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CFPB Director urges Congress to increase deposit insurance limits following a bank failure
On November 18, CFPB Director Rohit Chopra released a statement in connection with an FDIC Board of Directors closed meeting to discuss deposit insurance reform following the failure of a small community bank in Oklahoma. The bank’s collapse was allegedly due to fraudulent misconduct, and according to Chopra, the failure left some local depositors facing losses as their account balances exceeded federal deposit insurance limits. Chopra noted a disparity in deposit insurance protection available for depositors at small banks compared to the protections offered to depositors of larger institutions (which likely serve larger firms) following the banking issues from March 2023.
Chopra called for Congress to remove or dramatically increase the limits on federal deposit insurance for payroll and other non-interest bearing operating accounts. He argued that the current system advantages large banks and their clients unfairly by effectively granting them “free deposit insurance” that is not available to depositors of smaller banks.
CFPB survey reveals student loan repayment struggles and relief
On November 13, the CFPB released findings from the 2023-2024 Student Loan Borrower Survey, which aimed to understand borrowers’ student loan repayment difficulties and demographics of those applying for and receiving loan forgiveness. The survey, which was conducted as federal student loan payments resumed post-pandemic, revealed that 63 percent of borrowers had trouble making payments, with 37 percent missing at least one payment. Additionally, the survey indicated that the Covid-19 payment forbearance provided meaningful relief to borrowers, with over 80 percent of borrowers reporting at least one positive impact, 63 percent reporting they paid down other debts, 49 percent reporting they saved or invested, and 40 percent reporting that the pause allowed them to make at least one major life decision such as starting a family or changing their job.
The survey highlighted that many borrowers lacked confidence in their ability to afford student loan payments after the pause ended. More than half stated they would need to save less, cut back on large purchases, or earn more money. Notably, 44 percent indicated they would have to cut back on essentials like food and medicine.
The findings also showed that while 85 percent of borrowers reached out for help, many struggled with accessing income-driven repayment plans. Specifically, 42 percent of borrowers were only ever on the standard repayment plan, and 31 percent of those were unaware they could choose a different plan. The survey also provided insights into debt relief, revealing that nearly 10 percent of federal student loan borrowers had received some form of loan discharge, cancellation or forgiveness.
CFPB orders money service company to pay $3M for unfair practices
On November 14, the CFPB issued a consent order and stipulation against a company and its subsidiaries for allegedly engaging in unfair and abusive practices related to its money-transfer services used by the friends and family of incarcerated individuals. The Bureau found that from January 1, 2019, to January 8, 2023, these practices resulted in the company taking approximately $4.2 million from about 575,000 accounts. The company blocked consumers from sending and receiving money transfers after a chargeback was filed and failed to disclose complete fee schedules for these services, allegedly violating the CFPA.
The CFPB found that the company’s actions, including blocking accounts and not disclosing fee schedules, caused injury to consumers. The company’s failure to inform consumers about varying fees based on deposit amounts, payment methods, and channels prevented consumers from minimizing fees. The CFPB deemed these actions “unfair” under the CFPA.
The consent order prohibits the company from blocking accounts due to chargebacks and retaining unclaimed funds from inactive accounts. The company must also disclose complete fee schedules for money-transfer services and refund affected consumers. The order mandates the company to pay $2 million in redress to affected consumers and a $1 million civil money penalty to the CFPB. The company did not admit or deny any of the findings but consented to the issuance of the order to resolve the matter.
Ohio Court of Appeals: Absent collusion, holders of security interests in a deposit account cannot sue for conversion
Recently, the Ohio Court of Appeals for the First Appellate District found that a party with a security interest in a deposit account cannot sue for conversion under the Ohio Revised Code absent evidence of collusion between a third-party receiving funds from a deposit account and the account holder. The decision reversed and remanded a decision by the a lower county court.
In the underlying case, the plaintiff bank held a security interest in the deposit accounts of certain healthcare companies. After it was discovered that the health care companies were engaged in a check-kiting scheme, the plaintiff bank sought to recover funds that the healthcare companies had transferred from the deposit account to the defendant third-party merchant cash advance company. A footnote shared “check kiting” is a fraudulent act of writing a check from one account containing insufficient funds and depositing it into another account; the funds are then used from the second account before the check bounces from the first account.
The appellate court considered whether the statute in question, Ohio Revised Code (R.C.) 1309.332(B), “bars recovery for conversion when funds secured by one party’s security interest are withdrawn from a deposit account by another party.” In reaching its decision, the Court highlighted the virtually identical commentary in R.C. 1309.332(B) and UCC 9-332(B), to explain that the law “affords broad protection to transferees who take funds from a deposit account” and that extinguishing the security interest once funds have transferred out of a deposit account to a non-colluding transferee “helps to ensure that security interests in deposit accounts do not impair the free flow of funds.”
Adopting the majority approach in other jurisdictions, the court found that R.C. 1309.332(B) bars recovery for conversion absent collusion, which the plaintiff bank had not alleged in this case. The court emphasized that both the meaning of the statute and legislative history “suggest broad protection for transferees of funds from a deposit account,” and a preference for finality in financial transactions.
The appellate court remanded the case with instructions to dismiss the plaintiff’s complaint, underscoring that security interests in deposit accounts are less secure than other forms of collateral.
California’s privacy agency adopts new data broker regulations
On November 8, the California Privacy Protection Agency (CPPA) Board voted to adopt new regulations concerning data broker registration requirements and to advance a proposed rulemaking package for insurance, cybersecurity audits, risk assessments, automated decision-making technology (ADMT), and updates to existing regulations. The data broker regulations, which clarify provisions in the Delete Act, will be submitted to the Office of Administrative Law for review and approval, potentially becoming effective by January 1, 2025. According to the CPPA, these regulations would refine procedures for data brokers and increase public awareness, including clarifying registration requirements and defining terms.
The proposed rulemaking package will be subject to a 45-day formal public comment period. It includes updates to existing CPPA regulations, specifies compliance requirements for insurance companies, mandates annual cybersecurity audits and risk assessments for certain businesses, and establishes consumer rights regarding ADMT.
Congressional Research Service updates its report on alternative data used by credit reporting agencies
On November 7, the Congressional Research Service updated its report on the use of alternative data in financial services. Credit rating agencies rely traditionally on standard data points such as repayment history on mortgages, student loans, credit cards, auto loans, credit applications, bankruptcies and debts in collection to determine credit scores. New technology, however, has enabled financial institutions to incorporate alternative data, including payment histories in telecommunications, rent, utilities, checking account transactions, educational or occupational attainment, and even social media information, to assess an individual’s creditworthiness.
The report noted that approximately 20 percent of the U.S. population remains unscored due to limited credit histories. This group is typically lower-income, younger and more likely to be nonwhite. The CFPB’s Section 1033 final rule aims to streamline and accelerate the use of alternative data in fintech underwriting, potentially allowing fintech lenders to make more informed credit decisions by accessing novel data through data brokers or prior relationships with borrowers. As previously covered by InfoBytes, the Bureau’s final rule on personal financial data rights would mandate that financial institutions, credit card issuers, and other financial providers make covered data available to consumers and third parties in a standardized format. The final rule is currently under challenge in federal court (also covered by InfoBytes here).
The report noted that incorporating alternative data into credit scoring models has shown promise in scoring previously “unscorable” borrowers and improving existing scores. However, concerns over data security, privacy and fair lending remain as financial institutions must navigate the regulatory landscape to ensure compliance with the GLBA and the ECOA.
FCC updates the TCPA for opt-out requests
Recently, the FCC announced the new rules under the Telephone Consumer Protection Act (TCPA) will take effect on April 11, 2025, making it easier for consumers to revoke consent for unwanted robocalls and robotexts. As previously covered by InfoBytes, these rules were adopted in the TCPA Consent Order on February 15 requiring callers and texters to honor opt-out requests promptly. The FCC’s announcement in the Federal Register confirmed the compliance date for the amendments and new rules specified in 47 CFR §§ 64.1200(a)(9)(i)(F), (10), (11) and (d)(3).
Financial Stability Board’s Middle East and North Africa group discusses AI and cyber risks
On November 6, the Financial Stability Board’s (FSB) Regional Consultative Group for the Middle East and North Africa convened in Saudi Arabia for a meeting focused on technological innovation and AI advancements within the financial sector. The participants discussed the benefits and risks associated with AI and anticipated the FSB’s upcoming report on AI’s financial stability implications. The meeting also addressed the increasing frequency and severity of operational and cyber incidents in the financial system, emphasizing the implications of increased reliance on external providers. Global and regional market developments were also reviewed, including inflation expectations and the influence of technology and social media on depositor behavior. Members also received updates on the FSB’s work program and discussed proposed focus areas for 2025.
California DFPI revokes cryptocurrency lender’s license after suspension
On October 28, the California DFPI revoked a cryptocurrency lender’s California Licensing Law (CFL) license based on alleged violations, including improper practices related to digital asset collateral loans, including failing to consider the ability to repay, charging interest on undisbursed funds, failing to offer credit counseling, and failing to accurately disclose APR. DFPI’s allegations were described in the settlement agreement, in which the cryptocurrency lender agreed to the license revocation. As previously covered by InfoBytes, the DFPI suspended the cryptocurrency lender’s license in 2022 pending a DFPI investigation.
The settlement agreement included several key terms: the company agreed to a desist and refrain order and an order to discontinue unsafe or injurious practices, and DFPI imposed a fine of $175,000 for the alleged violations of the CFL. However, due to the company’s ongoing bankruptcy proceedings and cessation of operations, the commissioner waived the fine.
5th Circuit denies rehearing in CFSA v. CFPB case
On November 12, the U.S. Court of Appeals for the Fifth Circuit denied a petition for rehearing en banc in CFSA v. CFPB. As previously covered by InfoBytes, the U.S. Supreme Court previously overturned the Fifth Circuit’s ruling in the case, finding that the Bureau’s funding mechanism “satisfies the Appropriations Clause.” The denial for rehearing en banc means that unless the plaintiffs choose to appeal their case to the Supreme Court again and the case is accepted, the CFPB’s Payday Lending Rule will take effect beginning in March 2025.