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Financial Services Law Insights and Observations


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  • Agencies propose codifying that supervisory guidance lacks force of law

    Agency Rule-Making & Guidance

    On October 20, the Federal Reserve Board, CFPB, FDIC, NCUA, and OCC released a notice of proposed rulemaking (NPRM), which seeks to codify the “Interagency Statement Clarifying the Role of Supervisory Guidance issued by the agencies on September 11, 2018 (2018 Statement).” As previously covered by InfoBytes, the 2018 Statement confirmed 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 emphasized that the intention of supervisory guidance is to outline agencies’ expectations or priorities and highlighted specific policies and practices the agencies intend to take relating to supervisory guidance to further clarify the proper role of guidance, including: (i) not citing to “violations” of supervisory guidance; (ii) limiting the use of numerical thresholds or other “bright-line” requirements; (iii) limiting multiple issuances of guidance on the same topic; (iv) continuing to emphasize the role of supervisory guidance to examiners and to supervised institutions; and (v) encouraging supervised institutions to discuss supervisory guidance questions with their appropriate agency contact.

    In addition to codifying the above elements of the 2018 Statement, the proposal would amend the 2018 Statement by (i) clarifying that references in the Statement limiting agency “criticisms” includes criticizing institutions “through the issuance of [matters requiring attention] MRAs and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations”; and (ii) adding that supervisory criticisms should be “specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.”

    Comments are due 60 days after publication in the Federal Register, which has not yet occurred.


    Agency Rule-Making & Guidance Federal Reserve CFPB FDIC NCUA OCC Supervision Examination Enforcement

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  • FinCEN, federal banking agencies provide CIP program relief

    Agency Rule-Making & Guidance

    On October 9, the Financial Crimes Enforcement Network (FinCEN), in concurrence with the OCC, Federal Reserve, FDIC, and NCUA (collectively, “federal banking agencies”), issued an interagency order granting an exemption from the requirements of the customer identification program (CIP) rules for insurance premium finance loans extended by banks to all customers. The exemption is intended to facilitate insurance premium finance lending for the purchase of property and casualty insurance policies and will apply to loans extended by banks and their subsidiaries, subject to the federal banking agencies’ jurisdiction. According to FinCEN, insurance premium finance loans present a low risk for money laundering due to the purpose for which the loans are extended and the limitations on how such funds may be used. Moreover, FinCEN emphasized that “property and casualty insurance policies themselves are not an effective means for transferring illicit funds.” Banks, however, must still comply with all other regulatory requirements, including those implementing the Bank Secrecy Act that require the filing of suspicious activity reports. Furthermore, the federal banking agencies determined that the order is consistent with safe and sound banking practices. The order supersedes a September 2018 order, which previously granted an exemption from the CIP rule requirements for commercial customers (covered by InfoBytes here).

    Agency Rule-Making & Guidance FDIC Federal Reserve OCC NCUA FinCEN Of Interest to Non-US Persons Bank Secrecy Act

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  • Agencies give guidance on working with borrowers affected by hurricane, wildfires

    Federal Issues

    On September 1, the Federal Reserve Board, OCC, FDIC, NCUA, and the Conference of State Bank Supervisors (CSBS) issued a joint statement covering supervisory practices for financial institutions affected by Hurricane Laura and the California wildfires. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas.

    Additionally, HUD announced it will make disaster assistance available to Louisiana, which will provide foreclosure relief and other assistance to homeowners living in parishes affected by Hurricane Laura. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house along with the costs of repair, through a single mortgage.  The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.

    Federal Issues Disaster Relief HUD FDIC OCC Federal Reserve NCUA CSBS

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  • Federal agencies and CSBS to hold webinar on PPP

    Federal Issues

    On August 20, the FDIC, Federal Reserve Board, OCC, NCUA, and the Conference of State Bank Supervisors  announced that a webinar will be held with SBA officials discussing the loan forgiveness process and recent changes in the Paycheck Protection Program on Thursday, August 27 from 11:00 a.m. to 12:00 p.m. (EDT). Participants must preregister for the webinar and are encouraged to email questions in advance to An archive of the webinar materials will be available here, a few hours after the webinar ends.


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  • Agencies clarify BSA/AML enforcement

    Federal Issues

    On August 13, the OCC, the Federal Reserve Board, the FDIC, and the NCUA (collectively, the “agencies”) issued a joint statement, which clarifies how the agencies apply the enforcement provisions of the Bank Secrecy Act (BSA) and related anti-money laundering (AML) laws and regulations. Specifically, the statement discusses the conditions that require the issuance of a mandatory cease and desist order under sections 8(s) and 206(q). According to the agencies, there are no new exceptions or standards created by document. Among other things, the statement:

    • Provides examples of when an agency shall issue a cease and desist order in accordance with sections 8(s)(3) and 206(q)(3) for “[f]ailure to establish and maintain a reasonably designed BSA/AML Compliance Program. The statement notes that an institution would be subject to a cease and desist order when the one component of their compliance program “fails with respect to either a high-risk area or multiple lines of business… even if the other components or pillars are satisfactory.”
    • Describes circumstances in which an agency may use its discretion to issue formal or informal enforcement actions related to unsafe or unsound BSA-related practices. The statement notes that the “form and content” of the enforcement action will depend on a variety factors, including “the capability and cooperation of the institution’s management.”
    • Describes how the agencies incorporate customer due diligence regulations and recordkeeping requirements as part of the internal controls pillar of an institutions BSA/AML compliance program.
    • Discusses the treatment of isolated or technical compliance program requirements that are generally not issues resulting in an enforcement action.

    Federal Issues Financial Crimes OCC Federal Reserve NCUA FDIC Bank Secrecy Act Anti-Money Laundering SARs Customer Due Diligence Enforcement

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  • FFIEC discusses additional Covid-19 loan accommodations

    Federal Issues

    On August 3, the member agencies of the Federal Financial Institutions Examinations Council (FFIEC) issued a joint statement on managing loan accommodations granted to borrowers pursuant to federal, state, and local law to address Covid-19 related hardships. Specifically, the statement provides risk management and consumer protection principles to financial institutions working with borrowers that are near the end of their initial loan accommodation period. Among other things, the statement outlines:

    • Risk Management Practices. The statement encourages financial institutions to institute sound credit risk management practices following an accommodation period, such as “reassess[ing] risk ratings for each loan based on a borrower’s current debt level, current financial condition, repayment ability, and collateral.” Additionally, the statement encourages institutions to provide “clear, accurate, and timely information to borrowers and guarantors regarding the accommodation” being granted.
    • Sustainable Accommodations. The statement notes that the Covid-19 pandemic may have “long-term adverse impact[s] on borrower’s future earnings” and financial institutions should consider additional accommodation options to mitigate losses for the borrower and institutions by assessing “each loan based upon the fundamental risk characteristics affecting the collectability of that particular credit.”
    • Consumer Protection. The statement encourages financial institutions to provide consumers with options to support repayment at the end of accommodations to avoid delinquencies and to consider offering credit product term changes to “support sustainable and affordable payments for the long term.”
    • Accounting and Regulatory Reporting. The statement emphasizes that financial institutions should consider the effects of the Covid-19 pandemic in its allowance for loan and lease losses, or credit losses, estimation processes, consistent with generally accepted accounting principles.
    • Internal Control Systems. The statement notes that internal control functions for the end of initial accommodation periods and for additional accommodations typically “include appropriate targeted testing of the process for managing each stage of the accommodation.” Additionally, the statement reminds financial institutions of their responsibility for ensuring service providers in charge of these functions act consistently with the institution’s policies and all applicable laws and regulations.

    Federal Issues Covid-19 Federal Reserve OCC FDIC NCUA Consumer Finance Risk Management Consumer Protection FFIEC

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  • Financial regulators issue examiner guidance on Covid-19

    Federal Issues

    On June 23, the federal financial institution regulatory agencies (Federal Reserve Board, OCC, FDIC, and NCUA), in conjunction with the state bank and credit union regulators, issued interagency examiner guidance for assessing the safety and soundness of financial institutions in light of the Covid-19 pandemic. The joint guidance states that due to the “unique, evolving, and potentially long-term nature of the issues confronting institutions” from the Covid-19 pandemic, examiners will “exercise appropriate flexibility in their supervisory response.” The guidance acknowledges that Covid-19 can have an adverse impact on the financial condition and operational capabilities of financial institutions that have appropriate governance and risk management systems in place.

    Among other things, the guidance notes that examiners will (i) “continue to assign supervisory ratings in accordance with the interagency CAMELS and ROCA rating systems”; and (ii) “assess the reasonableness of management’s actions in response to the pandemic given the institution’s business strategy and operational capacity.” The guidance also provides details on things such as capital adequacy and asset quality for examiners to consider when assigning composite and component CAMELS and ROCA ratings.

    Federal Issues Covid-19 Agency Rule-Making & Guidance Federal Reserve OCC FDIC NCUA State Regulator Examination Supervision

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  • NCUA releases additional guidance to credit unions serving hemp businesses

    Agency Rule-Making & Guidance

    Recently, the NCUA released updated guidance to federally insured credit unions on serving hemp businesses. As previously covered by InfoBytes, in August 2019, NCUA released interim guidance allowing federally insured credit unions to service hemp businesses. The guidance explained that the Agriculture Improvement Act of 2018 (2018 Farm Bill) removed hemp from Schedule I of the Controlled Substances Act, but noted that hemp could not be produced lawfully under federal law, beyond a 2014 pilot program, until the USDA promulgated regulations and guidelines to implement the hemp production provisions of the 2018 Farm Bill. In October 2019, the USDA issued an interim final rule, which outlined provisions to approve plans submitted by state or Native American tribes that want to retain primary regulatory authority over the production of hemp and a federal licensing plan for producers in states and tribal territories that do not have their own USDA-approved plans.

    The newly released guidance reminds credit unions to stay current with the federal, state, and Native American tribal laws and regulations that apply to any hemp-related businesses, as the interim final rule does not preempt or limit any law state or tribal law that that is more stringent than the 2018 Farm Bill. Among other things, the guidance notes that NCUA examiners will collect data concerning the types of services credit unions are providing to hemp-related businesses and states that the NCUA expects credit unions to employ sufficient customer due diligence procedures as part of their BSA/AML compliance program to ensure hemp growers possess a valid state or USDA license.

    Agency Rule-Making & Guidance NCUA Credit Union Bank Secrecy Act Anti-Money Laundering Hemp Businesses

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  • NCUA approves interim final rule regarding corrective action regulations

    Agency Rule-Making & Guidance

    On May 21, the NCUA approved an interim final rule (IFR) making two temporary changes to its prompt corrective action regulations to provide relief for credit unions that temporarily fall below the well-capitalized level due to the Covid-19 pandemic. The first change will temporarily reduce the earnings retention requirement for “adequately capitalized” credit unions, and will allow these credit union to decrease earnings retention amounts without submitting a written application requesting approval. Credit unions that exhibit material safety and soundness concerns or pose an undue risk to the Share Insurance Fund may be required to submit an earnings transfer waiver request. The second change will temporarily allow undercapitalized credit unions to submit streamlined, “significantly simpler” net worth restoration plans, provided the credit union is able to demonstrate that the reduction in capital was primarily caused by share growth and that such share growth is a temporary condition due to the Covid-19 pandemic. The IFR’s temporary changes will expire December 31, 2020, and take effect upon publication in the Federal Register. Comments will be received for 30 days.

    The same day, the NCUA also approved a proposed rule to amend its share insurance regulation, which governs the requirements for a share account to be separately insured as a joint account. Specifically, the proposed rule will provide an alternative method for credit unions to satisfy the membership card or account signature card requirement by “explicitly provid[ing] that the signature-card requirement could be satisfied by information contained in the account records of the insured credit union establishing co-ownership of the share account.” Comments on the proposed rule are due 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance NCUA Credit Union Covid-19

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  • Prudential regulators outline principles on small-dollar lending

    Federal Issues

    On May 20, the FDIC, Federal Reserve Board, OCC, and NCUA issued joint principles for offering responsible small-dollar loans. The agencies note the “important role” that small-dollar lending can play during times of economic stress, such as the Covid-19 pandemic, and issued the guidance to encourage supervised banks, savings associations, and credit unions to offer responsible small-dollar loans to consumers and small businesses. The principles cover various loan structures, including open-end lines of credit with minimum payments, closed-end loans with short single payment terms, and longer-term installment payments. The guidance indicates that reasonable loan policies and risk management practices would generally address the following:

    • Loan structures. Loan amounts and repayment terms should align with eligibility and underwriting criteria that support successful repayment of the loan, including interest and fees, rather than re-borrowing, rollovers, or immediate collectability in the event of default.
    • Loan pricing. Pricing, including for loans offered through managed third-party relationships, should reflect “overall returns reasonably related to the financial institution’s product risks and costs” and comply with applicable state and federal laws.
    • Loan underwriting. Underwriting should use internal and/or external data sources to assess a customer’s creditworthiness. Underwriting may use new technologies and automation to lower the cost of providing the small-dollar loans.
    • Loan marketing and disclosures. Disclosures should comply with applicable consumer protection laws and regulations and provide information in “a clear, conspicuous, accurate, and customer-friendly manner.”
    • Loan servicing and safeguards. Timely and reasonable workout strategies, such as payment term restructuring, should be provided for customers who experience financial distress.

    As previously covered by InfoBytes, the federal financial regulators issued a joint statement in March, encouraging institutions to offer reasonable, small-dollar loans to consumers and small businesses to help mitigate the effects of the Covid-19 pandemic.

    Federal Issues Agency Rule-Making & Guidance FDIC Federal Reserve OCC NCUA Small Dollar Lending Installment Loans Small Business Lending Covid-19

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