II 

113TH CONGRESS 

1ST SESSION S. 727 

To improve the examination of depository institutions, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 15, 2013 

Mr. MORAN (for himself and Mr. MANCHIN) introduced the following bill; 

which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To improve the examination of depository institutions, and 

for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Financial Institutions 

5 Examination Fairness and Reform Act’’. 

6 SEC. 2. TIMELINESS OF EXAMINATION REPORTS. 

7 The Federal Financial Institutions Examination 

8 Council Act of 1978 (12 U.S.C. 3301 et seq.) is amended 

9 by adding at the end the following: 


tjames on DSK6SPTVN1PROD with BILLS
2 

•S 727 IS

1 ‘‘SEC. 1012. TIMELINESS OF EXAMINATION REPORTS. 

2 ‘‘(a) IN GENERAL.— 

3 ‘‘(1) FINAL EXAMINATION REPORT.—A Federal 

4 financial institutions regulatory agency shall provide 

5 a final examination report to a financial institution 

6 not later than 60 days after the later of— 

7 ‘‘(A) the exit interview for an examination 

8 of the institution; or 

9 ‘‘(B) the provision of additional informa10 tion by the institution relating to the examina11 tion. 

12 ‘‘(2) EXIT INTERVIEW.—If a financial institu13 tion is not subject to a resident examiner program, 

14 the exit interview shall occur not later than the end 

15 of the 9-month period beginning on the commence16 ment of the examination, except that such period 

17 may be extended by the Federal financial institu18 tions regulatory agency by providing written notice 

19 to the institution and the Office of Examination 

20 Ombudsman describing with particularity the rea21 sons that a longer period is needed to complete the 

22 examination. 

23 ‘‘(b) EXAMINATION MATERIALS.—Upon the request 

24 of a financial institution, the Federal financial institutions 

25 regulatory agency shall include with the final report under 

26 this section an appendix listing all examination or other 


tjames on DSK6SPTVN1PROD with BILLS
3 

•S 727 IS

1 factual information relied upon by the agency in support 

2 of a material supervisory determination.’’. 

3 SEC. 3. EXAMINATION STANDARDS. 

4 (a) IN GENERAL.—The Federal Financial Institu5 tions Examination Council Act of 1978 (12 U.S.C. 3301 

6 et seq.), as amended by this Act, is amended by adding 

7 at the end the following: 

8 ‘‘SEC. 1013. EXAMINATION STANDARDS. 

9 ‘‘(a) IN GENERAL.—In the examination of financial 

10 institutions— 

11 ‘‘(1) a commercial loan shall not be placed in 

12 non-accrual status solely because the collateral for 

13 such loan has deteriorated in value; 

14 ‘‘(2) a modified or restructured commercial loan 

15 shall be removed from non-accrual status if the bor16 rower demonstrates the ability to perform on such 

17 loan over a maximum period of 6 months, except 

18 that with respect to loans on a quarterly, semi19 annual, or longer repayment schedule such period 

20 shall be a maximum of 3 consecutive repayment pe21 riods; 

22 ‘‘(3) a new appraisal on a performing commer23 cial loan shall not be required unless an advance of 

24 new funds is involved; and 


tjames on DSK6SPTVN1PROD with BILLS
4 

•S 727 IS

1 ‘‘(4) in classifying a commercial loan in which 

2 there has been deterioration in collateral value, the 

3 amount to be classified shall be the portion of the 

4 deficiency relating to the decline in collateral value 

5 and repayment capacity of the borrower. 

6 ‘‘(b) WELL CAPITALIZED INSTITUTIONS.—The Fed7 eral financial institutions regulatory agencies may not re8 quire a financial institution that is well capitalized to raise 

9 additional capital in lieu of an action prohibited under 

10 subsection (a). 

11 ‘‘(c) CONSISTENT LOAN CLASSIFICATIONS.—The 

12 Federal financial institutions regulatory agencies shall de13 velop and apply identical definitions and reporting require14 ments for non-accrual loans.’’. 

15 (b) DEFINITION OF MATERIAL SUPERVISORY DE16 TERMINATION.—Section 309(f)(1)(A) of the Riegle Com17 munity Development and Regulatory Improvement Act of 

18 1994 (12 U.S.C. 4806(f)(1)(A)) is amended— 

19 (1) in clause (ii), by striking ‘‘and’’ at the end; 

20 and 

21 (2) by inserting after clause (iii) the following: 

22 ‘‘(iv) any issue specifically listed in an 

23 exam report as a matter requiring atten24 tion by the institution’s management or 

25 board of directors; and’’. 


tjames on DSK6SPTVN1PROD with BILLS
5 

•S 727 IS

1 SEC. 4. EXAMINATION OMBUDSMAN. 

2 (a) IN GENERAL.—The Federal Financial Institu3 tions Examination Council Act of 1978 (12 U.S.C. 3301 

4 et seq.), as amended by this Act, is amended by adding 

5 at the end the following: 

6 ‘‘SEC. 1014. OFFICE OF EXAMINATION OMBUDSMAN. 

7 ‘‘(a) ESTABLISHMENT.—There is established in the 

8 Council an Office of Examination Ombudsman. 

9 ‘‘(b) HEAD OF OFFICE.—There is established the po10 sition of the Ombudsman, who shall serve as the head of 

11 the Office of Examination Ombudsman, and who shall be 

12 hired separately by the Council and shall be independent 

13 from any member agency of the Council. 

14 ‘‘(c) STAFFING.—The Ombudsman is authorized to 

15 hire staff to support the activities of the Office of Exam16 ination Ombudsman. 

17 ‘‘(d) DUTIES.—The Ombudsman shall— 

18 ‘‘(1) receive and, at the Ombudsman’s discre19 tion, investigate complaints from financial institu20 tions, their representatives, or another entity acting 

21 on behalf of such institutions, concerning examina22 tions, examination practices, or examination reports; 

23 ‘‘(2) hold meetings, at least once every three 

24 months and in locations designed to encourage par25 ticipation from all sections of the United States, 

26 with financial institutions, their representatives, or 


tjames on DSK6SPTVN1PROD with BILLS
6 

•S 727 IS

1 another entity acting on behalf of such institutions, 

2 to discuss examination procedures, examination 

3 practices, or examination policies; 

4 ‘‘(3) review examination procedures of the Fed5 eral financial institutions regulatory agencies to en6 sure that the written examination policies of those 

7 agencies are being followed in practice and adhere to 

8 the standards for consistency established by the 

9 Council; 

10 ‘‘(4) conduct a continuing and regular program 

11 of examination quality assurance for all examination 

12 types conducted by the Federal financial institutions 

13 regulatory agencies; 

14 ‘‘(5) process any supervisory appeal initiated 

15 under section 1015 or section 309(e) of the Riegle 

16 Community Development and Regulatory Improve17 ment Act of 1994; and 

18 ‘‘(6) report annually to the Committee on Fi19 nancial Services of the House of Representatives, the 

20 Committee on Banking, Housing, and Urban Affairs 

21 of the Senate, and the Council, on the reviews car22 ried out pursuant to paragraphs (3) and (4), includ23 ing compliance with the requirements set forth in 

24 section 1012 regarding timeliness of examination re25 ports, and the Council’s recommendations for imVerDate Mar 15 2010 01:50 Apr 20, 2013 Jkt 029200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S727.IS S727

tjames on DSK6SPTVN1PROD with BILLS
7 

•S 727 IS

1 provements in examination procedures, practices, 

2 and policies. 

3 ‘‘(e) CONFIDENTIALITY.—The Ombudsman shall 

4 keep confidential all meetings, discussions, and informa5 tion provided by financial institutions.’’. 

6 (b) DEFINITION.—Section 1003 of the Federal Fi7 nancial Institutions Examination Council Act of 1978 (12 

8 U.S.C. 3302) is amended— 

9 (1) in paragraph (2), by striking ‘‘and’’ at the 

10 end; 

11 (2) in paragraph (3), by adding ‘‘and’’ at the 

12 end; and 

13 (3) by adding at the end the following: 

14 ‘‘(4) the term ‘Ombudsman’ means the Om15 budsman established under section 1014.’’. 

16 SEC. 5. RIGHT TO APPEAL BEFORE AN INDEPENDENT AD17 MINISTRATIVE LAW JUDGE. 

18 The Federal Financial Institutions Examination 

19 Council Act of 1978 (12 U.S.C. 3301 et seq.), as amended 

20 by this Act, is amended by adding at the end the following: 

21 ‘‘SEC. 1015. RIGHT TO APPEAL BEFORE AN INDEPENDENT 

22 ADMINISTRATIVE LAW JUDGE. 

23 ‘‘(a) IN GENERAL.—A financial institution shall have 

24 the right to appeal a material supervisory determination 

25 contained in a final report of examination. 


tjames on DSK6SPTVN1PROD with BILLS
8 

•S 727 IS

1 ‘‘(b) NOTICE.— 

2 ‘‘(1) TIMING.—A financial institution seeking 

3 an appeal under this section shall file a written no4 tice with the Ombudsman within 60 days after re5 ceiving the final report or examination that is the 

6 subject of such appeal. 

7 ‘‘(2) IDENTIFICATION OF DETERMINATION.— 

8 The written notice shall identify the material super9 visory determination that is the subject of the ap10 peal, and a statement of the reasons why the institu11 tion believes that the determination is incorrect or 

12 should otherwise be modified. 

13 ‘‘(3) INFORMATION TO BE PROVIDED TO INSTI14 TUTION.—Any information relied upon by the agen15 cy in the final report that is not in the possession 

16 of the financial institution may be requested by the 

17 financial institution and shall be delivered promptly 

18 by the agency to the financial institution. 

19 ‘‘(c) HEARING BEFORE INDEPENDENT ADMINISTRA20 TIVE LAW JUDGE.— 

21 ‘‘(1) IN GENERAL.—The Ombudsman shall de22 termine the merits of the appeal on the record, after 

23 an opportunity for a hearing before an independent 

24 administrative law judge. 


tjames on DSK6SPTVN1PROD with BILLS
9 

•S 727 IS

1 ‘‘(2) HEARING PROCEDURES.—If a hearing is 

2 requested by the financial institution, the hearing 

3 shall— 

4 ‘‘(A) take place not later than 60 days 

5 after the notice of the appeal was received by 

6 the Ombudsman; and 

7 ‘‘(B) be conducted pursuant to the proce8 dures set forth under sections 556 and 557 of 

9 title 5, United States Code. 

10 ‘‘(3) JUDGE RECOMMENDATION; STANDARD OF

11 REVIEW.—In any hearing under this subsection— 

12 ‘‘(A) the administrative law judge shall 

13 recommend to the Ombudsman what determina14 tion should be made; and 

15 ‘‘(B) in making such recommendation, the 

16 administrative law judge shall not defer to the 

17 opinions of the examiner or agency, but shall 

18 independently determine the appropriateness of 

19 the agency’s decision based upon the relevant 

20 statutes, regulations, and other appropriate 

21 guidance. 

22 ‘‘(d) FINAL DECISION.—A decision by the Ombuds23 man on an appeal under this section shall— 

24 ‘‘(1) be made not later than 60 days after the 

25 record has been closed; and 


tjames on DSK6SPTVN1PROD with BILLS
10 

•S 727 IS

1 ‘‘(2) be final agency action, and shall bind the 

2 agency whose supervisory determination was the 

3 subject of the appeal and the financial institution 

4 making the appeal. 

5 ‘‘(e) REPORT.—The Ombudsman shall report annu6 ally to the Committee on Financial Services of the House 

7 of Representatives, the Committee on Banking, Housing, 

8 and Urban Affairs of the Senate on actions taken on ap9 peals under this section, including the types of issues that 

10 financial institutions have appealed and the results of 

11 those appeals. In no case shall such a report contain infor12 mation about individual financial institutions or any con13 fidential or privileged information shared by financial in14 stitutions. 

15 ‘‘(f) RETALIATION PROHIBITED.—A Federal finan16 cial institutions regulatory agency may not— 

17 ‘‘(1) retaliate against a financial institution, in18 cluding service providers, or any institution-affiliated 

19 party, for exercising appellate rights under this sec20 tion; or 

21 ‘‘(2) delay or deny any agency action that 

22 would benefit a financial institution or any institu23 tion-affiliated party on the basis that an appeal 

24 under this section is pending under this section.’’. 


tjames on DSK6SPTVN1PROD with BILLS
11 

•S 727 IS

1 SEC. 6. ADDITIONAL AMENDMENTS. 

2 (a) RIEGLE COMMUNITY DEVELOPMENT AND REGU3 LATORY IMPROVEMENT ACT OF 1994.—Section 309 of the 

4 Riegle Community Development and Regulatory Improve5 ment Act of 1994 (12 U.S.C. 4806) is amended— 

6 (1) in subsection (a), by inserting after ‘‘appro7 priate Federal banking agency’’ the following: ‘‘, the 

8 Bureau of Consumer Financial Protection,’’; 

9 (2) in subsection (b)— 

10 (A) in paragraph (2), by striking ‘‘the ap11 pellant from retaliation by agency examiners’’ 

12 and inserting ‘‘the insured depository institu13 tion or insured credit union from retaliation by 

14 an agency referred to in subsection (a)’’; 

15 (B) by redesignating paragraphs (1) and 

16 (2) as subparagraphs (A) and (B), respectively, 

17 and adjusting the margins accordingly; 

18 (C) by striking ‘‘In establishing’’ and in19 serting the following: 

20 ‘‘(1) IN GENERAL.—In establishing’’; and 

21 (D) by adding at the end the following: 

22 ‘‘(2) RETALIATION.—For purposes of this sub23 section and subsection (e), retaliation includes delay24 ing consideration of, or withholding approval of, any 

25 request, notice, or application that otherwise would 

26 have been approved, but for the exercise of the instiVerDate Mar 15 2010 01:50 Apr 20, 2013 Jkt 029200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S727.IS S727

tjames on DSK6SPTVN1PROD with BILLS
12 

•S 727 IS

1 tution’s or credit union’s rights under this section.’’; 

2 and 

3 (3) in subsection (e)(2)— 

4 (A) in subparagraph (B), by striking 

5 ‘‘and’’ at the end; 

6 (B) in subparagraph (C), by striking the 

7 period and inserting ‘‘; and’’; and 

8 (C) by adding at the end the following: 

9 ‘‘(D) ensure that appropriate safeguards 

10 exist for protecting the insured depository insti11 tution or insured credit union from retaliation 

12 by any agency referred to in subsection (a) for 

13 exercising its rights under this subsection.’’. 

14 (b) FEDERAL DEPOSIT INSURANCE ACT.—Section 

15 18(x) of the Federal Deposit Insurance Act (12 U.S.C. 

16 1828(x)) is amended by inserting ‘‘the Bureau of Con17 sumer Financial Protection,’’ before ‘‘any Federal banking 

18 agency’’ each place that term appears. 

19 (c) FEDERAL CREDIT UNION ACT.—Section 205(j) 

20 of the Federal Credit Union Act (12 U.S.C. 1785(j)) is 

21 amended by inserting ‘‘the Bureau of Consumer Financial 

22 Protection,’’ before ‘‘the Administration’’ each place that 

23 term appears. 


tjames on DSK6SPTVN1PROD with BILLS
13 

•S 727 IS

1 (d) TECHNICAL CORRECTIONS.—The Federal Finan2 cial Institutions Examination Council Act of 1978 (12 

3 U.S.C. 3301 et seq.) is amended— 

4 (1) in section 1003(1) (12 U.S.C. 3302(1)), by 

5 striking ‘‘the Office of Thrift Supervision,’’; and 

6 (2) in section 1005 (12 U.S.C. 3304), by strik7 ing ‘‘One-fifth’’ and inserting ‘‘One-fourth’’. 

Æ 


tjames on DSK6SPTVN1PROD with BILLS