The Latest FDIC Consumer Compliance Supervisory HighlightsA must-read for Compliance Officers!

5/3/2022 - By Sarah Oliver, CRCM

The latest issue of the FDIC’s Consumer Compliance Supervisory Highlights details issues identified during the agency’s approximately 1,000 exams completed in 2021. It includes aggregate citations as they relate to Level 3 and Level 2 violations. Level 3 violations present the very highest level of concern and may well lead to formal enforcement actions. The most frequently cited violations, listed below, represent 78% of the total violations cited.

  1. Truth in Lending Act (TILA): Regulation Z, requires that lenders “provide a loan estimate with the information required under Section 1026.37.” The FDIC cited 15 Level 3 and 573 Level 2, violations in 2021. Although the FDIC did not elaborate on specific violations, based on the regulatory mandates of Section 1026.37, it’s safe to assume that many could relate to good faith estimates and the disclosure of certain settlement providers.  
  2. Flood Disaster Protection Act (FDPA): Section 339.3(a) of the FDIC Rules and Regulations requires adequate food insurance to be in place at the time a covered loan is made, increased, extended or renewed (also known as MIRE events). Here the FDIC cited nearly half the number of TILA violations: 7 Level 3 and 281 Level 2. The publication does not elaborate on specific violations, but it does discuss noteworthy matters related to FEMA’s new pricing methodology, referred to as Risk Rating 2.0, as effective for new policies on October 1, 2021, and for renewal policies on April 1, 2022.  
  3. Electronic Fund Transfers Act (EFTA): Regulation E requires financial institutions to investigate allegations of electronic fund transfer (EFT) errors, determine whether an error occurred, report the results to the consumer and correct the error within certain timeframes. Although representing only 8% of total violations in 2021, statements related to third-party money payment platforms (MPP) like Cash App and Venmo, should give the industry cause for concern.  As stated, “When an MPP entered into an agreement with a consumer, that agreement extended to the financial institution holding the consumer’s account. The financial institution, as the account-holding institution, was held responsible under Regulation E. In addition, the MPP, through whose platform the EFT was made, was also held responsible, as it was considered a ‘financial institution’ under Regulation E. Both the financial institution and MPP have investigative and error resolution obligations under Regulation E and must comply with those obligations provided the consumer gives timely notice of an alleged error under section 1005.11(b).” It seems the FDIC is implying the account-holding institution and the MPP are both responsible, but how would this work in the real world? 
  4. Real Estate Settlement Procedures Act (RESPA): Section 1024.37(c) of Regulation X prohibits a loan servicer from assessing the borrower any premium charge or fee-related to force-placed hazard insurance until certain disclosure requirements have been met. At 7% of the total 2021 violations, the FDIC did not further elaborate on specific findings.
  5. Truth in Savings Act (TISA): Sections 1030.4(a) and (b) of Regulation DD, set forth timing and content requirements for deposit account disclosures. At 6% of the total 2021 violations, the FDIC did not elaborate on specific findings.

This particular edition is a treasure trove of information. It would make a great addition to Board or Committee packages with a general walk-through, verbally pointing out issues that potentially are applicable to your own institution. Even as someone well plugged into the industry, you may be met with a couple ‘ah’ or ‘whoa’ moments.  We encourage you to check out the discussions on conversions from static to dynamic overdraft limits, re-presentment of unpaid transactions and the “heightened risk” of unfair and deceptive acts or practices, and a new fair lending example of a neutral policy with a very unintended disparate impact.

If you have any questions regarding these cited violations, please reach out to me or our Financial Institutions team

Do you want to learn more about our Financial Institutions services? 
Click here for Banks and here for Credit Unions. 

About the Author | Sarah Oliver, CRCM

Sarah is a senior manager in the Financial Institution Advisory Group of Saltmarsh, Cleaveland & Gund. Her primary areas of expertise include providing compliance reviews, assisting with special research matters and consulting on deposit and lending-related regulations as well as marketing approaches for financial institutions. Other areas of expertise include FCRA and centralized compliance management systems. Prior to joining Saltmarsh, Sarah worked for small and large banks, gaining over a decade of experience through CFPB examinations and leading regulatory change and implementation teams.

Related Posts