WASHINGTON — Sens. Jerry Moran (R-KS) and Bill Hagerty (R-TN) have introduced legislation they said is aimed at increasing transparency and establishing a more independent appeals process for banks and credit unions challenging regulatory examination findings.
The Senate measure is a companion to FAIR Exams legislation that has passed the House.
According to the senators, the legislation has the backing of financial trade groups, including America’s Credit Unions.
The Fair Audits and Inspections for Regulators’ Exams Act, or FAIR Exams Act, would establish statutory timelines for examinations and examination reports and create an independent process for financial institutions to appeal material supervisory determinations, according to a statement from Moran.
The legislation also would establish a process through which banks and credit unions could obtain binding written guidance from regulators on proposed activities and interpretations of regulations.
‘Critical to Transparent System’
“A fair and effective supervisory examination process for financial institutions is critical to maintaining a healthy and transparent financial system,” Moran said. “This legislation would bring much-needed transparency to the examination process to help make certain all banks, particularly community banks in rural communities, are treated fairly and have access to a rigorous appeals process free from bias.”
What Legislation Seeks to Do
Specifically, the legislation would:
- Require regulatory agencies to provide timely responses to banks and credit unions during the examination process.
- Establish a prudential private letter ruling process allowing financial institutions to obtain binding written guidance from regulators on proposed activities and regulatory interpretations.
- Create a three-member Independent Examination Review Board within the Federal Financial Institutions Examination Council to address examination complaints and procedures.
- Require federal financial institution regulators, upon request, to provide the examination and factual information used to support a material supervisory determination.
- Give financial institutions the right to an independent appeal of material supervisory determinations, including a de novo review by the board, with binding decisions and protections against regulatory retaliation.
Moran said the changes would be particularly beneficial to smaller financial institutions by providing greater clarity and faster examination results.
Bank Trade Groups Express Support
Independent Community Bankers of America President and CEO Rebeca Romero Rainey said in a statement distributed by Moran’s office that the legislation would provide due process for banks appealing supervisory decisions and promote greater trust and accountability.
“By establishing an Office of Independent Examination Review within the FFIEC to review material supervisory determinations, the FAIR Exams Act will help ensure checks and balances within the supervisory bank examination process in support of a healthy and transparent financial system,” Rainey said.
American Bankers Association President and CEO Rob Nichols said the legislation would “improve transparency in the examination process and increase accountability for examiners.”
“This important legislation will make the examination process fairer and ultimately contribute to a stronger financial system,” Nichols said in a statement.
The U.S. Chamber of Commerce also endorsed the measure, saying it would establish a more even-handed supervisory process, require examination reports to be issued more quickly and provide an independent review and appeals process for disputes between financial institutions and regulators.
Consumer Bankers Association President and CEO Lindsey Johnson called the proposal “commonsense legislation” that would bring greater transparency, accountability and consistency to examinations.
“Establishing an independent review mechanism and reasonable timelines for examination findings will give financial institutions greater confidence that supervisory decisions are fair, timely, and impartial,” Johnson said.
