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The Examiner’s Role in Developing The Examiner’s Role in Developing the Fair Lending Casethe Fair Lending Case

Debra Pearlman, FLEX

JoAnna Gekas, Counsel

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Course ObjectivesCourse Objectives

Recognize formal/informal enforcement Recognize formal/informal enforcement actionsactions

Identify potential fair lending (FL) concerns Identify potential fair lending (FL) concerns Use effective interview techniques, and Use effective interview techniques, and

appropriately document findingsappropriately document findings Recognize the importance of Legal’s Recognize the importance of Legal’s

involvement in fair lending reviewsinvolvement in fair lending reviews Determine the type of evidence needed to Determine the type of evidence needed to

support a FL violationsupport a FL violation Discuss your role in the enforcement processDiscuss your role in the enforcement process

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Background on Formal and Background on Formal and Informal Enforcement ActionsInformal Enforcement Actions

Dual Enforcement JurisdictionDual Enforcement Jurisdiction Informal Enforcement Actions Informal Enforcement Actions Formal Enforcement ActionsFormal Enforcement Actions

Dual Enforcement JurisdictionDual Enforcement Jurisdiction

Enforcement authority pursuant to Enforcement authority pursuant to ECOAECOA

Mandatory referral to DOJ for pattern Mandatory referral to DOJ for pattern or practice of ECOA violationsor practice of ECOA violations

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Informal Enforcement ActionsInformal Enforcement Actions

Case presents supervisory concern Case presents supervisory concern not warranting formal actionnot warranting formal action

– Board ResolutionBoard Resolution

– Memorandum of UnderstandingMemorandum of Understanding

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ConsiderationsConsiderations

Attitude of bank managementAttitude of bank management Whether the violations or objectionable Whether the violations or objectionable

practices are:practices are:– intentional intentional – repetitiverepetitive– substantivesubstantive– numerousnumerous

Institution’s history of corrective actionsInstitution’s history of corrective actions Corrective actions, remediation and preventive Corrective actions, remediation and preventive

procedures already initiatedprocedures already initiated

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Formal Enforcement ActionsFormal Enforcement Actions

PurposePurpose– Usually reserved for institutions Usually reserved for institutions

where FDIC finds:where FDIC finds:Unsafe or unsound banking practicesUnsafe or unsound banking practicesViolations of law or regulationViolations of law or regulationViolations of orders, or where breaches Violations of orders, or where breaches

of fiduciary duty have occurredof fiduciary duty have occurred

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Types of Formal Enforcement ActionsTypes of Formal Enforcement Actions

Section 8 (b) (1) – cease and Section 8 (b) (1) – cease and desist orderdesist order

Section 8(i) – civil money penalty Section 8(i) – civil money penalty Section 8(b)(6) – restitutionSection 8(b)(6) – restitution

§ 8 (b) Cease & Desist Order§ 8 (b) Cease & Desist Order

FDIC may require any bank to desist from FDIC may require any bank to desist from unsafe and unsound practices, violations of unsafe and unsound practices, violations of law or regulation, or violations of pre-existing law or regulation, or violations of pre-existing ordersorders

FDIC may also require affirmative action to FDIC may also require affirmative action to correct conditions resulting from said unsafe correct conditions resulting from said unsafe and unsound practices and/or violations of and unsound practices and/or violations of law or regulationlaw or regulation

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§ 8(i)(2) – Civil Money Penalties§ 8(i)(2) – Civil Money Penalties

Tier 1 – up to $6,500 per dayTier 1 – up to $6,500 per dayTier 2 – up to $32,500 per dayTier 2 – up to $32,500 per dayTier 3 - $1.25MM or 1% of the Tier 3 - $1.25MM or 1% of the

institution’s total assets per dayinstitution’s total assets per day

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Civil Money Penalties FactorsCivil Money Penalties Factors

To set the CMP, consider:To set the CMP, consider:Gravity of violationGravity of violationHistory of previous violationsHistory of previous violationsAbility to payAbility to payWhether restitution has been Whether restitution has been

mademade

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§ 8(b)(6) - Restitution§ 8(b)(6) - Restitution

FDIC may order restitution if the:FDIC may order restitution if the: Institution was unjustly enriched by Institution was unjustly enriched by

reason of the violation or practice, orreason of the violation or practice, orViolation or practice involved reckless Violation or practice involved reckless

disregard for the law or applicable disregard for the law or applicable regulations or a prior orderregulations or a prior order

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