The Federal Deposit Insurance Corporation (FDIC) has issued a “Statement on Providing Banking Services” in which it “encourages institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers, without regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk.” The statement, contained in a new Financial Institution Letter (FIL), attempts to rectify the damage created by “Operation Choke Point,” the coordinated federal multiagency enforcement initiative targeting banks serving online payday lenders and other companies that have raised regulatory or “reputational” concerns.

The statement follows the FDIC’s July 2014 FIL in which the FDIC withdrew the list of “risky” merchant categories (such as payday lenders and money transfer networks) that was included in prior guidance on account relationships with third-party payment processors (TPPPs). Consistent with the July 2014 FIL and an October 2013 FIL on TPPP relationships, the new FIL advises banks that they are neither prohibited nor discouraged from providing services to customers operating lawfully, provided they can properly manage customer relationships and effectively mitigate risks. However, unlike the prior FILs, the new FIL expressly acknowledges that “customers within broader customer categories present varying degrees of risk” and should be assessed for risk on a customer-by-customer basis.

The FDIC is apparently backing up its new FIL by attempting to remove the potential for FDIC examiners to continue to apply unduly restrictive standards in spite of the FIL. Its press release announcing the new FIL included the statement that “FDIC examiners must provide notice in writing for any case in which an institution is directed to exit a customer relationship.” This instruction appears to reflect new procedures set forth in an internal FDIC memorandum to its supervisory staff obtained by Politico.

The internal memorandum states that FDIC examiners: 

  • Should not use “informal suggestions” to make recommendations or requirements for terminating deposit accounts or for criticizing a bank’s management or risk mitigation associated with deposit accounts that does not rise to the level of a recommendation or requirement to terminate accounts
  • Must put in writing in the report of examination (ROE) their criticisms of a bank’s management or risk mitigation associated with deposit accounts
  • Cannot base recommendations for terminating deposit account relationships solely on reputational risk to the bank

The memorandum further mandates that before recommendations or requirements for terminating deposit accounts are provided to and discussed with a bank’s management and directors, they must be made in writing and an FDIC Regional Director must approve them in writing. It also requires such findings to be “thoroughly vetted with regional office and legal staff” before they are included in the ROE or supervisory actions are pursued.

The new FIL also provides banks with some breathing room on Bank Secrecy Act (BSA) compliance. It notes that the FDIC is aware that BSA compliance concerns might discourage banks from providing certain types of banking services. The FDIC states that it and the other federal banking agencies “recognize that as a practical matter, it is not possible for a financial institution to detect and report all potentially illicit transactions that flow through an institution.” It advises that “isolated or technical” BSA violations that occur “within an otherwise adequate system of policies, procedures, and processes, generally do not prompt serious regulatory concern or reflect negatively on management’s supervision or commitment to BSA compliance.”

These favorable developments do not mean that payday lenders and other companies adversely affected by “Operation Choke Point” can relax and assume that banks will automatically retain or restore relationships with them. The FDIC expects banks under its supervision to evaluate their relationships with these companies on an individualized basis. Accordingly, companies in industries targeted by “Operation Choke Point” must be able to demonstrate to their banks that they are in compliance with applicable federal and state law. To that end, Ballard Spahr and a major consulting firm will soon launch their “Compliance Monitor” program. Compliance Monitor will provide formal assessments and help companies evaluate and improve their compliance programs, with the goal that those companies that receive positive evaluations will be able to retain or establish new banking relationships.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance. The Group also regularly counsel banks and nonbank clients on BSA compliance and represents them in connection with enforcement actions.

For more information, contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, or CFS Practice Leader Jeremy T. Rosenblum at 215.864.8505 or rosenblum@ballardspahr.com.


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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