The following bills were passed by the House earlier this week:

  • The “Making Online Banking Initiation Legal and Easy (MOBILE) Act, H.R. 1457.  Passed by a vote of 397-8, the MOBILE Act would allow a bank to scan and retain personal information from a state-issued driver’s license or personal identification card when an individual seeks to open an account online or obtain a financial product or service online.  The bill would also allow a bank to use the license or identification card to verify the individual’s identity and comply with a legal requirement to record, retain, or transmit the personal information of an individual seeking to open an account online or obtain a financial product or service online.  According to the accompanying House Report, the bill is intended to create a “new national standard” that would preempt state laws that do not permit the scanning of state-issued driver’s licenses or personal identification cards to verify a customer’s identity.  The bill contains an express preemption provision.  While the bill expands the documentation a bank can use to verify a customer’s identity in an online transaction, it does not require a bank to accept such documentation or limit a bank’s ability to decide who is eligible to open an account.
  • The “Federal Savings Association Charter Flexibility Act of 2017,” H.R. 1426.  Passed by a voice vote, the bill would allow a federal savings association to exercise the powers of a national bank without converting to a national bank charter.  According to the accompanying House Report, the bill is intended to allow a federal savings association to exceed the commercial and consumer loan limits to which it is subject under the Home Owners Loan Act while continuing to be treated as a federal savings association for purposes of governance, consolidation, merger, dissolution, conservatorship, and receivership.  Under the bill, a federal savings association would have to submit a notice of election to operate as a national bank and, unless the OCC otherwise notified the association, the election would be deemed approved 60 days after the OCC received notice.

Last week, the OCC released its Semiannual Risk Assessment for Fall 2017 highlighting credit, operational, and compliance risks to the federal banking system.  In addition to easing in commercial credit underwriting processes, the increasing complexity of cybersecurity threats, and ongoing challenges in complying with Bank Secrecy Act (BSA) requirements, the other key risks identified by the OCC were increasing concentration in third-party service providers for critical operations and challenges in consumer compliance risk management for banks due to the increasing complexity in consumer compliance regulations.  Among the report’s important takeaways is that, despite the CFPB’s recent deregulatory initiatives, financial institutions, particularly banks, continue to face enforcement and supervisory risk resulting from insufficient attention to regulatory compliance.

Operational risk resulting from use of third-party service providers.  The OCC indicated that banks’ increasing use of third-party service providers and the emergence of new products and services offered through financial technology companies or other industry collaborations warrant heightened supervisory focus. The OCC observed that many banks have become increasingly reliant on third-party service providers to support key operations and, as a result of increased consolidation among significant providers, large numbers of banks, especially community banks, are relying on a smaller group of third parties providing critical applications.

The OCC stated that its examiners have identified instances of concentration of third-party services for specialized services, such as merchant card processing.  The OCC acknowledged that banks can achieve greater economies of scale and better manage operations than they could do individually by having access to technical resources provided by third-party service providers.  At the same time, the OCC cautioned that increased use of a limited number of such providers “can create concentrated points of failure resulting in systemic risk to the financial  sector that banks can address through appropriate due diligence and oversight.”

Compliance risk.  The OCC observed that new or amended regulations create challenges to bank change management processes and increase operational, compliance, and reputation risks.  As examples of such changes, the OCC identified the integrated mortgage disclosure requirements under the Truth in Lending Act and the Real Estate Settlement Procedures Act, as well as the new requirements under the amended regulations implementing the Home Mortgage Disclosure Act (HMDA) and the Military Lending Act (MLA).

The OCC also noted the continued challenge for banks to comply with BSA requirements persists due to dynamism of money laundering and terrorism-financing methods. The OCC stated that bank offerings using new or evolving delivery channels may increase customer convenience and access to financial products and services, but banks need to maintain a focus on refining or updating BSA compliance programs to address any vulnerabilities created by these new offerings, which criminals can exploit.

The OCC noted that the TILA, RESPA, and MLA requirements apply to the majority of OCC-supervised institutions.  It stated that despite the integrated mortgage disclosure requirements’ October 2015 effective date, the OCC continues to identify instances where banks have not fully implemented such requirements.  It noted that common supervisory concerns include the accuracy of loan estimates and closing disclosures and inaccurate timing and tolerance violations.

With regard to HMDA, the OCC commented that changes to HMDA require banks to significantly enhance their data collection and reporting systems in 2017 and 2018 to meet their compliance obligations.  It also stated that the CFPB’s recent announcement that it intends to engage in a rulemaking to reconsider various aspects of the revised HMDA rules could result in further HMDA-reporting change management by banks.

With regard to the MLA, the OCC observed that the amended MLA regulation expands the protections provided to servicemembers and their families, covers a wider range of credit products, and is more inclusive than TILA “finance charges” for purposes of the types of charges that must be counted toward the MLA 36 percent rate limit.  It noted that the amendments have the potential for significant compliance, credit, and reputation risk exposure, including the voiding of the credit agreement.

The OCC also made the observation that banks have increasing operational and compliance risk exposure due to strains on the resources needed to effectively support the volume and frequency of regulatory changes and manage existing compliance programs.  The OCC reminded management of the need to identify and understand the risk exposure associated with these resource challenges and address them appropriately.  It warned that failure to do so could have negative impacts on the effectiveness of compliance risk management systems to ensure regulatory compliance and fair treatment of customers and also reminded management of the need to conduct sound due diligence and maintain sufficient oversight when relying on third parties to provide or service bank products.


The impact of new Comptroller of the Currency Joseph Otting on fintech companies is the subject of an article by Ballard Spahr attorneys Scott Pearson and Dan Delnero published by LEND360 Connect.  LEND360 is the sponsor of a national conference focused on issues impacting the online lending space.

The article, Predicting Comptroller Otting’s Impact on Fintech, discusses how Comptroller Otting is likely to approach key issues now facing fintech companies such as the OCC’s proposal to grant special purpose national bank charters to companies that make loans but do not accept deposits, the Second Circuit’s decision in Madden v. Midland Funding, and the so-called “true lender” issue.



A New York federal district court has dismissed the lawsuit filed by the New York Department of Financial Services (DFS) challenging the OCC’s authority to grant special purpose national bank (SPNB) charters to nondepository fintech companies.

When the DFS lawsuit was filed, we commented that because the OCC had not yet finalized the licensing process for fintech companies seeking an SPNB charter, the DFS was likely to face a motion to dismiss for lack of ripeness and/or the absence of a case or controversy.  Consistent with our expectations, the OCC filed a motion to dismiss the lawsuit in which its central arguments were that because it has not yet decided whether it will offer SPNB charters to companies that do not take deposits, the DFS complaint should be dismissed for failing to establish any injury in fact necessary for Article III standing and because the case was not ripe for judicial review.

In dismissing the DFS lawsuit, the district court agreed with both of the OCC’s arguments.  As an initial matter, the court observed that the DFS’s claims were based on the premise that the OCC had reached a decision on whether it would issue SPNB charters to fintech companies (Charter Decision).  The court concluded, however, that the DFS had failed to show that the OCC had reached a Charter Decision.  In reaching its conclusion, the court pointed to statements made by former Acting Comptroller Keith Noreika indicating that the OCC was continuing to consider its SPNB charter proposal but had not made a decision as to its ultimate position.  It also noted that Joseph Otting, the new Comptroller, has not yet taken a public position on the SPNB charter proposal.

With regard to Article III standing, the court concluded that the injuries that the DFS alleged would result from the Charter Decision “would only become sufficiently imminent to confer standing once the OCC makes a final determination that it will issue SPNB charters to fintech companies.”  Such alleged injuries included the potential for New York-licensed money transmitters to escape New York’s regulatory requirements and for their consumers to lose the protections of New York law as well as the DFS’s loss of the funding it receives through assessments levied on the New York-licensed financial institutions that would obtain SPNB charters.  According to the court, in the absence of a Charter Decision, “DFS’s purported injuries are too future-oriented and speculative to constitute an injury in fact.”

With regard to ripeness, the court concluded that DFS’s claims were neither constitutionally nor prudentially ripe.  According to the court, the claims were not constitutionally ripe for the same reason that Article III standing was lacking–namely, the claims were not “actual or imminent” but instead were “conjectural or hypothetical.”  The court also found that the claims were not prudentially ripe because they were contingent on future events that might never occur–namely, an OCC decision to issue SPNB charters to fintech companies.

The court noted that it had received a letter from DFS requesting the court, if it dismissed the case on the basis of ripeness, to require the OCC to provide “prompt and adequate notice to the Court and [the DFS] if and when a decision is made to accept applications from so-called fintech companies for [SPNB charters], and (2) allow [the DFS] to reinstate the case on notice with adequate opportunity for the issues to be briefed and argued prior to the granting of any application by the OCC.”  The court stated that because it did not have subject matter jurisdiction, it could not grant the requested relief.  Nevertheless, the court suggested “that it would be sensible for the OCC to provide DFS with notice as soon as it reaches a final decision given DFS’s stated intention to pursue these issues and in consideration of potential applicants whose interests would be served by timely resolution of any legal challenges.”

Another lawsuit challenging the OCC’s SPNB proposal was filed in April 2017 by the Conference of State Bank Supervisors (CSBS) in D.C. federal district court and in July 2017 the OCC filed a motion to dismiss in that case.   On December 5, the case was reassigned to Judge Dabney L. Friedrich.  Prior to the reassignment, the CSBS had filed a motion requesting oral argument and the court entered an order indicating that it would schedule oral argument if it “in its discretion, determines that oral argument would aid it in its resolution of Defendants’ motion.”

In an update to its Policies and Procedures Manual (PPM), the Office of the Comptroller of the Currency (OCC) has revised PPM 5310-3, “Enforcement Action Policy,” dated September 9, 2011. The PPM sets forth the OCC’s policies and procedures for taking enforcement actions against banks, federal savings associations, federal branches, and agencies (“banks”).  The OCC notes that the principles in the PPM may also be considered in taking an enforcement action against a third-party service provider.  The update is effective December 1, 2017.

The PPM covers the following topics and changes to the September 9, 2011 PPM (“old PPM”):

  • Types of enforcement actions. The PPM lists the types of informal and formal enforcement actions the OCC can take. (Such actions are described more fully in appendices A and B to the PPM.) The PPM clarifies that all nonpublic enforcement actions are considered “informal enforcement actions,” including commitment letters, MOUs, operating agreements, and certain conditions imposed in writing under 12 U.S.C. § 1818. It specifically identified Individual Minimum Capital Ratios (“IMCRs”) and Notices of Deficiency under 12 CFR § 30 as new categories of informal enforcement actions. Similarly, the PPM clarifies which actions constitute “formal enforcement actions.” The old PPM specified that formal enforcement actions include orders and formal written agreements under 12 U.S.C. 1818(b), capital directives under 12 U.S.C. § 3907, Prompt Corrective Action directives under 12 U.S.C. § 1831o, and safety and soundness orders under 12 U.S.C. § 1831p. The PPM’s definition of formal enforcement action includes all those things as well as “all enforcement actions enforceable by the OCC in federal court,” Graham Leach Bliley Act Agreements pursuant to 12 CFR § 5.39, and any action in which a civil money penalty is imposed. The PPA also reminds banks that entities subject to certain formal enforcement actions are also deemed to be in “troubled condition” under 12 C.F.R.§ 5.51.
  • Determination of appropriate supervisory or enforcement response. The PPM lists factors that examiners should consider when determining the appropriate response to a bank’s deficiencies and describes the general circumstances under which the OCC will have a presumption in favor of a formal enforcement action, the impact of a bank’s CAMEL or ROCA rating on the OCC’s response to deficiencies, and the OCC’s authority to place a bank into conservatorship or receivership. The changes that the PPM implements in this section do not appear to be substantive. The simply clarify the old PPM.
  • Decision authority. The PPM describes the OCC’s supervision review committees (SRC) that review or make enforcement decisions. While the old PPM specifically discussed the Examiner in Charge’s authority to recommend enforcement actions, the new PPM omits that discussion. In addition, the PPM adds a Major Matters Supervision Review Committee, which will have final authority to make enforcement decisions on major cases. These changes may indicate that enforcement decisions will be handled at a higher level within the OCC. Other changes to this section appear to be primarily organizational in nature.
  • Content of enforcement action documents. The PPM lists the information that must be contained in enforcement documentation once the OCC has determined which deficiencies must be addressed in an enforcement action. While the old PPM did not explicitly require that the underlying basis for the enforcement action be specified, that requirement was added by the PPM. The PPM also added a requirement that enforcement action documents explicitly guide the board or management’s corrective actions and facilitate OCC follow-up.
  • Timeliness of enforcement actions. The PPM states that, whenever possible, a proposed enforcement action should be presented to the bank within 180 days of the start of supervisory activity that results in a formal written communication containing any of five statements listed in the PPM.  In contrast, the old PPM required only that action be taken “as soon as practicable once the need for such action has been identified.” The PPM also states that enforcement action recommendations based on facts gathered through an order of investigation should be presented to the appropriate supervision review committee within 90 days of completion of the investigative work. (Appendix C to the PPM outlines the general process and timeline for each type of enforcement action.) Any extensions to that deadline must be approved by the appropriate deputy comptroller. Under the old PPM, enforcement decisions were to be made more quickly, generally within 15 days of certain key milestones. However, extensions and exceptions only had to be documented, not formally approved.
  • Follow-up activities. The PPM describes the enforcement action follow-up activities that examiners should undertake. The PPM implements certain changes to the timing of the OCC’s follow up. The changes appear designed to both give the OCC more flexibility in scheduling follow-up and to align the follow-up timing with the requirements of any enforcement action. The PPM also specifies that the follow-up should include both verification (assessing compliance) and validation (assessing effectiveness) of the bank’s remedial efforts.
  • Assessment of compliance with enforcement actions. The PPM states that upon the completion of follow-up activities, examiners must determine whether a bank has met the requirements of each article of the enforcement action and designate the article as “in compliance” or “not in compliance.” The PPM describes the circumstances under which each such designation should be used. The old PPM included a strong presumption in favor of escalated enforcement when the bank was not in compliance on certain types of issues. The PPM does not discuss this presumption.
  • Communication of enforcement action compliance. The PPM describes the contents of formal communications from examiners to a bank that discuss compliance with an enforcement action and the types of communications from a bank to the OCC that follow an enforcement action. This requirement was not contained in the old PPM.
  • Termination of enforcement actions. The PPM describes the circumstances that permit termination of an enforcement action and the considerations for determining when to escalate an enforcement action or replace an enforcement action with a less severe or comprehensive action. The old PPM did not include specific guidance on when and how an enforcement action would be escalated.
  • The PPM describes the supporting documentation related to an enforcement action that must be included in the OCC’s supervisory information systems. These documentation requirements were spread throughout the old PPM. Consolidating them into one section was likely done to improve consistency and accountability in documenting the enforcement process.
  • Public disclosure of enforcement actions. The PPM describes the public disclosures that the OCC can make in connection with an enforcement action. The PPM specifically reminds banks of the circumstances under which they can and must make such public disclosures. The old PPM did not include this additional guidance.

By a vote of 54-43, Joseph Otting has been confirmed by the Senate as Comptroller of the Currency. Mr. Otting is a former president and CEO of California-based OneWest Bank, where he worked with Steven Mnuchin, who now serves as Secretary of the Treasury.

According to Politico, Acting Comptroller Keith Noreika has submitted his resignation, to be effective one business day after Mr. Otting takes office.  Politico also reported that because Mr. Noreika has been working at the OCC as a “special government employee,” he can return to the private sector without any mandated waiting period.

Mr. Otting has not yet taken a public position on the OCC’s special purpose national bank (SPNB) charter proposal.  However, we would expect Mr. Otting to pursue the same policy objectives as those pursued by Mr. Noreika.  While serving as Acting Comptroller, Mr. Noreika stated several times that the OCC is continuing to consider the proposal and intends to defend its authority to grant an SPNB charter to a nondepository company in the lawsuits filed by the NY Department of Financial Services and the Conference of State Bank Supervisors.  He also has been dismissive of the argument made by opponents of the SPNB charter that it may lead to an inappropriate mixing of banking and commerce and questioned the continuing need for the current barriers between banking and commerce in recent comments.

In a new Policies and Procedures Manual (PPM) issuance (PPM 6300-2), the OCC establishes its framework for evaluating certain types of licensing applications when the applicant bank has an overall Community Reinvestment Act (CRA) rating of “Needs to Improve” or “Substantial Noncompliance.”  Both ratings are referred to in the PPM as a “less than satisfactory CRA rating.”  The PPM applies to all national banks, federal savings associations, federal branches of foreign banks subject to the CRA, and state-chartered institutions subject to the CRA seeking to convert to a federal charter.

By way of background, the PPM states that OCC regulations implementing the CRA provide that the OCC must consider a bank’s CRA rating when reviewing the bank’s application for any of the following (Covered Applications): branch establishment, branch relocation, main or home office relocation, a Bank Merger Act filing involving two insured depository institutions, conversion from a state to a federal charter, and conversion between federal charters.  The PPM also states that it provides clarity and guidance on the OCC’s longstanding practice of subjecting Covered Applications from banks with significant CRA issues to enhanced scrutiny.

The OCC’s framework set forth in the PPM applies to applicant banks filing Covered Applications in two situations: where the bank has an overall satisfactory or better CRA rating but has one or more geographic rating areas rated less than satisfactory and where the bank has an overall less than satisfactory CRA rating.

For a bank with an overall satisfactory or better CRA rating but a less than satisfactory rating in one or more geographic rating areas, the general presumption is that the CRA consideration is consistent with approval of the Covered ApplicationHowever, the specific facts of a particular transaction may, on balance, result in a determination that the CRA consideration is not consistent with approval.

If a bank has an overall less than satisfactory CRA rating, the OCC will give enhanced scrutiny to the bank’s Covered Application.  As part of such scrutiny, the applicant bank will be required to submit with its application a description, and appropriate supporting information, of how it would meet CRA objectives in connection with the proposed transaction.  The bank must also describe in detail how approval of the Covered Application would allow the bank to improve its CRA performance.  The OCC would generally find that the CRA consideration is consistent with approval of a Covered Application if the bank demonstrates that approval, subject to conditions or otherwise, would help the bank to achieve its CRA objectives and would further the CRA’s public policy goals by encouraging the bank to help meet the credit needs of the communities it serves.

The PPM discusses four factors that the OCC will consider in assessing whether or not the CRA consideration is consistent with approval of a Covered Application by a bank with an overall less than satisfactory CRA rating.  The factors are:

  • whether the overall less than satisfactory CRA rating was issued recently, the severity of the less than satisfactory CRA performance rating, and the progress made by the applicant bank to address the issues underlying the less than satisfactory rating.
  • whether approval of the Covered Application would result in a material increase in the applicant bank’s size or the scope of its activities, and how such increase would affect the bank’s ability to help meet the credit needs of the communities to be served.
  • whether the proposed transaction would benefit the communities to be served, as well as the nature and extent of such benefits.
  • whether approving the Covered Application with conditions would (a) be sufficient to ensure that the pro forma organization will be able to achieve its CRA objectives, (b) clearly further the specific goals of CRA, or (c) significantly further fair access to banking services.

The PPM also states that, in certain circumstances, evidence of discriminatory or other illegal credit practices related to CRA lending activities can cause a bank to receive an overall less than satisfactory CRA rating, and that in such instances the same general framework and considerations apply.  Other topics discussed in the PPM are the timing of when the framework and considerations in the PPM will go into effect or no longer apply to a Covered Application, how the OCC handles a Covered Application when a bank has appealed a less than satisfactory CRA rating (either overall or in a particular rating area), and the content of OCC communications when the OCC notifies a bank that it has received such a rating.


The CFPB, Fed, and OCC have published notices in the Federal Register announcing that they are increasing three exemption thresholds that are subject to annual inflation adjustments.  Effective January 1, 2018 through December 31, 2018, these exemption thresholds are increased as follows:

Today, President Trump signed H.J. Res. 111, the joint resolution passed by the House and Senate disapproving the CFPB arbitration rule.

The House and Senate actions were taken pursuant to the Congressional Review Act (CRA), which establishes a fast-track procedure under which Congress can override a federal agency’s final rule by passing a resolution of disapproval that cannot be filibustered in the Senate and only requires a simple majority vote.

The arbitration rule became effective on September 18, 2017, with a March 19, 2018, mandatory compliance date.  Under the CRA, enactment of a resolution of disapproval blocks a rule from taking effect or continuing.  Accordingly, the signing of the joint resolution by President Trump means the CFPB arbitration rule is no longer effective.

The CRA also provides that enactment of a resolution of disapproval prevents an agency from reissuing the disapproved rule in substantially the same form or from issuing a new rule that is substantially the same, unless the reissued or new rule is specifically authorized by a law enacted after the date of the resolution of disapproval.  Thus, without new authority from Congress, the CFPB cannot reissue the arbitration rule with substantially similar prohibitions and requirements for companies using arbitration agreements or issue a new rule containing substantially similar prohibitions and requirements.

Acting Comptroller of the Currency Keith Noreika issued a statement in which he applauded the President and Congress for vacating the CFPB rule.  He called the override “a victory for consumers and small and midsize banks across the country because it stops a rule that likely would have significantly increased the cost of credit for hardworking Americans and taken away a valuable tool for resolving differences among banks and their customers.”

Last week, the OCC announced that it had issued a full service national bank charter to Winter Park National Bank of Florida.

Acting Comptroller of the Currency Keith Noreika released a statement in which he stated that Winter Park is “the first de novo national bank and first de novo approved for federal deposit insurance in Florida since the financial crisis.”  He also commented that while the OCC was seeing “increasing interest in becoming new banks,” de novo banks continue to be “exceedingly rare.”  He then suggested that the charter process needs to be improved, stating “[m]aking the process of establishing de novo banks more efficient can only accelerate the recent positive trend and create more economic opportunity for consumers, businesses, and communities across the nation.”