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Financial Services Law Insights and Observations


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  • House Committee report finds broad financial surveillance by federal government using financial institutions data following January 6th events

    Privacy, Cyber Risk & Data Security

    On March 5, the Committee on the Judiciary and its Select Subcommittee on the Weaponization of the Federal Government released an interim staff report on how federal law enforcement agencies, in the wake of the events of January 6, 2021, at the U.S. Capitol, engaged in financial surveillance by encouraging financial institutions to provide data on private transactions of consumers without a nexus to criminal conduct. The report indicated the consumers particularly targeted were those who tend to hold “conservative viewpoints.” The report cited several whistleblower testimonies and provided email transcripts of the government agents’ requests. One institution allegedly acted “voluntarily and without legal process” and provided the FBI with a dataset of names of those who used that institution’s credit or debit card in the Washington, D.C. region between January 5 and January 7, 2021, but also included those who had ever used that institution’s debit or credit card to purchase a firearm. The report suggested that citizens who did nothing other than go “shopping or exerciz[e] their Second Amendment rights” were placed under a type of financial surveillance between their financial institution and the government, making specific mention of right-leaning individuals now at risk.

    The report provided context with the Right to Financial Privacy Act of 1978, Section 314(a) of the USA Patriot Act, and the Bank Secrecy Act in mind. While these federal acts were created to protect citizens, the report alleged they “have failed to adequately protect American’s financial information.” The report was particularly critical of the federal government using “informal meetings and backchannel discussions” with financial institutions to devise the best methods for getting Americans’ private financial information, including using merchant category codes and politicized “search terms,” and the federal government disseminating “political materials” to such institutions that were allegedly “hostile” to conservative viewpoints and “treated lawful transactions as suspicious.”

    Privacy, Cyber Risk & Data Security House Judiciary Committee Banking Bank Secrecy Act

  • FDIC releases March CRA evaluations for 56 banks, three rated as “Needs to Improve”

    On March 4, the FDIC released a list of state nonmember banks evaluated for compliance with the Community Reinvestment Act (CRA) for March. The FDIC evaluated 56 banks with four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 56 evaluations reported by the FDIC, three banks hold the lowest given ratings as “Needs to Improve.” Most banks were rated “Satisfactory,” and seven banks were rated “Outstanding.” According to the FDIC’s release, a copy of a bank’s CRA evaluation is available directly from the bank, as required by law, or from the FDIC’s Public Information Center.

    Bank Regulatory CRA Banking OCC Bank Supervision

  • CFPB reports larger banks charge higher interest rates on credit cards than smaller banks

    Federal Issues

    On February 16, the CFPB published the results of a report that found, on average, larger banks charged higher credit card interest rates than smaller banks and credit unions. The CFPB’s data suggested larger banks charge interest rates eight to 10 points higher than non-large banks. If a consumer were to pick a large bank credit card over a smaller bank, the consumer would see an estimated difference of “$400 to $500” in additional annual interest.

    Other findings from the report suggested that large issuers offered higher rates across credit scores: e.g., the median interest rate for people with scores between 620 and 719 was 28.20 percent for large banks and 18.15 percent for small ones. The CFPB also found that 15 bank-issued credit cards with interest rates above 30 percent: nine of the largest issuers reported at least one product over that rate. Lastly, the report found that large banks were more likely to charge annual fees, with 27 percent of large banks charging an annual fee, compared to 9.5 percent of small banks. The CFPB published a table between large and small banks that showed median purchase APR by credit tier.

    Federal Issues CFPB Banking Credit Union Interest

  • Federal Reserve releases January SLOOS report on bank lending practices from Q4 2023

    On February 5, the Federal Reserve Board released the results from their January 2024 Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices. The SLOOS addressed changes in standards, terms, and the demand over bank loans over the past three months (i.e., Q4 of 2023). The SLOOS’s topics included commercial and industrial lending, commercial and residential real estate lending, and consumer lending. The SLOOS included questions on banks’ expectations for changes in lending standards, borrower demand and asset quality over 2024. 

    The SLOOS provided specific findings for each of its topics. On loans to businesses, banks generally reported tighter standards and weaker demand for commercial and industrial loans, as well as all commercial real estate loan categories. Demand weakened for all residential real estate loans. On loans to households, banks generally reported tighter lending standards for residential real estate loans, but the standards were unchanged for government-sponsored enterprise-eligible residential mortgages. For home equity lines of credit, banks reported tighter standards and weaker demand; this falls in line with credit card, auto, and other consumer loans, generally. Last, on the banks’ 2024 expectations, they expect lending standards to remain unchanged for commercial and industrial loans, and residential real estate loans, but to tighten further for commercial real estate, credit card, and auto loans. Banks also reported that they expect demands for loans to strengthen, but loan quality to weaken, across all categories. The SLOOS includes 67 pages of data gleaned from its questions. 

    Bank Regulatory Federal Issues Loans Banking Agency Rule-Making & Guidance

  • NYDFS pens guidance for vetting key senior officials within financial institutions

    On January 22, NYDFS issued an industry letter titled “Guidance on Assessment of the Character and Fitness of Directors, Senior Officers, and Managers” for banks and other financial institutions (Covered Institutions) to notify them of NYDFS’s expectations. The final guidance came after a review process conducted over the past year where twenty comments indicated the need for Covered Institutions to build “robust character and fitness” policies. NYDFS asked that these Covered Institutions develop and maintain a framework to vet senior officials’ character and fitness during onboarding and on a regular basis.

    According to the guidance, each Covered Institution is expected to “define sensitive issues, warning signs, and other indicators” that would be cause for concern. The depth and nature of each Covered Institution’s assessment is tailored to each institution, and the guidance does not demand a defined period for the review, but NYDFS supplied a list of suggested questions for Covered Institutions to use as best practices for vetting key individuals. (These questions are not mandated, however.) NYDFS noted that Covered Institutions are expected to review materials related to the character and fitness assessment of key persons. The guidance’s appendix lists suggested questions, including whether the key person has reviewed and understood pertinent policies and whether the interviewee has ever been charged or convicted of a crime or has previously been sanctioned or censured by a securities regulator. 

    Bank Regulatory NYDFS Financial Institutions Compliance Banking

  • Large bank agrees to proposed settlement agreement; to be decided in February


    On November 27, 2023, a large Canadian bank agreed to pay $15.9 million to accountholders in a proposed settlement agreement stemming from a class action suit in which the bank allegedly charged improper non-sufficient fund (NSF) fees. NSF fees are charges by a financial institution when they decline to make a payment from an accountholder’s account after determining the account lacks sufficient funds. Plaintiffs alleged that from February 2, 2019, to November 27, 2023, the bank charged accountholders multiple NSF fees on a single attempted transaction. In the agreement, the bank continues to deny liability. While an agreement has been reached between the two parties, the agreement has yet to be approved by the courts. A hearing has been scheduled for February 13, 2024, in the Ontario Superior Court of Justice to approve the settlement and award the payouts. Accountholders will receive their payouts, “estimated to be in the range of approximately $88 CAD,” deposited directly to their account with the bank. Under the proposed settlement agreement, the representative plaintiff will receive an honorarium of $10,000. As previously covered by InfoBytes, the FDIC warned that supervised financial institutions that charge multiple NSF fees on re-presented unpaid transactions may face increased regulatory scrutiny and litigation risk.

    Courts Banking Canada Of Interest to Non-US Persons Settlement Class Action Enforcement NSF Fees Fees

  • OCC issues cease-and-desist order to NY bank

    Agency Rule-Making & Guidance

    On December 14, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals that are or were affiliated with such entities. Included is a cease-and-desist order against an upstate New York bank for allegedly engaging in unsafe or unsound practices, including on the bank’s corporate governance, capital planning, interest rate risk management, liquidity risk management, and reports of condition.

    Under the order, the bank must appoint a compliance committee to take corrective action, submit a three-year strategic plan to establish objectives for the bank’s risk profile, earnings performance, growth, and balance sheet mix, among other areas, and maintain a capital ratio of at least 15 percent, a common equity tier 1 capital of at least equal to 14 percent, and a leverage ratio of at least ten percent. The order also requires the bank to create an interest rate risk program and a third-party risk management program.

    Agency Rule-Making & Guidance Cease and Desist New York Banking Corporate Governance Capital Requirements

  • OCC issues guidance on BNPL loans

    On December 6, the OCC posted Bulletin 2023-37 to provide banks with guidance on Buy Now, Pay Later (BNPL) loans. The OCC defined BNPL as point-of-sale or “pay-in-4” installment loan products. The OCC noted that, if BNPL products are used responsibly, they “can provide consumers with a low-cost, short-term, small-dollar financing alternative to manage cash flow.”

    The OCC emphasized that the banks should offer BNPL loans in accordance with standards for safety and soundness, treat customers fairly, provide fair access to financial services, and act in compliance with applicable laws and regulations. In the bulletin, the OCC highlighted the risks to banks associated with offering BNPL lending, including credit, compliance, operational, strategic, and reputational risks to banks. In particular, the bulletin also underscores the risks that borrowers may not fully understand their BNPL repayment obligations, the challenges of underwriting BNPL applicants who have limited or no credit history, the lack of standardized disclosure language, and the risks of merchant disputes, among other risks.

    The OCC recommended banks consider risk management practices, such as maintaining “underwriting, repayment terms, pricing, and safeguards that minimize adverse customer outcomes” tailored to the unique characteristics and risks of BNPL loans. The bulletin also advised banks to pay close attention to “the delivery method, timing, and appropriateness of marketing, advertising, and consumer disclosures,” in particular to ensure that all such documents clearly disclose the borrower’s obligations and any fees that may apply.

    Bank Regulatory Federal Issues Buy Now Pay Later Consumer Finance Lending Banking

  • FHFA releases advisory bulletin for pilot and voluntary programs

    Agency Rule-Making & Guidance

    On November 13, FHFA released an advisory bulletin on the FHLBank Framework for Pilot and Voluntary Programs. The desire for FHFA to develop innovative pilot programs is to support “affordable housing, equity advancement, and community development for underserved and financially vulnerable populations.” The pilot programs would be implemented and then analyzed to determine if they should continue, be expanded, or stop altogether. Some pilot programs may be to “test and learn” while some end because they do not meet FHLBank objectives. What the FHFA disallows from its pilot programs are “[p]roducts, programs, and services implemented under established FHFA statutory and regulatory authorities.” However, voluntary programs have included “grants, down payment assistance programs, and special purpose credit programs.”

    The FHFA guidance recommends that FHLBank’s board of directors establish specific parameters for pilot and voluntary programs by March 29, 2024. This bulletin was a result of public input phases of the “FHLBank System at 100: Focusing on the Future” initiative, as previously covered by InfoBytes here. Stakeholder feedback claimed that “FHLBanks should do more to support the affordable housing and community development components of their mission, especially in addressing the needs of underserved or financially vulnerable populations.”

    Agency Rule-Making & Guidance FHFA FHLB Pilot Program Banking

  • Fed releases third quarter SLOOS survey on bank lending practices

    On November 6, the Fed released its quarterly survey of Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices. The report is administered to mostly domestic banks but includes some international banks.

    The findings are summarized based on each type of loan: commercial, real estate, and consumer. Regarding business loans, the Fed finds banks reported “tighter standards and weaker demand for commercial and industrial loans.” For commercial real estate loans, banks reported “tighter standards and weaker demand” as well. For household loans, banks reported that “lending standards tightened across all categories of residential real estate loans (other than government residential mortgages),” but demand weakened for all residential real estate loans. Similarly, but for HELOCs, banks reported “tighter standards and weaker demand.” For consumer loans, such as credit cards, and auto loans, among others, “standards reportedly tightened, and demand weakened on balance.”

    The Fed also asked questions related to banks’ comfort level in approving applications based on FICO scores; the Fed found that banks were “less likely to approve such loans for borrowers with FICO scores of 620 and 680 in comparison with the beginning of the year, while they were… about as likely to approve auto loan applications for borrowers with FICO scores of 720 over this same period.” Finally, the Fed inquired about reasons why banks tightened their lending standards in the third quarter. Banks explained that economic conditions created a “reduced tolerance for risk; deterioration in the credit quality of loans and collateral values; and concerns about funding costs.”

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Loans Banking


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