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CFPB reports larger banks charge higher interest rates on credit cards than smaller banks
On February 16, the CFPB published the results of a report that found, on average, larger banks charged higher credit card interest rates than smaller banks and credit unions. The CFPB’s data suggested larger banks charge interest rates eight to 10 points higher than non-large banks. If a consumer were to pick a large bank credit card over a smaller bank, the consumer would see an estimated difference of “$400 to $500” in additional annual interest.
Other findings from the report suggested that large issuers offered higher rates across credit scores: e.g., the median interest rate for people with scores between 620 and 719 was 28.20 percent for large banks and 18.15 percent for small ones. The CFPB also found that 15 bank-issued credit cards with interest rates above 30 percent: nine of the largest issuers reported at least one product over that rate. Lastly, the report found that large banks were more likely to charge annual fees, with 27 percent of large banks charging an annual fee, compared to 9.5 percent of small banks. The CFPB published a table between large and small banks that showed median purchase APR by credit tier.
House Democrats urge agencies to finalize Basel III Endgame rule
On February 16, the Ranking Member for the House Committee on Financial Services, Maxine Waters (D-CA), and 41 other House Democrats sent a letter to the FDIC, Fed, and OCC regarding the Basel III Endgame and the proposed rule which would impose higher capital requirements. The letter urged the agencies to finalize the rule, highlighting the purpose of capital requirements “to shield banks from unexpected losses, preventing their failure, while serving as a source of funding that banks use…” The letter commended the agencies for providing the public with almost six months to comment and argued the endgame rule’s impact on access to credit is low. The letter also noted that the expected funding impact on a large bank’s average lending portfolio is expected to increase by just 0.03 percent, which it describes as “insignificant” compared to Fed interest rate increases. The letter specifically urged the heads of the agencies to finalize the rules this year “to ensure we have a banking system that will promote stable economic growth.”
CFPB reports “all-time high” interest rate margins on credit cards
On February 22, the CFPB released a blog post on credit card interest rates stating that the interest rate margins are at an all-time high. According to the Bureau, the margin is the difference between the average APR and the prime rate. The blog post notes that both the average APR and the margin between the average APR and the prime rate have reached record highs. Specifically, the Bureau noted that, over the last 10 years, the average APR on credit cards interest has nearly doubled from 12.9 percent in 2013 to 22.8 percent in 2023. Likewise, the average APR margin has increased from 3.3 percent in 2013 to 8.5 percent in 2023. According to the Bureau, this change has been brought on by banks and issuers who have raised their APR margins to increase profits. The CFPB noted that, although the CARD Act of 2009 kept APR margins lower throughout the 2010s, issuers began to increase the APR in 2016. The Bureau intends to take steps to ensure a fair market and to “help consumers avoid debt spirals.”
FCC ruling determines AI calls are subject to TCPA regulations
On February 8, the FCC announced the unanimous adoption of a declaratory ruling that recognizes calls made with AI-generated voices are “artificial” under the Telephone Consumer Protection Act (TCPA). The declaratory ruling notes that the TCPA prohibits initiating “any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party” unless certain exceptions apply. The TCPA also prohibited “any non-emergency call made using an automatic telephone dialing system or an artificial or prerecorded voice to certain specified categories of telephone numbers including emergency lines and wireless numbers.”
The ruling, effective immediately, deemed voice cloning and similar AI technologies to be artificial voice messages under the TCPA, subject to its regulations. Therefore, prior express consent from the called party is required before making such calls. Additionally, callers using AI technology must provide identification and disclosure information and offer opt-out methods for telemarketing calls.
This ruling provided State Attorneys General nationwide with additional resources to pursue perpetrators responsible for these robocalls. This action followed the Commission’s November proposed inquiry for how AI could impact unwanted robocalls and texts (announcement covered by InfoBytes here).
New York Fed Bank analyzes BNPL usage
On February 14, the Federal Reserve Bank of New York (NY Fed) published a blog post evaluating different households’ use of buy now pay later (BNPL) products, which it generally described as “loans that are payable in four or fewer installments and carry no finance charges.” To understand BNPL usage and its relationship with consumers’ financial situations, the NY Fed conducted a study which revealed distinct usage patterns between the financially fragile and the financially stable.
The study revealed that financially fragile individuals, or individuals who have a credit score below 620, who have been declined for a credit application in the past year, or who have fallen 30 or more days delinquent on a loan in the past year, typically use BNPL to make frequent small purchases when compared to financial stable individuals. The study also found that using BNPL often leads to repeat transactions, indicating a potential trend towards repeat use of the product, particularly among those facing credit challenges.
The study also found that consumers’ motivations for using BNPL differ. Financially stable individuals often cite zero interest as a key advantage, while the financially fragile prioritize ease of access and convenience. The NY Fed summarized that BNPL usage among financially fragile individuals resembles using a credit card for medium-size, out-of-budget purchases, while financially stable users tend to make fewer purchases with a focus of avoiding interest on high-priced items. The NY Fed noted, however, that there is evidence of misunderstanding among users, such as the belief that BNPL helps build credit, concluding that “those with this view may be better off using a credit card.”
Fed, FDIC, and OCC release stress test scenarios for 2024
On February 15, the Fed, OCC, and the FDIC released their annual stress test scenarios for 2024 to assist the agencies in evaluating their respective covered institution’s risk profile and capital adequacy. The Fed released its “2024 Stress Test Scenarios” to be used by banks and supervisors for the 2024 annual stress test. The scenarios include hypothetical sets of conditions to evaluate the banks under baseline and severely adverse scenarios. The OCC similarly released economic and financial market scenarios to be used by national banks and federal savings associations and include both baseline and severely adverse scenarios as mandated by the stress testing requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The FDIC also released its stress test scenarios for certain state nonmember banks and state savings associations in conjunction with the OCC and the Fed.
Fed finds CEO engaged in crypto “pig butchering” scam which led to bank failure
On February 7, the Federal Reserve issued an evaluation report, as required by the Federal Deposit Insurance Act (where a loss to the deposit insurance fund is considered material), on a recently failed bank; the Fed concluded the bank failed due to alleged fraudulent activity by the bank’s CEO. In particular, the Fed found that the CEO initiated a series of wire transfers over the course of three months totaling about $47.1 million of the bank’s money as part of a cryptocurrency scam known as “pig butchering.” According to a FinCEN alert, “pig butchering” occurs when a scammer convinces its victims to invest in purportedly legitimate cryptocurrency investments but then steals the victim’s money.
The Fed found that the bank’s employees neglected to follow proper internal controls and policies that could have “prevented or detected” the alleged fraudulent activity, attributing the failure to a reluctance to challenge the CEO given the CEO’s “dominant role in the bank and prominent role in the community.” Specifically, the employees did not comply with the bank’s BSA/AML policy or file suspicious activity reports as outlined under the policy. As a result, the Fed recommended (i) increasing the awareness among state member banks of cryptocurrency scams; and (ii) providing training to examiners on cryptocurrency scams.
OCC’s Hsu discusses appraisal bias
On February 13, Acting Comptroller of the Currency Michael Hsu discussed eliminating appraisal bias in the financial industry at a public hearing held by the Appraisal Subcommittee of the FFIEC. In his remarks, Hsu highlighted the importance of addressing bias in the existing standards for appraisal reports to aid in the OCC’s efforts to expand access to homeownership. Hsu noted that the OCC is taking steps to increase access to homeownership by improving supervisory methods used to identify potential discrimination in lending and housing valuations and encouraging banks to expand affordable housing financing and access to credit.
VA announces updates to loan repayment relief for borrowers affected by Covid-19
On February 9, the Department of Veterans Affairs (VA) issued a circular to consolidate updates related to VA’s disaster modification and loan deferment options. Effective February 9, the circular reiterates the options for disaster modifications and loan deferment and extends the options available for borrowers affected by Covid-19 through May 31, 2024. According to the circular, a servicer can provide a VA disaster modification without VA preapproval until May 31 regardless of the borrower’s enrollment in a Covid-19 forbearance plan, or Covid-19’s impact on the default. Additionally, the VA is allowing for disaster extend modifications to extend the loan’s original maturity date by up to 18 months, instead of the standard 12 months, if the loan is modified not later than May 31. Further, subject to certain requirements and restrictions, the circular also granted servicers flexibility to offer loan deferment when borrowers have missed payments due to the pandemic, regardless of CARES Act forbearance.
FTC, DFPI win MSJ against a fraudulent mortgage relief operation
On February 13, the FTC and California Department of Financial Protection (DFPI) announced that the U.S. District Court for the Central District of California granted their motion for summary judgment against several companies and owners that the agencies alleged were operating a fraudulent mortgage relief operation. As previously covered by InfoBytes, the FTC and DFPI filed a joint complaint against the defendants in September 2022 alleging that the defendants violated the FTC Act, the FTC’s Mortgage Assistance Relief Services Rule (the MARS Rule or Regulation O), the Telemarking Sales Rule, the Covid-19 Consumer Protection Act, and the California Consumer Financial Protection Law. In granting the motion for summary judgment, the court found the defendants violated all five laws. According to the motion, the defendants falsely represented that they could lower homeowners’ interest rates and reduce the principal balances, but, after taking the payment upfront, rarely delivered any agreed-upon services. The defendants also allegedly made misleading claims during telemarketing calls with homeowners regarding home foreclosure and mortgage payments, among other claims, including with homeowners with numbers on the national Do Not Call registry.
The court ordered the defendants to pay approximately $16 million in restitution and $3 million in civil penalties. Further, the court ordered that the defendants are subject to a (i) permanent ban on advertising, promoting, offering for sale, or selling, or assisting others in those acts, any debt relief product or service and all telemarketing; and (ii) prohibition against making misrepresentations or unsubstantiated claims regarding products or services.