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Christine Docherty
In the wake of the COVID-19 pandemic, consumer protection issues have risen as a key priority for federal banking regulators.
In recent weeks, banking regulators have taken steps to rein in unfair predatory practices. In March, the Consumer Financial Protection Bureau announced changes to its supervisory operations to better protect families and communities against illegal discrimination, including certain discriminatory practices that trigger liability under the Consumer Financial Protection Act (CFPA), which prohibits unfair, deceptive and abusive acts and practices (UDAAPs).
Also in March, the Federal Deposit Insurance Corp. issued a warning to banks that inadequate account disclosures and certain non-sufficient funds (NSF) fee practices may result in heightened risk of violations of Section 5 of the Federal Trade Commission (FTC) Act. In April, the FDIC directed banks to provide notice before engaging
in cryptocurrency-related activities, noting that the “risks of this area are not well understood given the limited experience with these new activities.” And in May, the CFPB issued an advisory opinion underscoring that the Equal Credit Opportunity Act (ECOA) protections extend to consumers beyond just the credit application process.
Tim Rennie
These recent steps signal a growing emphasis on addressing discrimination and abusive or deceptive practices.
CFPB Expands Enforcement
On March 16, the CFPB announced its intention to expand enforcement activities against discrimination. CFPB Director Rohit Chopra was quoted as saying, “[w]e will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.” One of those areas of focus is UDAAPs.
In connection with its announcement to expand enforcement, the CFPB published an updated exam manual for evaluating UDAAPs. The manual affirms the CFPB’s broad jurisdiction by explaining how the Dodd-Frank Act provides the CFPB with rule-making authority and enforcement authority to prevent UDAAPs in connection with any transaction or offering to a consumer for a consumer financial product or service.
As noted in its press release announcing the manual, the CFPB will require companies under its jurisdiction to “show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups.” This was followed by an announcement on May 12, that the CFPB would be expanding its enforcement office personnel to “focus on repeat offenders and large players engaged in large-scale harm.”
These recent steps signal a growing emphasis on addressing discrimination and abusive or deceptive practices.
Just this month, the CFPB stressed its mission to expand enforcement against unfair discrimination by issuing an advisory opinion to affirm that the ECOA bars lenders from discriminating against consumers after they receive a loan, not just during the application process. The advisory opinion, which clarifies that ECOA protects people from discrimination in all aspects of a credit arrangement, is likely a sign of things to come.
“The CFPB is ramping up its efforts to issue guidance and advisory opinions to assist entities with understanding their obligations under the law,” Chopra said.
FDIC Imposes Consumer Protection Measures
On March 31, the FDIC published its Spring 2022 Consumer Compliance Supervisory Highlights, which issued warnings to banks against inadequate account disclosures and certain NSF fee practices. The FDIC suggested those banks consider disclosing information about when NSF may be charged and how such fees will be imposed. If FDIC consumer compliance examiners determine that a bank’s disclosure of its NSF fee practices violate the FTC Act the bank may be required to refund the NSF fees charged to consumers.
Furthermore, on April 7 all FDIC-supervised institutions that intend to engage in crypto-related activities were instructed to notify the FDIC, who will review the information and provide relevant supervisory feedback. Acknowledging the consumer protection concerns of crypto-related activities, the FDIC has cautioned against certain risks to consumers. For example, a crucial concern facing consumers is confusion regarding crypto assets offered by insured depository institutions as consumers may not fully understand the bank’s role or the inherent speculative nature of the crypto asset, particularly compared with more traditional banking assets, such as deposit accounts.
The FDIC is requiring supervised institutions to provide information on the safety and soundness, consumer protection and financial stability implications of the institution’s crypto-related activity. The initial notification to the FDIC should describe the crypto-related activity in detail and supply a timeline for participating in the activity. Once the FDIC receives the notice, it will review the information and provide appropriate supervisory feedback to the institution.
Banking agencies have made it clear that protecting consumers from unfair discrimination is an enforcement priority. The CFPB, of late, has proven to be an enforcement-driven tool to advocate for lower- and middle-class Americans who have in recent years, particularly in the midst of the COVID-19 pandemic, fallen victim to deceptive lending and debt collection practices. Similarly, the FDIC remains concerned and focused on safety and soundness, financial stability and consumer protection risks implicated by predatory fee practices and various crypto-related activities. Consistent with the Biden administration’s recent medical debt collection reforms aimed at protecting consumers, it is anticipated that this consumer protection trend by banking regulators will continue in the months ahead.
Christine A. Docherty is a partner in Nutter’s corporate and transactions department. Timothy J. Rennie is an associate in Nutter’s corporate and transactions department. Both are members of the firm’s banking and financial services group.
