It’s summertime and you might be taking a break, but the regulatory agencies aren’t (especially the CFPB).
If you’ve checked out for a bit, don’t worry. The Ncontracts regulatory compliance team is here to stay on top of all the latest regulatory news in our monthly Regulatory Brief.
Here are a few highlights from this month’s Regulatory Brief for July 2024. For a more in-depth discussion of regulatory compliance news and what it means for your institution, watch or listen to the podcast.
Supreme Court Extends Statute of Limitations on Regulatory Actions
The Supreme Court ruled that lawsuits against U.S. federal agencies can be filed within six years from when a plaintiff is injured by a regulatory agency action – rather than six years from the action becoming final – greatly expanding the statute of limitations against administrative agencies.
The decision, Corner Post Inc v. Board of Governors of the Federal Reserve System, will lead to increased litigation over rulemaking and invite regulatory uncertainty that raises the challenge level for compliance staff tasked with monitoring compliance and implementing new rules.
Be sure that you are monitoring legal challenges that could impact your institution, and stay up to date with any agency rule, supplemental rules, or guidance that could impact rulemaking.
CFPB Updates
CFPB’s Funding Challenges Continue
The Consumer Financial Protection Bureau’s funding mechanism is once again under scrutiny with scholars and industry professionals questioning whether the Federal Reserve Banks (FRBs) can fund the CFPB when the FRBs are running a deficit.
While the Supreme Court ruled that the CFPB’s funding mechanism is legal, the legal question remains: If the CFPB is funded by FRB’s combined earnings, but the Fed has run a deficit since Sept 2022, where is the CFPB’s money coming from? Further, if the money isn’t coming from earnings, then is anything the bureau has done since 2022 permissible?
A rent-to-own company suing the CFPB is making this argument. Only time will tell if the courts buy it.
In related CFPB court news, the Seventh Circuit Court ruled in favor of the CFPB against Townstone Financial, a mortgage company that argued the Equal Credit Opportunity Act (ECOA) only protects credit applicants, not prospective applicants. The CFPB filed a suit against the company in 2020 for discouraging potential mortgage applicants with racist comments on its radio show. While a lower court ruled in favor of Townstone, the CFPB appealed. Townstone is likely to appeal the Seventh Circuit Court decision.
CFPB Proposes Two New Rules
CFPB Proposes Interpretive Rule on Paycheck Advance Products
The CFPB proposed an interpretive rule that would subject many paycheck advance products to the Truth in Lending Act. The CFPB will accept comments through August 30.
Proposed CFPB Rule Aims at Helping Distressed Homeowners
The CPFB issued a proposal making significant changes to foreclosure regulations under Reg X to align them with Covid-19 foreclosure protections. It would require mortgage servicers to try to help borrowers that ask for help instead of focusing on foreclosing.
CFPB Reminder: Confidentiality Agreements Don’t Overrule Whistleblower Protections
The CFPB released a circular reminding that it’s illegal to discriminate against employee whistleblowers who report suspected violations of federal consumer financial law and that confidentiality agreements can’t prevent them from speaking with law enforcement or regulators – even if the threat is implied, not explicit. Make sure you review the language of your employee confidentiality agreements and make sure they would not lead a reasonable person to believe they would face adverse consequences from communicating with their regulators about potential wrongdoing, especially if the violation is related to CFPB regulations.
FinCEN Proposal Would Add Dynamic Risk Assessments to AML/CFT Programs
A proposed interagency rule (NCUA, FDIC, FRB, OCC and FinCEN) would amend Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) rules to add a fifth prong to the existing four prongs of an effective, risk-based, and reasonably designed AML/CFT program. The proposal also encourages using technology like AI and machine learning and would require institutions to have qualified AML/CFT staff and enhanced customer due diligence.
We break down the fifth prong, dynamic risk assessments, and what it could mean for your institution in the Regcast. The comment period ends September 3, 2024.
Enforcement Actions
CFPB Fines Fifth Third Bank $20 Million for Wrongful Auto Repossession and Opening Fake Accounts
The CFPB issued a $20 million enforcement action against Fifth Third Bank for multiple illegal activities, including forcing unnecessary vehicle insurance onto borrowers and threatening them with repossession if they didn’t pay. An additional proposed court order would require Fifth Third to pay $15 million for opening fake consumer accounts and ban the bank from setting employee sales goals that incentivize fraudulent account openings.
It's not Fifth Third’s first CFPB enforcement action. In 2015, the CFPB fined it $18 million for discriminatory auto loan pricing.
Repeat Findings Lead to $135 Million Citibank Fine
We’ve said it before, and we’ll say it again. If you don’t follow up on regulatory findings (including enforcement actions), you better be ready to pony up. That’s exactly where Citibank stands after making “insufficient progress” on data management issues mentioned in a 2020 enforcement action. The OCC fined the megabank $135 million (after a $400 million fine in 2020). Ironically that enforcement action cited – wait for it – deficient findings management, including failure to remediate AML deficiencies cited in a March 2013 consent order and compliance and control infrastructure deficiencies in a May 2015 order.
NCUA Proposed Succession Planning Rule
NCUA’s proposed rule would require federally insured credit unions to establish processes for succession planning for key positions. If the rule conflicts with state law, state chartered federally insured credit unions would defer to state requirements. The comment period ends September 23, 2024.
Ncomply customers should be on the lookout for our reg analysis document breaking it all down.
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