On April 5, the Federal Deposit Insurance Corporation (FDIC) released its Consumer Compliance Supervisory Highlights report, providing a high-level overview of consumer compliance issues identified by the agency during 2022 in its supervisory activities of state non–member banks and thrifts. The report did note that, “[o]verall, supervised institutions demonstrated effective management of their consumer compliance responsibilities.”
Of the top regulatory areas cited for violations, the most frequently cited violations involved:
- The Truth in Lending Act (TILA) requires creditors to disclose certain closing cost information on the closing disclosure using specified headings and tables.
- The FDIC alleged violations of section 5 of the Federal Trade Commission Act most frequently when financial institutions charged multiple non-sufficient funds (NSF) fees for the re-presentment of the same transaction and its disclosures did not fully or clearly describe the financial institution’s re-presentment practice.
- The Flood Disaster Protection Act requires adequate flood insurance be in place at the time a covered loan is made, increased, extended, or renewed.
- The Electronic Fund Transfers Act (EFTA) requires financial institutions to investigate allegations of electronic fund transfer errors, determine whether an error occurred, report the results to the consumer, and correct the error within certain timeframes.
- The Truth in Savings Act (TISA) requires certain timing and content for deposit account disclosures.
According to the FDIC, the most significant consumer compliance issues identified by examiners during their supervisory activities in 2022 included:
Real Estate Settlement Procedures Act (RESPA):
- Examiners alleged RESPA violations where banks contracted with third parties to identify and contact consumers in order to directly steer and affirmatively influence the consumer’s selection of the bank as the settlement service provider.
- Examples included a third party calling identified consumers and directly connecting and introducing them to a specific mortgage representative on the phone, and third parties operating a digital platform that purported to rank lender options based on neutral criteria but where the participating lenders merely rotated in the top spot.
Fair Credit Reporting Act (FCRA):
- Examiners noted issues involving financial institutions that purchased “trigger leads,” but failed to provide consumers with “firm offers of credit.”
- For example, representatives contacting consumers during sales calls, but not communicating that: (1) an offer of credit was being made, (2) the offer was guaranteed as long as the consumer met the credit criteria, (3) the offer was a prescreened offer based on the consumer’s credit report, and (4) the consumer could opt out of future prescreened offers.
Servicemembers Civil Relief Act (SCRA):
- Examiners alleged violations of SCRA’s anti-acceleration provision when banks unilaterally applied forgiven excess interest to the servicemember’s principal loan balance without giving the servicemember an option of how to receive the funds.
- Applying forgiven excess interest to the principal balance of a loan is permitted only if the servicemember affirmatively chooses that method after being offered other options (such as cash refund and/or timely application to current or future payments).
- The FDIC notes that the vast majority of institutions it supervises maintain effective fair lending compliance programs, the agency does occasionally identify violations related to discrimination. In the “rare instance” when the FDIC has reason to believe a creditor is engaged in a pattern or practice of discrimination in violation of the Equal Credit Opportunity Act (ECOA), the FDIC is required by law to refer the matter to the U.S. Department of Justice (DOJ).
- In 2022, the FDIC referred 12 fair lending matters to the DOJ. These referral matters involved redlining, pricing for indirect automobile financing, and policies involving overt discrimination for the pricing or underwriting of credit.
As the report evidences, consumer compliance is clearly a focus for the FDIC, as well as the Consumer Financial Protection Bureau and other federal banking regulators, in the supervision and examination process, and we expect that to continue to be the case going forward under the Biden administration.