Over the past year, Guidehouse has observed an increasing trend in state regulatory activities. With several large-scale actions collaboratively enforced by multiple states, non-federal regulators are actively collaborating with each other and filling the gaps in today’s federal regulatory landscape. Starting this quarter, Guidehouse will include more detailed reporting of state actions to assist financial institutions in gaining a better and deeper understanding of state activity.

A total of 24 actions were levied by federal regulators in Q1 2019. The number of regulatory enforcement actions decreased 47% from Q4 2018 and was driven primarily by a decrease in activities from the Federal Deposit Insurance Corporation (FDIC). 

The five major federal regulators issued 88% of total federal enforcement actions this quarter, with seven from the FDIC, five from the Office of the Comptroller of Currency (OCC), four from the Consumer Financial Protection Bureau (CFPB), four from the Department of Justice (DOJ), and one from the Federal Reserve Bank (FED). Among these federal regulators, the FED had its lowest number of actions in a single period observed over the past five quarters.

Federal Actions Highlights from Q1 2019:

Actions by Regulators

• A total of 24 federal level regulatory actions were observed this period. Compared to 45 federal actions in the last quarter and 38 federal actions in Q1 2018, the current quarter is a 47% decrease since last quarter, and a 37% decrease from Q1 2018.
• In Q1 2019, there were 21 actions levied by the five main federal regulators, including CFPB, OCC, FDIC, FED, and DOJ. The number is a 36% decrease since last quarter, and a 34% decrease compared to Q1 2018.
• The Q1 2019 decrease was primarily driven by lower activity from the FDIC. A total of seven actions were levied by the FDIC in Q1 2019, which is a 46% decrease since last quarter, and a 30% decrease compared to Q1 2018.

Actions by Action Types

• Formal Agreement or Consent Order is the most frequently used action type for federal regulators to enforce regulatory requirements. In Q1 2019, 19 actions involved Formal Agreement or Consent Order, composing nearly 80% of the 24 federal actions.

Actions by Cited Regulations

• Unfair, Deceptive, or Abusive Acts or Practices was the area of law that was cited the most during the quarter, with a total of four actions, or 17% of total Q1 2019 federal actions. It is also the second most frequently cited area of law in federal actions during the past five quarters, with a total of 23 citations accounting for nearly 12% of the total 199 observed regulatory citations.
• Bank Secrecy Act/Anti-Money Laundering Act-related violations were the area of law that was cited the second most frequently during this quarter, with a total of three citations, or 13% of the total Q1 2019 federal level enforcement actions.

Actions by Business Area

• Two federal actions in the quarter were related to closed-end mortgage origination and mortgage servicing, with one bank had control weakness in loan pricing programs and failed to provide eligible customers with credits to closing costs or interest rate reduction, and the other leading mortgage servicing company unlawfully foreclosed service members’ homes.

Monetary Penalty by Violation Types

• In the past five consecutive quarters, improper mortgage loan practice has been the source of the highest amount of associated monetary penalties enforced by federal regulators, with over $10 billion enforced, most of which relates to a carryover from the credit crisis related to loan underwriting and securitizing/issuance of Residential Mortgage Backed Securities.  
• A total of 44 actions over the past five quarters involved governance deficiencies, making it the source of the highest number of occurrences with over $724 million in fines or penalties.

Special thanks to contributors Caitlin Cremin and Siwen Tang.