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Safety and Soundness

Final FDIC Guidance regarding Deposit Advance Products

The FDIC has issued final guidance for state chartered banks regarding deposit advance products.  We previously mentioned the proposed guidance and discussed applicable risks in connection with our first of two blog entries regarding changes to Missouri law that may now make deposit advance products more appealing.

Regulatory Alert – Examiners are Taking a Close Look at Interest Rate Risk

The news is rolling in from both banks and regulators — interest rate risk (“IRR”) will be a primary focus of upcoming safety and soundness examinations. In the current market of tight net interest margins and slow loan growth, regulators are concerned that banks may begin reaching for higher yields in the form of longer-term assets. This concern could be well-founded given the strong forces that are creating incentives on both sides of the closing table.

Deposit Advance Products are Now Available to Missouri Banks . . . But Mind Your Regulatory Ps & Qs

Missouri’s Senate Bill 254, which will become effective on August 28, 2013, will permit Missouri banks to charge the lesser of $75 or ten percent of the loan amount on short-term, direct deposit cash advance products. Although existing Missouri law already allows state-chartered banks to offer similar products, the fees in relation to those short-term loans were previously capped at the lesser of $25 or five percent of the loan. Due to the lower fee cap, most Missouri banks did not offer these products, presumably because the potential fees did not compensate for the related risks.

How to Handle Data Security Breaches & Internet Fraud Losses

Elizabeth Fast will be speaking on the subject of data security breaches and internet fraud losses at the  4th Annual MIBA Security Conference in Columbia, MO on September 25, 2013.

Examiners Take a Comprehensive Approach to Reviewing Executive Compensation

An increasing number of our community bank clients report that regulators are focusing significant examination effort on compensation policies and the related risk-assessments and controls. By now, most bankers are aware of the Consumer Financial Protection Bureau’s (“CFPB”) new rules regarding mortgage loan originator compensation that will go into effect in January of 2014. Banks that make residential mortgage loans will likely be reviewing their compensation policies with an eye toward compliance with those regulations long before the effective date. But even now, months before those rules go into effect, examiners are taking a much broader look at bank compensation policies – not just focusing on mortgage loan originators and consumer compliance, but also on a bank’s overall risk-assessments and controls related to all types of incentive compensation. Accordingly, as you think about reviewing mortgage compensation for compliance with the new CFPB rules, we encourage you to expand your review to incorporate the more comprehensive risk-assessment and mitigation components that your safety and soundness examiners will be looking for.

Reducing the Bank’s Liability for Internet and Electronic Fraud Losses

Internet and electronic fraud losses are increasing drastically for financial institutions.  Although the fraudster has ultimate liability for the fraud loss, the fraudster rarely can be found so the liability for the fraud loss generally is shifted to the bank.  This article explains how the bank can reduce its liability for Internet and electronic fraud losses with respect to commercial accounts if the bank utilizes reasonable security procedures and a properly drafted agreement with its customer.

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