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Regulatory Update - July 2015

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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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INDUSTRY NEWS
July 28, 2015 – Agencies Provide Feedback to Nonbank Firms on Resolution Plans
The Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Board (FRB) provided feedback to three nonbank financial companies regarding their initial resolution plans and guidance to the firms for their upcoming filings. The Dodd-Frank Act requires that bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council as systemically important periodically submit resolution plans to the FDIC and FRB. Three nonbank financial firms, American International Group, Inc., Prudential Financial, Inc., and General Electric Capital Corporation (GECC), filed initial resolution plans in July 2014. The FDIC and FRB tailored their feedback to account for each company's unique business, structure, and operations. In addition to the specific guidance given to each company, the letters include some common areas that the firms should address, including the need for more detailed information on and analysis of obstacles to resolvability, including global cooperation, interconnectedness, and adequate funding and liquidity. Furthermore, the agencies instructed the firms to describe in their resolution plans the progress they are making, and the steps remaining, to be more resolvable. Finally, the agencies directed the firms to strengthen the public portions of the firms' upcoming resolution plans. The three nonbank financial companies will submit the second version of their annual resolution plans on or before December 31, 2015.
Read the full joint FDIC and FRB press release >>

July 24, 2015 – OCC Comptroller Discusses Risk And Opportunities Facing Financial Services
Comptroller of the Currency Thomas J. Curry discussed risks and opportunities facing financial services during remarks before the New England Council. During his speech, the Comptroller commented on interest rate risk, compliance risk, cybersecurity, and the role collaboration and information sharing across companies and industries can play in mitigating these risks. He also discussed opportunities to improve business operations as well as service to customers.
Read Comptroller Curry’s full remarks >>

July 20, 2015 – CFPB Cautions Military Lenders Against Illegal Military Allotment Practices
The CFPB sent letters to several companies that sell retail goods to military servicemembers, advising them to review their websites and other advertising for potentially misleading marketing and to review other practices related to payment by military allotment. Active-duty servicemembers are not permitted to use allotments to pay for personal property such as vehicles, appliances, and consumer electronics. The CFPB is concerned that companies that are still advertising repayment by way of military allotment may potentially be violating federal consumer financial protection laws.
Read the full CFPB press release >>

July 16, 2015 – CFPB Launches Its First-Ever Monthly Complaint Snapshot to Spotlight Consumer Trends
The CFPB launched the first in a new series of monthly reports to highlight key trends from consumer complaints submitted to the Bureau. The monthly report includes complaint data on company performance, complaint volume, state and local information, and product trends. Each month, the report will spotlight a particular product and geographic location as well – this report provides a closer look at debt collection complaints and complaints from consumers in Milwaukee, Wisconsin. The reports will provide insight for the public into the hundreds of thousands of consumer complaints on financial products and services handled by the CFPB.
Read the full CFPB Monthly Complaint Report >>

July 7, 2015 – CFPB Report Finds Servicemembers Continue To Face Roadblocks From Student Loan Servicers
The CFPB released a report outlining the continued challenges faced by servicemembers when they contact student loan servicers to invoke the military rights and protections earned through their service. The report, “Overseas & Underserved: Student Loan Servicing and the Cost to Our Men and Women in Uniform,” highlights servicers’ continued mistakes handling servicemembers’ student loan repayments, resulting in improper denials of legal benefits, negative credit reporting, and inadequate follow-through on legal protections for military families. Complaints also include frustrations from grieving parents seeking to discharge a co-signed loan following the death of their child.
Read the full CFPB Overseas and Underserved report >>

July 6, 2015 – Agencies Post Public Sections of Resolution Plans
The FRB and FDIC posted the public portions of annual resolution plans for 12 large financial firms. Each plan must describe the company's strategy for rapid and orderly resolution under the U.S. Bankruptcy Code in the event of material financial distress or failure of the company. The Dodd-Frank Act requires that bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council as systemically important periodically submit resolution plans to the FDIC and the FRB. The 12 firms for which public portions of their resolution plans were made public are: Bank of America Corporation, Bank of New York Mellon Corporation, Barclays PLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, UBS AG, and Wells Fargo & Company.
Read the full joint FDIC and FRB press release >>

June 30, 2015 – OCC Releases "Quarterly Report on Bank Trading and Derivatives Activities"
The Office of the Comptroller of the Currency (OCC) released its Quarterly Report on Bank Trading and Derivatives Activities, showing that insured U.S. commercial banks and savings institutions reported trading revenue of $7.7 billion in the first quarter of 2015, $3.2 billion higher (72 percent) than in the fourth quarter of 2014. Trading revenue in the first quarter was $1.5 billion higher (24 percent) than in the first quarter of 2014. Additionally, credit exposures from derivatives increased as net current credit exposure, the primary metric the OCC uses to measure credit risk in derivatives activities, rose $147 billion (41 percent) to $503 billion.
Read the full OCC Quarterly Report on Bank Trading and Derivatives Activities >>

REGULATORY GUIDANCE
July 28, 2015 – Agencies Provide Additional Guidance for Certain Resolution Plans
The FDIC and FRB provided guidance to 119 firms that in December will be filing updated resolution plans. Based on a review of their plans submitted late last year, the agencies are tailoring the requirements for the submissions. Some firms will receive individual feedback on areas for improvement. Resolution plan requirements are tiered with less complex firms filing more streamlined plans –

29 of the more complex firms are required to file either full or tailored resolution plans that take into account guidance identified by the agencies.

90 firms with limited U.S. operations may file plans that focus on material changes to their 2014 resolution plans, actions taken to strengthen the effectiveness of those plans, and, where applicable, actions to ensure any subsidiary insured depository institution is adequately protected from the risk arising from the activities of nonbank affiliates of the firm.

The new plans are due to the agencies on or before December 31, 2015.
Read the full joint FDIC and FRB press release >>
Access the Tailored Resolution Plan model template >>

July 28, 2015 – Finalized Revisions to the Regulatory Capital Rule
The OCC, FDIC, and FRB finalized revisions to clarify, correct, and update certain provisions of the regulatory capital rule adopted by the agencies in 2013. The revisions apply only to banking organizations subject to the agencies’ advanced approaches risk-based capital framework. The changes do not affect other banking organizations. The revisions clarify some aspects of the qualification requirements for advanced approaches systems and better align the advanced approaches subpart of the regulatory capital rule with the Basel framework. The revisions primarily clarify the qualification criteria and calculation requirements for risk-weighted assets and also clarify that all advanced approaches banking organizations are subject to the supplementary leverage ratio and the disclosure requirements for that ratio.
Read the full final rule >>

July 21, 2015 – Agencies Finalize Flood Insurance Rule
The OCC, FRB, FDIC, Farm Credit Administration, and National Credit Union Administration issued a final rule that implements certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014. The final rule amends existing regulations to: (1) incorporate a statutory exemption to the general mandatory flood insurance purchase requirement for detached structures; (2) establish requirements for national banks and federal savings associations to escrow flood insurance payments on residential improved real estate securing a loan; and (3) incorporate statutory amendments related to the force placement of flood insurance.
Read the full final rule summary >>

July 20, 2015 – Federal Reserve Board Finalizes Capital Surcharge Amounts for GSIBs
The FRB approved a final rule requiring the largest, most systemically important U.S. bank holding companies to further strengthen their capital positions. Under the rule, a firm that is identified as a global systemically important bank holding company, or GSIB, will have to hold additional capital to increase its resiliency in light of the greater threat it poses to the financial stability of the United States. The final rule establishes the criteria for identifying a GSIB and the methods that those firms will use to calculate a risk-based capital surcharge, which is calibrated to each firm's overall systemic risk. Eight U.S. firms are currently expected to be identified as GSIBs under the final rule: Bank of America Corporation; The Bank of New York Mellon Corporation; Citigroup, Inc.; The Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; State Street Corporation; and Wells Fargo & Company. Under the final rule and using the most recent available data, estimated surcharges for the eight GSIBs range from 1.0 to 4.5 percent of each firm's total risk-weighted assets. The surcharges will be phased in beginning on January 1, 2016, becoming fully effective on January 1, 2019.
Read the full FRB press release >>

July 9, 2015 – CFPB Outlines Guiding Principles for Faster Payment Networks
In its Consumer Protection Principles release, the CFPB outlined guiding principles for protecting consumers as the private sector develops new, faster payment systems aimed at reducing “pocket-to-pocket” payment times between consumers and businesses or other entities. The CFPB wants to ensure any new payment systems are secure, transparent, accessible, and affordable to consumers. The systems should also have robust protections when it comes to fraud and error resolution.
Read the full CFPB Consumer Protection Principles >>

June 30, 2015 – FFIEC Releases Cybersecurity Assessment Tool
In light of the increasing volume and sophistication of cyber threats, the Federal Financial Institutions Examination Council (FFIEC) developed the Cybersecurity Assessment Tool to help institutions identify their risks and determine their cybersecurity preparedness. The Assessment provides a repeatable and measurable process for financial institutions to measure their cybersecurity preparedness over time. The Assessment incorporates cybersecurity-related principles from the FFIEC Information Technology Examination Handbook and regulatory guidance and concepts from other industry standards, including the National Institute of Standards and Technology (NIST) Cybersecurity Framework. The Assessment consists of two parts: Inherent Risk Profile and Cybersecurity Maturity. The Inherent Risk Profile identifies the institution’s inherent risk before implementing controls while the Cybersecurity Maturity includes domains, assessment factors, components, and individual declarative statements across five maturity levels to identify specific controls and practices that are in place.
Access the FFIEC’s Cybersecurity Assessment Tool website >>

RECENT ENFORCEMENT ACTION ACTIVITY
July 22, 2015 – Illegal Student Loan Servicing Practices
The CFPB took action against Discover Bank and its affiliates for illegal private student loan servicing practices. The CFPB found that Discover overstated the minimum amounts due on billing statements and denied consumers information they needed to obtain federal income tax benefits. The company also engaged in illegal debt collection tactics, including calling consumers early in the morning and late at night. The CFPB’s order requires Discover to refund $16 million to consumers, pay a $2.5 million penalty, and improve its billing, student loan interest reporting, and collection practices.
Read the full CFPB press release >>

July 21, 2015 – Deceptive Marketing and Unfair Billing of Credit Card Add-On Products and Services
The CFPB ordered Citibank, N.A. and its subsidiaries to provide an estimated $700 million in relief to eligible consumers harmed by illegal practices related to credit card add-on products and services. Roughly seven million consumer accounts were affected by Citibank’s deceptive marketing, billing, and administration of debt protection and credit monitoring add-on products. A Citibank subsidiary – Department Stores National Bank – also deceptively charged expedited payment fees to nearly 1.8 million consumer accounts during collection calls. Citibank and its subsidiaries will pay $35 million in civil money penalties to the CFPB. The CFPB took action in coordination with the OCC, which separately ordered a $35 million civil penalty and restitution from Citibank and Department Stores National Bank for some of the same illegal practices.
Read the full CFPB press release >>
Read the full OCC press release >>

July 14, 2015 – Discretionary Auto Loan Pricing and Compensation Practices
The CFPB and Department of Justice resolved an action with American Honda Finance Corporation that will put new measures in place to address discretionary auto loan pricing and compensation practices. Honda’s past practices resulted in thousands of African-American, Hispanic, and Asian and Pacific Islander borrowers paying higher interest rates than white borrowers for their auto loans without regard to their creditworthiness. As part of the order, Honda must change its pricing and compensation system to substantially reduce dealer discretion and minimize the risks of discrimination and will pay $24 million in restitution to affected borrowers.
Read the full CFPB press release >>
Read the full Department of Justice press release >>

July 8, 2015 – Selling Bad Credit Card Debt and Robo-Signing Court Documents
The CFPB and Attorneys General in 47 states and the District of Columbia took action against JPMorgan Chase (Chase) for selling bad credit card debt and illegally robo-signing court documents. The CFPB and states found that Chase sold “zombie debts” to third-party debt buyers, which include accounts that were inaccurate, settled, discharged in bankruptcy, not owed, or otherwise not collectible. The order requires Chase to document and confirm debts before selling them to debt buyers or filing collections lawsuits. Chase must also prohibit debt buyers from reselling debt and is barred from selling certain debts. Chase is ordered to permanently stop all attempts to collect, enforce in court, or sell more than 528,000 consumers’ accounts. Chase will pay at least $50 million in consumer refunds, $136 million in penalties and payments to the CFPB and states, and a $30 million penalty to the OCC in a related action.
Read the full CFPB press release >>

July 1, 2015 – Unfair Billing of Credit Card Add-On Products and Services
The CFPB took action against two credit card add-on product vendors – Affinion Group Holdings, Inc., Affinion’s affiliated companies, and Intersections Inc. – for unfairly charging consumers for credit card add-on benefits they did not receive. Under the proposed consent orders, Affinion would pay approximately $6.8 million in monetary relief for eligible consumers who have not yet received refunds and $1.9 million in civil money penalties, while Intersections would pay approximately $55,000 in monetary relief to eligible consumers who have not yet received refunds and $1.2 million in civil money penalties.

The CFPB’s complaint alleges that from July 2010 through August 2012, Affinion enrolled consumers in add-on products that claimed to provide consumers with benefits including credit monitoring, credit report retrieval, or both. Consumers generally paid between $6.95 and $15.99 per month for these products, which were typically billed directly to their credit cards or deposit accounts. The CFPB alleges, however, that Affinion or its partner banks billed full product fees to at least 73,000 accounts while failing to provide the full credit monitoring or credit report retrieval services promised and failed to refund fees to those consumers.

Regarding Intersections, the CFPB’s complaint alleges that from 2009 through early 2013, Intersections marketed and sold add-on products to consumers, promising them access to their credit reports and a credit score, email, or phone alerts when new credit accounts were opened in addition to access to a phone representative to respond to their credit report questions. Consumers generally paid between $8 and $13 per month for these products, which were typically billed directly to their credit cards. The CFPB alleges Intersections billed or instructed the banks to bill approximately 300,000 consumers who signed up for their products knowing they were not receiving all the benefits for which they paid. As a result, the CFPB alleges consumers were charged fees even though Intersections could not provide the credit monitoring or other benefits
Read the full CFPB press release >>

GRANT THORNTON ANNOUNCEMENTS

Grant Thornton Managing Director Chris Recor Takes Part in Forum Discussion on Sanctions Compliance
Grant Thornton Managing Director Chris Recor recently participated in a forum discussion regarding sanctions compliance for the September 2015 issue of Risk & Compliance Magazine. Chris is part of Grant Thornton’s Regulatory Center of Excellence and serves as the firm’s Anti-Money Laundering (AML) practice leader. He has spent more than 20 years working with financial services industry clients on their AML, sanctions, compliance, anti-fraud, and regulatory processes. The forum discussion focused on key challenges that businesses are currently facing in relation to sanctions compliance and also highlighted key enforcement trends from regulators such as the US Office of Foreign Assets Control (OFAC).

To access the full transcript of the Risk & Compliance Magazine discussion, click here.

Thank you again for your continued interest in Grant Thornton’s monthly Regulatory Update. To discuss challenges impacting your business – or industry developments in general – please contact us to schedule a conversation.