By: Andrew Caplan* and Stephanie C. Robinson
*Mr. Caplan is not yet admitted to practice; admission to the NY Bar pending.
The Dodd-Frank Act gives the CFPB exclusive supervisory authority and primary enforcement authority of federal consumer financial protection laws over depository institutions with total assets greater than $10 billion and their affiliates (“Large Institutions”). Under Dodd-Frank, the federal banking agencies maintain supervisory and enforcement authority over other institutions with respect to federal consumer financial protection laws. On November 17, 2011, the federal banking agencies and the CFPB issued a joint supervisory statement delineating how and when these Agencies will determine the total assets of an insured depository institution or an insured credit union for purposes of their supervisory and enforcement responsibilities. This is because sections 1025 and 1026 Dodd-Frank, which establish the basic threshold regarding who will regulate whom, do not specify how and when an institution’s assets are assessed for purposes of determining “Large Institution” status. That task was left to the Agencies themselves to determine.
According to the supervisory statement, the Agencies will assess an institution’s quarterly Call Report data as of June 30, 2011 to determine whether that institution has $10 billion in total assets. If an institution’s Call Report data later indicate that the institution has either shifted above or below the $10 billion threshold for four consecutive quarters, then that Institution will be reclassified for purposes of supervision and enforcement of federal consumer financial protection laws during the next quarter. For an acquisition, merger, or combination occurring after June 30, 2011, where each of the institutions has total assets of $10 billion or less before the transaction, the Agencies will review the combined assets for the four quarters prior to the transaction to determine if the resulting institution is a “Large Institution.” If the resulting institution is determined to be a “Large Institution,” then the CFPB will become the institutions’ primary regulator of federal consumer financial protection laws during the next full quarter after consummation of the transaction.
While this guidance clarifies the timing and manner for determining an institution’s asset size, it creates a large measure of regulatory uncertainty with respect to certain institutions. In particular, institutions whose assets hover around the $10 billion watermark could be subject to a changing primary regulator of federal consumer financial protection laws on an annual basis. For example, an institution that has $11 billion in assets on June 30, 2011, followed by four quarters of assets below $10 billion, would be subject to changing regulatory oversight within the span of shortly over one year. As a result, institutions with assets at around $10 billion (or institutions that contemplate a merger or acquisition that would put them into this category) may have to prepare themselves for compliance with multiple Agency interpretations. In short, while compliance with a particular Agency’s interpretations may be good business one year, it may be futile the next.