WASHINGTON — The Office of the Comptroller of the Currency has revised its policy for civil monetary penalties, expanding the agency's discretion to levy fines and its ability to impose restrictions to culpable lenders' business activities.
The policy, published Nov. 29 and slated to go into effect on Jan. 1, informs the OCC's use of civil monetary policies, or CMPs, as part of its enforcement activity. CMPs are classified into three tiers depending on their severity. For the first two tiers of violations, the agency uses its CMP "matrices" to grade the severity of the offenses and guide penalty assessments; so-called Tier 3 CMPs, by contrast, are reserved for "only in the most severe cases that have a substantial impact on the federal banking system."
Under the revised CMP manual, the matrices will factor in total bank assets when calculating penalties. Under the prior policy, the manual's CMP matrix applied the same matrices to all banks with more than $100 billion of assets. The revised matrices now differentiate between banks with assets of $100 billion to $500 billion, $500 billion to $1 trillion and those with $1 trillion or more in total assets, with larger banks facing higher maximum civil penalties than smaller ones.
For example, a violation by the biggest banks (with over $1 trillion of total assets) given a rating of 140 points under the matrix would previously have warranted a maximum fine of $150 million. That same matrix rating under the new guidelines would now result in a maximum fine of $400 million — more than doubling a larger bank's potential penalty.
Though the new rules more explicitly correlate penalty amounts with bank size, Nikhil V. Gore of the law firm Covington & Burling said that the OCC has effectively been taking size into account for some time.
"The CMP matrix has not always been a reliable guide to OCC penalty amounts," Gore said. "Certain of the increased penalty ranges may be intended in part to align the manual to recent OCC practice."
In addition to the revised penalty matrices, the OCC clarified its authority to restrict a bank's business activities as part of a CMP. The agency said this authority might be invoked "when, for example, the institution has failed to make effective or sustainable progress on corrective actions despite a prior enforcement action or CMP assessment or has widespread or systemic deficiencies that require curtailing growth or expansion into new products or services."
Tuesday's updated manual also expanded upon criteria for assessing a bank's response to an identified violation. Under the previous guidelines , the regulator exercised leniency to banks that demonstrated "good faith" cooperation and restitution provided. The updated language specifies that any leniency in leveling penalties depends on an institution's ability to provide prompt self-identification, remediation and restitution.
Acting Comptroller Michael Hsu said in a statement that the recently unveiled guidance will empower the agency to level adequate penalties for bank misconduct more effectively.
It "will help ensure that the civil money penalty is tailored to the facts and circumstances of each violation, and the updated mitigating factors will help ensure that the underlying problems are resolved in a timely manner," Hsu said.
The move was praised by consumer advocates, who said the changes were a valuable tool to provide more tailored disciplinary measures.
Ed Mierzwinski, senior director of the Federal Consumer Program at the Public Interest Research Group, said the changes rightly focus on banks' asset size as a critical factor in determining civil penalties.
"The OCC changes to the CMP matrix recognize the importance of larger banks to our financial system and the concomitant need to hold larger banks and their executives more accountable," Mierzwinski said.
But he cautioned that time will tell as to whether the changes would have the ultimate desired effect of deterring banks from engaging in consumer-harming behavior.
"I'd need more time to study the increased weighting of the mitigating factors matrix to game out the results any further," Mierzwinski said. "As a consumer group, we want to see more and larger CMPs to deter non-compliance."
