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Capitol Comments

December 2012

When there is a deadline associated with an item, you will see this graphic:

Recent News

Bill to extend TAG program dies in Senate

The Transaction Account Guarantee program (TAG), which gives temporary unlimited deposit insurance to non-interest bearing transaction accounts (NIBTAs), ends at the end of 2012. Beginning on January 1, 2013, the FDIC will no longer provide separate, unlimited deposit insurance coverage for NIBTAs. (FIL-45-2012[1])

Comment: Banks that have not done so already need to take reasonable steps to provide adequate notice to NIBTA depositors of the upcoming changes in FDIC insurance coverage so that they may consider the impact of any change in coverage in their management of these transaction accounts. The FDIC has prepared an FAQ[2] on the topic and provided model notice language at FAQ number 7.

FDIC issues the Community Banking Study
The FDIC designed a series of initiatives[3] related to the future of community banks. According to a message from FDIC Chairman Marty Gruenberg, the FDIC pursued this effort throughout 2012 to further its dialogue with community banks and deepen its understanding of the evolving challenges and opportunities facing them, and to take some initial steps to address the issues identified. The FDIC has issued the Community Bank Study[4] identifying and exploring issues and questions about community banks. The study is designed to be foundational, providing a platform for future research and analysis by the FDIC and other parties. Key areas that the study explores include the definition of a community bank, structural changes among community and non-community banks, the geography of community banking, the performance of community banks compared to non-community banks, the performance of community bank lending specialty groups, and capital formation at community banks.

Comment: As the American Banker[5] points out, the changes the FDIC has made so far his year, “largely revolve around improving the communication flow between the agency and the institutions it regulates.” FDIC Chairman Gruenberg said that the report is an important step in an ongoing effort. If the goal of the FDIC’s ongoing effort is comprehensive regulatory relief for community banks, then it is an important step. If it just chips away at the edges, then it is useful, but probably not the reform community banks need.

Extension of protection for servicemembers
The Servicemembers Civil Relief Act (SCRA), at section 303, addresses obligations secured by a mortgage, trust deed, or other security similar to a mortgage on real or personal property owned by a servicemember. The provision applies only to obligations that originated before the servicemember’s military service and for which the servicemember is still obligated. In August, section 303 was amended to extend, on a temporary basis, the period during which certain SCRA protections apply.

Effective February 2, 2013 (180 days after enactment),

• a sale, foreclosure, or seizure of property based on a breach of such a secured obligation is not valid if made during the period of military service or within one year thereafter, unless it is made pursuant to a court order or a waiver by the servicemember; and
• a court may, on its own motion, and shall, upon application by a servicemember whose ability to comply with the obligation is materially affected by military service, stay the proceedings or adjust the obligation to preserve the interests of all parties at any time during the period of military service or within one year thereafter.

This extension ends December 31, 2014. Beginning January 1, 2015, there will be a period of 90 days after the end of the servicemember’s military service during which a foreclosure, sale, or seizure of the servicemember’s property based on a breach of a mortgage, trust deed, or other security, without a court order or waiver, will not be valid. During this period, a court may also stay proceedings enforcing such obligations.

See OCC 2012-37[6].

FDIC issues guidance on annual stress testing for banks with more than $10B in assets

The FDIC issued interim guidance[7]setting forth the general processes and factors to be used by the FDIC in developing and distributing the stress test scenarios for the annual stress tests required by the Dodd-Frank Act as implemented by the Annual Stress Test final rule (“Stress Test Rule”) published on October 15, 2012[8].

Under the Stress Test Rule FDIC-insured state nonmember banks and FDIC-insured state-chartered savings associations with total consolidated assets of more than $10 billion are required to conduct annual stress tests using a minimum of three scenarios (baseline, adverse and severely adverse) provided by the FDIC. The Stress Test Rule specified that the FDIC will provide the required scenarios to the covered banks no later than November 15th of each year.

Comment:As you may recall, the OCC issued Supervisory Guidance on stress testing community banks on October 18, 2012. See OCC 2012-33[9].

Bank assessed $15 million in CMPs and loses charter over BSA/AML compliance program failures

The FDIC and FinCEN announced the assessment of concurrent civil money penalties of $15 million against First Bank of Delaware, Wilmington, Delaware, for violations of BSA/AML laws and regulations. All penalties will be satisfied by a $15 million payment.

The FDIC and FinCEN determined that the bank failed to implement an effective BSA/AML Compliance Program with internal controls reasonably designed to detect and report evidence of money laundering and other suspicious activity. Specifically, the bank failed to adequately oversee third-party payment processor relationships and related products and services in a manner commensurate with associated risks. The civil money penalty is the result of the bank’s history of noncompliance with laws and regulations and its numerous violations of the BSA.

Additionally, on November 16, 2012, Bryn Mawr Trust Company, Bryn Mawr, Pennsylvania, purchased certain assets and assumed deposit liabilities from the First Bank of Delaware. The Delaware Office of State Bank Commissioner terminated First Bank of Delaware’s charter and the FDIC terminated its deposit insurance.

Comment: Financial institutions seeking more information on BSA compliance with third party payment processors can refer to the FDIC’s January 2012[10] and November 2008[11] guidance on payment processor relationships. In addition, FinCEN recently released an advisory on the subject, “Risk Associated with Third Party Payment Processors[12].”

Agencies issue guidance on restrictions on conversions of troubled banks

The Fed, the FDIC, and the OCC (collectively, the agencies), in conjunction with the Conference of State Bank Supervisors, issued astatement[13] to provide guidance on the implementation of section 612 of the Dodd-Frank Act, entitled “Restrictions on Conversions of Troubled Banks.” Section 612 imposes restrictions on conversions of certain national banks or federal savings associations to state-chartered institutions and on conversions of certain state-chartered banks or savings associations to national banks or federal savings associations. Because financial institutions may choose to operate under a state or federal charter that best accommodates their business and strategic needs, the agencies issued this policy statement to explain the requirements of section 612 in their application processes.

OCC issues 2013 fee structure

OCC Bulletin OCC 2012-40[14]informed all national banks, federal savings associations, and federal branches and agencies of foreign banks of fees charged by the OCC for calendar year 2013. This bulletin is effective January 1, 2013.

FDIC adjusts civil money penalties

The Federal Civil Penalties Inflation Adjustment Act of 1990, as amended, requires all Federal agencies that have statutory authority to impose civil money penalties (CMPs), every four years, to publish, as adjusted for inflation, the maximum authorized amount of those CMPs. The FDIC last adjusted the maximum amounts of CMPs under its jurisdiction in 2008. The FDIC issued afinal rule[15] publishing maximum CMPs.

CFPB to adjust rule on international money transfers and extend effective date

The CFPB expects to issue a proposal next month to refine three elements of its rule regarding foreign remittance transfers. The proposal will be narrowly targeted to address the rule’s provisions on: (1) errors resulting from incorrect account numbers provided by senders of remittance transfers; (2) the disclosure of certain foreign taxes and third-party fees; and (3) the disclosure of sub-national, foreign taxes. The Bureau will proceed on a fast track with a notice of proposed rulemaking, which will propose these changes. This notice will propose to amend the final rule issued earlier this year, currently set to take effect on February 7, 2013. The notice will also propose a brief extension of the effective date of the rule until 90 days after the Bureau finalizes the proposal. The Bureau anticipates providing this extension in order to permit providers to adjust their systems in response to the proposed requirements. The Bureau expects that the proposed effective date will be sometime during the spring of 2013.

See CFPB Bulletin 2012-08[16].

Comment: The CFPB expects to address: Situations in which a sender provides an incorrect account number to a remittance transfer provider.Disclosure of third party fees and foreign taxes.Disclosure of regional and local taxes assessed in foreign countries. Unfortunately, they are apparently not reconsidering the number of transmissions per year for the exemption.

CFPB releases report on nation’s largest credit bureaus

The CFPB released a report[17] last week on the consumer experience with the three largest nationwide credit reporting companies: Equifax, Experian, and TransUnion.

CFPB proposes allowing companies to run trial disclosure programs

The CFPB announced its proposed policy to allow companies to test new consumer disclosures on a case-by-case basis. As part an initiative called Project Catalyst[18], and in line with its statutory authority, the Bureau's goal is to encourage banks, credit unions, and other financial services companies to propose and conduct trial disclosure programs.

Revised interagency Reg. Z examination procedures

The Task Force on Consumer Compliance of the Federal Financial Institutions Examination Council recently approved the interagency examination procedures for Regulation Z – Truth in Lending[19]. These revised examination procedures supersede the Regulation Z interagency examination procedures transmitted with CA Letter 11-8.

Consumers have right to see specialty consumer reporting agency reports annually

The CFPB wants consumers to know that they are entitled to one free report annually from each specialty consumer reporting company. Specialty consumer reporting companies are companies that collect information on a nationwide basis about medical records or payments, residential or tenant history, check-writing history, employment history, or insurance claims. Like the three largest nationwide consumer reporting companies (Experian, Equifax, and TransUnion), they gather and report information about you to creditors, landlords, insurance companies, employers, and others. Credit reports can be ordered from the three national consumer reporting agencies by going to annualcreditreport.com, but the free reports from specialty consumer reporting companies must be ordered directly from each company.

See the CFPB Blog entitled: You have a right to see specialty consumer reports too[20]

Comment: Your bank customers may know that they are entitled to a free credit report annually from the big three consumer reporting agencies, but they may not know about their right to an annual free credit report from specialty consumer reporting companies. This might be good information to include on a periodic statement, in a statement stuffer, or in the bank’s lobby.

FinCEN and Fed propose amendments to BSA definitions

FinCEN and the Federal Reserve Board are seeking comments on a proposal[21] to amend the definitions of "funds transfer" and "transmittal of funds" under the regulations implementing the Bank Secrecy Act. The proposed amendments are necessary to maintain the current scope of funds transfers and transmittals subject to the BSA in light of amendments to the Electronic Fund Transfer Act made by the Dodd-Frank Act.Comments on the proposed rule are due January 25, 2013.

Fed announces chairs and deputy chairs of Federal Reserve Banks

The Federal Reserve Board announced the designation of the chairs and deputy chairs of the Federal Reserve Banks for 2013[22].Each Reserve Bank has a nine-member board of directors. The Board of Governors in Washington appoints three of these directors and each year designates one of its appointees as chair and a second as deputy chair.

CFPB statement on sharing information with regulators

CFPBissued a statement of intent[23] for sharing information with State banking and financial services regulators.

Comment: This is different from the next news item because the statement of intent refers to state government agencies, and next news item refers specifically to state government regulators.

CFPB sharing consumer complaint information with state agencies

In its blog[24], the CFPB announced that on December 11, 2012, it began sharing consumer complaint information with state government agencies. The CFPB plans to create a method to accept complaints and information from state agencies, and make the data available to other federal agencies, state attorneys general, local agencies, congressional offices (as appropriate, and other governmental organizations.

Comment: Interestingly, on December 12, 2012, it was announced[25] that Chicago is the first city in the country to agree to share information directly with the CFPB.

FDIC regulatory calendar for community banks

The FDIC launched a draft online regulatory calendar to help community banks stay up-to-date on changes in federal banking laws, regulations, and supervisory guidance. The FDIC requested feedback from the industry on ways to improve the calendar[26] and has revised it based on a review of the comments received. (FIL-51-2012[27])

Fed: “Not Our Items” changes effective December 17th

Effective December 17, 2012, several changes are being made to Federal Reserve Bank adjustments processes associated with Not Our Items (NOIs). The changes are supposed to streamline submission requirements and expedite the research and resolution of items reported as NOIs. Specifics regarding the changes are outlined in a December 7, 2012, letter from the Federal Reserve Financial Services to All Check Services customers[28].

CFPB publishes first annual Fair Lending Report

The CFPB also published its first annual Fair Lending Report[29], which highlights the Bureau’s recent accomplishments in fair lending. The report fulfills the Bureau’s congressional reporting requirements under the Dodd-Frank Act, the ECOA and HMDA

Comment: CFPB lists their primary first year accomplishments as: Establishment of the Office of Fair Lending and Equal Opportunity; Commencement of the CFPB’s fair lending supervisory program; Commencement of the CFPB’s fair lending enforcement program; Ongoing work on HMDA regs; Planning for amendments to ECOA and TILA; Collaboration and coordination with federal and state partners; Outreach to private industry and advocates.

CFPB and Department of Justice sign Fair Lending agreement

The Department of Justice and the CFPB signed an agreement[30] to strengthen coordination on fair lending enforcement and avoid duplication of their respective federal law enforcement efforts.

Federal Reserve video on contaminated currency procedures

A video and written materials[31] on contaminated currency procedures is available on the Federal Reserve Bank Services web site.

Comment: Contaminated currency may be caused by floodwater, exposure to bodily fluids, exposure to sewage, exposure to any foreign substance, and mold or mildew. Burnt currency isn’t considered contaminated unless it is also exposed to a contaminant.

CFPB blog:

Here are the CFPB blogs of interest that weren’t reported on elsewhere in this issue:

Access, Data and Scale – Strategies to make the market work better for low-income and economically vulnerable consumers[32] The CFPB’s Office of Financial Empowerment is seeking data that financial coaching, counseling, and other methods are effective in helping consumers mange their financial lives.

Realigning our supervisory work. The CFPB is reorganizing its two supervisory offices into one focusing on examinations and the other focusing on policy.

CFPB releases exam procedures for student loans

The CFPB published the procedures it will use in examining student lenders[33]. The Student Lending Examination Procedures are an extension of the CFPB’s General Supervision and Examination Manual and will be used as a field guide by CFPB examiners to ensure that private student lenders comply with federal consumer financial laws.

FDIC modifies definition ofde minimis offenses

A 1998 FDIC Statement of Policy (SOP) created a category of covered offenses that it would deem to be de minimis due to the minor nature of the offenses and the low risk that the covered party would pose to an insured institution based on the conviction. Based on its experience in the processing and approving of numerous applications involving such minor crimes, the FDIC has recognized a category of offenses to which it would grant blanket approval under section 19 without the need to file an application. The FDIC is modifying in two ways which offenses fall within the de minimis offenses exception of the SOP.

First, currently under that portion of the de minimis exception to filing an application, the maximum potential fine is $1,000 or less. The FDIC is modifying this aspect of the SOP so that this element of the de minimis exception to filing an application will apply if the maximum potential fine is $2,500 or less.

Second, currently, the de minimis exception requires that no jail time was served as part of the sentencing or conviction. The FDIC is modifying this aspect of the SOP so that the de minimis offenses provision will apply if the individual has served three (3) days or less of actual jail time.