According to a Financial Times report, Ginnie Mae is considering proposals that would create federal safety and soundness standards for non-bank mortgage lenders that are similar to those that apply to banks.  More specifically, the report cites comments made by Maren Kasper, Ginnie Mae’s acting president, that the proposals would provide for stress testing to assess a lender’s liquidity and include a requirement that lenders have a “living will” that describes how the lender would wind down its operations in the event of financial distress or the lender’s failure.

The proposals appear to stem from a white paper, “Ginnie Mae 2020: Roadmap for sustaining low-cost homeownership.”  Counter-party risk will be a topic of discussion at the Ginnie Mae Summit scheduled for June 13-14, 2019.

Ballard Spahr is proud to be partnering with Venminder, Inc. in sponsoring a webinar, “Banking and regulatory expectations in today’s third-party risk management world,” to be held at 2 p.m. ET on April 16, 2019.  Hosted by American Banker, the webinar will feature Glen Trudel, a partner in Ballard Spahr’s Consumer Financial Services Group, and Branan Cooper, Venminder’s Chief Risk Officer.

Glen and Branan will be joined by Elizabeth Khalil, Director and Associate General Counsel of the Canadian Imperial Bank of Commerce.  The webinar will be moderated by Mike Perkowski, Co-Founder and Partner, New Reality Media, LLC.

The webinar will look at third party oversight requirements and best practices, addressing cybersecurity and handling vendor data breach notifications, preparing for an exam or audit, GDPR and negotiating vendor agreements, and the biggest third party risk struggles organizations are facing.

The webinar is complimentary.  Click here to register.


At the end of last month, the U.S. Supreme Court heard oral argument in Kisor v. Wilkie, a case in which the question before the Court is whether it should overrule a line of cases instructing courts to defer to an agency’s interpretation of its own regulation, a doctrine sometimes referred to as “Auer deference.”  The name derives from Auer v. Robbins, a 1997 U.S. Supreme Court opinion written by Justice Scalia for a unanimous court.  In Auer, the Court ruled that the Department of Labor’s interpretation of its own regulation controlled unless it was plainly erroneous or inconsistent with the regulation.

The case that is now before the Court was brought by James Kisor, a Vietnam War veteran who filed for benefits for post-traumatic-stress disorder.  In 2006, the Department of Veterans Affairs agreed with Mr. Kisor that he suffered from PTSD, but refused to give him benefits dating back to 1983 as he had sought.  In denying his claim, the VA relied on its interpretation of the term “relevant” in a VA regulation that addresses the VA’s reconsideration of a claim.  The regulation provides for reconsideration “if VA receives or associates with the claims file relevant official service department records that existed and had not been associated with the claims file when the VA first decided the claim.” (emphasis added).  The VA concluded that certain documents offered by Mr. Kisor in support of his claim were not “relevant” because they were not “outcome determinative.”  The VA’s decision was affirmed by the Court of Appeals for Veterans Claims.  Mr. Kisor then appealed to U.S. Court of Appeals for the Federal Circuit, which deferred to the VA’s interpretation in affirming the lower court’s decision.

In his main brief, Mr. Kisor argues that Auer deference is inconsistent with the federal Administrative Procedure Act because it circumvents the APA’s notice-and-comment rulemaking requirements.  He describes Auer deference as “fundamentally at war with basic principles of predictability and public notice at the heart of the APA.”  Mr. Kisor also contends that Auer deference is inconsistent with constitutional separation of powers principles because its “practical effect is to vest in a single branch the law-making and law-interpreting functions.”

In its brief, the DOJ acknowledges that Auer deference “raises significant concerns” but argues that the doctrine should be clarified and narrowed rather than discarded entirely.  The DOJ contends that courts should not defer to an agency’s interpretation of its own regulation “if, after applying all the traditional tools of construction, a reviewing court determines that the agency’s interpretation is unreasonable—i.e., not within the range of reasonable readings left open by a general ambiguity in the regulation.”  According to the DOJ, that approach would eliminate the need for Auer deference in many cases.  The DOJ asserts further that even if an agency’s interpretation is determined to be reasonable, a court should only defer to the interpretation if it satisfies the following conditions: it was issued with fair notice to regulated parties, it is not inconsistent with the agency’s prior views, it rests on the agency’s expertise, and it represents the agency’s considered view, as distinct from the views of “mere field officials or other low-level employees.”

In their briefs, both Mr. Kisor and the DOJ distinguish Auer deference from Chevron deference and neither challenges Chevron deference.  Chevron addresses the deference a court should give to an agency’s regulation.  As the DOJ observes, however, it is not clear that Chevron’s rationale applies to the deference given to an agency’s construction of its own regulations.  The DOJ, citing Supreme Court case authority, states that under Chevron, “an ambiguity in a statute is understood to be an implicit delegation from Congress to the agency to make a policy judgment within the bounds of any statutory ambiguity.  But an ambiguity in an agency’s own regulation is not of Congress’s making.”  Mr. Kisor also characterizes Chevron deference as resting “on congressional delegations of lawmaking authority to the agencies,” and argues that, as distinguished from Auer deference, it “promotes, rather than skirts, notice-and-comment rulemaking.”

The questions asked at oral argument by Justices Sotomayor, Ginsburg, and Breyer suggested they were skeptical of Mr. Kisor’s arguments, with Justice Breyer emphasizing an agency’s expertise in particular subject matter.  Justice Kagan’s comments suggested that she was reluctant to overrule Supreme Court precedent when “Congress has shown no interest whatsoever in reversing the rule that the Court has long established.”  Justices Gorsuch and Kavanaugh both raised concerns that Auer deference creates regulatory uncertainty and potentially allows an agency to avoid notice-and-comment rulemaking.

The issuance of guidance by an agency without use of the APA’s notice-and-comment procedures has also met with criticism.  A notable example is the CFPB’s indirect auto finance guidance which set forth the CFPB’s disparate impact theory of assignee liability for so-called auto dealer “markup” disparities.  After the Government Accountability Office determined that the guidance was a “rule” within the scope of the Congressional Review Act (CRA), Congress used the CRA to override the guidance.



Last Tuesday, I had the great privilege of testifying before the Senate Judiciary Committee at its “Arbitration in America” hearing.  As I told the Committee members in my opening remarks, arbitration is a topic that’s very near and dear to my heart. The hearing lasted about two hours and only two Committee members were present for the entire hearing, Committee Chairman Lindsay Graham and Senator Richard Blumenthal who served as the Acting Ranking Member in place of Ranking Member Senator Dianne Feinstein.  Many of the Committee members seemed to be present only when it was his or her turn to question the witnesses.

Although Republicans control the Committee by a 12-10 majority, Democratic members (who had an animus towards consumer or employee arbitration) played a dominant role, with many using their time to make statements against arbitration rather than to ask questions.  When questions were asked, Democrats directed them only to “friendly’ witnesses (which meant they avoided me.)  I was asked only a few questions by Chairman Graham and Senator Grassley.

The hearing’s format allocated five minutes to each witness to give oral testimony.  The oral testimony was followed by questioning by Committee members.  Witnesses could not respond to questions asked by Senators of other witnesses, nor could a witness comment on the response of another witness.  For that reason, through this blog post, I want to share the following comments that I would have made at the hearing if the format had permitted me to do so:

  • Senator Whitehouse cited several historical texts to demonstrate that the right to a jury trial was viewed as fundamental by the nation’s founders.  While Senator Whitehouse’s historical perspective is correct, his suggestion that Congress should not allow predispute arbitration agreements because they constitute a waiver of the right to a jury trial is inconsistent with the extensive body of case law upholding such waivers.  Federal and state courts throughout the country, while characterizing the right to a jury trial as fundamental, have also held that the right to a jury trial can be waived. The United States Supreme Court recently held that “the primary characteristic of an arbitration agreement [is] … a waiver of the right to go to court and receive a jury trial.”  Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1427 (2017).  In this case, the Supreme Court enforced the arbitration clause.
  • Senator Booker commented that arbitration is not “quick, efficient, or cheap” and Senator Klobuchar suggested that the cost of an individual arbitration is “so high” that “even if you win, you don’t win.”  With regard to speed, several studies have demonstrated that consumer arbitration is faster than litigation.  Indeed, the Consumer Financial Protection Bureau’s (CFPB) exhaustive empirical study of consumer arbitration showed arbitration to be up to 12 times faster than consumer class action litigation.  With regard to efficiency, surveys have shown that the vast majority of consumers view arbitration as simpler, less hostile, and more convenient than going to court.  With regard to cost, arbitration is less expensive for consumers than going to federal court.  The American Arbitration Association (AAA) and JAMS, the nation’s leading national arbitration administrators, have capped the arbitration fees paid by a consumer at $200 and $250, respectively.  The company pays the remainder of the fees.  By contrast, it costs $400 to file a federal court complaint.

    Moreover, both the AAA and JAMS will waive even those modest fees if the consumer has a financial hardship.  In addition, the arbitration agreements used by many companies typically provide that the company will pay or advance the consumer’s share of the administrative and arbitrator fees.  In any event, the CFPB found that consumers who prevailed in arbitration recovered an average of almost $5,400.  Given that the consumer at most has paid $200 or $250 to start the arbitration, consumers clearly win by going to arbitration instead of to court.  And, as discussed in the next bullet point, consumers do in fact “win” in arbitration.

  • Senator Booker commented that corporations win arbitrations “93% of the time.”  That statistic is derived from a so-called “fact sheet” published on August 1, 2017 by the Economic Policy Institute titled “Correcting the Record–Consumers fare better under class actions than arbitration.”  Unfortunately, these statistics create the misimpression that consumers fare very poorly in arbitration compared to class action litigation.  That is not the case.  In its 2015 study of consumer arbitration, the CFPB examined 1060 consumer financial services arbitrations administered by the AAA filed in 2010 and 2011.  Of those 1060 arbitrations, 246 arbitrations (23.2%) settled, 362 arbitrations (34.2%) ended in a manner consistent with settlement, and 111 arbitrations (10.5%) ended in a manner inconsistent with settlement although it is possible that settlements occurred.  Just because a case settles does not mean that the consumer did not come away with a monetary payment or some amount of debt forbearance.

    In fact, the opposite is likely true — a case settles because the parties found a way to compromise their positions and resolve their dispute.  Moreover, the CFPB noted 32 arbitrations in which consumers recovered an average of about $5,400.  Therefore, of the 1060 arbitrations filed in 2010-2011, consumers either did or may have come away with a monetary payment or some amount of debt forbearance in as many as 71% of the arbitrations.  Notably, Professor Christopher Drahozal, who served as a Special Advisor to the CFPB in connection with its arbitration study, also conducted a study of more than 300 AAA arbitrations in 2009 for the Northwestern University Searle School of Law.  He concluded that consumers won relief in 53.3% of the arbitrations.  It turns out that the 93% figure is referring to debt collection claims asserted by companies in which the consumer either defaulted or had no defenses or very weak ones.  What the fact sheet fails to state is that the result would not have been any different in court.  This precise point was made by the Maine Bureau of Consumer Protection in a 2009 report to the Maine Legislature on consumer arbitrations:

[I]t is important to keep in mind that although credit card banks and assignees prevail in most arbitrations, this fact alone does not necessarily indicate unfairness to consumers.  The fact is that the primary alternative to arbitration (a civil action in court) also most commonly results in judgment for the plaintiff.  Although certainly there are cases in which a consumer has a valid defense to the action, it is also correct to say that most credit card cases result from a valid debt and a subsequent inability of the consumer to pay that debt.

  • Senator Booker commented that the “deck is stacked” against consumers in arbitration because arbitrators have a pro-industry bias.  Professor Gilles suggested that consumers have no role in selecting the arbitrator for their disputes and Mr. Bland also suggested that often the arbitration rosters are all industry people.  However, it simply is not the case that arbitrators have a pro-industry bias or that consumers have no role in selecting the arbitrator and no recourse if they object to the arbitrator selected.  Most consumer arbitration agreements require the AAA or JAMS to administer the arbitration.  Both are well known and highly respected organizations that have earned the respect of the courts for many decades.  Those administrators either appoint an arbitrator drawn from their national roster of arbitrators or allow the parties to select an arbitrator from a list of three or more provided.  Thus, both the consumer and the business have exactly the same rights in selecting an arbitrator, and the deck is not stacked in favor of either party.

    Both the AAA and JAMS require all of their arbitrators to be neutral, impartial, and independent.  The arbitrators are required to disclose any conflicts, and there is a procedure whereby a party (consumer or company) can object to the appointed arbitrator or move to disqualify the arbitrator if there is even a hint or suspicion of bias or impartiality.  See AAA Consumer Arbitration Rules 15-19; JAMS Streamlined Arbitration Rule 12.  Moreover, under Section 10 of the Federal Arbitration Act,  a court can vacate the arbitrator’s award for “evident partiality,” among other things.

  • Professor Gilles, citing statistics about the number of individuals who filed individual arbitrations to resolve disputes during a specified period, suggested that the reason more individuals did not initiate arbitrations was because they are not “worth the cost.”  As indicated above, the typical cost of an arbitration to a consumer is quite modest and substantially less than initiating a court action.  The fact is that most consumer disputes are resolved without the need for arbitration through the internal dispute resolution procedures that companies have in place.In its arbitration study the CFPB noted the “relatively low” number (1,847) of arbitration proceedings filed by consumers against financial services companies, compared to court cases.  However, no inference should be drawn that consumers prefer litigation to arbitration or that arbitration is an ineffective remedy compared to class actions.  In reality, the vast majority of consumer disputes are resolved by informal methods without the need for arbitration or litigation (even small claims litigation).  Such procedures include error and dispute resolution procedures provided by federal and state law, customer complaint mechanisms maintained internally by businesses, such as toll-free customer complaint telephone numbers and website “contact us” links, as well as procedures such as complaint portals offered by regulatory agencies, state agencies, and private organizations such as the Better Business Bureau to help consumers resolve disputes with businesses.

    In particular, most financial services companies maintain internal complaint resolution programs which, unlike class actions, can address consumer disputes quickly and efficiently.  Financial services providers are driven to support robust complaint resolution systems by the desire and need to satisfy customers in order to survive in a competitive environment.  And in today’s world, where stories and complaints may be quickly and widely broadcast through the press and social media, companies have powerful incentives to resolve disputes fairly and quickly, especially small dollar disputes.  Banks and other companies that are subject to federal or state supervision, in particular, have additional incentives to support strong complaint management systems and ensure complaints are resolved fairly because of the emphasis given to complaints in the examination process.  There are also other reasons the number of consumer arbitrations is relatively small in comparison with court filings: (a) many plaintiffs’ lawyers and consumer advocates have sent consistently negative messages about arbitration for almost two decades and have done their best to dissuade consumers from arbitrating, (b) consumer arbitration is still “the new kid on the block” compared to litigation, (c) vigorous governmental enforcement actions eliminate the need for consumers to bring private actions, (d) individuals are turning increasingly to on-line arbitration and mediation resources to resolve small-dollar customer complaints, and (e) government agencies have failed to educate consumers about the many benefits that arbitration can offer as opposed to litigation.

  • Several Senators indicated that national standards are needed for arbitration agreements.  However, the industry has already created standards protective of consumers that effectively function as national standards.  Both the AAA and JAMS have adopted consumer due process protocols and consumer rules and fee schedules to ensure that the consumer will be treated fairly, that arbitration will be affordable to the consumer, and that the arbitrator will apply applicable substantive law and corresponding remedies.  Moreover, companies have gone to great lengths to make their arbitration programs fair, even to the point of giving consumers the unconditional right to reject arbitration within 30 or 45 days after entering into the transaction.  In addition, state and federal courts rigorously strike down arbitration agreements that they find to be overreaching, unfair, or abusive to consumers, and enforce those that are reasonable and legally and equitably sound.  This existing “checks and balances” system operates dynamically and very successfully to protect the rights of all parties to the consumer arbitration agreement, consumer and company alike.
  • Senator Graham indicated that Congress needs to take a look at class actions.  I wholeheartedly agree.  The data analyzed in the CFPB’s study clearly demonstrates that individual arbitration produces more tangible benefits to consumers than class action litigation.  First, the study demonstrated that consumer arbitration is up to 12 times faster than consumer class action litigation and that arbitrations are concluded in months, while class actions take years.  Second, the study showed that consumers pay far less to arbitrate than to sue in court.  Third, the study showed that consumers recover more in arbitration than in class action litigation.  According to the study, the consumer’s average recovery in arbitration was $5,389 (an average of 57 cents for every dollar claimed).In sharp contrast, the average recovery for class members in consumer class action settlements was a mere $32.35.  Thus, the consumer’s average recovery in arbitration was 166 times greater than the average putative class member’s recovery.  The study further found that attorneys’ fees awarded to class counsel in settlements during the period studied amounted to $424,495,451.  In addition, the study concluded that in 87% of the 562 class actions the CFPB studied, the putative class members received no benefits whatsoever.  The study also showed that consumers are more likely to obtain decisions on the merits in arbitration than in class action litigation.

    The CFPB’s findings mirror the conclusions reached by the U.S. Chamber of Commerce, Institute for Legal Reform in a December 2013 empirical study of class actions titled “Do Class Actions Benefit Class Members?”  After analyzing 148 putative consumer class action lawsuits filed in or removed to federal court in 2009, the Chamber’s report found, inter alia, that:

    • None of the class actions ended in a final judgment on the merits for the plaintiffs or even went to trial, either before a judge or a jury.
    • The vast majority of cases produced no benefits to most members of the putative class – although in a number of those cases the lawyers who sought to represent the class were paid substantial amounts.
    • Over one-third (35%) of the class actions that were resolved were dismissed voluntarily by the plaintiff.  Many of those cases settled on an individual basis, meaning a payout to the named plaintiff and the lawyers who brought the suit, even though the class members received nothing.
    • Just under one-third (31%) of the class actions that were resolved were dismissed by a court on the merits, meaning that class members received nothing.
    • For those cases that settled, there was often little or no benefit for class members.



The Federal Financial Institutions Examination Council (FFIEC) announced that CFPB Director Kathy Kraninger became the Chairman of the FFIEC on April 1, 2019.  Ms. Kraninger is the first CFPB Director to serve as FFIEC Chairman.  Her two-year term runs until March 31, 2021.

The FFIEC chairmanship rotates among the FFIEC’s federal members for two-year terms in the following order: OCC, Federal Reserve, FDIC, CFPB, and NCUA.  As Chairman, Ms. Kraninger succeeds FDIC Director Jelena McWilliams.

The FFIEC is empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by its constituent agencies and to make recommendations to promote uniformity in the supervision of financial institutions.  The FFIEC is responsible for developing uniform reporting systems for federally supervised financial institutions, their holding companies, and the nonbank subsidiaries of such institutions and their holding companies.



On April 1, 2019, New York enacted Article 14-A, governing servicers of student loans owed by New York residents, in connection with New York’s fiscal year 2020 budget. Though sweeping legislation has been anticipated for some time, awareness of the extensive provisions of the new legislation are critical for student loan servicers nationwide.

The legislation requires certain servicers to obtain licensure from the New York Department of Financial Services (“DFS”) in order to service student loans owed by New York residents. Servicers of federal student loans are automatically deemed as licensed under the new law to service federal loans. To the extent a servicer services both federal and non-federal student loans, the servicer is required to obtain licensure. Banking organizations, foreign banking corporations, national banks, federal savings associations, federal credit unions, certain banks and other financial institutions organized under the laws of states other than New York, and private nonprofit or public postsecondary educational institutions are exempt from licensure requirements and certain other requirements of the new legislation. However, even servicers that are exempt from licensure or are deemed as licensed are required to provide notice of their loan servicing to the DFS and to comply with some provisions of the law, including those pertaining to non-conforming payments, credit reporting, prohibited practices, and recordkeeping.

The law requires student loan servicers to inquire of a borrower how to apply a borrower’s nonconforming payment, unless otherwise provided by federal law or the applicable loan agreement. Nonconforming payments are those that are either more or less than the required student loan payment. A borrower’s instructions on how to apply nonconforming payments remains in effect for future nonconforming payments until the borrower provides different directions. The requirements for nonconforming payments are particularly noteworthy as misapplying payments is considered a prohibited practice under the new law. The law also requires servicers who regularly report information to a consumer reporting agency to accurately report a borrower’s payment performance to at least one nationwide consumer reporting agency.

Additional prohibited practices under the law include, but are not limited to:

  • Misapplying payments to the outstanding balance of any student loan, related interest or fees;
  • Providing inaccurate information to a consumer reporting agency;
  • Refusing to communicate with a borrower’s authorized representative;
  • Misrepresenting or omitting any material information including the terms and conditions of the loan or the borrower’s obligations thereunder;
  • Defrauding or misleading a borrower; and
  • Failing to respond within fifteen days to communications from the department.

Failure to comply with the law subjects servicers to the risk of hefty penalties and litigation. For each violation, the superintendent may require a servicer to pay the state a sum not to exceed the greater of $2,000 or twice the economic gain attributable to the violation for non-willful violations and, for willful violations, a sum not to exceed $10,000 or twice the economic gain attributable to the violation. These penalties are in addition to any liability or penalties available under other state or federal law.

The California Department of Business Oversight has sent an email to servicers notifying them of the publication of its final student loan servicer regulations, which became effective March 28, 2019. The DBO published its initial rules on September 8, 2017 and modified the proposed rules three times. Servicers have been operating without final rules since the Student Loan Servicing Act became effective on July 1, 2018. The rules create seven new articles under a new chapter of the California Code of Regulations. The final rules contain no substantive changes to the DBO’s last round of proposed rules.

Additional compliance requirements for servicers, however, may be on the horizon. Assemblymember Chris Holden has introduced a bill, AB 796, which would amend the California Student Loan Servicing Act to require servicers to provide additional loan benefits information to borrowers. The bill modifies Section 28130 and proposes a new Section 28130.5. Currently, Section 28130 requires servicers to provide information “regarding repayment and loan forgiveness options that may be available to borrowers” free of charge on their websites and, additionally, in correspondence or email at least once per year.

The new Section 28130.5 would require that servicers provide, in correspondence or email at least once per year, “a detailed description of the terms and conditions under which a borrower may obtain full or partial forgiveness or discharge of principal and interest, defer repayment of principal or interest, or be granted forbearance on a federal Title IV loan, including forgiveness benefits or discharge benefits available to a Federal Family Education Loan (FFEL) borrower who consolidates their loan into the federal Direct Loan program.” More specifically, servicers would be required to provide:

  • The difference between forgiveness, cancellation, and discharge.
  • The different forgiveness, cancellation, and discharge programs available and how to qualify for them.
  • The types of loans that can be forgiven or discharged.
  • The impact of consolidation, enrollment status, and new loans on forgiveness.
  • The forms required under federal law, including employment certification forms.

The modifications to Section 28130 would require that servicers post this detailed information on their websites along with the availability of benefits information currently being provided.

On March 28, 2019, the House Financial Services Committee passed H.R. 1500, the Consumers First Act, by a 34-26 vote.

The bill is intended to reverse various actions taken by Mick Mulvaney during his tenure as CFPB Acting Director.

The bill is the topic of this week’s podcast, which features a member of Ballard Spahr’s federal lobbying and government relations team discussing what’s in the bill and the impact of current House dynamics on the bill’s prospects for passage or the prospects for passage of particular provisions.



On April 2, 2019, the FDIC issued Financial Institution Letter FIL-19-2019 (the “Letter”) to remind financial institutions about certain contractual provisions and other requirements pertaining to technology service provider contracts. Apparently, during recent routine examinations, the FDIC found several technology service provider contracts that were inadequate under existing guidance. These contracts were missing or inadequately addressed key terms, such as:

  1. Requiring the service provider to maintain a business continuity plan,
  2. Establishing recovery standards,
  3. Specifying the institution’s remedies if the service provider misses a recovery standard,
  4. Requiring the service provider to respond to security incidents by, among other things, notifying the institution, and
  5. Defining key terms in the contracts relevant to business continuity and/or incident response.As noted in the Letter, the Interagency Guidelines Establishing Information Security Standards, which were promulgated pursuant to the Gramm-Leach-Bliley Act and incorporated into the FDIC’s Rules and Regulations as Appendix B to Part 364, establish standards for safeguarding customer information. Such guidelines set the FDIC’s expectations for managing technology service provider relationships through contractual terms and ongoing monitoring and financial institutions must account for these requirements in their contracts with technology service providers. For the reasons described above, the contracts that the FDIC saw during its examinations apparently failed to meet those expectations.Finally, the Letter highlights that depository institutions are obligated pursuant to Section 7 of the Bank Service Company Act (12 U.S.C. 1867) (“Act”) to report to their respective federal bank regulatory agencies those contracts with technology service providers that provide certain types of services to the bank, as enumerated in Section 3 of the Act, and includes an FDIC-developed form as an unofficial aid in complying with that notification requirement.

The Letter serves as timely examination feedback and a good reminder to the industry that the FDIC believes that third-party providers of technology-related services can create special risks to depository institutions that need to be properly addressed in their service contracts with such entities, particularly in areas such as business continuity and incident response. The FDIC indicated that it plans to hold the board and senior management of financial institutions accountable for controlling those risks in accordance with the requirements of law and its existing regulatory guidance.

The Letter also reminds institutions that the FDIC’s Guidance for Managing Third Party Risk, FIL-44-2008, discusses contract provisions that the FDIC believes should be addressed in technology service provider agreements (at a level of detail consistent with the scope and risks associated with the relationship), including those that were missing in the actual contracts the FDIC reviewed. The FDIC goes on to highlight other sources of guidance and resources available to assist bank personnel in understanding the requirements and regulatory expectations in this area.

The FDIC expects institutions to take steps to mitigate the risks posed by such gaps by getting new contract terms from vendors or modifying the institution’s own business continuity program to account for the gaps.

In this week’s podcast, a member of Ballard Spahr’s federal lobbying and government relations team discusses what’s in the Consumers First Act (H.R. 1500, intended to undo former CFPB Acting Director Mick Mulvaney’s actions), the impact of current House dynamics on the bill’s or specific provisions’ prospects for passage, the topics of other financial services bills likely to have bipartisan support, and how CFPB Director Kraninger’s approach is likely to compare to Mr. Mulvaney’s.

To listen to the podcast, click here.