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Financial Services Law Insights and Observations

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  • Federal Reserve Board Repeals Duplicative Regulations, Finalizes Red Flag Rule Amendments

    Consumer Finance

    On May 22, the Federal Reserve Board repealed its Regulation DD, which implements TISA, and Regulation P, which implements Section 504 of the GLBA because the Dodd-Frank Act transferred rulemaking authority for those laws to the CFPB, and the CFPB has already issued rules implementing them. The Board also finalized amendments to the definition of “creditor” in its Identity Theft Red Flags rule, which implements Section 615 of FCRA. Generally, the Red Flags rule requires each financial institution and creditor that holds any consumer account to develop and implement an identity theft prevention program. The revision excludes from the foregoing requirements businesses that do not regularly and in the ordinary course of business (i) obtain or use consumer reports in connection with a credit transaction; (ii) furnish information to consumer reporting agencies in connection with a credit transaction; or (iii) advance funds to or on behalf of a person. The repeals and Red Flags rule amendments take effect June 30, 2014.

    CFPB FCRA Federal Reserve TISA

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  • Federal Reserve Board Proposes To Repeal Duplicative Regulations Amend Identity Theft Red Flags Rule

    Consumer Finance

    On February 12, the Federal Reserve Board proposed to repeal its Regulation DD, which implements the TISA, and Regulation P, which implements Section 504 of the GLBA because the Dodd-Frank Act transferred rulemaking authority for those laws to the CFPB, and the CFPB has already issued interim final rules implementing them. The Board also proposed to amend the definition of “creditor” in its Identity Theft Red Flags rule, which implements Section 615 of the FCRA. Generally, the Indemnity Theft Red Flags rule requires each financial institution and creditor that holds any consumer account to develop and implement an identity theft prevention program. The proposed revision will exclude from the foregoing requirements businesses that do not regularly and in the ordinary course of business (i) obtain or use consumer reports in connection with a credit transaction; (ii) furnish information to consumer reporting agencies in connection with a credit transaction; or (iii) advance funds to or on behalf of a person. The Board will accept comments on the proposal for 60 days from publication in the Federal Register.

    FCRA Federal Reserve Gramm-Leach-Bliley TISA Privacy/Cyber Risk & Data Security

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  • CFPB Reports On Impacts Of Regulations For Banks

    Consumer Finance

    On November 22, the CFPB released findings of a study the Bureau conducted on the impact of certain deposit regulations on the day-to-day operations of banking institutions, focusing on compliance costs related to checking accounts, traditional savings accounts, debit cards, and overdraft programs. The study collected information from seven banks about activities related to compliance with regulations implementing the Truth in Savings Act, the Electronic Fund Transfer Act, the financial privacy requirements of the Gramm-Leach-Bliley Act, and the Fair Credit Reporting Act (Regulations DD, E, P, and V, respectively), as well as FCRA’s adverse action requirements, which are not implemented by regulation. According to the Bureau, compliance costs were concentrated in the Operations, Information Technology, Human Resources, Compliance, and Retail functions, and banks incurred the most substantial costs complying with rules related to authorization rights, error resolution requirements, disclosure mandates, and advertising standards.

    The report identifies the compliance-related activities that entailed the highest costs across business functions and suggests that “authorization rights” (i.e., opt-ins and opt-outs) and error-resolution requirements are the most costly to administer. The report also discusses the potential for the study—which the Bureau characterizes as representing “some of the most rigorous information currently available” on compliance costs—to advance research on the cost of compliance, influence the ultimate understanding of regulatory impacts on consumers and markets, and inform the CFPB’s ongoing efforts to avoid unnecessary compliance costs. The Bureau states that estimating the operational effects of consumer financial services regulation alone has “limited value to policymaking” and is mainly helpful in determining the impact of a specific regulation on product pricing and availability or market structure and competition. The Bureau concluded that research on the effects of regulations will remain an ongoing priority, but it will nevertheless continue to address problems observed in the marketplace — “mindful that, whatever the costs of regulation, the costs of not regulating adequately can be even larger.”

    The full report, Understanding the Effects of Certain Deposit Regulations on Financial Institutions' Operations: Findings on Relative Costs for Systems, Personnel, and Processes at Seven Institutions, is available here.

    CFPB FCRA Bank Compliance Gramm-Leach-Bliley TISA

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  • California Supreme Court Holds Borrowers Can Bring State Law Claims Based on TISA Violations

    Consumer Finance

    On August 1, the California Supreme Court held that the federal Truth in Savings Act (TISA), which does not provide a private right of action, does not similarly bar state law claims derived from alleged TISA violations. Rose v. Bank of Am., N.A., No. S199074, 2013 WL 3942612 (Cal. Aug. 1, 2013). In this case, a putative class filed suit claiming a bank violated the state’s Unfair Competition Law (UCL) when it failed to provide certain disclosures required by TISA. The trial and appellate courts held that because Congress amended TISA in 2001 to remove its private right of action, before the borrowers filed their TISA-based class claims, those claims were barred. The appellate court explained that Congress’s repeal of the private right of action reflected its intent to bar any private action to enforce TISA. The Supreme Court disagreed and held that Congress’s decision to leave TISA’s savings clause in place explicitly allowed for the enforcement of state laws relating to the disclosures at issue here, except to the extent that those laws are inconsistent with the relevant TISA provision. The court rejected the bank’s argument that the UCL may not be employed to borrow directly from a federal statute where Congress has not provided a private right of action, holding instead that “when Congress permits state law to borrow the requirements of a federal statute, it matters not whether the borrowing is accomplished by specific legislative enactment or by a more general operation of law.” The court reversed the appeals court’s judgment.

    Bank Compliance TISA

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