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Category Archives: Bank Regulations

Regulators Respond to Dodd-Frank

By Barry Hester - Thursday, September 2, 2010

The federal banking regulators recently took their first official Dodd-Frank rulemaking step, inviting public comments in advance of proposed rulemaking on the use of credit ratings in the formulation of risk-based capital standards.  The reality is that years of such rulemaking and interpretation by regulators will determine the true impact of the law.

More important to community banks, the FDIC announced the establishment of a department—the Division of Depositor and Consumer Protection (DCP) —that will soon become a household name for smaller insured state nonmember banks.  This unit will be dedicated to the enforcement of consumer protection rules promulgated by the new Consumer Financial Protection Bureau (CFPB) as to banks exempt from that agency’s oversight.

The New Community Bank “Regulator”—FDIC’s DCP

On August 10, 2010, the FDIC Board created two new offices specifically for the purpose of implementing Dodd-Frank:  the Office of Complex Financial Institutions (CFI) and Division of Depositor and Consumer Protection (DCP).  The first will be the FDIC vehicle for carrying out the agency’s role in overseeing systemic and large bank holding company and non-bank financial firms.  The DCP, on the other hand, is in a sense a community bank regulator.  According to the FDIC, this body will be charged with enforcing consumer protection rules promulgated by the CFPB as against banks outside its purview:  those with $10 billion or less in total assets.  In the words of Chairman Bair:

Our depositor protection and compliance examination and enforcement responsibilities are integral to our unique responsibilities as deposit insurer and supervisor of thousands of community banks. The creation of this new division emphasizes the importance we place on these responsibilities and is directly responsive to Congress’s intent in the new legislation.  DCP will also complement the activities of the new Consumer Financial Protection Bureau that is being established within the Federal Reserve. The FDIC supports the CFPB, and we are committed to doing our part in carrying out the consumer responsibilities Congress has entrusted to us.

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FDIC Launches the Safe Accounts Pilot Program

By John ReVeal - Tuesday, August 31, 2010

On August 10, 2010, the FDIC published a pilot program to evaluate the feasibility of insured depository institutions offering low-cost transactional and savings accounts. The FDIC will accept applications from banks wanting to participate in the pilot program through September 15, 2010.

Banks participating in the pilot program must offer electronic deposit accounts having the core features identified in the “Model Safe Accounts Template.” The pilot program is expected to last one year, during which participating banks would report to the FDIC on the viability of the accounts, focusing on the volume, use, success and profitability of the accounts.

In its announcement for the pilot program, the FDIC emphasizes the numbers of unbanked and underbanked consumers in the United States and the FDIC’s commitment to ensuring that all U.S. households have access to safe and affordable banking services. Unless banks participating in the pilot report significant and serious losses, there seems to be a real possibility that all banks will be coerced in one way or another to offer these accounts after the program. This post discusses the proposed features of the accounts and the possible difficulties.

Electronic, Checkless Accounts

Under the pilot program, the accounts would be “largely” electronic, purportedly for the purpose of limiting acquisition and maintenance costs. The transactional accounts also would be checkless, allowing withdrawals only through electronic means.

Because the accounts would be checkless, institutions will have somewhat more ability to prevent losses from overdrafts than they otherwise would have. On the other hand, all banks know that it is impossible to block every electronic transaction that results in an overdraft. Moreover, under at least the pilot program, banks would be expected not to impose any overdraft or insufficient funds fees. With consumers having absolutely no economic incentive to avoid overdrafts, it can be expected that banks will incur losses.

Very Low Fees

Monthly maintenance fees for the transactional accounts under the pilot program would be limited to $3, and the bank would not be able to charge any monthly fees for the savings accounts. The minimum monthly balance requirement for the account would be only $1, and it seems safe to assume that the target consumer market for these accounts is unlikely to maintain any significant average daily balances.

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Bryan Cave and BKD Present One Hour Webinar on Dodd-Frank

By Rob Klingler - Monday, August 30, 2010

The Dodd-Frank Reform Act & What It Means to You

Wednesday, September 8, 2010 11:00 AM – 12:00 PM EDT

The Dodd-Frank Wall Street Reform and Consumer Protection Act represents a historic restructuring in the regulation of financial institutions.  This comprehensive reform bill will have substantial effects on all facets of the financial services industry.  The new law requires the development of numerous rules and regulations that will continue to evolve over time.

Join experts from Bryan Cave LLP and BKD, LLP to hear what this reform could mean for you now and in the future.  You will receive insight on specific provisions such as consumer compliance regulations, regulatory agency shifts, the Collins Amendment and other capital requirements.  Other changes covered include those to Federal Deposit Insurance Corporation insurance, affiliate transaction and legal lending limits, private securities offerings and executive compensation.

If you are interested in attending, please register online for this free webinar.

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Modified Interchange Provision Incorporated in Final Financial Regulatory Reform Bill

By Margo Hirsch Strahlberg - Wednesday, June 30, 2010

The House and Senate conferees approved the financial regulatory reform conference report (otherwise known as the Dodd-Frank Wall Street Reform and Consumer Protection Act) late last week, and the House and Senate are now poised to vote on the legislation. As expected, the final version of the bill incorporates a provision requiring the Federal Reserve Board to write restrictions on the ability of card issuers to set interchange fees (see Section 1075 et seq., starting on page 308 of the PDF version of the conference report).

However, the interchange provision was substantially modified from its original form. Thanks to the successful lobbying efforts on the part of state governments, the prepaid industry and advocates for the unbanked community, prepaid cards used to disburse government benefits as well as reloadable prepaid cards are exempt from the interchange limits. It should be noted that such cards are exempt provided that they do not charge any overdraft fees and provide one fee-free withdrawal from the issuer’s ATM network per month.

The various lobbying efforts in support of striking the entire interchange provision from the bill proved less successful and ultimately failed. And while small issuers (i.e., issuers, together with it affiliates, having assets of less than $10 billion) are exempt from the interchange provisions, many have argued that the exemption is meaningless since small institutions will be forced to cut their interchange fees to compete with large banks.

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Announcing Bryan Cave’s new Retail Banking Team

By Rob Klingler - Tuesday, June 1, 2010

Drawing from diverse legal disciplines, we have formed a client team with a focus on retail banking compliance and contractual matters.  Whatever day-to-day legal assistance you need in your retail banking area, we can provide prompt and accurate guidance.

We have many years of experience in all of the federal consumer banking regulation, and every day we work to stay current with the constantly changing regulatory environment.  We will help you avoid the regulatory minefields.  Our Retail Banking Team can assist your bank in all of the following areas:

  • Deposit account agreement reviews;
  • Deposit advertisement reviews;
  • Overdraft policies and disclosures;
  • Remote deposit capture agreements and policies;
  • Automated clearing house agreements;
  • Credit card, mortgage and other lending advertisement reviews;
  • Credit card, mortgage and other lending disclosure and agreement reviews;
  • Power of attorney interpretations;
  • Trust documents and trustee power reviews;
  • Individual Retirement Account transactions;
  • Prepaid card programs;
  • Check fraud assistance;
  • Online business banking and cash management; and, of course,
  • any issues arising under the Truth in Savings Act, Truth in Lending Act, Electronic Fund Transfers Act, Real Estate Settlement Procedures Act, or consumer privacy and data security laws and regulations.

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Refund Opportunity for Sub S Banks

By Frank Crisafi - Monday, May 10, 2010

7th Circuit Reverses Tax Court in Vainisi –

Subchapter S and Q Sub Banks Following Notice 97-5 with Respect to Expenses Relating to Tax Exempt Income
Should Consider Filing Refund Claims

On March 17, 2010, the U.S. Court of Appeals, Seventh Circuit, reversed the U.S. Tax Court’s decision in Vainisi v. Commissioner, 132 T.C. No. 1 (2009), which held that a sub-S corporation that is a bank (or in this case a bank holding company that owned a bank that had made a qualified S subsidiary or “Q-sub” election) is required, under the provisions of Section 291 of the Internal Revenue Code of 1986, as amended, (the “Code”), to increase the amount of its taxable income by 20-percent of the amount of the bank’s interest expense that is considered attributable to certain qualified tax exempt-obligations that are owned by the sub-S bank, despite the plain language of Code Section 1363(b)(4), which provides that “section 291 shall apply if the S corporation (or any predecessor) was a C corporation for any of the 3 immediately preceding taxable years.” The bank in the Vainisi case had been a Q-sub for longer than 3 years.

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More Insider Lending Pitfalls

By John ReVeal - Friday, May 7, 2010

This is Part Two of our two part article on common insider lending problems that we have identified in the industry.  (Read Part One here.) This installment focuses on the appropriate treatment and handling of lines of credit to insiders.

There are a number of types of line of credit, and the type can make a significant difference to the Regulation O requirements. “Extensions of credit” to insiders are subject to Regulation O and therefore are subject to dollar limits, board approval for larger loans, arms’ length requirements and, if made to executive officers, additional limitations. However, two types of line of credit are not “extensions of credit” for Regulation O purposes and therefore are not subject to these limitations. Lines of credit that are not extensions of credit are:

a) Open-end credit plans of $15,000 or less so long as:

(i) The debt does not involve prior individual approval by the bank other than for the purposes of determining authority to participate in the arrangement and compliance with any dollar limit under the line; and

(ii) The terms are not more favorable than those offered to the general public.

b) Indebtedness of $5,000 or less arising by reason of an interest-bearing overdraft credit plan of the type specified in 12 C.F.R. § 215.4(e), which requires a written, preauthorized, interest-bearing extension of credit plan that specifies a method of repayment.

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Gift Cards and the Credit Card Act

By Jeannie Osborne - Friday, May 7, 2010

On April 28, 2010, the Bryan Cave Payments Practice Team presented a webinar on “Gift Cards and Cards that are Not Gift Cards.”  The presentation provides practical guidance on navigating compliance with the gift card provisions of the Credit CARD Act.

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Insider Lending Pitfalls

By John ReVeal - Sunday, April 11, 2010

While the insider lending rules are always a source of headaches, the opportunities for error are greater in bad economic times.  To make matters worse, as the economy slowly improves and the regulatory focus moves from credit quality issues, we are seeing increased regulatory focus on insider lending.

This article is Part One of a two part article on common insider lending problems that we have identified in the industry.  (Read Part Two here.) This installment focuses on the regulatory impediments to renewing insider loans.  While most comments in this article will apply to any bank that is subject to Regulation O, we also discuss a lending limit problem unique to Georgia state banks.

Under Regulation O, any loan to an insider (a) must be made on substantially the same terms as the bank provides on comparable loans to non-insiders and (b) may not involve more than the normal risk of repayment or present other unfavorable features.  These requirements can be called the “arms’ length” and the “normal risk” requirements.

It is easy to think of the normal risk requirement as simply another way of saying that the loan must be on arms’ length terms.  However, neither the Federal Reserve nor the OCC see it that way.  Under current Federal Reserve and OCC interpretations, these are separate and distinct requirements.  Accordingly, a bank can never renew a troubled loan to an insider, even if the bank would have renewed a non-insider loan on the same terms and in the same circumstances.  OCC examiners in the Southeast Region have said that an insider loan cannot be renewed unless it is at least “pass” rated.

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Federal Reserve Board Issues Final Gift Card Rules

By Margo Hirsch Strahlberg - Monday, March 29, 2010

On March 23, 2010, the Federal Reserve Board issued its final rule, a summary and analysis of the final rule, and the official staff interpretation of the final rule in connection with Title IV of the CARD Act (the “Final Rules” or “Rules”).  The Final Rules are comparable to the proposed rules that were issued in November 2009, and follow the gift card related provisions set forth in the CARD Act addressing fees, expiration, disclosures, and various exemptions.  Set forth in this Bryan Cave Client Alert is a brief summary of key provisions of the Rules.

The Rules set forth various restrictions and guidelines with respect to gift card fees, expiration dates, and disclosures.  The Final Rules apply to any gift certificate, store gift card, or general-use gift card (including any reward/promotional card or any virtual/online gift card) that is sold or distributed to a consumer on or after August 22, 2010.

The Rules may affect any retailer, restaurant, consumer product supplier, hotel or travel provider that offers gift or reward cards – including loyalty programs – to consumers.  The Rules apply to retailers, processors and financial institutions involved in the issuance, distribution and sale of various types of gift certificate and gift card products.

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