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What are the Criminal Consequences of Unsafe and Unsound Banking Practices?

Posted By Berry Law Firm || 13-Jun-2017

Under federal law, a bank and its officers and directors can face criminal charges for engaging in “unsafe and unsound banking practices.” Federal regulations do not define this ambiguous phrase which means agencies such as the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Federal Reserve Bank have broad discretion in bringing enforcement actions. Similar to other white collar crimes, the penalties for improper banking practices can be disastrous. So what are “unsafe and unsound banking practices?”

Enforcement agencies have historically described unsafe and unsound practices as any action that might lead to a loss of public confidence. More specifically, any conduct that exposes a bank, its customers, or shareholders to risk of loss can qualify as a violation under federal law. Examples of this type of conduct include:

  • Improper loan application procedures
  • Bad underwriting of a loan
  • Extending credit contrary to bank policy
  • Negligent supervision of institution lending practices
  • Extension or acquisition of non-performing loans
  • Acquisition of personal loans from the bank
  • Failure to comply with federal reporting requirements
  • Unfair late fees
  • Failure to perform due diligence in opening accounts

Needless to say, the list of improper practices that can trigger an enforcement action is extensive. Besides steep monetary fines one common consequence of unsafe and unsound conduct is the issuance of a consent order. Consent orders are formal agreements with banking enforcement agencies and have the same effect as an actual court order. When it comes to allegations of improper banking practices a consent order typically compels an accused person to comply with two requirements. The first is the accused is permanently removed from his or her position at their respective banking institution. The second, and more harmful, is the accused is banned from the banking industry. In other words, the ban permanently forbids any participation in the conduct or affairs of any financial institution. Violation of this prohibition can result in up to five years’ imprisonment and a fine of up to $1,000,000.

The broad meaning of unsafe and unsound banking practices makes hiring an experienced criminal defense attorney all the more important. Federal agencies have wide latitude in qualifying banking conduct as improper. However, such accusations may be misinformed. Berry Law Firm recognizes that federal agencies rely on too broad a definition and we refuse to allow this reliance to unfairly deny someone the ability to participate in their profession. Please contact Berry Law Firm if you need protection from the Federal government or have questions about an existing consent order.