Alert September 22, 2009

FRB Adopts Program under which it will Issue Compliance Ratings to Nonbank Subsidiaries of Bank Holding Companies and Foreign Banking Organizations

The FRB established a new Consumer Compliance Supervision Program (the “Program”) for nonbank subsidiaries of bank holding companies and foreign banking organizations.  Under the Program, the FRB will monitor compliance of activities covered by consumer protection laws and regulations, establish a new rating system, and investigate consumer complaints.

The Program formally implements a pilot program that was launched by the FRB in conjunction with the FTC and the OTS in 2007.  The pilot program, however, was not as extensive as the Program currently being implemented.  Under the Program, the FRB, through targeted and full scope examinations, will compile risk profiles of, and issue compliance ratings to, nonbank subsidiaries.  A nonbank subsidiary’s compliance will be rated as Strong, Satisfactory, Fair, Marginal or Unsatisfactory.  Results of these examinations together with any recommendations for corrective actions will be transmitted by the FRB in writing to senior management of the nonbank subsidiary and the bank holding company.  Click here for the FRB’s letter announcing the Program.