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Financial Services Law Insights and Observations


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  • FDIC releases semiannual update on Restoration Plan

    On December 7, the FDIC released its semiannual update on the Restoration Plan for the agency’s Deposit Insurance Fund (DIF). The Federal Deposit Insurance Act (the FDI Act) requires that the FDIC board adopt a Restoration Plan wherein the DIF balance falls below the statutory minimum reserve ratio by the required deadline. The FDIC detailed that after the first half of 2020 and the onset of Covid-19, insured deposit growth caused a steep decline in the reserve ratio—the ratio of the fund balance relative to insured deposit—so the FDIC initiated the Restoration Plan in September 2020 to restore the DIF reserve ratio to 1.35 percent by the anticipated deadline. In 2022, however, the FDIC revised the plan after recognizing the risk of not meeting the required minimum by the deadline. The Amended Restoration Plan (covered by InfoBytes here) raised deposit insurance assessment rates by two basis points for all insured depository institutions, effective from the first quarterly assessment period of 2023.

    The FDIC reported that as of June 30, the DIF balance was $117 billion, and the reserve ratio decreased from 1.25 percent to 1.1 percent due to increased loss provisions, which is on track to meet the statutory threshold ahead of the September 30, 2028, deadline. 

    Bank Regulatory Federal Issues FDIC Deposit Insurance Federal Deposit Insurance Act

  • FDIC tells three companies to stop claims about deposit insurance

    On June 15, the FDIC sent letters ordering three companies and certain of their officers to cease and desist from using the agency’s logo and making false and misleading statements about FDIC deposit insurance. The companies are required to take immediate corrective action to address the allegedly misleading statements. The FDIC maintained that the banks and/or its officers made false and misleading statements in English and Spanish suggesting that they are FDIC-insured. For one of the companies, the FDIC alleged that the company stated that insurance would protect customers’ cryptocurrency assets; that it had and that the company claimed a partner relationship with an FDIC-insured bank without identifying the insured institution in its consumer-facing materials; and that its false FDIC insurance claims were made through social media posts by the company and its chief marketing officer. Under the Federal Deposit Insurance Act, the announcement added, persons are prohibited “from representing or implying that an uninsured product is FDIC-insured or from knowingly misrepresenting the extent and manner of deposit insurance.” The FDIC requested a response within 15 days for two of the companies and 5 days for one.

    Bank Regulatory Federal Issues Deposit Insurance Federal Deposit Insurance Act

  • FDIC orders neobank to stop fraudulent deposit insurance representations

    On March 27, the FDIC sent a letter to a neobank demanding that it stop making false or misleading representations about FDIC deposit insurance and take immediate corrective action to address these statements. The FDIC maintained that the neobank and/or its officers made false and misleading statements in English and Spanish suggesting that it is FDIC-insured and that FDIC insurance will protect customers’ cryptocurrency assets. The FDIC explained in the letter that not only is the neobank not FDIC-insured, the FDIC does not insure crypto assets. “By not distinguishing between US-dollar deposits and crypto assets, the statements imply FDIC insurance coverage applies to all customer funds (including crypto assets),” the letter said. Moreover, the neobank also failed to “clearly and conspicuously identify an insured deposit institution for placement of deposits,” the FDIC said in its announcement. Under the Federal Deposit Insurance Act, the announcement added, persons are prohibited “from representing or implying that an uninsured product is FDIC-insured or from knowingly misrepresenting the extent and manner of deposit insurance.” The FDIC requested a response within 15 days.

    Bank Regulatory Federal Issues FDIC Deposit Insurance Federal Deposit Insurance Act

  • District Court denies request to reverse summary judgment in FDIA suit


    On August 29, the U.S. District Court for the Eastern District of Pennsylvania denied a consumer plaintiff’s request to reconsider its summary judgment order against him in a Federal Deposit Insurance Act (FDIA) suit. According to the opinion, the plaintiff accrued debt to a federally-insured, state-chartered bank, which had then assigned that debt to defendants, who were not state-chartered, federally-insured banks. The plaintiff’s debt included interest charges that had accrued at an annual rate between 24.99 percent and 25.99 percent, which the plaintiff argued could not be collected by defendants because the interest exceeded the six percent allowed under Pennsylvania's usury law. The court ruled in favor of the defendants, relying on a recently promulgated FDIC rule that determined that state usury laws are preempted by section 27 of the FDIA in cases where state usury law interferes with state-chartered, federally-insured banks' ability to make loans or when they interfere with a state-chartered, federally-insured bank’s assignee’s efforts to collect on those loans. The plaintiff requested the reconsideration of the district court's summary judgment decision and filed a notice of appeal to the U.S. Court of Appeals for the Third Circuit. In his motion for reconsideration, the plaintiff argued that the court’s previous summary judgment decision was “erroneous” because: (i) the 3rd Circuit held in In re: Community Bank of Northern Virginia that “the FDIA unambiguously excludes non-bank purchasers of debt from its coverage and that deference to the FDIC’s contrary interpretation would, therefore, be inappropriate”; (ii) the FDIC’s rule cannot apply to his debts because such an application would be impermissibly retroactive; and (iii) LIPL fits within the FDIC rule’s exception for “licensing or regulatory requirements.”

    The court denied the plaintiff’s motion for reconsideration, holding that the plaintiff “failed to identify an appropriate basis for reconsideration,” as the consumer’s arguments are “either a new argument that could have been presented before judgment was entered or a reprisal of an argument that the Court addressed in its original decision.” The court further noted that it would be “inappropriate for the Court to grant a motion to reconsider under either of those circumstances.” The court went on to determine that the new arguments advanced by the plaintiff were unpersuasive in any event, finding that the 3rd Circuit had not held section 27 of the FDIA to be unambiguous in its meaning and that application of the FDIC’s rule did not create an impermissible retroactive effect.

    Courts State Issues Interest Deposit Insurance Usury Third Circuit Appellate Federal Deposit Insurance Act Pennsylvania Consumer Finance

  • DOJ weighs in on FDIC chair’s powers

    Federal Issues

    Recently, the assistant attorney general for the DOJ’s Office of Legal Counsel opined that the chairperson of the FDIC cannot prevent a majority of the agency’s Board of Directors from presenting items for a vote and decision. The DOJ’s opinion follows a December 2021 conflict among members of the FDIC Board of Directors related to a joint request for information seeking public comment on revisions to the FDIC’s framework for vetting proposed bank mergers. Shortly after the announcement was issued, the FDIC released a statement disputing that any action had been approved. FDIC board member, and CFPB Director, Rohit Chopra released a follow-up statement challenging the view that only the FDIC chairperson has the right to raise matters for discussion in Board meetings, and called for “immediate[]” resolution of the conflict, stating that “[a]bsent a return to legal reality and constructive engagement, board members will need to take further steps to exercise independence from management and to ensure sound governance of the [FDIC].” (Covered by InfoBytes here.)

    The DOJ wrote in the opinion that “[t]here is no general or specific source of authority in the [Federal Deposit Insurance Act (FDIA)] that can be read as permitting the Chairperson to prevent a majority of the Board from exercising its statutory responsibilities or otherwise making decisions for the FDIC.” The opinion stated that the FDIA gives the Board “broad governance and decision-making authority” and clarified that while the “power to present matters for Board vote and decision is not explicitly addressed by the Act[,] . . . the Board, not the Chairperson, has the authority to determine how the FDIC should exercise its substantive powers.” Furthermore, the opinion emphasized that the FDIA authorizes the Board to “prescribe bylaws ‘regulating the manner in which its general business may be conducted’ and to prescribe ‘such rules and regulations as it may deem necessary.’” According to the opinion, nothing in the FDIA “can be read as authorizing the Chairperson to prevent a majority of the Board from presenting items to the Board for a vote and decision, and, as far as we are aware, no one has ever taken the position that the [FDIA] authorizes the Chairperson to do so.”

    While the opinion emphasized that it does not have the authority “to provide more than a general response,” it stated that the FDIC Bylaws mirror the FDIA in providing that “[t]he management of the [FDIC] shall be vested in the Board of Directors, which shall have all powers specifically granted by the provisions of the [FDIA] and other laws of the United States and such incidental powers as shall be necessary to carry out the powers so granted.” The opinion agreed with the current Board majority’s interpretation “that the delegations of authority to the Chairperson in the Bylaws are best understood as preserving the power of a Board majority to present items for Board decision and vote.” The DOJ noted, however, “that the current Board majority’s understanding of its Bylaws may not be the only possible interpretation,” and pointed out that the FDIC Bylaws can be amended “to eliminate any uncertainty about questions such as the one at issue here.”

    The DOJ’s opinion prompted a critical response from House Financial Services Committee Ranking Member Patrick McHenry (R-NC), who said that the “newly released opinion from the Office of Legal Counsel does not change the fact that Democrats’ power grab at the FDIC upended an 88-year tradition of considering the Chair’s agenda on a collegial basis” and pledged that “House Republicans will not be deterred from our investigations into the lawless tactics of rogue Democrat regulators.”

    Federal Issues DOJ FDIC Bank Regulatory Federal Deposit Insurance Act Agency Rule-Making & Guidance Bank Mergers

  • FDIC outlines revised approach for insured depository institution resolution planning

    Agency Rule-Making & Guidance

    On June 25, the FDIC announced PR-58-2021, which outlines a modified approach to implementing its rule requiring insured depository institutions (IDIs) with $100 billion or more in total assets (CIDIs) to submit resolution plans under the Federal Deposit Insurance Act. Among other things, the modified approach extends the resolution plan’s submission frequency to a three-year cycle and lays out new details regarding the FDIC’s emphasis on engagement with firms. The new approach “exempts filers from other content requirements that have been less useful or are obtainable through other supervisory channels.” In addition, on a case-by-case basis, the FDIC plans to “expressly exempt certain content requirements based on the FDIC’s evaluation of how useful or material the information would be in planning to resolve the specified CIDI.” Resolution plans will be submitted in two groups. The first group will contain IDIs whose top tier parent company is not regarded as a U.S. global systemically important bank or a category II banking organization. The second group encompass all other IDIs with $100 billion or more in total assets. For institutions with less than $100 billion in total assets, the moratorium on submission of IDI plans announced in November 2018 remains in effect.

    Agency Rule-Making & Guidance FDIC Deposit Insurance Supervision Federal Deposit Insurance Act Bank Regulatory

  • FDIC counters states’ challenge to “valid-when made” rule


    On May 20, the FDIC filed a motion for summary judgment in response to a challenge brought by eight state attorneys general to the FDIC’s valid-when-made rule. As previously covered by InfoBytes, the FDIC’s final rule clarifies that, under the Federal Deposit Insurance Act (FDIA), whether interest on a loan is permissible is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan. The AGs filed a lawsuit last year (covered by InfoBytes here) arguing, among other things, that the FDIC does not have the power to issue the rule, and asserting that while the FDIC has the power to issue “‘regulations to carry out’ the provisions of the FDIA,” it cannot issue regulations that would apply to nonbanks. The AGs also claimed that the rule’s extension of state law preemption would “facilitate evasion of state law by enabling ‘rent-a-bank’ schemes,” and that the FDIC failed to explain its consideration of evidence contrary to its assertions, including evidence demonstrating that “consumers and small businesses are harmed by high interest-rate loans.”

    The FDIC countered that the AGs’ arguments “misconstrue” the rule, which “does not regulate non-banks, does not interpret state law, and does not preempt state law.” Rather, the FDIC argued that the rule clarifies the FDIA by “reasonably” filling in “two statutory gaps” surrounding banks’ interest rate authority. “The rule, which enjoys widespread support from the banking industry, represents a reasonable interpretation of [the FDIA], and should be upheld under Chevron’s familiar two-step framework,” the FDIC stated. Moreover, the FDIC contended, among other things, that the rule is appropriate because the FDIA does not address at what point in time the validity of a loan’s interest rate should be determined and is “silent” about what effect a loan’s transfer has on the validity of the interest rate. The FDIC also challenged the AGs’ argument that it is improperly trying to regulate non-banks, pointing out that the rule “regulates the conduct and rights of banks when they sell, assign, or transfer loans” and that “any indirect effects the rule has on non-banks do[es] not place the rule outside the agency’s authority.”

    Courts FDIC Madden Interest Rate State Issues State Attorney General Federal Deposit Insurance Act Bank Regulatory

  • 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.

    Courts Fifth Circuit FDIC Enforcement Federal Deposit Insurance Act Appellate

  • FDIC issues NPRM regarding treatment of reciprocal deposits

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance FDIC S. 2155 EGRRCPA Federal Deposit Insurance Act Deposit Products

  • Court denies national bank’s motion to dismiss FDIC action seeking deposit insurance payments

    Federal Issues

    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.

    Federal Issues Federal Deposit Insurance Act FDIC Courts


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