Deposit Accounts

House members request reconsideration of FDIC brokered deposits interpretation

By Scott A. Coleman on August 1, 2018

Posted in Deposit Accounts, FDIC, FDIC Supervision, Federal CFS Monitor

Last week, Representative Blaine Luetkemeyer, Chair of the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit, and Representative Scott Tipton sent a letter to Jelena McWilliams, Chair of the FDIC, that identified concerns with the FDIC’s interpretations and regulations surrounding brokered deposits and requested the FDIC to revisit its June 2016 Frequently Asked Questions on Identifying, Accepting and Reporting Brokered Deposits “in light of the rapid technological changes in the banking and payments industry.”

Congressmen Luetkemeyer and Tipton assert that the FAQ is inconsistent with the definition of “deposit broker” under 12 C.F.R. § 337.6(a)(2). The regulation defines a brokered deposit as “any deposit that is obtained, directly or indirectly, from or through the mediation or assistance of a deposit broker.” The term “deposit broker” is defined under 12 USC §1831f to include “(A) any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties; and (B) an agent or trustee who establishes a deposit account to facilitate a business arrangement with an insured depository institution to use the proceeds of the account to fund a prearranged loan.”

The Congressmen believe that the broad classifications in the FAQ of what deposits are brokered and when an entity is a deposit broker: (1) exposes institutions to restrictive and costly supervisory limits and deposit insurance assessments; (2) has reduced the number of financial institutions that can afford to participate in certain markets and, thereby, limited consumer access to financial products; (3) interfered with innovation; and (4) diminished the access of financial institutions to “stable sources of deposits,” thereby “limiting the funding banks can make available for lending to small businesses and consumers.”

By way of example, the 2016 FAQ states that deposits generated by “advertising or referrals by third parties (such as nonprofit affinity groups as well as commercial enterprises), in exchange for volume-based fees” would be deemed brokered deposits even if the customers themselves would subsequently become core customers of the institution. The FAQ further states that “[i]f a company merely designs deposit products or deposit accounts for one or more banks, without placing deposits or facilitating the placement of deposits at these banks, the company will not be classified as a deposit broker,” but if a company also markets a bank’s deposit products in exchange for volume-based fees, then it would be a deposit broker.

When considering the costs of the design of new deposit products and the development of new technological applications to serve financial institution customers, a determination that the use of volume-based fees will cause deposits to be deemed brokered deposits does appear to stifle innovation and limit the ability of financial institutions with fewer resources to develop technological advances that would benefit consumers.

The FDIC has not yet responded.

House passes bills to facilitate online banking, allow federal savings associations to exercise national bank powers

By Barbara S. Mishkin on February 1, 2018

Posted in Deposit Accounts, Federal Agencies, Federal CFS Monitor, OCC, Preemption

The following bills were passed by the House earlier this week:

The “Making Online Banking Initiation Legal and Easy (MOBILE) Act, H.R. 1457. Passed by a vote of 397-8, the MOBILE Act would allow a bank to scan and retain personal information from a state-issued driver’s license or personal identification card when an individual seeks to open an account online or obtain a financial product or service online. The bill would also allow a bank to use the license or identification card to verify the individual’s identity and comply with a legal requirement to record, retain, or transmit the personal information of an individual seeking to open an account online or obtain a financial product or service online. According to the accompanying House Report, the bill is intended to create a “new national standard” that would preempt state laws that do not permit the scanning of state-issued driver’s licenses or personal identification cards to verify a customer’s identity. The bill contains an express preemption provision. While the bill expands the documentation a bank can use to verify a customer’s identity in an online transaction, it does not require a bank to accept such documentation or limit a bank’s ability to decide who is eligible to open an account.
The “Federal Savings Association Charter Flexibility Act of 2017,” H.R. 1426. Passed by a voice vote, the bill would allow a federal savings association to exercise the powers of a national bank without converting to a national bank charter. According to the accompanying House Report, the bill is intended to allow a federal savings association to exceed the commercial and consumer loan limits to which it is subject under the Home Owners Loan Act while continuing to be treated as a federal savings association for purposes of governance, consolidation, merger, dissolution, conservatorship, and receivership. Under the bill, a federal savings association would have to submit a notice of election to operate as a national bank and, unless the OCC otherwise notified the association, the election would be deemed approved 60 days after the OCC received notice.

CFPB August 2016 complaint report highlights bank account or service complaints, complaints from Ohio consumers

By Barbara S. Mishkin on August 31, 2016

Posted in Deposit Accounts, Overdrafts

The CFPB has issued its August 2016 complaint report which highlights complaints about bank accounts or services and complaints from consumers in Ohio and the Columbus metro area. The CFPB began taking bank account or service complaints on March 1, 2012.

As noted below, the report indicates that consumers commonly complain about the use of consumer and credit reporting data for account screening. In February 2016, the CFPB held a field hearing on checking account access. In conjunction with the hearing, the CFPB issued a compliance bulletin “warning banks and credit unions that failure to meet accuracy obligations when they report negative account histories to credit reporting companies could result in Bureau action.”

General findings include the following:

As of August 1, 2016, the CFPB handled approximately 954,400 complaints nationally, including approximately 24,000 complaints in July 2016. Debt collection continued to be the most-complained-about financial product or service in July 2016, representing about 27 percent of complaints submitted. Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 66 percent of the complaints submitted in June 2016.
Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 64 percent from the same time last year (May to July 2015 compared with May to July 2016). In February 2016, the CFPB began accepting complaints about federal student loans. Previously, such complaints were directed to the Department of Education. As we noted in blog posts about prior complaint reports issued since April 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects the change in where such complaints are sent.
Payday loan complaints showed the greatest percentage decrease based on a three-month average, decreasing about 19 percent from the same time last year (May to July 2015 compared with May to July 2016). Complaints during those periods decreased from 451 complaints in 2015 to 367 complaints in 2016. In the complaint reports for March through July 2016, payday loan complaints also showed the greatest percentage decrease based on a three-month average.
Alabama, Wyoming, and Colorado experienced the greatest complaint volume increases from the same time last year (May to July 2015 compared with May to July 2016) with increases of, respectively, 29, 24, and 20 percent.
Maine, Delaware, and Hawaii experienced the greatest complaint volume decreases from the same time last year (May to July 2015 compared with May to July 2016) with decreases of, respectively, 30, 23, and 22 percent.

Findings regarding bank account or service complaints include the following:

The CFPB has handled approximately 94,200 bank account or service complaints, representing about 10 percent of total complaints.
Checking accounts are the type of bank account or service product that consumers complain about most, representing 64 percent of complaints in this category. The most-complained-about issues involved problems with account management, deposits and withdrawals.
Complaints about the use of consumer and credit reporting data for account screening are “increasingly common,” with consumers frequently mentioning that that they learned for the first time of negative information when they attempted to open a new deposit account.
Complaints related to overdrafts “remain common,” including complaints about transaction ordering. Consumers also complained about overdrafts that took place because of confusion about the availability of funds they had deposited or were attempting to deposit. Consumers “regularly complain” about the size of overdraft fees when making small dollar purchases and are “often frustrated” by bank check holding policies, with “a number of these complaints” involving mobile deposit applications. (In its Spring 2016 rulemaking agenda, the CFPB stated that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the [overdraft] opt-in process.”)
Complaints about promotional offers for opening accounts “were the focus of a number of complaints,” with the complaints sometimes involving the consumer’s eligibility for the offer or whether the consumer met the required terms for an offer.
Consumers “frequently complain” about error resolution procedures, including timelines for investigation and provisional credit for disputed transactions.

Findings regarding complaints from Ohio consumers include the following:

As of August 1, 2016, approximately 29,400 complaints were submitted by Ohio consumers of which approximately 22 percent (about 6,5000) were from Columbus consumers.
Debt collection was the most-complained-about product, representing 30 percent of the complaints submitted by Ohio consumers and 27 percent of complaints submitted by consumers nationally.
The percentage of mortgage complaints submitted by Ohio consumers, 22 percent, was lower than the 25 percent national average.
Average monthly complaints received from Ohio consumers increased 10 percent from 2014 to 2015, similar to the increase of 8 percent nationally.

CFPB issues guidance on deposit reconciliation practices; Ballard to hold June 21 webinar

By John L. Culhane, Jr. on May 19, 2016

Posted in Deposit Accounts

The CFPB and four other agencies have issued “Interagency Guidance Regarding Deposit Reconciliation Practices.” The other agencies are the OCC, Fed, FDIC, and NCUA. The guidance is intended to set forth the agencies’ supervisory expectations regarding consumer account deposit reconciliation practices.

For purposes of the guidance, a “credit discrepancy” is created when the amount that a bank credits to a customer’s account differ from the total of the items deposited. The guidance refers to a discrepancy that results in a customer being credited with less than the full amount deposited as “a detriment to the customer” that “benefits the financial institution, if not appropriately reconciled.” The guidance indicates that “[t]echnological and other processes exist that allow financial institutions to fully reconcile discrepancies in deposit accounts.” (The agencies acknowledge, however, that there are limited circumstances in which items cannot be reconciled, such as when an item is damaged to the point that its true amount cannot be determined.) The guidance notes that the agencies have observed that “[i]n some instances, financial institutions do not research or correct [all discrepancies], resulting in the customer not receiving the full amount of the actual deposit.”

The guidance discusses applicable laws, such as the funds availability requirements of the Expedited Funds Availability Act and Regulation CC, and notes that a financial institution’s policies or practices that do not appropriately reconcile credit discrepancies within the prescribed time frames could raise Regulation CC concerns if a customer is left without timely access to the correct amount of funds due to a discrepancy. It also notes that a financial institution’s deposit reconciliation practices, depending on the facts and circumstances, can result in unfair or deceptive practices that violate Section 5 of the FTC Act or Sections 1031 and 1036 of the Dodd-Frank Act.

The agencies state that they expect financial institutions “to adopt deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customers are not disadvantaged.” They further state that financial institutions are expected to “effectively manage their deposit reconciliation practices to comply with Regulation CC and other applicable laws or regulations and to prevent potential harm to their customers.” Financial institutions are also expected to provide accurate information to customers about their deposit reconciliation practices and implement “effective compliance management systems that include appropriate policies, procedures, internal controls, training, and oversight and review processes to ensure compliance with applicable laws and regulations, and fair treatment of customers.”

At a minimum, the guidance appears to mean that a bank should not have policies or practices under which the amount encoded on the deposit slip is automatically accepted as correct in all circumstances or when such amount does not vary from the amount of the items deposited by more than a specified amount. Such policies or practices would necessarily create the potential for the customer to receive a credit for less than the amount actually deposited.

Instead, it appears a bank should have policies and practices that (1) pending further investigation, automatically give the customer the benefit of the greater amount when the amount encoded on the deposit slip varies from the items deposited (either regardless of the amount of the discrepancy or when the discrepancy is not more than a specified amount), or (2) immediately investigate and reconcile all discrepancies (or any discrepancies for which the customer is not automatically given the benefit of the greater amount).

On June 21, 2016, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar on the guidance: Interagency Deposit Reconciliation Guidance: Will Your Bank’s Practices Meet Expectations? The webinar registration form is available here.

CFPB announces steps to improve checking account access

By Barbara S. Mishkin on February 3, 2016

Posted in Deposit Accounts, Overdrafts, Prepaid Cards

As anticipated, in conjunction with its field hearing today, the CFPB announced several steps it has taken to improve consumer access to checking accounts. These steps consist of a sending a letter to the 25 largest retail banks encouraging them to offer and market “lower-risk” deposit accounts “to help consumers avoid overdrafts,” issuing a bulletin “warning banks and credit unions that failure to meet accuracy obligations when they report negative account histories to credit reporting companies could result in Bureau action,” and releasing new resources to assist consumers in opening and managing check accounts.

Letter to financial institutions. In its press release, the CFPB states that in a recent review “of the top retail banking websites, the CFPB found nearly half do not appear to offer any deposit account that ensures consumers can’t overspend.” Director Cordray’s letter (which he describes as “simply a suggestion”) urges “more banks and credit unions to make it a point to provide consumers with a viable choice of a lower-risk account that promises no authorized overdrafts.” The letter suggests that such an account could take the form of a prepaid card or a checking account. According to Director Cordray, because financial institutions would not have to apply “the same risk thresholds that are used to determine eligibility for a standard checking account” when considering an applicant for a low-risk account, they would be able to provide accounts to applicants who would otherwise be “screened out of the banking system.” The letter also comments that a lack of marketing by institutions currently offering low-risk accounts has “lessened their visibility and undermined their rate of uptake among consumers who might otherwise benefit from their availability.” Such institutions are urged to “feature them among their standard account offerings both in their branches and online.”

Director Cordray’s “suggestion” that financial institutions offer accounts “specifically designed to prevent overdrafts and overdraft fees” appears to be a precursor to the CFPB’s direct regulation of overdrafts. The CFPB has extended the timetable for overdraft rulemaking several times and further delay seems likely given that the CFPB’s fall rulemaking agenda estimated that further prerule activities would occur in January 2016 and none have occurred so far this year.

In addition, Director Cordray’s prepared remarks for the field hearing suggest the CFPB may take steps to address funds availability policies. In July 2015, the CFPB released a list of nine “Consumer Protection Principles” that were intended to express the CFPB’s “vision of consumer protection in new faster payments systems.” Those principles included faster funds availability and transparency in information about transaction status and disclosures about costs, risks, funds availability and security of payments. In his remarks, Director Cordray acknowledged “the decision some banks and credit unions have made to provide consumers with real-time information about the funds in their accounts available to be spent…through various means, including online banking and text and e-mail alerts, which can reduce the risks that consumers inadvertently overspend their accounts.” However, he commented that “[s]till, we encourage the banks and credit unions to press harder as they think about how they can tailor their products more effectively for a larger base of potential customers, which includes making funds available as early as they can.”

Compliance Bulletin. In a new compliance bulletin (2016-01), the CFPB discusses the obligation of furnishers under Regulation V (which implements the Fair Credit Reporting Act) “to establish and implement reasonable written policies and written procedures regarding the accuracy and integrity of information relating to consumers that they furnish to consumer reporting agencies (CRAs).” The bulletin emphasizes that this obligation “applies to furnishing to all CRAs, including furnishing to specialty CRAs, such as the furnishing of deposit account information to CRAs.” CRAs that specialize in checking account screening commonly provide reports about a consumer’s check writing and account history, including whether a consumer had a previous account closed involuntarily or has a record of bounced or returned checks and overdrafts, and such reports are frequently used by banks and credit unions to determine whether to open a checking account for a new customer.

To illustrate the need for an institution’s policies and procedures to address furnishing to all CRAs, the bulletin discusses the obligations of an institution that “furnishes credit information to nationwide CRAs and deposit account information to nationwide specialty CRAs.” The CFPB states that such an institution “must consider the appropriate approach to each type of furnishing in its policies and procedures in order to comply with Regulation V.” It notes that “the type, frequency, and nature of the information furnished to CRAs can vary significantly” and “there also may be significant differences in the reporting formats and codes used to furnish to these agencies.”

Consumer resources. The CFPB released the following new consumer resources:

“Consumer Guide to Selecting a lower-risk account” which discusses steps a consumer can take to identify and select an appropriate checking or prepaid account, such as “low-risk” accounts.
“Consumer Guide to Managing your checking account” which provides “tips for reducing the fees” on checking or prepaid accounts.
“Consumer Guide to Checking account denials,” which the CFPB labels a “consumer advisory,” discusses the use of specialty reports by banks and credit unions and suggests steps a consumer can take if he or she is denied an account, such as obtaining a copy of the consumer report that was used for the denial. The CFPB provides sample letters consumers can use to dispute inaccurate information with the CRA that created the report and a financial institution that provided such information.

CFPB postpones field hearing on checking account access to Feb. 3

By Barbara S. Mishkin on January 27, 2016

Posted in Deposit Accounts

The CFPB has announced that due to inclement weather, it has postponed the field hearing about access to checking accounts until February 3, 2016. The hearing, which is to be held in Louisville, Kentucky, was originally scheduled for today.

As we previously reported, we expect the hearing to coincide with an announcement by the CFPB of steps it is taking to address concerns raised by Director Cordray in connection with the CFPB’s October 2014 forum on checking account screening policies and practices.

CFPB to hold January 27 field hearing on checking account access

By Barbara S. Mishkin on January 14, 2016

Posted in Deposit Accounts

The CFPB has announced that it will hold a field hearing in Louisville, Kentucky about access to checking accounts on January 27, 2016.

In October 2014, the CFPB held a forum on checking account screening policies and practices. In his remarks, Director Cordray raised concerns about the accuracy of the reports obtained by banks and credit unions from specialty consumer reporting agencies that are used to determine whether to open a checking account for new customers. He also raised concerns about the ability of consumers to access these reports and dispute incorrect information and about how the reports were being used.

Given the CFPB’s history of using field hearings as a venue for announcing new developments, we expect the January 27 hearing to coincide with an announcement by the CFPB of steps it is taking to address these concerns.

Senator Brown urges funding of Dodd-Frank small dollar loan programs

By Barbara S. Mishkin on January 7, 2016

Posted in Deposit Accounts, Payday Lending

Senator Sherrod Brown, ranking member of the Senate Banking Committee, has sent a letter to President Obama that asks the President to prioritize funding in his FY 2017 budget proposal for programs in Title XII of the Dodd-Frank Act that are intended to assist lower income borrowers. Title XII has not yet been implemented.

The programs authorized by Sections 1205 and 1206 of Title XII provide federal grants and other financial support to “eligible entities” to enable them to provide “low-cost, small loans to consumers that will provide alternatives to more costly small dollar loans.” “Eligible entities” include community development financial institutions, federally-insured depository institutions, and state, local, or tribal government entities.

Community development financial institutions (CDFI) are financial institutions that provide credit and financial services to underserved markets and populations that are certified by the Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund) which provides funds to CDFIs through various programs. Section 1206 would establish limits on a CDFI’s small dollar loan program supported by the CDFI Fund, including that the loans may not exceed $2500, must be repayable in installments, and have no prepayment penalty.

Senator Brown was among a group of U.S. Senators who sent a letter to Director Cordray in June 2015 urging him “to issue the strongest possible [payday lending] rules to end the damaging effects of predatory lending.”

Title XII also authorizes a program intended to expand access of low- and moderate-income individuals to the mainstream banking system. Under Section 1204, the Treasury Department can provide grants and other financial support to promote initiatives designed to enable such individuals to establish accounts in federally-insured depository institutions.

CFPB highlights bank account or service complaints in fifth monthly complaint report

By Barbara S. Mishkin on November 24, 2015

Posted in Deposit Accounts

The CFPB has issued its November 2015 complaint report, the fifth in its new series of monthly complaint reports. The new report highlights bank account or service complaints and complaints from consumers in Connecticut and the Hartford metro area.

General findings include the following:

As of November 1, 2015, the CFPB handled approximately 749,000 complaints nationally, including approximately 23,300 complaints in October 2015. For October 2015, debt collection continued to be the most complained-about financial product or service, representing about 28 percent of complaints submitted. (The CFPB stated that this was the 26th consecutive month in which it handled more complaints about debt collection than about any other type of complaint.) Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 66 percent of the complaints submitted in October 2015.
Complaints about prepaid cards showed the greatest percentage increase, increasing about 193 percent from the same time last year (August to October 2014 compared with August to October 2015). (In its Fall 2015 rulemaking agenda, the CFPB estimated that it expects to issue a final prepaid card rule in March 2016.)
Payday loan complaints showed the greatest percentage decrease, decreasing 20 percent from the same time last year (August to October 2014 compared with August to October 2015). Complaints during those periods decreased from 589 complaints in 2014 to 469 complaints in 2015. (Payday loan complaints also showed the greatest percentage decrease in the October 2015 complaint report.)
Idaho, Nebraska and Arkansas experienced the greatest complaint volume increases from the same time last year (August to October 2014 compared with August to October 2015). The volume of complaints from Idaho, Nebraska and Arkansas increased by, respectively, 66, 41 and 42 percent. The states with the greatest complaint volume decreases from the same time last year (August to October 2014 compared with August to October 2015) were Delaware, Alaska and Florida , with decreases of, respectively, 5, 12 and 1 percent.

Findings regarding bank account and services complaints include the following:

As of October 1, 2015, the CFPB handled approximately 73,300 bank account and service complaints, representing about 10 percent of total complaints.
Problems with account management (such as issues relating to opening and closing accounts and dispute resolution) and problems with deposits and withdrawals (such as issues relating to restricted access to funds, fund holds, and deposit cutoff times) were the most common complaints.
Other issues raised in complaints included difficulty in avoiding fees, such as monthly account management fees due to low balances, debit card replacement fees, check cashing, overdraft fees, excessive withdrawal fees, dormant account fees and ATM withdrawal fees.

Findings regarding complaints from consumers in Connecticut and the Hartford metro area include the following:

As of October 1, 2015, approximately 8,300 complaints were submitted by Connecticut consumers, of which about 2,500 were from Hartford consumers.
Mortgages were the most-complained-about product, with mortgage-related complaints representing 28 percent of the complaints submitted by Connecticut consumers.
Debt collection and credit cards were, respectively, the second and third most-complained-about financial products by Connecticut consumers.

Pew continues call for checking account arbitration ban and overdraft limits

By Barbara S. Mishkin on May 18, 2015

Posted in Arbitration, Deposit Accounts, Overdrafts

In its latest report evaluating the checking account practices of the nation’s largest banks, the Pew Charitable Trusts continues to press the CFPB to write new overdraft and other rules for checking accounts.

Pew’s new report, the third report in a series, examines the practices of 45 of the nation’s 50 largest banks by deposit volume and assesses trends among the 32 banks that have been reviewed in all three studies. (In the prior reports, which were released in 2013 and 2014, Pew evaluated, respectively, 36 and 44 of the 50 largest banks.)

Despite finding significant improvement in disclosure practices (with more banks using Pew’s “best practice summary disclosure box”), Pew states that “policymakers cannot simply wait for all financial institutions to adopt comprehensive practices which ensure that checking accounts are safe and transparent.” Pew wants the CFPB to write new rules “that require financial institutions to clearly disclose important account terms and conditions.”

The report shows an increase in the number of banks among the 32 banks reviewed in all three studies that do not have a binding arbitration provision in their checking account agreements. Nevertheless, Pew renews its recommendation that such provisions be eliminated from checking account agreements.

Pew’s finding that fewer banks had arbitration provisions in their checking account agreements is consistent with data in the CFPB’s March 2015 Study of consumer arbitration showing that only 7.7% of banks with 44% of insured deposits use arbitration clauses. This means that 92.3 of banks with 56% of deposits do not use arbitration. That data strongly undercuts Pew’s renewed recommendation that arbitration clauses be eliminated from deposit account agreements, since there is obviously abundant competition in the marketplace to accommodate checking account customers who prefer not to have an arbitration agreement. The CFPB’s data also undercuts the agency’s own conclusion that arbitration is a barrier to class actions. In addition, Pew’s recommendation is actually detrimental to consumers, since the data in CFPB’s Study conclusively demonstrates that arbitration is faster, cheaper and more beneficial for consumers than litigation, including class action litigation.

As it has done in previous reports, Pew seeks restrictions on overdraft fees without making any findings about the reasonableness of the amount of the overdraft fees charged by the banks it evaluated. Pew wants the CFPB to require overdraft fees to be reasonable and proportional to a financial institution’s costs in providing an “overdraft loan.” It also continues to push the CFPB for a rule that requires banks to post deposits and withdrawals “in a fully disclosed, objective, and neutral manner, such as in chronological order, which does not maximize overdraft fees.”

Although the CFPB has not yet made overdraft rulemaking a front burner issue, continuing pressure from Pew and other consumer groups for the CFPB to move forward with rulemaking could cause the CFPB to accelerate its rulemaking timetable.