Saturday, May 25, 2024

Executive News: FDIC guidance caused heartburn for community banks

Summer is officially here and the temperature outside is heating up. The same can be said for what’s happening in Washington, D.C., but for now, all the heat is coming from the regulatory side and some action in congressional hearings.

In August, you might recall th

Adrian Beverage, OBA President and CEO

e FDIC issued a Supervisory Guidance on Multiple Re-Present NSF Fees. The initial guidance came out of nowhere and caused every banker across the country to pull their hair out and scramble to proactively address the issue.

In the weeks and months following the release of the guidance we heard from numerous Oklahoma bankers about all the issues this guidance was causing.

Below is an email we received from a community banker – it perfectly summarizes all the issues that we were hearing about.

FIL-40-2022 provided supervisory guidance on multiple NSF fees in August 2022 and it brought an onslaught of concerns:

Consumer compliance risk: In my short 26-year career, this is how banks have ALWAYS charged NSF fees. Regulatory bodies, particularly the FDIC now, want to act like this is new and harmful to the present and future of banking but also applying the new guidance to the past. Imagine if the refs had come out Sunday after halftime with a new set of NFL rules for not only the second half but retroactive to the first half … LUDICROUS. Well, that is what is happening here.

Exams: For every FDIC compliance exam that has happened since FIL-40-2022, there is ZERO consistency among the examiners on the requirements.

Third-Party Risk: Since there was no comment period or time allowed to prepare, there is not a single core processor prepared for this; meaning the look back is manual and the NSF daily process is manual. The FIL states the FDIC will consider any challenges an institution may have- this is false, they have not taken that into consideration at all.

Look Back: The look back parameters are not in the FIL and therefore completely up to the examiner at the time of the exam.

UDAAP: Customers receive monthly statements by law and know they are being charged more than once for some items. Again, not a new business practice.

The FDIC’s supervisory approach overall is highly subjective to the examiner on site. There are NO exam procedures banks can access prior to an exam. Every banker I have spoken to has a different experience and request from the examiner. This is harmful to banks and its customers. What has me fired up today is NEW information coming out of the Little Rock FDIC office.

The FIL cites CONSUMER COMPLIANCE RISK multiple times, but now the FDIC plans to apply the FIL to business accounts as well. But based on today’s intel, our look back won’t be sufficient because yet again, the FDIC can change their course mid-stream at our demise.

Not once did the FIL address a timeframe of the re-presentment charges, it was merely addressed toward the item, not the timeframe. Today’s information was: if a check or ACH is presented and charged a NSF/OD fee and then is re-presented within 30 days and charged a fee again it must be refunded. Who is making this stuff up? When are they going to share this with banks who truly want to be their customer’s advocate?

By far the biggest issue was the “cores” were able to do a look back to find the necessary information and banks had to immediately implement a manual procedure. The problems involved were so out of control, the OBA and several other state bankers associations were strongly considering a lawsuit against the FDIC.

I wanted to summarize all these issues every bank in Oklahoma was facing as a result of the initial guidance. What happened on Friday, June 16, was something that rarely if ever happens with one of our regulators. You have to remember this initial guidance didn’t go through the normal rule-making process that allows the public a specified amount of time to comment on the proposal, and normally has a start date months, if not years, down the road.

Below is the updated Supervisory Approach from the FDIC:

When exercising supervisory and enforcement responsibilities regarding multiple re-presentment NSF fee practices, the FDIC will take appropriate action to address consumer harm and violations of law. The FDIC’s supervisory response will focus on identifying re-presentment related issues and ensuring correction of deficiencies and remediation to harmed customers, when appropriate. In reviewing compliance management systems, the FDIC recognizes an institution’s proactive efforts to self-identify and correct violations. Examiners will generally not cite UDAP violations that have been self-identified and fully corrected prior to the start of a consumer compliance examination. In addition, in determining the scope of any restitution requested, the FDIC will consider the likelihood of substantial consumer harm from the practice as well as an institution’s record keeping practices and any challenges an institution may have with retrieving, reviewing and analyzing transaction data or other information about the frequency and timing of representment fees. If examiners identify violations of law due to re-presentment NSF fee practices that have not been self-identified and fully corrected prior to a consumer compliance examination, the FDIC will evaluate appropriate supervisory or enforcement actions, including civil money penalties and restitution, where appropriate.

We are still hearing from bankers even after the change in policy, and the most common question is what options does a bank have if they have already made restitutions to customers prior to the updated guidance? Unfortunately, there was nothing in the updated guidance to address this issue and no further comment has been made since June 16. We will continue to work with the FDIC and our federal delegation to see what options if any are available to those banks.

I want to say thank you to the FDIC for recognizing there were issues with this guidance and what it was causing in every bank in Oklahoma. We greatly appreciate them listening and doing what is right and making the appropriate changes.

Also, thank you to Commissioner Mick Thompson and the staff at the Oklahoma State Banking Department. Thompson and his team worked closely with the FDIC for months to make these changes.

• • •

The Senate Banking Committee held its first markup in years to consider and advance the Recovering Executive Compensation Obtained from Unaccountable Practices Act, also know as the RECOUP Act. This act addresses concerns surrounding executive accountability following recent bank failures by strengthening existing authorities regarding senior executives.
The RECOUP Act will do the following:

Strengthen the banking agencies’ ability to remove or prohibit senior executives who did not appropriately oversee and manage the risks and governance of their banks.
Require banks to include governance and accountability standards in their bylaws.

Provide the FDIC with the authority to claw back certain compensation from senior executives at failed banks, including profits made by selling the bank’s stock.
Increase and strengthen penalties against bad actors.

This RECOUP bill is authored by Chairman of the Senate Banking Committee Sherrod Brown (D-Ohio) and the ranking member of the Senate Banking Committee, Tim Scott (R-SC). This bill is going to keep moving through the process and will likely receive little to no opposition.

Right after the collapse of SVB and Signature Bank, Sen. Elizabeth Warren (D-Mass.) introduced a comprehensive compensation bill – as of today that bill hasn’t moved at all and most likely will never move.

• • •

Republican lawmakers in both the House and the Senate have introduced resolutions under the Congressional Review Act seeking to overturn the CFPB’s final rule implementing Section 1071 of the Dodd-Frank Act.

Section 1071 requires lenders to collect and report to the CFPB information on small business lending for the purposes of enforcing fair lending laws and community developments efforts. The recent rule directs which data must be collected, but there are still unanswered questions about how much of the data may be public. Banks and other lenders that make at least 100 small business loans in each of two proceeding calendar years will be required to collect 21 data points on lending to businesses that make $5 million or less in gross annual revenue.

The CFPB has recently published its first FAQ regarding 1071 and you will find a link to the FAQs in the July 11 OBA Weekly Update.

• • •

It’s obvious there is a lot going on in Washington and the action is only going to intensify. I would strongly encourage you to join us on our Annual Washington Visit – the dates are Sept. 24-26. We are hoping to have 100 bankers join us this year as we meet with all the banking regulators and members of our delegation.

Rep. Stephanie Bice has also graciously offered to give us a late-night tour of the Capitol on that Tuesday.

Please don’t hesitate to contact me should you have any questions or would like more information on the visit.