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Effective July 18, 2017, the FDIC has adopted amendments to its Guidelines for Appeals of Material Supervisory Determinations.  The FDIC proposed the amendments last August and received only two comment letters, one from a trade association and the other from a financial holding company.

The amendments are intended to provide institutions with broader avenues of redress with respect to material supervisory determinations and enhance consistency with the appeals process of other federal banking agencies.  The term “material supervisory determinations” is defined by the Reigle Act to include determinations relating to (1) examination ratings; (2) the adequacy of loan loss reserve provisions; and (3) classifications of loans that are significant to an institution.  The Guidelines list the types of determinations that constitute “material supervisory determinations.”   Under the Guidelines, an institution may not file an appeal to the Supervision Appeals Review Committee (SARC) unless it has first filed a timely request for review of a material supervisory determination with the Division Director.

The amendments expand the definition of “material supervisory determination” by allowing determinations regarding an institution’s level of compliance with a formal enforcement action to be appealed as a material supervisory determination.  However, if the FDIC determines that lack of compliance with an existing enforcement action requires further enforcement action, the proposed new enforcement action would not be appealable.  Matters requiring board attention are also added to the list of appealable material supervisory determinations.

The amendments remove decisions to initiate informal enforcement action (such as a Memorandum of Understanding) from the list of determinations that are not appealable and add such decisions to the list of appealable material supervisory determinations.

Other amendments include the following:

  • A clarification that a formal enforcement-related action would commence and become unappealable when the FDIC initiates a formal investigation under 12 U.S.C section 1820(c) or provides written notice to the institution of a recommended or proposed formal enforcement action under applicable statutes or published enforcement-related FDIC policies, including written notice of a referral to the Attorney General pursuant to the ECOA or a notice to HUD for ECOA or FHA violations.
  • An amendment providing that when an institution has filed an appeal of a material supervisory determination through the SARC process, the appeal will not be affected if the FDIC subsequently initiates a formal enforcement-related action or decision based on the same facts and circumstances as the appeal.
  • An amendment providing for the publication of annual reports on Division Directors’ decisions with respect to requests by institutions for review of material supervisory determinations.
  • An amendment providing that the current standard for review for SARC appeals also applies to Division-level reviews.

 

 

On July 5, 2017, the U.S. District Court for the District Columbia, in the lawsuit filed in 2014 challenging “Operation Choke Point” — a federal  enforcement initiative involving various  agencies, including the Consumer Protection Branch of the Department of Justice (DOJ), the Federal Depository Insurance Corporation (FDIC), the Federal Reserve (Fed), and the Office of the Comptroller of the Currency —  denied the  agencies’ motions to dismiss and/or for summary judgment and permitted the payday lender-plaintiffs’ due process claims to proceed.

Initiated in 2012, Operation Choke Point targeted banks serving online payday lenders and other companies that have raised regulatory or “reputational” concerns.  In June 2014, the national trade association for the payday lending industry and Advance America, a payday lender, initiated the action against the FDIC, Fed, and the OCC.  The lawsuit alleged that certain actions taken by the agencies as part of Operation Choke Point violated the Administrative Procedure Act (APA) and that Operation Choke Point violated their due process rights.  The court granted the agencies’ motion to dismiss the defendants’ APA claim and, although ruling that the due process claim could proceed, subsequently dismissed the trade association as a party for lack of standing.  Following the addition of  six new payday lenders to the complaint, the agencies moved to dismiss the new payday lenders’ due process claim for lack of standing and failure to state a claim, and moved for summary judgment as to all plaintiffs on the basis that they cannot show that they suffered a deprivation of liberty without due process.

The Court rejected the agencies’ arguments, holding that the newly-added plaintiffs had established both standing and a plausible claim for relief, and concluding that the agencies were not entitled to judgment on any of the plaintiffs’ due process claims.  First, the Court rejected the agencies’ attempt to challenge the new plaintiffs’ allegations of future harm — i.e., their potential for future loss of access to the banking system, and potential preclusion from the payday lending industry — finding that they demonstrated the requisite elements of standing, and stated a plausible claim for relief, by alleging that they previously lost bank accounts as a result of Operation Choke Point, and that they will continue to do so if the agencies’ actions continue.

The Court also held that the agencies’ were not entitled to summary judgment on any of the plaintiffs’ due process claims.  The court rejected the agencies’ argument that plaintiffs could not show a due process violation where they “continue to access the banking system and remain quite profitable.”  According to the court, the agencies had not definitively demonstrated that plaintiffs would “not be put out of business by the continued regulatory pressure from Federal Defendants.”

The Court was also unmoved by the agencies’ argument that plaintiffs “are able to pursue other lines of business.”  In support of that argument, the agencies cited cases finding no due process violation where the plaintiffs were barred from conducting business with the government, but remained free to transact with private individuals and entities.  The court held that these cases, which distinguished between a person’s ability to sell services to the government versus one’s ability to sell services at all,  did “little to support [the agencies’] argument that the Due Process Clause tolerates the destruction of an entire line of Plaintiffs’ business, so long as there are other lines of business they can pursue.” Citing to the Plaintiffs’ Opposition, the Court observed that “it would be of little consolation to an attorney, driven from his practice by improper governmental stigma, that McDonalds is still hiring.”

Despite the change to a Republican Administration, lawmakers continue to raise concerns that Operation Choke Point remains in operation.  In a letter to Attorney General Jeff Sessions dated July 6, 2017, Republican Senators Mike Crapo and Thom Tillis stated that “[w]hile many would claim that this program has ceased to operate, this does not appear to be the case as we continue to receive complaints that indicate the program is still in effect.”  The Senators asked “that DOJ review all options available to ensure lawful businesses are able to continue to operate without fear of significant financial consequences, which should include taking the additional step of issuing a Statement of Enforcement Policy that Operation Choke Point is no longer in effect and that administrative subpoenas issued pursuant to DOJ’s civil investigative authority under [FIRREA] may be issued only where there is an articulable suspicion of illegal activity being conducted or facilitated by the intended recipient of the subpoena.”

Legislation has also been proposed in the House, with Republican Congressman Blaine Leutkemeyer (R-Mo.) introducing a bill (H.R. 2706) that seeks to prevent future recurrences of Operation Choke Point by limiting the authority of banking regulators and the DOJ.

Politico has reported that James Clinger, President Trump’s nominee to be the next FDIC Chairperson, has asked the White House to withdraw his nomination, citing family issues.

Last month, the White House announced that President Trump intended to nominate Mr. Clinger to be a FDIC member for a six-year term and to be Chairperson for a five-year term, effective November 29, 2017 when the current FDIC chairperson’s term ends.

 

 

On July 12, 2017, a subcommittee of the House Financial Services Committee will hold a hearing entitled “Examining Legislative Proposals to Provide Targeted Regulatory Relief to Community Financial Institutions.”  The Subcommittee on Financial Institutions and Consumer Credit will examine nine bills that include bills that would: (1) amend the FDCPA, including by classifying debt buyers as “debt collectors” and subjecting debt collectors for federal agencies to FDCPA requirements, (2) require the GAO to study debt collection practices at the federal, state, and local levels; (3) repeal the CFPB’s UDAAP enforcement authority and raise the CFPB’s large depository institutions supervisory threshold to institutions with assets of $50 billion or more, and (4) amend various TILA mortgage-related provisions such as escrow and appraisal requirements.  All nine bills are described in more detail in the Subcommittee Memorandum.

The witnesses scheduled to appear at the hearing are:

  • Robert Fisher, President & CEO of Tioga State Bank on behalf of the Independent Community Bankers of America
  • Rick Nichols, President & CEO of River Region Credit Union on behalf of the Missouri Credit Union Association
  • J.W. Verret, Senior Affiliated Scholar and Associate Professor, George Mason University School of Law

 

 

The White House announced that President Trump intends to nominate James Clinger to be a FDIC member for a six-year term and to be Chairperson for a five-year term, effective November 29, 2017 when the current FDIC chairperson’s term ends.  Mr. Clinger’s nomination must be confirmed by the Senate.

According to the White House announcement, Mr. Clinger was most recently the Chief Counsel for the House Financial Services Committee, having held this position since 2007.  He previously served as Deputy Assistant Attorney General from 2005 to 2007.  Prior to his DOJ service, Mr. Clinger served as Senior Banking Counsel for the House Financial Services Committee from 2001 to 2005, and as Assistant Staff Director from 1995 to 2001.  Before entering public service, he was a litigator in private practice.