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Agencies say supervisory guidance does not have the “force and effect” of law
On September 11, five federal agencies (the Federal Reserve Board, CFPB, FDIC, NCUA, and OCC) issued a joint statement confirming that supervisory guidance “does not have the force and effect of law, and [that] the agencies do not take enforcement actions based on supervisory guidance.” The statement distinguishes the various types of supervisory guidance—interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions—from laws or regulations and emphasizes that the intention of supervisory guidance is to outline agencies’ expectations or priorities. The statement highlights five policies and practices related to supervisory guidance: (i) limit the use of numerical thresholds or other “bright-line” requirements; (ii) examiners will not cite to “violations” of supervisory guidance; (iii) request for public comment does not mean the guidance has the force and effect of law; (iv) limit multiple issuances of guidance on the same topic; and (v) continue to emphasize the role of supervisory guidance to examiners and to supervised institutions.
OCC notifies banks of 18-month on-site examination qualifications
On September 10, the OCC notified national banks, federal savings associations, and federal branches and agencies of the interim final rule issued jointly by the OCC, Federal Reserve, and FDIC allowing qualified insured depository institutions with less than $3 billion in total assets to be eligible for an 18-month on-site examination cycle. (See previous InfoBytes coverage here.) In addition to meeting the asset threshold, qualifying banks must also (i) have a rating of one or two; (ii) be well capitalized and well managed; (iii) not be subject to a federal banking agency’s formal enforcement proceeding or order; and (iv) not have experienced a change of control within the previous 12 months. The OCC further noted that it reserves the authority to maintain more frequent examinations for banks if necessary or appropriate. The interim final rule, issued pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously Senate bill S. 2155), took effect August 29. Comments on the interim final rule must be received by October 29.
Federal Reserve Board issues flood insurance enforcement action against New York bank
On August 28, the Federal Reserve Board (Board) announced an enforcement action against a New York state bank for allegedly violating the National Flood Insurance Act (NFIA). The consent order assesses a $16,000 penalty against the bank, but does not specify the number or nature of the alleged violations. The maximum civil money penalty under that NFIA is $2,000 per violation.
Agencies extend comment deadline for Volcker Rule revisions
On September 4, the OCC, Federal Reserve Board, FDIC, SEC, and CFTC (the Agencies) announced a 30-day extension to the public comment period for the Agencies’ joint revisions to the Volcker Rule. The comment period, which was previously scheduled to end on September 17, is now extended until October 17. The joint release notes that the extension will give interested parties “approximately four and a half months from the date the proposal was released to the public to submit comments,” as the Agencies’ first released the text of the proposal on May 30 (it was not published in the Federal Register until July 17). As previously covered by InfoBytes, the Agencies’ joint revisions are designed to simplify and tailor obligations for compliance with Section 13 of the Bank Holding Company Act, known as the Volcker Rule, which restricts a bank’s ability to engage in proprietary trading and own certain funds. Specifically, according to a Federal Reserve Board memo, the proposed amendments will better align Volcker rule requirements with a bank’s level of trading activity and risks.
Federal Reserve issues interim final rule providing relief for small bank holding companies
On August 28, the Federal Reserve Board issued an interim final rule to raise the asset threshold from $1 billion to $3 billion under the agency’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement. The interim final rule implements a provision in the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously Senate bill S.2155), and applies to savings and loan holding companies with total consolidated assets of less than $3 billion. Under the interim final rule, small bank holding companies will be permitted to operate with higher levels of debt, making it easier to facilitate ownership transfers. However, the Fed noted that exempt holding companies’ depository institutions will still be required to meet minimum capital requirements. Comments are due by October 29.
Agencies issue interim final rules to comply with EGRRCPA
On August 22 and 23, the OCC, Federal Reserve, and FDIC (Agencies) jointly issued two interim final rules to comply with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) (previously Senate bill S.2155).
On August 22, the Agencies issued an interim final rule amending the liquidity coverage ratio (LCR) rule to treat certain eligible municipal securities as high-quality liquid assets. The LCR rule applies to banking organizations that have $250 billion or more in total assets or that have $10 billion or more in foreign exposures, and to their subsidiaries that have assets of $10 billion, as required by Section 403 of EGRRCPA. According to the FDIC’s Financial Institution Letter, FIL-43-2018, the interim final rule amends the LCR rule to (i) add liquid, readily-marketable, and investment grade municipal obligations to the list of assets eligible for treatment as level 2B liquid assets; (ii) include a definition for “municipal obligations”; and (iii) add a reference to the Federal Reserve’s definition of “liquid and readily-marketable.” The rule takes effect upon publication in the Federal Register and comments are due within 30 days of publication.
On August 23, the Agencies issued an additional interim final rule allowing a lengthened examination cycle for an expanded number of qualifying insured depository institutions and U.S. branches and agencies of foreign banks. Specifically, as authorized by EGRRCPA, the interim final rule would allow qualifying insured depository institutions with less than $3 billion in total assets (an increase from the previous threshold of $1 billion) to be eligible for an 18-month on-site examination cycle. The rule takes effect upon publication in the Federal Register and comments are due within 60 days of publication.
Federal Reserve requests comments on proposal to include omitted items from capital assessments and stress testing information collection
On August 8, the Federal Reserve Board published a notice and request for comment in the Federal Register seeking to revise, without extension, the existing information collection “Capital Assessments and Stress Testing.” The information collection is applicable to bank holding companies with total consolidated assets of $100 billion or more and U.S. intermediate holding companies established by foreign banking organizations that are subject to enhanced testing in order to mitigate risks to the financial stability of the United States. Last December, the Fed published modifications to the FR Y-14Q, Schedule L, which took effect as of the March 31, 2018, report date. However, following the adoption of the proposed changes, the Fed became aware of items mistakenly omitted from the report forms and instructions for the FR Y-14Q, which require respondents to report “total stressed net current exposure under the two supervisory stressed scenarios.” The proposal will revise sub-schedule L.5 (Derivatives and SFT Profile) for the FR Y-14Q report by adding the missing items. Comments on the proposal must be received by October 9.
Federal Reserve fines Kentucky-based bank $4.75 million for FTC Act violations
On July 26, the Federal Reserve Board (Board) announced a settlement with a Kentucky-based bank for allegedly violating section 5 of the FTC Act regarding its offering of deposit account add-on products to consumers. According to the consent order, the bank marketed certain add-on products to accountholders, including an identity protection product, and represented that all benefits of the products would be effective upon enrollment when in actuality, certain benefits needed to be individually activated after enrollment. The Board alleges the bank charged the enrolled accountholders fixed monthly fees for the full benefits of the products without adequately disclosing to accountholders how to receive all the associated benefits. In addition to the $4.75 million the bank must pay in restitution, the consent order also requires the bank to, among other things (i) submit written plans to strengthen the oversight of the compliance management program and enhance the consumer compliance risk management program; (ii) hire an independent auditor to verify the restitution has been made; and (iii) submit quarterly progress reports regarding compliance with the consent order.
Federal Reserve Board launches inaugural Consumer Compliance Supervision Bulletin
On July 26, the Federal Reserve Board released its inaugural Consumer Compliance Supervision Bulletin (Bulletin) to share information about the agency’s supervisory observations and other noteworthy developments related to consumer protection, and provide practical steps for banking organizations to consider when addressing consumer compliance risk. The first Bulletin focuses on fair lending issues related to the practice of redlining and outlines key risk factors the Fed considers in its review, such as (i) whether a bank’s Community Reinvestment Act (CRA) assessment areas inappropriately exclude minority census tracts; (ii) whether a bank’s Home Mortgage Disclosure Act or CRA lending data show “statistically significant disparities in majority minority census tracts when compared with similar lenders”; or (iii) whether the bank’s branches, loan production offices, or marketing strategies appear to exclude majority minority census tracts. Practical steps for mitigating redlining risk are also provided. The Bulletin also discusses fair lending risk related to mortgage pricing discrimination against minority borrowers, small dollar loan pricing that discriminates against minorities and women, disability discrimination, and maternity leave discrimination.
The Bulletin additionally addresses unfair or deceptive acts or practices risks related to overdrafts, misrepresentations made by loan officers, and the marketing of student financial products and services. The Bulletin also highlights regulatory and policy developments related to the Federal Financial Institutions Examination Council’s updated Uniform Interagency Consumer Compliance Rating System along with recent changes to the Military Lending Act.
OCC releases additional guidance on state loan-to-deposit ratios
On July 25, the OCC issued Bulletin 2018-21 to provide additional guidance for covered national banks on how state loan-to-deposit ratios are used to determine compliance with Section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. On June 21, the Federal Reserve, the FDIC, and the OCC released the host state loan-to-deposit ratios for each state or U.S. territory. Section 109, which prohibits banks from establishing or acquiring interstate branches for the primary purpose of deposit production, requires a comparison of a bank’s statewide loan-to-deposit ratio to the yearly host state loan-to-deposit ratios. If a bank’s statewide ratio is less than one-half the yearly published host state ratio, an additional review is required by the appropriate agency.