First impressions are not always reliable, and financial institutions need to pay close attention to recent federal agency action increasing civil money penalty (CMP) maximums, which carries greater significance than might initially seem apparent. Taking effect August 1, 2016, not only is the magnitude of these inflation-based adjustments striking, but the list of violations has also been augmented.
- CMPs will increase for banks, thrifts, and other financial institutions, including check cashers and money transmitters;
- The initial increases are dramatic in amount and accompanied by the addition of new and previously unlisted laws carrying CMPs; and
- These actions demonstrate the agencies’ resolve to enforce discipline and compliance with the law by maintaining the deterrent effect of CMPs. (Please see our last client alert for a review of updated CMP assessment standards.)
In coordination, though not jointly, the Consumer Financial Protection Bureau (CFPB), the Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC)1 have adopted regulations2 that implement the directive under the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. This directive calls for the adjustment, at least every four years, of the maximum amount or the minimum-maximum range for each CMP authorized by the laws they administer. This initial action is a “catch-up” adjustment meant to bring all CMP’s into line with long-term inflation.
Although the catch-up is capped at 150 percent of each CMP charged as of November 2015, the adjustment often yields maximum CMP amounts that, when compared to the maximum originally prescribed in authorizing law, rise to nearly double, and in some instances even more. To give a concrete sense of dimension, a large number of the earliest CMP statutes that carry three-tiered penalties geared to levels of severity and intent will have risen from their original maximums of $5,000, $25,000 and $1 million to $9,468, $47,340 and $1,893,610 respectively. Future increases will be capped at 10 percent.
CMP maximum amounts are presented in charts listing all applicable laws within the jurisdiction of the issuing agency. Jurisdiction of most of these laws is shared among the agencies, and where a law is replicated, the CMP calculations are identical.
Importantly, however, some noteworthy changes have been made. The OCC and FDIC have expanded their existing charts to include a new law (originating from the Dodd-Frank Act) that authorizes CMPs when creditors making home mortgage loans violate agency regulations covering appraiser independence requirements.3 Beyond that addition, the OCC and the FDIC have included existing but previously unlisted CMPs for refusal by any affiliate to permit an examiner to make an examination of such affiliate or to provide any information required in the course of such an examination., The OCC has also added three previously unlisted federal savings association CMPs covering, respectively, negotiable instrument withdrawal and transfer restrictions, certain anti-tying restrictions and various securities law provisions.
The agencies are explicit in announcing the purpose of these actions. Regular adjustments for inflation are intended to maintain the deterrent effect of CMPs, promote compliance with the law and improve Federal Government collection of CMPs. Accordingly, all institutions, their board members, officers and contractors should see this as an unmistakable signal of the intensifying resolve on the part of their regulators to impose discipline throughout the financial services industry.