Student Loans: Departments of Treasury and Education Move to Simplify Income Driven Repayment Plans

graduation cap  on a pile of money Much of the regulatory focus for student lending has been directed toward Income Driven Repayment (IDR) plans in recent months. The first student loan related move in 2017 by the Departments of Education and Treasury is no exception. On Tuesday, the Departments announced a joint effort to simplify borrower participation in IDR plans.

Currently, borrowers must submit income information every year to continue in their IDR plan. If a borrower fails to timely submit the information, the borrower’s payments are reset to the standard 10-year repayment plan amount, which can be significantly higher. Under the new Memorandum of Understanding, the Departments of Treasury and Education have established a framework for allowing tax data to be shared over multiple years. The Memorandum of Understanding will lead to the development of a new digital system at the Department of Education. Through that system, borrowers will be able to consent to sharing financial data with their servicers. Servicers will then have access to multiple years of financial data and will be able to evaluate a borrower’s financial eligibility to continue on an IDR plan without direct contact with the borrower.

While this development should help streamline the IDR qualification process, servicers should be aware of potential issues. Student loan related efforts at the CFPB have shown the bureau is paying close attention to both IDR plans and borrower communications. Servicers should take care to keep borrowers informed of pertinent information regarding payments and payment plans both now and once the new system is underway.

Implementing a Compliant Successor in Interest Confirmation Process Will Pose Significant Challenges for Mortgage Servicers

Implementing a Compliant Successor in Interest Confirmation Process Will Pose Significant Challenges for Mortgage ServicersArguably the most significant element of the recent amendments to the existing mortgage servicing regulatory framework by the Consumer Financial Protection Bureau (CFPB) is the new structure that has been laid out for dealing with potential and confirmed successors in interest. Quite simply, fully complying with the new rule will require significant efforts, regardless of a servicer’s size. One of the more time-intensive—and therefore costly—aspects of the rule is the burden that is placed on each servicer to determine what documents it can reasonably require to confirm a potential successor in interest’s status. The CFPB has been very clear that it will expect servicers to send individualized document requests, which will require intimate knowledge of the many ways in which a transfer of real property can be evidenced in all 50 states. Not only must a servicer be able to quickly determine the documents it reasonably requires, but the rule also requires that, if a servicer cannot determine what documents are appropriate in a particular circumstance due to a lack of information, it must be able to communicate the additional information that it needs in order to then make an individualized document request.

Needless to say, this will be a substantial undertaking for each servicer, regardless of its size. Upon the request of many servicers, and so as to lessen the burden each entity faces if it were to undertake these efforts on its own, we have begun compiling the necessary research that will form the basis of an entity’s successor-in-interest process.


The framework laid out by the CFPB for the successor-in-interest confirmation process is contained both in the general policies and procedures and requests for information sections of Regulation X. Across its entire business, a servicer will have to be able to identify the existence of a potential successor in interest, facilitate communication with the potential successor, and communicate the documents that it reasonably requires to confirm that individual’s identity and ownership interest in property. While it will undoubtedly be challenging in the long term to ensure employees receive adequate training that will enable them to identify and recognize a potential successor-in-interest scenario, the more challenging aspect in the short term is the documentation that may be requested of a potential successor. It is worth noting that, while the policy and procedure requirements do not apply to an entity that qualifies as a small servicer, the request for information provisions do apply regardless of an entity’s size. Documentation requirements for the confirmation process will therefore apply to all mortgage servicing entities.

Documentation Requirements

As mentioned above, the rule requires a servicer to notify a potential successor in interest of the documents it reasonably requires to confirm that person’s identity and ownership interest in property. The CFPB is adding official commentary to Regulation X that will clarify that documents are “reasonably required” only if they are “reasonable in light of the laws of the relevant jurisdiction, the specific situation of the potential successor in interest, and the documents already in the servicer’s possession.” This means that each time a potential successor-in-interest scenario arises, the servicer will have to take into account all three of those factors before requesting documents for the individual to get through the confirmation process. For example, in a divorce scenario, the commentary suggests that it would not be reasonable to only request a deed if the laws of the relevant jurisdiction allow individuals to effectuate a transfer of title through a final divorce decree and accompanying separation agreement executed by both spouses. Similar guidance exists for states that accept affidavits of heirship and other state-specific documents in the death context.

Many servicers have inquired as to whether they can comply with the above-described requirements by utilizing generic lists or descriptions of documents when communicating with potential successors in interest about what is required to get through the confirmation process. The short answer is that there may be a place for more generic correspondence, but the CFPB has limited the instances in which this practice will be permissible. First, the CFPB’s above-referenced commentary suggests that a servicer cannot only request a deed if there are other alternatives in the applicable jurisdiction, and also suggests that a servicer should not request either a deed or a final divorce decree and accompanying separation agreement if the relevant jurisdiction does not permit the latter to transfer title.

Additionally, the rule specifies that, if a servicer receives a request from a potential successor in interest but it does not have enough information about the particular circumstances to make a determination as to the specific documents that are reasonably required, Regulation X will permit the servicer to instead provide the borrower with examples of documents that it may require. However, the servicer will also be required to state that the potential successor in interest can obtain a more individualized list of document requirements by providing additional information and describe what additional information it needs from the potential successor. To further complicate things, a response in that scenario will also have to include a telephone number for the potential successor in interest to receive further assistance, and the servicer will then have to act upon any information that it needs and subsequently receives verbally over the telephone.

Given all of this, one thing that is clear is that servicers will need significant research on the laws of the jurisdictions in which they service loans to be fully compliant with the CFPB’s new directive. This includes, but certainly is not limited to, research on transfers of real property in connection with a divorce, inter vivos trust, and death. Once that research is compiled, servicers will then have to figure out a way to make it workable and incorporated into its confirmation process.

SEC Examination Priorities for 2017 – What do Robots, Senior Investors, and Payment for Order Flow Have in Common?

This week, the SEC’s Office of Compliance Inspections and Examinations (OCIE) released its Examination Priorities for 2017  that reflects certain practices, products, and services that OCIE perceives to present potentially heightened risk to investors and/or the integrity of the U.S. capital markets.

The Examination Priorities for 2017 are organized into the following general categories:

  • SEC Examination Priorities for 2017 – What do Robots, Senior Investors, and Payment for Order Flow Have in Common?Protecting Retail Investors. OCIE is pursuing a variety of examination initiatives to assess potential risks to retail investors that arise in the increasingly complex investment landscape.
  • Senior Investors and Retirement Investments. OCIE is continuing to devote attention to issues affecting senior investors and those investing in retirement.
  • Assessing Market-wide Risks. OCIE anticipates allocating resources to examine perceived structural risks and trends in the securities industry.
  • Other Initiatives. Examination priorities that OCIE doesn’t think are cool enough to fit in the above categories.  

Here are a couple of notable items from the extensive list of priorities that OCIE identified:

  • Robo-Advisors. OCIE will examine investment advisers and broker-dealers that are using automation as a component of their services. They will review compliance programs, client disclosures, data protections, marketing and algorithms used for generation of investment advice.
  • Recidivist Representatives and Their Employers. OCIE will employ their risk-based approach and examine industry professionals that have a track record of misconduct and assess the compliance oversight and controls of their employers.
  • Investment Advisors. OCIE will continue their initiative to examine those investment advisors that have never been examined. Note that if you are a newly registered investment advisor in part of the market that is identified as a higher risk, you may be examined before a long-standing investment advisor that has never been examined.
  • Senior Investors. Senior investor issues continue to be a focus of OCIE and FINRA. OCIE will examine supervisory programs and controls of investment advisors and broker-dealers to assess how they are managing conflicts of interest, fulfilling fiduciary duty or best execution obligations, and managing their interactions with senior investors.
  • Payment for Order Flow. Something of an unknown topic for many investors and non-industry professionals, OCIE states that it will examine select broker-dealers and market-makers to assess how they are complying with their duty of best execution when routing customer orders for execution.
  • Reg SCI. OCIE will examine SCI entities to evaluate whether they have established, maintained, and enforced written policies and procedures reasonably designed to ensure their systems comply with industry best practices and what OCIE has determined to be appropriate levels of capacity, integrity, resiliency, availability, and security that are adequate enough to maintain operational capacity and promote maintenance of fair and orderly markets, as well as operate in a manner compliant with the Exchange Act.
  • Anti-Money Laundering. AML continues to be an area of focus of OCIE and FINRA (as well as other regulators and government enforcement agencies). OCIE will examine broker-dealers to assess whether AML programs are compliant with requirements and are tailored to the risks of the firm; whether AML programs are properly supervised, monitored and tested; and whether SARs are filed according to requirements.
  • Private Fund Advisers. After a year that brought a number of large enforcement actions and settlements in the private fund space, OCIE will continue to examine private fund advisors with a focus on conflicts of interest, disclosures of those conflicts, and compensation/fee arrangements and calculations.

Similar to FINRA’s Regulatory and Examinations Priorities Letter published last week, the OCIE’s enumerated priorities is not comprehensive or all inclusive. OCIE intends to operate their examination program in a primarily risk-based manner that allocates limited examination resources on the risks, issues, and policy matters that are driven from existing information and data from tips, complaints, referrals, and enforcement actions, as well as those that may arise from changes in market conditions or the regulatory environment. To find out more about how the SEC Examination Priorities for 2017 impacts your regulatory compliance program or business initiatives for the year, do not hesitate to contact us and we will be more than happy to assist you.

Another Year of Record False Claims Act Enforcement in the Financial Services Industry

Book of ComplianceThe federal government continues to use the False Claims Act (FCA) as one of its prime enforcement tools against banks and mortgage companies. In 2016 alone, the Department of Justice obtained $1.6 billion in FCA settlements and judgments from the financial services industry. As it does each year, Bradley has assembled an overview of the year’s major FCA developments and opinions to keep you abreast of the status of law. You may find our 2016 Year in Review here.

2017 May Be an Eventful Year for Student Loan Industry

2017 May Be an Eventful Year for Student Loan IndustryAs expected, student loans were a major issue in 2016, as the presidential election brought the issue to the forefront and regulatory scrutiny continued to rise. 2017 is now upon us, and the CFPB wasted no time getting the ball rolling for the new year. In its first student loan report of 2017 released last week, the CFPB drew its focus to older student loan borrowers. According to the report, older borrowers are the fastest growing category of student loan borrowers. Today, there are four times the number of student loan borrowers over age 60 than there were 10 years ago, and they owe twice as much on average.

According to the CFPB, student loan obligations can threaten the long-term financial security of older borrowers, and certain student loan servicing practices can exacerbate the problem. The CFPB’s report focuses on two servicing practices that have been highlighted in recent reports: income driven repayment (IDR) plans and practices related to cosigners.

Based on the CFPB’s January report, servicers should consider the following steps:

  • Review practices related to processing inquiries and applications for IDR plans and ensure accurate and timely communications to borrowers
  • Review policies and procedures regarding communication with cosigners to ensure cosigners receive accurate and timely information related to the loan and any payment issues
  • Review and reconsider the general practice of applying payments across all loans owed by the primary borrower to ensure that cosigner payments are applied only to loans the cosigner is obligated to pay

The January report is the most recent in a string of publications addressing student loans in recent months. In October 2016, the CFPB revised its examination procedures for student loans to include significant changes to the student loan servicing module. Also in October, the Student Loan Ombudsman released his Annual Report, highlighting servicing practices the bureau says may contribute to high rates of re-default among rehabilitated borrowers. The Fall 2016 Regulatory Agenda released in December again lists student loan servicing among the long-term initiatives of the bureau, signaling that potential rulemaking is still on the horizon.

All of these developments in the student loan arena come amid speculation as to the future of education finance under the incoming Trump administration. According to a recent Forbes article, President-elect Donald Trump has pledged to adjust repayment structures for student debt with a cap that could be even more generous than currently available IDR plans. Mr. Trump’s nominee for Secretary of Education, Betsy DeVos, and other congressional leaders are also expected to bring about numerous adjustments to the student lending industry, including risk sharing between the government and universities with respect to defaults and mandating reduction of interest rates for federal student loans. A November 2016 report from the Government Accountability Office that found the Department of Education had underestimated the cost of loan forgiveness under current IDR plans by billions should support expected efforts to limit federal involvement. The Trump administration may also push toward privatization of the student loan industry, given that Mr. Trump and his campaign spoke in favor of eliminating government involvement in student loans entirely during the election.

Just how this will all play out remains to be seen, but suffice it to say, 2017 is poised to be an eventful year for the student loan industry.

FINRA’s Regulatory and Examination Priorities of 2017

Accountant chartsThis week, FINRA published its Regulatory and Examinations Priorities Letter providing member firms and industry professionals with information about FINRA plans for 2017. While not comprehensive or all inclusive, FINRA’s letter provides helpful insight into current priorities and trending business or regulatory issues that FINRA has developed based on observations from their regulatory programs, as well as input from various stakeholders, including investor advocates, member firms and other regulators.

Here are a couple notable items:

  • High-risk and Recidivist Brokers. FINRA will evaluate member firms’ branch office inspection programs, as well as their supervisory systems for branch and non-branch office locations, including, but not limited to, independent contractor branches.
  • Sales Practices. Senior investors and product suitability issues will continue to be an area of focus.
  • Financial Risks. FINRA will review member firms’ implementation of the amended risk requirements set forth in Rule 4210.
  • Operational Risks. Cybersecurity and AML remain areas of focus. FINRA will review member firms’ testing of their internal supervisory controls, whether firms have implemented adequate controls and supervision to protect customer assets pursuant to Rule 15c3-3.
  • Market Integrity. Market access rule compliance and ATS disclosures continue to be areas of focus.

FINRA encourages compliance staff, supervisors and senior business leaders to review the issues and topics addressed in its letter. To find out more about how FINRA’s Regulatory and Examination Priorities of 2017 impacts your regulatory compliance program or business initiatives for the year, don’t hesitate to contact us and we will be more than happy to assist you.


How HUD Secretary Carson Might Affect Mortgage Lenders

Finally, a SOL Decision Focused On Unjust Enrichment and Inequitable ResultsPresident-elect Donald Trump’s recent decision to nominate Dr. Ben Carson as Secretary of the Department of Housing and Urban Development (HUD) carries potential implications for mortgage lenders. In accord with Trump’s stated preference for broad deregulation, there is much for the industry to look forward to. Mortgage lenders can expect to see a reduction in new rulemaking from HUD and perhaps a reversal of regulations promulgated during the Obama administration. At the same time, lenders should watch for any proposals at HUD that could have an impact on mortgage financing.

Reversing Changes to Fair Housing Policies

As a presidential candidate, Carson criticized the Affirmatively Furthering Fair Housing rule promulgated in 2015 that requires each municipality receiving HUD funding to submit assessments of its jurisdiction’s “patterns of integration and segregation, racially and ethnically concentrated areas of poverty, disproportionate housing needs, and disparities in access to opportunity.” In a 2015 opinion piece in The Washington Times, he also disapproved of the use of “disparate impact” analysis in determining whether housing policies are racially discriminatory under the Fair Housing Act. In the same piece, Carson was broadly critical of “government-engineered attempts to legislate racial equality.” Therefore, one of the changes that can be expected from a Carson-led HUD would be a rollback of the agency’s “affirmative furthering” and “effects testing” approaches toward fair housing policy, which would, overall, tend to reduce the reach of anti-discrimination law into the housing market.

Possible Changes to Mortgage Financing

Less is known about Carson’s views on the Federal Housing Administration, which underwrites and issues servicing guidelines on roughly one out of six mortgages issued in the U.S. During Carson’s run for president, one of his campaign documents called for the elimination or reduction of federal programs he viewed as “wasteful, inefficient or unnecessary.” This could suggest a general approach toward reducing the FHA’s involvement in the mortgage market. However, as of yet, there is only speculation as to what specific changes Carson might like to make to FHA programs, such as cutting FHA premiums.

During his presidential campaign, Carson endorsed the re-privatization of Fannie Mae and Freddie Mac. Trump’s nominee for Treasury Secretary, Steven Mnuchin, said in a November 30, 2016, interview that he believed that the two government-sponsored enterprises (GSEs) should be “restructured” so that “they’re absolutely safe,” and then removed from “government control.” House Speaker Paul Ryan and House Financial Services Committee head Jeb Hensarling have both called for the gradual winding-down of Fannie Mae and Freddie Mac. Thus, it appears likely that federal involvement in the GSEs will be changing, but what that change might be is still undetermined.

One policy area where Carson’s selection could indicate risk for lenders is the mortgage interest deduction. As a presidential candidate, Carson supported ending the mortgage interest deduction, which currently plays a substantial role in the housing finance market. No official proposals for changing mortgage interest deductibility have been made by Trump’s announced cabinet nominees or by members of Congress, but Carson’s selection could sway the Trump administration toward lowering that deduction as part of a tax reform package, and/or replacing it with a smaller tax credit. Presumptive Treasury Secretary Steven Mnuchin recently suggested that the mortgage interest deduction cap could be lowered, although not eliminated. Any changes to the deduction would have to be passed into law by Congress, and so mortgage lenders should be sure to follow any political discussions on this issue.

Staffing the Department

Although much media coverage has stated that Carson has limited experience in housing policy, this aspect of his nomination is far from unprecedented. Other recent HUD secretaries had similar levels of prior formal involvement in housing policy, including Henry Cisneros, Jack Kemp, and Julian Castro. However, his limited prior experience does suggest that the advisors and subordinates chosen by Carson will have a perhaps larger-than-usual effect on policies instituted at HUD. Therefore, it would be wise for mortgage lenders to pay especially close attention to the team that the President-elect and Carson choose to fill positions at HUD.

FHFA Final Rule on Duty to Serve Allows GSEs to Receive Credit for Manufactured Housing Chattel Loans

FHFA Final Rule on Duty to Serve Allows GSEs to Receive Credit for Manufactured Housing Chattel LoansThe Housing and Economic Recovery Act of 2008 (HERA) amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 by, among other things, establishing the Federal Housing Finance Agency (FHFA). FHFA replaced the Federal Housing Finance Board (FHFB) and Office of Federal Housing Enterprise Oversight (OFHEO) as the overseer of the Government Sponsored Enterprises (GSEs) best known as Fannie Mae and Freddie Mac. Pursuant to HERA, FHFA put Fannie Mae and Freddie Mac under its conservatorship in September 2008.

Section 1129 of HERA amended section 1335 of the Safety and Soundness Act to require Fannie Mae and Freddie Mac to provide a secondary market for mortgages for very low-, low-, and moderate-income families in three specific underserved markets, known simply as “the Duty to Serve.” Though the first market named is manufactured housing, Congress did not require chattel loans to be included. This presented a problem, since chattel loans are used to finance 70 percent of manufactured homes sold. In addition, section 1335(d)(1) requires FHFA to establish a method for crediting the GSEs compliance with the Duty to Serve underserved markets.

On December 15, 2015, FHFA issued a proposed rule to implement HERA’s Duty to Serve requirements. As required by HERA, the proposed rule would have provided Duty to Serve credit for GSE activities that facilitate a secondary market for mortgages on residential properties in the specified underserved markets. It would also establish a method for crediting the enterprises’ performance each year, on which FHFA would report annually to Congress.  However, for the manufactured housing market, Duty to Serve credit would be provided only for GSE activities related to manufactured homes financed as real property and blanket loans for certain categories of manufactured housing communities. The proposed rule did not include chattel lending as an eligible activity under the manufactured housing market, thereby leaving out seventy percent of the market. FHFA merely requested comment on whether the Enterprises should receive Duty to Serve credit for purchasing chattel loans, either on a pilot or an ongoing basis.

With chattel lending relegated to optional “pilot” status in FHFA’s proposed rule, the industry mounted a serious effort to have manufactured home chattel lending added to the final rule as an activity eligible for GSE Duty to Serve credit. With the Manufactured Housing Institute taking the lead, compelling comment letters were submitted to FHFA, and numerous face-to-face meetings were held, not only with FHFA but with the GSEs as well. Working groups were also established with the GSEs to further these discussions.

On December 13, 1016, FHFA issued a final Duty to Serve rule. Apparently the industry’s efforts were ultimately persuasive, as the final rule now provides Duty to Serve credit to Fannie Mae and Freddie Mac for the purchase of chattel manufactured housing loans. The rule does not provide for immediate credit, but rather requires Fannie Mae and Freddie Mac to submit plans detailing how they will carry out their Duty to Serve manufactured housing responsibilities. It is expected that working groups comprised of GSE and industry representatives will continue to help develop the plans the GSEs will be submitting to FHFA to comply with the manufactured housing Duty to Serve. It now seems very likely that the GSEs will be developing a secondary market for chattel loans, a market that has not existed for the past 10 years. This will make these loans both less expensive and more available, and will allow more consumers of lesser means to actually own their own homes.

Is Your Data Ready to Move to a Uniform Report Submission? NMLS MSB Call Report Adopted for 23 Licenses as of January 1st

Is Your Data Ready to Move to a Uniform Report Submission? NMLS MSB Call Report Adopted for 22 Licenses as of January 1stEighteen state agencies, affecting 23 license types, have currently committed to adopt the NMLS MSB Call report for Q1 2017 reporting. The NMLS MSB Call Report applies to licensees who conduct the following activities: money transmission, check cashing, issuing or selling travelers checks, issuing or selling drafts, foreign currency dealing and exchange, issuing or selling money orders, bill paying, issuing or selling prepaid access/stored value products, and virtual currency that hold a Money Services Business (MSB) license during the calendar quarter in adopting jurisdictions. The majority of agencies are mandating reporting through NMLS. As such, the time to verify that your systems are collecting the correct data points is now.

NMLS currently acts as the system of record for 36 jurisdictions involved in some aspect of money services business licensing, so anticipate that the number of jurisdictions also requiring the NMLS MSB Call Report will increase as regulators become more comfortable with the new uniform reporting format. Current agencies who have announced that they will adopt the NMLS MSB Call Report as of Q1 2017 include those that regulate MSB-related licenses in Arkansas, California, Connecticut, Georgia, Illinois, Kansas, Louisiana, Massachusetts, Nebraska, North Carolina, North Dakota, Pennsylvania, Puerto Rico, Rhode Island, South Dakota, Vermont, Washington and Wyoming.  You can review the list of included MSB licenses here.

The NMLS MSB Call Report will become active in the system in the first quarter of 2017, with the initial report due May 15, 2017, 45 days after the first quarter end. A Q1 report is expected to contain data collected with respect to licensable activities occurring in adopting jurisdictions between January 1, 2017, and March 31, 2017. Required quarterly reporting includes company level financial condition items, company-wide transactions detail, state transactions detail, and permissible investments reporting. Note the requirements for company-wide transaction detail. A company licensed in one or more of the adopting states must be able to collect company-wide data for submission. Annual requirements, which apply to licensees engaged in foreign money transmission activity, include information regarding all foreign transactions completed during the entire calendar year at a company-wide and state level.

Of concern is the fact that NMLS has not yet provided final XML and data specification files.  Companies should familiarize themselves with the draft data specifications found here. In addition, watch for NMLS-provided training opportunities that are posted on the NMLS Resource Center. It appears that NMLS is continuing to solicit initial feedback on what has been built so far and intends to complete additional user testing in January. Unfortunately for affected companies, not having the complete set of finalized data points in hand now creates a challenge in being prepared to accurately collect the necessary data as of January 1, 2017. MSB-licensed companies should be sure to attend NMLS scheduled online trainings, participate in any subsequent user testing opportunities, and consider attending in-person training that is scheduled to take place in connection with the annual NMLS User Conference and Training in February, so that they can insure that they are prepared to submit the correct data points.

The Strategic Risk Community Banks May Not Have Considered

The Strategic Risk Community Banks May Not Have ConsideredCommunity banks that have not considered the potential for partnership with nonbank financial technology (fintech) companies, alone or in collaboration with other community banks, may not be accounting for the full range of strategic risks to their business.

Strategic Risk Defined and Applied

In a brief but wide-ranging talk before the Annual Community Bankers Symposium on November 18, 2016, Comptroller Thomas J. Curry defined strategic risk as having “the right plan to meet your business goals in your market.” As applied, that means fashioning new questions that examine whether the bank is serving its long-term business model, not simply whether its products are meeting profitability goals. And perhaps the greatest disruption to financial services business models has been the emergence of fintech. Driven by consumer preference and technological innovation, fintech’s potential to upend the industry should prompt each bank to ask itself whether partnering with a nonbank fintech company is necessary to further the bank’s objectives and enhance its customer relationships.

But developing new questions should not b
e as daunting as it sounds. Curry’s definition merely reformulates for the business the OCC’s supervisory strategy for community banks, in which exams are tailored to the “specific risks and particular circumstances of that bank.”

That community banks must consider the sorts of innovations typically associated with their larger cousins is due in part to two other topics addressed in Curry’s talk: the OCC’s responsible innovation initiative, and the OCC’s facilitation of collaboration among community banks.

Responsible Innovation Initiative

The OCC’s responsible innovation initiative has led to the formation of a stand-alone Office of Innovation, including the addition of a Chief Innovation Officer, which will be fully operational early in 2017. Per Curry, the office will function as “the central point of contact and clearinghouse for requests and information related to innovation.”

Perhaps most valuable to community banks will be the new availability of OCC officials outside of formal supervision channels, akin to “office hours.” Still, the office will also educate on innovation-related issues that might ultimately spur collaboration among community banks.

Collaboration among Community Banks

The OCC has encouraged collaboration among community banks, even publishing a guide in January 2015 on the opportunities available through collaboration. Curry revisited two of these opportunities during his talk: cost reductions in overhead related to third-party servicers and complementary business partnerships with nonbank fintech companies.

Of course, collaborating to reduce costs does not relieve community banks from their oversight, monitoring, or control responsibilities over third-parties and the internal structures necessary to accomplish them. Thus, a review and evaluation of existing processes and controls may be a prudent first step for any community bank considering collaboration.

While a fintech partnership may not ultimately align with its strategic plan, any community bank that neglects to evaluate its potential, alone or in collaboration with other banks, risks losing ground to those competitors that have studied the issue and found a way to proceed.