Bank litigation and regulation in 2017

With major changes coming in Washington and important cases making their way through the court system, 2017 looks to be a busy year for bank litigation and regulation. This includes litigation and legislative challenges to the CFPB’s authority, enforcement actions involving allegations of unsafe and unsound banking practices, lawsuits over the validity of credit union regulations, and litigation surrounding the Wells Fargo fake account scandal.

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Comptroller discusses OCC’s supervisory priorities and risk management for community banks

On November 18, Comptroller of the Currency Thomas Curry spoke at the Annual Community Bankers Symposium. His speech covered the OCC’s supervisory priorities, risk management goals, and responsible innovation initiative for community banks. Among the issues he identified as regulatory priorities were strategic risk issues, loan underwriting, operational resiliency, and BSA/AML compliance. He also discussed FinTech and third-party vendor management issues.

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Recent developments in data security regulations

Cybersecurity remains a top concern for banks and regulators, as data breaches pose substantial regulatory risk and high costs. As I have written in recent posts, banks must develop comprehensive cybersecurity policies to protect against data breaches and avoid adverse action from the regulators. Recent guidance and statements from the regulators provide additional insight into best practices in data security.

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What does the Wells Fargo scandal mean for community banks?

Earlier this month, Wells Fargo entered into a consent order with the CFPB and OCC after regulators discovered that bank employees had opened more than 1.5 million fake deposit and credit card accounts. The scandal involved more than 5,000 employees who opened the fake accounts in order to pad sales numbers and meet quotas the bank used as part of an incentive compensation plan.  In the aftermath of the scandal, Congress and the regulators have begun to scrutinize what went wrong and what steps can be taken to prevent these problems going forward. Although big banks are the focus of this scrutiny, it is important for community banks to pay attention to possible regulatory changes that may impact banks of all sizes.

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Regulators identify oil and gas lending as area of risk

The Federal Reserve, FDIC, and OCC released their 2016 Shared National Credit Review and identified “growing credit risk in the oil and gas (O&G) portfolio” as an area of concern. Not surprisingly, the regulators pointed to the long-term decline in energy prices as the primary underlying cause of the heightened credit risk. This is consistent with the comments of Texas Department of Banking Commissioner Charles Cooper and the prudential regulators at the Sam Houston State Banking Seminar, identifying falling commodity prices as a risk to the financial stability of Texas banks.

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Community bank association sues to block credit union rule change

Yesterday, the Independent Community Bankers of America (ICBA) sued the National Credit Union Administration (NCUA) to block a rule change that would expand credit unions’ ability to make commercial loans. The new rule—known as the “member business loan rule”—allows credit unions to acquire loans from other lenders to businesses that are not credit union members. According to the ICBA, this rule violates the Federal Credit Union Act, which restricts credit unions from making business loans equal to more than 1.75 times their net worth. The ICBA brought suit to prevent the NCUA from implementing the rule, arguing that the rule “exacerbates the unfair competitive harm that tax-exempt credit unions are able to inflict on community banks, which do not benefit from the tax advantages enjoyed by credit unions.”

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FDIC report highlights bank exam trends and regulatory focus

The FDIC recently published a report highlighting trends and risks gleaned from Matters Requiring Board Attention (MRBA) that FDIC examiners have issued over the past five years. The report offers an in-depth look at the regulatory issues that have drawn the attention of FDIC examiners in recent years and provides guidance on areas bankers should focus on to avoid MRBAs or other adverse action from the regulators.

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