Federal Banking Agencies Issue Final Flood Insurance Rule

On June 22, the federal banking agencies issued a joint final rule that modifies the mandatory purchase of flood insurance regulations to implement some provisions of the Biggert-Waters and Homeowner Flood Insurance Affordability Acts. Notable highlights include that the final rule, among other things: (i) expands escrow requirements for lenders who do not qualify for a small lender exception, (ii) clarifies the detached structure exemption, (iii) introduces new and revised sample notice forms and clauses relating to the escrow requirement and the availability of private flood insurance, and (iv) clarifies the circumstances under which lenders and servicers may charge borrowers for lender-placed flood insurance coverage. The escrow provisions and sample notice forms will become effective on January 1, 2016, and all other provisions will become effective October 1, 2015.  The agencies reminded that the escrow provisions in effect on July 5, 2012, the day before Biggert-Waters was enacted, will remain in effect and be enforced through December 31, 2015.

The agencies also indicated that they plan to address Biggert-Waters’ private flood insurance provisions through a separate rulemaking.

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OCC Releases Semiannual Report Highlighting Key Risks Facing National Banks and Federal Savings Associations

Today, the OCC announced the release of its semiannual report, Semiannual Risk Perspective for Spring 2015, highlighting key risk areas affecting national banks and federal savings associations. Based on 2014 year-end data, the report identifies issues that pose a potential threat to the safety and soundness of banks and thrifts.  It also sets forth the OCC’s supervisory priorities for the next 12 months, including, among others, (i) cybersecurity awareness and preventative controls, (ii) Bank Secrecy Act/Anti-Money Laundering compliance, (iii) fair access to credit, and (iv) underwriting practices, particularly with respect to leveraged loans, indirect auto lending, HELOCs, and credit related to the oil and gas sector.  The report also notes declining revenues and profitability overall in OCC-supervised institutions.

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OCC Fines National Bank for Alleged Unfair Billing Practices

On June 19, the OCC released recent enforcement actions taken against national banks, federal savings associations, and individuals currently or formerly affiliated with national banks and federal savings associations. Among the actions was the issuance of a consent order for a civil money penalty against a national bank for allegedly violating the Federal Trade Commission Act. During its investigation, the OCC discovered deficiencies relating to the bank’s billing and marketing practices, specifically with regard to identity protection and debt cancellation products. According to the consent order, since April 2004, the bank, along with an identity protection product vendor, marketed and sold various types of identity theft protection products to its customers. Before customers could access the credit monitoring service of the identity theft product, they “were required to provide sufficient personal verification information and consent before their credit bureau reports could be accessed.” However, the OCC found that the vendor (i) billed the bank’s customers the full fee for the products, even if they were not receiving all of the credit monitoring services; (ii) billed the customers prior to receiving the customers’ information and consent and establishment of credit monitoring; and (iii) failed to ensure that customers received electronic benefit notifications. The bank retained a portion of the fees that the customers paid. Additionally, the bank’s vendors incorrectly informed customers during telemarketing calls that only one of the products offered had the ability to access identity protection benefits electronically. As a result, some customers purchased the more expensive Enhanced Identity Theft Protection, as opposed to the less expensive Identity Theft Protection, under the mistaken belief that this was the only way they could access the product’s benefits online. Finally, the OCC also alleged that, from August 2005 through November 2013, the bank’s debt cancellation product vendor’s billing practices, which posted recurring payments on the same day of the month regardless of the payments’ due dates, resulted in some customers paying recurring late fees. The bank will pay $4,000,000 to resolve the OCC’s allegations.

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OCC to Escheat Funds from Foreclosure Review; Agency Terminates Three Consent Orders and Issues Six Amended Orders

On June 17, the OCC announced that, at year-end 2015, it will escheat any remaining uncashed payments made pursuant to the Independent Foreclosure Review Payment Agreement. Despite the IFR Payment Agreement having already resulted in the distribution of over $2.7 billion to more than 3.2 million eligible borrowers, the OCC anticipates that roughly $280 million from OCC-supervised institutions will remain unclaimed by the end of 2015. By escheating the remaining available funds, eligible borrowers and their heirs will have the opportunity to claim the funds. The agency also announced that it terminated foreclosure-related consent orders against three financial institutions because they have complied with the April 2011 orders and the February 2013 amendments to the orders. In addition, the OCC issued amended consent orders to six banks that did not meet all of the requirements of the consent orders by placing restrictions on the following business activities: (i) acquisition of residential mortgage servicing or residential mortgage servicing rights; (ii) new contracts to perform residential mortgage servicing for other parties; (iii) outsourcing or sub-servicing of new residential mortgage servicing activities to other parties; (iv) off-shoring new residential mortgage servicing activities; and (v) new appointments of senior officers in charge of residential mortgage servicing or residential mortgage servicing risk management and compliance. The limitations placed on the financial institutions were based on each bank’s particular circumstances.

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OCC Announces Improved Online Access to Corporate Application Information and Comments

On June 12, the OCC announced an improvement to the public’s ability to access information online concerning business combination corporate applications submitted by national banks and federal savings associations. The enhanced online access, which is now accessible via the agency’s homepage and licensing page, allows the public to submit and view comments on business combination applications on a single page. In addition, the single page provides links to a public copy of the corporate application, supplemental material filed by the applicant, and a location for individuals to view and submit comments.

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Agencies Finalize Diversity Policy Statement

On June 9, six federal agencies – the Federal Reserve, CFPB, FDIC, NCUA, OCC, and the SEC – issued a final interagency policy statement creating guidelines for assessing the diversity policies and practices of the entities they regulate. Mandated by Section 342 of the Dodd-Frank Act, the final policy statement requires the establishment of an Office of Minority and Women Inclusion at each of the agencies and includes standards for the agencies to assess an entity’s organizational commitment to diversity, workforce and employment practices, procurement and business practices, and practices to promote transparency of diversity and inclusion within the organization. The final interagency guidance incorporates over 200 comments received from financial institutions, industry trade groups, consumer advocates, and community leaders on the proposed standards issued in October 2013. The final policy statement will be effective upon publication in the Federal Register. The six agencies also are requesting public comment, due within 60 days following publication in the Federal Register, on the information collection aspects of the interagency guidance.

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OCC Comptroller Discusses Emerging Payment Systems Technology and Cybersecurity, FFIEC Set to Release Cybersecurity Assessment Tool

On June 3, in prepared remarks delivered at the BITS Emerging Payments Forum, OCC Comptroller Thomas Curry advised that as financial institutions continue to develop payment systems, banks need better preparation for potential cyber-risks. Curry warned that “[c]yber criminals will also probe emerging payment systems for vulnerabilities that they can exploit to engage in money laundering[.]” In addition, Curry advocated for more regulatory oversight of digital currencies and non-bank mobile payment providers, such as ApplePay and Google Wallet. Addressing cybersecurity concerns, Curry called for increased information-sharing to promote best practices and strengthen cybersecurity readiness among the banking industry. In particular, he urged financial institutions – of all sizes – to participate in the Financial Services Information Sharing and Analysis Center, or FS-ISAC, a non-profit founded by the banking industry to facilitate the sharing and dissemination of cybersecurity threat information.  Moreover, Curry confirmed that the FFIEC will soon be releasing a Cybersecurity Assessment Tool for financial institutions to use when evaluating their cybersecurity risks and risk management capabilities, observing that the tool will be particularly helpful to community banks as cybersecurity threats continue to increase.

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National Bank to Pay $30 Million Civil Penalty to OCC for Alleged SCRA Violations

On May 29, the OCC entered into a consent order with a national bank to resolve allegations that it (i) violated the SCRA; (ii) engaged in unsafe and unsound practices in its efforts to comply with the SCRA; and (iii) engaged in unsafe and unsound practices in regards to its sworn document and collections litigation practices. The OCC claimed that the bank did not comply with the SCRA by failing to: (i) maintain effective policies and procedures; (ii) devote adequate financial, staffing and managerial resources to guarantee the SCRA compliance process was properly administered; and (iii) provide sufficient internal controls, compliance risk management, internal audit, third party management, and training related to its SCRA compliance process. In relation to the sworn document and collections litigation process, the OCC asserted that the bank’s deficiencies in its enterprise compliance risk management function resulted in unsafe and unsound practices, including failure to ensure that affidavits filed in court followed proper notary procedures. Under the terms of the consent order for a civil money penalty, the OCC will collect $30,000,000 from the bank.

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OCC Comptroller Curry Delivers Remarks on Easing Regulatory Burdens on Small Banks

On May 4, OCC Comptroller Thomas J. Curry delivered remarks at the third outreach meeting held under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) in Boston. Acknowledging that smaller banks lack compliance resources as compared to larger institutions, Curry noted that the agency is working with the FFIEC to remove the outdated and onerous regulatory requirements currently imposed on the institutions: “If it is clear that a regulation is unduly burdensome, and if we have the authority to make changes to eliminate that burden, we will act.” With respect to regulatory requirements that call for legislative action, Curry emphasized that the agency is working with Congress to eliminate the unnecessary burdens. In this regard, the agency has presented lawmakers with three specific proposals to remove regulatory burden on smaller banks: (i) raise the asset threshold from $500 million to $750 million so that a greater number of community banks qualify for the 18-month examination cycle; (ii) provide a community bank exemption from the Volcker Rule; and (iii) provide greater flexibility to federal savings associations to change and expand their business strategies without changing their governance structure.

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OCC Issues Updated RESPA Examination Guidance to Supervised Institutions

On April 14, the OCC issued the “Real Estate Settlement Procedures Act” booklet as part of the Comptroller’s Handbook, which is prepared for use by OCC examiners in connection with their examination and supervision of national banks and federal savings associations (collectively, “banks”). The revised booklet, which replaces a similarly titled booklet issued in October 2011, reflects updated guidance relating to mortgage servicing and loss mitigation procedures resulting from the multiple amendments made to Regulation X over the past several years. Notable revisions reflected in the revised booklet include: (i) the transfer of rulemaking authority for Regulation X from HUD to the CFPB; (ii) new requirements relating to mortgage servicing; (iii) new loss mitigation procedures; (iv) prohibitions against certain acts and practices by servicers of federally related mortgage loans with regard to responding to borrower assertions of error and requests for information; and (v) updated examination procedures for determining compliance with the new servicing and loss mitigation rules. The OCC notified its applicable supervised financial institutions of the changes affecting all banks that engage in residential mortgage lending activities by distributing OCC Bulletin 2015-25.

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Federal Banking Regulators Expand Scope of EGRPRA Review

On April 6, the Federal Reserve, OCC, and FDIC (Agencies) revealed that their ongoing regulatory review under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) will now be expanded to include recently issued regulations. The EGRPRA requires the Agencies and the FFIEC to review and identify outdated, burdensome, or unnecessary regulations at least every 10 years. The regulators have held two public outreach meetings with additional outreach sessions currently scheduled for May 4 in Boston, August 4 in Kansas City, October 19 in Chicago, and concluding on December 2 in Washington, D.C.

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Federal Banking Regulators Issue FAQs on the Regulatory Capital Rule

On April 6, three prudential banking regulators – the Federal Reserve, OCC, and FDIC – issued interagency guidance to clarify and answer questions from regulated financial institutions with respect to the regulatory capital rule adopted in 2013. The FAQs address various topics, including (i) the definition of capital; (ii) high-volatility commercial real estate exposures; (iii) other real estate and off-balance sheet exposures; (iv) separate account and equity exposures to investment funds; (v) credit valuation adjustment; and (vi) the definition of a qualifying central counterparty.

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Comptroller Curry Remarks on OCC Assistance to Mutual Savings Associations and Community Banks

On March 23, OCC Comptroller Curry delivered remarks at the ABA Mutual Community Bank Conference regarding the agency’s supervision of mutual savings associations and community banks. Curry focused on the agency’s ongoing efforts to assist smaller financial institutions, specifically by reducing some of the unnecessary burden placed on them. Curry outlined three areas in which the agency is urging Congress to take action to reduce burdensome regulation: (i) raising the asset threshold requirement for the 18-month examination cycle from $500 million to $750 million; (ii) exempting community banks from the Volcker Rule requirement; and (iii) making it “easier for thrifts to expand their business model without changing their governance structure.” In addition to recommending actions to Congress, the OCC continues to hold OCC Mutual Savings Association Advisory Committee meetings and support collaboration among community banks to further ensure that smaller institutions can continue to serve their communities.

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Fed and OCC Assert Bank Examination Privilege in Mortgage-Backed Securities Class Action

On March 23, the Federal Reserve and the Office of the Comptroller of the Currency – both non-parties in the suit – filed briefs requesting that a district court reject a motion to compel discovery of over 30,000 documents held by a large bank.  Arguing that the documents contain confidential supervisory information, the regulators asserted the bank examination privilege – “a qualified privilege that protects communications between banks and their examiners in order to preserve absolute candor essential to the effective supervision of banks.”  As for scope, the regulators argued that the privilege covers the documents because they provide agency opinion, not merely fact, and that any factual information was nonetheless “inextricably linked” with their opinions.  Additionally, they contended that the privilege is not strictly limited to communications from the regulator to the bank – instead, it may also cover communications made from the bank to the regulator and communications within the bank.  As for procedure, the regulators claimed that a plaintiff is required to request the disclosure of privileged documents through administrative processes before seeking judicial relief, a requirement they contend exists even where a defendant bank also holds copies of the documents. Finally, the regulators argued in the alternative that the lead plaintiff has not shown good cause to override the qualified privilege, as the interests of the government in protecting the supervisory information outweighs the interest of the plaintiffs in production.

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OCC Revises Guidance Regarding Consumer Protection Requirements to Overdraft Lines and Protection Services

As previously reported in our March 11 Special Alert Update, on March 6, 2015, the OCC issued its revised “Deposit-Related Credit” booklet (“DRC booklet”) of the Comptroller’s Handbook, which replaced the “Deposit-Related Consumer Credit” booklet issued on February 11, 2015 (previously covered in this Special Alert).  While the new booklet covers the same products – check credit (overdraft lines of credit, cash reserves, and special drafts), overdraft protection services, and deposit advances – the OCC made significant amendments to scale back the provisions of the prior version.  Specifically, the new DRC booklet no longer contains supervisory principles that could be read to require that banks provide substantive consumer protections that are not currently required by the applicable consumer protection regulations.   Read more…

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