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FDIC opens comment period on proposed Statement of Policy regarding bank merger transactions, highlights “added scrutiny” for $100+ billion mergers
On March 21, the FDIC issued a request for comment on its proposed Statement of Policy (SOP) on bank merger transactions, which will aim to update, strengthen, and clarify the FDIC’s approach to bank merger evaluation. The proposed SOP does note that transactions in excess of $100 billion are more likely to present financial stability concerns and will be “subject to added scrutiny.” The new SOP will replace the FDIC’s current SOP on its responsibilities under the Bank Merger Act (BMA) or Section 18(c) of the FDI Act. Both the heads of the CFPB and OCC issued statements on this review, with the Acting Comptroller of the Currency offering his explicit support.
Broadly speaking, the proposed SOP aims to make the process more principles based, communicate the FDIC’s expectations in its evaluation of merger applications, and describe which merger transactions are under the FDIC’s domain. The proposed SOP will include separate discussions for each statutory factor as set forth in the BMA, including the effects on competition, financial resources, future prospects, CRA, financial and banking stability risk, and AML considerations. Further, this will not be an exhaustive list, as the FDIC will claim jurisdiction over any other elements that could present a risk to financial stability. Of note, the proposed SOP will not include any “bright lines or specific metrics” on what transaction would be considered anti-competitive, as the FDIC wishes to maintain its flexibility to appropriately evaluate the circumstances of each merger application.
This new comment period will begin after the FDIC reviewed 33 comment letters received during the previous comment period, about three-fourths of which were in favor of at least some changes to the FDIC’s merger review process. Six commenters were against such changes and two commenters were neither in favor of nor against the changes. The comments against argued that the current framework was “sound,” and any revisions could harm the sector by making the bank merger process more difficult and disproportionally impacting community, mid-size, and regional banks. Comments must be received by 60 days from the date of the SOP’s publication in the Federal Register.
CFPB warns remittance transfer providers against falsely advertising the costs and speed of transfers
On March 27, the CFPB issued a circular cautioning remittance transfer providers against falsely advertising the costs or speed of sending transfers to avoid violating the CFPA’s prohibition on deceptive acts or practices. The CFPB would administer and enforce the Remittance Rule under the EFTA, but the Bureau noted that remittance providers also can be liable under the CFP Act for deceptive marketing practices, regardless of whether they comply with the Remittance Rule’s disclosure requirements. Through the circular, the CFPB warned against falsely marketing “no fee” or “free” services if the remittance transfer provider actually charges a fee, noting that “[w]ith respect to digital wallets or other similar products, it can be deceptive to market a transfer as ‘free’ if the provider imposes costs to convert funds into a different currency or withdraw funds,” and that “[i]t may also be deceptive to market international money transfers as ‘free’; if the provider is imposing costs on consumers through the exchange rate spread.” The Bureau also warned against “burying” promotional conditions in fine print, and falsely advertising how long a transfer will take especially if transfers may take longer to reach recipients. The circular would apply to traditional international money transfer providers, as well as “digital wallets” that send money internationally from the U.S. and would be part of the Bureau’s initiative to “rein in” alleged “junk fees.”
CFPB wins approval to move credit card late fee case to Washington, D.C.
On March 28, the U.S. District Court for the Northern District of Texas granted the CFPB’s motion to transfer a case to the U.S. District Court for the District of Columbia after identifying several concerns regarding litigating the case in the Texas venue. This case has been brought by multiple trade organizations to challenge the CFPB’s attempt to alter the structure and amount of credit card late fees under its alleged authority under the CARD Act, covered by InfoBytes here. The court agreed to transfer the case after finding that both defendants, along with three of the six plaintiffs, resided in Washington where the rule at issue was promulgated; comparatively, only one of the six plaintiffs resided in Fort Worth.
The court analyzed both private- and public-interest factors. On private-interest factors, the court agreed that Washington was a more practical venue, noting that eight of the ten attorneys representing the parties list offices in Washington, while only one plaintiff was headquartered in Texas. The court concluded that plaintiffs also have not identified any substantial or practical issues with this case being held in Washington. On public interest factors, the court weighed the comparative dockets and noted that, on average, a case in Washington would be resolved faster than in Texas. The court also reasoned that there was a strong interest in having the case decided in Washington. “The Rule at issue in this case was promulgated in Washington D.C., by government agencies stationed in Washington D.C., and by employees who work in Washington D.C. Most of the Plaintiffs in this case are also based in Washington D.C. and eighty percent of the attorneys in this matter work in Washington D.C. Thus, the [U.S. District Court for the District of Columbia] has a stronger interest in resolving this dispute, as it is the epicenter for these types of rules and challenges thereto.”
CFPB, federal and state agencies to enhance tech capabilities
On March 26, the CFPB announced as a part of a coordinated statement with other federal and state agencies, the intent to enhance its technological capabilities. As part of this initiative, the CFPB will be hiring more technologists to help enforce laws and find remedies for consumers, workers, small businesses, etc. These technologists will join interdisciplinary teams within the CFPB to monitor and address potential violations of consumer rights within the evolving tech landscape, particularly considering the growing attention to generative artificial intelligence (AI). The CFPB's technologists will be tasked with identifying new technological developments, recognizing potential risks, enforcing laws, and developing effective remedies. CFPB Director Rohit Chopra emphasized the essential role of technology in the Bureau’s efforts to regulate data misuse, AI issues, and big tech involvement in financial services. Chopra and Chief Technologist Erie Meyer remarked that the CFPB has integrated technologists into its core functions, with these experts now actively involved in supervisory examinations, enforcement actions, and other regulatory proceedings. They also note that the CFPB has researched how emerging technologies, such as generative AI and near-field communication, are used in consumer finance. To foster a competitive and “law-abiding” marketplace, Chopra and Meyer also note that the CFPB will continue to issue policy guidance to assist firms with understanding legal obligations.
CFPB submits brief alleging “forum shopping,” banking groups defend their choice of venue
On March 12, the CFPB submitted a brief to the U.S. District Court for the Northern District of Texas in opposition to a motion for preliminary injunction filed by a group of industry associations, urging the court to block the implementation of a new rule that would limit the ability of large credit card issuers to charge late fees (covered by InfoBytes here).
The CFPB defended the rule by stating that it has considered all relevant factors and that the rule aimed to prevent credit card issuers from charging excessive late fees. The CFPB also argued that the case is not properly situated, as the plaintiffs lack a significant connection to the district in which they filed the lawsuit and do not have the standing to sue on behalf of others, stating “it seems not one large card issuer wants its name on the marquee… [t]he rule applies to only the largest card issuers—approximately 30–35 total entities nationwide. Plaintiffs have not identified a single one that is based in this District.” The CFPB suggested that plaintiffs have engaged in “forum shopping”—i.e., choosing this court because they believe it will be more favorable to their case, despite a lack of substantial connection to the district. The brief stated that the plaintiffs are unlikely to succeed on the merits of their claims under the Administrative Procedure Act because they failed to establish proper venue and associational standing. Additionally, the CFPB argued that an injunction was not warranted because the rule was designed to protect consumers and that preventing its implementation would be against the public interest.
On March 13, plaintiffs submitted a brief defending its motion for preliminary injunction and their choice of venue in Texas as part of an ongoing suit against the CFPB. The brief stated that according to law, the venue was appropriate if one plaintiff resided in the district, which applied to one of the Texas-based chamber plaintiffs, and if a significant portion of the related events occurred in the district, which is true as the rule impacted the local area. That plaintiff argued they have standing to sue because the issues are relevant to its “mission of cultivating a ‘thriving business climate in the Fort Worth region’” and its trade members included credit card issuers affected by the rule. Despite the CFPB’s counterarguments that the plaintiff lacked standing and that a transactional venue was not applicable, the plaintiff asserted it represented members that would be directly impacted by the rule, fulfilling the requirements for standing. Additionally, plaintiff contended that the rule's effects within the district justify the court's jurisdiction over the case.
Senator Romney et al. pen letter confirming nonbank lending regulations, specifically on the ILC charter
On March 13, Senator Mitt Romney (R-UT) with 11 other senators penned a brief letter to the heads of the FDIC, OCC, and CFPB that supported the FDIC’s regulation of the industrial loan company (ILC) charter but expressed concerns about delay in processing ILC charter applications. According to the letter, ILCs provide “critical access to credit opportunities within the regulated banking sector.” The letter stated the senators “strongly oppose” regulatory actions against lawful ILC charter applications that may further delay FDIC review and decision-making.
White House targets “junk fees” in higher education with several new initiatives
On March 15, the White House issued a fact sheet on proposed measures aimed at curbing or eliminating alleged “junk fees” in higher education, citing that it found college students incurred “billions in fees” when having to pay for services they may not want. The first action the Biden Administration highlighted was a FY 2025 budget proposal that would eliminate student loan origination fees. The White House found that seven million student loan borrowers pay origination fees somewhere between one and four percent of their student loans. The second item the Biden Administration sought to end was college banking “junk fees,” citing a recent report by the CFPB on this issue (covered by InfoBytes here). To address this issue, the Dept. of Education has proposed a rule on college banking products that cannot include harmful fees. Third, the White House supports another proposed rulemaking from the Dept. of Education that would end automatic billing on tuition for textbooks, allowing students to shop around for better prices. Last, the Dept. of Education is considering a rulemaking that would stop colleges from pocketing leftover meal plan “dollars,” and instead will return the balance to students. The Biden Administration noted these were just a few items meant to help student initiatives, including increasing the transparency of college costs and preventing schools from withholding transcripts. These rules will go into effect on July 1.
U.S. SDNY grants partial summary judgment in favor of bank’s FCRA case
Recently, the U.S. District Court for the Southern District of New York opined on a bank’s motion for partial summary judgment, granting the motion as to whether the bank “knowingly” violated the FCRA but denying whether the bank acted “recklessly.” The complaint originated when the individual plaintiff opened a credit card and the plaintiff, along with other cardholders, was enrolled in a disaster relief program (DRP) that provided short-term relief for customers negatively impacted by the Covid-19 pandemic. The plaintiff alleged that the bank reported an outstanding account balance to the credit bureaus as delinquent despite promising that the balance would not be reported due to the protections of the DRP. Upon discovering this, the plaintiff disputed the reporting with the bank. The bank then investigated the plaintiff’s payment history, concluding that there had been no error because there was in fact an outstanding delinquent balance. The plaintiff eventually filed complaints with the CFPB in 2022 and proceeded to file suit later that year.
The plaintiff alleged that the Bank failed to conduct a reasonable investigation by limiting the investigation to the plaintiff’s payment history, and by failing to consider whether the delinquent balance should have been reported due to the protections of the DRP. The court found that a reasonable jury could determine the bank recklessly reported the outstanding account balance to the credit bureaus without performing a reasonable investigation, and thus denied summary judgment. The court noted that the bank’s investigation relied on automated computer programs as to some items, and a manual review that was limited to the account history as to other items.
The bank argued it did not “knowingly” violate the FCRA. The court agreed and found the bank could not be “consciously aware” that a violation would come about as a result of its investigation, concluding the bank is entitled to summary judgment on whether it “knowingly” violated § 1681s-2(b) of FCRA.
Trusts are covered persons subject to the CFPA, 3rd Circuit upholds CFPB FDCPA case
On March 19, the U.S. Court of Appeals for the Third Circuit filed an opinion remanding a case between the CFPB and defendant statutory trusts to the District Court. After issuing a civil investigative demand in 2014, the CFPB initiated an enforcement action in September 2017 against a collection of 15 Delaware statutory trusts that furnished over 800,000 private loans and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or was outside the applicable statute of limitations (covered by InfoBytes here). Then, early last year, the parties settled and asked the court to enter a consent judgment, which was denied (covered by InfoBytes here).
The 3rd Circuit addressed two questions: (i) whether the trusts are covered persons subject to the CFPA; and (ii) whether the CFPB was required to ratify the underlying action that questioned a constitutional deficiency within the Bureau. On the statutory issue, the court found that the trusts fell within the purview of the CFPA because trusts “engage” in offering or providing a consumer financial product or service, specifically student loan servicing and debt collection, as explicitly stated in the trust agreements each trust entered. Regarding the constitutional question, the defendants argued that the Bureau needed to ratify the underlying suit because it was initiated while the agency head was improperly insulated, and since the Bureau ratified it after the statute of limitations had run, the suit was untimely. The court disagreed and found that the defendants’ analysis of the here-and-now injury “doesn’t go far enough,” therefore the CFPB did not need to ratify this action before the statute of limitations had run because the impermissible insulation provision does not, on its own, cause harm.
Chopra pens comment letter on appraisal issues, including bias, related to not-for-profit player’s oversight
On March 18, the Director of the CFPB, Rohit Chopra, in his capacity as a voting member of the FFIEC, released a comment letter regarding the recent Appraisal Subcommittee hearings. He opened on how the appraisal process was governed not by a governmental agency, but instead by a not-for-profit corporation leading to “key issues” related to appraisal bias. Despite its private status, this organization was governed by the Appraisal Subcommittee which monitors and reviews the organizational structure of the not-for-profit appraisal corporation. Chopra outlined several issues gleaned from the four hearings: First, Chopra noted “severe deficiencies” with the not-for-profit’s conflict of interest policies, noting that the Executive Branch’s conflict of interest policies for employees spanned 77 pages, while the not-for-profit’s policy was less than 10. Second, the not-for-profit has an “insular and contorted governance structure” that favors private over public interests. And third, the Appraisal Foundation’s governance processes, such as electing its President, lack transparency. Chopra highlighted these three examples and described the overall lack of accountability as “deeply troubling” because the not-for-profit was one of the most powerful players when it comes to appraisals.