WASHINGTON — The Federal Deposit Insurance Corp. has proposed a set of updated guidelines that ask banks to pay particular attention to their relationships with third-party lenders.
In a board action late last week, the agency proposed a number of changes, including softening the exam appeals process, in response to recommendations by the FDIC Office of Inspector General.
But industry representatives were most concerned about the supplement to its 2008 guidance on third-party risk management. The FDIC highlighted specific risks associated with lending partners — including credit, operational and strategic risks.
"The FDIC will evaluate lending activities conducted through third-party relationships as though the activities were performed by the institution itself," the agency said. A bank's executives "retain the ultimate responsibility to conduct lending activities in a safe and sound manner."
The comments appear to have been prompted by the OIG's investigation on refund anticipation loan companies, but could potentially apply more broadly to fintech partners.
"How will this third-party lender guidance impact banks' ability to lend without a lot of bureaucracy?" said Cecelia Calaby, the senior vice president of the American Bankers Association's Office of Regulatory Policy. "Guidance of the sort has to be looked at very carefully to try and anticipate what its impact will be on lending."
The agency also asked banks to look out for third-party lenders' pipeline risks — the possible consequences of failed transactions on a bank's liquidity — and customer information safeguards.
The FDIC said it might update its guidelines when new businesses develop, presumably a reference to fintech and other new models. "As new products and delivery channels emerge, the FDIC commits to fully consider whether the issuance of specific regulatory guidance is warranted," the agency said.
At issue is a report issued by the Inspector General in March that said the FDIC engaged in "abusive" behavior in its efforts to shut down three banks' tax refund anticipation loan business. The report accused the FDIC of using a number of strong-arm tactics.
The FDIC has denied the claims, but its proposed changes are efforts to address the OIG's recommendations. That includes modified guidelines for exam appeals — a process that the OIG criticized in its report as part of a general pattern of disregard for banks' complaints that they were pressured to close off their tax refund anticipation loan businesses.
Specifically, the OIG found, appeals to exam ratings from those banks "were voided by the FDIC's filing of formal enforcement actions."
As a result, the FDIC proposed on Friday to allow banks to generally appeal determinations on their level of compliance with existing enforcement actions. Institutions will still not be able to appeal formal investigation or enforcement actions, but such measures will not void their pending appeals. The FDIC's proposal also offers to create a 120-day window from the time the FDIC issues an enforcement action notice, after which the bank would have the right to appeal if no enforcement action is taken.
"We consider the guidelines to be responsive to some of the concerns we have raised," an OIG spokeswoman said, adding that the watchdog agency planned to publish a "more comprehensive view" on the bank's measures later this month.
In other changes, the FDIC also issued a statement reiterating its code of conduct, published an updated letter encouraging the flow of informal guidance, and made some procedural changes to its Case Review Committee, which is charged with enforcement actions.
Specifically, the plan would offer the head of that committee the ability to confer about a case that may "attract unusual attention or publicity" or in other ways affect FDIC policy.
The FDIC asked for comment on the third-party lending guidance by Sept. 12 — a timetable that drew a mixed reaction from the industry.
"The FDIC is seeking comments on these guidances. That's a very positive thing," Calaby said. But, she added, "Sept. 12 [gives us] a very short time period — especially when it spans August."