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CFPB reports on banks’ overdraft fee practices
On July 20, the CFPB published a blog post examining banks’ overdraft and non-sufficient fund fees (NSF) fees practices since the publication of their report “Overdraft/NSF Fee Reliance Since 2015 – Evidence from Bank Call Reports” in December 2021. According to the blog post, the Bureau relied on additional data from the call report from the last three available quarters – the third quarter of 2021 through the first quarter of 2022. The December 2021 report used aggregate Call Report data from 2015 to 2021 from banks with assets of over $1 billion to examine the evolution of banks’ reliance on overdraft and NSF fees. The report found a lower reliance by banks on overdraft and NSF fees during the pandemic and continuing into 2021, which the Bureau said “reflects the relatively larger continued shortfall of overdraft and NSF fees in relation to their pre-pandemic volumes compared to the shortfall in maintenance and ATM fees.” While reliance on overdraft and NSF fees varied considerably among banks, the report noted that these fees represented close to two-thirds of banks’ reported fee revenue and were generally stable over time for any given bank.
According to the July 20 blog post, the Bureau found that the recent increase in overdraft revenue is greatest among small and midsize banks. However, the data shows that overall overdraft revenue stopped its decline and reversed somewhat, and ended up 20.1 percent below the corresponding 2019 levels. The CFPB also noted that revenues from other listed fees, such as account maintenance and ATM fees, has increased since 2020, especially at banks that experienced the largest declines in overdraft/NSF fee revenues.
FTC, state AGs order says retailer used illegal tactics on servicemembers
On July 20, the FTC and 18 state attorneys general announced a proposed order against a national jewelry retailer (defendant) for allegedly using illegal financing and sales practices on service members and their families. In the complaint, the FTC alleged that the defendants violated the TILA, Holder Rule, and EFTA, among other things, by: (i) making false or unsubstantiated claims that financing jewelry purchases through the company would result in higher credit scores; (ii) misrepresenting that the protection plan was required to finance purchases; and (iii) failing to provide clear written disclosures and meet authorization requirements for contracts. The complaint also alleged that the defendant violated the Military Lending Act (MLA), the FTC’s first action under this Act, because, by failing to “provide disclosures in accord with TILA, including the Itemization of the Amount Financed, they also do not provide all disclosures required by the MLA.” The proposed order requires that the defendants are, among other things: (i) prohibited from making misrepresentations; (ii) prohibited from making unsubstantiated claims; (ii) banned from the marketing or sale of ancillary products or services; and (iii) banned from transferring retail installment contracts to third parties. The order also requires the defendant to refund approximately $10.9 million for purchased protection plans, and provide refunds for overpayments.
Creditors release statement on Ukraine
On July 20, the Group of Creditors of Ukraine issued a joint statement regarding coordinated suspension of debt services for Ukraine through 2023, as the Russian invasion continues. According to the statement, the group noted that it would also consider the possibility of deferral for an additional year beyond 2023. The statement granted Ukraine’s request for deferral given the “exceptional circumstances, and acknowledging Ukraine’s exemplary track record of honoring debt service to date,” also “strongly encourage[s] all other official bilateral creditors to swiftly reach agreement with Ukraine on a debt service suspension.”
DOJ announces settlement with ride sharing company over ADA violations
On July 18, the DOJ announced a settlement in the U.S. District Court for the Northern District of California to resolve a lawsuit alleging that a ride sharing service (defendant) violated the Americans with Disabilities Act (ADA). According to the complaint, in April 2016, the defendant started charging passengers wait time fees, which charged wait time fees starting two minutes after the defendant’s vehicle arrives at the pickup location, and the fees are charged until the vehicle starts its trip. The DOJ claimed that the defendant violated the ADA by failing to: (i) “ensure adequate vehicle boarding time for passengers with disabilities”; (ii) “ensure equitable fares for passengers with disabilities”; and (iii) “make reasonable modifications to its policies and practices of imposing wait time fees as applied to passengers who, because of disability, require more time to board the vehicle.” According to the settlement agreement, the defendant – who denies any wrongdoing, liability, or fault – must, among other things: (i) pay $1.7 million to more than 1,000 riders who have already complained to the company about being charged wait time fees as a result of a disability; (ii) pay $500,000 to “other harmed individuals identified by the department”; and (iii) pay a $50,000 civil money penalty to the U.S. Additionally, according to the DOJ, the defendant has committed under the two-year agreement to waive wait time fees for all riders who certify that they (or someone they frequently travel with) need more time to get in a car due to a disability. Among other things, the defendant also will ensure that refunds are easily available for anyone who does not have a waiver and is charged a wait time fee because of disability.
FTC, NLRB sign MOU to protect workers in gig economy
On July 19, the FTC announced that it is joining with the National Labor Relations Board (NLRB) (collectively, “Parties”) in a memorandum of understanding (MOU) intended to protect workers by promoting competitive U.S. labor markets and putting an end to unfair practices that harm workers in the “gig economy” and other labor markets. The MOU provides ways for the Parties to work together to address key issues, such as labor market concentration, one-sided contract terms, and labor developments in the gig economy. According to the MOU, the Parties recognize that ongoing interagency collaboration regarding “issues of common regulatory interest will help to protect workers against unfair methods of competition, unfair or deceptive acts or practices, and unfair labor practices.” The MOU also provides that the Parties will facilitate: (i) “information sharing and cross-agency consultations on an ad hoc basis for official law enforcement purposes, in a manner consistent with and permitted by the laws and regulations that govern the Parties”; (ii) “cross-agency training to educate each Party about the laws and regulations enforced by the other Party”; and (iii) “coordinated outreach and education as appropriate.” According to the FTC, the MOU “is part of a broader FTC initiative to use the agency’s full authority[.]” The announcement also described the FTC’s recent efforts to root out deceptive and unfair acts and practices aimed at workers, “particularly those in the ‘gig economy’ who often don’t enjoy the full protections of traditional employment relationship.”
House passes bill to expand AML regulation
On July 20, the U.S. House passed H.R. 7900 with a 329-101 vote. Section 5401 of the bill, if passed, would amend the Bank Secrecy Act to require that professional service providers who “serve as key gatekeepers to the U.S. financial system adopt anti-money laundering procedures that can help detect and prevent the laundering of corrupt and other criminal funds into the United States.” Section 5401 calls for the imposition of anti-money laundering requirements on any person, excluding any governmental entity, employee, or agent, who engages in any activity which the Secretary determines by regulation to be the provision, with or without compensation, of (i) corporate or other legal entity arrangement, association, or formation services; (ii) trust services; or (iii) third party payment services, among other things. The strategy is intended to combat money laundering through shell companies by imposing anti-money laundering requirements on persons who act as gatekeepers for legal entities to enter the United States.
FSB highlights crypto threats to global financial system
On July 11, the Financial Stability Board (FSB) outlined challenges and vulnerabilities facing the global financial system in a letter sent to G20 finance ministers and central bank governors. While recognizing that markets have seemingly coped with “evolving economic conditions and high volatility in an orderly manner” and that so far “[n]o major financial institution has shown signs of distress,” the FSB cautioned that vigilance is necessary, as unexpected economic deteriorations may test financial resilience. Among other topics, the FSB discussed targeted approaches for phasing out of Covid-19 measures to mitigate the adverse effects of high debt, and stressed that “[e]xit strategies need to reflect specific domestic economic conditions and avoid excessive financial market reactions, which may limit the scope to engineer a fully synchronized exit across jurisdictions.” Crypto-assets also create vulnerabilities, the FSB added, pointing to a recent FSB communication that clarified that stablecoins and other crypto-assets “do not operate in a regulation-free space” and warned crypto-asset providers that they may not operate in any jurisdiction without meeting applicable regulatory, supervisory, and oversight requirements. The FSB will take enforcement action against members that fail to comply with existing legal obligations, it said, adding that it is currently working to ensure that crypto-assets are subject to regulation and supervision through coordinated regulatory initiatives. Additionally, the FSB noted it is closely collaborating with standard-setting bodies, including the Financial Action Task Force, to regulate and supervise stablecoins and other crypto-assets and understand the implications of decentralized finance on financial stability. Consultative reports discussing recommendations for global regulatory and supervisory approaches to stablecoins and other crypto-assets will be submitted in October to the G20 finance ministers and central bank governors.
CFPB testifies on commitment to servicemembers
On July 13, the CFPB testified before Subcommittee on National Security of the House Committee on Oversight and Reform regarding the Bureau’s efforts with respect to servicemembers. The testimony began by noting that the Bureau “is committed to our mission . . . to educate and empower servicemembers, monitor their complaints, and coordinate efforts across the government to protect servicemembers and their families in the financial marketplace.” The Bureau pointed out that it has received more than 4.2 million consumer complaints since June 30, including more than 286,000 complaints from servicemembers, veterans, and military family members. The testimony highlighted efforts by the Bureau to protect military members, such as: (i) issuing a consent order against a Nevada-based consumer lender for allegedly violating the Military Lending Act (MLA), the Electronic Fund Transfer Act (EFTA), and the CFPA when making installment loans (covered by InfoBytes here); (ii) filing a complaint in the U.S. District Court for the Northern District of California against a California-based online lender for allegedly made making more than 4,000 single-payment or installment loans to over 1,200 covered borrowers in violation of the MLA (covered by InfoBytes here); and (iii) filing a complaint against a Texas-based pawn lender and its wholly owned subsidiary for allegedly violating the MLA by charging active-duty servicemembers and their dependents more than the allowable 36 percent annual percentage rate on pawn loans (covered by InfoBytes here). The testimony, among other things, also discussed the Bureau’s collaborations with other agencies such as the FTC and the VA to protect servicemembers from scams and fraud.
FSB releases report on climate-related financial risks
On July 14, the Financial Stability Board (FSB) released its 2022 Progress Report on the FSB’s work to implement a roadmap for addressing climate-related financial risks. As previously covered by InfoBytes, in July 2021 the FSB released the Roadmap, which focused on four interrelated areas: (i) public corporate disclosures to be used as the basis for pricing and managing climate-related financial risks (by companies internally and market participants); (ii) consistent metrics and disclosure data that can “provide the raw material for the diagnosis of climate-related vulnerabilities”; (iii) a systematic assessment of climate-related financial vulnerabilities; and (iv) the establishment of regulatory and supervisory practices and tools to allow authorities to effectively identify such climate-related financial risks. The recently released report noted “encouraging progress” toward establishing global baseline climate reporting standards, with the newly established International Sustainability Standards Board issuing exposure drafts addressing climate and general sustainability-related disclosure statements. The FSB also noted its commitment to improving the availability and cross-border comparability of climate-related data. Additionally, the report found that using climate scenario analysis to monitor climate-related vulnerabilities “can help the monitoring of financial risks to appropriately account for the longer time horizons that climate-related risks may involve.” As to regulatory and supervisory practices and tools, the FSB noted that “[f]inancial authorities should continue to embed the supervision of climate-related risks into overall supervisory frameworks, including the further development of the use of climate scenario analysis and stress testing exercises.” The FSB acknowledged that “the understanding of the financial risks arising from climate change and the policy approaches needed to address them remains at an early stage,” and that “there continues to be a need for strong international coordination of actions in the coming year (and beyond) because of the importance of this issue for the global financial system.”
CFPB, OCC issue consent orders against national bank
On July 14, the CFPB announced a consent order against a national bank to resolve allegations that the bank engaged in unfair and abusive acts or practices with respect to unemployment insurance benefit recipients who filed notices of error concerning alleged unauthorized electronic fund transfers (EFTs). The CFPB alleged that the bank violated the CFPA by, among other things: (i) determining that “no error had occurred and [by] freezing cardholder accounts based solely on the results of [the bank’s] automated Fraud Filter”; (ii) “retroactively applying its automated Fraud Filter to reverse permanent credits for unemployment insurance benefit prepaid debit cardholders whose notices of error [the bank] had previously investigated and paid”; and (iii) “impeding unemployment insurance benefit prepaid debit cardholders’ efforts to file notices of error and seek liability protection from unauthorized EFTs.” The CFPB also claimed that the bank violated the EFTA and Regulation E by “fail[ing] to conduct reasonable investigations” of cardholders’ notices of error. Under the terms of the Bureau’s consent order, the bank is required to provide redress to harmed consumers, review and reform its unemployment insurance benefit prepaid debit card program, and pay a $100 million civil penalty to the Bureau.
The same day, the OCC announced a consent order and a $125 million civil money penalty against the bank for alleged unsafe or unsound practices related to the same prepaid card program. According to the OCC, the bank, among other things: (i) “fail[ed] to establish effective risk management” over its unemployment card program”; and (ii) “beginning in 2020, denied or delayed many consumers’ access to unemployment benefits when consumers filed or attempted to file [unemployment insurance benefits] unauthorized transaction claims.” The OCC’s civil money penalty and remediation requirement is in addition to the CFPB’s civil money penalty.