money penalty, one section 19 order, and two orders terminating consent orders.” The FDIC also released one notice seeking "an order of prohibition and an order to pay civil money penalty.” An order to pay a civil money penalty was imposed against a Missouri-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 $2,250 civil money penalty.

    The FDIC also issued a consent order to a Louisiana-based bank, which alleged that the bank had “unsafe or unsound banking practices or violations of law or regulation relating to deficiencies in management and Board oversight, earnings performance, capital support, interest rate risk management, and asset quality.” The bank neither admitted nor denied the alleged violations but agreed to, among other things, “maintain its Total Risk-Based Capital ratio equal to or greater than 12.00 percent.”

    Bank Regulatory Federal Issues FDIC Enforcement Flood Disaster Protection Act Flood Insurance

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  • Brainard discusses central bank digital currency at House hearing

    Federal Issues

    On May 25, Fed Governor Lael Brainard spoke before the U.S. House Financial Services Committee in a virtual hearing titled “Digital Assets and the Future of Finance: Examining the Benefits and Risks of a U.S. Central Bank Digital Currency.” According to the Committee’s memorandum regarding the hearing, the Fed defines a central bank digital currency (CBDC) as a “digital liability of a central bank that is widely available to the general public,” and though definitions vary, “understanding what distinguishes cryptocurrency from fiat government-issued currency is fundamental.” The memorandum also discussed the Fed’s publication of a discussion paper in January, Money and Payments: The U.S. Dollar in the Age of Digital Transformation, which calls for public comments on questions related to the possibility of a U.S. CBDC (covered by InfoBytes here). In Brainard’s prepared statement, she noted that the “rapid ongoing evolution” of digital assets “should lead us to frame the question not as to whether there is a need for a central bank-issued digital dollar today, but rather whether there may be conditions in the future that may give rise to such a need.” Brainard also stated that “there are risks of not acting, just as there are risks of acting.” While there has not been a decision on creating a U.S. CBDC, Brainard stated that “it is important to undertake the necessary work to inform any such decision and to be ready to move forward should the need arise.” Additionally, Brainard pointed to recent pressure on two widely used stablecoins and resulting market turmoil that “underscore the need for clear regulatory guardrails to provide consumer and investor protection, protect financial stability, and ensure a level playing field for competition and innovation across the financial system.” Brainard further stated that a U.S. CBDC could be a potential “way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of the U.S. currency to transact and conduct business in the digital financial system.”

    Federal Issues House Financial Services Committee Privacy/Cyber Risk & Data Security Digital Assets Cryptocurrency Federal Reserve Bank Regulatory CBDC Fintech

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  • Hsu is self-described “crypto skeptic”

    On May 24, acting Comptroller of the Currency Michael J. Hsu delivered remarks before the 2022 DC Blockchain Summit focusing on the vulnerabilities in the cryptocurrency framework and recent volatility with stablecoins. In his remarks, Hsu described that he has “been a crypto skeptic,” and that it has become clear to him that the crypto economy depends on “hype” to “generate the interest and investment that are key to creating the ‘flywheel’ of growth that crypto projects seem to need to get off the ground.” In his speech, he discussed his three high level observations surrounding recent events from the perspective of a bank regulator. First, Hsu described “deep vulnerabilities in the crypto system,” noting that “[c]rypto is highly fragmented and prone to hacks,” and that “[c]ontagion risks are real.” He also argued that ownership rights are underdeveloped for the size, scope, and ambitions of the industry, explaining that “[f]or a technology and industry so focused on promoting an ‘ownership society,’ the lack of clarity on ownership rights, modes of ownership, and custody of digital assets seems like a fundamental problem that needs to be solved.” Second, Hsu observed that “recent events have shown the value of the OCC’s ‘careful and cautious’ approach to banks seeking to engage in crypto activities.” Hsu explained that there has been no contagion from cryptocurrencies to traditional banking and finance, stating that “[n]o banks are under stress or even rumored to be under stress due to crypto exposure.” Lastly, he warned “that hype is not harmless.” Hsu noted that a hype-driven economy has challenges for individuals interested in truly productive innovation and in protecting consumers. He recognized the possibility “for positive and transformative change with digital assets,” but warned that “the hype and the associated vulnerabilities noted above make the crypto space very dangerous for investors of modest means.” Hsu stated that while he remains a “a crypto skeptic,” he sees “its potential and understand[s] why there is excitement around it.” He also stated that the agency “will continue to take a careful and cautious approach to crypto in order to ensure that the national banking system is safe, sound, and fair.”

    Bank Regulatory Fedral Issues Digital Assets OCC Privacy/Cyber Risk & Data Security Cryptocurrency Fintech

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  • FDIC highlights operational risks in 2022 Risk Review

    On May 20, the FDIC released its 2022 Risk Review, summarizing emerging risks in the U.S. banking system observed during 2021 in four broad categories: credit risk, market risk, operational risk, and climate-related financial risk. According to the FDIC, the current risk review expands upon coverage in prior reports by examining operational risks to banks resulting from cyber threats, illicit finance, and climate-related financial risks. Monitoring these risks is among the agency’s top priorities, the FDIC said, explaining that the number of ransomware attacks in the banking industry increased in 2021, and that the “number and sophistication of cyber attacks also increased with remote work and greater use of digital banking tools.” Additionally, “threats from illicit activities continue to pose risk management challenges to banks.” The FDIC noted that the banking environment improved in 2021 as the economy recovered but stated that recovery was uneven across industries and regions. While “[f]inancial market conditions were generally supportive of the economy and banking industry in 2021,” they began to deteriorate in early 2022 with the onset of the Russian invasion of Ukraine, the FDIC said.

    Bank Regulatory Federal Issues FDIC Risk Management Illicit Finance Financial Crimes Privacy/Cyber Risk & Data Security Climate-Related Financial Risks

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  • OCC releases enforcement actions

    On May 19, 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 is a cease and desist order against an Alaska-based bank for allegedly engaging in Bank Secrecy Act/anti-money laundering (BSA/AML) program violations. The bank allegedly “failed to adopt and implement a compliance program that adequately covers the required BSA/AML program elements, including, in particular, internal controls for customer due diligence and procedures for monitoring suspicious activity, BSA officer and staff, and training.” The order requires the bank to, among other things, establish a compliance committee, submit a BSA/AML action plan, and develop a written suspicious activity monitoring and reporting program.

    Bank Regulatory Federal Issues Financial Crimes Anti-Money Laundering OCC Enforcement Bank Secrecy Act SARs

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