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.
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.
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…
Special Alert Update: OCC Revises Guidance Regarding Consumer Protection Requirements to Overdraft Lines and Protection Services
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. For example, the DRC booklet no longer requires that banks:
- only enroll customers into an overdraft protection service if they have affirmatively requested that product;
- ensure the ability to repay for all applicants enrolled in an overdraft protection service; and
- ensure that any fees charged in connection with an overdraft protection service are reasonably related to the program’s costs and associated risks.
In making these changes, the OCC requires supervisors to assess DRC products more in line with existing consumer protection laws. The OCC states as much in OCC Bulletin 2015-17, which announced the DRC booklet. There, the OCC acknowledges that the DRC booklet “is intended as a summary restatement of existing laws, regulations, and policies [and] … [n]othing in this booklet should be interpreted as changing existing OCC policy.”
On March 2, OCC Comptroller Curry delivered remarks before the Institute of International Bankers regarding BSA/AML compliance obligations for financial institutions. During his remarks, Comptroller Curry emphasized that a top priority for the OCC has been to strengthen BSA/AML compliance at its supervised institutions. In this regard, the OCC has (i) modified its bank examination process so that BSA deficiencies receive proper emphasis in the evaluation of safety and soundness; (ii) focused on the BSA/AML risks posed by third-party relationships; (iii) required that institutions adequately resource their BSA/AML compliance programs; (iv) required institutions to assign accountability for BSA/AML compliance across all business lines presenting BSA/AML risk; and (v) taken enforcement action to enforce BSA/AML compliance when appropriate. Through his remarks, Comptroller Curry also addressed the need to improve the BSA/AML regulatory framework itself. Specifically, Comptroller Curry indicated that the OCC wanted (i) to streamline the SAR reporting process, (ii) to find better ways to use technology to advance BSA/AML goals, and (iii) to increase information sharing by creating safe harbors from civil liability both for financial institutions that file SARs and for financial institutions that share information about financial crimes with each other.
On February 27, FinCEN announced a $1.5 million civil money penalty against a Pennsylvania-based community bank for violating the BSA. Of that amount, $500,000 will go to the OCC, the bank’s primary regulator, for BSA violations. According to FinCEN, the bank admitted failing to file suspicious activity reports on transactions involving a former state judge who received over $2.6 million in personal payments in connection with a judicial scheme involving the construction, operation, and expansion of juvenile detention centers.
On February 25, OCC Deputy Comptroller Darrin Benhart delivered remarks at the 16th Annual Global Association of Risk Professionals (GARP) Risk Management Conference on the OCC’s efforts to improve its ability to “identify, monitor, and respond to emerging risks” that continue to affect the financial services industry. Benhart highlighted the newly formed Supervision Risk Management team, emphasizing its work with the OCC’s National Risk Committee in monitoring emerging threats to the safety and soundness of the federal banking system. More significantly, Benhart commented on the agency’s growing concern with banks’ recent re-evaluations of their business models as they pursue “new ways to generate returns against the backdrop of low interest rates.” In light of this concern, Benhart cautioned bank management to consider the following three risk management areas when assessing potential updates to their existing business models: (i) concentration risk management – ensure that concentrations for financial institutions are effectively identified and measured to prevent heightened credit, interest rate, liquidity, or operational risks; (ii) correlation risk – recognize that the impact of the risk goes beyond the obvious affected borrowers and should focus as well on those indirectly correlated borrowers for whom the exposure is often more difficult to measure and understand; and (iii) over-reliance on historical performance – acknowledge that the financial environment can change and “paradigms can shift.”
On February 20, the OCC announced that it would be removing the “Deposited-Related Consumer Credit” booklet, originally issued on February 11, from its website. The OCC’s February 11 booklet seemingly required banks to change overdraft protection services, however the agency has since stated that the booklet was not intended to establish new policy. According to the OCC’s website, the agency will “[revise] the booklet to clarify and restate the existing law, rules, and policy.” When the OCC releases its amended version of the booklet, we will update the February 16 Special Alert to reflect the agency’s modifications.
On February 18, three federal banking agencies – the Federal Reserve Board, OCC, and FDIC – issued a joint notice seeking public comments on a proposed information collection form and its reporting requirements, FFIEC 102 – “Market Risk Regulatory Report for Institutions Subject to the Market Risk Capital Rule.” If finalized, market risk institutions will be required to file the proposed FFIEC 102 to allow the agencies to, among other things, assess “the reasonableness and accuracy of the institution’s calculation of its minimum capital requirements . . . and . . . the institution’s capital in relation to its risks.” The proposed FFIEC 102 sets forth reporting instructions for financial institutions to which the market risk capital rule applies, and specifies that reporting requirements would take effect starting March 31, 2015. Comments to the proposal must be submitted on or before March 20.
Special Alert: OCC Guidance Applies Consumer Protection Requirements to Overdraft Lines and Protection Services
UPDATE: On February 20, the OCC announced that it would be removing the “Deposited-Related Consumer Credit” booklet, originally issued on February 11, from its website. The OCC’s February 11 booklet seemingly required banks to change overdraft protection services, however the agency has since stated that the booklet was not intended to establish new policy. According to the OCC’s website, the agency will “[revise] the booklet to clarify and restate the existing law, rules, and policy.” When the OCC releases its amended version of the booklet, we will update the February 16 Special Alert to reflect the agency’s modifications.
On February 11, 2015, the OCC issued the “Deposit-Related Consumer Credit” booklet of the Comptroller’s Handbook, which replaced the “Check Credit” booklet. The booklet provides updated guidance and examination procedures that the OCC will use to assess a bank’s deposit-related consumer credit (DRCC) products, which include check credit (overdraft lines of credit, cash reserves, and special drafts), overdraft protection services, and deposit advances. In many respects, it tracks the CFPB’s proposed prepaid rule, which would apply the Truth-in-Lending Act and Regulation Z to a broad range of credit features associated with prepaid products. Read more…
On February 10, officials from federal and state banking authorities – the Fed, FDIC, NCUA, OCC, and the CSBS – testified at a U.S. Senate Banking Committee on ways the agencies can provide “regulatory relief” to community banks and credit unions, which disproportionately incur burdens to implement the rules and provisions of the Dodd-Frank Act. Specifically, officials from each of the federal banking agencies detailed current initiatives and proposals that would provide less burdensome compliance costs.
On January 26, the OCC named Michael Brickman as the Deputy Comptroller for Special Supervision. In his role, Brickman will manage the supervision of the OCC’s most problematic midsize and community banks, and will oversee the “development and implementation of rehabilitation or resolution strategies for assigned banks and savings associations.” Prior to joining the OCC in 2011 as Director for Special Supervision, Brickman held various positions at the Office of Thrift Supervision, including Conglomerate Examiner—Complex and International Organizations, Senior Advisor to the Managing Director of Supervision, and Director for Regional Activities.
On January 14, the OCC released its schedule of workshops for directors of national community banks and federal savings associations. The OCC examiner-led workshops provide practical training and guidance to directors of national community banks and federal savings associations to support the safe and sound operation of community-based financial institutions. The four workshops planned are (i) “Building Blocks for Directors,” (ii) “Risk Governance,” (iii) “Compliance Risk,” and (iv) “Credit Risk.” Each workshop costs $99.00. Registration is required.
On January 13, the OCC released a paper entitled, “An Opportunity for Community Banks: Working Together Collaboratively.” The paper describes how community banks can pool resources to “obtain cost efficiencies and leverage specialized expertise.” The paper explores the benefits of collaboration and outlines how community banks can structure collaborative arrangements. The paper cites examples of ways that community banks can, and already do collaborate, including: (i) networking, or exchanging information and ideas; (ii) jointly purchasing materials or services; (iii) sharing specialized team or staff members; and (iv) jointly providing and/or developing products and services.
On December 19, the OCC announced the release of its quarterly Mortgage Metrics Report. The report highlights the mortgage performance of first-lien mortgages serviced by seven national banks and one federal savings association through September 30, 2014. Notably, the report showed 93 percent of mortgages were current and performing at the end of the quarter, compared with 92.9 percent at the end of the previous quarter and 91.4 percent a year earlier. Also, the report showed a 41.5 percent decrease in foreclosure activity in the last year. The mortgages included in this portfolio represent 46 percent of all residential mortgages in the U.S., approximately 24 million loans totaling $4.0 trillion in principal balances.