Keeping Up with Compliance: January 2024

Welcome to another issue of LoanPro’s Keeping Up with Compliance, bringing you news from across the industry with a focus on compliance. Expect new editions monthly. Subscribe to the newsletter to make sure you don’t miss an issue.

Insights

• Buy Now, Pay Later and bank overdraft may soon look like other credit offerings with required disclosures and other regulations. This may indicate a shift in who will qualify for these offerings and what the associated costs will be.

• Movement towards open banking and regulations to increase data availability and accuracy could be positioning fintechs to more effectively partner with traditional banks to bring an even better banking experience for consumers.

• Banks may soon face caps on overdraft fees and heightened cash reserve requirements. With these changes we may see more banks partnering with fintechs to gain off-balance-sheet revenues. However, in light of recent regulatory actions, banks are likely to introduce changes into fintech relationships to boost transparency and focus on compliance.

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Compliance Actions & Changes in the Industry

CFPB

• The CFPB Supreme Court case is in full swing, and comments from the justices seem to imply favor on the CFPB’s side.
• Debt collectors who make false statements regarding a consumer’s debt will be held liable in court unless they can prove ignorance and that they have effective measures in place to prevent such mistakes.
• The American Bankers Association, America’s Credit Unions, and Independent Community Bankers of America have banded together to write a letter to CFPB Director Chopra regarding the impact of the CFPB’s proposal for rulemaking on non-sufficient funds (NSF) and overdraft fees.
• Under the CFPB ’s proposed “junk fee” rule to close a TILA “loophole” , overdraft fees could be reduced to $3 to $14, and is facing heavy opposition . Smaller banks would be exempt from the proposed rule.
• The CFPB issued guidance on inaccurate background check reports and credit file sharing practices with the aim of helping consumer reporting agencies to produce accurate and reliable information.
• In the wake of the CFPB’s plans to oversee digital wallets , Republican and Democratic lawmakers alike have asked the CFPB to provide more information on the proposed rule.
• In a recent blog post, the CFPB has issued a summary of their enforcement work for the previous year and what to expect for 2024.

Enforcement Actions

• Strategic Financial Solutions, a debt-relief enterprise, is being sued by the CFPB and 7 different state attorneys general for collecting over $100 million in illegal fees from their customers.
• FloatMe , a cash advance app company, has been charged with a $3 million penalty for charging users without consent and misleading consumers regarding eligibility requirements.
• Blue Ridge Bank has received a second enforcement action from the OCC less than 18 months after their first.
• BaaS banks working with fintech partners accounted for 13.5% of extreme enforcement actions in 2023, and they are predicted to continue to draw the eye of regulators.

BNPL

• Kathy Hochul, governor of New York, is pursuing legislation that would require BNPL providers to obtain a license to operate in the state, and she may have her sights set on other regulations for the industry as well.
• According to Max Bonici, a Venable attorney, the OCC’s published guidance on BNPL may apply to more than just banks.

Open Banking

• The Bank Policy Institute and The Clearing House submitted a comment letter to the CFPB stating that they didn’t believe the new open banking proposal does enough to protect sensitive consumer financial data.
• In the wake of the CFPB’s October open banking rule proposal, more than 11,000 comments before the short December 29th deadline. These comments covered everything from the scope of data and data providers covered by the rule to the utilization of screen scraping and secondary use.

Earned Wage Access (EWA)

• The Attorney General of Montana, Austin Knudsen, has issued the opinion that EWA products do not constitute a loan in Montana as long as they meet certain criteria. The opinion comes on the heels of extensive research into the state’s laws.

Basel III Endgame

• Financial trade groups claim that the Basel III endgame’s proposed capital rule violates the Administrative Procedure Act.
• The Basel III endgame ’s proposed capital requirement for banks has received a steady stream of opposition .

Surcharge

• New York is enacting a surcharge law that will limit credit card surcharges from merchants and force them to disclose them more clearly to customers.
• Visa is cracking down on the enforcement of surcharge rules .

Fintech News

• Consumers are using BNPL products not only as a loan with manageable and predictable repayment terms, but as a budgeting method.?
• With so much credit product competition from non-bank institutions, many credit unions are upping their game to offer reduced setup times and competitive rates, including instant access to payday loans.
• In the sphere of B2B lending, virtual commercial card usage is becoming a topic of interest.
• Truist plans to close 72 of their locations (3.5% of its branch network)? in an effort to cut $750 million in costs.
• Partnerships between banks and fintechs might be just what both need to facilitate faster payments integration .
• A CFPB report shows that borrowers who now have to worry about the? resumption of their student loan payments are struggling with long hold times, inaccurate billing statements, and processing delays.
• FlexWage Solutions has received approval to offer its earned wage access services in Connecticut without applying for a lending license.
• Tally , a fintech company focused on consolidating credit card debt, has lost funding from an investor, and is losing out on customer satisfaction as a result.
• Zhongzhi, a Chinese shadow bank, has filed for bankruptcy , and its wealth management has come under police investigation.
• Fiserv is trying to obtain a purpose bank charter , with the aim of owning transactions from start to finish without need for a bank partner, which could pave a path to follow for their rivals .
• A recent court filing has revealed that Synapse is looking to get more than $30 million from Mercury for breach of contract and fraud.
• Visa has selected twenty-one startups to participate in a fintech accelerator , launched in collaboration with investment firm Plug and Play.
• In the wake of regulatory actions on BaaS , experts believe that only most committed banks will continue to pursue the BaaS model.
• Synchrony is purchasing Ally’s point-of-sale lending unit, and is expected to close the deal this quarter.
• Goldman Sachs has a net charge-off rate of 7% for its consumer loans.
• Torpedo, Marqeta, and Sunwest Bank are launching a new card program referred to as “visionary.”
• The New York attorney general is suing Citibank over denied fraud claims.

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