Risk & Regulation Report - May 24

CFPB Releases Supervisory Highlights on Mortgage Servicing

CFPB has published the 33rd issue of its Supervisory Highlights, focusing on examinations of mortgage servicing practices from April to December 2023. The report uncovers ongoing issues with mortgage servicers, including the assessment of junk fees such as unnecessary property inspection fees and improper late fees. Additionally, the findings reveal practices that fall under unfair, deceptive, or abusive acts or practices (“UDAAP”), including deceptive notices about loss mitigation eligibility. The report also notes several violations of Regulation X’s loss mitigation rules by mortgage servicers.

For more information visit: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-33_2024-04.pdf

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Bureau Updates Procedure for Nonbank Designations for Supervision

The CFPB has announced an update to its procedural rule on how the agency designates a nonbank for supervision. The updates will streamline the designation proceedings for both the CFPB and nonbanks. The updated process reflects changes to the CFPB’s organizational structure and is informed by the CFPB’s experience with the first round of supervisory designation proceedings under procedures issued in 2013. CFPB is seeking comments on its updated procedures and the comments will be accepted through May 23, 2024.

For more information visit: https://www.federalregister.gov/documents/2024/04/23/2024-08430/procedures-for-supervisory-designation-proceedings

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FinCEN Calls for Increased Vigilance Against Environmental Crimes

FinCEN has urged financial institutions to intensify their efforts to identify and report environmental crimes, particularly around Earth Day. Highlighting the relationship between these crimes and issues like corruption and human trafficking, FinCEN emphasizes the need for robust Anti-Money Laundering (“AML”) and Countering the Financing of Terrorism measures. The agency has provided guidelines and resources, including specific Suspicious Activity Report filing instructions, to help institutions combat environmental crimes such as wildlife trafficking and illegal resource extraction.

For more information visit: https://www.fincen.gov/news/news-releases/fincen-reminds-financial-institutions-remain-vigilant-environmental-crimes

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FinCEN Issues Analysis on Elder Financial Exploitation (“EFE”)

FinCEN has released a Financial Trend Analysis identifying patterns in EFE using data from Bank Secrecy Act (“BSA”) reports filed between June 15, 2022, and June 15, 2023. During this period, 155,415 filings noted approximately $27 billion in EFE-related suspicious activities. The analysis categorized EFE into elder scams and elder theft, with scams making up about 80% of cases, often involving money transfers to imposters, and theft about 20%, typically committed by trusted individuals like family members. The findings underscore the prevalence and methods of financial abuse targeting older adults.

For more information visit: https://www.fincen.gov/news/news-releases/fincen-issues-analysis-elder-financial-exploitation

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FinCEN Updates Beneficial Ownership Information (“BOI”) FAQs

FinCEN has updated its BOI FAQs, adding new questions and information on topics such as reporting companies and trusts. The updates expand on several key areas including the specifics of reporting for companies, the intricacies of beneficial ownership through trusts, and the protocols for accessing beneficial ownership data. These enhancements aim to clarify compliance expectations and provide detailed guidance for entities required to navigate the complexities of beneficial ownership reporting.

For more information visit: https://www.fincen.gov/boi-faqs

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FDIC Strategy for GSIB Resolution

The FDIC has released a new report that explains how it will manage the resolution of a global systemically important bank, should the situation arise. The paper stresses that the FDIC will hold management responsible for the failure, allocate losses to shareholders and creditors, and return assets and viable operations to private sector control as soon as possible. The report also states that consistent with statutory obligations, all losses would be borne by the private sector, primarily the GSIB’s former shareholders and unsecured creditors, and not taxpayers.

For more information visit: https://www.fdic.gov/sites/default/files/2024-04/spapr1024b_0.pdf

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AI-Fueled Cyber Threats

A new 51-page Treasury Department report based on interviews with banking industry experts and, including an overview of current use cases, best practices recommendations, challenges and opportunities given the current environment. Section 5.5 of the report includes a list of questions that banks should consider asking their vendors that offer AI systems, or products and services relying on AI systems.

For more information visit: https://home.treasury.gov/system/files/136/Managing-Artificial-Intelligence-Specific-Cybersecurity-Risks-In-The-Financial-Services-Sector.pdf

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CFPB Study Reveals Higher Costs with Complex Pricing

CFPB has found that complex pricing structures lead consumers to pay more. Research involving simulated market experiments showed that when prices are split into multiple components, it becomes harder for consumers to compare options effectively, resulting in higher overall costs. While not expected to exactly mirror real-world transactions, the CFPB found in these experiments that more complex pricing generally led to more detrimental outcomes for consumers:

• Higher total prices: Sellers' total asking prices were 60 percent higher in markets with 16 sub-prices than in those with one price.
• Comparing prices was more difficult: Buyers were 15 times more likely to select a higher-priced option in markets with 16 sub-prices than in those with one price.
• Consumers paid more overall: Transaction prices were 70 percent higher in markets with 16 sub-prices than in those with one price, on average. The CFPB has previously highlighted how the use of complex terms and pricing can pose challenges for consumers. In many instances, consumers face complex pricing when shopping for financial products and services including credit cards, checking and savings accounts, mortgages, and auto loans.

For more information visit: https://www.consumerfinance.gov/about-us/newsroom/cfpb-publishes-research-finding-higher-price-complexity-leads-consumers-to-pay-more/

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Pennsylvania Bank Closed and Assets Assumed by Fulton Bank

The Pennsylvania Department of Banking and Securities has closed Philadelphia-based Republic First Bank (doing business as Republic Bank), appointing the FDIC as the receiver. In response, the FDIC arranged for Fulton Bank, National Association, from Lancaster, Pennsylvania, to assume nearly all deposits and purchase most assets of the troubled bank. As of January 31, Republic Bank reported assets of approximately $6 billion and deposits totaling $4 billion. The closure's estimated cost to the Deposit Insurance Fund is $667 million, with Fulton Bank’s acquisition deemed the least costly resolution. This marks the first U.S. bank failure of the year, following the last closure of Citizens Bank in Iowa in November 2023.

For more information visit: https://www.fdic.gov/news/press-releases/fulton-bank-na-lancaster-pennsylvania-assumes-substantially-all-deposits

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Consumer Compliance Outlook: First 2024 Issue Now Available

The Federal Reserve System has released the first 2024 issue of Consumer Compliance Outlook, now accessible on their official webpage. This issue encompasses a range of topics critical to compliance officers, including:

• An overview of Private Flood Insurance Compliance Requirements
• Consumer Compliance Requirements for Commercial Products and Services
• Compliance Spotlight: Resources to Combat Increased Check Fraud
• Recent Supervisory Data for Institutions the Federal Reserve Supervises and more

For more information visit: https://www.consumercomplianceoutlook.org/

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FHFA Releases Final Fair Lending Rule

FHFA has issued its Fair Lending, Fair Housing, and Equitable Housing Finance Plans Final Rule, including updates for 2024 and performance reports for 2023 from Fannie Mae and Freddie Mac. This rule formalizes FHFA’s fair lending oversight for these entities and the Federal Home Loan Banks, integrating requirements for collecting detailed consumer information and introducing new reporting standards for the Federal Home Loan Banks.

The regulation takes effect 60 days post-publication in the Federal Register, except for subpart D of the regulation, which becomes effective February 15, 2026. Additionally, the FHFA plans to gather public input through a Request for Input and a listening session scheduled for June 2024, aiming to refine the next three-year Equitable Housing Finance Plans set for release in January 2025.

For more information visit: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Release-of-Fair-Lending-Final-Rule.aspx

Regulation CC Quinquennial Inflation Adjustments for Funds Availability

The Federal Reserve Board and the CFPB have issued the second quinquennial set of inflation adjustments for Regulation CC funds availability thresholds, effective July 1, 2025. These adjustments reflect a 21.8% increase in the CPI-W from July 2018 to July 2023. The new amounts are as follows:

• "Next day" minimum availability amount increases from $225 to $275
• Cash withdrawal amount in § 229.12(d) increases from $450 to $550
• New account, large deposit, and repeatedly overdrawn thresholds in §229.13 increase from $5,525 to $6,725
• Civil liability minimum and maximum for individual actions in §229.21(a)(2)(i) increase from $100 and $1,100 to $125 and $1,350
• Civil liability maximum for class actions in § 229.21(a)(2)(ii)(B) increases from $552,500 to $672,950 or 1% of the bank's worth, whichever is less

These changes require (per § 229.18(e)) banks to notify affected consumer account holders within 30 days of the effective date, even though the changes are mandated by regulation.

For more information visit: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20240513a1.pdf

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CFPB Distributes $384 Million to Victims of Think Finance's Illegal Lending Practices

The CFPB announced it has distributed over $384 million to approximately 191,000 consumers harmed by Think Finance, an online lender based in Texas. Think Finance deceived borrowers into repaying loans they did not owe, violating state laws on interest rate caps and lender licensing. The funds were sourced from the CFPB's victims relief fund, which has now distributed over $1 billion to consumers affected by scams, fraud, and illegal practices.

For more information visit: https://www.consumerfinance.gov/about-us/newsroom/cfpb-distributes-384m-to-191k-victims-of-think-finances-illegal-lending-practices/

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Judge Temporarily Halts CFPB Rule Lowering Credit Card Late Fees

A federal judge in Texas has issued a temporary nationwide injunction delaying the CFPB's rule reducing the maximum late fee on credit card accounts. The rule was set to take effect on May 14, 2024, but will now be postponed due to the injunction.

For more information visit: https://abcnews.go.com/Business/wireStory/federal-judge-temporarily-halts-biden-plan-lower-credit-110123178

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CFPB Report Highlights Consumer Frustrations with Credit Card Rewards Programs

The CFPB has released an Issue Spotlight report titled "Credit Card Rewards," highlighting numerous consumer frustrations with credit card rewards programs. The report details complaints that rewards are frequently devalued or denied despite consumers meeting program terms. Additionally, credit card companies are criticized for focusing marketing on rewards rather than low interest rates and fees. Consumers carrying revolving balances often pay more in interest and fees than they receive in rewards. The report also notes that rewards programs are sometimes used as a "bait and switch," with vague terms, fine print, and changing reward values. The rise of co-brand credit cards and transferable rewards has further complicated issues.

For more information visit: https://www.consumerfinance.gov/about-us/newsroom/cfpb-report-highlights-consumer-frustrations-with-credit-card-rewards-programs/

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Fed Summary of Pilot Climate Scenario Analysis Exercise

The Federal Reserve Board has released a summary of its exploratory pilot Climate Scenario Analysis (“CSA”) exercise with six of the nation’s largest banks: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. The summary outlines how these banks are using CSA to assess their business models' resilience to climate-related financial risks, considering various physical and transition risk scenarios. The exercise revealed data gaps and modeling challenges in estimating financial impacts of complex and uncertain risks over different time horizons. The exercise was exploratory and has no capital consequences. The Board will continue to engage with these banks to enhance their capacity to measure and manage climate-related financial risks.

For more information visit: https://www.federalreserve.gov/newsevents/pressreleases/other20240509a.htm

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Financial Stability Oversight Council (“FSOC”) Releases Report on Nonbank Mortgage Servicing

FSOC has released its Report on Nonbank Mortgage Servicing, detailing the sector's growth and its vital role in the mortgage market. The report highlights key vulnerabilities that could hinder nonbank mortgage servicers' operations and amplify shocks to the mortgage market, posing risks to financial stability. The FSOC offers recommendations to enhance the sector's resilience, leveraging existing state and federal regulatory authorities, and calls on Congress to address identified risks. The report, coordinated with Ginnie Mae, underscores that current regulatory measures are insufficient to mitigate these risks comprehensively.

For more information visit: https://home.treasury.gov/news/press-releases/jy2331

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HUD and Rocket Mortgage Settle Fair Lending Complaint

HUD has announced a Conciliation Agreement with Rocket Mortgage, LLC, resolving allegations of racial discrimination in mortgage lending. The complaint involved a couple who were denied a mortgage loan for a home within the Flathead Indian Reservation in Montana. As part of the settlement, Rocket Mortgage will compensate the complainants with $65,000, provide fair lending training to employees, and adhere to fair lending standards for applicants on Native American reservations. Rocket Mortgage will also invest $30,000 in programs to improve housing conditions and financial literacy for Native Americans and conduct outreach about financing options for properties on reservations.

For more information visit: https://www.hud.gov/press/press_releases_media_advisories/HUD_No_24_111

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