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House Passes Financial CHOICE Act of 2017
On June 8, by a vote of 233-186 with no Democrats voting in favor of the bill and one Republican voting against, the House passed the Financial CHOICE Act of 2017 (H.R. 10), as amended, which would repeal or modify provisions of Dodd-Frank and restructure the CFPB. Committee Report 115-163 accompanying House Resolution 375, which provided for consideration H.R. 10 and recommended that the resolution be adopted, outlines the provisions introduced to overhaul existing financial regulations. Included were five additional amendments incorporated into H.R. 10 introduced by members of Congress:
- Rep. Jeb Hensarling (R-Tex.): “Revises provisions subjecting certain FDIC and National Credit Union Association functions to congressional appropriations, relating to appointments of positions created by [H.R. 10], and providing congressional access to non-public [Financial Security Oversight Council] information”;
- Rep. Joseph Hollingsworth (R-Ind.): “Allows closed-end funds that are listed on a national securities exchange, and that meet certain requirements to be considered ‘well-known seasoned issuers’”;
- Rep. Lloyd Smucker (R-Pa.): “Expresses the sense of Congress that consumer reporting agencies and their subsidiaries should implement stronger multi-factor authentication procedures when providing access to personal information files to more adequately protect consumer information from identity theft”;
- Rep. Martha McSally (R-Ariz.): “Requires the Department of Treasury” to submit a report to Congress regarding its efforts to work with Federal bank regulators, financial institutions, and money service businesses to ensure that legitimate financial transactions along the southern border move freely”; and
- Rep. Ken Buck (R-Colo.), “Requires the [General Services Administration] to study the [Consumer Law Enforcement Agency’s] real estate needs due to changes in the Agency’s structure. It would then authorize the GSA to sell the current CLEA building if CLEA’s real estate needs have changed and there is no government department or agency that can utilize the building.”
See previous InfoBytes here and here for additional coverage.
The bill now advances to the Senate where it is unlikely to pass in its current form—a fact acknowledged by both Democrats and Republicans.
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in April 2017
On May 26, the FDIC released its list of 18 administrative enforcement actions taken against banks and individuals in April. Among the consent orders on the list are civil money penalties for violations of the Flood Disaster Protection Act of 1973 and its flood insurance requirements. Also on the list are a cease and desist order and a civil money penalty assessment issued to a Louisiana-based bank (Bank) for violations of the Bank Secrecy Act (BSA), EFTA, RESPA, TILA, HMDA, and the National Flood Insurance Program. According to the cease and desist order, the FDIC Board of Directors agreed with the Administrative Law Judge’s recommended decision that the Bank engaged in unsafe or unsound practices, which warranted a cease and desist order and civil money penalty. The order also addressed a number of shortcomings identified by the Bank’s examiners, including the following: (i) the Bank’s BSA program lacked adequate internal controls to ensure compliance; (ii) it failed to provide correct and compete electronic funds transfer disclosures to consumers; (iii) borrowers were provided “untimely and improperly completed” good faith estimates; and (iv) the Bank repeatedly failed to accurately report required HMDA information to federal agencies.
An additional eight actions listed by the FDIC related to unsafe or unsound banking practices and breaches of fiduciary duty, including five removal and prohibition orders. There are no administrative hearings scheduled for June 2017. The FDIC database containing all of its enforcement decisions and orders may be accessed here.
Senators Introduce Bill to Provide Relief to Community Banks
On May 26, Senators Orrin Hatch (R-Utah), Angus King (I-Me.), and Bill Nelson (D-Fla.) introduced bipartisan legislation intended to provide regulatory relief to small financial intuitions. According to a press release issued by Sen. Hatch’s office, the Community Bank Relief Act (S. 1284) would increase the asset threshold from $1 billion to $5 billion, thereby expanding the number of institutions covered by the Small Bank Holding Company Policy Statement (Statement). Based on FDIC data, raising the asset threshold would affect 443 bank holding companies (BHC) and other financial institutions. Additionally, 96 percent of BHCs and savings and loan holding companies would be covered by the Statement compared to 87 percent as of December 31, 2016, according to the Federal Reserve (Fed). The legislators believe the bill will improve the Dodd-Frank Act “without compromising safety standards” and help “small financial institutions provide households and small businesses more quality-based loans” that will advance economic growth. Notably, the Fed will still be able to exclude any BHC or savings and loan company if it determines the action is warranted.
FDIC Chairman Discusses Efforts to Reach Out to Unbanked Communities
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.
FDIC Releases Third and Fourth Quarter CRA Examination Schedule
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.
Financial Agencies Issue Advisory Addressing Appraiser Availability
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.
FDIC Announces Nationwide Seminars for Bank Officers and Employees
On May 18, the FDIC issued FIL-18-2017 announcing that, between June 6, 2017 and December 4, 2017, it will conduct four identical live seminars regarding FDIC deposit insurance coverage for bank employees and bank officers. The seminars will include an overview of popular topics such as (i) the Electronic Deposit Insurance Estimator—an interactive tool used to calculate deposit insurance coverage; (ii) the BankFind Directory, which allows users to confirm if a bank is FDIC-insured; and (iii) the Financial Institution Employee’s Guide to Deposit Insurance developed to help bankers provide detailed information about deposit insurance coverage to their depositors. In addition to the live seminars, the FDIC posted to its YouTube channel three separate seminars, entitled (i) Fundamentals of Deposit Insurance Coverage; (ii) Deposit Insurance Coverage for Revocable Trust Accounts; and (iii) Advanced Topics in Deposit Insurance Coverage. Both the live seminars and the YouTube seminars will provide bank employees and officers with an understanding of how to calculate deposit insurance coverage. Bankers interested in attending the seminars should visit the FDIC’s website.
FDIC Vice Chairman Discusses Forces of Change in Banking Industry, Proposes Regulatory Relief
On May 12, FDIC Vice Chairman Tom Hoenig spoke at the Systemic Risk and Organization of the Financial System Conference in California. He delivered prepared remarks on “Financial Markets and Accountability: A Better Way Forward.” Specifically, Hoenig discussed his views on the need for change in the banking industry and how his recently introduced reform proposal would strengthen the financial system and provide regulatory relief and long-term economic growth.
Hoenig argued that his proposal, “Regulatory Relief and Accountability for Financial Holding Companies Engaged in Nontraditional Banking Activities,” would help cure the ills and vulnerabilities of the current U.S. financial system, in which the largest banks have grown disproportionately big with activities that are too consolidated, resulting in a financial system that remains “heavily subsidized, increasingly concentrated, and less competitive.”
Hoenig’s proposal outlines ideas to address too-big-to-fail, enhance financial stability, and return the “safety net to its original purpose of depositor and payment system protection.” The proposal requires the largest banks to hold more capital, while partitioning nonbank activities away from the safety net. Hoenig stated that his proposal is intended to enhance competition by creating a more level playing field between insured and noninsured financial firms. The proposal also inhibits the intermingling of funding and operations between affiliates, which, while advantageous during good times, provides “far greater advantages” during bad times. Hoenig stated this would provide more stability and more consistent economic growth, and facilitate resolution using bankruptcy.
ICBA Support. Independent Community Bankers of America President and CEO Camden R. Fine issued a statement on Hoenig’s remarks, agreeing that “excessive regulatory burdens have exacerbated the dangerous consolidation of the banking industry into fewer and fewer hands,” and that “[t]o combat excessive consolidation and concentration of resources in the largest and most systemically risky financial firms, ICBA advocates comprehensive regulatory relief for community banks.” ICBA recently published a white paper entitled Community Bank Regulatory Relief: A Roadmap to Economic Growth and Prosperity outlining its views on regulatory reform.
FDIC Fines Wisconsin Bank and Affiliated Lenders for Overcharging Military Members
On May 11, the FDIC announced that a Wisconsin-based bank and its two institution-affiliated parties agreed to settle allegations of unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act. According to the FDIC, the unfair and deceptive practices, which harmed consumers including military service members and their families, included: (i) charging interest on loans that were marketed as interest-free if they were repaid within six months; (ii) selling add-on products without clearly disclosing the terms; and (iii) not allowing consumers the opportunity to use the monthly premium-payment option when they bought debt cancellation products. Under the terms of the settlement with the FDIC, the bank will establish a $3 million restitution fund for eligible consumers (and has agreed to add more if that amount is insufficient to make all of the required payments). In addition, the bank and its institution-affiliated parties are required to: (i) prepare a comprehensive restitution plan; (ii) retain an independent auditing firm to determine compliance with the plan; and (iii) provide the FDIC with quarterly written progress reports describing the actions taken by the parties to comply with the terms of the settlement. The settlement also requires the bank to pay a civil penalty of $151,000, and the institution-affiliated parties to pay civil money penalties of $54,000 and $37,000 respectively.
OCC Places Wisconsin-Based Bank into Receivership
On May 5, the OCC announced that it had put a Wisconsin-based a federal savings association (Bank) with branches in five states into receivership and appointed the FDIC as receiver. According to the OCC, the decision to close the Bank was made after determining that the Bank: (i) had experienced substantial dissipation of assets or earnings due to unsafe or unsound practices; (ii) was significantly undercapitalized; and (iii) failed to submit a capital restoration plan acceptable to the OCC.
To protect the depositors, the FDIC announced it has entered into a purchase and assumption agreement with a North Carolina-based bank to assume all of the failed Bank’s deposits and to purchase approximately $892 million of the failed Bank’s assets. The remaining assets will be retained by the FDIC for later disposition. The North Carolina bank announced that it will reopen 12 of the failed Bank’s brick-and-mortar locations but will not reopen any of the failed Bank’s 107 branches in retail outlets. Current FDIC estimates are that this failure—the fifth FDIC-insured institution to fail this year—will cost the Deposit Insurance Fund (DIF) $146.4 million. This closely follows the April 28 closure of a New Orleans-based bank, which the FDIC estimates will cost the DIF almost $1 billion.