After the second Trump administration took office, each of the new leaders at the Office of the Comptroller of the Currency, FDIC, and Federal Reserve have expressed a desire to reassess their
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By expanding the scope of what qualifies for an appeal, the agencies could allow banks to raise valid arguments as to why the agencies' findings are incorrect, the legal standards have not been met, or the law has been misapplied — which may allow those institutions to avoid facing the stark choice between consenting to a public action or fighting their regulator via litigation.
As directed by 1994's Riegle Community Development and Regulatory Improvement Act, or the "Act," each agency has established various versions of an appellate process for "material supervisory determinations." But each excludes from its scope decisions around issuing formal enforcement actions. The scope of this exclusion is actually quite broad. For example, the current processes of both the OCC and FDIC make unappealable the "underlying facts" that form the basis of a recommended action, as well as their decisions to open formal investigations.
However, for most banks, no supervisory determination is more material to their future than a recommendation to pursue an enforcement action. Despite this, banks cannot utilize the agencies' independent appeals processes before deciding to agree to the agency's terms or fight in court. Because the agency threatening an action also supervises the bank on a day-to-day basis, and grants permission for many of the bank's activities and objectives, an institution can feel pressured to accept a proposed resolution. This is true even if there is a legitimate point to be raised that could reduce the severity of the action or soften the public effect.
The basis for the exclusion of formal actions has been sourced to a general statement in the Act that it shall not "affect the authority" of the agencies to "take enforcement or supervisory action." But some enforcement decisions are appealable under the agencies' current procedures. For example, the FDIC allows banks to appeal decisions to initiate informal enforcement actions, such as non-public memorandums of understanding.
Another justification cited is that banks already have a remedy: They can challenge the action in administrative court, followed by additional layers of review from agency principals and, eventually, a federal appellate court. But the costs of fighting an action in court can be excessive. And in many cases, banks have often already spent vast sums on outside counsel and consultants to investigate the issue internally, find its root causes and proactively address remediation. A lengthy court fight can also distract management for years while keeping the public's attention on the allegations.
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Allowing appeals around formal actions — including the underlying bases for the action and the ultimate recommendation — would fill a gap in the existing supervisory framework. In many situations, including when agencies choose between an action that will become public and one that will not, no formal channel exists to petition for a review. The 15-day letter process gives banks a chance to present counterarguments, but responding banks may find the letters' allegations of misconduct to be vague, while providing only limited insight into the scope of the investigation and evidence. This makes effective challenges more difficult. Moreover, when civil money penalties are not being considered, the 15-day letter process may not even be used.
There are clear advantages to allowing an appeal before a bank must choose to consent or contest. The process can help even the playing field between the two sides and serve as a backstop against regulatory overreach. The process and timing would be clearly delineated, so banks and their representatives would not have to guess at when in the process they should plead their case — and who is the most receptive audience. An independent body outside the supervisory chain can render an evaluation within a set timeframe regarding a defined, discrete set of findings or conclusions.
The expansion would likely increase banks' use of the appeals process overall. Agency records indicate that the process is underutilized. Anecdotally, banks share that they are unfamiliar with the process or its scope, do not understand or doubt how it may benefit them, or do not know that an independent arbiter issues the decision.
Finally, and perhaps most importantly, the decisions should increase transparency — a stated goal of the new leadership — and allow other banks to understand how the agency will apply the law to certain facts. Publicly available decisions, even if they are anonymous, redacted, or high-level to avoid identifying the subject bank, may guide other institutions' behavior and ultimately increase compliance with applicable law, reducing the need for more enforcement actions. The decisions could also foster consistent interpretations across the regions of an agency, and even across the agencies themselves.
Ultimately, using an appeal at an earlier stage of the enforcement process could strengthen the bank-supervisor partnership, potentially avoiding a negative turn in the relationship that might otherwise occur. This is especially true if the bank is willing to consent to most of a planned action but has a legitimate disagreement with only one finding or aspect.
The FDIC's proposal acknowledged the confusion banks have had over time about the scope of the appeals process regarding enforcement actions. However, that proposal appears, at least for now, to continue to exclude formal enforcement action-related challenges, as it requests comment but does not suggest any fundamental changes. The agencies should take the opportunity while there is significant momentum to reform aspects of the supervisory framework to expand the scope of their appeals processes, giving banks an additional avenue to challenge recommended enforcement actions.
