Under Criticism, FDIC Amends Exam Appeals Process

The FDIC board today voted to propose amendments to its supervisory guidelines that would expand banks’ rights to appeal exam decisions and improve consistency with other agencies’ appeals processes. The action follows a blistering February report from the agency’s independent watchdog on the FDIC’s handling of banks making tax refund anticipation loans and also responds to comments raised by the American Bankers Association and others in the recently concluded Economic Growth and Regulatory Paperwork Reduction Act process.

In particular, the proposal would allow banks to appeal a determination of compliance with an existing formal enforcement action and a determination to initiate an informal enforcement action. It would also modify when formal enforcement actions become unappealable and provide additional Supervision Appeals Review Committee appeal rights. Comments on the proposed changes will be due 60 days after publication in the Federal Register.

The agency reissued its 2011 financial institution letter reiterating the importance of open communication on exam findings and encouraging bankers to raise concerns with and provide feedback to examiners. It also issued a policy statement on supervisory recommendations that emphasized that informal supervisory conversations are not formal recommendations. “Accordingly, informal communications should not be used to convey expectations of action by bank management and will not be tracked as part of the FDIC’s examination follow-up supervisory activities or at subsequent examinations,” the agency said.

ABA supports bipartisan exam fairness legislation in both houses of Congress that would provide an independent appeals option to financial institutions along with safeguards to protect against retaliation. The House bill, which passed the House Financial Services Committee last summer, currently has 73 co-sponsors, while the Senate version has 23.

The FDIC board also voted to issue examination guidance for third-party lending. The term encompasses any involvement of a third party in any part of the lending process, including marketing, underwriting, pricing, servicing, disclosures, compliance, collection and other areas — whether the FDIC-insured institution originates a loan on behalf of a third party, uses a third party’s platform or originates a loan through or jointly with a third party.

The exam guidance supplements the FDIC’s existing guidance on third-party risk management and covers strategic, operational, credit and compliance risks associated with third-party lending. It also covers the basic elements of an effective third-party lending risk management program, including risk assessment, due diligence, contract structuring and oversight.

The draft guidance also covers supervisory considerations for third-party lending arrangements and outlines exam procedures. Comments on the draft guidance are due by Sept. 12 and should be sent to [email protected]. For more information, contact ABA’s Cecelia Calaby or Barry Mills.