LEGAL


Denial of Due Process Muddles Supervision By Keith Thornburg, Vice President and General Counsel


In the last issue, I addressed the abuse of power at federal agencies that arises from the concentration of legislative, executive and judicial power in a single agency or official. When this happens, regulated banks and businesses are denied due process because a single official acts as judge, jury and prosecutor.


Tis concentration of power also leads to muddled supervision. In the absence of due process, supervisory decisions are made without the benefit of notice and hearing. Tere can be no fair treatment; only one-sided and unbalanced decisions and enforcement occur. Policy issues are determined strictly on partisan divides. Policy can change with administrations, increasing costs and business risks that chill investment and innovation.


Without the discipline and fair process that adhering to due process ensures, regulatory policy and decisions are never tempered by the realities of the human condition or the invisible hand of free markets. Tis leads to market failure as people and businesses adapt to poorly vetted policies and decisions.


Without due process, bankers and customers fall prey to a state of bewilderment, confusion and disorder as they are subjected to regulatory directives lacking common sense and solid legal footings. Te poor outcomes oſten trigger more dysfunction as unchecked agencies double down on poor decisions.


Meaningful due process promotes diligent decision-making and logical outcomes that benefit banks and their customers; it brings consistency and durability to decisions and policies leading to market stability. Market participants know the rules in a stable system and invest and buy accordingly.


MBA protested the Federal Deposit Insurance Corporation’s supervisory approach to nonsufficient funds fees for represented items in a July 20 letter to the FDIC board. FDIC reacted to breach of contract claims by class action trial attorneys by adopting positions that NSF fees are “deceptive” and “unfair,” particularly if NSF fees are applied to each return of an item that is represented more than once against insufficient funds.


Congress established the Federal Deposit Insurance Agency to maintain stability and confidence in the nation’s financial system by ensuring banks operate in a safe, sound condition. Consumer protection gained prominence in the 1970s with the enactment of various consumer disclosure and anti- discrimination laws. Today, compliance has further evolved under concepts of diversity and inclusion.


Te FDIC is governed by a five-person board. However, the FDIC currently has only three members — FDIC Acting Chairman Martin Gruenberg, Acting Comptroller of the Currency Michael Hsu and Rohit Chopra, director of the Consumer Financial Protection Bureau. In this unbalanced state, the FDIC issued its March 2022 Consumer Compliance Supervisory Guidance that includes a one-sided perspective that multiple NSF fees are deceptive and unfair. Te corporation suggests banks eliminate NSF fees entirely or limit the NSF fee to one per item. Te latter option will require banks and core vendors to incur substantial costs related to a relatively small number of transactions.


Te FDIC never addresses the threat to bank safety and soundness or to the integrity of payment systems presented by customers who imprudently or deliberately overdraw their accounts. Te FDIC does not address the risk and losses this activity presents for banks and for merchants — and the status of NSF fees as a deterrent risk and loss activity or to negligent or fraudulent conduct by account holders. Tus, the FDIC abdicates its duty to consider the stability and public confidence in the nation’s financial system, electing to follow the one-sided perspective of trial attorneys.


It has also come to light that FDIC regional offices are citing Level 3 violations related to multiple NSF fees rather than addressing changes prospectively. Implementation of policy by examination with concurrent enforcement by examination is no substitute for due process and proactive supervision that ensures fair, deliberate and fully vetted informed decisions.


THE MISSOURI BANKER 9


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