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FDIC Study: Branch Banking Still Prevalent Despite Increase in Online and Mobile Banking
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.
CFPB Begins Collecting Input On Mobile 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.
CFPB Announces Mobile Financial Services Field Hearing
On June 3, the CFPB announced that it will hold a field hearing on mobile financial services on June 12, 2014, in New Orleans, LA. The event is open to members of the public who RSVP and also will be streamed live on the CFPB’s website. Consistent with the CFPB’s past practice of providing limited advance information about field hearings, the announcement states only that the event will feature remarks from Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.
FDIC White Paper Assesses Use Of Mobile Financial Services To Reach Underserved
On April 24, the FDIC hosted a meeting of its Advisory Committee on Economic Conclusion, during which FDIC staff presented a white paper on the potential for mobile financial services (MFS) to reach unbanked and underbanked consumers. The Committee meeting also covered an update on the FDIC’s safe accounts project, and included panels on youth financial literacy and consumer demand for small dollar credit. The white paper concludes that, in the short run, “MFS is best positioned to have an economic inclusion impact through its ability to meet day‐to‐day financial services needs of underbanked consumers as well as consumers at risk of account closure,” while also helping “the underserved gain access to the banking system and grow their financial capability.” The white paper encourages banks, service providers, and regulators to (i) integrate MFS into broader economic inclusion strategies; (ii) integrate MFS with other delivery channels and incorporate one-on-one interactions; (iii) “fine-tune” risk management strategies to match MFS expansion and underbanked strategies; (iv) improve convenience and speed of MFS through infrastructure enhancements; (v) enable additional mobile functionalities; (vi) develop case studies to demonstrate profitable implementation of MFS for economic inclusion; and (vii) bridge MFS with traditional payment services.
Federal Reserve Board Report Reviews Consumer Use of Mobile Financial Services
On March 27, the Federal Reserve Board presented the findings of a November 2012 online survey of consumers’ use of mobile technology to access financial services and make financial decisions. The report follows a related March 2012 Federal Reserve Board report, and includes the Board’s general findings that (i) mobile phones and mobile Internet access are in widespread use, (ii) the ubiquity of mobile phones is changing the way consumers access financial services, (iii) mobile phones are also changing the way consumers make payments, (iv) security and usefulness concerns continue to be the main impediments to the adoption of mobile financial services, (v) smartphones are changing the way people shop, and (vi) mobile phones are prevalent among unbanked and underbanked consumers. The report points out that the use of mobile phones to make payments at the point of sale has increased more rapidly than the use of mobile phones for banking, and that there is “substantial growth potential” for mobile payments as the ability to make them becomes more widespread.
Federal Regulators Propose Guidance for Social Media Use
On January 22, the FFIEC proposed guidance on the applicability of consumer protection and compliance laws, regulations, and policies to activities conducted via social media by federally supervised financial institutions, as well as nonbanks supervised by the CFPB. With regard to compliance and legal risks, the guidance addresses (i) the applicability of existing federal laws and regulations to the use of social media for marketing and originating new deposit and lending products and the use of social media to facilitate consumer use of payment systems; (ii) the need to apply BSA/AML internal controls to customers engaging in electronic banking through the use of social media, and e-banking products and services offered in the context of social media, as well as BSA/AML risks emerging through the growing use of social media; (iii) CRA monitoring of social media sites run by an institution; and (vi) customer privacy issues associated with social media. The guidance also reviews reputational risks related to social media, including risks related to (i) fraud and brand identity; (ii) social media vendor monitoring; (iii) privacy; (iv) consumer complaints; and (v) employee use of social media. Finally, the guidance addresses the vulnerability of social media to malware and the resultant operational risk. The FFIEC is accepting comments for 60 days after publication in the Federal Register. After the comment period, the agencies will issue supervisory guidance and will urge state regulators to follow.
Key Considerations in Drafting Mobile Disclosures
Recent developments at the FTC and CFPB provide some guidance on how regulators may approach disclosures on smartphones and other mobile devices.
The recent CFPB Remittance Rule on international remittance transfers indicates some flexibility in the provision of disclosures in the remittances context via a mobile device. Additionally, the FTC’s recent report on best practices in consumer data privacy notes the difficulty in providing privacy notices on the smaller screens of mobile devices and encourages shorter, more effective privacy policies as a result.
These developments raise a series of questions for corporate counsel to consider when advising on the drafting and delivery of mobile disclosures. Specifically, questions include:
- Is the length of the mobile disclosure document as brief and succinct as it can be? Does it use concrete, everyday words and the active voice? Do the disclosures avoid multiple negatives, technical jargon and ambiguous language?
- Are the mobile disclosures presented in a logical sequence? Are they laid out in clear, concise sentences, paragraphs and sections? Are they placed in equal prominence to each other, absent any other specific regulatory format or placement requirements? Is the content placed on a particular page appropriate for the sizing of the page on the mobile screen? If not, are textual or visual cues used to encourage scrolling?
- Does the mobile disclosure "call attention to itself?" Is it on a screen the mobile user must access or will likely access frequently? If not, is it behind a hyperlink on an introductory screen that is clearly labeled so as to convey the importance of the linked disclosure? Is it presented with a clear, visible heading and an easy-to-read typeface and typesize?
- Have various technical and other applicable industry standards been consulted in the process of designing, developing and displaying mobile disclosures?
FRB Releases Study on Use of Mobile Financial Services
On March 14, the Federal Rserve Board (FRB) released the results of a survey on the use of mobile financial services in the U.S. The findings, as summarized in the FRB release and report, include: (i) one in five Americans with mobile phones used their mobile phone to access financial accounts last year; (ii) mobile banking is poised to expand further over the next year, with usage possibly increasing to one in three mobile phone users by 2013, (iii) mobile banking use is highly correlated with age, (iv) underbanked consumers were relatively heavy users of mobile services, and widening use of mobile technology can expand access to financial servicers for underserved populations, (v) reviewing account balances was the most common activity, followed by account transfers, and (vi) consumers with mobile devices that do not use mobile banking cited either a lack of need or security concerns.