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CFPB announces new advisory committee members
On October 5, the CFPB released new membership details for its advisory boards and councils, including the Consumer Advisory Board, Community Bank Advisory Council, Credit Union Advisory Council, and Academic Research Council. The Bureau noted that under Dodd-Frank, it is tasked with establishing a Consumer Advisory Board to provide insights on various consumer finance matters. These board members represent different districts of the Fed and are recommended by Federal Reserve Bank presidents. The Community Bank Advisory Council and Credit Union Advisory Council guide the CFPB on financial issues concerning community banks and credit unions respectively. Meanwhile, the Academic Research Council contributes to shaping research plans and agendas, and offers feedback on research methodologies and data collection strategies.
Members of these advisory boards and councils serve voluntarily and do not receive compensation. They also cannot officially represent the CFPB or the Fed, and their selection does not imply endorsement of their respective organizations.
3rd Circuit Limits furnishers’ labeling authority
On October 2, the U.S. Court of Appeals for the Third Circuit ruled that a collection agency who was acting as a furnisher of credit reporting information could not shirk its duty to investigate a dispute by labeling the dispute “frivolous” when the complaint was referred for investigation by a credit reporting agency (CRA). The decision overturned the lower court’s ruling which had sided with the furnisher.
According the ruling, the plaintiff in this action claimed that a fraudulent account had been opened in his name with a television service provider. Plaintiff was described as having first disputed the account directly with the television service provider, but failed to provide supporting documents which the television service provider had requested. Following the plaintiff’s failure to provide the requested documentation, the television service provider referred the disputed account to the collection agency, who in turn reported the delinquent account to the CRA.
The ruling states that when the disputed account appeared on the plaintiff’s consumer report, the plaintiff made an indirect dispute of the information with the CRA, who in turn forwarded the dispute to the collection agency for investigation. The ruling notes that the collection agency undertook no further investigation in response to the dispute, and instead merely confirmed the account information and updated the plaintiff’s address, which the court noted took only 13 seconds.
The court noted that although the FCRA does allow for the recipient of disputes “to preliminarily vet the dispute for frivolousness or irrelevance before investigating,” once a CRA has referred a dispute to a furnisher, “the furnisher does not have such discretion.” Because in this case the collection agency had been referred to it by a CRA, it “had a duty to investigate [plaintiff’s] indirect dispute when it received notice thereof from [the CRA].”
Supreme Court hears oral argument in challenge to CFPB
On October 3, the Supreme Court heard oral argument in CFPB v. Community Financial Services Association of America —a case presenting the most significant challenge yet to the constitutionality of the CFPB. As previously covered by InfoBytes, a panel of the U.S. Court of Appeals for the Fifth Circuit agreed with the plaintiff industry groups that the CFPB’s funding structure violates the appropriations clause. At oral argument, the U.S. Solicitor General observed that the lower court decision was the “first time any court in our nation’s history has held that Congress violated the Appropriations Clause by enacting a statute providing funding.” She noted that Congress has approved similar “standing appropriations” for agencies including the U.S. Customs Service, the U.S. Post Office, and the U.S. Mint.
Several conservative justices pushed back against the CFPB’s and Solicitor General’s stance. For example, Chief Justice Roberts called it “very aggressive view” of Congress’ authority, and Justice Alito emphasized that the CFPB’s funding mechanism was unique in that its funding comes from the Federal Reserve, which is itself not funded through normal appropriations. However, Justice Thomas challenged counsel for the industry groups, noting that “we need a finer point” on “what the constitutional problem is,” beyond the uniqueness of the funding mechanism. Justice Barrett, too, stated she was “struggling to figure out” what standard courts might use in determining whether a cap on an agency’s appropriation is too high.
Find continuing InfoBytes coverage on CFPB v. Community Financial Services Association of America here.
District Court grants summary judgement for bank in “spoofing” case
On September 29, the U.S. District Court for the Southern District of New York granted summary judgement on all claims in favor of the defendant bank, while denying summary judgement for the New Jersey-based plaintiff. The plaintiff alleged violations of the UCC, breach of contract, and gross negligence arising from a “spoofing” fraud incident that resulted in more than $8.5 million being wired from the plaintiff’s account with the defendant. The district court reasoned that the plaintiff was not entitled to a refund because the plaintiff’s employees authorized the wires – and claims under Section 4-A of the UCC require that a payment order be both not authorized and not effective in order to refund a payment. The court rejected the plaintiff’s argument that the wires were improper because the bank’s policy prohibited bank employees from authorizing wires over $500,000 – noting that the policy was for “internal use only,” and solely for the bank’s protection. Further, the court rejected the plaintiff’s common law claims as pre-empted by Article 4-A.
NYDFS settles with bank for compliance failures
On September 29, NYDFS announced a settlement with a South Korean-based bank’s American subsidiary to resolve allegations of repeated violations of AML requirements, the Bank Secrecy Act (BSA), and New York law. According to the consent order, the respondent was repeatedly examined seven times in less than 10 years by DFS and entered into a consent order with the FDIC in 2017 for BSA/AML compliance, among other things. DFS claims that respondents violated (i) New York Banking Law § 44 by conducting their business in an unsafe and unsound manner; (ii) 3 NYCRR § 116.2 by failing to maintain an effective AML compliance program; and (iii) 23 NYCRR § 504.4 by incorrectly certifying compliance with Part 504. To resolve the claims, the respondent agreed to pay a $10 million civil money penalty, and write a written plan detailing improvements to its compliance policies and procedures, among other things.
NY proposes amendments of debt collector rules
On September 30, the New York City Department of Consumer and Worker Protection (Department) published proposed amendments to its rules relating to debt collectors. The proposed amendments to its 2020 rules, which require debt collectors to inform consumers about language access services, come in response to the CFPB’s 2020 updates to the FDCPA, and the Department’s 2022 public hearing, among other things. The proposed rule (i) repeals a section requiring debt collection agencies to give consumers certain disclosures when collecting on time-barred debt; (ii) requires debt collection agencies to maintain an annual report identifying certain actions taken by the agency in any language; (iii) expands the list of required records to cover compliance with relevant laws and rules, as well as a monthly log of all debt collection-related communications by any medium between the agency and the consumer; and (iv) adds definitions relating to communications with consumers, such as “attempted communication,” “clear and conspicuous,” “covered medical entity,” “limited-content message,” “original creditor” and “originating creditor.”
FDIC proposes additions to its safety and soundness standards
On October 5, the FDIC issued a notice of proposed rulemaking that would add a new appendix to the agency’s safety and soundness standards. The new appendix, which would be Appendix C, “is intended to promote strong corporate governance and risk management at FDIC-supervised institutions that have total consolidated assets of $10 billion or more by proposing corporate governance and risk management guidelines.” The proposed guidelines would describe the general obligations of the board of directors, requiring the board to be active and involved in protecting the interests of the institution, adopt a code of ethics for the institution’s operations, and form a Risk Committee within the institution’s committee structure. The proposed guidelines would also require institutions to establish a risk management program that includes a “three-line-of-defense model” for risk monitoring and reporting, as well as require institutions to create and maintain a risk profile and risk appetite statements that are communicated to all employees to encourage compliance.
Fed's Bowman discusses research of regulatory thresholds, deposits
On October 4, Federal Reserve Governor Michelle Bowman delivered a speech at the Fed’s annual Community Banking Research Conference, calling for more research on regulatory thresholds and the deposit insurance framework. In her remarks, Bowman discussed the importance of evidence-based research around community banks and their role in the U.S. banking system, especially in light of recent bank failures. “Research and evidence-based rulemaking can insulate the banking system from wide swings in policy over time,” she said, adding that before rulemaking, the agency must have a comprehensive understanding of both the root causes of bank failures and the costs and consequences of potential reforms.
Bowman additionally discussed needed reforms to bank merger policy, particularly to include nonbank competitors and credit unions in the analysis of the competitive landscape. Bowman argued that the use of a narrower view on competitive concerns has led to increasingly long application and review periods for mergers, which can increase negative outcomes.
Regarding community bank thresholds, Bowman noted contradictions and inconsistencies how community banks are defined, and accordingly regulated, across the regulatory system. For example, while the Dodd-Frank Act defined community banks as those institutions with less than $10 billion in total consolidated assets, the Community Reinvestment Act regulation includes asset thresholds well below the “common understanding of what a community bank is.” “Are these asset size thresholds properly calibrated, and are the impacts, costs, and benefits to institutions and to customers when banks cross these different thresholds rational? Are these thresholds creating the right incentives to promote prudent lending while appropriately balancing risk?” Bowman asked. She suggests leveraging business models in tailoring rules, instead of looking only at asset-size thresholds.
Another area in need of research in the wake of recent bank failures, Bowman suggested, is bank funding models and deposit infrastructure. Thanks to modern technology, consumers can withdraw funds faster than ever, so deposit insurance parameters are worth revisiting to ensure it can “support banking sector stability in the face of the challenges posed by today's technology,” Bowman said.
FDIC makes public August enforcement actions
On September 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in August. During the month, the FDIC made public nine orders consisting of “three consent orders, three orders terminating consent orders, two orders of prohibition, and one order to pay a civil money penalty.” The list includes an order to pay a civil money penalty imposed against a Utah-based bank related to violations of the Flood Disaster Protection Act. The FDIC claimed that the bank engaged in a pattern practice of violating FDPA by, among other things: (i) issuing loans without adequate flood insurance; (ii) failing to provide notices when increasing or extending loans; and (iii) “failing to provide required force-placed insurance notices when loans were secured by properties and contents located in Special Flood Hazard Areas.” The bank neither admitted nor denied the alleged violations but agreed to, among other things, pay a $4,125 civil money penalty.
CFPB shares concerns and actions regarding medical debt collection
On October 4, Seth Froman, the CFPB’s General Counsel and senior advisor to Director Chopra, delivered remarks at the New Jersey Citizen Action Education Fund’s Financial Justice Summit. He heralded the work and mission of the CFPB, and focused on the impact of medical debt. He emphasized the CFPB’s concerns that families are being “saddled with medical bills they should not – or do not – owe,” and mentioned a recent enforcement action ordering a medical debt collector to pay more than a million dollars in penalties and redress “because the collector continued to collect on debts without verifying that they were valid after consumers disputed them.” He further discussed the impact of medical bills on consumer credit, such that consumers have a “strong incentive to pay the medical bill, even when they think it’s not the right amount or don’t owe it at all.”