19 Hoosier Banker December 2015 Continued on page 20. highlights the risks of noncompliance with regulatory requirements. This merger approval process was plagued by compliance issues from both M&T and Hudson City following the filing of the application, resulting in an approval process that stretched beyond three years. Further, the Board clarified in its approval order that such applications in the future will not be suspended while regulatory matters are being addressed; instead, the Board expects these applications to be withdrawn. As background, in August 2012, M&T and Hudson City entered into a merger agreement, providing that M&T would acquire Hudson City. The parties expected the transaction to close in the second quarter of 2013. M&T filed an application with the Federal Reserve Bank of New York in October 2012, seeking approval of the merger. Eventually the Board approved the merger on Sept. 30, 2015. BSA/AML enforcement action. During the processing of the application, a regularly scheduled examination of M&T by the Federal Reserve Bank of New York identified weaknesses in M&T’s risk-management program, including its Bank Secrecy Act/anti-money laundering compliance management program. In June 2013, M&T entered into a written enforcement action with the Federal Reserve Bank of New York to address those issues. As a result in 2013, M&T hired 285 additional employees and 151 nonstaff consultants, plus invested $60 million, to address the weaknesses. Deceptive advertising enforcement action. In a separate examination, the Consumer Financial Protection Bureau (CFPB) found that M&T had deceptively advertised free checking accounts. In October 2014, M&T consented to an enforcement action brought by the CFPB, resulting in $10.9 million in refunds to approximately 59,000 customers, and payment of a $200,000 civil money penalty. In addition, examinations by the Federal Reserve Bank of New York identified weaknesses in M&T’s consumer compliance program. Fair lending enforcement action. In March 2014, the CFPB began an examination of Hudson City to determine whether it had engaged in redlining, and in March 2015 the Department of Justice paired with CFPB in a joint investigation. Both organizations determined that Hudson City had discouraged applicants in majority black and Hispanic neighborhoods in three metropolitan statistical areas (MSAs). They alleged that Hudson City had placed bank branches and loan offices outside of these neighborhoods, had excluded these neighborhoods from Hudson City’s Community Reinvestment Act (CRA) assessment areas, and had focused its marketing outside of these neighborhoods. In September 2015, the CFPB announced a consent order, subject to court approval, resolving the actions against Hudson City and requiring more than $27 million in RAISING THE BAR Welcoming the Newest Members of Our Financial Institutions Practice Group Lori Jean, Partner ljean@kdlegal.com toznick@kdlegal.com Former Vice President and Assistant General Counsel at JPMorgan Chase Bank, N.A. PRACTICE FOCUS - Regulatory Advice - Treasury Management - Electronic Banking Terry A. Oznick, Associate Former Senior Vice President, Assistant General Counsel and Chief Compliance Officer at 1st Source Bank PRACTICE FOCUS - Financial Services Law - Banking Compliance - Corporate Representation - Transactional Advice www.kriegdevault.com Growing with Indiana’s Financial Institutions for Over 100 Years © 2015 Krieg DeVault LLP
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