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OCC releases October enforcement actions
On October 21, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently or formerly affiliated with such entities. Included is a civil money penalty order against a Seattle-based bank, which requires the bank to pay $2.5 million for, among other things, allegedly failing to adopt and implement a Bank Secrecy Act/Anti-Money Laundering compliance program.
CFPB orders tech companies to submit payment system information
On October 21, the CFPB issued orders to six large U.S. technology companies seeking information and data on their payment system business practices. The Bureau stated that the information is intended to help the Bureau understand how these companies use personal payments data and manage data access to users. The Bureau issued the orders citing its authority under the CFPA, Section 1022(c)(4), which grants the agency “statutory authority to order participants in the payments market to turn over information to help the Bureau monitor for risks to consumers and to publish aggregated findings that are in the public interest.” The Bureau’s press release also noted it intends to study the payment system practices of two major Chinese tech companies.
The Bureau made available an example order that contains 55 requests seeking various information and data on several topics, including: (i) “[d]ata harvesting and monetization”; (ii) “[a]ccess restrictions and user choice”; and (iii) documents and information related to payment platforms and compliance with federal consumer protection laws, such as the EFTA and the Gramm-Leach-Bliley Act. Citing consumer data and privacy expectations, the Bureau explained that “[c]onsumers expect certain assurances when dealing with companies that move their money. They expect to be protected from fraud and payments made in error, for their data and privacy to be protected and not shared without their consent, to have responsive customer service, and to be treated equally under relevant law.”
Director Rohit Chopra issued a statement commenting on the purpose of the orders. He noted that the Bureau’s inquiry “is one of many efforts within the Federal Reserve System to plan for the future of real-time payments” and that it “will help to inform regulators and policymakers about the future of our payments system.”
Agencies release statement on LIBOR transition
On October 20, the CFPB, Federal Reserve Board, FDIC, NCUA, and OCC, in conjunction with the state bank and state credit union regulators, (collectively, “agencies”) released a joint statement regarding the transition away from LIBOR. As previously covered by InfoBytes, the Fed, FDIC, and OCC issued a joint statement encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. The agencies' October 20 joint statement provides supervisory considerations for institutions when choosing an alternative reference rate, such as, among other things: (i) the meaning of new LIBOR contracts; (ii) understanding how the chosen reference rate is constructed and the fragilities associated with it; and (iii) expectations for fallback language. In addition, the agencies noted that supervised institutions should “develop and implement a transition plan for communicating with consumers, clients, and counterparties; and ensure systems and operational capabilities will be ready for transition to a replacement reference rate after LIBOR’s discontinuation.”
FHFA makes GSE desktop appraisals permanent, expands refinance programs for LMI borrowers
On October 18, FHFA announced two measures to advance housing sustainability and affordability. Speaking before the 2021 Mortgage Bankers Association Annual Convention and Expo, acting Director Sandra Thompson announced that Fannie Mae and Freddie Mac (GSEs) “will incorporate desktop appraisals into their guides for many new purchase loans starting in early 2022.” Thompson explained that including desktop appraisals in the selling guides will change what was a temporary flexibility into an option that will “mitigate risk for use over the long-term” and will “become an established option for originating [GSE] loans.” According to Thompson, this certainty should allow lenders, borrowers, and appraisers to take advantage of efficiency gains provided through desktop appraisals.
Thompson also announced that the GSEs will expand their refinance programs for low- and moderate-income borrowers that were introduced last year. Several enhancements will be made to the RefiNow and RefiPossible programs to expand eligibility requirements and make the programs easier for lenders to offer. Thompson noted that income threshold for eligible borrowers will be raised from 80 percent of area median income to 100 percent. Additionally, the GSEs are making other modifications to reduce operational frictions for lenders.
CFPB reaches $6 million settlement with prison financial services company
On October 19, the CFPB issued its first enforcement action under newly-appointed Director Rohit Chopra. The consent order, issued against a provider of financial services to prisons and jails, stated that the company engaged in unfair, deceptive, and abusive acts or practices in violation of the CFPA by charging consumers fees to access their own funds on prepaid debit cards that they were required to use. The CFPB also claimed the company violated the EFTA and implementing Regulation E by requiring consumers to sign up for its debit card as a condition of receiving gate money (i.e. “money provided under state law to help people meet their essential needs as they are released from incarceration”). According to the CFPB, the company provided approximately 1.2 million debit release cards to consumers, which replaced cash or check options previously offered by state departments of correction. In addition to forcing consumers to use the debit cards to access their funds, the company also allegedly charged consumers fees that were not authorized by the cardholder agreement and misrepresented the fees that it charged. Pursuant to the consent order, the company—which neither admitted nor denied the allegations—may only charge “a reasonable inactivity fee” if a debit card is not used for 90 days. The company is also required to pay $4 million in consumer redress and a $2 million civil money penalty.
Chopra released a separate statement, saying the “case illustrates some of the market failures and harms that occur when the disbursement of government benefits is outsourced to third-party financial services companies that fail to adhere to the law.” He warned that the CFPB “will continue to scrutinize these companies, particularly when law violations and abuses of dominance undermine the intent of such government benefits, and where the harms fall heavily on people who are struggling financially.”
States, consumer advocates urge agencies to explicitly disavow rent-a-bank schemes
On October 18, consumer advocates and several state attorneys general and financial regulators responded to a request for comments issued by the OCC, Federal Reserve Board, and the FDIC on proposed interagency guidance designed to aid banking organizations in managing risks related to third-party relationships, including relationships with fintech-focused entities. (See letters here and here.) As previously covered by InfoBytes, the proposed guidance addressed key components of risk management, such as (i) planning, due diligence and third-party selection; (ii) contract negotiation; (iii) oversight and accountability; (iv) ongoing monitoring; and (v) termination. Consumer advocates and the states, however, expressed concerns that the agencies’ proposed guidance does not “highlight the significant risks associated with high-cost lending involving third-party relationships,” and does not include measures to prevent banks from entering into nonbank lending partnerships (e.g. “rent-a-bank schemes”).
According to the consumer advocates’ letter, the agencies’ guidance “should unequivocally declare that it is inappropriate for a bank to rent out its charter to enable attempted avoidance of state consumer protection laws, in particular interest rate and fee caps, or state oversight through licensing regimes.” The consumer advocates stated that they are aware of six FDIC-supervised banks involved in rent-a-bank schemes with nonbank lenders making allegedly illegal high-cost loans, and urged the FDIC to take immediate, “overdue” action to put an end to them. Among other things, the consumer advocates said the new guidance should explicitly specify: (i) that a bank’s involvement in lending that exceeds state interest rate limits with a nonbank is a “critical activity”; (ii) that lending partnerships involving loans exceeding a fee-inclusive 36 percent annual percentage rate (APR) “pose especially high risks”; and (iii) that in instances where a loan exceeds the Military Lending Act’s 36 percent APR, the federal banking supervisor will directly examine the third-party partner and charge the bank for the cost of the examination.
The states wrote in their letter that “experience teaches us that, in the absence of an explicit disavowal of rent-a-bank schemes, the [p]roposed [g]uidance invites continued abuse of banks’ interest exportation rights, to the considerable detriment of state regulation, consumer protection, and banks’ safety and soundness.” The states strongly encouraged the agencies to “explicitly disavow rent-a-bank schemes.”
OCC issues updated LIBOR self-assessment tool
On October 18, the OCC released an updated self-assessment tool for banks to evaluate their preparedness for the LIBOR cessation at the end of the year. The updated guidance reminds banks that they should cease entering into new contracts using LIBOR as a reference rate as soon as practicable but no later than December 31, 2021. The self-assessment tool may be used by banks to identify and mitigate a bank’s LIBOR transition risks, and management should use the tool to evaluate whether preparations for the transition are sufficient. The OCC notes that “LIBOR exposure and risk assessments and cessation preparedness plans should be complete or near completion with appropriate management oversight and reporting in place,” and “most banks should be working toward resolving replacement rate issues while communicating with affected customers and third parties, as applicable.” The OCC also reminds banks to tailor risk management processes to the size and complexity of a bank’s LIBOR exposures and “consider all applicable risks (e.g., operational, compliance, strategic, and reputation) when scoping and completing LIBOR cessation preparedness assessments.”
Bulletin 2021-46 rescinds Bulletin 2021-7 published in February (covered by InfoBytes here).
FTC reports on older adult fraud
On October 18, the FTC issued its annual report to Congress on protecting older adults. Among other things, the report, Protecting Older Consumers, 2020-2021, A Report of the Federal Trade Commission, evaluates fraud trends impacting older adults and provides details on enforcement actions and efforts to combat scams related to the Covid-19 pandemic. According to the report, there were more than 334,000 fraud reports filed by consumers age 60 or older totaling more than $600 million in losses. While the FTC found that older adults were the least likely of any age group to report fraud monetary losses, older adults tended to report losing substantially more money than younger age groups. Older adults were also more likely to report financial losses related to tech support scams, prize, lottery or sweepstake scams, friend or family impersonation, and romance scams. Additionally, as online shopping has increased, the report noted that losses attributed to online shopping fraud among older adults rose sharply during the second quarter of 2020 and remained far higher than pre-pandemic levels in early 2021. The report also discussed significant FTC enforcement actions taken to protect older adults, as well as outreach and education efforts focusing on fraud prevention.
FTC says communities of color disproportionately affected by fraud
On October 15, the FTC released a staff report, Serving Communities of Color, that discusses the Commission’s enforcement and outreach efforts related to the impact of fraud on majority Black and Latino communities. The report details various studies and research. For example, one FTC study examined disparities related to payment methods received from consumers who live in communities of color compared to consumers who live in majority White communities. According to the study, consumers in communities of color more often reported a larger share of losing money when using payment methods that offer few legal protections—e.g. cash, cryptocurrency, money orders, and debit cards. In contrast, consumers living in majority White areas filed the largest share of reports about credit cards, which offer more robust fraud protection. Another study revealed that “different demographic populations reported different types of concerns at different rates,” with consumers living in majority Black communities filing a higher number of reports than consumers living in majority White communities related to credit bureaus, banks and lenders, used auto issues, and debt collection. According to FTC findings, consumers living in majority Latino communities also filed a larger share of reports about credit bureaus, banks and lenders, debt collection, auto issues and business opportunities. The report discusses, among other things, more than 25 enforcement actions where the FTC identified that the unlawful conduct either targeted or disproportionately affected communities of color. Examples include auto buying cases, for-profit colleges, student loan debt relief programs, prepaid card scams, fake Covid-19 products and services, business “opportunities” and pyramid schemes, payday lending, and credit and consumer reporting accuracy. The report also shares information about FTC outreach programs to consumers in these communities.
OCC releases bank supervision operating plan for FY 2022
On October 15, the OCC’s Committee on Bank Supervision released its bank supervision operating plan for fiscal year 2022. The plan outlines the agency’s supervision priorities and highlights several supervisory focus areas including: (i) strategic and operational planning; (ii) credit risk management, including allowances for loan and lease losses and credit losses; (iii) cybersecurity and operational resiliency; (iv) third-party oversight; (v) Bank Secrecy Act/anti-money laundering compliance; (vi) consumer compliance management systems and fair lending risk assessments; (vii) Community Reinvestment Act performance; (viii) LIBOR phase-out preparations; (ix) payment systems products and services; (x) fintech partnerships involving potential cryptocurrency-related activities and other services; and (xi) climate-change risk management. The plan will be used by OCC staff members to guide the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, and technology service providers.
The OCC will provide updates about these priorities in its Semiannual Risk Perspective, as InfoBytes has previously covered.