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Scrutiny of OCC sales practice review could change enforcement landscape

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Scrutiny of OCC sales practice review could change enforcement landscape

A major U.S. bank regulator has concluded a review of banks' retail sales practices, suggesting there will not be a wave of enforcement actions. However, industry lawyers and consultants said that could change depending on the political landscape, particularly in the wake of media reports regarding the review.

On June 5, American Banker reported that the Office of the Comptroller of the Currency, which regulates the nation's largest banks, had finished its review of retail sales practices in the wake of the Wells Fargo & Co. scandal. OCC spokesman Bryan Hubbard wrote in an email that the review, which examined sales practices at more than 40 banks, did not find any systemic issues but had "identified some weaknesses" in banks' risk governance frameworks and incentive programs. Hubbard confirmed that the OCC had completed its review.

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Industry lawyers said it is common for regulators to review practices across many banks following a scandal like Wells Fargo's, which featured the unauthorized opening of more than 2 million accounts. The OCC fined Wells Fargo over the issue more than 18 months ago.

"Since there haven't been any enforcement actions to date, one would assume they're taking a quieter approach to resolving it and relying on banks to change internally," said Todd Baker, managing principal of Broadmoor Consulting, an independent consulting firm. "Frankly, the disclosure of this [review] could change that."

While OCC leadership had previously indicated that the review had not uncovered any systemic issues, the American Banker article reported that the OCC has issued 252 matters regarding attention, or MRAs, as part of the review. An MRA can turn into an enforcement action if the bank fails to remedy the issue in a timely fashion.

Democrats have previously pressured OCC Comptroller Joseph Otting over the sales practice review, alleging the OCC has been negligent in implementing changes since the Wells Fargo scandal.

The political landscape could play a role in whether the OCC pursues any enforcement actions regarding sales practices, said John Geiringer, a partner focused on financial regulation for law firm Barack Ferrazzano. He pointed to President Donald Trump's deregulatory agenda as indicative that banking regulators will be less inclined to pursue actions alleging unfair, deceptive or abusive acts or practices, commonly referred to as UDAAP. The Consumer Financial Protection Bureau relied on UDAAP in its September 2016 fine against Wells Fargo over its unauthorized accounts.

"You have to factor in the new politics when thinking about what the agencies may do," Geiringer said.

With Trump appointee Mick Mulvaney as acting director, the CFPB has dropped several enforcement actions and Mulvaney has pledged a narrower focus from the agency. However, Alan Kaplinsky, a partner for law firm Ballard Spahr, said he expects the CFPB will continue to prioritize enforcement actions regarding sales practices even under Mulvaney's leadership. Ultimately, lawyers said that whether regulators pursue enforcement actions over sales practices at other banks will hinge on the facts of each case and on the efficacy of each bank's response to an MRA.

"The regulators really look at the totality of the circumstances when determining the enforcement posture," Geiringer said. He pointed to 2013 guidance from the CFPB indicating that banks can mitigate enforcement investigations by following four factors: proactive self-policing, comprehensive remediation, prompt self-reporting and affirmative cooperation with regulators.

"Unless you are in the bank with the examiners looking at the exam findings, it's difficult to determine in a vacuum whether or not there would be more enforcement actions and of what kind," Geiringer said.

Wells Fargo has struggled to shake the image of a scandal-ridden bank, paying a $1 billion fine in April over allegations of improper fees on mortgage rate locks and charging unnecessary insurance on auto loans. The bank subsequently faced negative publicity following a disclosure that employees had inappropriately altered client data. Broadmoor's Baker said some of those practices are common across the industry, meaning many banks can quietly fix the same issues that have driven negative press for Wells Fargo.

"The intense focus on Wells Fargo has given a free pass to allow other banking players who were doing many of the same things to fix their own houses," Baker said. "Other banks should be breathing a sigh of relief that it's Wells Fargo and not them."