Consumer Compliance Outlook
News from Washington: Regulatory Updates
On July 21, 2011, the CFPB issued a final list of rules it will enforce against the institutions under its supervision. The CFPB's enforcement authority is defined by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and other applicable laws. Accordingly, the published list has no substantive effect and merely provides a convenient reference source. The list of rules includes the Equal Credit Opportunity Act (Regulation B), the Home Mortgage Disclosure Act (Regulation C), the Electronic Fund Transfer Act (Regulation E), Registration of Residential Mortgage Loan Originators (Regulation H, Subpart I), the Consumer Leasing Act (Regulation M), Privacy of Consumer Financial Information (Regulation P), the Fair Credit Reporting Act (Regulation V) (subject to certain exceptions), the Truth in Lending Act (TILA) (Regulation Z), and the Truth in Savings Act (Regulation DD). The Federal Register notice is available at http://www.gpo.gov/fdsys/pkg/FR-2011-07-21/pdf/2011-18426.pdf.
On July 8, 2011, the Board issued its second annual report on College Credit Card Agreements pursuant to the Credit Card Accountability Responsibility and Disclosure Act. The report covers all 1,004 credit card agreements in effect in 2010 between issuers and institutions of higher education and related entities, such as alumni groups. It includes such data as yearly payments by the issuers to the institutions and changes in the number of accounts compared to the first annual report in 2009. The Board's announcement and the report are available at http://www.federalreserve.gov/newsevents/press/bcreg/20110707a.htm.
On July 7, 2011, the Board and the Federal Trade Commission (FTC) announced the implementing regulations for the credit score disclosure requirements mandated by §1100F of the Dodd-Frank Act. Under the final rule, when lenders issue risk-based pricing or adverse action notices under the Fair Credit Reporting Act, they must disclose the consumer's credit score if the score was used in making the determination that led to the issuance of the notice. Outlook reviews the requirements in detail in “An Overview of the Credit Score Disclosure Requirements for Risk-Based Pricing Notices” on page one of this issue. The Board and the FTC's joint announcement and the Federal Register notice are available on the Board's website at http://www.federalreserve.gov/newsevents/press/bcreg/20110706a.htm.
On June 30, 2011, the Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (agencies) made public the updated host state loan-to-deposit ratios that the agencies use for verifying compliance with §109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 during a bank's Community Reinvestment Act (CRA) examination. The agencies' announcement is available at http://www.federalreserve.gov/newsevents/press/bcreg/20110630a.htm.
On June 29, 2011, the Board announced a final rule establishing standards for debit card interchange fees, as required by §1075 of the Dodd-Frank Act. These provisions are effective October 1, 2011. Debit card interchange fees are received by the card-issuing bank whenever a debit card it issues is used in a transaction. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. The Board also approved an interim final rule that allows for an upward adjustment of no more than 1 cent to an issuer's debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve the fraud-prevention standards set out in the interim final rule. When the adjustment is combined with the maximum permissible interchange fee under the interchange fee standards, a covered issuer eligible for the fraud-prevention adjustment could receive an interchange fee of up to approximately 24 cents for the average debit card transaction, which is valued at $38. Card issuers that, with their affiliates, have assets under $10 billion are exempt from the fee standards. The final rule also prohibits issuers and networks from limiting the number of networks that can process their debit transactions to less than two unaffiliated networks. Issuers and networks are also prohibited from inhibiting merchants' ability to choose among those different debit processing networks. The Board's announcement and the Federal Register notices for the final rule and the interim final rule are available at http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm.
The Dodd-Frank Act requires the CFPB to implement a risk-based supervision program for nondepository financial services firms in the residential mortgage, private education lending, and payday lending markets. The CFPB must also implement a supervision program for nondepositories that are a “larger participant” in a market for other consumer financial products or services as defined by the rule. On June 29, 2011, the CFPB published a request for comments on which other nonbank markets the CFPB should regulate and how larger participants should be defined. The CFPB is required to issue a rule defining larger participants by July 21, 2012. The request for comment included six markets in the initial rule: debt collection, consumer reporting, consumer credit and related activities, money transmitting and related activities, prepaid cards, and debt relief services. Comments were due by August 15, 2011. The CFPB's announcement and the Federal Register notice are available at http://1.usa.gov/larger-participant.
Section 1032(f) of the Dodd-Frank Act requires the CFPB to combine the GFE and TILA early disclosures into one form. Currently, consumers receive a two-page TILA form and a three-page GFE. On May 18, 2011, the CFPB published two draft combined forms for comment. The forms received over 13,000 comments, and on June 27, 2011, the CFPB issued two proposed revised forms and solicited further comment, particularly as to the disclosure of closing costs. The CFPB's announcement is available at http://www.consumerfinance.gov/know-before-you-owe-were-back/.
On June 13, 2011, the Board announced its annual adjustment to the dollar amount of fees that trigger additional disclosure requirements and restrictions under Regulation Z and the Home Ownership and Equity Protection Act for certain “high-cost” home mortgage loans. The dollar amount of the fee-based trigger has been adjusted to $611, effective January 1, 2012. The Board's announcement and Federal Register notice are available at http://www.federalreserve.gov/newsevents/press/bcreg/20110613c.htm.
On June 1, 2011, the Board, the FDIC, the OCC, and the Office of Thrift Supervision issued their annual list of nonmetropolitan distressed or underserved areas. These areas will qualify for community development designation under the CRA. The 2011 list (and lists from previous years) can be found on the Federal Financial Institutions Examination Council's website at http://www.ffiec.gov/cra/examinations.htm.
On May 23, 2011, the Board issued a proposal to implement protections for consumers who send remittance transfers to recipients in a foreign country, as required by §1073 of the Dodd-Frank Act. The proposed rules would require a written pre-transfer disclosure stating the fees and taxes and the amount to be received by the recipient and the sender's error resolution rights. A provider of remittance services would also have to disclose the exchange rate except under certain circumstances, such as when the government in the recipient country sets the exchange rate or the rate is required to be set only after the funds are retrieved in the recipient country. Final rules, which are required by January 21, 2012, will be issued by the CFPB. The Board's announcement and the Federal Register notice are available at http://www.federalreserve.gov/newsevents/press/bcreg/20110512a.htm.