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Financial Services Law Insights and Observations


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  • FDIC issues NPRM regarding treatment of reciprocal deposits

    Agency Rule-Making & Guidance

    On September 12, the FDIC issued a notice of proposed rulemaking (NPRM) and request for comments on the treatment of certain institutions’ reciprocal deposits to implement Section 202 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). According to the accompanying Financial Institution Letter, FIL-47-2018, Section 202 of EGRRCPA amends Section 29 of the Federal Deposit Insurance Act to except a capped amount of reciprocal brokered deposits from treatment as brokered deposits for certain insured depository institutions. Under the proposal, well-capitalized and well-rated institutions are not required to treat reciprocal deposits as brokered deposits up to the lesser of 20 percent of their respective total liabilities or $5 billion. Additionally, institutions that are not well capitalized or well rated also may exclude reciprocal deposits from their brokered deposits by maintaining reciprocal deposits at or below a special cap equal to the average amount of their reciprocal deposits held at quarter-end during the last four quarters preceding the quarter that the institution fell below well capitalized or well rated. Comments are due within 30 days of publication in the Federal Register.

    Agency Rule-Making & Guidance FDIC S. 2155 EGRRCPA Federal Deposit Insurance Act Deposit Products

  • OCC updates Comptroller’s Handbook booklet to address deposit-related credit

    Agency Rule-Making & Guidance

    On September 12, the OCC issued Bulletin 2018-28, which updates the “Deposit-Related Credit” booklet of the Comptroller’s Handbook previously issued March 2015. The booklet provides guidance for OCC examiners to be used in connection with the examination and supervision of national banks and federal savings associations who offer small-dollar, unsecured deposit-related credit products and services, such as check credit, overdraft protection, and deposit advance products. The booklet also includes, among other things, (i) updated guidance following the rescission of OCC Bulletin 2013-40, “Deposit Advance Products: Final Supervisory Guidance,” (previously covered by InfoBytes here) and the issuance of OCC Bulletin 2018-14, “Installment Lending: Core Lending Principles for Short-Term, Small-Dollar Installment Lending” (previously covered by InfoBytes here); (ii) information concerning limitations and requirements for consumer credit products extended to active-duty servicemembers covered by the Military Lending Act; (iii) integrated citations to third-party risk management guidance and procedures; (iv) information pertaining to new products and services, including sound due diligence practices; and (v) prohibitions against unfair, deceptive, or abusive acts or practices under Dodd-Frank.

    Agency Rule-Making & Guidance OCC Comptroller's Handbook Deposit Products Examination Supervision Military Lending Act

  • Amendment to Utah Law Clarifies “Deferred-Deposit” Lender Registration Process; Adds Criminal Background Check

    State Issues

    On March 17, Utah Governor Gary Herbert signed an amendment to HB. 40, Utah’s Check Cashing and Deferred Deposit Lending Registration Act, which modifies registration requirements relating to the disclosure of criminal conviction information for individuals engaged in the business of cashing checks or deferred deposit lending. The amendment requires that the registration or renewal statement shall disclose whether there has been a criminal conviction involving an “an act of fraud, dishonesty, breach of trust, or money laundering” regarding any officer, director, manager, operator, principal, or employee. This information must be obtained through either a Utah Bureau of Criminal Identification report or by conducting an acceptable background check similar to the aforementioned report.

    The amendment also addresses operational requirements for deferred deposit loans. Interest and fee schedules are required to be conspicuously posted, as should contact information for filing complaints and listings of states where the deferred deposit lender is authorized to offer loans. The amendment also provides clarification on rescinding loans, partial payment allowances, and restrictions on loan extensions.

    State Issues State Regulators Lending Licensing Deposit Products

  • FDIC Issues Letter to Financial Institutions Regarding Applicability of Payday Lending Rules

    Consumer Finance

    On November 16, the FDIC issued FIL-52-2015 to advise financial institutions that it revised its 2005 guidance on payday lending, which established the FDIC’s expectations for prudent risk-management practices in the payday loan industry. The letter emphasizes that the 2005 payday lending guidance, as issued in FIL-14-2005, does not apply to depository institutions offering certain products and services, such as deposit accounts and extensions of credit, to non-bank payday lenders. Specifically, the letter states, “[f]inancial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of business customers or individual customers operating in compliance with applicable state and federal laws.”

    FDIC Payday Lending Deposit Products Risk Management

  • OIG for U.S. Postal Service Probes Expansion Into Financial Services

    Consumer Finance

    On May 21, the Office of Inspector General for the U.S. Postal Service (OIG) issued a report titled, “The Road Ahead for Postal Financial Services.” The report follows a January 2014 white paper issued by the OIG, which explored how the U.S. Postal Service could expand its provision of financial products to underserved Americans. The report summarizes five potential approaches for increasing the Postal Service’s financial services offerings, including: (i) expand current product offerings, which include paper money orders, international remittances, gift cards, and limited check cashing, as well as adjacent services  (e.g., bill pay, ATMs); (ii) develop one key partner to provide financial services offerings, including possible expansion to general purpose reloadable prepaid cards, small loans, and/or deposit accounts; (iii) develop different partners for each product; (iv) make the Postal Service a “marketplace” for distribution of financial products of an array of providers; and/or (v) license the Postal Service as a financial institution focused on the financially underserved (although the OIG is not recommending this approach). Factors to consider when determining which approach to take, if any, include the legal and regulatory landscape; the effectiveness of cash management systems; dedication of the internal team, and public awareness of existing and potential services offered.

    Gift Cards Prepaid Cards ATM Remittance Check Cashing Deposit Products

  • New York AG Obtains Agreement From Bank To Alter Customer Account Screening

    State Issues

    On June 16, New York Attorney General (AG) Eric Schneiderman announced that a national bank agreed to adopt new policies governing its use of a credit bureau that screens individuals seeking to open checking or savings accounts. The agreement is the first to come out of the AG’s ongoing investigation of the use of credit bureaus by major American banks. As the basis for its investigation, the AG’s office asserts that individuals who are deemed by one of these credit bureaus to present a credit or fraud risk are typically denied the opportunity to open an account, and that these credit bureau databases “disproportionately affect lower-income Americans, often punishing them for relatively small financial errors and forcing them to resort to fringe banking services that are more costly than mainstream checking and savings accounts.” According to the AG’s press release, under the terms of the agreement, the bank will continue screening customers for past fraud but will no longer seek to predict whether customers present credit risks. The bank also committed to expand its support for the Office of Financial Empowerment (OFE)—a New York City agency that provides financial education and counseling to low-income New Yorkers—by donating $50,000 to help OFE provide counseling for applicants who are rejected by the bank on the basis of a credit bureau report. The bank plans to implement the changes nationwide.

    State Attorney General Deposit Products

  • Eleventh Circuit Holds Federal Law Preempts Florida's Check-Cashing Fee Restriction For Out-Of-State Banks

    Consumer Finance

    On May 30, the U.S. Court of Appeals for the Eleventh Circuit held that with regard to out-of-state state banks, federal law preempts Florida’s prohibition on financial institutions settling checks for less than par value. Pereira v. Regions Bank, No. 13-10458, 2014 WL 2219166 (11th Cir. May 30, 2014). The ruling broadens a prior ruling that federal law preempts the same restriction with regard to national banks. Plaintiffs in this case filed suit on behalf of a putative class after the bank charged them a fee for cashing a check, claiming they received less than par value because of the bank’s fee. Florida law prohibits a financial institution from settling “any check drawn on it otherwise than at par.” The court explained that 12 U.S.C. 1831a(j) provides that the laws of a host state apply to any branch in the host state of an out-of-state state bank to the  same extent as such state laws apply to a branch in the host state of an out-of-state national bank. The court held that, based on 12 U.S.C. 1831a(j) and the court’s prior ruling regarding national bank preemption, the plaintiffs’ claims were clearly preempted. The court explained that assuming the relevant Florida law would prohibit Florida branches of out-of-state state banks from charging a fee to cash a check presented in person, that law would apply “to the same extent” that it applies to out-of-state national banks, and as such, is preempted.

    Preemption Check Cashing Deposit Products

  • CFPB Student Loan Ombudsman Questions Marketing Of Student Financial Products; GAO Recommends More Transparency

    Consumer Finance

    On February 13, CFPB Student Loan Ombudsman Rohit Chopra published on the CFPB's blog an update on the CFPB’s review of student financial products and raised concerns about certain marketing arrangements between financial institutions and colleges and universities, and the level of transparency associated with those agreements and the products marketed under them. He specifically questioned financial institutions that “generate a significant amount of their revenue on these products while students are currently in school.” On the same day, the GAO published a report on student debit and prepaid cards and marketing agreements, which recommends that Congress take steps to increase transparency.

    CFPB Student Financial Products Update

    In December, CFPB Director Richard Cordray urged financial institutions to voluntarily disclose on their websites agreements with colleges and universities to market bank accounts, prepaid and debit cards, and other products to students. Mr. Chopra states that the CFPB also collected agreements available in the public domain by checking state open records databases and other websites where such agreements are disclosed.

    Although it is unclear whether this collection produced a representative sample, Mr. Chopra states that the CFPB identified “several agreements” pursuant to which financial institutions provide direct payments to schools in exchange for use of the schools’ logos. Other agreements, the CFPB claims, provide bonus payments to schools based on whether students sign up for a checking account marketed on campus. A third category of agreements provide colleges discounted or free services in exchange for allowing a financial company to market products to students.

    Mr. Chopra acknowledges that many financial institutions offer good products at competitive prices, but he reinforced the CFPB’s belief that voluntarily disclosing marketing agreements “is a sign of a financial institution’s commitment to transparency” and added that “[r]esponsible financial institutions also want students to know they don’t have to choose their product if they don’t want to.”

    Mr. Chopra encouraged students, schools, financial institutions, or other who wants to share information about the availability of these agreements to email the CFPB. He also encouraged students to submit complaints about student loans, checking accounts, or credit cards.

    GAO Report On Student Financial Product Transparency

    GAO examined the functions of college cards and the characteristics of the schools and card providers offering them, and assessed the benefits and concerns associated with student debit and credit cards. The GAO reported that as of July 2013, 11 percent of U.S. institutes of higher education are party to an agreement to provide debit or prepaid card services to students. Those schools tend to be larger than institutions that do not offer such services, and most offered students the ability to receive federal aid on a card.

    The GAO identifies concerns about fees, ATM access, and neutrality. Specifically, the GAO stated that two large card providers charge a fee for card purchases that use a PIN versus a signature, and that total fees paid by students is unknown. With regard to ATM access, the GAO found that Education Department regulations regarding access to free ATMs or branches for students who receive federal aid is insufficient and should be more specific to ensure free access to federal funds on cards. Finally, the GAO believes that marketing agreements may create incentives for schools to influence student choice of financial service provider, and that increased transparency could help ensure that terms of such marketing agreements are fair and reasonable for students and do not create conflicts of interest for schools.

    To achieve this increased transparency, the GAO recommends that Congress require financial firms providing debit and prepaid card services to colleges to publicly file their marketing agreements. In addition, the GAO would like the Education Department to (i) specify what constitutes convenient access to ATMs or bank branch offices for students receiving federal student aid funds and (ii) develop requirements for schools and card providers to present neutral information to students about their options for receiving federal student aid funds.

    CFPB Prepaid Cards Student Lending Debit Cards Deposit Products GAO

  • CFPB Releases Annual Report On College Cards, Urges Disclosure Of Campus Marketing Agreements

    Consumer Finance

    On December 17, the CFPB released its annual report to Congress on college credit card agreements, prepared pursuant to the CARD Act. The report follows an inquiry launched earlier this year into financial products marketed to students. The study revealed that since 2009, the number of college card agreements in effect has decreased by 41 percent, the compensation paid to colleges and universities has decreased by 40 percent, and the number of new accounts opened by students has decreased by 18 percent.

    The Bureau’s press release urges financial institutions to voluntarily disclose to the public any agreements with colleges and universities to market debt, prepaid, and other products to students and warns that “[t]he CFPB prioritizes its supervisory examinations based on the risks posed to consumers” and “[failing to make] college financial product arrangements transparent to students and their families . . .  increase[s] such risks.”

    Credit Cards CFPB Student Lending Affinity Products CARD Act Deposit Products

  • CFPB Releases Preliminary Results Of Ongoing Arbitration Study

    Consumer Finance

    On December 12, the CFPB published the preliminary results of its ongoing study of arbitration agreements in consumer finance contracts. Section 1028(a) of the Dodd-Frank Act directs the CFPB to study the use of pre-dispute arbitration contract provisions, and preconditions the CFPB’s exercise of rulemaking authority regarding arbitration agreements on a finding that the regulation is “in the public interest and for the protection of consumers.” The CFPB commenced its arbitration study in early 2012, and expanded its review this year with a proposal to survey credit card holders, and by exercising its authority under Dodd-Frank Act Section 1022 to order some companies to provide template consumer credit agreements, as Director Cordray indicated during a September House Financial Services hearing.

    The CFPB reports the following preliminary results, among others:

    • Larger banks are more likely to include arbitration clauses in their credit card contracts and checking account contracts than smaller banks and credit unions.
    • Just over 50% of credit card loans outstanding are subject to arbitration clauses, while 8% of banks, covering 44% of insured deposits, include arbitration clauses in their checking account contracts.
    • Arbitration clauses are prevalent across the general purpose reloadable (GPR) prepaid card market, with arbitration clauses appearing in the cardholder contracts for 81% of GPR prepaid cards studied by the CFPB.
    • Class action waivers are ubiquitous, appearing in approximately 90% of arbitration provisions.
    • A minuscule number of consumers exercise contract carve-outs permitting disputes to be pursued in small claims courts, while credit card issuers are “significantly more likely” to sue consumers in small claims court.

    The CFPB did not consider specific policy options at this stage. However, the report outlines numerous additional steps the CFPB plans to take as part of its arbitration study, which may expand to include other financial product markets. For example, in response to stakeholder comments, the CFPB is revising a prior proposal to conduct a survey of consumers that addresses consumer awareness of arbitration clauses and consumer perceptions of and expectations about formal dispute resolution. The CFPB also intends to assess the possible impact of arbitration clauses on the price of consumer financial products. Finally, the CFPB is examining the interrelationship between public enforcement and private aggregate enforcement (i.e., class actions) by conducting an empirical analysis of the types of cases brought by public and private actors, and the relationship between any actions against the same defendants or challenging similar conduct. The report does not provide anticipated timelines for these or any of the other future steps the Bureau describes.

    Credit Cards CFPB Arbitration Class Action Prepaid Cards Deposit Products Retail Banking

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