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FTC to Host Second Economic Liberty Task Force Public Roundtable to Discuss Licensure Requirements, Acting Chairman Testifies on Licensing Effects
On September 11, the FTC announced its Economic Liberty Task Force (Task Force) will hold its second roundtable in Washington, DC on November 7, to examine the “economic and legal aspects of occupational licensing regulations” and the need for reform. The discussion will include input from economic and policy experts on licensing costs and benefits, and cover the ways licensure requirements affect employers, workers, consumers, and the overall economy. The Task Force notes that almost 30 percent of U.S. jobs now require some form of license, which, based on recent studies, causes the burden of “excessive occupational licensing” to disproportionally affect economically disadvantaged citizens—especially military families—and causes harm due to the “complexity and duplication of state-by-state licensing requirements and fees, combined with a lack of reciprocity among states.” An alternative policy approach, the Task Force notes, might include voluntary certification or other methods that would offer protection against unqualified service providers. Earlier this year, the Task Force held its first roundtable to discuss interstate license portability.
In conjunction with the announcement of the roundtable, on September 12, Acting Federal Trade Commission Chairman Maureen K. Ohlhausen testified before the U.S. House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law to describe the FTC’s efforts to study the effects of occupational licensing. Acting Chairman Ohlhausen’s written testimony emphasized the need for regulatory analysis and reform and cautioned that “excessive occupational licensing can leave consumers and workers worse off, by impeding competition without offering meaningful protection from legitimate health and safety risks.”
OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Flood Insurance Requirements
On September 7, the OCC released OCC Bulletin 2017-35 announcing a replacement of its handbook titled “Flood Disaster Protection Act” (FDPA)—last issued in 1999—to reflect recent amendments to the FDPA and implement regulations that resulted from the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) and the Homeowner Flood Insurance Affordability Act of 2014. The booklet, which is part of the Comptroller’s Licensing Manual, clarifies the following changes, among other things:
- flood insurance requirement exemptions for certain detached nonresidential structures;
- a requirement that banks—or servicers acting on behalf of a bank—escrow flood insurance premiums and fees for “any loan secured by a residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016,” and also lists exemptions to the requirement;
- a requirement that banks and servicers “subject to the escrow requirement” must provide borrowers the option to escrow flood insurance premiums and fees and are required to implement the escrow “as soon as reasonably practicable” after the request has been received;
- FDPA provisions on force-placed insurance, including termination and refund requirements; and
- “examination procedures for determining compliance with the detached structure, escrow, and force placement provisions.”
Notably, the OCC stated that the Biggert-Waters Act provision, which requires the acceptance of private flood insurance policies that meets specified criteria to satisfy the mandatory purchase requirement, has not yet been adopted and will be addressed separately.
OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Change in Bank Control Process
On September 1, the OCC released OCC Bulletin 2017-33 announcing a new booklet to provide guidance for persons seeking to acquire control of national banks and federal savings associations. The “Change in Bank Control” booklet, which is part of the Comptroller’s Licensing Manual, provides, among other things:
- an overview of evaluation criteria and considerations taken into account when the OCC reviews a notice of change;
- timeframe requirements and information regarding the notice process;
- the required contents of an application and application process; and
- references and links to informational resources, including sample forms and documents and statutory/regulatory requirements.
Reflected in the newly issued booklet are updates to procedures and regulations that have been implemented since 2007, including the integration of the Office of Thrift Supervision into the OCC in 2011 and the issuance of revised regulation 12 C.F.R. § 5 that went into effect July 1, 2015.
OCC Updates Comptroller’s Licensing Manual Booklet to Provide Guidance on Substantial Asset Changes
On August 23, the OCC released OCC Bulletin 2017-30 announcing a new booklet to address filing policies and requirements pertaining to substantial asset and charter purpose changes for OCC-supervised national banks and federal savings associations. The “Substantial Asset Changes, Including Changes in Charter Purpose” booklet, which is part of the Comptroller’s Licensing Manual, provides, among other things:
- an overview of asset changes requiring an application;
- filing exceptions;
- the OCC’s decision criteria;
- the required contents of an application and application process; and
- references and links to informational resources.
Illinois Governor Enacts Amendments to Collection Agency Act
On August 18, Illinois Governor Bruce Rauner enacted amendments (HB 2783) to the state’s Collection Agency Act, which establishes provisions relating to licensing requirements. Among other things, the amended Act now (i) allows the Secretary of the Department of Financial and Professional Regulation (Department) to require licensing applications to participate in a multi-state licensing system and permits the licensing system to share regulatory information and charge administrative fees; (ii) removes the requirement to file an annual trust account financial report to the Department; (iv) provides that members of the Collection Agency Licensing and Disciplinary Board “shall have no liability in any action based upon any disciplinary proceeding or other activity performed in good faith as a member of the Board”; and (v) removes the provision requiring the Department to maintain rosters of all active licensees under the Act or persons whose licenses have been suspended, revoked, or denied renewal under the Act. The amended Act took effect upon being signed into law.
OCC Updates Comptroller’s Licensing Manual Booklet to Provide Guidance on Failure Acquisitions
On August 3, the Office of the Comptroller of the Currency (OCC) released OCC Bulletin 2017-26 announcing a revised version of its “Failure Acquisitions” booklet designed to provide guidance on several policies and procedures impacting national banks and federal savings associations interested in acquiring a failed depository institution through the FDIC’s bidding process. The booklet, which is part of the Comptroller’s Licensing Manual, covers:
- an overview of the process banks must follow when submitting a purchase and assumption (P&A) application, which requires OCC approval before a bank can begin the FDIC bidding process;
- considerations undertaken by the OCC when reviewing a P&A application;
- a description of the process and elements of the application, including public notice and competitive factors, as well as legal and accounting standards; and
- references and links to informational resources.
OCC Files Motion to Dismiss CSBS Suit Over Fintech National Bank Charter
On July 28, the OCC filed a motion in the U.S. District Court for the District of Columbia to dismiss a lawsuit brought by the Conference of State Bank Supervisors (CSBS) challenging the OCC’s fintech charter. See Conf. of State Bank Supervisors v. Office of the Comptroller of the Currency, Case 1:17-cv-00763-JEB (D.D.C. Jul. 28, 2017). In a memorandum supporting its motion to dismiss, the OCC argued that CSBS does not have standing to bring the case because the OCC has not yet come to a decision on whether it will make special purpose national bank charters available to fintech companies and other nonbank firms, and therefore, “[n]o tangible effect on CSBS or CSBS's members could even arguably occur until a 5.20(e)(1) Charter has been issued to a specific applicant.” For similar reasons, the OCC argued that the case was not ripe for judicial review.
Addressing the merits, the OCC cited Independent Community Bankers Ass’n of South Dakota, Inc. v. Board of Governors of the Federal Reserve System, 820 F.2d 428 (D.C. Cir. 1987), cert. denied, 484 U.S. 1004 (1988), arguing that the ruling confirms its authority to issue special purpose bank charters and “illustrates that the legal concept of a special purpose national bank power is not novel or unprecedented, but rather follows a decades-old OCC practice.” The OCC further argued that under the National Bank Act, the OCC’s interpretation of “the business of banking”—in which a special purpose bank “must conduct at least one of the following three core banking functions: receiving deposits; paying checks; or lending money”—deserves Chevron deference.
As previously discussed in a Special Alert, CSBS claimed the fintech charter violates the National Bank Act, Administrative Procedure Act, and the U.S. Constitution, and that the OCC has acted beyond the legal limits of its authority. Furthermore, CSBS asserts that providing special purpose national bank charters to fintech companies “exposes taxpayers to the risk of inevitable [fintech] failures.”
However, shortly after the OCC’s motion was filed, a federal judge ordered that the OCC’s motion to dismiss be stricken based on excessive footnoting. The judge, in a minute order on the docket, cited that the excessive number of footnotes “appear[] to be an effort to circumvent page limitations.” On August 2, the OCC filed a renewed motion to dismiss.
OCC Requests Pre-Motion Conference to Discuss NYDFS Fintech Challenge
On July 25, acting U.S. Attorney for the Southern District of New York, Joon H. Kim, filed a letter with the federal court in that district on behalf of the OCC, requesting a pre-motion conference to discuss its anticipated motion to dismiss the New York Department of Financial Service’s (NYDFS) suit against the OCC’s special purpose fintech charter. See Vullo v. Office of the Comptroller of the Currency, Case 17-cv-03574 (S.D.N.Y., Jul. 25, 2017). As previously covered in InfoBytes, NYDFS filed the lawsuit May 12 on the grounds that the charter is unlawful and would grant preemptive powers over state law. Kim cites the following three reasons for dismissal of NYDFS’s complaint:
- NYDFS lacks standing to bring the suit because, although the OCC has “publically [sic] contemplated the possibility of issuing fintech charters…those public statements do not amount to a ‘final agency action’ subject to challenge under the [Administrative Procedure Act].” Indeed, since any harm NYDFS can identify is “conjectural or hypothetical,” and it has not suffered any “actual or imminent” injury, the Court lacks subject matter jurisdiction.
- OCC’s interpretation of its statutory authority under the National Bank Act (NBA) refers to Section 5.20(e)(1), which “reasonably limits the issuance of charters to institutions that carry on at least one of three ‘core banking activities’ [such as] the receipt of deposits, the payment of checks, or the lending of money.” Thus, regulations that allow chartering approvals—even if the chartered companies don't take deposits—is reasonable because they carry on at least one core banking function.
- The Supremacy Clause of the U.S. Constitution would protect fintech banks chartered under the relevant OCC rules and entitle them to NBA protections against state interference. Kim noted that it “is well established that the Supremacy Clause operates in concert with the NBA to displace state laws or state causes of action that conflict with federal law or that prevent or significantly interfere with national bank powers.”
The OCC faces a separate fintech lawsuit in the District Court for the District of Columbia brought by the Conference of State Bank Supervisors. (See previous Special Alert.)
OCC Acting Comptroller Supports Fintech National Bank Charter
On July 19, Acting Comptroller of the Currency, Keith A. Noreika, spoke before the Exchequer Club about the proposed concept of granting special purpose charters for financial technology (fintech) companies. In prepared remarks, Acting Comptroller Noreika said the OCC has the authority to grant national bank charters to nondepository fintech companies in “appropriate circumstances.” However, he reiterated that having the authority does not imply a determination has been made as to whether the OCC will accept or grant applications from nondepository fintech companies that rely solely on regulation 12 CFR 5.20(e)(1), which outlines eligibility requirements for receiving special purpose national bank charters. To date, no such applications have been received.
The OCC continues to demonstrate its support for innovative developments and partnerships between banking and technology companies. As previously discussed in a Special Alert, the OCC issued a draft supplement in March to provide guidance for evaluating charter applications from fintech companies. “Providing a path for these companies to become national banks is pro-growth and in some ways can reduce regulatory burden for those companies,” Noreika remarked. However, the fintech special purpose national bank charter has recently met legal challenges from the New York Department of Financial Services (NYDFS) and the Conference of State Bank Supervisors (see Special Alerts here and here). Norieka stated that the OCC is developing its response to the NYDFS lawsuit “and plans to defend [its] authority vigorously.” He cautioned against defining banking too narrowly, and argued that fintech companies should be allowed to apply for national bank charters if they meet the criteria and are involved in the “business of banking.”
OCC Issues Branch Closings Booklet, General Policies and Procedures Booklet
On June 29, the OCC issued Bulletin OCC 2017-24, announcing its revised Comptroller’s Licensing Manual booklet, “Branch Closings,” replacing the booklet issued in April 2003. According to the Bulletin, the revised booklet describes the 90-day advance notice to the OCC and branch customers that a bank must observe before closing a branch. It also explains the specific timing, procedures, and forms of notice the bank must supply. The booklet, which applies to all national banks and federal savings associations, summarizes the different notice requirements for each under Section 42 of the Federal Deposit Insurance Act. It also lists steps for filing branch closing notices including: (i) sending advance notice to the OCC at least 90 days before closing; (ii) mailing notices to customers at least 90 days in advance; (iii) posting conspicuous notices at the branch at least 30 days in advance; and (iv) sending final closing notice to the OCC after the branch closes.
The notice requirement of Section 42 assists the OCC in assessing a bank’s record of opening and closing branches. The OCC reviews this record in examinations for compliance with Section 42 and in assessing performance under the Community Reinvestment Act (CRA). The OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) adopted a “Joint Policy Statement on Branch Closing Notices and Policies” (Joint Policy Statement) in June 1991 to provide guidance regarding the requirements of the branch closing statute.
On July 5, the OCC issued an additional bulletin, OCC Bulletin 2017-25, revising the “General Policies and Procedures” booklet of the Comptroller’s Licensing Manual issued in March 2008. This booklet explains how to file applications or notices with the OCC, requirements of the filings, and the OCC processes for licensing filings. The revised booklet applies to national banks, federal savings associations, and other entities that are involved in certain transactions including: (i) organizing a new bank; (ii) opening or closing a branch; (iii) establishing subsidiaries; (iv) some changes to capital or debt; and (v) certain other transactions. The booklet describes important policies and includes sample forms, filing requirements, and fees. It also covers the OCC’s review, approval or denial, and subsequent consummation requirements and appeal procedures.