Consumer Compliance Outlook: First Issue 2022

News from Washington: Regulatory Updates

The Federal Reserve releases a Synthetic Identity Fraud Mitigation Toolkit.

On February 8, 2022, the Federal Reserve released a toolkit to help the financial industry and consumers understand and combat synthetic identity theft. According to Jim Cunha, an executive vice president at the Federal Reserve Bank of Boston, “synthetic identity fraud, where fraudsters create an identity out of pieces of real and/or fictitious information, continues to grow and resulted in an estimated $20 billion in losses for U.S. financial institutions in 2020.” The toolkit, which the Federal Reserve developed after researching this issue and collaborating with industry experts, contains these five modules:

On a related note, Outlook previously published an article titled “Overview of Federal Consumer Privacy and Security Laws for Financial Services” that discussed the electronic consent-based Social Security number verification service, which allows certain entities to verify if an individual’s Social Security number, name, and date of birth combination match the Social Security Administration’s records to help combat identity theft.

The Consumer Financial Protection Bureau (Bureau) issues a request for information (RFI) about fees imposed by providers of consumer financial services.

On February 2, 2022, the Bureau published an RFI in the Federal Register to address its concern about fees for consumer financial services and products. The RFI solicits information from consumers for several issues related to fees, including:

fees that were high, unexpected, or unclear;
fees that obscure the true cost of the product or service by not being built into the upfront price;
fees that exceed the cost of the service covered; and
the tools the Bureau should use to address this issue.

The RFI highlighted various fees across many different financial products and services including deposit accounts, credit cards, remittance transfers, prepaid cards, and mortgages. The deadline to respond was March 31, 2022.

HUD’s Office of General Counsel determines that Special Purpose Credit Programs under the Equal Credit Opportunity Act (ECOA) generally do not violate the Fair Housing Act.

On December 6, 2021, the Office of General Counsel of the U.S. Department of Housing and Urban Development (HUD) issued a statement clarifying that the use of Special Purpose Credit Programs (SPCPs) under the ECOA generally would not violate the Fair Housing Act (FHA). The ECOA prohibits creditors from discriminating on a prohibited basis in any aspect of a credit transaction; however, the ECOA contains a limited exception for SPCPs. After a firm has conducted the analysis required by Regulation B and established a written program, this exception permits offering special underwriting or pricing for applicants meeting eligibility requirements. Eligibility requirements may include that an applicant is part of a traditionally disadvantaged group, including those protected by the ECOA and/or the FHA. HUD, which has rulemaking and interpretive authority for the FHA, concluded that “SPCPs offered by non-profit organizations to serve economically disadvantaged classes and those offered by for-profit organizations to meet special social needs that are carefully tailored and targeted to meet ECOA and Regulation B’s specifications will generally not ‘discriminate’ within the meaning of the [FHA], just as they do not constitute discrimination under ECOA.”

Bureau opens inquiry into “buy now, pay later” (BNPL) credit.

On December 16, 2021, the Bureau announced an inquiry into BNPL, a form of credit that allows consumers to finance purchases with an interest-free loan, provided the consumer repays it within a specified time frame. BNPL lenders typically require four, equal bimonthly payments, starting with a 25 percent down payment at purchase. In recent years, the BNPL market has rapidly grown, raising potential consumer protection concerns. In particular, the Bureau cited concerns about accumulating debt, regulatory arbitrage, and data harvesting. In connection with the inquiry, the Bureau served a market monitoring order, as permitted under the Dodd‒Frank Act, on five BNPL lenders: Affirm, Afterpay, Klarna, PayPal, and Zip. The order includes detailed questions about their business practices to help the Bureau “monitor for risks to consumers in the offering or provision of consumer financial products or services.” The Bureau also published a blog posting on December 16, 2021, to discuss some of its consumer protection concerns for BNPL, including:

fees for BNPL;
challenges in returning merchandise purchased with BNPL loans;
fewer consumer protections for BNPL loans relative to credit cards; and
the effect of BNPL loans on credit scores.

The Bureau later expanded its inquiry into BNPL to the public by publishing a request for comment in the Federal Register on January 24, 2022. The comment period ended on March 25, 2022.

The House Financial Services Committee conducted a hearing on November 2, 2021, titled “Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other Emerging Fintech Cash Flow Products.” The committee’s majority staff also released a memo about BNPL and the other products examined in the hearing.

The Bureau issues two reports on overdraft fees.

On December 1, 2021, the Bureau released two reports on fees imposed for overdraft and nonsufficient funds (NSF). The first report (Overdraft/NSF Fee Reliance Since 2015 – Evidence from Bank Call Reports) analyzed banks’ overdraft and NSF fee income based on call report data and estimated the overall market revenue of $15.47 billion in 2019, with banks over $1 billion earning around $11.97 billion, while smaller institutions earned approximately $3.5 billion. The second report (Checking Account Overdraft at Financial Institutions Served by Core Processors) analyzed overdraft data from core processor providers and found that 92.9 percent of smaller banks and 60.9 percent of credit unions had an overdraft program, in contrast to larger banks, where these programs are more common. The report also found that the average fee charged for an overdraft was 6 percent lower at credit unions and 11 percent lower at small banks relative to large banks.

On a related note, on February 10, 2022, the Bureau published a blog posting comparing overdraft fees across several different financial institutions.

Federal Reserve’s Supervision Central Website

Effective supervision relies on strong collaboration between banking agencies and supervised institutions. Over the years, the need for better ways to exchange data outpaced the technology used for supervisory activities. To address this, the Federal Reserve launched Supervision Central, a centralized tool to facilitate secure data intake, sharing, and collaboration among supervisory staff, bank staff, and other agencies’ staff for safety and soundness and consumer compliance activities at community and regional banking organizations supervised by the Federal Reserve.

Supervision Central is designed to reduce regulatory burden for supervised institutions by providing an easy way to submit documents and information to the Federal Reserve. Data submitted will be reusable across examinations with the goal of reducing the volume of duplicate information requests from the Federal Reserve by making documents previously provided more readily available to supervisory staff. Also, supervised institutions will no longer need to submit the same documents to multiple banking agencies for joint examinations and other supervisory activities because the agencies will be accessing the same documents. You can access the help site by visiting www.supervisioncentral.org.