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  • Federal banking agencies raise commercial real estate appraisal threshold to $500,000

    Agency Rule-Making & Guidance

    On April 2, the Federal Reserve Board, the OCC, and the FDIC (agencies) issued a joint press release announcing the adoption of a final rule, which would increase the threshold for commercial real estate transactions requiring an appraisal from $250,000 to $500,000. After receiving more than 200 comments to their July 2017 joint notice of proposed rulemaking (see previous InfoBytes coverage here), the agencies increased the threshold to $500,000, rather than $400,000 as originally proposed. The rulemaking initiative responded to financial industry concerns that adjustments had not been made to the current threshold amounts, which were set 24 years ago. In accordance with the final rule, commercial real estate transactions exempted by the $500,000 threshold will no long require appraisals, but will instead be subject to an evaluation, which is not required to comply with the Uniform Standards of Professional Appraiser Practices in order to provide a market value estimate of the real estate pledged as collateral and is not required to be completed by a state licensed or certified appraiser. However, the final rule stipulates that real-estate related transactions secured by a single one-to-four family residential property are excluded. The final rule will take effect immediately upon publication in the Federal Register.

    Agency Rule-Making & Guidance Commercial Lending Federal Reserve OCC FDIC Federal Register

  • Treasury releases recommendations for modernizing the Community Reinvestment Act

    Agency Rule-Making & Guidance

    On April 3, the U.S. Treasury Department released recommendations to the Federal Reserve Board, the FDIC, and the OCC (CRA regulators) on suggestions for modernizing the Community Reinvestment Act (CRA). As previously covered in a Buckley Sandler Special Alert, Treasury released a report last June indicating that the CRA should be modernized to better target statutory and regulatory responses to financial risks faced by U.S. consumers and ensure that the benefits of the CRA investments are aligned with the needs of the communities being served. Last month the Government Accountability Office (GAO) released a report recommending Treasury consider GAO’s findings when conducting its review. (See previous InfoBytes coverage here.)

    The April memorandum of recommendations addresses findings from Treasury’s comprehensive assessment of the CRA framework and focuses on four key areas: assessment areas, examination clarity and flexibility, the examination process, and bank performance. Specifically, the recommendations include (i) updating the definitions of “geographic assessment areas to reflect the changing nature of banking arising from changing technology, customer behavior, and other factors”; (ii) improving the flexibility of the CRA examination process to increase clarity in examiner guidance and improve evaluation criteria to increase CRA rating determination transparency and effectiveness; (iii) addressing the timing and issuance of performance evaluations to increase banks’ accountability when planning CRA activity; and (iv) identifying performance incentives to encourage banks to meet the credit and deposit needs of their entire communities, including low- and moderate-income areas. The memorandum solicited input from stakeholders such as consumer advocacy groups, financial industry members, and the CRA regulators.

    Agency Rule-Making & Guidance Department of Treasury CRA Federal Reserve OCC FDIC Examination GAO

  • FFIEC finalizes November 2017 Call Report revisions

    Agency Rule-Making & Guidance

    On March 30, the Federal Reserve Board, FDIC, and OCC—as members of the Federal Financial Institutions Examination Council (FFIEC)—announced finalized plans to reduce data reporting requirements and other regulatory requirements associated with the Consolidated Reports of Condition and Income (Call Reports) for financial institutions. According to the FFIEC, the finalized changes modify Call Reports applicable to banks with (i) domestic offices only and less than $1 billion in total assets (FFIEC 051); (ii) domestic offices only (FFIEC 041); and (iii) domestic and foreign offices (FFIEC 031). The changes include removing or consolidating certain data items and adding a new or raising certain existing reporting thresholds in the three versions of the Call Report. The changes were originally proposed in November 2017 (previously covered by InfoBytes here) and are effective June 30.

    In January, the FFIEC also finalized other burden-reducing Call Report revisions based on a June 2017 proposal, as previously covered by InfoBytes.

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC Call Report

  • OCC announces March 2018 enforcement actions and terminations

    Federal Issues

    On March 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The new enforcement actions include a cease and desist order, a civil money penalty order, notices filed, and recently terminated enforcement actions. Two notable actions are as follows:

    Cease and Desist Consent Order. On February 12, the OCC issued a consent order against a New Jersey-based bank for deficiencies related to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) rules and regulations. Among other things, the consent order requires the bank to (i) appoint an independent third-party consultant to conduct a review of the bank’s BSA/AML compliance program; (ii) review and update a comprehensive BSA/AML compliance action plan and monitoring system; (iii) create a comprehensive training program for “appropriate operational and supervisory personnel, and the Board of Directors, to ensure their awareness of their responsibility for compliance with” the BSA; (iv) develop policies and procedures related to the collection of customer due diligence and enhanced due diligence when opening accounts; (v) appoint a BSA officer; (vi) develop and conduct ongoing BSA/AML risk assessments to monitor accounts for “high-risk customers”; and (vii) conduct a “Look-Back” plan to determine whether suspicious activity was timely identified and reported by the bank and whether additional SARs should be filed for previously unreported suspicious activity. Furthermore, the bank is prohibited from opening new accounts for commercial customers designated as “medium risk or higher” in areas such as “money services businesses, foreign or domestic correspondent banks, payment processors, or cash-intensive businesses” without prior authorization. The bank, while agreeing to the terms of the consent order, has neither admitted nor denied any wrongdoing.

    Termination of enforcement action. On February 14, the OCC terminated a 2002 consent order issued against a Texas-based payday lender after determining that “the safe and sound operation of the banking system does not require the continued existence of” previously issued restrictions. In 2002, the OCC claimed the payday lender engaged in “unsafe and unsound” practices, including violations of ECOA and TILA for failing to safeguard customers’ loan files. Among other things, the consent order fined the payday lender a $250,000 civil money penalty, imposed record-keeping requirements, and prohibited it from “entering into any kind of written or oral agreement to provide any services, including payday lending, to any national bank or its subsidiaries without the prior approval of the OCC.”

    Federal Issues OCC Enforcement Bank Secrecy Act Anti-Money Laundering Payday Lending Customer Due Diligence

  • 9th Circuit holds California's interest on escrow requirements is not preempted by federal law

    Courts

    On March 2, the U.S. Court of Appeals for the Ninth Circuit held that a national bank must comply with a California law that requires mortgage lenders to pay interest on the funds held in a consumer’s escrow account because the law does not “prevent or significantly interfere” with the national bank’s exercise of its power. The case results from a 2014 lawsuit in which a consumer sued the national bank for refusing to pay interest on the funds in his mortgage escrow account as required by a California state law. The district court dismissed the action, holding that the California state law interfered with the bank’s ability to perform its business making mortgage loans and therefore, was preempted by the National Bank Act (NBA).

    In reversing the district court’s decision, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing NBA preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson. The panel cited to Section 1639d(g)(3) of Dodd-Frank (“if prescribed by applicable State or Federal law, each creditor shall pay interest to the consumer on the amount held in any . . . escrow account that is subject to this section in the manner as prescribed by that applicable State or Federal law”), which, according to the opinion, expresses Congress’ view that the type of law at issue does not “prevent or significantly interfere with a national bank’s operations.” Moreover, the panel disagreed with the national bank’s reliance on the OCC’s 2004 preemption regulation, which interpreted the standard more broadly, by concluding that the regulation had no effect on the preemption standard. This decision could have significant implications for the rise of preemption by federally chartered banks.

    Courts U.S. Supreme Court Appellate Ninth Circuit Mortgages Escrow Preemption National Bank Act Dodd-Frank OCC

  • OCC announces enforcement action against Washington-based bank citing BSA/AML compliance deficiencies

    Financial Crimes

    On February 28, the OCC issued a consent order against a Washington-based bank for deficiencies related to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. The consent order requires the bank to, among other things, (i) maintain a Compliance Committee responsible for ensuring the bank adheres to the consent order’s provisions; (ii) appoint a BSA officer who will ensure compliance with the requirements of the BSA and the Office of Foreign Assets Control’s rules and regulations; (iii) implement an enhanced BSA/AML Risk Assessment Program, including the adoption of written policies to ensure the timely review of BSA/AML suspicious activity alerts and the implementation of an automated suspicious activity monitoring system; (iv) conduct a risk-based “Look-Back” to determine whether suspicious activity was timely identified and reported by the bank; (v) develop policies and procedures for enhanced customer due diligence to monitor information for risk; (vi) implement an independent BSA/AML audit program; and (vii) create a comprehensive training program for appropriate bank personnel. The bank did not admit to any wrongdoing in the consent order.

    Financial Crimes OCC Bank Secrecy Act Anti-Money Laundering Enforcement OFAC SARs Customer Due Diligence

  • OCC provides banks with resources for community revitalization efforts

    Agency Rule-Making & Guidance

    On February 27, the OCC published a new edition of its Community Developments Investments newsletter entitled, “Expanding Housing Opportunities: Single-Family Rehabilitation Financing Programs.” The publication provides resources and programs for national banks and federal savings associations to utilize to assist in community revitalization efforts. Highlighted is program guidance set forth previously in OCC Bulletin 2017-28, “Mortgage Lending: Risk Management Guidance for Higher-Loan-to-Value Lending Programs in Communities Targeted for Revitalization,” which outlines criteria geared towards residential rehabilitation loan financing. (See previous InfoBytes coverage here.) The publication also covers significant revitalization initiatives in communities across America, explains the ways in which loan programs sponsored by the Federal Housing Administration and Fannie Mae are supporting single-family rehabilitation financing initiatives, and notes that banks participating in such programs may qualify for Community Reinvestment Act consideration during evaluation.

    Agency Rule-Making & Guidance OCC Mortgages CRA

  • OCC updates Comptroller’s Licensing Manual to revise background investigation guidance

    Agency Rule-Making & Guidance

    On February 23, the OCC released Bulletin 2018-5 announcing a revised version of its “Background Investigations (Version 1.1)” booklet, which is part of the Comptroller’s Licensing Manual. The revised booklet replaces a November 2017 booklet of the same name, and reflects minor technical corrections and one process update. The booklet outlines the OCC’s procedures for carrying out background investigations of individuals, companies, and other organizations who file applications or notices seeking to acquire control of or influence a national bank or a federal branch or agency of a foreign bank. Specifically, the changes made under the heading “Application Process” (i) removes enforcement actions and 12 USC §1818 approval conditions from a list of filers subject to OCC background investigations; and (ii) adds a description of language the OCC may use should the agency decide to allow an individual to assume his duties before the background investigation has been completed.

    Agency Rule-Making & Guidance OCC Comptroller's Licensing Manual

  • OCC makes technical changes to stress testing rule; regulators submit unified stress test report for OMB approval

    Federal Issues

    On February 23, the OCC finalized technical changes to its annual stress testing rule. Specifically, the final rule (i) changes the range of possible “as-of” dates used in the global market shock component to conform to changes already made by the Federal Reserve Board (Fed) to its annual stress testing regulations; (ii) extends the transition process for covered institutions with $50 billion or more in assets (“a national bank or federal savings association that becomes an over $50 billion covered institution in the fourth quarter of a calendar year will not be subject to the stress testing requirements applicable to over $50 billion covered institutions until the third year after it crosses the asset threshold”); and (iii) makes certain technical clarifications to the requirements of the OCC’s stress testing rule. The final rule takes effect March 26.

    The same day, the Fed, the OCC, and the FDIC submitted a notice to the Office of Management and Budget (OMB) requesting approval of a new stress test report form (FFIEC 016) to be implemented for the stress test report due July 31. If approved, FFIEC 016 would replace the agencies’ three separate, yet identical, forms currently used to collect information from financial institutions and holding companies with total assets of more than $10 billion but less than $50 billion. Comments on the proposed change must be received on or before March 26.

    Federal Issues OCC Stress Test Federal Reserve FDIC OMB FFIEC

  • FDIC releases 2017 annual report, among key issues are living wills, cybersecurity, and simplifying regulations

    Federal Issues

    On February 15, the FDIC released its 2017 Annual Report, which includes, among other things, the audited financial statements of the Deposit Insurance Fund and the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund. The report also provides an overview of key FDIC initiatives, performance results, and other aspects of FDIC operations, supervision developments, and regulatory enforcement, including the following:

    • Living Wills. The report discusses the FDIC’s continued evaluation of resolution plans for Systemically Important Financial Institutions (SIFIs) and notes there remain “inherent challenges and uncertainties” associated with the plans, specifically within four areas: “intra-group liquidity; internal loss-absorbing capacity; derivatives; and payment, clearing, and settlement activities.” Further, the FDIC and Federal Reserve (who share joint responsibility for reviewing and assessing resolution plans) reviewed plans submitted by the eight largest U.S. SIFIs and noted that four of the firms’ plans had shortcomings—although no deficiencies were identified—and stipulated that the plans must be resubmitted by July 1, 2019. (See previous InfoBytes coverage here on recent comments by FDIC Chairman Martin concerning living will challenges.)
    • Cybersecurity. Among other initiatives, the report discusses a collaboration between the FDIC, the Federal Reserve, and the OCC to update the interagency Cybersecurity Assessment Tool, which “helps financial institutions determine their cyber risk profile, inherent risks, and level of cybersecurity preparedness.” The report provides feedback from institutions currently using the tool.
    • Simplifying Regulation. In accordance with the requirements of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), the report discusses the FDIC’s, Federal Reserve Board’s, and OCC’s regulatory review process done in conjunction with the National Credit Union Administration and the members of the Federal Financial Institutions Examination Council (FFIEC). As previously covered in InfoBytes here and here, a report was issued in March outlining initiatives designed to reduce regulatory burdens, particularly on community banks and savings associations, and last September a proposed rule to simplify capital rule compliance requirements and reduce the regulatory burden was issued.

    Federal Issues FDIC SIFIs Living Wills Privacy/Cyber Risk & Data Security Federal Reserve OCC NCUA FFIEC EGRPRA

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