Regulatory Update - April 2015

Grant Thornton’s monthly Regulatory Update tracks key regulatory news and enforcement activity within the financial services industry so you can stay informed about the impact of current events on your business.

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April 23, 2015 – Examining Regulatory Burdens for Community Banks
Representatives of the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Incorporation (FDIC), and Federal Reserve Board (FRB) provided testimony before the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee regarding challenges facing community banks and the perceived burden of current regulation. The OCC was represented by Senior Deputy Comptroller for Midsize and Community Bank Supervision Toney Bland. The FDIC was represented by Doreen Eberley, Division of Risk Management Supervision Director, and the FRB was represented by Maryann Hunter, Deputy Director of the Division of Banking Supervision and Regulation. Testimony included commentary on the efforts currently underway at each regulator to tailor supervisory expectations specifically to community banks and reduce regulatory burden.
Read Mr. Bland’s full testimony (OCC) >>
Read Ms. Eberley’s full testimony (FDIC) >>
Read Ms. Hunter’s full testimony (FRB) >>

April 17, 2015 – Additional FRB Information on Operating Structure of Large Institution Supervision Coordinating Committee  Supervisory Program
The FRB released additional information on the operating structure of the Large Institution Supervision Coordinating Committee (LISCC) supervisory program. The LISCC program was established in 2010 to oversee and supervise the largest, most systemically important financial institutions. The program uses a centralized process that incorporates a broad range of internal Federal Reserve System perspectives and expertise and facilitates consistent supervision among the firms. The LISCC is comprised of senior officers at the Board and Reserve Banks and includes bank supervisors, market analysts, research economists, and payment system experts.  The program evaluates both the safety and soundness of individual large financial institutions and the risks posed by those institutions to the broader financial system.
Read the full FRB SR Letter >>

April 15, 2015 – FDIC Vice Chairman Comments on Regulatory Relief for Community Banks
FDIC Vice Chairman Thomas Hoenig, in a speech to the Hyman P. Minsky Conference, offered remarks regarding the regulatory relief efforts currently under consideration. The Vice Chairman also offered his recommendations for regulatory relief which include defining eligibility for regulatory relief and then further focusing on perceived sources of current regulatory burden to include: new risk-based capital rules; call reports; consumer compliance regulations; appraisal requirements; and the frequency of the examination cycle.
Read Vice Chairman Hoenig’s full remarks >>

April 2, 2015 – Strengthening Community Banking
In a speech to the Depositors Insurance Fund of Massachusetts, Comptroller of the Currency Thomas J. Curry discussed efforts to strengthen community banking through expanding flexibility of the federal thrift charter, reducing unnecessary burden in the regulatory process for community banks, encouraging collaboration, and enhancing institutions' readiness to withstand cyber threats.
Read Comptroller Curry’s full remarks >>

April 2, 2015 – “Value” of Joining the Federal Reserve System
The U.S. Treasury Department’s Office of Financial Research released a working paper entitled, "Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System." The paper notes that the Federal Reserve System was created to reduce risks related to seasonal swings in loan demand and to stabilize fluctuations in interest rates. Many state-chartered banks chose not to join the system because of the cost of the Federal Reserve’s reserve requirements. The inability to attract many state-chartered banks has created indirect access to government protection (lender of last resort) without federal regulation.
Read the full Office of Financial Research working paper >>

March 31, 2015 –  Wells Fargo Permitted to Use Advanced Approaches Framework to Determine Risk-Based Capital Requirements
The FRB and OCC announced that they have permitted Wells Fargo and its subsidiary national banks to begin using the “advanced approaches” capital framework starting in the second quarter of 2015. Under this framework, firms must meet specific risk-measurement and risk-management criteria when calculating their risk-based capital requirements. The framework implements standards developed by the Basel Committee on Banking Supervision and applies to large, internationally active banking organizations – generally those with at least $250 billion in total consolidated assets or at least $10 billion in total on-balance sheet foreign exposure – and includes the depository institution subsidiaries of those firms.
Read the full joint press release >>

April 30, 2015 – Minimum Requirements for Appraisal Management Companies
The agencies issued a final rule to implement the minimum requirements in the Dodd-Frank Act for the registration and supervision of appraisal management companies (AMCs). An AMC is an entity that meets the statutory appraiser panel threshold size and provides certain types of appraisal management services in connection with valuing a consumer's principal dwelling as security for a consumer credit transaction or incorporating such transactions into securitizations. The final rule requires participating states to adopt minimum requirements for the registration of AMCs that perform appraisal management services; impose certain minimum requirements on AMCs that register with a state; and report AMC information to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. Participating states have 36 months after the effective date of this final rule to establish the state registration and supervision program.
Read the full AMC minimum requirements final rule >>

April 15, 2015 – OCC Bulletin 2015-26: Revised Trade Finance and Services Booklet
The OCC issued the Trade Finance and Services booklet of the Comptroller's Handbook, which applies to examinations of all national banks and federal savings associations engaged in trade finance and services. The “Trade Finance and Services” booklet provides updated examination procedures for examiners concerning trade finance and services activities; highlights of the types of products that national banks and federal savings associations may offer in their trade finance and services business lines; and information on the risks associated with trade finance and services and supervisory expectations for risk management.
Read the full Trade Finance and Services booklet >>

April 14, 2015 –  Revised RESPA Booklet of the Comptroller’s Handbook
The OCC issued a revised “Real Estate Settlement Procedures Act” (RESPA) booklet of the Comptroller's Handbook, which replaces a similarly titled booklet issued from October 2011 and provides updated information resulting from recent changes made to Regulation X regarding mortgage servicing and loss mitigation. The new booklet reflects the transfer of rulemaking authority for Regulation X from the U.S. Department of Housing and Urban Development to the Consumer Financial Protection Bureau (CFPB); new requirements relating to mortgage servicing; new loss mitigation procedures; new 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 new examination procedures for determining compliance with the new requirements related to mortgage servicing.
Read the full RESPA booklet of the Comptroller’s Handbook >>

April 9, 2015 – FRB Expanded Applicability of Small Bank Holding Company Policy Statement
The FRB issued a final rule to expand the applicability of its Small Bank Holding Company Policy Statement and also apply it to certain savings and loan holding companies. The policy statement facilitates the transfer of ownership of small community banks and savings associations by allowing their holding companies to operate with higher levels of debt than would normally be permitted. While holding companies that qualify for the policy statement are excluded from consolidated capital requirements, their depository institution subsidiaries continue to be subject to minimum capital requirements. The final rule raises the asset threshold of the policy statement from $500 million to $1 billion in total consolidated assets. It also expands the application of the policy statement to savings and loan holding companies. All firms must still meet certain qualitative requirements, including those pertaining to non-banking activities, off-balance sheet activities, and publicly-registered debt and equity.
Read the full FRB press release >>

April 6, 2015 – Revised CFPB TILA and RESPA Examination Procedures
The CFPB revised the chapters of its Supervision and Examination Manual specific to the Truth in Lending Act (TILA) and RESPA, incorporating the TILA/RESPA integrated disclosures requirements that are set to take effect on August 1, 2015.  These chapters replace versions of the TILA and RESPA procedures released on November 27, 2013. The CFPB’s release of these chapters signals that it has begun, or will shortly begin, intensive examiner training on the rule.
Read the new TILA examination procedures >>
Read the new RESPA examination procedures >>

April 6, 2015 – Regulatory Capital Rule Frequently Asked Questions
The OCC, FRB, and FDIC, collectively, released answers to frequently asked questions (FAQs) regarding the regulatory capital rule. The FAQs address the following topics: definition of capital, high-volatility commercial real estate exposures, other real estate and off-balance-sheet exposures, separate account and equity exposures to investment funds, qualifying central counterparty questions, credit valuation adjustment questions, and other miscellaneous questions.
Read the full interagency Frequently Asked Questions >>

April 3, 2015 – OCC Bulletin 2015-22: Subordinated Debt Guidelines and Sample Notes
The OCC revised and reorganized its current guidance for subordinated debt issued by national banks and replaced it with new “Guidelines for Subordinated Debt.” The guidelines are consistent with the regulatory capital rules at 12 CFR 3 and the licensing rules for national banks (at 12 CFR 5.471) and federal savings associations (at 12 CFR 163.80 and 12 CFR 163.812). The new guidelines apply to all subordinated debt issued by national banks and federal savings associations (collectively, bank or banks), regardless of whether the subordinated debt is included in regulatory capital. The OCC also revised the “Sample Subordinated Note” and replaced it with two sample notes for national banks. The first note provides sample language for a subordinated debt note included in tier 2 capital, and the second provides sample language for a subordinated debt note that is not included in tier 2 capital. The sample notes apply only to subordinated debt issued by a national bank because there is no pre-existing sample note for federal savings associations. The OCC is developing sample notes for federal savings associations and expects to publish the sample notes in the near future. The new guidelines and sample notes are effective for subordinated debt issued on or after April 3, 2015.
Read the full OCC Bulletin >>

April 28, 2015 – Illegal Overdraft Fees
The CFPB took action against Regions Bank, headquartered in Birmingham, AL, for charging overdraft fees to consumers who had not opted-in for overdraft coverage. The bank also charged overdraft and non-sufficient funds fees on its deposit advance product despite claims that it would not. Regions Bank has already refunded hundreds of thousands of consumers approximately $49 million in fees, and the consent order requires the bank to fully refund all remaining consumers. The CFPB also fined the company $7.5 million for its illegal actions.
Read the full CFPB press release >>

April 23, 2015 – Mortgage Origination and Underwriting Violations
The United States filed a complaint in U.S. District Court against Quicken Loans Inc. under the False Claims Act for improperly originating and underwriting mortgages insured by the Federal Housing Administration (FHA). The government’s complaint alleges that, from September 2007 through December 2011, Quicken knowingly submitted, or caused the submission of, claims for hundreds of improperly underwritten FHA-insured loans. The complaint further alleges that Quicken instituted and encouraged an underwriting process that led to employees disregarding FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages. Quicken also allegedly granted “management exceptions” whereby managers would allow underwriters to break an FHA rule in order to approve a loan.
Read the full Department of Justice press release >>

April 21, 2015 – Mortgage Servicing Violations
The CFPB and the Federal Trade Commission took action against Green Tree Servicing, LLC, for mistreating mortgage borrowers who were trying to save their homes from foreclosure. The mortgage servicer failed to honor modifications for loans transferred from other servicers, demanded payments before providing loss mitigation options, delayed decisions on short sales, and harassed and threatened overdue borrowers. Green Tree has agreed to pay $48 million in restitution to victims and a $15 million civil money penalty for its illegal actions.
Read the full CFPB press release >>

April 20, 2015 – Breach of Fiduciary Duty
The Securities and Exchange Commission (SEC) charged BlackRock Advisors LLC with breaching its fiduciary duty by failing to disclose a conflict of interest created by the outside business activity of a top-performing portfolio manager. BlackRock agreed to settle the charges and pay a $12 million penalty.  The firm must also engage an independent compliance consultant to conduct an internal review.
Read the full SEC press release >>

April 20, 2015 – Hidden Fees Charged to Servicemembers
The CFPB took action against Fort Knox National Company and its subsidiary, Military Assistance Company, for charging servicemembers millions of dollars in hidden fees. The military allotment processor did not clearly disclose various recurring fees, which could total $100 or more. Under a consent order entered into with the CFPB, Fort Knox National Company and Military Assistance Company will pay approximately $3.1 million in relief to harmed servicemembers.
Read the full CFPB press release >>

April 9, 2015 – Deceptive Mortgage Advertising
The CFPB took action against RMK Financial Corporation for deceptive mortgage advertising practices, including ads that led consumers to believe that the company was affiliated with the U.S. government. The CFPB is ordering RMK to end its illegal and deceptive practices and pay a civil penalty of $250,000. RMK mailed print advertisements to more than 100,000 consumers in several states, using the names and logos of the Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA) in a way that falsely implied that the advertisements were sent by the VA or FHA, or that the company or the advertised mortgage products were endorsed or sponsored by the VA or FHA. RMK sent its advertisements to tens of thousands of U.S. military servicemembers and veterans and other holders of VA-guaranteed mortgages.
Read the full CFPB press release >>

Industry Hot Topics: Overdraft Payment Programs
As illustrated by the multi-million dollar enforcement action discussed above pertaining to illegal overdraft fees, federal banking regulators – in particular the FDIC and CFPB – continue to increase their focus on overdraft payment programs in an effort to protect consumers from excessive and unfair fees. With the CFPB expected to release new overdraft guidance in mid-2015, Grant Thornton’s Regulatory Center of Excellence offers advisory services to help guide institutions in their efforts to remain compliant with evolving consumer protection laws such as those related to overdraft payment programs. The attached document describes Grant Thornton’s overdraft advisory capabilities, which we tailor specifically to the needs, size, and complexity of the institution. Please do not hesitate to contact Grant Thornton for an exploratory conversation to discuss how we may be able to help strengthen your overdraft compliance program.
Read the full article >>

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