Regulatory Developments
OCC Issues Revised Guidance for CRA Ratings
On August 15, the OCC published revisions to its Policies and Procedures Manual (PPM) 5000-43, entitled “Impact of Evidence of Discriminatory or Other Illegal Credit Practices on Community Reinvestment Act Ratings.” The revisions replace and rescind bulletin 2017-40 and the 2017 version of PPM 5000-43. The policy’s purpose is to provide guidance to OCC examiners in determining whether (and by how much) to lower a national bank, federal savings association, or insured federal branch’s (collectively referred to here as “banks”) Community Reinvestment Act (CRA) rating upon finding that a bank committed discriminatory or other illegal credit practices. The policy directs examiners to take a holistic approach, and to take into consideration a bank’s CRA compliance efforts in their entirety—and not just the egregiousness of a particular offense—in determining whether to downgrade the bank’s CRA rating. In assigning CRA ratings, the OCC first evaluates a bank’s performance under applicable regulatory criteria and then, guided by two principles, makes any discretionary adjustments that are warranted based on evidence of discriminatory or other illegal credit practices. Under the first principle, there should be a logical nexus between the assigned ratings and the evidence of discriminatory or illegal practices. Generally, the OCC considers lowering ratings only if the evidence of discriminatory or illegal credit practices directly relates to the institution’s CRA lending activities, and, in such cases, the OCC’s general policy is to downgrade by only one rating level unless the practices are particularly egregious. Under the second principle, full consideration should be given to the remedial actions taken by a bank. Generally, a bank’s ratings should not be lowered solely based on the existence of discriminatory or other illegal credit practices prior to commencement of the CRA evaluation if the bank has remediated or taken appropriate corrective actions to address them, because penalties in such cases can unnecessarily distract and divert the bank’s resources from lending, investing, or serving the relevant communities and thereby frustrate the CRA’s purposes.
OCC Updates Bank Accounting Advisory Series
On August 15, the OCC released an update to the Bank Accounting Advisory Series (BAAS). The BAAS expresses the OCC’s Office of the Chief Accountant’s views on accounting topics relevant to national banks and federal savings associations, but does not represent official OCC rules or regulations. The updated BAAS reflects Accounting Standards Updates issued through March 31, 2018, on topics such as hedging and credit losses. The recently released BAAS also includes an updated FAQ section.
FDIC Modifies Statement of Policy for Section 19 of the FDIA
On August 20, the FDIC released a Financial Institutions Letter (FIL-42-2018) disclosing that it has issued modifications to its Statement of Policy for Section 19 of the Federal Deposit Insurance Act. Section 19 prohibits people convicted of (or who have entered into Pretoria’s diversion or a similar program for) certain criminal offenses from participating in the affairs of an FDIC-insured institution, without the FDIC’s prior consent. Highlights of the modifications include expanded exemptions and clarifications related to hiring and certain dispositions. The de minimis exceptions for which FDIC consent is automatically granted have been expanded to include the following: issuance of insufficient funds checks of moderate aggregate value; small dollar, simple theft; and isolated minor offenses committed by young adults. Drug-related offenses can also get automatic-approval treatment, provided de minimis criteria are met. The FDIC clarified that FDIC-supervised institutions may provide conditional offers of employment, pending background checks, as long as the prospective employee does not begin employment until the institution verifies the Section 19-status of the individual. Expungements, set-asides or reversed convictions, and “jail time” are also addressed in the modifications.
CFPB Finalizes Changes to Regulation P
As noted in the August 15 edition of the Roundup, the Consumer Financial Protection Bureau (CFPB) recently issued a final rule adopting changes to Regulation P to bring the regulation into conformity with its authorizing statute, the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq. (GLBA). The rule, which was enacted to reduce regulatory burden on financial institutions covered by the GLBA, also provides new clarity on when and how institutions that lose their exempted status under the rule should resume making the borrower notifications the rule requires. The GLBA and Regulation P require financial institutions to provide consumers with notices describing whether and how the institutions share consumers’ nonpublic personal information with other entities, and how the institutions protect such information that they collect and maintain. Institutions are required to provide an initial notice when a consumer relationship is established, and generally are required to provide annual notices to consumers thereafter. View the LenderLaw Watch blog post.
Goodwin News
Boston Fintech Week – September 10-14
Organized by Fintech Sandbox, Boston Fintech Week is a series of hosted events, interactive discussions, office hours and networking opportunities for experts building robust tech for financial services application, and for all players in Boston’s fintech community. Goodwin is a sponsor. For more information, visit the event website.
MBA Regulatory Compliance Conference 2018 – September 16-18
The Mortgage Bankers Association brings together inside and outside counsel, compliance officers, company executives, government relations professionals, policy directors, and quality assurance professionals to discuss current topics impacting the mortgage industry’s regulatory environment for this three-day conference. Goodwin is a sponsor and Tony Alexis, partner in Goodwin’s Financial Industry practice and head of the Consumer Financial Services Enforcement practice, will be speaking on the “Applied Compliance: Trends in RESPA Section 8 Compliance” track. Sabrina Rose-Smith, partner in Goodwin’s Financial Industry and Consumer Financial Services Litigation practices, will be speaking on the “Emerging Compliance Risk: Navigating State UDAP Laws” track. For more information, visit the event website.
Fiduciary Investment Advisors 2018 Annual Conference – September 20-21
Goodwin partner Michael Isenman will be a panelist at the Fiduciary Investment Advisors (FIA) 2018 Annual Conference. Mike will be a speaker on the panel “401(k)/403(b) Mock Deposition: How to Protect Against & Prepare for Defined Contribution Litigation.” For more information, visit the event website.
PNC 2018 Conference of Counsel – September 26-28
Goodwin is a co-sponsor with Reed Smith of this year’s Conference of Counsel. The Conference will kick off on Wednesday, September 26, with an opening reception and dinner featuring Karen Solomon from the OCC as the guest speaker. The Goodwin panel will take place 4:15pm -5:15pm on Thursday, September 27. For more information, visit the event website.
This week’s Roundup contributors: Alex Callen and Bill McCurdy.