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, 2019 through December 31, 2019, these exemption thresholds are increased as follows:

The FDIC, Federal Reserve Board and Comptroller of the Currency are proposing a rule to implement a rural property appraisal exemption under the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) and also increase the appraisal exemption based on transaction value from $250,000 to $400,000.

As we reported previously, the Act amends the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) to exclude a loan made by a bank or credit union from the FIRREA requirement to obtain an appraisal if certain conditions are met. The conditions are that the property is located in a rural area; the transaction value is less than $400,000; the institution retains the loan in portfolio, subject to exceptions, and; not later than three days after the Closing Disclosure is given to the consumer, the mortgage originator or its agent has contacted not fewer than three state-licensed or state-certified appraisers, as applicable, and documented that no such appraiser, as applicable, was available within five business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments, as documented by the mortgage originator or its agent.

The federal banking agencies propose to implement the exemption under the Act by simply adding to the list of exempted transactions in their respective appraisal regulations a transaction that “is exempted from the appraisal requirement pursuant to the rural residential exemption under 12 U.S.C. 3356.”  In short, the agencies will implement the exemption by simply referencing the statutory provision.

Significantly, the agencies also propose to increase the exemption based on the value of a transaction from $250,000 to $400,000.  The agencies advise that the decision to propose an increase in the transaction value exemption is based on consideration of available information on real estate transactions secured by single 1-to-4 family residential property, supervisory experience, comments received from the public in connection with the Act, and rulemaking to increase the appraisal threshold for commercial real estate appraisals.  If this proposed exemption is adopted, it will significantly reduce the importance of the rural property exemption added by the Act.

With both proposed exemptions, banks still would need to obtain an appropriate evaluation of the real property collateral that is consistent with safe and sound banking practices.

The comment period will run 60 days from the publication of the proposal in the Federal Register.

The Conference of State Bank Supervisors (CSBS) has filed a second lawsuit in D.C. federal district court to stop the Office of the Comptroller of the Currency (OCC) from issuing special purpose national bank (SPNB) charters to fintech companies.  A similar lawsuit was filed last month in a New York federal district court by the New York Department of Financial Services.

The CSBS and the DFS had previously filed lawsuits challenging the OCC’s authority to grant SPNB charters to fintech companies at a time when the OCC had not yet decided whether it would move forward on its charter proposal.  Both lawsuits were dismissed for failing to establish an injury in fact necessary for Article III standing and for lacking ripeness for judicial review.  The new lawsuits were filed in response to the OCC’s July 2018 announcement that it would begin accepting applications for SPNB charters from fintech companies.  In its complaint, the CSBS alleges that “things have changed substantially since the Court’s decision [dismissing the prior CSBS lawsuit].  The issuance of a [SPNB] charter is now clearly imminent.”  It further alleges that “upon information and belief, multiple pre-qualified candidates have already decided to apply (and may have already applied).”

The CSBS challenges the OCC’s SPNB charter plans in the new lawsuit on the following grounds (which generally track those asserted in the first CSBS lawsuit):

  • 12 C.F.R. Section 5.20(e)(1), on which the OCC has relied for its authority to charter a bank that performs a single core banking function—receiving deposits, paying checks, or lending money—is inconsistent with the National Bank Act because the NBA does not allow the OCC to charter entities that do not receive deposits unless they are carrying on a special purpose expressly authorized by Congress.
  • Because the OCC has indicated that state law would be preempted as to fintech companies that obtain a SPNB charter, the OCC’s plans to issue the charters represent a preemption determination to which notice and comment procedures apply.
  • The OCC’s plans to issue SPNB charters to fintech companies represent a “rule” that was made without compliance with the Administrative Procedure Act and is an arbitrary and capricious action that does not constitute “reasoned decision making” as required by the APA.
  • The OCC’s plans to issue SPNB charters to fintech companies, by enabling nonbank charter holders to disregard state law, violate the Tenth Amendment of the U.S. Constitution under which states retain the powers not delegated to the federal government, including the police powers necessary to regulate nonbank providers of financial services and protect consumers and the public interest from unsound and abusive financial practices.

For the reasons discussed in our blog post about the second lawsuit filed by the DFS, we expect the OCC’s power to issue an SPNB charter will ultimately be withheld.

The Federal Banking Agencies (“FBAs”) — collectively the Office of the Comptroller of the Currency (“OCC”); the Board of Governors of the Federal Reserve System (“Federal Reserve”); the Federal Deposit Insurance Corporation (“FDIC”); and the National Credit Union Administration (“NCUA”) — just issued with the concurrence of FinCEN an Order granting an exemption from the requirements of the customer identification program (“CIP”) rules imposed by the Bank Secrecy Act (“BSA”) under 31 U.S.C. § 5318(l) for certain premium finance loans. The Order applies to “banks” — as defined at 31 C.F.R. § 1010.100(d) — and their subsidiaries which are subject to the jurisdiction of the OCC, Federal Reserve, FDIC, or NCUA.

The Order generally describes the CIP rules of the BSA, which at a very high level require covered financial institutions to implement a CIP “that includes risk-based verification procedures that enable the [financial institution] to form a reasonable belief that it knows the true identify of its customers.” This process involves gathering identifying information and procedures for verifying the customer’s identity. Further observing that, under 31 C.F.R. § 1020.220(b), a FBA with the concurrence of the Secretary of the Treasury may exempt any bank or type of account from these CIP requirements, the Order proceeds to exempt loans extended by banks and their subsidiaries from the CIP requirements when issued to commercial customers (i.e., corporations, partnerships, sole proprietorships, and trusts) to facilitate the purchases of property and casualty insurance policies, otherwise known as premium finance loans or premium finance lending.

The key to the exemption — similar to other narrow exemptions previously issued by FinCEN in regards to the related beneficial ownership rule (as we have blogged, see here and here) — is that these transactions are perceived as presenting a “low risk of money laundering.” This finding is repeated throughout the Order, and is rooted in arguments made in letters submitted to FinCEN and the FBAs by a “consortium of banks.”

More specifically, the Order explains that premium finance loans present a low risk of money laundering, and therefore are exempt from the CIP rules, because of the following considerations and “structural characteristics,” raised either by the consortium of banks and/or the government itself:

  • The process for executing a premium finance loan is highly automated, because “most . . . loan volume is quoted and recorded electronically.”
  • These loans typically are submitted, approved and funded within the same business day and are conducted through insurance agents or brokers with no interaction between the bank and borrower — which means that this process renders it difficult for banks to gather CIP-related information efficiently.  These practical problems are exacerbated by the frequent reluctance of insurance brokers and agents — driven by data privacy concerns — to collect personal information.
  • Property and casualty insurance policies have no investment value.
  • Borrowers cannot use these accounts to purchase merchandise, deposit or withdraw cash, write checks or transfer funds.
  • FinCEN previously exempted financial institutions that finance insurance premiums from the general requirement to identify the beneficial owners of legal entity customers.
  • FinCEN previously exempted financial institutions that finance insurance premiums that allow for cash refunds from the beneficial ownership requirements.
  • FinCEN previously exempted commercial property and casualty insurance policies from the general BSA compliance program rule for insurance companies.
  • The exemption “is consistent with safe and sound banking.”

Although this exemption is narrow and somewhat technical, it represents yet another step in an apparent trend by FinCEN and the FBAs to ease the regulatory demands, albeit in a very targeted fashion, imposed under the BSA.  Clearly, the key argument to be made by other financial institutions seeking similar relief is that the particular kind of financial transaction at issue presents a “low risk of money laundering.”

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

On September 12, 2018, the Office of the Comptroller of the Currency (the “OCC“) released its first update to the “Deposit-Related Credit” booklet of the Comptroller’s Handbook (the “DRC Booklet“) since its March 2015 release.  (The OCC initially released a widely-critiqued DRC Booklet in February of 2015 as a replacement to its “Credit Check” booklet, but this release was quickly withdrawn.)  The DRC Booklet provides guidance to OCC examiners in their review of “deposit-related credit” (“DRC Products“) which typically constitute small-dollar, unsecured credit products related to a consumer’s deposit account, such as “check credit,” “overdraft protection services,” or “deposit advance products.”

Importantly, this is the first revision to the DRC Booklet since the OCC’s rescission of its guidance entitled “Supervisory Concerns and Expectations Regarding Deposit Advance Products” and corresponding OCC Bulletin 2013-40 that had effectively precluded banks subject to OCC supervision from offering deposit advance products.  As we have previously discussed, the OCC recently has taken positive, if sometimes contradictory, steps towards encouraging banks to offer small-dollar credit, and the updated DRC Booklet appears to be another positive step forward.  Among other things, it removes examination procedures related to burdensome “ability to repay” requirements as well as references to OCC Bulletin 2013-40’s risk management expectations.

The OCC’s revisions also attend to various housekeeping matters, such as the incorporation of recent OCC Bulletin 2018-14, “Installment Lending: Core Lending Principles for Short-Term, Small-Dollar Installment Lending,” OCC Bulletin 2017-21: “Third-Party Relationships” and OCC Bulletin 2017-43: New, Modified, or Expanded Bank Products and Services–Risk Management Principles,” and they integrate the Dodd-Frank concept of “unfair, deceptive, or abusive acts or practices.”  Finally, the DRC Bulletin has been revised to clarify certain provisions of the Military Lending Act as they relate to DRC Products.

As we have noted, financial institutions such as national and federal savings banks may have opportunities to structure DRC Products that will not only fall outside the CFPB’s small-dollar rule but also meet supervisory expectations, produce substantial revenues and provide credit to otherwise credit-limited consumers.  (And at least one major financial institution has already launched a program in this changing regulatory environment.)  The revisions to the DRC Bulletin are yet another indication of the OCC’s increased permissiveness of DRC and other small-dollar products, and we will continue to provide updates on these regulatory changes as they occur.

On September 12th, the Conference of State Bank Supervisors (CSBS) announced that it would again pursue litigation in opposition to the OCC’s recent decision to accept applications from non-depository financial technology firms for a special purpose national bank (SPNB) charter.

While it announced that its Board of Directors had approved renewing litigation against the OCC at an August 28 meeting, the CSBS did not indicate when it plans to file the lawsuit.  The lawsuit would represent the second time that the CSBS has pursued litigation challenging the OCC’s authority to issue a SPNB charter to fintech companies.  On April 30, 2018, a D.C. federal district court dismissed the first lawsuit filed by the CSBS challenging the OCC’s authority to grant SPNB charters on the grounds that the CSBS had failed to establish any injury in fact necessary for Article III standing and that the case was not ripe for judicial review.  In its initial filing, the CSBS argued that the OCC’s 2017 proposal to issue SBNB charters to fintech companies exceeded the authority granted to the OCC by Congress under the National Bank Act (NBA) and other federal banking laws to charter institutions that engage in the “business of banking.”  The CSBS argued that to engage in the “business of banking,” the NBA requires an institution, at a minimum, to receive deposits.

The New York Department of Financial Services (DFS) also previously filed a lawsuit challenging the OCC’s authority to issue SPNB charters.  That lawsuit, which was filed in a New York federal district court, was dismissed in December, 2017 on similar grounds.  While the DFS has not announced whether it will renew its litigation against the OCC, DFS Superintendent Maria Vullo stated in a July 31 press release that “DFS believes that this [OCC] endeavor, which is also wrongly supported by the Treasury Department, is clearly not authorized under the National Bank Act.  As DFS has noted since the OCC’s proposal, a national fintech charter will impose an entirely unjustified federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape.”

We recently blogged about the announcement by Varo Bank, N.A., a fintech bank, that it had received preliminary approval from the OCC of its application for a full-service national bank charter.  We do not expect the CSBS or the DFS to challenge the preliminary approval since there would not appear to be any basis to challenge the OCC’s authority to issue a full-service national bank charter to Varo assuming it satisfies the standard conditions for obtaining such a charter.

In a press release, the organizers of Varo Bank, N.A. announced they have been granted preliminary approval by the OCC of their application to form a de novo national bank, which they claim “put[s] Varo on track to become the first all-mobile national bank in the history of the United States.”

In July 2018, the OCC announced that it would begin accepting applications for special purpose national bank (SPNB) charters from financial technology (fintech) companies.  Rather than a SPNB charter, Varo is seeking a full-service national bank charter from the OCC.  A SPNB charter provides an option for a fintech company for whom, because of its own non-financial activities or those of an affiliate, the Bank Holding Company Act would be an obstacle to obtaining a full-service national bank charter.  Obtaining a full-service national bank charter, however, is the preferred option for a fintech company that can do so consistent with the BHCA.  Many years ago, two of my Ballard partners successfully converted a consumer finance company to a full-service national bank.

Federal court lawsuits challenging the OCC’s authority to issue SPNB charters were filed in 2017 by the Conference of State Bank Supervisors and the New York Department of Financial Services.  Both lawsuits were dismissed for failure to establish an injury in fact necessary for Article III standing and lack of ripeness for judicial review.  While such challenges may be renewed now that the OCC has announced that it will begin accepting SPNB charter applications, there would not appear to be any basis for a similar challenge to the issuance of a full-service national bank charter to Varo assuming it satisfies the standard conditions for obtaining such a charter.

The Office of the Comptroller of the Currency (OCC) has issued an advance notice of proposed rulemaking (ANPR) on which it invites public comment “to solicit ideas for building a new framework to transform or on ways to transform or modernize the regulations that implement the Community Reinvestment Act of 1977 (CRA).”  The ANPR follows the Treasury Department’s issuance of a memorandum in April 2018 that made recommendations for modernizing the CRA to reflect the significant organizational and technological change experienced by the U.S. banking industry since the CRA’s enactment.  The Treasury’s memorandum was directed to the primary CRA regulators, consisting of the OCC, the Federal Reserve, and the FDIC.  Each of these agencies has individually adopted regulations to implement the CRA.  In issuing the ANPR, the OCC becomes the first of the three agencies to move forward on updating its CRA regulations.  Comments on the ANPR will be due no later than 75 days after the date it is published in the Federal Register.

The ANPR is intended to respond to stakeholder concerns that (1) the CRA’s statutory purpose of encouraging banks, consistent with safety and soundness considerations, to help meet the credit needs of the communities they serve including low- and moderate-income (LMI) areas “is not fully or effectively accomplished through the current regulations,” (2) the current CRA regulatory framework “no longer reflects how many banks and consumers engage in business of banking,” and (3) the current CRA regulatory requirements lack “clarity, consistency, and certainty.”

Following a discussion of the different methods currently used to evaluate a bank’s CRA performance depending on its asset size and business strategy, what is included in a bank’s assessment area, and the relationship between a bank’s assessment area and its CRA-qualifying activities, the ANPR invites comments on five groups of questions.  The questions in the first group are general in nature and solicit comments “on changes to transform or modernize the current CRA regulatory framework.”  For example, the OCC asks whether the current CRA regulations are “clear and easy to understand” and “applied consistently” and whether the current CRA rating system is “objective, fair, and transparent.”

The other four groups of questions are directed at specific topics as follows:

  • Revising or transforming the current regulatory approach by implementing either (1) an alternative evaluation method to replace existing performance tests and standards that would “separately evaluate retail or [community development (CD)] activities for all banks, accounting for variations in size, business model, or other factors,” and use “updated metrics that take into account information on a bank’s performance context, such as the demographic characteristics and the economic and financial condition of specific communities,” or (2) “a more transformational approach” that could, through the use of “a metric-based performance measurement system with thresholds or ranges (benchmarks) that correspond to the four statutory CRA ratings,” make the process for evaluating a bank’s CRA performance more transparent, define “community” more broadly, and expand the activities receiving CRA consideration.
  • An updated approach to defining a bank’s assessment area under which a bank would continue to receive consideration for CRA-qualifying activities within its branch and deposit-taking ATM footprint and could receive consideration “for providing these types of beneficial activities in LMI areas outside of [such footprint] and other underserved areas.”
  • Expanding CRA-qualifying activities through regulatory changes “that could ensure CRA consideration for a broad range of activities supporting community and economic development in banks’ CRA performance evaluations, while retaining a focus on LMI populations and areas, and set clear standards for determining whether an activity qualifies for CRA consideration,” such as small business loans.
  • Updating CRA recordkeeping and reporting requirements under a metric-based framework.

The ANPR concludes with an invitation for “other ideas and options for modernizing the CRA regulatory framework not identified in this ANPR.”


A new bulletin issued by the Office of the Comptroller of the Currency (OCC), Bulletin 2018-23, makes slight, but significant, changes to OCC policy regarding when evidence of illegal or discriminatory credit practices could result in a downgrade to a national bank’s Community Reinvestment Act (CRA) examination rating.  The bulletin clarifies that, contrary to another OCC bulletin issued in late 2017, there are still circumstances that could justify a downgrade of two CRA rating levels.

On October 12, 2017, the OCC, under Acting Comptroller Keith Noreika, issued revised Policies and Procedures Manual (PPM) 5000-43 to clarify the relationship between evidence of illegal credit practices and an institution’s CRA rating.  PPM 5000-43 provided two principles to guide the OCC’s CRA rating determination.  First, the OCC would require a logical nexus between the evidence of illegal or discriminatory credit practices and the CRA rating. The OCC said that it would consider lowering a rating where the evidence of illegal activities “directly relates” to an institution’s CRA lending activities (as opposed to other activities).  The second principle committed the OCC to giving an institution full consideration for all remedial actions taken.

Bulletin 2018-23, issued by Comptroller Joseph Otting, changes the OCC’s approach to the first principle provided by PPM 5000-43.  With respect to the activities that can impact a bank’s CRA rating, the OCC clarified that “[g]enerally, the OCC considers lowering the composite or component performance test rating of a bank only if the evidence of discriminatory or illegal credit practices directly relates to the institution’s CRA lending activities” (emphasis added).  The addition of the word “only” may strengthen the OCC’s commitment to limit rating impacts to situations where illegal activities directly relate to CRA lending.  However, the use of “generally” could still provide examiners with flexibility.

Most significantly, Bulletin 2018-23 reverses the OCC’s prior statement that such an impact would only result in one rating-level downgrade.  The OCC deleted a footnote from PPM 5000-43 that clearly stated that the OCC’s policy is not to downgrade ratings by more than one level and added a new sentence to the primary text.  The new sentence says “the OCC’s general policy is to downgrade the rating by only one rating level unless such illegal practices are found to be particularly egregious.”  It remains to be seen how the OCC will define “particularly egregious” practices.

These changes come in the wake of several other CRA developments this year.  In April 2018, the Treasury Department released an extensive list of recommendations to modernize the CRAAs we commented at the time, implementation of those recommendations would require rulemakings by the banking agencies, including the OCC, the Federal Reserve, and the Federal Deposit Insurance Corporation.

The OCC also issued OCC Bulletin 2018-17 in June 2018.  Most notably, this bulletin changed the timing of CRA examinations.  In a letter to Comptroller Otting dated July 24, 2018, several U.S. Senators criticized these changes and claimed that the OCC had effectively undermined the CRA’s effectiveness by lengthening the examination schedule for some large banks and delaying the impact of a CFPB fair lending investigation until a subsequent CRA examination takes place (instead of delaying the conclusion of a CRA examination while a fair lending investigation is pending).

These developments and the OCC’s policy changes indicate that 2018 will continue to be an impactful year for the CRA as it relates to national banks.



The federal banking agencies (the Federal Reserve Board, OCC, and FDIC (FBAs)), recently issued a “Policy Statement on Interagency Notification of Formal Enforcement Actions” that is intended “to promote notification of, and coordination on, formal enforcement actions among the FBAs at the earliest practicable date.”  The issuance of the policy statement follows the DOJ’s announcement last month of a new policy to encourage coordination among the DOJ and other enforcement agencies when imposing multiple penalties for the same conduct to discourage “piling on.”

The new policy statement recites that it is not intended as a substitute for routine informal communications among FBAs in advance of an enforcement action, including verbal notification of pending enforcement actions “to officials and staff with supervisory  and enforcement responsibility for the affected institution.”

The policy statement’s key instructions are:

  • When an FBA determines that it will take formal enforcement action against a federally-insured depository institution, depository institution holding company, non-bank affiliate, or institution-affiliated party, it should evaluate whether the action involves the interests of another FBA.  By way of example, the policy statement notes that an entity targeted by an FBA for unlawful practices might have significant connections with an institution regulated by another FBA.
  • If it is determined that one or more other FBAs have an interest in an enforcement action, the FBA proposing the action should notify the other FBA(s) at the earlier of the FBA’s written notification to the targeted entity or when the responsible agency official or group of officials determines that enforcement action is expected to be taken.
  • The information shared should be appropriate to allow the other FBA(s) to take necessary action in examining or investigating the entity over which they have jurisdiction
  • If two or more FBAs is considering bringing a complementary action, such as an action involving a bank and its parent holding company, those FBAs should coordinate the preparation, processing, presentation, potential penalties, service, and follow-up of the enforcement action.

We view the new policy statement as a very positive development.