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Appeal of "Noncompliance" with an Article of the Bank's Formal Agreement - (Third Quarter 2000)

Background

A community bank appealed the ''noncompliance'' conclusion on the bank's level of compliance on a particular article in the bank's formal agreement.  The article stated: Within ninety days of signing the agreement, the Board is required to establish a compliance program to cover all applicable non-consumer laws and regulations.  The program shall include a policy and procedures manual, an audit review system, a mechanism for corrective actions when violations occur and a system of training to ensure clear communication of requirements.  A copy of the program shall be forwarded to this Office for review.

During the next examination, the supervisory office categorized the bank's level of compliance as ''noncompliance'' with the following narrative explanation:

The timeframe for accomplishment of this Article had not expired when we conducted our review.  During the examination, management provided a written request for a short extension of the ninety-day requirement to allow the Board to approve the policy at their regular Board meeting.  This request was approved and the Board approved the program subsequent to our examination.  We will review the program during the next quarterly review, and provide any needed communication to the Board.

Discussion

The OCC has an internal operating procedure that defines the options for assessing compliance with enforcement actions.  These include compliance, partial compliance, or noncompliance, with the following definitions:

Compliance: The bank's action(s) to accomplish the primary objective of the article/document are effective.  Any additional actions which are still necessary are technical in nature and are easily completed in the normal course of business. 

Partial compliance: The bank has worked to achieve compliance.  However, additional efforts are necessary to fully meet the primary objective of the article/document.

Noncompliance: The bank's action(s) to comply with the provisions of the article/document are unsatisfactory.  Even though there may be effort(s) on the part of the bank to achieve compliance, little or no progress has been made toward meeting the primary objective of the article/document.  The supervisory office concluded that the bank was in ''noncompliance'' because the time frame for action had not expired.  The internal operating procedure details that the OCC must perform an initial on-site assessment of the bank's compliance with a new enforcement action within 60 days of the latest due date in the enforcement action.

The procedures do not address which of the three ratings are appropriate in a case where the due date has not expired.

Conclusion

 The ombudsman concluded that if the time frame for compliance has not expired, the level of compliance with an article should not be evaluated.  Therefore, the conclusion on the level of compliance on the article was changed to ''no action required to date.''  The field office forwarded the revised ROE pages to the bank to reflect this change.