Each quarter, our financial institutions experts bring you the top headlines to keep you updated on regulatory compliance matters impacting banks and credit unions. Here’s the latest roundup of information you need to know.
CFPB issues Supervisory Highlights on loan servicing failures, illegal debt collection practices, and issues with medical payment products
The Consumer Financial Protection Bureau (CFPB) issued an edition of Supervisory Highlights on July 2, 2024, that shares findings from recent examinations of debt collectors, auto and student loan servicing companies, and other financial services providers. The bureau found the following issues during recent examinations:
- Auto loan servicers didn’t provide borrowers with adequate notice that they were required to make their final payments manually and then illegally charged the borrowers late fees for failing to make the final payment on time.
- Student loan servicers provided inaccurate information on forms, failed to notify consumers about funds transfers, and created excessive barriers to assistance.
- Debt collectors misled borrowers about their identities and didn’t provide validation notices within five days of their initial communication with borrowers.
- Debt collectors harassed borrowers and communicated with them at unusual times or places.
- Institutions used unfair practices when communicating with consumers about account freezes related to identity fraud or other suspicious activity.
CFPB issues proposed rule to amend the mortgage servicing rules
The CFPB has issued a proposed rule that would amend regulations regarding the responsibilities of mortgage servicers. The proposed amendments would:
- Streamline existing requirements when borrowers seek payment assistance in times of distress.
- Add safeguards when borrowers seek help.
- Revise existing requirements with respect to borrower assistance.
The proposed rule would also require servicers to provide certain communications in languages other than English.
FFIEC published 2023 HMDA mortgage lending data
On July 11, 2024, the FFIEC published 2023 HMDA mortgage lending transaction data by 5,113 U.S. financial institutions, including banks, savings associations, credit unions, and mortgage companies.
Agencies issue final rule to help ensure credibility and integrity of automated valuation models
The OCC, Federal Reserve, FDIC, NCUA, CFPB, and Federal Housing Finance Agency issued a final rule on July 17, 2024, for automated valuation models (AVMs) used for mortgages secured by a consumer's primary residence. Institutions will be required to adopt policies, practices, procedures, and control systems designed to:
- Ensure a high level of confidence in estimates.
- Protect against data manipulation.
- Seek to avoid conflicts of interest.
- Require random sample testing and reviews.
- Comply with nondiscrimination laws.
The proposed rule will become effective 12 months after publication in the federal register.
Agencies issue final guidance addressing reconsiderations of value for residential real estate transactions
The OCC, Federal Reserve, FDIC, NCUA, and CFPB issued final guidance on July 18, 2024, on reconsiderations of value (ROV) for residential real estate transactions. The guidance offers examples of ROV policies and procedures that a financial institution may implement to help identify, address, and mitigate discrimination risk. Guidance also describes the risks of deficient real estate valuations and explains how financial institutions may incorporate ROV processes into its risk management functions. The agencies finalized the guidance largely as proposed, with the addition of clarifying edits based on public comments received on the proposed guidance published in July 2023.
CFPB issues interpretive rule on earned wage access
The CFPB issued a proposed interpretive rule on July 18, 2024, to clarify that many paycheck advance products (sometimes referred to as “earned wage” products) are subject to the Truth in Lending Act (TILA). This interpretation would:
- Require lenders to provide workers with clear disclosures about costs and fees associated with earned wage products, pursuant to Regulation Z.
- Recognize certain fees as finance charges, such as tips and fees for expedited delivery.
- Require earned wage access providers to reflect the appropriate finance charges on the disclosures provided to consumers.
This interpretive rule establishes a broader definition of “debt” under TILA.
Agencies issue statement on bank arrangements with third parties to deliver deposit products and issue request for information seeking input on Bank-Fintech arrangements.
The FDIC, Federal Reserve, and OCC issued a joint statement on July 25, 2024, to outline potential risks related to arrangements between banks and third parties to deliver bank products and services and examples of risk management practices to manage potential risks. The joint statement doesn’t establish new expectations.
Agencies also published a request for information that seeks information and comment on bank-fintech arrangements, including associated risk management practices and implications. The joint statement:
- Discusses potential risks related to arrangements between banks and third parties to deliver bank deposit products and services to end-users. The statement also highlights examples of risk management practices implemented by banks to manage such risks.
- Doesn’t alter existing legal or regulatory requirements or establish new supervisory expectations.
- Indicates banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.
The request for information is intended to gather additional information on deposit arrangements addressed in the joint statement, as well as other types of arrangements in the areas of payments and lending. The request for information seeks information and comment on the nature of certain bank-fintech company arrangements, as well as effective risk management practices and the implications of such arrangements. The comment period was initially 60 days but was later extended to Oct. 30, 2024.
Fannie Mae, Freddie Mac, and HUD delay implementation guidelines for reconsideration of value guidance issued May 1, 2024.
Fannie Mae, Freddie Mac, and HUD have delayed the implementation of guidelines for ROV to Oct. 31, 2024. Lenders must allow borrowers to request a ROV if they believe there is an issue with the initial valuation. The guidance is meant to provide clear requirements for lenders to disclose and outline the ROV process for consumers, standardize communication to appraisers, and establish ROV response expectations.
Federal regulators propose rule to standardize data submitted to federal financial agencies
On Aug. 2, 2024, the OCC, Federal Reserve, FDIC, NCUA, CFPB, FHFA, CFTC, SEC, and Department of the Treasury proposed a rule to establish data standards for information collections submitted to financial regulatory agencies. The proposed rule is required by the Financial Data Transparency Act of 2022, and comments are due 60 days following publication in the Federal Register.
CFPB report finds lenders are cramming markup fees and confusing terms into solar energy loans
The CFPB issued a report on Aug. 7, 2024, indicating some residential solar lenders are misleading homeowners about the term and costs of loans. These lenders are also misrepresenting the savings and benefits that solar panels provide to homeowners. The CFPB identified four areas of significant risk:
- Hidden markup fees. Lenders build hidden fees into the loan by marking up the principal of the loan. These “dealer fees” often increase the cost by 30% or more above the cash price of the solar project.
- Misleading claims about what consumers will pay. Lenders are inaccurately presenting loan principals as tax credits. Such tax credits aren’t guaranteed and are based on a number of factors.
- Ballooning monthly payments. Loan terms may require a substantial prepayment by a certain date that’s equal to the expected tax credit. In the instance the homeowner doesn’t qualify for the credit, they may be required to pay the prepayment or face substantially higher monthly payments.
- Exaggerated savings claims. Lenders are incorrectly telling homeowners that solar panels will cover financing costs as well as eliminate future energy bills. This is not the case for all homeowners.
FinCEN released a dedicated website for reporting beneficial ownership information
On August 8, 2024, FinCEN released a dedicated website and reference guide to educate business owners on the new beneficial ownership information (BOI) reporting requirements. This tool is for business customers of banks who are also covered by the Corporate Transparency Act.
FDIC determines interactive teller machines aren’t considered a domestic branch
Section 18(d) of the Federal Deposit Insurance Act (FDI Act) requires a state nonmember bank to obtain FDIC’s consent before establishing a domestic branch. Banks sought guidance from the FDIC on whether the proposed use of an interactive teller machine (ITM) at a location other than an established branch facility would be excluded from the definition of a domestic branch.
On Aug. 9, 2024, the FDIC published guidance stating it wouldn’t consider an ITM established by a state nonmember bank to be a “domestic branch” subject to FDIC approval under Sec. 18(d) of the FDI Act under the following circumstances:
- The ITM is an automated, unstaffed banking facility owned or operated by, or operated exclusively for, the bank, which is equipped to enable existing customers to initiate an interaction session with remotely located bank personnel.
- Customers must be able to perform core banking functions without the assistance of bank personnel. If bank personnel are involved in any core transaction, the customer must have sole discretion to initiate and terminate interactive sessions with the bank personnel.
ITMs that don’t meet the parameters above may require a branch application.
White House issued a fact sheet that states CFPB is planning to issue rules or guidance on chatbots
On Aug. 12, 2024, the White House issued a fact sheet that states the CFPB will identify when the use of chatbots or automated artificial intelligence voice recordings is unlawful. This includes situations where customers believe they are speaking with a human being.
Additionally, the CFPB will initiate a rulemaking process that will require companies under its jurisdiction to let customers talk to a human by pressing a single button.
CFPB determines “Contract-for-deed” real estate transactions are subject to TILA and Reg Z
The CFPB issued an advisory opinion and consumer advisory regarding “contract-for-deed” real estate transactions on Aug. 13, 2024. A “contract-for-deed” transaction is a purchase made on an installment plan rather than through a traditional mortgage loan. The seller agrees to turn over the deed only after the buyer completes a series of payments. The advisory was issued to affirm the applicability of certain consumer protections under TILA and Regulation Z for consumers engaged in a “contract-for-deed” transaction.
FDIC publishes new deposit insurance Q&As
The FDIC published new questions and answers relating to the display of the official FDIC sign in banks and bank digital channels on Aug. 16, 2024. These questions cover topics such as physical premises, digital channels, technical assistance, compliance and effective dates, and advertising for nondeposit products.
FDIC rule on AI-generated robocalls
The Federal Communications Commission (FCC) proposed new consumer protections against AI-generated robocalls on Aug. 7, 2024. If approved, rules would clarify practices surrounding AI-generated robocalls and implement new requirements:
- Clear definition of what’s included in the term, “AI-generated calls.”
- Requiring disclosures by callers using AI-generated calls when obtaining prior express consent.
- Requiring callers to inform consumers at the start of each call that is AI-generated.
- Ensuring protections are in place for beneficial AI applications, such as AI tools that can assist individuals with disabilities use the telephone network without the threat of TCPA liability.
The proposed protections would build on earlier FCC efforts, which determined that AI calls are subject to TCPA regulations. Other recent FCC actions to protect consumers from “AI-generated scams and misinformation,” include a declaratory ruling against voice cloning in robocalls, proposed lines for illegal robocalls and deepfake voice cloning, and inquiries into carrier practices to prevent fraudulent AI robocalls. Comments are due on or before Oct. 10, 2024, and reply comments are due on or before Oct. 25, 2024
OCC, Federal Reserve, and FDIC publish request for information for reducing regulatory burden for financial institutions
The federal bank regulatory agencies announced their notice requesting comment to reduce regulatory burden on July 25, 2024. The Economic Growth and Regulatory Paperwork Reduction Act requires FFIEC and bank regulators to review the regulations every 10 years to identify any outdated or otherwise unnecessary requirements for their supervised institutions. To facilitate the review, agencies have divided their regulations into 12 categories and are requesting comments in three categories: consumer protection; directors, officers, and employees; and money laundering.
HUD issues final rule allowing FHA mortgagees to communicate with borrowers in default remotely
The HUD issued a final rule on Aug. 2, 2024, which would allow FHA mortgagees to communicate with borrowers in default remotely, rather than in-person as previously required. The rule allows for electronic and other remote methods of communication to satisfy HUD’s requirement to meet with a borrower who is in default, while preserving consumer protections.
CFPB issues report that finds large retail chains charge cash-back fees to customers using debit and prepaid cards
The CFPB published a report on Aug. 27, 2024, that details how Americans are paying millions of dollars in fees to access their own money when getting cash back at large retail stores. Getting cash back at a retail store may be the only option for people living in small towns to receive cash from their accounts for free. The introduction of cash back for fees is occurring primarily in dollar store chains. The CFPB sampled eight large retail companies and reported the following findings:
- Cash-back fees cost consumers millions of dollars.
- Cash-back fees are charged on low withdrawal amounts; this constitutes a substantial percentage of the withdrawal amount for each instance of withdrawal.
- Consumers with lower incomes or fewer banking choices encounter cash-back fees disproportionately.
The CFPB will continue to monitor the fees consumers pay for accessing cash and will work with agencies across the government to ensure consumers have fair and meaningful access to their money.
FinCEN issues final rules to protect the residential real estate and investment sectors from illicit finance
On Aug. 28, 2024, FinCEN issued two new rules to combat illicit finance in the residential real estate and investment adviser sectors:
- Residential real estate rule. Requires reporting of nonfinanced transfers of residential real estate to legal entities or trusts, aiming to increase transparency and prevent money laundering.
- Investment adviser rule. Imposes anti-money laundering and countering the financing of terrorism (AML/CFT) requirements on certain investment advisers registered with the SEC, addressing uneven AML/CFT application in the industry.
These rules were developed with extensive public and industry input to ensure effectiveness and minimize burdens to businesses.
CFPB report highlights consumer protection issues in medical and rental debt collection
The CFPB issued its annual report on debt collection on Sept. 5, 2024, highlighting aggressive and illegal practices in collecting medical and rental debt, such as inflated rental debt due to real estate company revenue management software and debt collectors pursuing bills already covered by nonprofit hospitals’ financial assistance programs. The CFPB is working to ensure debt collectors comply with the FDCPA and FCRA. The CFPB’s supervisory program identified multiple issues such as unlawful attempts to collect work-related medical debt from workers covered by worker compensation laws. The CFPB has also taken enforcement actions against debt collectors for collecting unsubstantiated debt, unlawfully threatening legal action, and other violations.
FinCEN issues in-depth analysis of mail theft-related check fraud
FinCEN issued a financial trend analysis on Sept. 9, 2024, on mail theft-related check fraud based on six months of filed BSA data. FinCEN received 15,417 reports from 841 institutions, totaling over $688 million in suspicious activity. FinCEN Director Andrea Gacki and Chief Postal Inspector Gary Barksdale highlighted the collaboration between FinCEN and the U.S. Postal Inspection Service (USPIS) in identifying and prosecuting fraudsters and the role of SARs in aiding victims and targeting criminal networks. FinCEN’s analysis of BSA reports on mail theft-related check fraud identified three main outcomes:
- 44% of stolen checks were altered and deposited.
- 26% were used to create counterfeit checks.
- 20% were fraudulently signed and deposited. Banks filed 88% of these reports, with incidents reported in every U.S. state, Washington, D.C., and Puerto Rico, particularly in populous urban areas.
FinCEN emphasizes the impact of check fraud on personal and business accounts, as well as financial institutions. They advise financial institutions to file suspicious activity reports and refer victims to the U.S. Postal Inspection Service.
CFPB takes action to stop banks from collecting overdraft fees without consumers’ consent
Per the Electronic Fund Transfer Act, banks can’t charge overdraft fees on ATM and debit card transactions unless consumers have affirmatively opted in. On Sept. 17, 2024, the CFPB published guidance to help consumer protection enforcers stop banks from charging overdraft fees when the bank has no proof they obtained consent from the consumer. Consumer protection law enforcers should assume consumers haven’t opted into overdraft unless banks can prove otherwise.
OCC approves final rule and issues policy statement on bank mergers
On Sept. 17, 2024, the Office of the Comptroller of the Currency (OCC) has approved a final rule and policy statement to update regulations for business combinations involving national banks and federal savings associations. This aims to enhance transparency in reviewing transactions under the Bank Merger Act (BMA). Key points include:
- General principles for the OCC’s review of applications, including:
- Indicators for applications which are more likely to be approved quickly.
- Indicators for applications that raise supervisory or regulatory concern which would need to be addressed prior to OCC approval.
- Consideration factors: Financial stability, managerial and financial resources, future prospects, and statutory factors.
- Public involvement: Decision process for extending public comment periods or holding public meetings.
OCC reports Q2 2024 mortgage performance
The OCC’s Mortgage Metrics Report for the second quarter of 2024 was released on Sept. 18, 2024. The report shows that 97.3% of first-lien mortgages were current and performing, slightly down from 97.4% in the previous quarter. The percentage of seriously delinquent mortgages remained stable. Key points include:
- Foreclosures. 6,295 new foreclosures were initiated, a decrease from the previous quarter and year.
- Modifications. 7,488 loan modifications were completed, down 5.5% from the previous quarter, with 90.9% being combination modifications.
The first-lien mortgages included in the report covers 21.3% of all U.S. residential mortgage debt totaling $2.8 trillion in principal balances.
CFPB issues proposed amendment to remittance transfer rule
The CFPB proposed a rule on Sept. 20, 2024, to amend disclosure requirements for international money transfers (remittances). The amendment aims to provide clearer information to consumers about contacting their remittance company for specific issues before reaching out to the CFPB or state regulators. This change could save consumers time and reduce inappropriate inquiries to regulatory bodies.
The rule, part of the Electronic Fund Transfer Act and Regulation E, requires remittance companies to include contact information for state regulators and the CFPB in their disclosures. The public can comment on the proposed rule until Nov. 4, 2024.
CFPB issues report highlighting challenges facing service members and veterans with student loans
On Sept. 24, 2024, the CFPB published its annual report on the top financial concerns facing service members, veterans, and military families. The report indicates service members, military families, and veterans are facing the following:
- Challenges when trying to contact or get help from student loan servicers.
- Servicing errors are preventing service members from enrolling in income-driven repayment plans.
- Withholding of transcripts by colleges and universities may prevent service members and veterans from receiving promotions, securing employment, or completing their degrees.
In addition to findings related to student loans, the report indicates older veterans are being exposed to fraud and scams related to money transfers or service.
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