SDBA eNews: June 8, 2017

In This Issue

Nichols to Host Free Washington Update Webinar

With action expected in the coming days on the Financial Choice Act, the Treasury Department’s much-anticipated regulatory reform report and ongoing conversations about tax reform, ABA President and CEO Rob Nichols will host a webinar on Thursday, June 15, offering an update on the state of play in Washington. The free, members-only webinar will run from 1 to 2 p.m. CDT and include Q&A. Register now.

Bankers Encouraged to 'Take Lawmakers to Work' this Summer

ABA is encouraging all bankers to invite elected officials from their district to visit their institutions in August as part of ABA's Take Your Lawmaker to Work program. Hosting a senator or representative in a branch or bank office provides lawmakers a firsthand look at how banks operate, allows them to meet the customers the bank serves and helps them experience the value banks bring to their communities.

This face-to-face time with local legislators is especially important this year, with regulatory reform efforts high on the congressional agenda. Bankers can register for Take Your Lawmaker to Work online. Once registered, ABA will provide materials to plan a visit, including invitation templates, resources to prep bank staff and tips for following up after a visit. Learn more and register now. For more information, contact ABA’s Eli Woerpel.


Question of the Week

I was hoping to get some clarification on Regulation D. I understand that customers are limited to six "convenience" transfers and withdrawals per month; I need clarification on telephonic transfers. If a customer calls into the bank and physically speaks to an employee to initiate a transfer from a savings account to another account, is that considered a convenience transfer and should that transfer be included towards their limited transactions?

Answer: The actual text in the regulation refers to exempt transfers as "such transfers or withdrawals that are made by mail, messenger, automated teller machine, or in person or when such withdrawals are made by telephone (via check mailed to the depositor) regardless of the number of such transfers or withdrawals." 12 CFR §204.2(d)(2). The most conservative interpretation of this suggests that when it comes to the telephone, only withdrawals made in the form of a check mailed to the depositor, and not transfers from one account to another, would be exempt from the six-transfer limit. So erring on the side of caution, any transfers facilitated via telephone that does not involve a check being sent to the borrower should be considered as counting toward the six-transfer limit.

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Contact Alisa DeMers, SDBA, at 800. 726.7322 or via email.

Governor Sets Monday for Special Session on Non-Meandered Waters

Gov. Dennis Daugaard has called a special session of the South Dakota Legislature to consider legislation relating to public recreational use of non-meandered waters overlying private property.

After consulting with legislative leaders from both political parties, the Governor is calling the special session for Monday, June 12, at 10 a.m. at the State Capitol in Pierre.

“The interim legislative committee considered hours of testimony and struck a good compromise that balanced the rights of landowners with the ability for sportsmen to use public waters for recreation,” said the Governor. “I hope the Legislature can act quickly to resolve this long-standing issue.”

OCC Addresses Bank Collaboration, Fintech in Vendor Risk FAQs

Responding to several questions flagged by ABA, the OCC yesterday issued a set of frequently asked questions to help bankers implement the agency’s 2013 guidance on managing risk associated with third-party relationships. The FAQs address several areas on which ABA sought clarification related to the guidance, including collaboration with other banks and partnerships with fintech providers.

For example, while noting that banks that use the same vendors for like products and services can collaborate on due diligence, contract negotiation and ongoing monitoring, the OCC said that this collaboration is “insufficient to fully meet the bank’s responsibilities” under the guidance. Responsibilities specific to individual banks include requirements for planning and termination, integration into the bank’s strategic planning, risk assessments, IT controls, performance benchmarking, fee structure analysis and monitoring for compliance and business continuity.

The FAQs make clear that relationships with fintech firms are covered under the 2013 guidance, although they may or may not qualify as a “critical activity” requiring “more comprehensive and rigorous management.” However, since many fintech companies may be early-stage startups without the kind of financial track record that would ordinarily be reviewed in a vendor relationship, the FAQs indicate that a bank partnering with such a company should have appropriate contingency plans. They make clear that while financial analysis of vendors “may be as comprehensive” as underwriting for a loan, there is no requirement for potential vendors to meet banks’ lending criteria.

The FAQs also address access to technology service providers’ regulatory exam reports (another issue raised by ABA), marketplace lending, mobile payments, partnering with fintech firms to serve the underbanked, reviews of fourth-party risk and more. Read the FAQs. For more information, contact ABA’s Krista Shonk.

ABA Commends House Reg Reform Effort Ahead of Choice Act Vote

As Congress prepares to vote on the Financial Choice Act, ABA yesterday wrote to House leadership commending the House Financial Services Committee Chairman Jeb Hensarling (R-Texas) for his efforts to bring regulatory relief to the nation’s banks. The full House is expected to vote on the bill today. 

“We agree with members of Congress on the need for strong regulation of our financial system,” ABA said. “However, within the 25,000 pages of new and proposed rules since Dodd-Frank became law are requirements that are harming our ability to serve creditworthy customers and our communities… The Financial Choice Act will help address many of these concerns and allow banks to get back to serving their customers.” 

The bill includes several ABA-supported provisions that would provide regulatory relief for banks, including a Qualified Mortgage safe harbor for mortgage loans held in portfolio, more tailored supervision based on an institution’s risk profile and business model, greater flexibility for savings associations, relief from various reporting requirements and repeal of the Volcker Rule. ABA also applauded an amendment by Rep. John Faso (R-N.Y.) that would help level the playing field for mutual holding companies and allow them to raise additional capital without placing their mutual structure at risk. Read the letter.

FDIC Adopts Supervisory Guidance on Model Risk Management

The FDIC yesterday announced that it is adopting the supervisory guidance on managing “model risk” that was previously issued by the Federal Reserve and the OCC in 2011. The guidance addresses the potential for damage when models play a material role in bank decision-making. The FDIC said the guidance is “not expected” to apply to banks with less than $1 billion in assets unless “the institution’s model use is significant, complex or poses elevated risk to the institution.”

The guidance describes risk management practices related to model use, including effectively challenging models through model validation, strong governance, internal audit coverage and clear internal policies and documentation. It also addresses how to incorporate third-party vendor models into the institution’s overall risk management framework, and it advises banks to watch for whether model use can increase consumer compliance or fair lending risk.

ABA offers numerous resources for bankers managing model risk. For example, ABA’s Regulatory Compliance Conference, which opens this weekend in Orlando, Fla., features sessions on model risk. On June 21, ABA will host a webinar on managing model risks in dynamic markets.

Trump to Nominate Former Bank CEO as Comptroller of the Currency

As was widely expected, the White House announced Monday that President Trump would nominate former bank CEO Joseph Otting to serve as comptroller of the currency. Otting is a former president and CEO of California-based OneWest Bank, where he worked closely with now-Treasury Secretary Steven Mnuchin.

Otting served as president and CEO of OneWest following the 2009 purchase of failed thrift IndyMac by the investor group led by Mnuchin. He left OneWest in 2015 following the bank's acquisition by CIT Group.

Previously, Otting held senior roles at U.S. Bank, including serving as vice chairman for commercial banking, head of commercial banking in the Minneapolis-based bank's eastern region and market president for Oregon. Earlier in his career, Otting held management roles at MUFG Union Bank and Bank of America.

Upon confirmation, Otting would replace acting comptroller Keith Noreika, who took over the OCC upon the end of former Comptroller Thomas Curry's five-year term in April.

ICBA, State Associations File Briefs in Support of ABA Litigation

The Independent Community Bankers of America and 51 state bankers associations on Friday filed friend-of-the-court briefs in support of ABA’s lawsuit challenging the National Credit Union Administration’s expansive field of membership final rule. Both briefs support ABA’s motion for summary judgment in the case, which takes on NCUA’s expansion of community-based credit union fields of membership far beyond the limitations imposed by Congress.

The state association brief argues that the final rule’s definition of “well-defined neighborhood, community or rural district” to include large regions encompassing multiple metro areas stretches well beyond the authority of the NCUA board. It also points out that the final rule will have a substantial adverse effect on community banks, which compete with tax-subsidized credit unions, and that the way the final rule allows credit unions to serve parts of Core-Based Statistical Areas without serving the urban core that defines the area goes against congressional intent.

Making similar arguments, the ICBA brief emphasizes that NCUA’s actions are based on an “impermissible and arbitrary construction” of the Federal Credit Union Act and that the agency’s “deliberate departure from its statutory restraints” is part of an agenda to expand the credit union industry without regard for congressional limitations.

ABA filed for summary judgment in the case last week and is seeking a declaration that the rule exceeded the agency’s statutory authority and is arbitrary and capricious, as well as an injunction prohibiting any community charter expansions pursuant to the challenged portions of the rule. For more information, contact ABA’s Sabrina Bergen.