Weekly RoundUp
February 12, 2020

Financial Services Weekly News: FDIC Issues Deposit Insurance Application Guidance for Non-Banks

In This Issue. The Federal Deposit Insurance Corporation (FDIC) published new procedures for federal deposit insurance applications from applicants that are not traditional community banks; federal banking regulators released scenarios for the 2020 stress testing cycle; and federal and state regulators brought and settled several notable enforcement actions. These and other developments are discussed in more detail below.

Please note: The Roundup will be on hiatus next week due to the Presidents’ Day holiday. We will resume publication on February 26.

Regulatory Developments

FDIC Issues Procedures for Deposit Insurance Applications From Applicants That Are Not Traditional Community Banks

On February 10, the FDIC released three new publications related to the federal deposit insurance application process. The most notable of the publications is a separate supplement (Supplement) to the Deposit Insurance Applications Procedures Manual (Manual), which addresses matters relevant to federal deposit insurance proposals from applicants that are not traditional community banks. Rather, the Supplement addresses federal deposit insurance applications by “non-banks” and “non-community banks.”

“Non-banks” are institutions owned by parent companies that are not subject to the Bank Holding Company Act. This category includes industrial loan companies, trust banks, credit card banks, and municipal deposit banks. “Non-community banks” are institutions focusing on products, services, activities, market segments, funding, or delivery channels other than local lending and deposit taking; pursuing a broad geographic footprint (such as operating nationwide from a limited number of offices); pursuing a monoline, limited, or specialty business model; or operating within an organizational structure that involves significant affiliate or other third-party relationship. This category includes specialty (or niche) institutions, publicly owned institutions, foreign owned institutions, institutions in a parallel banking organization, institutions formed to acquire a failed bank, and other operating non-insured entities seeking federal deposit insurance, such as companies focused on mortgage lending, loan servicing, financing, and payment services.

In the Supplement, the FDIC states that it “welcomes federal deposit insurance applications from all types of proposed insured depository institutions.” For such institutions, the Supplement addresses application review processes, field investigations, statutory factors, approval conditions, and written agreements. While the FDIC stated that the Supplement “is not intended to establish new, or to modify existing, policy or guidance,” it will serve as a useful resource for non-bank and non-community bank applicants. When read in connection with the FDIC’s recent approval of the deposit insurance application of Fintech company Varo, the publication may signal a renewed willingness on the part of the FDIC to entertain deposit insurance applications from Fintech applicants.

The FDIC also updated two publications, Applying for Deposit Insurance – A Handbook for Organizers of De Novo Institutions and the Deposit Insurance Applications Procedures Manual, which address the informational needs of organizers and provide comprehensive instruction to FDIC staff. Notably, the FDIC has modified the Manual’s commonly imposed conditions requiring prior approval of business plan changes to instead require prior notice in most cases. The updates otherwise primarily reflect technical edits and clarifications.

Regulators Release Scenarios for Stress Testing Cycle

Last week, the Board of Governors of the Federal Reserve System (Federal Reserve Board) and the Office of the Comptroller of the Currency (OCC) each released stress testing scenarios for the 2020 stress testing cycle.

On February 6, the Federal Reserve Board released its hypothetical scenarios for 2020. Capital plans must be submitted to the Federal Reserve Board by April 6, 2020. The Federal Reserve Board added that it is continuing to work toward having the stress capital buffer in place for this year’s stress tests, and that the release of these hypothetical scenarios does not affect that separate rulemaking process. The Federal Reserve Board's stress test framework consists of the Comprehensive Capital Analysis and Review and the Dodd-Frank Act stress tests. This year's stress tests will evaluate 34 large banks with more than $100 billion in consolidated total assets.

On the same day, the OCC released its 2020 stress testing scenarios for covered institutions as required by the Dodd-Frank Act. Covered institutions, generally banks with greater than $250 billion in total consolidated assets, are required to submit the results of their company-run stress tests to the OCC by April 5 and publish those results between June 15 and July 15 of each year.

Goodwin Alert: State Street and BlackRock Tell Public Company Directors That the Time Is Now to Focus on Sustainability and ESG

In January, two of the largest asset managers, State Street Global Advisors (SSGA) and BlackRock, emphasized that they will hold Boards of Directors accountable for not making significant progress on sustainability and their disclosure related thereto. While environmental, social and governance (ESG) issues have been a growing focus for investors and other stakeholders for the past several years, SSGA and BlackRock have now made it clear that climate change is a defining factor for them in considering investments in companies. For more information, read the client alert issued by Goodwin’s Public M&A and Corporate Governance group.

Goodwin Alert: SEC Issues MD&A Guidance

As covered in last week’s Roundup, the Securities and Exchange Commission (SEC) recently announced that it has issued guidance on key performance indicators and metrics in Management’s Discussion and Analysis (MD&A). Although the guidance in the interpretive release may not significantly change current disclosure of performance indicators and metrics in many companies’ MD&A, interpretive guidance formally issued by the SEC merits careful attention. For more information, read the client alert issued by Goodwin’s Public Companies practice.

Enforcement & Litigation

CFPB Files Suit Against National Bank for Alleged TILA Violations

On January 30, the Consumer Financial Protection Bureau (CFPB) filed a complaint against a national bank in the U.S. District Court for the District of Rhode Island. The complaint alleges that the bank violated the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., TILA’s implementing Regulation Z, 12 C.F.R. pt. 1026, and the Consumer Financial Protection Act (CFPA), 12 U.S.C. §§ 5536(a)(1)(A), 5481(14), through its servicing of credit cards. Read the Enforcement Watch blog post.

North Carolina AG Settles with Out-of-State Payday Lender for $825,000

On January 27, North Carolina Attorney General Josh Stein (North Carolina AG) reached a settlement with an out-of-state payday lender for $825,000. The Attorney General obtained a consent temporary restraining order against the lender in May 2019 based on allegations that the lender was not licensed to operate in North Carolina, yet issued usurious consumer loans to consumers that exceeded the interest rate permitted under North Carolina law. According to the North Carolina AG, the lender contacted North Carolina consumers over the internet and issued more than 400 loans ranging in the amounts of $600 to $15,000 with interest rates between 78 to 252 percent, in violation of North Carolina’s Consumer Finance Act, usury laws, Debt Collection Act, and Unfair and Deceptive Trade Practices Act. Read the Enforcement Watch blog post.

Massachusetts AG Settles with Online Company for $1.25 Million for Allegedly Charging Illegal Interest Rates

On January 21, the Massachusetts Attorney General’s Office (Massachusetts AG) announced that it has secured $1.25 million from one of the country’s largest online lending companies to resolve allegations that the company charged excessive interest rates to Massachusetts borrowers in violation of M.G.L. ch. 93A and Massachusetts’ Small Loan Statute, M.G.L. c. 140 s. 96, which prohibits any personal loan where the amount retained by the borrower is $6,000 or less. Read the Enforcement Watch blog post.

FTC Settles with Several Individual and Corporate Defendants Involved in Credit Repair Scheme

On January 17, the Federal Trade Commission (FTC) settled with several operators of a credit repair scheme for alleged violations of sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) and 57b, Section 410(b) of the Credit Repair Organizations Act (CROA), 15 U.S.C. § 1679h(b), Section 6(b) of the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6105(b), the Consumer Review Fairness Act (CRFA), 15 U.S.C. § 45b, Section 108(c) of the Truth in Lending Act (TILA), 15 U.S.C. § 1607(c), and Section 918(c) of the Electronic Fund Transfers Act (EFTA), 15 U.S.C. § 1693o(c). The settlement bans the credit repair operators from operating or promoting any credit repair service. The operators include individuals and corporate defendants based in Wyoming, Colorado, New Jersey, and Florida. Read the Enforcement Watch blog post.

Goodwin News

2020 Bet Tzedek Annual Gala Dinner — February 27

Bet Tzedek is a leading pro bono organization that helps people of all communities and generations secure life’s necessities. The 2020 Bet Tzedek Annual Gala Dinner will honor Kenneth S. Millman, president of Millco Investments. Goodwin is a sponsor of the event. For more information, please click here.

ICI Mutual Funds and Investment Management Conference — March 22-25

Today’s funds face more challenges and opportunities than ever before. At the 2020 Mutual Funds and Investment Management Conference, attendees will hear directly from regulators and other experts about how asset managers can navigate today’s changing landscape. Taking place in Palm Desert, California, this event will enable you to learn about key regulatory and other issues and to connect with colleagues. Goodwin's Investment Management team will be attending this conference. To register, please click here.

Good Run: Annual 5K in Conjunction with ICI Mutual Funds and Investment Management Conference — March 23

Goodwin's Investment Management practice is hosting its 12th Annual Good Run in conjunction with the Investment Company Institute’s 2020 Mutual Funds and Investment Management Conference. In recognition of the participants, Goodwin will make a donation to Expect Miracles, a leading advocate in the fight against cancer within the financial services industry. Please contact Olivia LaBau for more information.

This week’s Roundup contributors: Alex Callen and Viona Harris.