Pub. 3 2015 Issue 4

16 The Community Banker www.mibonline.org THE OCC HAS SPOKEN: UNSAFE OR UNSOUND BANKING PRACTICES By Philip Chiaviello, Attorney at Law F or more than 30 years, our federal appellate courts have applied conflicting definitions of unsafe or unsound banking practice in the context of regulatory enforcement. With a recent decision from the Office of the Comptroller of the Cur- rency, the definition should be clear; at least as far as the feder- al regulators are concerned. Patrick Adams was the President, CEO, and director of T Bank of Dallas, Texas (“Bank”) until he resigned in 2010. From December 2005 until August 2007, T Bank maintained an account relationship with Giact Systems, Inc. (“Giact”), a third-party processor, and approximately 60 merchant retail businesses for which Giact processed payments. Giact used a remotely created checks (“RCCs”) payment system to facilitate the transfer of funds from customer accounts to the merchant accounts for goods and services sold over the inter- net and by mail order. Although T Bank earned approximately $1.9 million in income through the processing of RCCs it ulti- mately paid out approximately $2.8 million in restitution pursu- ant to a Formal Agreement with the OCC. Charges Against Adams In September 2011, the OCC filed a Notice of Charges against Adams alleging he engaged in unsafe or unsound practices by failing to, among other things, ensure the Bank performed due diligence in opening accounts for the merchants and by failing to have adequate policies and procedures to deal with custom- er complaints. The OCC sought a cease-and-desist order and a $100,000.00 civil penalty. The case went to trial in February 2012 before an administrative law judge (“ALJ”) and in Novem- ber, the judge recommended dismissal of the action. As expected, enforcement counsel for the OCC filed exceptions and the judge’s recommended deci- sion went before the OCC Board of Directors for a final decision. On September 30, 2014, the OCC issued its Final Decision terminating the enforcement action against Adams. 1 One would think that, in terminating the enforcement action, the OCC affirmed the ALJ. Not so. In this unusual decision the OCC adopted most of Enforce- ment Counsel’s arguments and disagreed with the ALJ. After expressly stating it was not mak- ing any findings of fact, the OCC stated throughout the 68 page Decision that a trier of fact could conclude Mr. Adams’ conduct was unsafe or unsound. The OCC used this case as an opportunity to set the record straight on its definition of Unsafe or Unsound banking Guest Article 1 For a copy of the decision see: http://montanabankinglawyer.com/uploads/3/4/0/1/3401471/padamsfinaldecision093014.pdf In The Matter of Patrick Adams, OCC AA-EC-11-50.