Close
Close

Regulatory Update - February 2016

RFP
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.

We thank you for your interest in Grant Thornton.

INDUSTRY NEWS
February 25, 2016 – CFPB Director Addresses the Consumer Advisory Board
At this month’s Consumer Advisory Board meeting, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, set forth nine goals representing the key areas where the Board hopes to make substantial progress over the next two years. The goals include a mortgage market where lenders serve the entire array of credit-worthy borrowers fairly, a student loan market where student loans are serviced in a way that is transparent and fair to help students repay their debts, a consumer reporting market with better data that is more accurate, a market free from discrimination, an open-use credit market where payday and installment lenders rely on business models that succeed when consumers use credit as needed and are able to repay their debts when they come due, and an entire consumer financial marketplace where consumers will have the ability to effectuate their rights and hold institutions accountable for unlawful conduct.
Read the full CFPB press release here>>

February 23, 2016 – FDIC-Insured Institutions Earn $40.8 Billion in Fourth Quarter 2015
Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $40.8 billion in the fourth quarter of 2015, up $4.4 billion (11.9 percent) from a year earlier. The increase in earnings was mainly attributable to a $6.8 billion increase in net operating revenue and a $2.7 billion decline in noninterest expenses. The reduction in noninterest expenses is attributed to a drop in litigation expenses at a few large banks. Of the 6,182 insured institutions reporting fourth quarter financial results, more than half (56.6 percent) reported year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable in the fourth quarter fell from 9.9 percent a year earlier to 9.1 percent, the lowest level for a fourth quarter since 1996.
Read the full FDIC press release here>>

February 19, 2016 – FRB Approves Reappointment of Reserve Bank Presidents and First Vice Presidents
The Federal Reserve Bank (FRB) has approved the reappointment of 10 Federal Reserve Bank presidents and 10 first vice presidents by their respective boards of directors. Each individual has been approved to serve a new five-year term beginning March 1, 2016. The recently named presidents of the Federal Reserve Banks of Minneapolis and Dallas, as well as the recently appointed first vice presidents of the Federal Reserve Banks of Philadelphia and Chicago, were approved for terms to February 28, 2021, at the time of their initial appointments.
Read the full FRB press release here>>

February 17, 2016 – FTC Reports on 2015 Activities to Combat Illegal Debt Collection Practices
In a continuation of its efforts to stop unlawful debt collection practices, the Federal Trade Commission (FTC) has submitted a summary of its 2015 work to the CFPB for inclusion in the CFPB's annual report to Congress on the Fair Debt Collection Practices Act (FDCPA) as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The FTC and the CFPB share enforcement responsibilities under the FDCPA. According to the summary issued by the FTC, the Commission:
  • Coordinated the first federal-state-local enforcement initiative targeting deceptive and abusive debt collection practices
  • Prosecuted multiple cases against collectors that used unlawful text messages to collect debts
  • Resolved nine cases and obtained nearly $94 million in judgments
  • Banned 30 companies and individuals that engaged in serious and repeated violations of law from ever working in debt collection again
  • Filed three amicus briefs, two of them jointly with the CFPB, on key debt collection issues
  • Hosted three Debt Collection Dialogues, to promote dialogue between the debt collection industry and the state and federal governmental agencies that regulate their conduct
Read the full FTC press release here>>

February 8, 2016 – FDIC Vice Chairman Discusses the Relative Role of Debt in Bank Resiliency and Resolvability
In a speech to the Peterson Institute for International Economics, FDIC Vice Chairman Thomas Hoenig discussed the Total Loss–Absorbing Capacity (TLAC) effects and suggested that it be used in a more limited and discretionary manner. Vice Chairman Hoenig also suggested that its use depend on a bank's business model and Title I resolution plan and noted that such an approach would acknowledge that not all business models are the same and that different resolution strategies might work better for different financial firms – and for financial stability.
Read the full speech here>>

February 3, 2016 – CFPB Takes Steps to Improve Checking Account Access
The CFPB is taking steps to improve checking account access amidst CFPB concerns that consumers are being sidelined by the lack of account options and by inaccurate information used to screen potential customers. On February 3, 2016, the CFPB sent a letter to the 25 largest retail banks encouraging them to make available and widely market lower-risk deposit accounts that help consumers avoid over-drafting. The CFPB also issued a bulletin warning banks and credit unions that failure to meet accuracy obligations when they report negative account histories to credit reporting companies could result in CFPB action.
Read the full CFPB press release here>>

February 2, 2016 – FRB Highlights Progress in Efforts to Improve U.S. Payment System
One year after the publication of its Strategies for Improving the U.S. Payment System, the FRB has released a report detailing the progress made and anticipated steps for moving forward with its initiative to enhance payment system speed, efficiency, and security. The January 2015 initiative has resulted in the creation of two task forces comprised of more than 500 industry participants devoted to bringing about faster and more secure payments in the United States.  The task forces have compiled 36 criteria that describe desired attributes of a faster payment system and can be used to assess the effectiveness of potential solutions.
Read the full FRB press release here>>

REGULATORY GUIDANCE
February 29, 2016 – OCC Publishes Process for Administrative Enforcement Actions Based on Noncompliance With BSA Compliance Program Requirements or Repeat or Uncorrected BSA Compliance Problems
The OCC issued a bulletin providing guidance on the process it has implemented which will provide national banks, federal savings associations, and federal branches and agencies (collectively, banks) an opportunity to respond to potential noncompliance with Bank Secrecy Act (BSA) compliance program requirements or repeat or uncorrected BSA compliance problems. The bulletin applies to all OCC-supervised institutions and includes a statutory mandate requiring the OCC to issue a cease-and-desist order when citing BSA compliance program violations or violations of 12 USC 1818(s) for repeat or uncorrected BSA compliance problems.  The bulletin further describes the OCC’s process for administrative enforcement actions based on noncompliance with BSA compliance program requirements or repeat or uncorrected BSA compliance problems. These actions include providing banks with notice and an opportunity to respond before the decision to issue a cease and desist order is finalized.
Read the full OCC bulletin here>>

February 26, 2016 – OCC Releases Revised Civil Money Penalty Policy
The OCC has published a revised Policies and Procedures Manual policy for assessing civil money penalties (CMP), replacing the PPM of the same title issued in June 1993. The revised PPM sets forth the OCC’s policies and procedures for the assessment of CMPs against institution-affiliated parties (IAP), national banks, federal savings associations, federal branches and agencies, and bank service companies and service providers. The revised manual includes a new “CMP Matrix for Institutions” for assessing CMPs against national banks, federal savings associations, federal branches and agencies, and bank service companies and service providers, in addition to a revised “CMP Matrix for Institution-Affiliated Parties” for assessing CMPs against IAPs.
Read the full OCC bulletin here>>

February 19, 2016 – Federal Banking Agencies Expand Number of Banks and Savings Associations Qualifying for 18-Month Examination Cycle Expanded
Federal banking agencies (FDIC, FRB, and OCC) increased the number of small banks and savings associations eligible for an 18-month examination cycle rather than a 12-month cycle. Under the interim final rules, qualifying well-capitalized and well-managed banks and savings associations with less than $1 billion in total assets may now be eligible for an 18-month examination cycle.  The changes are intended to reduce regulatory compliance costs for smaller institutions, while still maintaining safety and soundness protections.
Read the full FDIC press release here>>
Read the full FRB press release here>>
Read the full OCC news release here>>

February 18, 2016 – Interim Rule Released Regarding Dividend Payments on Reserve Bank Capital Stock
The FRB has issued an interim final rule that amends Regulation I to implement provisions of the Fixing America's Surface Transportation (FAST) Act. The FAST Act reduced the dividend rate applicable to Reserve Bank depository institution stockholders with total assets of more than $10 billion (large member banks) to the lesser of 6 percent or the most recent 10-year Treasury auction rate prior to the dividend payment. The interim final rule is effective upon publication in the Federal Register, after which the FRB will accept comments on the interim final rule for 60 days.
Read the full FRB press release here>>

February 18, 2016 – CFPB Publishes Policy to Reduce Potential Regulatory Uncertainty for Innovative Products that Promise Significant Consumer Benefits
The CFPB finalized a policy to facilitate consumer access to financial products and services that promise substantial benefit to consumers. The new policy establishes a process for companies to apply for a statement from CFPB staff that would reduce regulatory uncertainty for a new product or service that offers the potential for significant consumer-friendly innovation. The new policy was created as part of CFPB’s Project Catalyst initiative and is intended to enhance regulatory compliance in specific circumstances where a product holds the promise for significant consumer benefit and where there may be uncertainty around how the product fits within an existing regulatory scheme.
Read the full CFPB press release here>>

February 12, 2016 – FDIC Board Approves Proposal on Deposit Account Recordkeeping Requirements to Facilitate Timely Access to Deposits in Large Bank Failures
The FDIC has approved a proposal for recordkeeping requirements for FDIC-insured institutions with a large number of deposit accounts to facilitate rapid payment of insured deposits to customers if the institutions were to fail. The proposed rule would apply to insured depository institutions with more than 2 million deposit accounts. Under the proposal, these institutions would generally be required to maintain complete and accurate data on each depositor. Further, the institutions would be required to ensure that their information technology systems are capable of calculating the amount of insured money for each depositor within 24 hours of a failure
Read the full FDIC press release here>>

February 12, 2016 – Revised OCC Installment Lending Booklet
The OCC issued the “Installment Lending” booklet of the Comptroller’s Handbook. This revised booklet updates and replaces the “Installment Loans” booklet issued in March 1990 (and examination procedures issued in March 1998). The revised booklet also replaces section 217, “Consumer Lending,” issued in January 2000 as part of the former Office of Thrift Supervision Examination Handbook for examining federal savings associations.
Read the full OCC news bulletin here>>

February 12, 2016 – OCC Issues Country Risk Management Booklet
The OCC issued the “Country Risk Management” booklet of the Comptroller's Handbook. This revised booklet replaces the booklet of the same title issued in March 2008. This booklet is prepared for use by OCC examiners in assessing a bank’s exposure to country risk and includes procedures to evaluate the adequacy of the bank’s country risk management framework. Country risk management topics include board and management oversight; policies and procedures; country exposure reporting system; country risk analysis process; country risk ratings; country exposure limits; monitoring country conditions; stress testing and integrated scenario planning; and independent risk management, internal controls, and audit.
Read the full OCC news bulletin here>>

February 11, 2016 – FRB Repeals Regulation AA – Unfair or Deceptive Acts or Practices
The FRB has announced the repeal of one regulation and a proposal to repeal a second in order to comply with statutory provisions that transferred certain consumer protection rule writing authority to the CFPB. The FRB has repealed Regulation AA (Unfair or Deceptive Acts or Practices) as proposed in August 2014 and is inviting public comment on the proposed repeal of Regulation C (Home Mortgage Disclosure). Regulation AA included the FRB's "credit practices rule," which prohibited banks from using certain practices to enforce consumer credit obligations and from including these practices in their consumer credit contracts. The FRBs authority to write rules that address unfair or deceptive acts or practices, such as those which were contained in Regulation AA, was repealed by the Dodd-Frank Act. Similarly, the Dodd-Frank Act also transferred rulemaking authority for the Home Mortgage Disclosure Act from the Board to the CFPB.  Because all rulemaking authority under HMDA concerning residential or commercial mortgages transferred to the CFPB, the FRB is proposing to repeal its Regulation C.
Read the full FRB press release here>>

February 10, 2016 – SEC Adopts Cross-Border Security-Based Swap Rules Regarding Activity in the U.S.
The Securities and Exchange Commission (SEC) voted to adopt rules that require a non-U.S. company that uses personnel located in a U.S. branch or office to arrange, negotiate, or execute a security-based swap transaction in connection with its dealing activity to include that transaction in determining whether it is required to register as a security-based swap dealer.  The rules, adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act, would help ensure that both U.S. and foreign dealers are subject to Title VII of the Act when they engage in security-based swap dealing activity in the U.S.
Read the full SEC press release here>>

February 9, 2016 – FDIC Releases Economic Scenarios for 2016 Stress Testing
The FDIC released the economic scenarios that will be used by certain financial institutions with total consolidated assets of more than $10 billion for stress tests required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The baseline, adverse, and severely adverse scenarios include key variables that reflect economic activity, including unemployment, exchange rates, prices, income, interest rates, and other salient aspects of the economy and financial markets.
Read the full FDIC press release here>>

February 1, 2016 – FDIC Publication Focuses on Enhancing Banks' Cybersecurity Programs
The Winter 2015 issue of Supervisory Insights features three articles of interest to examiners, bankers, and supervisors. These articles address the development of an effective cybersecurity framework, marketplace lending, and recent results from the "FDIC's Credit and Consumer Products/Services Survey."  “A Framework for Cybersecurity," which appears in the Winter 2015 issue, discusses the cyber threat landscape and how financial institutions' information security programs can be enhanced to address evolving cybersecurity risks. The article also provides an overview of actions taken by the FDIC individually and with other regulators in response to the increase in cyber threats. "
Read the full FDIC press release here>>
Read the full FDIC press release here>>

RECENT ENFORCEMENT ACTION ACTIVITY
February 23, 2016 –  CFPB Orders Bank to Provide Relief to Consumers for Illegal Debt Sales and Collection Practices
The CFPB has filed two actions against Citibank for illegal debt sales and debt collection practices, charging the bank with overstating the annual percentage rate in accounts sold to debt buyers and delaying sending consumer payments to debt buyers. The first of the two actions requires Citibank to provide nearly $5 million in consumer relief and pay a $3 million penalty for selling credit card debt with inflated interest rates and for failing to forward consumer payments promptly to debt buyers. The second action is against both Citibank and two debt collection law firms it used that falsified court documents filed in debt collection cases in New Jersey state courts. The CFPB ordered Citibank and the law firms to comply with a court order that Citibank refund $11 million to consumers and forgo collecting about $34 million from nearly 7,000 consumers.
Read the full CFPB press release here>>

February 17, 2016 – FTC Returns Money to Consumers Harmed in Payday Loan Ploy
The FTC is mailing checks to consumers who lost money to a scam that promised to help consumers get payday loans, then debited their bank accounts instead, in increments of $30, without their authorization. In July 2014 at the FTC’s request, a federal court halted the operation run by Sean C. Mulrooney, Odafe Stephen Ogaga, Vantage Funding, Ideal Advance, Loan Assistance Company, Palm Loan Advances, Loan Tree Advances, Pacific Advances and Your Loan Funding.  Affected consumers will receive checks, each in the amount of $30, and should deposit or cash them within 60 days of the mailing date.
Read the full FTC press release here>>

February 9, 2016 – OCC Terminates Mortgage Servicing-Related Consent Orders Against Two Large Servicers
The OCC terminated mortgage servicing-related consent orders against two large mortgage servicers, U.S. Bank National Association (U.S. Bank) and Santander Bank, N.A. (Santander) and assessed civil money penalties against the banks for previous violations of the orders. The OCC terminated the consent orders against these banks after determining that the institutions now comply with the orders.
Read the full OCC news release here>>

February 5, 2016 – FRB Fines Financial Institution for Deficiencies in Loan Servicing and Foreclosure Processing
The FRB has announced a $131 million penalty against HSBC North America Holdings, Inc. and HSBC Finance Corporation for deficiencies in residential mortgage loan servicing and foreclosure processing. The penalty is being assessed in conjunction with an agreement involving similar deficiencies that HSBC announced with the U.S. Department of Justice, other federal agencies, and the state attorneys general. The penalty may be satisfied by providing borrower assistance or remediation in conjunction with the Department of Justice settlement, or by providing funding for nonprofit housing counseling organizations. If HSBC does not satisfy the full penalty amount within two years, the remaining amount must be paid to the U.S. Department of Treasury. The FRB will closely monitor compliance by HSBC with the requirements of the order.
Read the full Department of Justice press release here>>
Read the full FRB press release here>>

February 2, 2016 – CFPB and DOJ Reach Fair Lending Resolution With Credit Corporation
The CFPB and Department of Justice (DOJ) resolved an action with Toyota Motor Credit Corporation, under which Toyota Motor Credit will change its pricing and compensation system to substantially reduce dealer discretion and accompanying financial incentives to mark up interest rates. As part of the order, Toyota Motor Credit is also required to pay up to $21.9 million in restitution to thousands of African-American and Asian and Pacific Islander borrowers who paid higher interest rates than white borrowers for their auto loans, without regard to their creditworthiness, as a result of its past practices.
Read the full Department of Justice press release here>>
Read the full CFPB press release here>>

February 2, 2016 – FDIC Announces $62.95 million Settlement With Large Bank Related to Residential Mortgage-Backed Securities Claims
The FDIC, as receiver for three failed banks, announced a $62.95 million settlement of residential mortgage-backed securities (RMBS) claims against Morgan Stanley & Company LLC. This settlement resolves federal and state securities law claims based on misrepresentations in the offering documents for 14 RMBS purchased by the three failed banks. As receiver for failed financial institutions, the FDIC may sue professionals and entities whose conduct resulted in losses to those institutions in order to maximize recoveries. The FDIC as receiver for the three failed banks filed four lawsuits from February 2012 to January 2014 against Morgan Stanley and other defendants for violations of federal and state securities laws in connection with the sale of RMBS to the three failed banks.
Read the full FDIC press release here>>

January 31, 2016 – Two Banks Charged With “Dark Pools” Violations
The SEC announced that Barclays Capital Inc. and Credit Suisse Securities (USA) LLC have agreed to settle separate cases finding that they violated federal securities laws while operating alternative trading systems known as dark pools and Credit Suisse’s Light Pool. The New York Attorney General’s (NYAG) office is announcing parallel actions against the two firms. Barclays agreed to settle the charges by admitting wrongdoing and paying $35 million penalties to the SEC and the NYAG for a total of $70 million. Credit Suisse agreed to settle the charges by paying a $30 million penalty to the SEC, a $30 million penalty to the NYAG, and $24.3 million in disgorgement and prejudgment interest to the SEC for a total of $84.3 million.
Read the full SEC press release here>>

GRANT THORNTON ANNOUNCEMENTS
CCAR/DFAST: Incorporating Stress Testing Into Everyday Banking Operations and Strategic Planning Process*
One of the primary motivations for regulatory stress testing is to ensure that financial institutions do not pose a threat to the stability of the banking system, specifically with respect to solvency conditions and capital adequacy.  The two major stress-testing exercises, commonly called the Dodd-Frank Act Stress Testing (DFAST) and Comprehensive Capital Adequacy Review (CCAR), require inputs from most bank functions including, finance, risk, treasury, and even marketing and other corporate functions.  As such, organizations are exploring ways to optimize fixed regulatory costs and streamline business functions by incorporating stress-testing applications into day-to-day operations.   

Grant Thornton’s Financial Services Advisory team provides services to assist organizations in with CCAR/DFAST efforts.  We can help your institution develop an ERM framework and implement the framework components into the appropriate processes in each of the three lines of defense, seamlessly integrating the process into daily business decision-making. Please do not hesitate to contact Grant Thornton for an exploratory conversation to discuss how we may be able to help your business incorporate stress testing into your everyday banking operations.

*The article described above is attached for your reference.

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.