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OCC issues proposed rule for bank merger approvals
On January 29, the OCC announced a proposed rule for bank merger approvals under the Bank Merger Act (BMA). The OCC proposed changes to 12 CFR 5.33 to reflect its view that a business combination is a significant corporate transaction.
The OCC suggested two key changes to its business combination regulation (12 CFR 5.33). First, it proposed removing the expedited review procedures outlined in § 5.33(i). Currently, this provision automatically approves certain filings after the 15th day following the close of the comment period, but the OCC believes that no business combinations subject to § 5.33 should be approved solely based on elapsed time. Additionally, the OCC suggests removing paragraph (d)(3), as it pertains to defining applications eligible for expedited review. Second, the OCC proposes the removal of § 5.33(j), which outlines four scenarios allowing an applicant to use the OCC's streamlined business combination application instead of the full Interagency Bank Merger Act Application. The streamlined application seeks information on similar topics, but only requires detailed information if the applicant answers affirmatively to specific yes-or-no questions. Currently, a transaction eligible for the streamlined application also qualifies for expedited review, a feature the OCC is proposing to eliminate. Additionally, a new policy statement (proposed as Appendix A to 12 CFR part 5, subpart C) is introduced to provide clarity and guidance on general principles used by the OCC in reviewing applications under the BMA. The policy statement also covers considerations for financial stability, resources, prospects, and convenience and needs factors. Criteria for deciding whether to hold a public meeting on a BMA application were also outlined.
Comments from the public are due 60 days from the date of publication in the Federal Register.
FFIEC publishes proposed extension of reporting obligations
On January 26, the Federal Financial Institutions Examination Council (FFIEC) approved the OCC, Fed, and FDIC’s publication for public comment of a proposal to extend several information collection items for three years. As previously covered by InfoBytes, the FFIEC last month put forth a similar three-year proposal on FFIEC 002 which affected the three Call Reports (FFIEC 031, 041, and 051). While this proposal includes those same four items, it adds two more: the Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 101), and the Market Risk Regulatory Report for Institutions Subject to the Market Risk Capital Rule (FFIEC 102). The proposed changes include a new confidential report (FFIEC 102a) titled the Market Risk Regulatory Report that would “collect information necessary for the agencies to evaluate [an]… institution’s implementation of the market risk rule and validate a [bank’s] internal models used in preparing the FFIEC 102.” The revisions are related to the agencies’ capital rule proposal published on September 18, 2023. Comments are requested by March 25, 2024, and the revisions are planned to be effective as of September 30, 2025.
FTC hosts tech summit on artificial intelligence; CFPB weighs in
On January 25, the FTC hosted a virtual tech summit focused on artificial intelligence (AI). The summit featured speakers from the FTC––including all three commissioners––software engineers, lawyers, technologists, entrepreneurs, journalists, and researchers, among others. First, Commissioner Slaughter spoke on how there are three main acts that led to where we are today in creating guardrails for AI use: first, the emergence of social media; second, industry groups and whistleblowers rang the alarm on data privacy and forced regulators to play catch-up; third, regulators must now urgently grapple with difficult social externalities such as impacts on society and political elections.
The first panel discussed the various business models at play in the AI space. One journalist spoke on the recent Hollywood writers’ strike, opining that copyright law is a poor legal framework by which to regulate AI, and suggested labor and employment law as a better model. An analyst at a venture capital firm discussed how her firm finds investment opportunities by reviewing which companies use a language-learning model, as opposed to the transformer model, which is more attractive to that firm.
Before the second panel, Commissioner Bedoya discussed the need for fair and safe AI, and said that in order for the FTC to be successful, it must execute policy with two topics in mind: first, people need to be in control of technology and decision making, not the other way around; and second, competition must be safeguarded so that the most popular technology is the one that works the best, not just the one created by the largest companies.
During the second panel, a lawyer from the CFPB spoke on how the CFPB is doing “a lot” with regards to AI, and that the CFPB gives AI technology no exceptions in the laws it oversees. The CFPB recently issued releases on how the “black box” model in credit decision making needs to be fair and free from bias. When discussing future AI enforcement actions, the CFPB lawyer said in a “high-level” way that AI enforcement is currently “capacity building”; they are building out their resources to be more intellectually diverse, including having recently created their technologist program.
CFPB proposes rule making certain NSF fees “abusive”
On January 24, the CFPB released a proposed rule that would identify the charging of non-sufficient funds (NSF) fees on transactions that financial institutions decline instantaneously or near-instantaneously as an “abusive” act or practice. The rule would prohibit financial institutions from charging such fees. The proposed rule defines a “covered transaction” as a consumer’s attempt to withdraw, debit, pay, or transfer funds from their account that is declined instantaneously or near-instantaneously by a “covered financial institution” due to insufficient funds. Further, instantaneously, or near-instantaneously-declined transactions are characterized as transactions that are processed in real-time with “no significant perceptible delay to the consumer when attempting the transaction.” One-time debit card transactions that are not preauthorized, ATM transactions, and certain person-to-person transactions would be covered by the proposed rule. The proposed rule would not cover (i) transactions declined or rejected due to insufficient funds hours or days after a consumer’s attempt; (ii) checks and ACH transactions (given that they are not able to be instantaneously declined); (iii) transactions authorized at first, even if they are later rejected or fail to settle due to insufficient funds. The proposed rule defines “covered financial institution” in line with Regulation E’s definition of “financial institution.”
Although the CFPB noted that currently financial institutions do not typically charge NSF fees on the proposed covered transactions and acknowledged that it was proposing the “rule primarily as a preventive measure,” it expressed concern that financial institutions who do not currently charge NSF fees for “covered transactions” may have an incentive to do so as other regulatory interventions reduce other sources of fee income. Further, the CFPB considered whether its concerns could be addressed through certain disclosures, but declined to pursue that course of action, citing challenges in implementation across diverse payment channels and interfaces. Even if feasible, the CFPB added, such disclosures might be costly and may not fully prevent abusive practices.
Moreover, the proposed rule clarifies the CFPB’s current interpretation of the prohibition on abusive acts or practices and distinguish prior views set forth in the preamble of a separate rule—the CFPB’s 2020 rule rescinding certain provisions of the 2017 Rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans’ (2020 Rescission Rule). Abusive practices are defined to include, among other things, acts or practices that take “unreasonable advantage” of a consumer’s “lack of understanding . . . of the material risks, costs, or conditions” of a consumer product or service. The CFPB proposes to “clarify” its prior interpretation of this prohibition, by articulating its view that a “lack of understanding” need not be “reasonable” to form the predicate of an abusive act or practice. In the CFPB’s view, this distinguishes the abusiveness prohibition from the longstanding prohibition on “unfair” practices, which requires showing that consumers could not “reasonably avoid” consumer injury by, for example, reading disclosures or understanding that a particular transaction would overdraw the balance in their account and result in fees. The Bureau’s current view is that the 2020 Rescission Rule conflated “reasonable avoidability” and “lack of understanding,” contrary to the text and purpose of the abusive conduct prohibition. In addition, the CFPB proposes clarifying that, notwithstanding the 2020 Rescission Rule’s emphasis on the “magnitude” and “likelihood” of harm, the “materiality” requirement pertains to understanding “risks,” not necessarily “costs” or “conditions.” The CFPB explained that a consumer’s lack of understanding of costs does not always align with the analysis of harm likelihood and magnitude, for example, it suffices to demonstrate that a company exploits consumer ignorance about a fee (“cost”) in a specific situation, even if consumers generally understand the “risk” of fees. The CFPB has preliminarily determined that consumers charged NSF fees on covered transactions would “lack understanding of the material risks, costs, or conditions of their account at the time they are initiating covered transactions.”
In the CFPB’s view, financial institutions are taking “unreasonable advantage” of consumers when they impose NSF fees on covered transactions because the financial institution: (i) profits from a transaction but provides no service in return; (ii) chooses to impose NSF fees when instantaneously declining a transaction at no cost or negligible cost is an option; (iii) benefits from negative consumer outcomes caused by their lack of understanding; and (iv) profits from economically “vulnerable” consumers’ lack of understanding or hardship, instead of providing services to alleviate it.
Among other things, the CFPB seeks comments on the proposed parameters of covered transactions, whether the practices identified in the proposed rule are broad enough to address the “potential consumer harms,” and submission of data on covered financial institutions’ cost to decline covered transactions. Comments must be received by March 25. Finally, the CFPB is proposing an effective date of 30 days after publication of the final rule in the Federal Register.
Ginnie Mae to explore a new reverse MBS
On January 16, Ginnie Mae announced its plans to consider the development of a new securitization product in connection with broader efforts to expand its existing Home Equity Conversion Mortgage (HECM) mortgage-backed securities program. Specifically, Ginnie Mae is considering the viability of a securitization product that would accept HECM loans with balances above 98% of the FHA’s Maximum Claim Amount. Ginnie Mae stated that the proposed product reflects efforts to address liquidity issues affecting the stability of secondary mortgage markets, which are crucial for older Americans who may need to rely on home equity for financial support.
CFPB proposes new rule on overdraft lending, opens comment period
On January 17, the CFPB issued a proposed new rule to restrict overdraft fees charged by financial institutions. Historically, the Federal Reserve Board exempted banks from credit disclosure requirements when an overdraft was needed to honor checks (for a fee). The proposed rule would recharacterize overdrafts as extensions of credit, which would extend the consumer credit protections in TILA that apply to other forms of credit to overdraft credit.
According to the related Fact Sheet, the proposed rule would only apply to financial institutions with assets of $10 billion or more. The CFPB offered financial institutions two options on deciding how much to charge customers. First, a financial institution may adopt a “breakeven standard,” charging a fee needed to offset losses for written off overdrawn account balances and direct costs traceable to the provision of courtesy overdrafts. Second, a financial institution may employ a “benchmark fee,” of either $3, $6, $7, or $14, derived by the CFPB from analyzing charge-off losses and cost data. Comments to the rule must be received on or before April 1, 2024. In addition, the proposal would prohibit requiring the customer to use preauthorized electronic fund transfers for repayment of covered overdraft fees by these institutions. The final overdraft rule is expected to go into effect on October 1, 2025.
SDNY pilots new whistleblower program to protect individuals
On January 12, the SDNY launched its Whistleblower Pilot Program to protect individuals who report company wrongdoing from any future prosecution by the DOJ. The SDNY issued this program to encourage the “voluntary self-disclosure of criminal conduct” within white-collar practice areas undertaken in companies, exchanges, and financial institutions, among others. The program aims to reduce fraud or corporate failures affecting market integrity. Specifically, future whistleblowers who approach SDNY with a claim will enter into a non-prosecution agreement (NPA) only if the following conditions are met: the misconduct is not public and is not already known to the SDNY; the whistleblower discloses the information voluntarily, and is not in response to an inquiry or obligation; the whistleblower must assist in the investigation; the information is truthful; the whistleblower is not a government-elected or an appointed official, among others; and the whistleblower has not engaged in any criminal conduct. The policy also provides prosecutors and supervisors with factors to consider when deciding whether to enter into a NPA with a whistleblower.
CFPB issues two opinions that stress FCRA compliance for consumer reporting companies
On January 11, the CFPB issued two advisory opinions to consumer reporting companies, reminding them of FCRA obligations. The first advisory opinion addresses background screening companies and inaccuracies that appear on consumer reports. The CFPB highlights how some consumer reporting companies will use a disposition date to start the seven-year reporting period for records of arrests and other non-conviction record information, instead of “date of entry,” resulting in consumer reports including older information than FCRA permits.
Consumer reporting companies must begin the seven-year time limit for criminal charges from the time of the original charge if a person is found not guilty. The CFPB added that inaccurate consumer reports can impact consumer access to employment and housing, and they require consumers to engage in a lengthy process to correct inaccuracies. This advisory opinion underscores that consumer reporting agencies must employ reasonable procedures to ensure accurate reporting, in line with FCRA obligations. Additionally, when reporting public record information, companies should avoid duplicative or legally restricted data and include disposition information for arrests, charges, or court filings.
The second advisory opinion addresses file disclosure obligations under the FCRA and clarifies that consumers can trigger a consumer reporting agency’s file disclosure requirement without using specific language like “complete file.” The opinion further confirms that consumer reporting companies must disclose both the original source and all intermediary or vendor sources that have furnished information to the CRA. To meet FCRA standards, a file disclosure must be understandable to the average consumer, helping them identify inaccuracies, dispute incomplete or incorrect information, and understand the impact of adverse information. The FCRA requires consumer reporting companies to provide a disclosure reflecting the information given or potentially given to a user, including presenting criminal history information in the format seen by users, enabling consumers to check for inaccuracies and dispute any errors.
The CFPB interprets the requirement to disclose “all information in the consumer’s file,” to include information that formed the basis of any summarized information that a CRA provided to a user. The CFPB also warns that the FCRA stipulates that “‘any person who willfully fails to comply with any requirement imposed under this title with respect to any consumer is liable to that consumer in an amount equal to’ actual or statutory damages” up to $1,000 per violation, punitive damages as determined by the court, and associated costs and reasonable attorney's fees.
The Corporate Transparency Act: FinCEN Finalizes Beneficial Ownership Information Access Rule as Reporting Rule Takes Effect
The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has issued a final rule (the Access Rule) regarding access to and use of beneficial ownership information (BOI) maintained by FinCEN.
The Access Rule details the circumstances under which FinCEN can disclose BOI to authorized recipients. It also spells out how FinCEN will protect that information and outlines data protection protocols and oversight mechanisms for those who receive beneficial ownership information. The rule takes effect February 20, 2024. It is the second of three FinCEN rulemakings to implement the Corporate Transparency Act (CTA).
The first rule, the Beneficial Ownership Reporting Rule, took effect January 1, 2024. As covered previously, it requires certain domestic and foreign companies created, or registered to conduct business, in the United States to report information to FinCEN regarding their beneficial owners – individuals who directly or indirectly own or control 25 percent or more of the ownership interests of a reporting company or who exercise substantial control over such an entity.
Agencies adjust civil money penalties for 2024
Recently, the CFPB, NCUA, FDIC, FTC, and OCC provided notice in the Federal Register of adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 and further amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule (see CFPB here, FDIC here, OCC here, FTC here, and NCUA here) adjusts the maximum civil money penalties available and documents the inflation-adjusted maximum amounts associated with the penalty tiers for each type of violation within a regulator’s jurisdiction. For violations occurring on or after November 2, 2015, the OCC’s adjusted maximum penalties go into effect as of January 8; the CFPB and FDIC’s adjustments go into effect January 15; and the FTC and NCUA’s adjustments go into effect January 10.