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01.31.2024 | Legal Update

Headlines

1. OCC Requests Public Comments on Proposed Bank Merger Policy Statement and Rules
2. CFPB Proposes Ban on NSF Fees for Instantaneously Declined Transactions
3. OCC Designates Bank is in Troubled Condition Due to Fintech Partner’s Noncompliance
4. The Federal Reserve Will Not Extend the Bank Term Funding Program Beyond March 11
5. Other Developments: Small Business Lending Data and Interchange Fees

1. OCC Requests Public Comments on Proposed Bank Merger Policy Statement and Rules

The OCC has proposed a new policy to increase the transparency of the standards that the agency applies to review business combinations involving national banks and federal savings associations under the Bank Merger Act (BMA). The OCC released a draft policy statement on January 29 that summarizes the principles the OCC proposes to use when considering bank merger transactions, along with proposed amendments to its bank merger rules. The draft policy statement provides information about how the OCC considers the BMA statutory factors of financial stability, financial and managerial resources, and convenience and needs of the community when reviewing bank merger transactions. The proposed policy statement also contains a list of indicators of supervisory concerns that, if present, are likely to result in a rejection of a BMA application unless those concerns are resolved. These indicators of supervisory concerns include that the acquirer has a CRA rating of Needs to Improve or Substantial Noncompliance, has compliance or management ratings of 3 or worse, or has open or pending Bank Secrecy Act/Anti-Money Laundering enforcement or fair lending actions. Public comments on the draft policy statement and proposed amendment to the OCC’s BMA rules will be due within 60 days after publication in the Federal Register, which is expected shortly. Click here for a copy of the draft policy statement and proposed rules.

Nutter Notes:  The OCC’s proposal includes two substantive changes to its business BMA rules. The first would remove provisions related to expedited review of business combination transactions under the BMA. According to the OCC, any business combination subject to a BMA application is a significant corporate transaction that should not be deemed approved solely due to the passage of time. The second would remove the OCC’s streamlined business combination application. According to the OCC, the “fuller record provided through the Interagency Bank Merger Act Application” would provide the appropriate basis for review of a business combination under the factors described in the draft policy statement. While the OCC’s draft policy statement and proposed rules would only apply to merger to business combinations involving national banks and federal savings associations, they may be indicative of changes being considered by the FDIC and Federal Reserve. In 2022, the FDIC, OCC, and Federal Reserve each initiated reviews of various factors considered by the agencies when evaluating proposed bank merger transactions. Separately, the U.S. Department of Justice is currently considered whether to update its bank merger guidelines, which provide a framework for evaluating the competitive effects of bank mergers.

2. CFPB Proposes Ban on NSF Fees for Instantaneously Declined Transactions

The CFPB has proposed a new rule that would prohibit banks and other financial institutions from charging consumers nonsufficient funds (NSF) fees on certain electronic payment and other transactions that are declined instantaneously or near-instantaneously. Specifically, the proposed rule released on January 24 would bar NSF fees on withdrawal, debit, payment, or transfer transactions that are declined with “no significant perceptible delay to the consumer when attempting the transaction.” The proposed rule would cover transactions involving the use of debit cards, ATMs, and certain person-to-person payment applications. The proposed rule would declare that charging such fees would constitute an abusive practice under the Consumer Financial Protection Act. The CFPB’s proposed rule would declare NSF fees for transactions declined in real time to be an unlawfully abusive practice under the Consumer Financial Protection Act. Public comments on the proposed rule are due by March 25, 2024.  Click here for a copy of the proposed rule.

Nutter Notes:  The CFPB’s proposal to ban NSF fees for instantaneously declined transactions is part of a broader effort announced by the CFPB to protect consumers from so-called junk fees. In a separate proposed rulemaking on January 17, the CFPB proposed to amend the rules that implement the federal Truth in Lending Act (TILA) to close a loophole that exempts overdraft lending services from TILA disclosure requirements and other consumer financial protections. According to the CFPB, closing the loophole for overdraft lending services would help rein in excessive overdraft fees. The proposed rule would only apply to insured depository institutions with more than $10 billion in assets. The proposed rule would allow financial institutions to offer overdraft services as a convenience, rather than as a profit driver, by permitting fees in line with their costs or in accordance with an established benchmark. The CFPB is seeking comment on the appropriate amount for the benchmark in the proposal. Public comments on the proposed overdraft rule are due by April 1, 2024. Click here for a copy of the proposed rule.

3. OCC Designates Bank is in Troubled Condition Due to Fintech Partner’s Noncompliance

The OCC recently entered into a consent order with a national bank in which the bank was deemed to be in a “troubled condition” due in part to insufficient policies and procedures for monitoring fintech partners’ compliance with BSA/AML requirements and other third-party risk management issues. The consent order executed on January 24 prohibits the bank from onboarding new third-party fintech relationships or offering new products or services with or through existing third-party fintech relationships without a prior written non-objection from the OCC. The consent order details a variety of actions the bank must take to improve its compliance management system and third-party risk management functions. Among other remedial measures, the consent order requires the bank’s corrective actions to consider the Interagency Guidance on Third-Party Relationships: Risk Management issued on June 6, 2023. Click here for a copy of the interagency guidance.

Nutter Notes: The Interagency Guidance on Third-Party Relationships: Risk Management offers a framework of risk management principles for banking organizations to consider in developing risk management policies and procedures for third-party relationships, including due diligence, contract negotiation, ongoing monitoring, and termination. The guidance emphasizes that the use of a third-party, such as a fintech partner in a banking-as-a-service arrangement, to deliver banking services does not diminish the responsibilities of a banking organization’s board of directors to provide oversight of senior management or the responsibilities of senior management to oversee the activity in which the third-party is engaged to ensure compliance with safety and soundness considerations and all applicable laws and regulations, including consumer protection laws and regulations. The guidance reaffirms the supervisory principle that banking organizations are expected to adopt risk management practices that are commensurate with the level of risk, complexity, and size of the banking organization and the nature of the relevant third-party relationship. The recent FDIC enforcement action illustrates supervisory expectations stated in the guidance that banks should “engage in more comprehensive and rigorous oversight and management of third-party relationships that support higher-risk activities, including critical activities.”

4. The Federal Reserve Will Not Extend the Bank Term Funding Program Beyond March 11

The Federal Reserve has determined that it will not extend the Bank Term Funding Program (BTFP) past its scheduled March 11, 2024, end date. According to the January 24 announcement, the BTFP will continue to make loans to eligible depository institutions until that time. The Federal Reserve created the BTFP last year to provide an additional source of liquidity to eligible depository institutions in response to market conditions arising from recent bank failures. The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other depository institutions that are eligible for primary credit under the Federal Reserve discount window. Eligible collateral is limited to collateral that was owned by the institution as of March 12, 2023, and is eligible for purchase by the Federal Reserve in open market operations, including U.S. Treasuries, agency debt, mortgage-backed securities, and pool certificates and development company participation certificates that are fully guaranteed by the Small Business Administration. According to the Federal Reserve, the liquidity provided by the BTFP is meant to eliminate the need for depository institutions to quickly sell high-quality securities in times of stress. Click here to access the BTFP term sheet.

Nutter Notes:  As the BTFP ends, the Federal Reserve has adjusted the interest rate applicable to new BTFP loans such that the rate on new loans extended from now through program expiration will be no lower than the interest rate on reserve balances in effect on the day the loan is made. According to the Federal Reserve, this rate adjustment is meant to ensure that the BTFP continues to support the goals of the program in the current interest rate environment. All other terms of the program are unchanged. Under the BTFP, eligible collateral will be valued at its par value, rather than at its fair market value as is required for primary credit, the main discount window lending program. According to the Federal Reserve, it is not necessary for a depository institution to have a master account at a Federal Reserve Bank in order to obtain an advance under the BTFP. However, a depository institution without a master account must have a correspondent relationship with an institution that does have a master account into which advances can be credited and repaid. A depository institution may contact its local Reserve Bank to request an advance under the BTFP.

5. Other Developments: Small Business Lending Data and Interchange Fees

• Biden Vetoes Congressional Resolution to Block CFPB Rule on Small Business Lending Data

President Biden vetoed a bipartisan congressional resolution last month that would have overturned the CFPB’s final rule governing the collection of small business lending data required by Section 1071 of the Dodd-Frank Act. To override the veto, Congress would need to vote again to pass the resolution with a two-thirds majority in both the House of Representatives and the Senate, which is considered unlikely.

Nutter Notes:  The CFPB issued its final rule amending Regulation B to implement Section 1071 of the Dodd-Frank Act early last year. Under the rule, covered financial institutions, including banks, are required to collect and report data on applications for credit for small businesses, including those that are owned by women or minorities. If the rule takes effect, compliance is required for financial institutions that originate the most covered small business loans beginning October 1, 2024. Institutions with a moderate transaction volume have until April 1, 2025, to begin complying with the rule and those with the lowest volume have until January 1, 2026.  Click here for a copy of the final rule.

• Federal Reserve Extends Public Comment Period for Proposal to Lower Interchange Fee Cap

The Federal Reserve announced on January 22 that it will extend the comment period on its interchange fee proposal until May 12, 2024, and that it has published additional data related to the interchange fee cap. The comment period has been extended until May 12, 2024, to allow the public more time to analyze the proposal and submit comments. Comments on the proposal were originally due by February 12, 2024.

Nutter Notes:  Interchange fees are paid by merchants and received by debit card issuers for each debit card transaction. In October 2023, the Federal Reserve released a proposal to lower the maximum interchange fee that large debit card issuers can receive for debit card transactions. The proposal would also establish a regular process for updating the maximum interchange fee every other year. Click here for a copy of the proposed rule.

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