Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On November 18, the FTC filed a complaint against a mobile banking app operator alleging the defendants violated the FTC Act by deceiving users about their high-interest bank accounts and falsely promising users “24/7” access to their funds. The FTC’s complaint alleges that the defendants represented that users would receive “‘minimum base’ interest rates” of at least 0.2 percent or 1.0 percent, but that users actually received a starting interest rate of 0.04 percent and stopped earning any interest if they requested that their funds be returned. Additionally, the complaint claims that while the defendants promised users 24/7 access to their funds and represented they could make transfers out of their accounts and receive the requested funds within three to five business days, some users waited weeks or months to receive their funds despite submitting repeated complaints to the defendants. Other users claimed they never received their money. Moreover, some users claimed that the defendants blamed the failure to deliver the requested funds on “unspecified issues with unspecified ‘banking partners’ or ‘technology partners’ and promised the delays were temporary.
The FTC seeks an injunction against the defendants, along with monetary relief including “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.”
On June 10, the Federal Bureau of Investigation issued a Public Service Announcement (PSA) cautioning mobile banking application users to remain vigilant of cyber activity. Specifically, the PSA indicated, with a more than 50 percent increase in mobile web application usage since the start of the year, that cyber actors may attempt to steal login credentials through the introduction of trojans embedded in other software and the deployment of fake banking applications, designed to trick consumers into entering their credentials. The PSA provides three recommendations for all mobile banking application users and organization: (i) use strong passwords (at least eight characters); (ii) use multifactor authentication and not share multifactor PINs; and (iii) contact the financial institution if a banking application appears suspicious. Finally, the PSA reminds consumers that financial institutions will not ask for login credentials over the phone.
On February 7, the FDIC approved a proposed national bank’s application for deposit insurance and consent to merge with its parent company. The FDIC found that financial projections show the bank, which will offer banking products through mobile, online, and phone-based banking channels, will be “well capitalized” based on initial paid-in capital funds of no less than $104.4 million to be provided through the transfer of assets and liabilities. During the first three years of operation, the bank must maintain a Tier 1 leverage ratio of 10 percent or greater, and may also be required to maintain higher minimum capital requirements as dictated by the bank’s operating plan or as required by the OCC pursuant to its regulatory authority. According to the FDIC, the proposed national bank will be located in Utah, and while it will have no branches, deposit-taking ATMs, or offices available to the public, it will offer full-service banking products and combine “traditional retail banking approaches with modern technology.”
The FDIC noted that deposit insurance will not take effect until the bank has been granted a charter and its banking operation has been fully approved by the OCC to operate as a depository institution (in August 2018, the OCC granted preliminary conditional approval of the bank’s de novo chapter application). According to the FDIC, approval is conditioned on the Federal Reserve Board granting final approval to the parent company to become a bank holding company.
On November 7, the Chairman of the FDIC, Martin J Gruenberg, addressed the Local Initiatives Support Corporation (LISC) in New York, New York regarding financial inclusion and expanding economic opportunity for the underbanked. In his speech, Gruenberg discussed the agency’s most recent report, FDIC National Survey of Unbanked and Underbanked Households, which found that nearly 27 percent of American households are unbanked or underbanked. Gruenberg also highlighted the initiatives the agency has undertaken to address the results of this report, including (i) creating access to “Safe Accounts,” which are electronic transaction accounts with low costs; (ii) conducting research on mobile financial services and how technology can lead to more sustainable banking relationships; and (iii) continuing financial education initiatives with a particular focus on youth savings.
On October 20, the FDIC released a report on the use of the traditional banking system in the United States. According to the FDIC’s executive summary of the report, the percentage of U.S. households in which no one had a checking or savings account (the “unbanked”) dropped to 7.0 in 2015. This is the lowest unbanked percentage since 2009, the year the FDIC began conducting an annual survey of unbanked and underbanked households. The FDIC cited several reasons why some households remain unbanked, the most common of which was the cost of maintaining an account, with an estimated 57.4% of respondents citing it as a factor in their decision not to maintain an account, and 37.8% of respondents citing it as the main reason underlying their decision not to maintain an account. Consistent with past survey results, the report notes that unbanked and underbanked rates are higher among lower-income households, less-educated households, younger households, minority households, and working-age disabled households. Additional findings highlighted in the report include: (i) a 1.9% increase from 2013-2015 in the use of prepaid cards; (ii) rapid growth (31.9% of users in 2015 compared to 23.2% in 2013) in the use of mobile and online banking, reflecting “promising opportunities to use the mobile platform to increase economic inclusion”; and (iii) an opportunity for banks to meet the credit needs of some households with an “unmet demand” for credit by “promoting the importance of building credit history, incorporating nontraditional data into underwriting, and increasing households’ awareness of personal credit products.”
On May 25, the FDIC published a report titled “Opportunities for Mobile Financial Services to Engage Underserved Consumers.” The report is the product of FDIC qualitative research with consumers and industry stakeholders regarding mobile financial services’ (MFS) potential to increase economic inclusion. The report identifies the following areas as core financial needs for underserved consumers: (i) control over finances, noting that consumers want to know precisely when and why money is withdrawn from an account; (ii) access to money, stressing that consumers expect financial providers to make funds available as quickly as possible; (iii) convenience, emphasizing the value consumers place on features that save time or effort when making a transaction; (iv) affordability, commenting that consumers aim to “minimize or avoid fees for account maintenance and everyday transactions”; (v) security, emphasizing consumers’ need for protection from theft of funds or personal information; (vi) customer service, with a consumer expectation for having access to live help through their preferred banking channel; and (vii) long-term financial management (i.e., advice on money management or the availability of tools to meet financial goals). According to the report, mobile banking “helps meet consumer needs in areas where traditional banking is perceived to be weak.” Specifically, the report states that mobile banking improves the convenience of banking services, helps consumers maintain better control of their finances, and, in some cases, is more affordable than traditional banking. The FDIC concluded that “consumers make tradeoffs when selecting financial services on certain financial needs.” As such, the report makes suggestions based off consumer feedback as to how both MFS and traditional banking services can better streamline their products to best benefit the underserved, and how to address consumers’ real and perceived fears about the security risks of using MFS.
The FDIC’s report follows a May 3 letter seeking input regarding the FDIC’s plans to explore the economic inclusion potential of MFS. The FDIC requested that all feedback be submitted by June 15, 2016.
On November 5, the CFPB published a report titled "Mobile Financial Services" to summarize the results of its June 2014 Request for Information on the opportunities and challenges associated with the use of mobile financial services (MFS) by traditionally underserved consumers. With 44% of unbanked individuals owning a smartphone, the report notes that MFS has the potential to be a promising tool for underbanked and unbanked consumers to manage their finances. According to the report, consumers using MFS save time and money because they can check their balances any time and have access to certain tools that help them manage their money. The report highlights mobile Remote Deposit Capture as particularly attractive to unbanked consumers because it allows them to take a picture of and deposit checks remotely, reducing the limitations of branch hours and locations. Additional key takeaways from the report include: (i) MFS would likely be most effective for underserved consumers if paired with consultative or assistance services; (ii) privacy and security concerns remain a significant risk; and (iii) digital access and digital financial literacy need improvement, such as enhancing affordable access to technology and educating consumers and intermediaries about safe and effective use of the technology.
Federal Reserve Bank of Boston's Payment Strategies Team Provides Snapshot of Mobile Banking Landscape
On August 17, the Federal Reserve Bank of Boston published a report that outlines the results of a 2014 survey intended to capture “a point-in-time snapshot of mobile banking and payments at [financial institutions]” across five Federal Reserve bank districts. One of the largest U.S. surveys completed on mobile banking and payment services at financial institutions, the collected data mostly came from banks and credit unions – a combined total of more than 600 – with less than $500 million in assets. The survey showed that with the rise of smartphones, consumers are more easily able to use mobile devices for payments, and they demonstrate “growing comfort with mobile and digital wallets as well as willingness to pay with mobile-based solutions.” As competing mobile technologies emerge, such as non-bank technology service providers, the report found the need for financial institutions to “create mobile banking and payment strategies to respond to [the] changing environment” becomes more relevant. The report highlighted that roughly 75 percent of the financial institutions surveyed offer the following mobile services, with a majority of the remaining 25 percent planning to offer them by 2016: (i) checking balances; (ii) transferring funds between a single owner’s account; (iii) viewing statements and transaction history; (iv) ATM / branch locator; and (v) bill payment. The report further suggested that financial institutions should “keep pace” with the growing mobile banking market and “be proactive and help make the best solutions succeed.”
On February 19, the FDIC released a study showing that brick-and-mortar banking offices continue to be the principal means through which banks deliver services to customers, despite increased growth in the use of online and mobile banking. The study found that four main factors have contributed to the changes in the number and distribution of banking offices since 1935: (i) population growth and geographic shifts in population; (ii) banking crises; (iii) legislative changes to branching laws; and (iv) technological innovation and increased use of electronic banking. Notwithstanding the increase of online and mobile banking, the study found that visiting brick-and-mortar banking offices continues to be the most common way for customers to access their accounts and obtain financial services.
On June 11, the CFPB released a request for information (RFI) about how consumers are using mobile financial services (MFS) to access products and services, manage finances, and achieve financial goals, with a focus on “economically vulnerable” consumers. The request does not cover point of sale payments, except with respect to mobile payment products targeted to underserved consumers. The request states that the information will be used to inform the CFPB’s “consumer education and empowerment strategies.” On June 12, the CFPB hosted a field hearing on MFS, which included presentations from consumer advocates and emerging mobile services providers regarding the future potential of MFS to reach the underserved.
To start the field hearing, Director Corday described the growth of technology in financial services and stressed the importance of understanding and encouraging the benefits of innovation without undermining the equally important goal of protecting consumers in the marketplace. He acknowledged that the FDIC and Federal Reserve have already done substantial work in the area of mobile banking services, and explained that the CFPB is now seeking to further those efforts through the RFI, which will help the CFPB: (i) explore how mobile services provide access to consumers that cannot easily access current financial services; and (ii) learn more about the real time money management opportunities mobile devices provide.
The CFPB’s inquiry also will review potential risks to consumers presented by MFS. For example, parts of the field hearing related to consumer data security, and panelists broadly described other potential risks related to online disclosures,along with the potential for mobile products or services to circumvent other existing consumer protections. In addition, the RFI seeks information that could serve regulatory and enforcement purposes. For example, the CFPB asks (i) whether there is a “risk that data will be used to direct underserved consumers to higher-cost products and services than they would otherwise be eligible to purchase and that may pose greater risk of financial harm;” and (ii) whether “low income consumers are less likely to detect hidden fees, and, if so, whether special attention needs to be provided to the design of mobile payments products targeted at low income consumers.”
Comments in response to the RFI are on or before September 10, 2014.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
- Daniel P Stipano to moderate "Digital identity: The next gen of CIP" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference