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  • FTC updates its Endorsement Guide after 14 years

    Federal Issues

    On June 29, the FTC announced the finalized updated version if its Endorsement Guide, to help the agency combat deceptive reviews and endorsements. The FTC says its endorsement guides, which were previously updated in 2009, advise businesses on what practices are considered unfair and deceptive in violation of the FTC Act. The FTC explained that the current, updated version takes into consideration comments solicited earlier this year, to reflect the ways advertisers now reach consumers. The revisions: (i) “articulate[] a new principle regarding procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, or editing consumer reviews so as to distort what consumers think of a product”; (ii) “address[] incentivized reviews, reviews by employees, and fake negative reviews of a competitor;” (iii) “add[] a definition of ‘clear and conspicuous’ and saying that a platform’s built-in disclosure tool might not be an adequate disclosure”; (iv) “[change] the definition of ‘endorsements’ to clarify the extent to which it includes fake reviews, virtual influencers, and tags in social media;” (v) “better explain[] the potential liability of advertisers, endorsers, and intermediaries”; and (vi) highlight[] that child-directed advertising is of special concern. The FTC concurrently issued an updated version of its guidance regarding frequently asked questions about its endorsement guides.

     

    Federal Issues FTC Advertisement FTC Act

  • FTC orders sweepstakes company to pay $18.5 million for using “dark patterns”

    Federal Issues

    On June 26, the FTC filed a complaint against a sweepstakes company alleging they used “dark patterns” (via the use of “manipulative phrasing and website design”) to trick consumers into purchasing products in order to enter the increase the chances of winning the company’s sweepstakes. The FTC further claimed the defendant engaged in other unlawful practices in violation of the FTC Act, including (i) failing to disclose the true price of goods and failing to inform consumers they were responsible for return shipping costs for unwanted products; (ii) misleading consumers with fictitious email subject lines; and (iii) sharing consumer data with third parties despite disclosing in its privacy policy prior to January 2019 that it did sell or rent consumer data to third parties.

    Under the terms of the proposed court order filed June 27 stipulating to an injunction, monetary judgement, and other relief, the defendant would be required to pay $18.5 million in monetary relief and make numerous changes to its email and internet operations. Among other things, the defendant would be required to clearly and conspicuously disclose on every shopping page that a purchase is not required to enter a sweepstakes and that purchasing will not help a consumer win. Consumers would also be required, in many cases, to acknowledge this disclosure when responding to a call to action that results in an order. The defendant must also clearly disclose material costs and terms of purchase, as well as any additional fees, and cancellation and return policies. Additionally, the defendant would be required to delete all consumer data collected prior to January 1, 2019, unless required for processing transactions, and stop misrepresenting its data collection and sharing practices.

    Federal Issues FTC Enforcement Dark Patterns FTC Act CAN-SPAM Act

  • FHA requires info on language preference, homeowner education in mortgage originations

    Federal Issues

    On June 27, FHA announced lenders will have to submit information about borrowers’ language preferences and homeownership education or housing counseling history through the Supplemental Consumer Information Form when originating mortgages for FHA insurance. According to FHA, borrowers may choose to provide all, some, or none of the information requested on the form, and lenders must transmit any information the borrower disclosed. The information collected from the form will allow the administration to have a better aggregate view of language preferences, which FHA stated, “will influence its future actions to continue breaking down language and other barriers to homeownership.” On June 13, FHA also announced the availability of Chinese, Korean, Spanish, Tagalog, and Vietnamese versions of more than 30 single family mortgage documents and related resources associated with FHA programs.

    Federal Issues HUD FHA Mortgages Consumer Finance Mortgage Origination

  • CFPB levies $25 million penalty for EFTA violations

    Federal Issues

    On June 27, the CFPB entered a consent order against a Nebraska-based payment processor and its Delaware-based subsidiary for alleged violations of the EFTA (Regulation E), and the Consumer Financial Protection Act’s prohibition against unfair acts and practices. According to the Bureau, in 2021 the respondent’s employees allegedly used sensitive consumer financial information while conducting internal testing, without employing the proper information safety protocols. The internal tests allegedly created payment processing files that were treated as containing legitimate consumer bill payment orders. According to the Bureau, the erroneous bill payment orders were allegedly sent to consumers’ banks for processing, which resulted in approximately $2.3 billion in mortgage payments being debited from nearly 500,000 borrower bank accounts without their knowledge or authorization. The Bureau alleged in its order that some consumers accounts were depleted, “depriving Affected Consumers of the use of their funds, including by being prevented from making purchases or completing other legitimate transactions, and many were charged fees, including fees for insufficient funds or overdrawn accounts.” While neither admitting nor denying any of the allegations, the respondent has agreed to pay a $25 million penalty, stop activities the Bureau deemed unlawful, and adopt and enforce reasonable information security practices.

    Federal Issues CFPB Enforcement Consumer Finance Mortgages Payment Processors Fintech Unfair UDAAP EFTA CFPA

  • DOJ and FTC find UDAPs in handling of women’s health data

    Federal Issues

    On June 23, the DOJ and FTC announced the government has obtained substantial injunctive relief, and that the department will collect $100,000 in civil penalties, from an Illinois-based healthcare corporation pursuant to a stipulated federal court order. In the complaint, the United States claimed that the corporation violated Section 5 of the FTC Act, in which the defendant engaged in unfair and deceptive acts in connection with its period and ovulation tracking mobile app. The government alleged that the corporation shared consumers’ persistent identifiers and sensitive personal information to third-party companies without user notice or consent. Additionally, the corporation allegedly failed to disclose how those third-party companies would use consumers’ personal information. The complaint also alleges the corporation failed to take “reasonable measures” surrounding data and privacy risk when they integrated third-party software into the mobile application, and that they violated the HBNR.

    The order entered by the court requires that the corporation: (i) “implement a comprehensive privacy and data security program with safeguards to protect consumer data”; (ii) “hire an independent third-party to regularly assess its compliance with the privacy program for a period of 20 years”; (iii) “[is] enjoined from sharing health information with third-parties for advertising purposes, from sharing health information with third-parties for other purposes without obtaining users’ affirmative express consent, and from making misrepresentations about [the corporation’s] privacy practices”; and (iv) comply with the HBNR’s notification provisions in any future breach of Security.

    Federal Issues Courts Privacy, Cyber Risk & Data Security Department of Justice FTC FTC Act Consumer Protection

  • Biden administration launches NIST working group on AI

    Federal Issues

    On June 22, the Biden administration announced that the National Institute of Standards and Technology (NIST) launched a new public working group on generative AI. The Public Working Group on Generative AI will reportedly help NIST develop guidance surrounding the special risks posed by AI in order to help organizations and support initiatives to address the opportunities and challenges associated with generative AI’s creation of code, text, images, videos, and music. “The public working group will draw upon volunteers, with technical experts from the private and public sectors, and will focus on risks related to this class of AI, which is driving fast-paced changes in technologies and marketplace offerings” NIST stated. NIST also outlined the immediate, midterm, and long-term goals for the group. Initially, the working group will research how the NIST AI Risk Management Framework can be used to support AI technology development. The working group’s midterm goal will be to support NIST in testing, evaluation and measurement related to generative AI. In the long term, the group will explore the application of generative AI to address challenges in health, environment, and climate change. NIST encourages those interested in joining the working group to submit a form no later than July 9.

    Federal Issues Biden Artificial Intelligence NIST Risk Management

  • Yellen discusses development banks in Paris speech

    Federal Issues

    On June 23, U.S. Treasury Secretary Janet L. Yellen attended the Summit for a New Global Financing Pact in Paris, during which she delivered remarks on the continuing evolution of global financial architecture. Yellen first touched upon an initiative to evolve multilateral development banks’ (MDBs) ability to tackle global challenges, including climate change, pandemics, poverty, and conflicts. She highlighted a recent achievement handled by a broad coalition of shareholders, which, according to Yellen, has the potential to unlock as much as $50 billion in additional lending capacity over the next decade and may lead to MDBs, as a system, unlocking “$200 billion in new lending capacity over the same timeframe through balance sheet measures that are either already under implementation or being deliberated.” Yellen also touched upon other initiatives relating to debt and macroeconomic stability, as well as private capital mobilization, during the summit.

    Federal Issues Department of Treasury Of Interest to Non-US Persons

  • CFPB puts spotlight on “banking deserts” in the south

    Federal Issues

    On June 21, the CFPB published a data spotlight, titled Banking and Credit Access in the Southern Region of the U.S., addressing banking and credit access, particularly mortgage lending, in in the south (Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee). Considering the prevalence of “banking deserts” in the south, the report seeks to identify gaps and opportunities to increase financial access in the region. The report also includes a comparative analysis of rural and nonrural areas. For example, in rural communities and communities of color, the Bureau reports that “even though 23 percent of the population lives in a rural county, only 14 percent of home purchase loans in 2021 went to those areas. Between 2018 and 2021, only 9 percent of home purchase loans went to Black rural borrowers in the region, even though they represent 24 percent of the region’s rural population.” Moreover, the report notes that home loan applications from rural southerners are more likely to be denied than in the rest of the country. The Bureau also states that mortgage interest rates further set the rural south apart, as they tend to be higher, on average, than interest rates nationally. The Bureau’s initial analysis shows that credit scores alone do not explain these lower levels of lending.

    With respect to banking access, the data spotlight highlights the association between the presence of a bank branch and access to necessary financial services—a common concern reported from stakeholders from the south. The Bureau reports that with only 3.6 branches per 10,000 people in the south (as compared to 5.0 branches per 10,000 people nationally), financial services access is limited, particularly when combined with inaccessible online banking due to limited broadband. The report also highlights how small businesses employ nearly half of the region’s workforce; thus, small business lending is a crucial resource to the south. In support of small business lending, the report references resources for business owners to leverage. (­­­­­­­­­­­As previously covered by InfoBytes, when the Small Business Lending Rule goes into effect, the Bureau believes that it will provide “visibility” into small business lending.) The report further includes a reminder that “lenders have the ability to create Special Purpose Credit Programs, which enable the development of directed lending programs to reach historically underserved populations.” The Bureau goes on to state that even when branch locations are present, top barriers include minimum balance requirements, distrust of banks, high fees, and barriers to meeting identification requirements.

    A second report, the Consumer Finances in Rural Areas of the Southern Region, was also published the same day. The report analyzes southern consumer financial profiles, compared to other geographies, including credit scores, financial distress, medical debt, and other debt categories. Among other things, the report highlights the unique position of mortgage borrowers from the rural south. Findings include that the share of chattel loans (for which the land underneath the home is not used as collateral) is seven times higher in the rural south than in other parts of the country. These borrowers are reportedly more venerable to both repossession and rent hikes or eviction. Also, student loan borrowers in the rural south tend to have lower monthly payments and delinquent balance amounts than the respective national averages, but given the area’s lower median incomes, borrowers in this region face a much higher student loan debt burden. Other findings include that rural southerners are less likely to have a credit card or an outstanding mortgage, which is partially reflective of the lower likelihood of successfully taking out credit, even within credit score tiers. According to the report, rural southerners are also more likely to pay higher interest rates on average and are more likely to have medical collections, with medical collections as the most common type of delinquency. These findings, the Bureau says, are an attempt to provide a “starting point” to better understand the financial situations, needs, and challenges of consumers in the south.

    Federal Issues CFPB Consumer Finance Mortgages Medical Debt Credit Report Underserved Small Business Lending

  • FDIC revises NSF guidance

    On June 16, the FDIC updated its Supervisory Guidance on Multiple Re-Presentment NSF Fees to clarify its supervisory approach for addressing violations of law. This new guidance, FIL-32-2023, updates FIL-40-2022 (originally issued last August and covered by InfoBytes here), which warned supervised financial institutions that charging customers multiple non-sufficient funds (NSF) fees on re-presented unpaid transactions may increase regulatory scrutiny and litigation risk. The FDIC noted that since the issuance of FIL-40-2022, the agency has received additional data relating to the amount of consumer harm associated with NSF fees at particular institutions, as well as information regarding extensive, ongoing challenges institutions face to accurately identify re-presented transactions. Consequently, the FDIC made changes to its supervisory guidance to specify that it “does not intended to request an institution to conduct a lookback review absent a likelihood of substantial consumer harm.”

    Bank Regulatory Federal Issues FDIC Supervision NSF Fees Consumer Finance Compliance

  • Hsu tells banks to approach AI cautiously

    On June 16, Acting Comptroller of the Currency Michael J. Hsu warned that the unpredictability of artificial intelligence (AI) can pose significant risks to the financial system. During remarks presented at the American Bankers Association’s Risk and Compliance Conference, Hsu cautioned that banks must manage risks when adopting technologies such as tokenization and AI. Although Hsu reiterated his skepticism of cryptocurrency (covered by InfoBytes here), he acknowledged that AI and blockchain technology (where most tokenization efforts are currently focused) have the potential to present “significant” benefits to the financial system. He explained that trusted blockchains may improve settlement efficiency through tokenization of real-world assets and liabilities by minimizing lags and thereby reducing related frictions, costs, and risks. However, he warned that legal frameworks and risk and compliance capabilities for tokenizing real-world assets and liabilities at scale require further development, especially considering cross-jurisdictional situations and ownership and property rights.

    With respect to banks’ adoption of AI, Hsu flagged AI’s “potential to reduce costs and increase efficiencies; improve products, services and performance; strengthen risk management and controls; and expand access to credit and other bank services.” But there are significant challenges, Hsu said, including bias and discrimination challenges in consumer lending, fraud, and risks created from the use of “generative” AI. Alignment is also the core challenge, Hsu said, explaining that because AI systems are built to learn and may not do what they are programed to do, governance and accountability challenges may become an issue. “Who can and should be held accountable for misaligned, unexpected, and harmful outcomes?” Hsu asked, pointing to banks’ use of third parties to develop and support their AI systems as an area of concern.

    Hsu advised banks to approach innovation “responsibly and purposefully” and to proceed cautiously while keeping in mind three principles for managing risks: (i) innovate in stages, expand only when ready, and monitor, adjust and repeat; (ii) “build the brakes while building the engine” and ensure risk and compliance professionals are part of the innovation process; and (iii) engage with regulators early and often during the process and ask for permission, not forgiveness.

    Bank Regulatory Federal Issues Fintech OCC Artificial Intelligence Tokens Compliance Risk Management Blockchain

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