Recently, the federal banking regulators issued four new sets of examination procedures. The OCC issued two significant examination booklets on sampling methodologies and UDAP/UDAAP, and the federal banking regulators, together with state financial regulators, issued interagency exam guidance for assessing safety and soundness of financial institutions in light of the ongoing impact of the COVID-19 pandemic. The Federal Reserve Board (“FRB”) also issued examiner guidance on the credit reporting and mortgage servicing provisions of the new federal CARES Act.
On May 26, 2020, the OCC issued a significantly revised Sampling Methodologies booklet to be included in the Comptroller’s Handbook. The booklet rescinds and replaces the OCC’s prior version, which was last updated over 20 years ago (August 1998), and replaces the Office of Thrift Supervision (“OTS”) Examination Handbook Section 209 (Sampling). The booklet, which contains substantial revisions, discusses the differences between statistical and judgmental sampling and explains the OCC’s approach to statistical sampling methodologies. Revisions include: (a) significantly greater discussion of judgmental sampling; (b) separate descriptions of judgmental sampling and statistical sampling; (c) direction concerning how the examiner should document sampling; (d) the elimination of specific examination objections; and (e) the replacement of blank sample worksheets with specific examination examples. The new booklet applies to supervisory activities beginning on or after June 15, 2020.
On June 29, 2020, the OCC issued a new “Unfair or Deceptive Acts or Practices and Unfair, Deceptive, or Abusive Acts or Practices” booklet to be included in the Comptroller’s Handbook. The booklet contains examination procedures regarding supervision of OCC-regulated banks and savings associations related to Section 5 of the Federal Trade Commission Act (“UDAP”) and Sections 1031 and 1036 of the Dodd-Frank Act (“UDAAP”). Among other things, the examination procedures instruct examiners on how to assess the effectiveness of a bank’s compliance management system in managing UDAP and UDAAP risks, and provides red flags and risk indicators that can be used to identify acts or practices that may raise UDAP/UDAAP concerns. OCC Bulletin 2020-65 transmitting the new booklet indicates that it rescinds two prior OTS booklets on UDAP and UDAAP.
On June 23, 2020, the federal banking regulators (FDIC, OCC, FRB and NCUA) and state bank and credit union regulators jointly issued interagency examination guidance to assess the safety and soundness of financial institutions affected by the coronavirus crisis. The examination guidance is designed to promote consistency and flexibility in the supervision and examination of federal- and state-chartered financial institutions affected by COVID-19 both during and after the pandemic. The interagency guidance instructs examiners to consider the unique, evolving, and potentially long-term nature of the issues confronting institutions due to the coronavirus crisis and to exercise appropriate flexibility in their supervisory response. In conducting examinations, examiners are instructed to consider whether management has managed risk appropriately, including taking appropriate actions in response to stresses caused by COVID-19 impacts.
On July 7, 2020, the FRB’s Consumer and Community Affairs Division issued examination procedures that relate to the credit reporting and mortgage servicing provisions of the CARES Act of 2020. In Community Affairs Letter (CA 20-11) transmitting the exam procedures, the FRB notes that, consistent with its prior statements, it will take into account the “unique circumstances impacting borrowers and institutions” resulting from the COVID-19 pandemic. The FRB expects that supervisory feedback for institutions will be focused on identifying issues, correcting deficiencies, and ensuring appropriate remediation to consumers. The agency does not expect to bring a consumer compliance public enforcement action against an institution, provided that the institution made good faith efforts to comply with consumer protection laws and responded to any needed corrective action.