OCC Updates Community Bank Supervision Comptroller’s Handbook

On November 3, the OCC announced an update to the “asset quality core assessment procedures” in its Community Bank Supervision Comptroller’s Handbook (Handbook). Among other things, the revised Handbook:  (i) updates concentration risk management procedures and stress testing guidance for community banks; (ii) incorporates procedures for credit underwriting assessments; (iii) enhances appraisal, evaluation, allowance, and credit review examination procedures; and (iv) updates the asset quality references and standard request letter.

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ABA and Regional Members Lend Perspective on CFPB’s Proposed Rule on Payday, Title, and Certain Other Installment Loans

On October 7, the American Bankers Association (ABA) sent a comment letter to the CFPB regarding the agency’s proposed rule on payday, title, and certain other installment loans. Describing the proposal as “exceedingly and unnecessarily complex,” the ABA argues that the proposed rule imposes significant restrictions on the small-dollar credit industry by limiting financial institutions’ ability to make small-dollar loans to consumers in need of such credit. In addition to asserting that the proposal reflects an over-reach of the CFPB’s statutory authority to regulate unfair, deceptive or abusive acts or practices, the comment letter contends that, if adopted, the proposed rule would, among other things, (i) “stifle innovation in consumer lending, reduce consumer choice, and directly harm the very borrowers [it] was intended to protect”; (ii) impose an unlawful cap on interest rates; (iii) regulate insurance, thereby violating the Dodd-Frank Act; and (iv) levy substantial costs on consumers and lenders. Furthermore, the comment letter includes several testimonials to illustrate how receiving short-term credit helped consumers establish credit and overcome arduous financial conditions. In an effort to safeguard affordable financial services, the ABA urged the CFPB to “protect the ability of community banks to continue to meet small dollar lending needs.” In particular, the ABA sought to exempt entities that make no more than 2,500 loans subject to the proposed rule in the course of a year “if those loans comprise no more than 10% of the lender’s gross annual revenue.”

In addition to the ABA’s comment letter, various regional ABA members, such as individual banks and state bankers associations, sent a letter to CFPB Director Richard Cordray expressing concern about the “substantial barriers and costs” the proposed rule would impose if adopted. ABA members called on the CFPB to “restore its previously proposed ‘5 percent payment-to-income ratio’ alternative compliance option” so that banks may maintain their ability to offer small-dollar credit.

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OCC Issues Large Bank Recovery Guidelines

On September 29, the OCC released final guidelines establishing standards for recovery planning for large OCC-regulated institutions. The guidelines, which are not applicable to community banks, are designed to provide “a comprehensive framework for evaluating the financial effects of severe stress that may affect a covered institution and options it may take to remain viable under such stress.” Pursuant to the guidelines, an institution “should develop and maintain a recovery plan that is specific to that covered bank and appropriate for its individual size, risk profile, activities, and complexity, including the complexity of its organizational and legal entity structure.” OCC examiners will begin to assess an institution’s recovery plan for appropriateness and adequacy. The guidelines, which contain various compliance dates, become effective January 1, 2017.

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OCC Lays Out Supervision Plan for 2017

On September 14, the OCC released its bank supervision operating plan for fiscal year 2017. The plan identifies the OCC’s priority objectives, which include: (i) commercial and retail loan underwriting; (ii) business model sustainability and viability; (iii) operational resiliency; (iv) BSA/AML compliance; and (v) processes to address regulatory changes. Moreover, the plan affirms that the OCC will look at each individual bank’s key risks, and will continue the process of stress testing, both for large banks and for midsize and community banks.

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House Financial Services Committee Approves Financial CHOICE Act

On September 13, the House Financial Services Committee approved by a 30-26 vote the Financial CHOICE Act, Congressman Jeb Hensarling’s (R-TX) legislative replacement to the Dodd-Frank Act. In his opening remarks, Hensarling claimed that the bill aims to end bailouts, support economic growth, and provide regulatory relief to community banks. House Democrats did not offer amendments to the bill, although many expressed adamant disapproval. Congresswoman Carolyn Maloney (D-NY) claimed that the “deeply disturbing” legislation “would take us back to the regulatory stone age.” Various Democrats referenced the CFPB’s recent enforcement action against a national bank to argue that the Financial CHOICE Act’s attempt to remove the CFPB’s authority over abusive practices was one of many reasons to oppose the bill. Democrats unanimously voted against the legislation, while all but one Republican, Congressman Bruce Poliquin (R-ME), voted in favor of moving the legislation forward.

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