Overview
Title
To amend the Federal Financial Institutions Examination Council Act of 1978 to improve the examination of depository institutions, and for other purposes.
ELI5 AI
H.R. 940 is called the "FAIR Exams Act," and it wants to make sure banks get checked on time and fairly, allowing them to ask for a second opinion if they think something is wrong, and making sure they don’t get in trouble for speaking up.
Summary AI
H.R. 940, known as the “FAIR Exams Act,” aims to enhance the process of examining depository institutions under the Federal Financial Institutions Examination Council Act of 1978. It introduces strict timelines for delivering examination reports and establishes an Office of Independent Examination Review to handle complaints and appeals about examination practices. The bill also allows financial institutions to seek an independent review of important supervisory decisions made in examination reports and ensures protection against retaliation for exercising appeal rights. Additionally, it makes several amendments to related acts to ensure consistent oversight and examination procedures.
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AnalysisAI
Summary of the Bill
The bill, titled the "Fair Audits and Inspections for Regulators’ Exams Act" or the "FAIR Exams Act," aims to amend the Federal Financial Institutions Examination Council Act of 1978. The primary intention is to enhance the examination process for depository institutions. Key components include setting deadlines for examination reports, establishing an Independent Examination Review Office, and providing rights for financial institutions to seek independent reviews of supervisory determinations. Also included are updates to related federal acts to reflect these changes.
Significant Issues
One major issue identified in the bill is the lack of a clear definition for what constitutes a "material supervisory determination." Without this clarity, financial institutions and regulators may face ambiguity when determining which scenarios qualify for independent review, potentially leading to inconsistencies and disputes.
The bill requires that regulatory agencies provide final examination reports within a fixed timeframe, but it does not specify consequences if timelines are not met, raising concerns about accountability and timely compliance.
The establishment of the Office of Independent Examination Review brings an increase in staffing and costs. There are no specific limitations outlined, which could lead to financial inefficiencies. Additionally, the funding mechanism dividing costs equally among agencies may place an undue burden on smaller regulatory bodies.
Confidentiality requirements are stringent, potentially hindering transparency and public accountability. While confidentiality is critical, there may be ethical concerns about how much information is accessible to the public and stakeholders.
The removal of the established regulatory appeals process under the existing legal framework could decrease oversight and limit redress options for financial institutions, possibly leading to unfair regulatory actions.
Impact on the Public
Broadly, this bill seeks to create a more structured and transparent environment for financial institutions undergoing regulatory examination. The defined timelines aim to foster efficiency and reliability in financial oversight, potentially leading to more stable financial practices that benefit the general public as consumers and investors.
By establishing an independent review process, the bill could enhance fairness and accountability in regulatory actions. This might positively influence public perception of financial institutions as operating under fair scrutiny, promoting trust in the financial system.
However, increased costs associated with staffing the new Office and potential inefficiencies in the appeals process could indirectly impact consumers through increased costs passed down by financial institutions.
Impact on Specific Stakeholders
Financial Institutions: These institutions stand to benefit from a more standardized and fair examination process. The right to appeal and seek independent review could protect them from arbitrary or unfair regulatory decisions. However, the absence of stringent consequences for non-compliance with timeline requirements by regulatory agencies could reduce the effectiveness of these protections.
Regulatory Agencies: The new requirements might strain resources, especially for smaller agencies, due to the equal cost-sharing mandate and increased workload to meet new deadlines and processes. The lack of clear guidelines and potential financial burdens might challenge smaller regulatory bodies.
Consumers and the Public: Consumers might see positive impacts through increased transparency and fairness in financial regulation. Consistency and accountability in regulatory examinations can create a more trustworthy financial environment, benefiting consumers. However, potential increases in costs for financial institutions could trickle down to consumers, particularly if institutions pass on these costs through fees or other charges.
Overall, while the FAIR Exams Act aims for greater fairness and accountability in financial institution examinations, the bill's effectiveness will largely depend on how ambiguities and logistical issues are addressed in practice.
Issues
The definition and application of 'material supervisory determination' are not specified in Sections 1012, 1013, 1014, which could lead to ambiguity, inconsistencies, and potential disputes regarding what qualifies for review.
Section 1012 and 1013 lack specific consequences for regulatory agencies that fail to meet the required timelines for providing final examination reports and conducting exit interviews, reducing accountability for timely compliance.
The provision in Section 1013 allowing the Independent Examination Review Director to hire staff without specific limitations might lead to excessive staffing and increased costs, which could be a financial burden.
The funding mechanism in Section 1013, which equally divides costs among regulatory agencies, might not be equitable given the varying sizes and capabilities of these agencies, potentially disadvantaging smaller agencies.
The confidentiality requirements in Section 1013 might limit the necessary transparency and public accountability, which may raise ethical concerns regarding transparency in financial regulatory practices.
Section 1014 does not explicitly define deadlines for the completion of the independent review process, potentially leading to prolonged procedures and lack of clarity for financial institutions.
The potential implications of the changes in Section 5 regarding the removal of the regulatory appeals process could reduce oversight and redress options for financial institutions, which may raise concerns about fairness in regulatory actions.
The lack of specified penalties or enforcement mechanisms in Section 1014 for prohibited retaliation by federal agencies might lead to ineffective protection for financial institutions exercising their appellate rights.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of the act states the short title, which is the “Fair Audits and Inspections for Regulators’ Exams Act” or the “FAIR Exams Act.”
2. Timeliness of examination reports Read Opens in new tab
Summary AI
The section mandates that federal regulatory agencies must deliver a final examination report to a financial institution within 60 days after the exit interview or receiving additional information. For institutions not in a resident examiner program, the exit interview should happen within nine months of the examination, unless extended with a written explanation. Upon request, agencies should also provide a list of the factual information used in their report.
1012. Timeliness of examination reports Read Opens in new tab
Summary AI
The section outlines that a final examination report must be provided to a financial institution within 60 days after the exit interview or after the institution provides additional relevant information. The exit interview should happen within 9 months of starting the examination unless extended with a written explanation. Upon request, the agency must include an appendix with all the information used to support the findings in the report.
3. Independent Examination Review Director Read Opens in new tab
Summary AI
The provided section establishes an Office of Independent Examination Review within the Federal Financial Institutions Examination Council. It details the role of an Independent Examination Review Director, who will be appointed by the President, to oversee complaints and ensure fair examination practices for financial institutions, while also maintaining confidentiality of the information involved.
1013. Office of independent examination review Read Opens in new tab
Summary AI
The Office of Independent Examination Review is created to oversee financial institution examinations. The Director, appointed by the President and approved by the Senate, can hire staff and receives funding from various financial regulatory agencies. The Office investigates complaints, holds quarterly meetings across the U.S., ensures examination policies are followed, conducts quality assurance, independently reviews appeals, and reports annually to Congress while maintaining confidentiality.
4. Right to independent review of material supervisory determinations Read Opens in new tab
Summary AI
The section grants financial institutions the right to seek an independent review if they disagree with a material supervisory decision made by an agency. It outlines the process for requesting a review, including timelines, the right to a hearing, and the ability to appeal the final decision in court. It also prohibits any retaliatory actions against institutions exercising their appellate rights.
1014. Right to independent review of material supervisory determinations Read Opens in new tab
Summary AI
A financial institution can request an independent review if they disagree with important decisions made in a final examination report. They must notify the review director within 60 days, and the case may involve a hearing with an administrative law judge. The final decision considers independent judgment rather than automatically trusting the agency's original assessment. Institutions also have 60 days to take the case to court after the agency's final decision, and agencies are forbidden from retaliating against institutions that use this appeals process.
5. Additional amendments Read Opens in new tab
Summary AI
The section amends several acts to modify regulatory procedures and agency designations. Specifically, it streamlines the ombudsman process, addresses retaliation concerns, updates wording in the Federal Credit Union Act, and adds the Bureau of Consumer Financial Protection to the list of recognized bodies in existing laws.