Consumer Compliance Outlook: Second Quarter 2010

News From Washington: Regulatory Updates

Agencies propose to expand scope of Community Reinvestment Act (CRA) regulations to encourage depository institution support for the Department of Housing and Urban Development’s (HUD) Neighborhood Stabilization Program (NSP) activities. On June 17, 2010, the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS) (Agencies) announced a proposed change to the CRA regulations to support stabilization of communities affected by high levels of foreclosure. The Agencies’ proposal would encourage depository institutions to make loans and investments and provide services to support NSP activities in areas with HUD-approved plans. The proposal would supplement existing CRA consideration for community development activities, including neighborhood stabilization activities. NSP-eligible activities would receive favorable consideration under the new rule only if conducted within two years after the date when NSP program funds are required to be spent. The deadline for submitting comments on the proposed rule is July 26, 2010. The Agencies’ announcement is available at: External Link

Agencies Announce Public Hearings on CRA Regulations. On June 17, 2010, the Agencies announced they will be conducting four public hearings on modernizing the regulations that implement the CRA to reflect changes in the financial services industry, changes in how banking services are delivered to consumers today, and current housing and community development needs. The planned hearing dates and cities are as follows: July 19, Arlington, VA; August 6, Atlanta; August 12, Chicago; and August 17, Los Angeles. Anyone wishing to submit testimony or attend the hearings must register five business days in advance on the website of the Federal Financial Institutions Examination Council at External Link Hearing details are available on that site. In addition to having an opportunity to offer testimony at the hearings, individuals can submit written comments on these issues or any other aspect of the CRA to any of the agencies through August 31, 2010. While the agencies encourage public comments on any CRA topic, they are particularly interested in receiving comments on the topics and questions listed in the notice. The Agencies’ announcement and the list of topics and questions are available at: External Link

Agencies release list of distressed or underserved nonmetropolitan middle-income geographies. On June 1, 2010, the federal bank and thrift regulatory agencies announced the availability of the 2010 list of distressed or underserved nonmetropolitan middle-income geographies where revitalization or stabilization activities will receive CRA consideration as “community development.” The 2010 list incorporates a one-year lag period for geographies designated as distressed or underserved in 2009 but not designated as such in 2010. Geographies subject to this one-year lag period are eligible to receive consideration for community development activities for 12 months after publication of the 2010 list. The 2010 list and lists from previous years can be found on the Federal Financial Institutions Examination Council’s website at: External Link

The Board announces public hearings on potential revisions to Regulation C. On April 23, 2010, the Board announced that it will hold four public hearings, beginning in July, on potential revisions to Regulation C, which implements the Home Mortgage Disclosure Act. The hearings will serve three objectives: (1) to evaluate whether the 2002 revisions to Regulation C helped provide useful and accurate information about the mortgage market; (2) to gather information that will help the Board assess the need for additional data and other improvements; and (3) to identify emerging issues in the mortgage market that may warrant additional research. The hearings will take place at the Federal Reserve Banks of Atlanta (July 15), San Francisco (August 5), and Chicago (September 16), and at the Federal Reserve Board in Washington, D.C. (September 24). All hearings will include panel discussions by invited speakers. Other interested parties may deliver oral statements of five minutes or less during an “open-mike” period. Written statements of any length may be submitted for the record. The press release is available at: External Link

Federal regulators release model consumer privacy notice online form builder. On April 15, 2010, eight federal regulators released an online form builder that financial institutions can download and use to develop and print customized versions of a model consumer privacy notice. Easy-to-follow instructions guide an institution to select the version of the model form that fits its practices, such as whether the institution provides an opt-out for consumers. To obtain a legal “safe harbor” and to satisfy the law’s disclosure requirements, institutions must follow the instructions in the model form regulation when using the online form builder. The model privacy form was developed jointly by the Board, Commodity Futures Trading Commission, FDIC, Federal Trade Commission, National Credit Union Administration, OCC, OTS, and Securities and Exchange Commission. The press release and link to the online form builder are available at: External Link

The Board announces final rules to restrict fees and expiration dates on gift cards. On March 23, 2010, the Board announced final rules to restrict the fees and expiration dates that may apply to gift cards. The rules protect consumers from certain unexpected costs and require that gift card terms and conditions be clearly stated. The final rules prohibit dormancy, inactivity, and service fees on gift cards unless: (1) the consumer has not used the certificate or card for at least one year; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees. Expiration dates for funds underlying gift cards must be at least five years after the date of issuance or five years after the date when funds were last loaded. The final rules are issued under Regulation E to implement the gift card provisions in the Credit Card Accountability Responsibility and Disclosure Act of 2009 and are effective August 22, 2010. The press release and the Federal Register notice are available at: External Link

Financial Fraud Enforcement Task Force announces settlement with American International Group Inc. (AIG) subsidiaries to resolve allegations of lending discrimination. On March 4, 2010, the Financial Fraud Enforcement Task Force announced that two subsidiaries of AIG have agreed to pay a minimum of $6.1 million to resolve allegations that they engaged in a pattern or practice of discrimination against African American borrowers. Brought under the federal Fair Housing and Equal Credit Opportunity Act by the Department of Justice, the complaint alleges that African American borrowers nationwide were charged higher fees on wholesale loans made by AIG Federal Savings Bank and Wilmington Finance Inc., an affiliated mortgage lending company. “Today’s settlement is significant because it marks the first time the Justice Department has held a lender responsible for failing to monitor its brokers to ensure that borrowers are not charged higher fees because of their race. If necessary, it will not be the last time,” said Thomas E. Perez, assistant attorney general in charge of the Justice Department’s Civil Rights Division. The press release can be found at: External Link