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Fed publishes master accounts database
On June 16, the Federal Reserve Board published the Master Account and Services Database, which provides comprehensive, searchable information on which financial institutions have access to Federal Reserve Bank master accounts and financial services. The Fed explained that a master account is an account with a Reserve Bank, in which the Reserve Bank receives deposits for a financial institution. The Reserve Bank also provides financial services to financial institutions, similar to that of banks that provide services for its customers, like collecting checks, electronically transferring funds, and distributing and receiving cash and coin.
In the press release, the Fed explained the two components of the database: “The first component consists of financial institutions that currently have access to Reserve Bank master accounts and services. The second component consists of financial institutions that have requested access to master accounts and services after December 23, 2022, or had a request pending on that date, as well as the status of each request.” Both components of the database—the existing account database and the access requests database—will be updated quarterly.
CFPB finds issues in servicemember use of payment apps
On June 20, the CFPB released its Office of Servicemember Affairs Annual Report, highlighting financial threats associated with military families’ use of digital payment apps. The report analyzed complaints submitted by military families, veterans, and servicemembers (totaling 66,400 complaints in 2022 alone, a 55 percent increase from 2021). Notably, servicemembers’ complaints exceeded the percentage filed by all consumers for topics including debt collection, credit cards, mortgages, and more.
Top complaints are linked to: (i) fraud and scams when using digital payment apps; (ii) identity theft and unauthorized account access; and (iii) failure of digital payment app providers to provide timely solutions to servicemember complaints. The Bureau explained that servicemembers can be exposed to greater risks of fraud and scams when using a digital payment app—“[o]ften during a permanent change of duty station, servicemembers face the need to secure housing, a new automobile, or daycare during a short window, which often requires them to conduct more online transactions using digital payment apps.” The Bureau also found that servicemembers are prime targets for identity theft, noting that servicemembers complained that digital payment service providers give insufficient support in response to their complaints.
To address the emerging risks, the Bureau recommended that digital payment app providers invest in privacy and security technology for their apps to combat fraudulent activity. The Bureau also suggested providers improve their responsiveness, especially in the case of military families who may be on a tight timeline during a permanent change of station or deployment. The Bureau also recommended that providers implement tailored policies on fraud losses and automatic fraud detection in recognition of the unique circumstances military families face.
HUD says company offering homeowner aid violated FHA
On June 13, HUD announced a Charge of Discrimination against several entities and individuals accused of allegedly violating the Fair Housing Act by discriminating against New York City homeowners on the basis of race, color, or national origin. According to HUD, the seven complainants alleged that the respondents targeted them with offers of mortgage and foreclosure prevention assistance. Respondents allegedly filed illegitimate liens and instructed telemarketers to use “affinity marketing” to build relationships with elderly, vulnerable, and distressed homeowners by bringing up shared national origin and cultural practice. Homeowners who accepted respondents’ purported loan modification services were convinced to sign documents that unknowingly sold their homes to two entities named as respondents, HUD said, explaining that respondents would then attempt to force homeowners to vacate their homes. These efforts were disproportionately concentrated in neighborhoods with a high majority of persons of color (specifically persons of Black and Caribbean descent), HUD noted, adding that in order to persuade lenders to approve the short sale, some of the respondents would allegedly create private real estate listings for homeowners’ properties and present them to the bank as public listings, while falsely claiming no offers had been received in order to secure minimal sales prices. Homeowners were also allegedly promised that the short sales were part of the loan modification services and that the property would be transferred back into their names or that of a family member after a certain period, and that they would be able to remain in their homes until the title was returned. In fact, however, respondents intended to flip the properties for profit.
The charge will be heard by a U.S. administrative law judge unless a party elects to have the case heard in federal district court. HUD requested that the respondents be enjoined from continuing to discriminate against any person because of race, color, or national origin, and asked for damages to fully compensate the complainants, as well as the maximum civil penalty for each respondent.
Property manager settles with DOJ on SCRA violations
On June 13, the DOJ announced a settlement with a property management company resolving allegations that it charged nine servicemembers early termination fees after receiving military orders to relocate, in violation of the Servicemembers Civil Relief Act (SCRA) (see DOJ complaint here.) The SCRA affords protections to servicemembers who terminate a lease upon entering military service or receiving military orders to relocate, and prohibits landlords from imposing early termination charges on such servicemembers. Under the terms of the proposed consent order, the defendant will be required to pay $51,587 to the servicemembers and an additional $22,500 civil penalty. The DOJ also noted that the company must repair the servicemembers’ tenant database entries, implement new policies and procedures that comply with the SCRA, and train its employees on the SCRA.
FCC launches Privacy and Data Protection Task Force
On June 14, FCC Chairwoman Jessica Rosenworcel announced the establishment of the Commission’s new Privacy and Data Protection Task Force. According to the announcement, the task force will coordinate efforts across the FCC on rulemaking, enforcement, and public awareness needs in the privacy and data protection sectors. These coordinated measures, Rosenworcel said, are intended to protect against and respond to data breaches involving telecommunications providers and those related to cyber intrusions. Measures will also address supply chain vulnerabilities involving third-party vendors that service regulated communications providers. Speaking to the Center for Democracy and Technology Forum on Data Privacy, Rosenworcel commented that data monetization is big business and that “market incentives to keep our data and slice and dice it to inform commercial activity are enormous” and only increasing. She provided examples of data aggregators selling individual geolocation data and said this demonstrates how information can be monetized. Rosenworcel further explained that the task force will also provide input on Commission efforts to modernize the FCC’s data breach rules. As previously covered by InfoBytes, the FCC issued a notice of proposed rulemaking in January to launch a formal proceeding for strengthening the Commission’s rules for notifying customers and federal law enforcement of breaches of customer proprietary network information.
OCC warns banks to “guard against complacency” in risk management
On June 14, the OCC released its Semiannual Risk Perspective for Spring 2023, which reports on key risks threatening the safety and soundness of national banks, federal savings associations, and federal branches and agencies. The agency reported that the overall strength of the federal banking system is sound but warned banks to remain diligent and maintain effective risk management practices over critical functions in order to withstand current and future economic and financial challenges.
The OCC highlighted liquidity, operational, credit, and compliance risk as key risk themes in the report. Observations include: (i) in response to recent bank failures and investment portfolio depreciation, liquidity levels have been strengthened; (ii) credit risk remains moderate, however in certain commercial real estate segments, signs of stress are increasing (high inflation and rising interest rates are also causing credit conditions to deteriorate); (iii) operational risk, including persistent cyber threats, is elevated, while opportunities and risks are created by banks’ increased use of third parties and the digitalization of banking products and service; and (iv) compliance risk remains heightened as banks continue to navigate a dynamic environment where compliance management systems try to keep pace with evolving products, services, and delivery channel offerings.
The report also discussed challenges banks face when trying to manage climate-related financial risks, as well as the importance of investing and aligning technology with banks’ business goals. Acting Comptroller of the Currency Michael Hsu urged banks “to ‘be on the balls of their feet’ with regards to risk management” and “guard against complacency.”
FTC says bank impersonation is most-reported text message scam
On June 8, the FTC reported that consumers lost $330 million to text message scams in 2022, which is double the amount reported in 2021. The FTC’s recent Consumer Protection Data Spotlight found that the top five text message scams, accounting for over 40 percent of the 1,000 randomly sampled text frauds in 2022, are often impersonating well-known businesses. The data spotlight names copycat bank fraud prevention alerts, bogus “little gifts,” fake package delivery problems, phony job offers, and fake online-shopping account fraud prevention messages as the top five text message scams. With text message scam open rates at 98 percent and email scam open rates at 20 percent, scammers use the speed and cost effectiveness of text messages to their advantage, the FTC reported.
CFPB releases regulatory agenda
The Office of Information and Regulatory Affairs recently released the CFPB’s spring 2023 regulatory agenda. Key rulemaking initiatives that the agency expects to initiate or continue include:
- Overdraft fees. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation Z with respect to special rules for determining whether overdraft fees are considered finance charges.
- FCRA rulemaking. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation V, which implements the FCRA. In January, the Bureau issued its annual report covering information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). CFPB Director Rohit Chopra noted that the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.” (Covered by InfoBytes here.)
- Insufficient funds fees. The Bureau is considering whether to engage in pre-rulemaking activity in November regarding non-sufficient fund (NSF) fees. The Bureau commented that while NSF fees have been a significant source of fee revenue for depository institutions, recently some institutions have voluntarily stopped charging such fees.
- Amendments to FIRREA concerning automated valuation models. On June 1, the Bureau issued a joint notice of proposed rulemaking (NPRM) with the Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations to implement quality control standards mandated by the Dodd-Frank Act concerning automated valuation models used by mortgage originators and secondary market issuers. (Covered by InfoBytes here.) Previously, the Bureau released a Small Business Regulatory Enforcement Fairness Act (SBREFA) outline and report in February and May 2022 respectively. (Covered by InfoBytes here.)
- Section 1033 rulemaking. Section 1033 of Dodd-Frank provides that covered entities, such as banks, must make available to consumers, upon request, transaction data and other information concerning consumer financial products or services that the consumer obtains from the covered entity. Over the past several years, the Bureau has engaged in a series of rulemaking steps to prescribe standards for this requirement, including the release of a 71-page outline of proposals and alternatives in advance of convening a panel under the SBREFA and the issuance of a final report examining the impact of the Bureau’s proposals to address consumers’ personal financial data rights. (Covered by InfoBytes here.) Proposed rulemaking may be issued in October.
- Property Assessed Clean Energy (PACE) financing. The Bureau issued an NPRM last month to extend TILA’s ability-to-repay requirements to PACE transactions. (Covered by InfoBytes here.) The proposed effective date is at least one year after the final rule is published in the Federal Register (“but no earlier than the October 1 which follows by at least six months Federal Register publication”), with the possibility of a further extension to ensure compliance with a TILA timing requirement.
- Supervision of Larger Participants in Consumer Payment Markets. The Bureau is considering whether to engage in pre-rulemaking activity next month to define larger participants in consumer payment markets and further the scope of the agency’s nonbank supervision program.
- Nonbank registration. The Bureau announced its intention to identify repeat financial law offenders by establishing a database of enforcement actions taken against certain nonbank covered entities. (Covered by InfoBytes here.) The Bureau anticipates issuing a final rule later this year.
- Terms and conditions registry for supervised nonbanks. At the beginning of the year, the Bureau issued an NPRM that would create a public registry of terms and conditions used in non-negotiable, “take it or leave it” nonbank form contracts that “claim to waive or limit consumer rights and protections.” Under the proposal, supervised nonbank companies would be required to report annually to the Bureau on their use of standard-form contract terms that “seek to waive consumer rights or other legal protections or limit the ability of consumers to enforce or exercise their rights” and would appear in a publicly accessible registry. (Covered by InfoBytes here.) The Bureau anticipates issuing a final rule later this year.
- Credit card penalty fees. The Bureau issued an NPRM in February to solicit public feedback on proposed changes to credit card late fees and late payments and card issuers’ revenue and expenses. (Covered by InfoBytes here.) Under the CARD Act rules inherited by the Bureau from the Fed, credit card late fees must be “reasonable and proportional” to the costs incurred by the issuer as a result of a late payment. A final rule may be issued later this year.
- LIBOR transition. In April, the Bureau issued an interim final rule, amending Regulation Z, which implements TILA, to update various provisions related to the LIBOR transition. Effective May 15, the interim final rule further addresses LIBOR’s sunset on June 30, by incorporating references to the SOFR-based replacement—the Fed-selected benchmark replacement for the 12-month LIBOR index—into Regulation Z. (Covered by InfoBytes here.)
Chopra testifies at congressional hearings
On June 13, CFPB Director Rohit Chopra testified before the Senate Banking Committee to discuss the Bureau’s most recent semi-annual report to Congress. Covering the period beginning April 1, 2022 and ending September 30, 2022, the semi-annual report addressed a wide range of issues, including the adoption of significant rules and orders, supervisory and enforcement actions, and actions taken by states relating to federal consumer financial law. The report also stated the Bureau received approximately 1.237 million consumer complaints, for which roughly 75 percent pertained to credit or consumer reporting. With respect to the Bureau’s mandated objectives, Chopra’s prepared statement highlighted rulemaking progress on several topics, including small business lending data collection and PACE lending. He also emphasized the agency’s heightened focus on supervising nonbank financial firms and reiterated that the Bureau will continue to shift its enforcement focus from small businesses to repeat offenders.
Committee Chair Sherrod Brown (D-OH) praised Chopra’s leadership in his opening statement, highlighting actions taken by the Bureau since Chopra’s last hearing appearance and disagreeing with the U.S. Court of Appeals for the Fifth Circuit’s decision that the agency’s funding authority violates the Constitution’s Appropriations Clause and the separation of powers. However, Ranking Member Tim Scott (R-SC) argued that Chopra “has created uncertainty in the marketplace by attempting to regulate through speeches and blog posts under the guise of ‘clarifying guidance,’” and continues to mislabel payment incentives as “junk fees” or “illegal fees.” Scott also took issue with the Bureau’s small business lending rule and asked why the agency should be trusted to collect a large amount of lending data when the agency itself experienced a data breach when an employee transferred sensitive consumer data to a personal email account without authorization.
During the hearing, Chopra addressed concerns accusing him of bypassing regulatory review by issuing policy changes through agency guidance and press announcements. “The things we hear from small firms is they really want to know how existing law applies,” Chopra said. “We have so many changes in technology, and these small firms don’t have the ability to hire so many lawyers[,] [s]o I’ve actually continued a practice of my predecessor, Director Kraninger to issue these advisory opinions and other guidance documents. They do not create any new obligations. They simply restate what the existing laws are.”
Chopra also answered questions relating to the Bureau’s proposal to limit credit card late fees and, among other things, adjust the safe harbor dollar amount for late fees to $8 for any missed payment (issuers are currently able to charge late fees of up to $41). (Covered by InfoBytes here.) Chopra explained that the proposed rule still allows recovery of costs but said the agency is trying to make the process “more rigorous and make sure it reflects market realities.” “[I]ssuers tell us is that they don’t want to profit off of late fees,” Chopra added. “That's exactly the goal here, because the law says those penalty fees are supposed to be reasonable and proportional. We’re trying to make it more clear about the way we can do that, while also making the market more competitive.”
Republican senators expressed concerns with the proposal during the hearing, with Scott commenting that no one wants to pay the late fee, but that “the truth of the matter is that fee is going to be paid just in a different form. . . .whether it’s through increased interest rates or increased cost of products, it doesn’t go away.” Senator Elizabeth Warren (D-MA) countered that “if there’s an $8 cap on credit card late fees, unless the banks can show that their costs are higher, in which case they can charge more, all that will happen, as best I can tell is that the banks will have slightly lower profit margins.”
Chopra faced similar question during a hearing held the next day before the House Financial Services Committee. Among the topics, committee members raised questions relating to technology risks presented by artificial intelligence and how existing law applies to machine learning. Chopra was also accused of overseeing an unconstitutional agency and flouting the notice-and-comment rulemaking process. Also discussed during the hearing was a recently introduced joint resolution to nullify the Bureau’s small business lending rule. (Covered by InfoBytes here.) Representative Roger Williams (R-TX) stressed that community banks are “concerned that the complicated reporting requirements will tie up loan officers and increase compliance costs plus compliance officers, which will be passed down to the consumer.”
Hsu discusses significance of consumer trust in banking
On June 8, acting Comptroller of Currency Michael J. Hsu discussed the significance of consumer trust in banking, and announced the OCC is considering designing and releasing an annual survey to measure the extent of consumer trust in banking. (See OCC’s request for comments on its proposed annual trust survey.) Hsu noted that public trust in banking is imperative to a good relationship with the communities served and to ensure consumers do not rely on risky means for storing funds. Distrust also presents risks for banks, Hsu said, explaining that “banks that have material fairness and compliance deficiencies may face stiff civil money penalties, restrictions on growth, and sustained reputational damage, limiting their capacities to make loans.” Hsu’s focus on trust in the banking system is also inspired by the threatening impact of unfairness and a lack of inclusivity. Therefore, in addition to the survey, the OCC is focusing on methods of consumer protection to underpin public trust in banks. Efforts include strengthening and modernizing the Community Reinvestment Act to create more lending opportunities to those in low- and moderate-income areas, reforming overdrafts by issuing guidance on overdraft protection programs, and addressing bias in the appraisal of homes by issuing a proposed rule to implement quality control standards for automated valuation models.