This month we continue our “Conversations about Banking” series. The series will consist of video conversations with leaders and influencers in the banking industry about topics of current interest. We hope you will enjoy and find benefit in this new aspect of BankBCLP.
In this second installment of our new “Conversations about Banking” series Banking group partner Jim McAlpin speaks with Bill Easterlin, CEO and President of Queensborough National Bank & Trust Co. Bill is the fourth generation leader of a $1.5 billion family owned bank in eastern Georgia.
This month we begin a new series “Conversations about Banking.” The series will consist of video conversations with leaders and influencers in the banking industry about topics of current interest. We hope you will enjoy and find benefit in this new aspect of BankBCLP.
In the first installment of “Conversations about Banking” our partner and Banking practice group leader Jim McAlpin speaks with Philadelphia based entrepreneur Bobby Nix. Mr. Nix has served on the boards of several community banks over the past four decades. As an African American he has a perspective on diversity within banks and bank boards that is timely to hear within our industry. As a successful entrepreneur he is also a champion of the positive impact that community banks can have on small businesses. Mr. Nix currently serves as the chair of the Loan Committee and the ALCO Committee of Hyperion Bank, which has offices in Philadelphia and Atlanta.
Director Kraninger has outlined in various settings, the Bureau’s focus on protecting those often most vulnerable, including the elderly, military personnel and veterans, as well as students, sometimes collectively referred to special populations. Recently, the Bureau took aim at several businesses, which according to the CFPB’s complaint were exploiting students by charging impermissible advance fees in connection with purported debt relief services. We should expect further activity in 2021 with the change of administration, potential extension of certain COVID-19 pandemic-related student lending forbearance orders, and other potential student lending protection efforts.
The complaint asserts five causes of action under the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6102(c), 6105(d) (“TCFAPA”); the Telemarketing Sales Rule (“TSR”), 16 C.F.R. pt. 310; and the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531, 5536(a), 5564, 5565, in connection with the marketing and sale of debt relief services. According to the complaint, “Defendants Performance SLC, LLC and Performance Settlement, LLC, along with their owner and manager Defendant Daniel Crenshaw, are engaging in debt relief activities that have harmed consumers nationwide by charging illegal advance fees, failing to make required disclosures, and engaging in deceptive sales practices.”
Penalties & Injunctive Relief Requested
In its filing announcement the CFPB stated that “Consumers would pay between $1,000 and $1,450 in fees to PSLC for it to file paperwork with [the U.S. Department of Education], even though student loan borrowers can do this themselves for free.” The Bureau claims “that PSLC had some consumers pay this prohibited upfront fee through high-interest financing from a third party.” The complaint seeks injunctive relief to prevent the potential on-going violations of the TSR and the CFPA; consumer “monetary relief including but not limited to the refund of monies paid, restitution, disgorgement or compensation for unjust enrichment, and payment of damages;” imposition of civil money penalties against Defendants, and an award of costs to the Bureau. The complaint alleges that “[f]rom 2016 to 2019, PSLC enrolled more than 6,500 customers in multiple states” and that certain “Trust Plan Customers paid more than $4,300,000 in fees to PSLC” and other customers “paid more than $4,900,000 in loan principal and interest” on allegedly improper loans arising from Defendants’ activities.
Bryan Cave Leighton Paisner was pleased to partner with Bank Director on their first annual Governance Best Practices Survey. In my work with boards of directors over the years I’ve found that the most effective tool can be reference to what other well run companies are doing. Best practices are important in every industry, but of particular importance in the banking industry. I believe the information in this year’s survey results will be very helpful to bank boards across the U.S.
The survey focused on the areas of process, independence, oversight, composition and refreshment. You will find from reading the survey results that there is a range of approach In the banking industry to certain key aspects of board governance. For example, not all bank boards have executive committees and among those which do there is not a uniform approach to the committee’s functioning. There is also divergence of approach in whether the CEO also serves as the board chair. I tend to think that a lack of uniformity of approach in the industry is healthy. I am skeptical of those who advocate for rigid adherence to “best practices” in board governance but I agree that practices which have been effective for others can serve as a guide.
Boards are groups of people, and no two groups of people function in the same way. In my experience, the fundamental building block of an effective board Is careful selection of directors to fill roles within a board. It’s not unlike how the best coaches recruit for talent based on specific needs of the team. Too often I see board rooms with essentially the same director sitting in all of the seats. Differences in business experience, life experience and perspective among directors can greatly benefit the quality of the board’s collective insight and decision making.
On Wednesday, July 22, 2020, Acting Comptroller of the Currency Brian Brooks reaffirmed his interest in being seen as an agent of modernization in a letter clarifying the authority of national banks and federal savings associations to provide cryptocurrency services for customers.
The letter from the Office of the Comptroller of the Currency (“OCC”) discusses the increasing acceptance of cryptocurrency, and especially Bitcoin, as a method of payment and form of investment. It acknowledges a correlating growing demand for “safe places, such as banks, to hold unique cryptographic keys associated with cryptocurrencies on behalf of customers and to provide related custody services.” Three reasons – a safe way to hold cryptocurrency keys; a secure storage service; and custodian services for assets managed by investment advisors – are cited in the letter as driving the demand for cryptocurrency custody services.
The safekeeping services are described as a modernization of special deposit and safe deposit boxes, falling within “longstanding authorities to engage in safekeeping and custody activities.” Thus, “the authority to provide safekeeping services extends to digital activities and, specifically, that national banks may escrow encryption keys used in connection with digital certificates because a key escrow service is a functional equivalent to physical safekeeping.”
More specifically, the FDIC is seeking input regarding whether the development of relevant standards in connection with a voluntary certification process could be applied to third-party models and whether such standards would allow more financial institutions, particularly community banks, to engage with third parties that provide these models, including Fintechs. Such a voluntary certification program could, in theory, reduce costs of doing business for both the financial institutions and providers of models and permit FDIC supervision resources to be used more efficiently and effectively.
The Office of the Comptroller of the Currency’s (“OCC”) attention to modernizing regulation to better accommodate innovative products and industries is continuing full steam ahead since our recent post about a potential payments charter. In the weeks since we posted that article, Brian Brooks has become the acting Comptroller of the Currency, so it should come as no surprise that his goals are garnering some attention.
On Thursday, June 6, the OCC issued a notice of proposed rulemaking seeking public comment to update its rules for national bank and federal savings association activities and operations and an advance notice of proposed rulemaking seeking comment on rules on national banks’ and federal savings associations’ (banks) digital activities. These releases confirm that the agency is “reviewing its regulations on bank digital activities to ensure that its regulations continue to evolve with developments in the industry.”
As part of a substantial modification of the regulatory system, the OCC seeks comment on additional flexibility for banks with respect to permissible derivatives activities, tax equity finance transactions, corporate governance, anti-takeover provisions, capital stock issuances and repurchases, and participation in financial literacy programs.
In addition, the OCC seeks comment on a significant number of banking issues related to digital technology and innovation. The OCC asks whether current legal standards are sufficient flexible, whether they create undue hurdles, and whether there are other areas they should cover. Their requests for comments also touch on current questions, namely whether the pandemic has brought any concerns to light and what issues are unique to smaller institutions – which performed wellwith therollout of the SBA’s Paycheck Protection Program, but may encounter hard times to come.
The devil is in the details. The best intentioned new financial services rules and regulations can present challenges for compliance folks trying to implement the rules into their institutions’ existing systems and practices. Requirements, which may seem simple in the abstract, sometimes create herculean challenges because of system limitations, programming challenges, or simple ambiguity when loaded into real world operations.To hopefully overcome these compliance obstacles, on Thursday, June 18, 2020, the Consumer Financial Protection Bureau (“CFPB”) began its trial phase of a pilot program offering advisory opinions aimed at “reduc[ing] ambiguity and increas[ing] regulatory certainty, support[ing] proactive consumer protection, and enhanc[ing] the timeliness of guidance.” The CFPB first previewed this pilot program in March 2020 so that financial services providers could solicit provisional legal opinions on matters pertaining to the interpretation of the Bureau’s rules and laws.
Joining other agencies, like HUD who have had a no action letter procedure in place for years, the CFPB pilot will focus on four stated priorities: (1) “Consumers are provided with timely and understandable information to make responsible decisions”; (2) “Identify outdated, unnecessary or unduly burdensome regulations in order to reduce regulatory burdens”; (3) “Consistency in enforcement of Federal consumer financial law in order to promote fair competition”; and (4) “Ensuring markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”
As the pilot program is new and untested, the CFPB will pick which company questions to answer based on a review of the various petitions, granting priority to those questions that are novel and whose answers might benefit those in the greater consumer financial services community. The Bureau has said it will consider questions such as those arising during CFPB exams and those that have not otherwise been authoritatively addressed. In this regard, the CFPB noted the following factors that will drive its prioritization of requests:
The request’s alignment with the CFPB’s statutory objectives;
The scope of the impact on consumers if the CFPB is to provide an answer or interpretation;
In the event where two regulators share concurrent jurisdiction over a specific consumer protection measure, whether the CFPB’s advisory opinion will impact the manner in which the other regulator regulates the same measure; and
The impact the advisory opinion would have on the CFPB’s existing resources and personnel.
Brian Brooks, Chief Operating Officer of the Office of the Comptroller of the Currency (“OCC”) said on Monday that he believes the OCC should investigate the viability and utility of a non-depository payments charter: “One of the things I think we have to ask ourselves as an agency is, if it makes sense to have a non-depository lending charter, which was the original fintech concept, would it also make sense to have a non-depository payments charter?”
In his talk, given as part of the Consensus: Distributed virtual conference, Brooks focused on cross-border concerns that are particularly salient to crypto companies. He notes that we may have come to a point where the traditional state-federal divisions of licensing and oversight authority are less relevant, particularly in the crypto space. Brooks says there is an argument that “crypto looks a lot like banking for the twenty-first century,” in which case a single national license may provide modern update to the current patchwork of laws, which is burdensome and time-consuming for both payments companies and state regulators.
Brooks said “one of [his] missions at the OCC . . . is to investigate the extent to which over time it makes sense to think of crypto companies like banks and to think of charter types that might be appropriate for crypto companies.” While Brooks’ comments focused on crypto in mentioning a payments charter, he noted Stripe and PayPal as non-blockchain payments companies, which would presumably also be covered by such a payments charter.
In March, I dialed into the first ever “conference call only” meeting of a 14 year old community bank. The main office of the bank is located in Philadelphia and there was growing concern about the rapidly increasing number of Coronavirus cases in New York and New Jersey, and the spread of new cases into eastern Pennsylvania. I recalled that our board had reviewed an updated version of the bank’s pandemic policy in December but I couldn’t remember the details. Suddenly that policy had relevance in a way I could never have imagined. In April, our board held its second conference call only meeting, and we are likely to continue that pattern for several more months.
We are all aware of the circumstances that led to pandemic policies being retrieved from file folders and read with interest for the first time. What we don’t yet know is how severe the resulting economic shock will be, and the degree to which loan portfolios of community banks will be adversely impacted. It is clear, however, that the adverse impact on small to medium sized businesses across the U.S. has been considerable. As the CEO of one of our law firm’s bank clients in the Southwest recently remarked, we are experiencing the first ever government imposed recession.
God willing, the banking industry will remain strong and be a source of support for the nation’s economy as we recover from the onslaught of COVID-19. In that context, the boards of community banks could benefit from recalling some hard learned lessons from the recent Great Recession.
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