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09.30.2024 | Legal Update

Headlines

    1. FDIC, OCC, and DOJ Issue New Bank Merger Guidelines
    2. CFPB Takes Measure to Prevent Banks from Collecting Overdraft Fees Without Consent
    3. Federal Reserve Requests Public Input about the Operations of the Discount Window
    4. FDIC Proposes New Recordkeeping Requirements for Custodial Accounts
    5. Other Developments: Information Technology and International Remittances

1. FDIC, OCC, and DOJ Issue New Bank Merger Guidelines

The FDIC, OCC, and U.S. Department of Justice (DOJ) have coordinated the release of new policies that will govern each agency’s consideration of bank merger transactions. The FDIC and OCC each published final statements of policy on bank merger transactions on September 17 that, among other things, clarify which conditions are likely to raise supervisory concerns that would need to be resolved before the agency would approve a merger transaction. For example, the two banking agencies’ policy statements indicate that less than satisfactory examination ratings in any area will pose a significant impediment to regulatory approval of a merger transaction. The DOJ also announced on September 17 that it was withdrawing its 1995 Bank Merger Guidelines, and issued a new banking addendum that explains the application of its 2023 Merger Guidelines to the analysis of anticompetitive effects of mergers in the banking industry. The FDIC’s bank merger policy statement becomes effective for applications filed by state non-member banks on or after October 28, 2024. The OCC’s bank merger policy statement becomes effective for national banks and federal savings associations on January 1, 2025. Click here for a copy of the FDIC’s bank merger policy statement, here for a copy of the OCC’s bank merger policy statement, and here for a copy of the DOJ’s banking addendum to its 2023 Merger Guidelines.

Nutter Notes: The FDIC’s bank merger policy statement places new emphasis on whether a merger will enable the resulting bank “to better meet the convenience and needs” of the communities served by the merging banks than would occur absent the merger (emphasis in original). According to the FDIC’s policy statement, applicants will be expected to demonstrate how the merger “will benefit the public through higher lending limits, greater access to existing products and services, introduction of new or expanded products or services, reduced prices and fees, increased convenience in utilizing the credit and banking services and facilities of the resulting [bank], or other means.” In another significant departure from the FDIC’s previous policy, the FDIC’s new bank merger policy statement also indicates that the agency may require divestitures of branches or business lines to mitigate anticompetitive effects before consummation of the merger. In withdrawing its 1995 Bank Merger Guidelines, the DOJ repealed its guidelines on the application of Herfindahl–Hirschman Index (HHI) to bank deposit concentration as an objective screen to identify mergers that do not have significant anticompetitive effects. The DOJ’s new banking addendum to its 2023 Merger Guidelines does not discuss objective criteria it may consider to assess anticompetitive effects, and cited a number of market segments served by banks that may be considered when assessing a merger for potential competitive harm.

2. CFPB Takes Measure to Prevent Banks from Collecting Overdraft Fees Without Consent

The CFPB has issued guidance to federal and state agencies with authority to enforce consumer protection laws that is aimed at preventing banks from charging overdraft fees to a consumer where the banks have no evidence that they obtained the consumer’s consent for the overdraft. The CFPB’s guidance released on September 17 clarifies that a bank can be found in violation of the Electronic Fund Transfer Act (EFTA) and its federal implementing rule, Regulation E, if the bank cannot produce evidence that it obtained affirmative consent from a consumer to enroll in covered overdraft services that resulted in charging overdraft fees to the consumer. The requirement to obtain the affirmative consent of a consumer for covered overdraft services applies to fees for overdraft loans to cover ATM and one-time debit transactions. The requirement does not apply to overdraft fees charged on paper checks, recurring debit transactions, or ACH transactions. Banks found to have violated the EFTA’s opt-in requirement can be liable for refunding affected consumers and paying monetary penalties. Click here for a copy of the CFPB’s guidance.

Nutter Notes: Under the EFTA and Regulation E, when a bank covers an ATM or one-time debit card transaction that overdraws a consumer’s account, the bank can only charge a fee for covering the overdraft if the consumer has affirmatively opted into such overdraft coverage. The CFPB’s new guidance advises federal and state consumer protection law enforcers to assume that consumers have not opted into overdraft coverage unless banks can provide evidence that consumers have opted in. The CFPB said that it has found that some banks have been unable to provide such evidence before they charged consumers fees for covered overdraft loans. The CFPB also advised federal and state consumer protection law enforcers to consider whether banks have obtained “consumers’ opt-in to covered overdraft services through deceptive and abusive acts or practices.” Satisfactory evidence of a consumer’s opt-in to covered overdraft services may include a copy of a form signed or initialed by the consumer, a recording of a phone call in which the consumer elected to opt in, or a “securely stored and unalterable” electronic signature demonstrating the consumer’s election to affirmatively opt in.

3. Federal Reserve Requests Public Input about the Operations of the Discount Window

The Federal Reserve has requested public comments addressing whether changes could be made to the operational practices of the discount window to improve efficiency and ease of access. The Federal Reserve issued its solicitation of input from banks and other interested parties on September 5. The request for information seeks input on various discount window practices, including the collection of legal documents, the process for pledging and withdrawing collateral, and the process for requesting, receiving, and repaying discount window loans. Comments on the discount window’s operational practices are due by December 9, 2024. Click here for a copy of the Federal Reserve’s request for comments.

Nutter Notes: Among the topics of interest to the Federal Reserve are whether there may be operational frictions or inefficiencies that are “particularly acute or pressing for Federal Home Loan Bank (FHLB) members.” The Federal Reserve has requested information about specific improvements, if any, that could be made for members of an FHLB. The discount window allows domestic banks and U.S. branches and agencies of foreign banks to borrow from the 12 Federal Reserve Banks after executing legal agreements and pledging collateral. Extensions of credit from the discount window helps banks to manage their liquidity risks and avoid conditions that would have negative consequences for the banks’ customers, such as withdrawing credit during times of stress.

4. FDIC Proposes New Recordkeeping Requirements for Custodial Accounts

The FDIC has issued a proposed rule that would amend recordkeeping requirements for recordkeeping for custodial deposit accounts with transactional features. According to the FDIC, the proposal released on September 17 would strengthen recordkeeping for deposits received from non-bank companies that accept such deposits on behalf of both consumers and businesses. The proposed rule would require that FDIC-insured banks that hold certain custodial accounts would be required to take steps to ensure accurate account records are maintained that show the individual owner of the funds contained in the custodial accounts, including a requirement to reconcile the account for each individual beneficial owner on a daily basis. Comments on the proposed rule will be due 60 days after the proposed rule is published in the Federal Register, which is expected shortly. Click here for a copy of the proposed rule.

Nutter Notes:  The new recordkeeping requirements proposed rule’s requirements would apply to banks that hold custodial deposit accounts with transactional features, other than certain custodial accounts specifically exempted. The term “custodial deposit accounts with transactional features” would be defined as a deposit account that meets each of the following requirements: (1) the account is established for the benefit of beneficial owner(s); (2) the account holds commingled deposits of multiple beneficial owners; and (3) a beneficial owner may authorize or direct a transfer through the account holder from the account to a party other than the account holder or beneficial owner. The scope of the definition is limited to custodial accounts that hold deposits, meaning that other types of custodial accounts, such as those holding non-deposit securities, would be excluded. The proposed rule would exempt custodial accounts where federal or state law prohibits the disclosure of the identities of the beneficial owners of the deposits.

5. Other Developments: Information Technology and International Remittances

• FFIEC Issues New Guidance on Development, Acquisition, and Maintenance of Information Technology

The FFIEC has published a new Development, Acquisition, and Maintenance booklet, which is part of the FFIEC Information Technology Examination Handbook. The new booklet released on September 5 replaces the Development and Acquisition booklet issued in April 2004, and highlights key risk management practices when developing, acquiring, or maintaining information systems and components.

Nutter Notes: The new booklet also discusses information technology project management, system development life cycle, and supply chain risk management for systems and components when planning development, acquisition, and maintenance activities. Click here to access the new booklet. 

• CFPB Proposes Changes to Disclosures for Certain International Funds Transfers

The CFPB has proposed an amendment to Regulation E that would change disclosure requirements for certain international money transfers, or remittances. The proposal released on September 20 is meant to ensure that consumers sending a remittance have information about the types of inquiries that may be most efficient to direct to the CFPB and the state agency that licenses or charters their remittance transfer provider.

Nutter Notes: The CFPB has tested new model disclosures and seeks comment on whether the proposed changes will provide helpful information and what, if any, impact the proposed changes may have on consumers, remittance transfer providers, and state licensing agencies. Comments on the proposed rule are due by November 4, 2024. Click here for a copy of the proposed rule.

Nutter Bank Report
Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, after interviewing our clients and our peers in the profession, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. Visit the U.S. rankings at Chambers.com. The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Heather F. Merton. The information in this publication is not legal advice. For further information, contact:

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