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Financial Services Law Insights and Observations


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  • OCC, Federal Reserve Issue Flood Insurance Violations; Reauthorization of National Flood Insurance Program Discussions Continue

    Federal Issues

    During the month of May, the OCC and the Board of Governors of the Federal Reserve (Board) took action against certain banks for violations of the Flood Disaster Protection Act (FDPA) and National Flood Insurance Act (NFIA). Concurrently, House Financial Services Subcommittee Republicans circulated a package of draft legislation to reform and reauthorize the National Flood Insurance Program (NFIP), which expires at the end of September.

    OCC Action. On May 19, as part of its monthly listing of enforcement actions taken against national banks, federal savings associations, and former institution-affiliated parties, the OCC announced that it had fined a Texas-based federal savings association $87,500 in April for violations of the FDPA. According to the consent order, the bank allegedly failed to “ensure the timely notification and force-placement of the requisite amounts of flood insurance on property securing loans in a special flood hazard area in which flood insurance is available under the NFIA.”

    Federal Reserve Action. On May 25, the Board announced an enforcement action against a Georgia-based bank for violations of the NFIA. Although the consent order fines the bank $1.5 million, it does not specify how many violations there were or what they related to. However, the maximum civil money penalty under that law is $2,000 per violation. The NFIA has a number of requirements for banks, which include ensuring that a borrower has adequate flood insurance before originating a loan for a property in a special flood hazard area and providing notice to the borrower in a reasonable time before closing that they are required to have flood insurance.

    National Flood Insurance Program Discussion. As previously covered in InfoBytes, several committees—including the Senate Committee on Banking, Housing, and Urban Affairs and the House Financial Services Committee—are discussing the reauthorization of the NFIP.  On May 25, Rep. Sean Duffy (R-Wis.), Chairman of the House Financial Services Subcommittee, issued a series of reauthorization discussion drafts and summaries. The six bills (see below) included in the package would (i) reauthorize the NFIP for five years; (ii) limit annual premium increases; (iii) authorize states to voluntary create flood insurance affordability programs; (iv) eliminate the mandatory purchase requirement for commercial properties; (v) establish a private market for flood insurance; (vi) reform the flood zone mapping process to increase accuracy and fairness in mapping; (vii) require covered flood prone areas to develop plans to mitigate flood risks if they have repeated structure losses; and (viii) address fraud in the claims process.

    Duffy noted, “We’re releasing this discussion draft so that all sides can continue to provide input into protecting the program integrity of the NFIP.” He added, “The ideas stemming from this open process will ensure that everyone who needs flood insurance will have access to it while ensuring that the NFIP does not fall further into debt.”

    Federal Issues OCC Federal Reserve Enforcement National Flood Insurance Program Flood Insurance Flood Disaster Protection Act National Flood Insurance Act

  • Rep. Leutkemeyer Reintroduces Legislation to End Operation Choke Point

    Federal Issues

    On May 25, Rep. Blaine Luetkemeyer (R-Mo.) reintroduced the Financial Institution Customer Protection Act (H.R. 2706), which would prohibit federal agencies from requesting or ordering a financial institution to terminate a banking relationship unless the regulator had material reason. H.R. 2706 would, in effect, seek to end the Department of Justice’s “Operation Choke Point” by requiring termination requests to rely on information other than reputational risk.

    Notably, as previously discussed in InfoBytes, last month a group of payday lenders filed a brief with an appellate court claiming a district court judge was wrong to deny their request for a preliminary injunction against regulator activities they claim violate their rights to due process.

    Federal Issues Operation Choke Point Due Process Federal Legislation

  • FDIC Chairman Discusses Efforts to Reach Out to Unbanked Communities

    Federal Issues

    On May 23, at the Bank On 2017 National Conference in Washington, DC., Chairman of the FDIC, Martin J. Gruenberg, discussed his agency’s efforts to reach out to unbanked communities.  In his prepared remarks, “Connecting Unbanked Communities to Mainstream Financial Services: The Vital Role of Bank On Coalitions,” Gruenberg shared results from an FDIC survey of unbanked and underbanked households and spoke about initiatives the agency has developed to help increase access to the banking system by unbanked and underbanked households. (See previous InfoBytes coverage on the report.) “Economic inclusion goes to the heart of the FDIC’s mission of maintaining the public’s confidence in the banking system,” Gruenberg stated. “By working together to promote access to safe accounts and integrate financial services into important local initiatives, we expand opportunities for people to save, invest, meet basic financial goals, and more fully participate in our economy.”

    Findings cited in the report, which provide measurements on access to and use of the traditional banking system at the national and state level, include the following: (i) seven percent of households were unbanked, without any account relationship at an insured institution; (ii) 19.9 percent of households were underbanked, defined as households in which a member had a bank account, but nevertheless used alternative financial services providers to address needs such as check cashing or payday loans; and (iii) use of online and mobile banking to access accounts increased substantially from 2013 to 2015. 36.9 percent of respondents reported online banking as their primary method for accessing a bank account, compared to 28.2 percent relying on bank tellers. After examining the results of the survey, Gruenberg emphasized the need to expand economic inclusion to reach unbanked consumers and provide awareness of available safe banking services. Gruenberg noted that “a key area of focus has been creating access to low-cost, safe transaction accounts.” Gruenberg praised the expansion of the FDIC Safe Account project, which “enrolled consumers in electronic transaction accounts that relied on debit cards, without a check-writing feature, to provide access to funds.” Additionally, he cited the recently updated National Account Standards for the Cities for Financial Empowerment Fund. The FDIC provides technical assistance to economic inclusion partnerships and coalitions—which includes banks, community groups, state and local officials, and others—with the goal of expanding opportunities to fully participate “in the mainstream banking system.” Finally, Gruenberg stated that survey results show that underserved consumers believe mobile technology has the potential to “enhance the level of control, convenience, and affordability” associated with banking relationships. Therefore, he suggested that offering explicit strategies to support those who would enroll in mobile financial services could be beneficial.

    Federal Issues Banking FDIC

  • FDIC Releases Third and Fourth Quarter CRA Examination Schedule

    Federal Issues

    On May 31, the FDIC issued its Third Quarter Community Reinvestment Act (CRA) Examination Schedule for the following regions: New York, Atlanta, Chicago, Kansas City, Dallas, and San Francisco. Additionally, the Agency released the CRA Examination Schedule for the Fourth Quarter in the following regions: New York, Atlanta, Chicago, Kansas City, Dallas, and San Francisco. In an effort to be “more responsive and transparent to the public” as well as to provide more time for review and comment, going forward, the FDIC will release the upcoming examination schedule for two quarters rather than one. The institutions listed on the schedules were chosen for CRA examinations based on the FDIC’s criteria which states that, absent reasonable cause, for institutions with $250 million or less in assets, those with a CRA rating of “Satisfactory” would be examined no more than once every 48 months, and those institutions with a CRA rating of “Outstanding” would be examined no more than once every 60 months. Public comments on the institutions to be examined under the CRA are encouraged and will be considered if received prior to the completion of the examination.

    Federal Issues Banking CRA FDIC

  • Financial Agencies Issue Advisory Addressing Appraiser Availability

    Federal Issues

    On May 31, the FDIC, the Board of Governors of the Federal Reserve, the OCC, and the NCUA issued FIL-19-2017 to discuss two possible methods for addressing appraiser shortages: (i) temporary practice permits and (ii) temporary waivers. The resulting Interagency Advisory addresses concerns raised pursuant to the Economic Growth and Regulatory Paperwork Reduction Act process regarding the shortage of certified and licensed appraisers, particularly in rural areas. The advisory states that “[t]emporary practice permits could allow state certified or licensed appraisers to provide their services in states where they are not certified or licensed, including those experiencing a shortage of appraisers.” The advisory further states that temporary waivers may also be granted thus improving the timeliness of appraisals in those areas. The advisory applies to all FDIC-supervised institutions.

    Federal Issues Mortgages Appraisal FDIC Federal Reserve OCC NCUA

  • House to Consider Financial CHOICE Act of 2017 the Week of June 5

    Federal Issues

    On May 26, the House announced that the Financial CHOICE Act of 2017 is scheduled to hit the House floor the week of June 5. House Financial Services Committee Chairman, Jeb Hensarling (R-Tex.), drafted a Substitute Amendment and a corresponding summary of changes, which clarify that “rules promulgated under provisions of law repealed by H.R. 10 are no longer in effect.” Notably Hensarling agreed to strike Section 735, which would repeal the Durbin Amendment from the second discussion draft of the Act. The Durbin Amendment—an amendment to the EFTA added by section 1075 of the Dodd-Frank Act—requires the Federal Reserve Board to cap interchange fees that banks with assets of $10 billion or more may receive from payment card networks in debt card transactions. The decision to strike the Durbin Amendment happened despite bank support for the repeal.

    Changes to the bill also include the following, among others: (i) Section 341 will be amended to clarify that “gaps or ambiguities found by a reviewing court in a statutory or regulatory provision are not to be construed as a delegation of rule-making authority to an agency, and that a reviewing court is not to use such a gap or ambiguity as grounds for expansively interpreting the agency’s authority or deferring to the agency’s interpretation of law;” and (ii) Section 571’s amendment will suspend HMDA data reporting requirements until January 1, 2019. Looking ahead, the House Rules Committee set a June 2 deadline for lawmakers to file amendments.

    Federal Issues Financial CHOICE Act House Financial Services Committee Dodd-Frank

  • President Trump Releases 2018 Budget Proposal; Key Areas of Reform Target Financial Regulators, Cybersecurity, and Student Loans

    Federal Issues

    On May 23, the White House released its fiscal 2018 budget request, A New Foundation for American Greatness, along with Major Savings and Reforms, which set forth the President’s funding proposals and priorities. The mission of the President’s budget is to bring spending under control by proposing savings of $57.3 billion in discretionary programs, including $26.7 billion in program eliminations and $30.6 billion in reductions.

    Financial Regulators. The budget stresses the importance of reducing the cost of complying with “burdensome financial regulations” adopted by independent agencies under the Dodd-Frank Act. However, the proposal provides few details about how the reform applies to federal financial services regulators. Identifying the CFPB specifically, the budget states that restructuring the Bureau is necessary in order to “ensure appropriate congressional oversight and to refocus [the] CFPB’s efforts on enforcing the law rather than impeding free commerce.” Major Savings and Reforms assert that subjecting the Bureau to the congressional appropriations process would “impose financial discipline and prevent future overreach of the Agency into consumer advocacy and activism.” The budget projects further savings of $35 billion through the end of 2027, resulting from legal, regulatory, and policy changes to be recommended by the Treasury once it completes its effectiveness review of existing laws and regulations in collaboration with the Financial Stability Oversight Council. The Treasury review is being performed as a result of the Executive Order on Core Principals.

    Dept. of Housing and Urban Development. As previously reported in InfoBytes, the budget proposes that funding be eliminated for the following: (i) small grant programs such as the Self-Help Homeownership Opportunity Program, which includes, among others, the Capacity Building for Community Development and Affordable Housing Program (a savings of $56 million); (ii) the CHOICE Neighborhoods program (a savings of $125 million), stating state and local governments should fund strategies for neighborhood revitalization; (iii) the Community Development Block Grant (a savings of $2.9 billion), over claims that it “has not demonstrated results”; and (iv) the HOME Investment Partnerships Programs (a savings of $948 million). The budget also proposes reductions to the Native American Housing Block Grant and plans to reduce costs across HUD’s rental assistance programs through legislative reforms. Rental assistance programs generally comprise about 80 percent of HUD’s total funding.

    Cybersecurity. The budget states that it “supports the President’s focus on cybersecurity to ensure strong programs and technology to defend the Federal networks that serve the American people, and continues efforts to share information, standards, and best practices with critical infrastructure and American businesses to keep them secure.” Law enforcement and cybersecurity personnel across the Department of Homeland Security (DHS), Department of Defense, and the FBI will see budget increases to execute efforts to counter cybercrime. Furthermore, the National Cybersecurity and Communications Integration Center—which DHS uses to respond to infrastructure cyberattacks—will receive an increase under the budget.

    Student Loan Reform. Under the proposed budget, a single income driven repayment plan (IDR) would be created that caps monthly payments at 12.5 percent of discretionary income—an increase from the 10 percent cap some current payment plans offer. Furthermore, balances would be forgiven after a specific number of repayment years—15 for undergraduate debt, 30 for graduate. In doing so, the Public Service Loan Forgiveness program and subsidized loans will be eliminated, and reforms will be established to “guarantee that borrowers in IDR pay an equitable share of their income.” These proposals will only apply to loans originated on or after July 1, 2018, with the exception of loans provided to borrowers in order to finish their “current course of study.”

    Dept. of the Treasury. The budget proposes to, among other things: (i) eliminate funding for new Community Development Financial Institutions Fund grants (a savings of $220 million); and (ii) reduce funding for the Troubled Asset Relief Program by 50 percent, “commensurate with the wind-down of TARP programs” (a savings of $21 million).

    Response from Treasury. In a statement released by the Treasury, Secretary Steven T. Mnuchin said the budget “prioritizes investments in cybersecurity, and maintains critical funding to implement sanctions, combat terrorist financing, and protect financial institutions from threats.” Furthermore, it also would “achieve savings through reforms that prevent taxpayer bailouts and reverse burdensome regulations that have been harmful to small businesses and American workers.”

    Federal Issues Department of Treasury HUD Budget Privacy/Cyber Risk & Data Security Student Lending Bank Regulatory FSOC Trump

  • Fed Releases List of Small Issuers Exempt from Debit Card Interchange Fees

    Federal Issues

    On May 22, the Federal Reserve Board announced its lists of institutions that either are or are not exempt from the its debit card interchange fee standards found in Regulation II, which implements section 920 of the Electronic Fund Transfer Act (EFTA). The lists are intended to facilitate compliance by assisting payment card networks and others in determining which issuers qualify for the statutory exemption. The lists were generated from available data and contain institutions in existence on Dec. 31, 2016. Exempt institutions, together with their affiliates, have reported assets of less than $10 billion and are not subject to the interchange fee standards under the statute. Institutions that are not exempt have, either individually or together with their affiliates, reported assets of $10 billion or more, and therefore must comply with the interchange fee standards under the statute. Debit card issuers that do not appear on either of the lists must certify to their participating payment card networks that they are exempt from the interchange fee standards. The EFTA requires the Fed to biennially report on interchange fee revenue and costs incurred by debit card issuers and payment card networks. The Fed’s last report—for calendar-year 2015—cites interchange fees across all debit and general-use prepaid cards totaled $18.41 billion.

    Federal Issues Federal Reserve Debit Cards EFTA

  • OCC Updates Guidance on Violations of Laws and Regulations in Comptroller’s Handbook

    Federal Issues

    On May 23, the OCC issued OCC Bulletin 2017-18 announcing updated guidance on its policies and procedures regarding violations of laws and regulations for its examiners. The updates will be reflected in its “Bank Supervision Process,” “Community Bank Supervision,” “Federal Branches and Agencies Supervision,” and “Large Bank Supervision” booklets as well as other sections of the Comptroller’s Handbook and internal guidance. According to the Bulletin, an International Peer Review Report from 2013 noted that the OCC could improve its supervisory effectiveness. In response, the OCC released Bulletin 2014-52 to address the report’s concerns. These latest updates are an extension of the 2014 Bulletin to support the OCC’s mission of ensuring a safe and sound federal banking system by “emphasizing timely detection and correction of violations before they affect a bank’s condition.”

    The OCC’s updated guidance implements certain goals and practices, including:

    • ensuring the consistency of the purpose, processes, and procedures within and across all OCC lines of business, including: community, midsize, and large banks; federal branches and agencies; and banks overseen by the OCC’s Special Supervision group;
    • communicating violations using a consistent format such as: (i) using legal citation and description; (ii) summarizing relevant statutory or regulatory requirements; (iii) including facts supporting the violation and root causes; (iv) outlining required corrective actions; and (v) noting commitments to corrective action by board and management;
    • reinforcing the importance of timely and thorough follow-up and tracking of bank management’s corrective actions and milestones;
    • conveying the relationship of violations to “matters requiring attention, CAMELS/ITCC or ROCA ratings, and the bank’s risk appetite and profile;” and
    • emphasizing the need for examiners to timely and effectively communicate with the bank’s board of directors and management team as well as with OCC supervisors.

    The policy goes into effect July 1, 2017.

    Federal Issues OCC Bank Supervision Community Banks

  • Treasury Secretary Mnuchin Testifies Before Senate Banking Committee, Provides Overview of Policies and Goals

    Federal Issues

    On May 18, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Domestic and International Policy Update” with U.S. Treasury Secretary Steven Mnuchin—his first hearing since being sworn in. Committee Chairman Mike Crapo (R-Idaho) opened the full committee hearing asserting that “[w]e want our nation’s banks to be well-capitalized and well-regulated, without being drowned by unnecessary compliance costs. Undue regulation chills innovation and imposes significant and unnecessary costs and burdens on financial institutions and companies, often disproportionately on smaller ones.” Sen. Crapo further stressed that “[h]ousing finance reform remains the most significant piece of unfinished business following the crisis, and it is important to build bipartisan support for a path forward.” Ranking member Sherrod Brown (D-Ohio) likewise delivered opening remarks. Sen. Brown stated that regulation improvements for banks, shadow banks, and the financial services industry must be “based on facts” and that a better way to improve the economy and create jobs would be through “an effective means like infrastructure investment” rather than the “thoroughly discredited” trickle down approach.

    Mnuchin was the only witness at the May 18 hearing, offering testimony and answering questions concerning, among other things, (i) currency manipulation; (ii) the establishment of a “Monitoring List” of closely watched economies; (iii) comprehensive tax reform (stating that a goal of 3 percent GDP or higher is “achievable if we make historic reforms to both taxes and regulation”); (iv) regulatory reform (noting that the Treasury’s initial report will offer “recommendations to provide relief for community banks and make regulations more efficient and effective and appropriately tailored”); (v) imposing sanctions and efforts to combat terrorist activities and financing; and (vi) housing finance reform (maintaining that Treasury plans to work with Congress to ensure both ample credit for housing and that taxpayers are not put at risk).

    Mnuchin faced questions from several Senators after he testified, including Sens. Jon Tester (D-Mont.), Catherine Cortez Masto (D-Nev.), and Bob Corker (R-Tenn). In response Sen. Tester’s question as to whether Mnuchin could commit that the President’s tax relief plan would not add to the debt, Mnuchin replied that “any plan that we put forward we believe should be paid for with economic growth.” Sen. Cortez Masto asked what the Treasury was doing about the Trump Administration’s lack of focus on policies supporting American consumers and homeowners, questioning, “Why doesn’t President Trump’s Executive Order that rolls back Wall Street reforms mention consumer or investor protection even once? Why doesn’t it direct you to consider the financial needs of borrowers, students, service-members, seniors, homeowners?” Accordingly, Sen. Corker asked whether Mnuchin is "strongly committed to finally dealing with housing finance reform in an appropriate way,” to which Mnuchin replied, “My strong preference is to do it through congressional action.”

    Federal Issues Department of Treasury Senate Banking Committee