On February 12, 2021, the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) each published a final rule (OCC rule; CFPB rule) that codifies the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), CFPB, and OCC (collectively, the Agencies) on September 11, 2018 (the Interagency Statement). As we previously wrote, the Interagency Statement sought to clarify that supervisory guidance, unlike statutes and regulations, does not have the "force and effect of law," and that the agencies will not take enforcement actions against, or otherwise criticize, supervised financial institutions for non-compliance with supervisory guidance.
Although the Agencies had jointly issued a notice of proposed rulemaking to codify the Interagency Statement, each Agency is separately issuing its own final rule. The OCC and CFPB rules become effective on March 15, 2021, making the Interagency Statement binding on those agencies as of that date. The NCUA published its final rule on February 3, 2021, and will become effective on March 5, 2020. The FDIC published a substantially similar final rule, yet it has not been published and therefore does not yet have an effective date. The Federal Reserve has yet to issue its final rule, but it is expected that when it does, the final rule also will be essentially identical to the other Agencies' final rules.
Summary of the Final Rules
The Interagency Statement was preceded by a years-long debate in the banking industry over the weight to be accorded to agency guidance and interpretive rules, and whether they should be promulgated as a regulation, triggering the rulemaking requirements of the Administrative Procedures Act (APA), e.g., notice-and-comment and cost-benefit analyses. In Perez v. Mortgage Bankers Association, 135 S. Ct. 1199, 1201 (2015) the Supreme Court unanimously held that "[i]nterpretive rules do not have the force and effect of law." Despite this holding, uncertainty remained in the banking industry as to the authority of agency guidance and interpretive rules. While the Interagency Statement sought to clarify this uncertainty, the Interagency Statement itself was agency guidance, leaving the industry uncertain about the weight it should be given. Consistent with the principles set forth in the Interagency Statement, the Agencies have now taken steps to codify the Interagency Statement as regulation in order to give it the effect of law.
As with the Interagency Statement, each Agency's final rule clarifies that, while laws and regulations of course have the force and effect of law, supervisory guidance does not. Rather, supervisory guidance (i.e., interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions), outlines the Agency's supervisory expectations or priorities, articulates the Agency's general views regarding appropriate practices for a given subject area, and provides examples of acceptable practices.1 Supervisory guidance therefore is important in that it provides insight to the industry, as well as to supervisory staff, in a transparent way that helps to ensure consistency in the supervisory approach.
The final rules reiterate, however, that the Agencies will not issue supervisory criticism or an enforcement action against an institution based on a "violation" of or "non-compliance" with supervisory guidance. In a helpful clarification to the Interagency Statement, the final rules specify that "examiner criticism" includes the issuance of matters requiring attention (MRAs), matters requiring immediate attention (MRIAs), matters requiring board attention, documents of resolution, and supervisory recommendation. (The Interagency Statement did not provide such examples of "examiner criticism," therefore creating an ambiguity as to what that phrase included.) The final rules also state that examiner criticisms should be specific as to practices, operations, and financial conditions that could have a negative effect on the safety and soundness of the institution, cause consumer harm, or cause violations of laws and regulations. That is, examiner criticisms should not be general or vague. Finally, the final rules emphasize that the Agencies will aim to reduce multiple agency supervisory guidance on the same topic (instead, aiming for joint guidance), and even may seek public comment on future supervisory guidance.
As we have previously written, notwithstanding that the Interagency Statement is now codified (or about to be codified) in the Agencies' final rules, supervised financial institutions should be mindful that departing from agency guidance still may expose the institution to "examiner criticism" or even an enforcement action. Although the final rules state that examination staff may not explicitly base a critical finding or proposed enforcement action on a "violation" of supervisory guidance, examination staff is not precluded from finding that a bank violated the governing statute or regulation, and citing to the guidance to detail what the agency believes the statute or regulation requires. Further, given the amorphous "safety and soundness" obligations that govern the banking industry, a departure from supervisory guidance may pose a risk of being deemed an unsafe and unsound practice, even if an examiner does not specifically cite a "violation" of such guidance.
Financial institutions are encouraged to continue monitoring the Financial Services section of our Post-Election Analysis Center for regulatory updates regarding the Biden Administration and to contact any of the authors of this Advisory or their usual Arnold & Porter contact for additional information or questions.
1. With respect to examples, the final rules state that the Agency intends to limit the use of numerical thresholds or other "bright-lines" in describing expectations in supervisory guidance.
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