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FDIC raises deposit insurance assessment rates
On October 18, the FDIC Board of Directors approved the adoption of a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by two basis points beginning with the first quarterly assessment period of 2023. (See also FDIC fact sheet here.) The FDIC said that after considering comments and updated analysis and projections, the increase in assessment rates was adopted without change from when it was proposed in June (covered by InfoBytes here). The FDIC emphasized that the increased assessment revenue is intended to increase the likelihood that the reserve ratio of the Deposit Insurance Fund (DIF) reaches the statutory minimum of 1.35 percent by the mandated deadline of September 30, 2028, while also reducing the likelihood that the FDIC would need to consider a potentially pro-cyclical assessment rate increase where it raises assessments when banking and economic conditions may be less favorable. This increase “is projected to have an insignificant effect on institutions’ capital levels, is estimated to reduce income slightly by annual average of 1.2 percent, and should not impact lending or credit availability in any meaningful way,” the FDIC said. Concurrently, the FDIC maintained the Designated Reserve Ratio for the DIF at two percent for 2023.
Acting Chairman Martin J. Gruenberg stressed that it “is better to take prudent but modest action earlier in the statutory 8-year period to reach the minimum reserve ratio, than to delay and potentially have to consider a pro-cyclical assessment increase.” CFPB Director and FDIC Board Member Rohit Chopra also chimed in, saying that while he voted in favor of finalizing the deposit insurance rate increase, there are a number of changes that must be made over the long term to deposit insurance assessment policies. These include (i) finding ways for banks that pose the most risk to the DIF “to pay more, relative to smaller institutions where the likelihood of large losses to the Fund are tiny”; (ii) building a framework to ensure assessment rate changes are countercyclical where premiums are adjusted “upward and downward based on economic conditions, recent industry profits, and other appropriate indicators”; and (iii) developing “a framework that relies less on ad-hoc adjustments and more on a systematized formula” based on specific quantitative factors.
FDIC issues final rule on troubled debt restructuring accounting standards
On October 18, the FDIC published a final rule in the Federal Register to incorporate updated accounting standards in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions. According to the FDIC, the final rule adds a new term, “modifications to borrowers experiencing financial difficulty,” to two financial measures—the underperforming assets ratio and the higher-risk assets ratio—that are used to determine deposit insurance assessments for large and highly complex insured depository institutions.
FTC takes action against auto dealer over deceptive advertising and pricing practices
On October 18, the FTC announced an action against an auto dealer group and two of its officers (the owner/president and the vice president) for engaging in deceptive advertising and pricing practices and discriminatory and unfair financing. According to the complaint, the FTC alleged that the defendants violated the FTC Act by deceptively advertising cars as “certified,” “inspected,” or “reconditioned” at specific prices, but then charged customers fees above the advertised price for costs related to “inspection,” “reconditioning,” or “certification.” The FTC also alleged that the defendants “unlawfully discriminate[d] on the basis of race, color, and national origin by imposing higher borrowing costs on Black and Latino consumers than non-Latino White consumers,” in violation of ECOA. Specifically, the FTC claimed that the defendants charged a higher markup to the interest rate for Black and Latino consumers than to non-Latino White consumers. Black and Latino consumers paid on average about $291 and $235, respectively, more in interest than non-Latino White consumers did. The FTC also alleged that Black and Latino consumers paid on average at least one extra fee 24 percent and 42 percent more often, respectively, than non-Latino White consumers. In addition to alleging that this conduct violated ECOA, the FTC also alleged that this discriminatory practice was an unfair act or practice in violation of Section 5 of the FTC Act. According to the order, the defendants are required to establish a fair lending program to ensure they do not discriminate in the future, including a provision that will require each associated dealership to either charge no financing markup or charge the same markup rate to all consumers, and must pay the FTC $3.38 million to refund harmed consumers. Among other things, the defendants are also prohibited from misrepresenting the cost or terms to buy, lease, or finance a car, or whether a fee or charge is optional. Two of the commissioners issued dissenting statements (see here and here), challenging the fair lending claims being brought under Section 5 of the FTC Act and the imposition of liability against the individual officers.
CFPB sues payment processor over junk fees and dark patterns
On October 18, the CFPB filed a complaint against a Texas-based payment processing service platform (primarily related to collecting and processing event fees) for allegedly violating the Consumer Financial Protection Act (CFPA) and the EFTA by engaging in deceptive and abusive acts and practices. The Bureau alleged that the defendant enrolled consumers in, and charged them, for discount club memberships without their consent that were largely unrelated to the event the consumers were signing up for. The complaint noted that although the defendant’s memberships had a 30-day free “negative option trial membership,” the memberships automatically begin charging the membership fees at the end of the trial period. The Bureau also alleged that the defendant deployed dark patterns, which “are hidden tricks or trapdoors that companies build into their websites to get consumers to inadvertently click links, sign up for subscriptions, or purchase products or services.” The Bureau further alleged that the defendant violated the EFTA and Regulation E by increasing consumers’ membership fees without sending the consumer written notice of the new amount and the date of the new payment at least 10 days before initiating the new payment, which also constitute violations of the CFPA. The Bureau is seeking permanent injunctive relief, damages, restitution, disgorgement, civil money penalties, and other relief.
According to a statement by CFPB Director Rohit Chopra, the Bureau is “closely watching whether financial services firms are deploying digital dark patterns,” and is “looking at a range of ways to reduce unwanted junk fees.” He also added that the Bureau is “working to ensure our payments system is working safely and fairly” and that it “will continue to look at how payment platforms extract data and fees from their users.”
FTC reports on actions to protect seniors
On October 18, the FTC issued a report titled Protecting Older Consumers, 2021-2022, A Report of the Federal Trade Commission on measures taken to protect older adults from scams. Using data from the FTC’s Consumer Sentinel Network, which is a secure online database that provides law enforcement agencies with access to reports from consumers about fraud and other consumer problems, the report generally found that older adults reported significantly higher losses to investment, business impersonation, and government impersonation scams in 2021 as compared to 2020. Among other things, the report noted that: (i) the FTC sent thirty-one cease and desist demand letters regarding potentially false or deceptive advertising or marketing actions related to the Covid-19 pandemic; (ii) FTC enforcement actions have resulted in relief of more than $462 million to consumers of all ages in the last fiscal year; and (iii) scams where older adults were contacted on social media are increasing. In addition to describing three rulemakings that focused on key actions that the FTC has taken to protect older consumers, the report mentioned enforcement actions impacting older consumers. The report also provided details about the FTC’s outreach and education efforts through such programs as the Pass it On campaign, which focuses on providing fraud prevention resources to older adults so they can help protect their communities by sharing information and materials with family and friends.
U.S.-UK sanctions partnership to exchange best practices
On October 17, Andrea Gacki, Director of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), and Giles Thomson, Director of the Office of Financial Sanctions Implementation (OFSI), HM Treasury, announced that in the upcoming months, officials will exchange best practices for enhancing and strengthening the U.S.-UK sanctions partnership. Among other things, OFAC and OFSI officials plan to identify opportunities for pooling expertise, and will explore ways to align the way sanctions are implemented and develop joint products and collaborative guidance to assist stakeholders. Gacki and Thomson noted that work is already underway on developing approaches for addressing shared priorities related to cyber threats, virtual asset misuse, information sharing, and making sure sanctions do not impede humanitarian trade and assistance. Recognizing that financial sanctions are most effective when implemented multilaterally, Gacki and Thomson discussed efforts taken by their respective countries to coordinate and implement sanctions programs, including measures designed to tackle corruption, kleptocracy, and other forms of economic crime. They recognized, however, “that the growing scale of sanctions has increased the complexities of their implementation,” and reiterated their commitment to engage with stakeholders and provide useful sanctions-related information and guidance.
OFAC updates Russia-related general license
On October 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 28A, which authorizes certain transactions through January 18, 2023, involving a public joint stock company that are “ultimately destined for or originating from Afghanistan” and that are normally prohibited by Executive Order 14024. OFAC explained that U.S. financial institutions are authorized to operate correspondent accounts on behalf of the company, “or any entity in which [the company] owns, directly or indirectly, a 50 percent or greater interest, provided such accounts are used solely to effect transactions” as authorized by GLA 28A’s specifications. GL 28A replaces and supersedes GL 28 (covered by InfoBytes here).
OFAC sanctions financial facilitators
On October 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order (E.O.) 13224, against a network of financial facilitators who hold leadership roles and are key interlocutors between the group and local companies in Somalia. According to OFAC, the network has engaged in weapons procurement, financial facilitation, and recruitment activities. OFAC further noted that in addition to being leaders within the designated network, these facilitators have had direct contact with other previously designated officials in the network. Concurrent with OFAC’s designations, the U.S. State Department designated five of the network’s leaders pursuant to E.O. 13224, as amended, for their leadership roles within the designated network. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons subject to U.S. jurisdiction are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to designation. Additionally, OFAC warned that engaging with the designated individuals can impose risk of secondary sanction. OFAC also stated that it “can prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account of a foreign financial institution that knowingly conducts or facilitates any significant transaction, or provides significant financial services, for any [Specially Designated Global Terrorist].”
FSB outlines steps to promote convergence in cyber incident reporting
On October 17, the Financial Stability Board (FSB) released a series of recommendations for promoting convergence in cyber incident reporting (CIR). Recognizing that a “one-size-fits-all approach” is neither feasible nor preferable, FSB noted that financial authorities and financial institutions may choose to adopt the report’s recommendations as appropriate and necessary, consistent with their legal and regulatory frameworks. Among other things, the recommendations call on financial authorities to (i) establish and maintain clearly defined incident reporting objectives and explore ways to align their CIR regimes with other relevant authorities; (ii) adopt common reporting formats and develop standardized formats for exchanging incident reporting information; (iii) review the effectiveness of their CIR processes and address impediments to cross-border information sharing; (iv) engage regularly with financial institutions to foster mutual understanding of the benefits of CIR and provide guidance on effective CIR communication; and (v) implement secure forms of incident information handling to protect sensitive information. Additionally, financial authorities and institutions should collaboratively implement measures for sharing information related to cyber events and vulnerabilities in order to “combat situational uncertainty” and “pool knowledge in collective defense of the financial sector.” Financial institutions should also continuously identify and address any gaps in their CIR capabilities.
Pennsylvania announces two settlements involving auto title loans
On October 14, the Pennsylvania AG announced a settlement with the owners of an auto title loan business. According to the settlement, the company made unlawful loans to Pennsylvania borrowers carrying annual interest rates over 200 percent. Under the terms of the settlement, the owners must refund over $1.5 million in unlawful interest charges to consumers. The refunds are in addition to the $3.2 million in debt cancellation victims received under an October 2021 order. The owners are also prohibited from, among other things, knowingly participating in, owning, or working for any company that extends credit to Pennsylvania residents, for seven years after they make their last payment under the settlement.
The Pennsylvania AG also announced a settlement with a Florida-based auto title lender for alleged violations of Pennsylvania usury laws and unfair and deceptive business practices. Under the terms of the settlement, the company, among other things, must cancel all outstanding loans made to Pennsylvania consumers, and refund Pennsylvania consumers all fees and interest they paid, which will result in nearly 200 consumers receiving refunds in the amount of $99,541.