TITLE 750 DEPARTMENT OF FINANCIAL INSTITUTIONS

a. History and Background of the Rule

This rulemaking sets forth a schedule for fees, fines, and civil penalties as may be assessed by the Department of Financial Institutions (the "Department") as required under IC 4-22-2-19.6(b). The proposed rule will establish the Department's fees at the same amounts that were most recently adopted by the Members effective July 1, 2023. The proposed rule will not change or increase any fee that is currently being assessed by the Department.

Similarly, the proposed rule sets forth a schedule of civil penalties for violations of specific statutes; however, the Department will not be obligated to issue a civil penalty. In the last five years, the Department has averaged issuing one civil penalty a year and the dollar amounts have been small. Civil penalties are not considered a revenue source for the Department.

b. Scope of the Rule

The proposed rule is intended to align the Department's rules with HEA 1623 and IC 4-22-2-19.6. Specifically, 750 IAC 10 will set forth all the Department's current fees, fines, or civil penalties.

c. Statement of Need

The proposed rule will bring the Department's practices into compliance with HEA 1623 and IC 4-22-2-19.6 by setting forth the Department's fees, fines, and civil penalties. The Department is a dedicated fund agency that is required, pursuant to IC 28-11-3-5(b), to "fix and collect, on an annual basis, a schedule of fees for the services rendered and the duties performed by the department in the administration of financial institutions."

The public policy reason for assessing fees is that IC 28-11-3-5(b) requires the Department to set a fee schedule for the services rendered. Further, IC 28-11-3-5(c) requires that "in determining the costs, the department may classify the assets of financial institutions and fix fees at different rates for the examination, supervision, regulation, and liquidation of the classes of assets, based on the proportionate cost and expense incurred by the department in making examinations and in the administration of financial institutions." The regulatory model of the Department has been time tested and has resulted in a system producing sound financial supervision and a strong financial institution system in Indiana all the while being a value-priced regulator.

The Department is not statutorily required to assess fines or civil penalties; however, it has broad statutory authority to generally assess fines and civil penalties in an amount of up to $10,000 per violation. The proposed rule will bring the Department into compliance with HEA 1623 and IC 4-22-2-19.6(d) by setting forth a civil penalty schedule. The civil penalty schedule identifies a baseline civil penalty amount along with factors that may increase or decrease the amount of the civil penalty. Included in the proposed factors are those that are statutorily required, and factors enumerated in IC 4-22-2-19.6(d).

Additionally, the Department has included a provision that will not obligate it to issue a civil penalty. This provision is intended to allow the Department to continue the practice of focusing on requiring refunds for those borrowers who are unlawfully charged, in lieu of the Department receiving a civil penalty. While there are multiple public policy reasons for issuing civil penalties–including, but not limited to, protecting the public, ensuring full compliance with the law, deterring violations, promoting respect for the law, and providing just punishment–the Department focuses on requiring consumer refunds. There are times, however, when the violation warrants civil penalties in addition to consumer restitution. For these rare occasions in which a civil penalty is warranted, the Department's proposed rule will conform with HEA 1623 thereby preserving the Department's discretion to issue a civil penalty.

d. Statutory Authority for the Proposed Rule

Pursuant to 24-4.4-3-105, 24-4.5-6-104, IC 24-4.5-7-414, IC 24-7-7-1, IC 24-12-10-1, IC 28-1-29-2, IC 28-4.1-401, and IC 28-11-1-12, the Department has statutory authority to adopt and enforce administrative rules that are necessary to administer each relative article.

The Department has statutory authority to assess fees to financial institutions in general pursuant to IC 28-11-3-5(b), which provides that "the department shall fix and collect, on an annual basis, a schedule of fees for the services rendered and the duties performed by the department in the administration of financial institutions." Further, IC 28-11-3-5(c) requires that "in determining the costs, the department may classify the assets of financial institutions and fix fees at different rates for the examination, supervision, regulation, and liquidation of the classes of assets, based on the proportionate cost and expense incurred by the department in making examinations and in the administration of financial institutions."

Additional statutory authority for specific fees are as follows:

Additional statutory authority for civil penalties is as follows:

e. Fees, Fines, and Civil Penalties

The proposed rule adds fees and civil penalties and will comply with HEA 1623 and IC 4-22-2-19.6.

a. Anticipated Effective Date of the Rule

July 1, 2024

b. Estimated Fiscal Impact on State and Local Government

The proposed rule establishes fees and civil penalties for the Department. The Department does not consider civil penalties to be a revenue source. In the last five years, the Department has averaged issuing one civil penalty a year and the dollar amounts have been insignificant. The Department is wholly dependent upon the fees it collects to fund its annual budget as determined by its legislative appropriation. The fee schedule in the proposed rule would generate $10,698,000 in annual revenue, which is significantly less than the legislative appropriation for the Department. This rule does not impact expenditures or revenues of local government.

c. Sources of Expenditures or Revenues Affected by the Rule

The proposed rule will impact the Department's revenue. Pursuant to IC 28-11-2-9(c), all revenue accruing to the Department is required to be paid into the financial institutions' fund, which is a dedicated fund. The proposed rule will go into effect on July 1, 2024, and will impact the Department's revenue in each successive fiscal year.

There will be no new impacted parties as a result of the proposed rule. The proposed rule is adopting fees that are already being assessed to regulated persons. Similarly, the proposed rule does not add new civil penalties but rather reflects the Department's current practices. As such, only persons who are regulated by the Department are subject to the assessment of fees. Only persons who have been found to violate specific statutes, identified below, will be potentially liable for the civil penalties.

The proposed new rule adopts a schedule of fees and civil penalties. The fee schedule as proposed in the new rule does not represent a change but rather incorporates the Department's existing fee schedule as set by the Department's board members. The proposed civil penalty schedule is rooted in the Indiana Code; there is not something that exists in another document. The Department does not intend to change its enforcement practice–which is to issue civil penalties only when the violation warrants civil penalties in addition to consumer restitution.

The fee schedule in the proposed new rule adopts the Department's existing fee schedule. The existing fees are either based on a schedule applied to asset size, a schedule based on volume, or set fees. The existing fees are as set forth below.

a. Pursuant to IC 28-11-3-5, the schedule of fees for services rendered and the duties performed by the department in the administration of financial institutions for banks, savings banks, building and loan associations, and industrial authorities shall be as follows:

b. Pursuant to IC 28-11-3-5, the schedule of fees for services rendered and the duties performed by the department in the administration of financial institutions for trust departments shall be as follows:

c. Pursuant to IC 28-11-3-5, the schedule of fees for services rendered and the duties performed by the department in the administration of financial institutions for corporate fiduciaries shall be as follows:

d. Pursuant to IC 28-11-3-5, the schedule of fees for services rendered and the duties performed by the department in the administration of financial institutions for credit unions shall be as follows:

e. If a bank, savings banks, building and loan association, industrial authority, trust department, corporate fiduciary, or credit union, receives a composite 3 rating at its most recent state or federal safety and soundness examination, its annual fee shall be increased by 12.5%. This assessment shall be prorated on a quarterly basis. The increased supervisory assessment shall stay in effect until the quarter following the financial institution's receipt of a composite 1 or 2 rating at a state or federal safety and soundness examination.

f. If a bank, savings banks, building and loan association, industrial authority, trust department, corporate fiduciary, or credit union, receives a composite 4 or 5 rating at its most recent state or federal safety and soundness examination, its annual fee shall be increased by twenty-five percent (25%). This assessment shall be prorated on a quarterly basis. The increased supervisory assessment shall stay in effect until the quarter following the financial institution's receipt of a composite 1 or 2 rating at a state or federal safety and soundness examination.

g. Newly chartered and converted financial institutions, which include thrift and national to state-chartered financial institutions, shall be charged a percentage of their annual fee, as calculated above, based on the number of months that it is in existence as an Indiana state-chartered financial institution during the department's fiscal year.

h.

1. Pursuant to IC 28-11-3-5, the schedule of fees for services rendered and the duties performed by the department in the administration of financial institutions for the following applications shall be as follows:

2. Base Fees in subsection h(1) are the minimum amount charged for an application. Actual expenses will be charged at $80 per hour or a portion thereof for all personnel involved in processing, analyzing, or investigating an application. Actual expenses also include transcript preparation, Administrative Law Judge fees, and travel expenses for the Members of the department and office personnel. If actual expenses exceed the basic fee for an application the amount of the actual expense will be charged for the application. Actual expenses of an application for conversion, merger, or consolidation examination shall not exceed $30,000.

3. Financial Institutions that are in the process of voluntary dissolution will not be charged an annual fee after the board resolution authorizing the dissolution has been approved by the Department in accordance with IC 28-1-9-3.

4. Fees shall not be imposed if an institution involved in an application is insolvent or is in imminent danger of becoming insolvent, as determined by the Director.

i. Pursuant to IC 28-11-3-5, the schedule of fees for services rendered and the duties performed by the department in the administration of financial institutions, as defined by IC 28-1-2-30, for the licenses and registrations included below shall be as follows:

1. The exam fee may be offset by license and renewal fees paid. The first three days of the exam fee are waived, plus an additional $600 of the exam fee is waived per additional location examined.

2. If the total amount owed for the Volume Fee in this subsection is $100 or less, the volume fee is waived.

3. The mortgage lending license application fee is waived if the applicant's mortgage loan originators are exempt from licensure pursuant to 760 IAC 9-3-1(h)(2)(i).

The proposed rule has the following newly added civil penalty schedule.

(1) The appropriateness of the civil penalty with respect to the financial resources and good faith of the person or individual charged.

(2) Existence of written policies governing the conduct.

(3) Cooperation with the Department in addressing the violation.

(4) The person's history of compliance.

(5) Remedial or corrective action taken by the person.

(6) Whether the violation was voluntarily disclosed to the Department.

(7) Evidence of any restitution paid.

(8) Other factors that justice requires¹.

(1) The gravity of the practice, violation or act including:

a. Loss or risk of loss to the person;

b. Loss or risk of loss to consumers;

c. Impact other than loss;

d. Concealment; and

e. Number of violations at issue.

(2) Economic benefit derived by the person or individual from the practice, violation, or act.

(3) Willful or intentional misconduct.

(4) Duration and frequency of the violation.

(5) History of similar prior violations.

(6) Fraudulent conduct.

(7) Whether the violation negatively impacts the integrity or public trust of financial institutions in the state of Indiana.

(8) Other factors justice requires².

(1) The appropriateness of the civil penalty with respect to the financial resources and good faith of the person or individual charged.

(2) Existence of written policies governing the conduct.

(3) Cooperation with the Department in addressing the violation.

(4) The person's history of compliance

(5) Remedial or corrective action taken by the person.

(6) Whether the violation was voluntarily disclosed to the Department.

(7) Evidence of any restitution paid.

(8) Other factors that justice requires³.

(1) The gravity of the practice, violation or act including:

a. Loss or risk of loss to the person;

b. Loss or risk of loss to consumers;

c. Impact other than loss;

d. Concealment; and

e. Number of violations at issue.

(2) Economic benefit derived by the person or individual from the practice, violation, or act.

(3) Willful or intentional misconduct.

(4) Duration and frequency of the violation.

(5) History of similar prior violations.

(6) Fraudulent conduct.

(7) Whether the violation negatively impacts the integrity or public trust of financial institutions in the state of Indiana.

(8) Other factors justice requires⁴.

2) The civil penalties will be effective on July 1, 2024, after the department passes a rule. They will be in effect for the duration of the rule.

3) Only individuals and entities who have been found to violate the specific statute will be liable for the civil penalties.

There are no new fees or civil penalties as a result of the proposed rule. There are no modified fees or civil penalties as a result of the proposed rule. Rather, the proposed rule is a reflection of the Department's current assessment of fees and civil penalties. As mentioned previously, the revenue collected from assessing fees to regulated entities is the sole source of revenue for the Department. As a result, the primary benefit of adopting the fees and civil penalties pursuant to the requirements of HEA 1623 and IC 4-22-2-19.6 is that it will allow the Department to continue to fulfill its statutory obligations to supervise the financial industry in Indiana.

a. Estimate of Compliance Costs for Regulated Entities

The proposed rules do not impose additional compliance costs or requirements on regulated entities. As stated previously, the proposed rules simply adopt the Department's current fee schedule so there are no additional costs imposed on regulated entities.

b. Estimate of Administrative Expenses Imposed by the Rules

The proposed rules do not impose additional administrative expenses on regulated parties.

c. The fees, fines, and civil penalties analysis required by IC 4-22-2-19.6

Regarding the fees, pursuant to IC 4-22-2-19.6(c), the amounts of the proposed fees are based on the amount necessary to carry out the purposes for which the fees are imposed. First, the application fees are only applicable to entities that submit the specific application. Additionally, the department performed a calculation averaging the amount of time typically spent on each application multiplied by the labor cost to arrive at the application fee. Further, the application fees are based on the amount of work necessary to carry out the purpose of the fees and the proportionate cost and expense incurred by the department in making examinations and in the administration of financial institutions pursuant to IC 28-11-3-5.

Regarding the asset-based fees, IC 28-11-3-5(c) directs the department in determining costs to classify the assets of financial institutions and fix fees and different rates for the examination, supervision, regulation, and liquidation of the classes of assets, based on the proportionate cost and expense incurred by the department in making examinations and in the administration of financial institutions. The code further states that the fees may not exceed the comparative cost to the department in the administration of financial institutions. Annually, when setting fees, the Department's board members have considered the department's legislative appropriation, projected expenses, and the balance of the financial institutions' fund. The financial institutions' fund, which is the department's dedicated fund, must maintain a minimum four (4) months of reserves for accreditation purposes. It is common practice to require six (6) months reserves. The fees are reflective of the amount of labor involved in the supervision of Indiana's state-chartered financial institutions. This process works conjointly with the requirements of IC 4-22-4-19.6(c) that "fees be reasonably based on the amount necessary to carry out the purposes for which the fee is imposed."

To comply with IC 4-22-2-19.6(d), the department has created a list of civil penalties authorized in the portions of the Indiana code that it is charged with overseeing and has proposed a base penalty. Second, pursuant to IC 4-22-2-19.6(d)(1) it has proposed factors that may either increase or decrease the amount of the civil penalty. Included in the proposed factors are factors that are statutorily required, including the identical factors enumerated in IC 4-22-2-19.6(d).

Additionally, the department has included a provision that will not obligate it to issue a civil penalty. This provision is intended to allow the department to continue the practice of focusing on restitution of those consumers and borrowers who are harmed in lieu of the department receiving a civil penalty. As stated above, there are times when a violation warrants civil penalties, so adopting the proposed framework in an administrative rule will preserve the tool, but not impose any unnecessary civil penalties.

In making the above determinations, regarding its fees, the Department consulted its current fee schedules and conducted a financial analysis to project expected revenue based on the most recent data. Regarding civil penalties, the Department consulted state statute to derive a schedule of penalties and both mitigating and aggravating factors.

The proposed new rule complies with HEA 1623 and IC 4-22-2-19.6. While the proposed rule is new, the fees and civil penalties are not and have been assessed for numerous years throughout the Department's history. The proposed rule establishes the Department's current fee schedule and civil penalty practices in a rule as required by HEA 1623. As such, there are no new costs associated with the proposed new rule. If the fees are not promulgated into a rule pursuant to IC 4-22-2-19.6, then the Department will not be able to assess fees, its reserves will fall below the required reserves, and the supervision of Indiana's financial institutions will largely shift to the federal government. As a result, the primary benefit of the rule is to allow the Department to continue assessing fees, thereby allowing it to comply with statutory requirements to supervise the state's financial institutions using a regulatory model that has been time-tested and has resulted in a system producing sound financial supervision and a strong financial system in Indiana.

First Notice of Public Comment Period with Proposed Rule: 20240103-IR-750230837FNA

LSA Document #23-837

Notice of Determination Received: December 21, 2023

DIN: 20240103-IR-750230837RAA

Composed: May 19,2024 1:42:25PM EDT

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