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  • FDIC fines Delaware-based bank for unfair and deceptive practices

    Consumer Finance

    On March 7, the FDIC announced that a Delaware-based bank agreed to settle allegations of unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act for assessing transaction fees in excess of what the bank previously had disclosed. The FDIC also found that the bank’s practices violated the Electronic Funds Transfer Act, the Truth in Savings Act, and the Electronic Signatures in Global and National Commerce Act. According to the FDIC, from December 2010 through November 2014, the bank overcharged transaction fees to consumers who used prepaid and certain reloadable debit cards to make point-of-sale, signature-based transactions that did not require the use of a personal identification number. The transaction fees allegedly exceeded what the bank had disclosed to consumers. Under the terms of the settlement order, the bank will, among other things, (i) establish a $1.3 million restitution fund for eligible consumers; (ii) prepare a comprehensive restitution plan and retain an independent auditor to determine compliance with that plan; and (iii) provide the FDIC with quarterly written progress reports detailing its compliance with the settlement order. The settlement also requires the bank to pay a civil money penalty of $2 million.

    Consumer Finance FDIC UDAAP FTC Act EFTA Prepaid Cards Settlement

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  • Federal Reserve Governor Calls for Collaboration Between Regulators, Banks, Data Aggregators, and Fintech Firms for Financial Data Sharing Standards


    On November 16, Federal Reserve Governor Lael Brainard spoke at a fintech conference sponsored by the University of Michigan regarding consumers’ right to understand and control how their financial data is used by third-party aggregators, and in developing fintech technology. “There's an increasing recognition that consumers need better information about the terms of their relationships with aggregators, more control over what is shared, and the ability to terminate the relationship,” Brainard noted. “Consumers should have relatively simple means of being able to consent to what data are being shared and at what frequency. And consumers should be able to stop data sharing and request the deletion of data that have been stored.”

    Brainard emphasized that regulators, data aggregators, bank partners, and fintech developers should jointly develop a common, consistent message for how customer data is shared and protected within the fintech space and “other areas experiencing significant technological change.” As previously reported in InfoBytes, on October 18, the CFPB issued principles concerning the security and transparency of financial data sharing when companies—including fintech firms—get authorization from consumers to access their account data that reside in separate organizations to provide products and services.

    Fintech Federal Reserve Consumer Finance Privacy/Cyber Risk & Data Security EFTA CFPB Third-Party

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  • CFPB Seeks Comments on Proposed Amendments to Prepaid Rule, Releases Updated Small Entity Compliance Guide

    Agency Rule-Making & Guidance

    On June 15, the CFPB announced a request for comment on proposed amendments to Regulation E, which concerns prepaid accounts under the Electronic Fund Transfer Act (EFTA) and the Truth in Lending Act (Regulation Z). According to the Bureau, the request aims to address prepaid companies’ concerns over “unanticipated complexities” regarding certain aspects of the rule. As previously covered in InfoBytes, in April the CFPB issued a final rule delaying the general effective date to April 1, 2018. The prepaid rule provides consumers, among other things, additional federal protections under EFTA on prepaid financial products, person-to-person payment products, and other electronic accounts with the ability to store funds. Specifically, the proposed amendments would impact error resolution requirements for unregistered accounts, enhance flexibility for credit cards linked to digital wallets, and open for consideration whether a further delay to the rule’s effective date is necessary due to the proposed amendments or if safe harbor provisions should be added for early compliance. The proposal also addresses amendments affecting the following: (i) the exclusion of loyalty, award, or promotional gift cards; (ii) “unsolicited issuance of access devices and pre-acquisition disclosures”; and (iii) submission of account agreements to the Bureau. Comments are due 45 days after the request is published in the Federal Register.

    Separately, on the same day, the Bureau released an updated edition of its small entity compliance guide for the prepaid rule. The guide notes the new effective date, and also offers clarification on prepaid reload packs, the consistent use of fee names and other terms, foreign language disclosure requirements, URL names in short form disclosures, mobile accessible transaction histories, account agreement submissions to the Bureau, and clarification that stipulates “reversing a provisional credit does not otherwise trigger Regulation Z coverage under the Prepaid Rule.”

    Agency Rule-Making & Guidance CFPB Prepaid Rule EFTA TILA Regulation E Regulation Z Prepaid Cards

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  • FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in April 2017


    On May 26, the FDIC released its list of 18 administrative enforcement actions taken against banks and individuals in April. Among the consent orders on the list are civil money penalties for violations of the Flood Disaster Protection Act of 1973 and its flood insurance requirements. Also on the list are a cease and desist order and a civil money penalty assessment issued to a Louisiana-based bank (Bank) for violations of the Bank Secrecy Act (BSA), EFTA, RESPA, TILA, HMDA, and the National Flood Insurance Program. According to the cease and desist order, the FDIC Board of Directors agreed with the Administrative Law Judge’s recommended decision that the Bank engaged in unsafe or unsound practices, which warranted a cease and desist order and civil money penalty. The order also addressed a number of shortcomings identified by the Bank’s examiners, including the following: (i) the Bank’s BSA program lacked adequate internal controls to ensure compliance; (ii) it failed to provide correct and compete electronic funds transfer disclosures to consumers; (iii) borrowers were provided “untimely and improperly completed” good faith estimates; and (iv) the Bank repeatedly failed to accurately report required HMDA information to federal agencies.

    An additional eight actions listed by the FDIC related to unsafe or unsound banking practices and breaches of fiduciary duty, including five removal and prohibition orders. There are no administrative hearings scheduled for June 2017. The FDIC database containing all of its enforcement decisions and orders may be accessed here.

    Courts Consumer Finance Enforcement FDIC Litigation National Flood Insurance Program Bank Secrecy Act EFTA RESPA TILA HMDA Flood Insurance

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  • FTC Submits Annual Report on 2016 Enforcement Actions to CFPB

    Consumer Finance

    On June 1, the FTC announced that it submitted its 2016 Annual Financial Acts Enforcement Report to the CFPB. The report—requested by the Bureau for its use in preparing its 2016 Annual Report to Congress—covers the FTC’s enforcement activities related to compliance with Regulation Z (Truth in Lending Act or TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Funds Transfer Act or EFTA), as well as its initiatives to engage in research and consumer education.

    According to the report, the FTC’s enforcement actions in 2016 concerning TILA involved automobile purchasing and financing, payday loans, and financing of consumer electronics. Regarding mortgage-related credit activity, the report highlights continued litigation in two cases involving mortgage assistance relief services involving “forensic audit scams.” Furthermore, the FTC continued its consumer and business education efforts on issues related to consumer credit transactions in the following areas: military lending, auto sales and financing, payday lending, marketplace lending, and consumer disclosures and testing.

    Regarding the Consumer Leasing Act, the report noted the FTC had issued a final administrative consent order for deceptive advertising practices and failure to disclose key lease offer terms. The FTC also filed two federal court actions against automobile dealers. The FTC also engaged in research and policy development and educational activities in this area.

    Concerning the EFTA, the FTC reported six new or ongoing cases, including four cases alleging violations in the context of “negative option” plans, in which a consumer agrees to “receive various goods or services from a company for a trial period at no charge or at a reduced price” but later incurs unauthorized recurring charges after the end of the trial period, in violation of the EFTA. The remaining two cases involved payday lending and consumer electronics financing. The FTC also engaged in rulemaking, research, policy development, and educational activities involving the EFTA.

    Consumer Finance CFPB FTC Enforcement Litigation Marketplace Lending TILA Consumer Leasing Act EFTA Mortgages

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  • Fed Releases List of Small Issuers Exempt from Debit Card Interchange Fees

    Federal Issues

    On May 22, the Federal Reserve Board announced its lists of institutions that either are or are not exempt from the its debit card interchange fee standards found in Regulation II, which implements section 920 of the Electronic Fund Transfer Act (EFTA). The lists are intended to facilitate compliance by assisting payment card networks and others in determining which issuers qualify for the statutory exemption. The lists were generated from available data and contain institutions in existence on Dec. 31, 2016. Exempt institutions, together with their affiliates, have reported assets of less than $10 billion and are not subject to the interchange fee standards under the statute. Institutions that are not exempt have, either individually or together with their affiliates, reported assets of $10 billion or more, and therefore must comply with the interchange fee standards under the statute. Debit card issuers that do not appear on either of the lists must certify to their participating payment card networks that they are exempt from the interchange fee standards. The EFTA requires the Fed to biennially report on interchange fee revenue and costs incurred by debit card issuers and payment card networks. The Fed’s last report—for calendar-year 2015—cites interchange fees across all debit and general-use prepaid cards totaled $18.41 billion.

    Federal Issues Federal Reserve Debit Cards EFTA

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  • CFPB Issues Final Rule Delaying Effective Date for Prepaid Accounts Rule to April 1, 2018

    Agency Rule-Making & Guidance

    On April 20, the CFPB released a final rule delaying the general effective date of its rule governing prepaid accounts by six months, to April 1, 2018. As previously covered in InfoBytes, the Bureau, after reviewing comments, decided last month to delay the effective date of the rule—which, among other things, provides consumers with additional federal protections under the Electronic Fund Transfer Act on prepaid financial products, mobile wallets, person-to-person payment products, and other electronic accounts with the ability to store funds. The CFPB explained that the six-month extension “provides for an appropriate balance between the interests of the consumers who will receive the benefits of the rule and the needs of industry for an adequate implementation period.” For additional background information, please see our earlier InfoBytes coverage of the Prepaid Rule.

    Agency Rule-Making & Guidance CFPB Prepaid Rule EFTA

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  • State AGs, Industry Groups Submit Comments Addressing CFPB’s Proposed Delay of Prepaid Accounts Rule

    State Issues

    As previously covered in InfoBytes, the Bureau released its final rule (the “Prepaid Accounts Rule”) on prepaid financial products in October of last year in order to provide consumers with additional federal protections under the Electronic Fund Transfer Act and also to offer consumers standard, easy-to-understand information about prepaid accounts. Recently, however, the CFPB announced its intention to delay the effective date of its Prepaid Accounts Rule by six months. If approved, the proposed extension would push back the current October 1, 2017, effective date to April 1, 2018. According to the proposed rule and request for public comment published by the Bureau in the March 15 Federal Register, the extension comes in response to comments received from “some industry participants” who “believe they will have difficulty complying with certain provisions.” The CFPB has taken the position that extending the deadline for compliance “would, among other things, help industry participants address certain packaging-related logistical issues for prepaid accounts that are sold at retail locations.” Comments on the proposal were due April 5.

    State AG’s Letter. On April 5, attorneys general from 17 states and the District of Columbia submitted a letter to congressional leaders presenting various arguments against pending House and Senate resolutions (S.J. Res. 19, H.J. Res. 62, and H.J. Res. 73) providing for congressional disapproval and effectively nullifying the CFPB’s Prepaid Accounts Rule. The state attorneys general—including AGs for the District of Columbia, California, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington, along with the Executive Director of the Hawaii Office of Consumer Protection—argued, among other things, that consumer protections provided by the Rule are important because, among other things, “consumers frequently report concerns about hidden and abusive fees as well as fraudulent transactions that unfairly deplete the funds loaded onto prepaid cards.” The AGs’ letter notes further that prepaid cards are often used by “vulnerable consumers” who have limited or no access to a traditional bank account. Notably, although they characterize these congressional resolutions as a “misplaced effort,” the state AGs acknowledge that the Congressional Review Act “gives Congress, with the President’s signature, a window to veto a rule from going into effect.”

    American Bankers Association (ABA) Letter. In another comment letter, submitted on April 3, the ABA commended the CFPB for “proposing to extend the deadline” because, among other things, “some industry participants, especially those offering prepaid cards in retail stores, may have difficulty complying with certain provisions.”  The ABA also noted that the extension of time presents an opportunity for the Bureau to “consider making adjustments as appropriate to ensure unnecessary disruption to consumers’ access to, and use of, prepaid accounts.” As explained in the letter, the ABA’s primary concern about the Prepaid Accounts Rule “remains the inconsistency and lack of clarity of the regulation’s distinction between checking accounts and prepaid accounts.” To this end, the ABA recommends that the Bureau use the extra time to “remove inconsistencies in the Rule and clarify the distinction between a prepaid account and a checking account to ensure that banks do not inadvertently violate the regulation and risk significant potential liability and supervisory actions.” The ABA’s letter also calls for “similar changes” to the “definition of ‘payroll account’” in order to further distinguish product types.

    Independent Community Bankers of America (ICBA) Letter. Also on April 3, the ICBA also submitted a short comment letter stating, among other things, that it “fully supports extending the effective date” as the additional time will “ensure that systems and technology changes could be made to facilitate compliance.”

    State Issues State Attorney General CFPB Prepaid Rule EFTA ABA ICBA

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  • CFPB Issues Disclosure Guide for Preparing Prepaid Accounts

    Consumer Finance

    On March 7, the CFPB issued a disclosure guide with instructions on how to prepare short form disclosures for prepaid accounts. The guidance provides steps for completing the disclosure but does not address other requirements under Regulation E, as amended by the Prepaid Rule, and is not applicable to government benefit accounts or payroll card accounts. The guide also covers information pertaining to insertion of fee amounts, static fees, additional fee types, statements explaining variable fees, informational statements, and size requirements.

    As previously covered in InfoBytes, the Bureau released its final rule (the “Prepaid Rule”) on prepaid financial products in October of last year in order to provide consumers with additional federal protections under the Electronic Fund Transfer Act and to also offer consumers standard, easy-to-understand information about prepaid accounts. However, on March 8, the CFPB announced that it may delay this effective date by six months. If approved, the proposed rule would push back the current October 1 effective date to April 1, 2018. According to the proposed rule filed by the Bureau, the extension comes in response to comments received from “some industry participants” who “believe they will have difficulty complying with certain provisions.” Extending the deadline for compliance “would, among other things, help industry participants address certain packaging related logistical issues for prepaid accounts that are sold at retail locations.” Comments on the Bureau's proposal are due next month.

    Consumer Finance CFPB Disclosures Prepaid Rule Regulation E EFTA

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  • Legislators Appeal to CFPB Regarding Payday Loan Proposal

    Federal Issues

    In a letter sent to CFPB Director Richard Cordray on December 1, a group of Republican members of Congress expressed concern about the Bureau’s proposal regarding payday, vehicle title, and certain high-cost installment loans. The letter observes that CFPB’s proposal “attempts to further regulate an industry that is already highly regulated by nearly a dozen federal laws including the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the Electronic Fund Transfer Act.” Specifically, the letter contends that the CFPB’s framework will effectively preempt existing statutory and regulatory frameworks and/or eliminate regulated small dollar credit products from the market, thereby leaving consumers without access to credit or forcing them to seek “riskier, illegal” forms of credit.

    Federal Issues Consumer Finance CFPB TILA FCRA ECOA EFTA U.S. House

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