Financial Services Law

ADA’s Website Accessibility: Proactive Responses Banks Can Take Now

By Donald R. Brown

Plaintiffs’ law firms have recently been sending demand letters to banks of all sizes alleging that their websites violate the Americans with Disabilities Act (ADA), particularly with regard to accessibility of the websites to persons with visual impairments. The letters are often accompanied by a proposed settlement agreement that would require the bank to undertake remedial measures and, of course, to pay the law firm’s fees and costs. The proposed remedial measures typically include:

  • Making the website accessible consistent with prevailing (albeit nonregulatory) standards;
  • Adopting and maintaining a Web accessibility policy to ensure that the website remains accessible; and
  • Training for Web and content development personnel on accessibility programming, functionality and design.

While the ADA does not specifically require banks and other businesses to have accessible websites, some courts have found an implicit requirement. Also, the DOJ is expected to issue regulations in 2018 that will expressly require website and mobile app accessibility. It may therefore be easier, less expensive and smarter business to go ahead and ensure that your website is accessible now, rather than waiting to get threatened with a lawsuit. There are several ways to get started, depending on your IT management and the complexity of your website:

  • Have the bank’s internal IT team obtain website accessibility assessment software and perform a self-assessment. This is the least expensive option, but the self-assessment may not catch all of the accessibility issues, especially with complex websites.
  • If the bank contracts for IT issues, have the contractor do an accessibility assessment. This might be more expensive than the first option unless the contractor works on a fixed fee.
  • Have the bank retain an outside accessibility firm. This is generally the most reliable and comprehensive approach to website accessibility and is most likely to result in a set of website design guidelines that help to ensure ongoing accessibility. It generally would be the most expensive of the three options.

If a bank is in receipt of a website accessibility demand letter or suit, we encourage the bank to contact its insurance carrier to inform them of the claim and retain counsel experienced in these matters.

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CFPB Warns Financial Institutions About Incentives

Use caution when creating incentives for employees and service providers to meet sales and other business goals, the Consumer Financial Protection Bureau warned financial institutions in a new Compliance Bulletin.

What happened

Likely triggered by recent allegations tied to one of the nation’s largest banks– where employees allegedly opened bank accounts and other products without the knowledge or authorization of consumers in order to achieve sales goals—the Consumer Financial Protection Bureau (CFPB or the Bureau) published Compliance Bulletin 2016-03 to warn financial institutions about the risks involved in using incentives.

“Tying bonuses and job security to business goals that are unrealistic or not properly monitored can lead to illegal practices like unauthorized account openings and deceptive sales tactics,” CFPB Director Richard Cordray said in a statement. “The CFPB is warning companies to make sure that their incentives operate to reward quality customer service, not fraud and abuse.”

Programs tying outcomes to certain benchmarks abound in the financial industry, the CFPB acknowledged, and can provide benefits to stakeholders and the marketplace as a whole. “For instance, companies may be able to attract and retain high-performing employees to enhance their overall competitive performance,” the Bureau wrote in “Detecting and Preventing Consumer Harm from Production Incentives.” “Consumers may also benefit if these programs lead to improved customer service or introduce them to products or services that are beneficial to their financial interests.”

But when incentives are not properly implemented or monitored, the risks are significant, the CFPB said. According to the CFPB, consumer risks arise out of an unrealistic culture of high-pressure targets at financial institutions that can lead to overly aggressive marketing, sales, servicing, or collection tactics. These high quotas may incentivize employees to achieve a result without actual consent or by means of deception, the Bureau suggested, while paying more compensation for some types of transactions than for others could lead employees or service providers to steer consumers to transactions not in their interests.

“Depending on the facts and circumstances, such incentives may lead to outright violations of Federal consumer financial law and other risks to the institution, such as public enforcement, supervisory actions, private litigation, reputational harm, and potential alienation of existing and future customers,” according to the Bulletin.

The Bureau has taken action over the improper use of incentives by financial institutions, including 12 different cases of improper practices to market credit card add-on products (or retain consumers once enrolled in the products) where employees and service providers received incentives without proper controls in place, leading to deceptive marketing. Incentives also played a role in at least one matter where consumers were deceived into opting in to overdraft services, the CFPB said, as well as an enforcement action based on the opening of thousands of unauthorized deposit and credit card accounts to satisfy sales goals and earn financial rewards pursuant to bank incentives.

Reinforcing the CFPB’s expectations with regard to incentives, the Bulletin emphasizes the importance of a “robust” compliance management system (CMS) reflecting the risk, nature, and significance of the programs to which they apply. The strictest controls are necessary where incentives concern products or services less likely to benefit consumers, the Bureau noted.

An effective CMS typically includes board of directors and management oversight, including a culture of strong customer service related to incentives; policies and procedures (with reasonably attainable sales or collections quotas); training, featuring standards of ethical behavior and common risky behaviors to avoid; monitoring (especially of spikes and trends in sales and financial incentive payouts); corrective action that includes the termination of employees if necessary; a consumer complaint management program; and independent compliance audits.

“The CFPB expects supervised entities that choose to utilize incentives to institute effective controls for the risks these programs may pose to consumers, including oversight of both employees and service providers involved in these programs,” the Bureau wrote.

To read the CFPB’s Compliance Bulletin 2016-03, click here.

Why it matters

The CFPB is paying even more attention to incentive programs, and financial institutions should now re-examine their policies. While the Bulletin does not outright prohibit the use of sales incentives, the CFPB repeatedly cautions financial institutions about the dangers of such programs and the potential for enforcement action when incentives are not properly implemented and monitored. “The risks these incentives may pose to consumers are significant and both the intended and unintended effects of incentives can be complex, which makes this subject worthy of more careful attention by institutional leadership, compliance officers, and regulators alike,” the CFPB notes. “We thus will continue to invite further dialogue and discussion around the issues addressed in this Bulletin.” Violations can also present substantial reputational risk.

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Bank Must Pay Federal Reserve Almost $1M

A Pennsylvania bank reached a deal with the Board of Governors of the Federal Reserve System over Board-alleged violations of Section 5 of the Federal Trade Commission Act, agreeing to pay an almost $1 million civil penalty.

What happened

Higher One, Inc., of New Haven, Connecticut, provides institutions of higher education with financial aid disbursement services for students, including a deposit account and debit card product dubbed the “OneAccount.” As a nonbank entity, Higher One partnered with Customers Bank of Phoenixville, Pennsylvania, to offer OneAccounts beginning in August 2013.

But over the next four months, Higher One—and Customers Bank by extension—ran afoul of Section 5 of the Federal Trade Commission Act with deceptive marketing and advertising practices, according to the Board.

Specifically, the Board asserted that Higher One omitted material information about how students could obtain their financial aid disbursement without having to open a OneAccount, providing no information to students about alternative options to receive their disbursements such as ACH transfer to another bank or a paper check. The company similarly failed to provide material information about fees, features, and limitations of the OneAccount prior to requiring students to make a choice about the method of their financial aid disbursement, according to the Board.

Higher One also neglected to give students information about the locations and hours of availability for automated teller machines (ATMs) where students could access their disbursements at no extra charge, the Board said. In addition, the company prominently displayed the school logo on materials for the OneAccount, implying an endorsement by the educational institution that did not exist.

During the relevant time period, approximately 220,000 new OneAccounts were opened at the bank. Higher One and Customers Bank benefitted from students directing their financial aid refunds to the OneAccount instead of to an alternative bank account or paper check, the Board noted in a consent order with the bank, including income from fees paid by students in connection with the accounts. For example, Higher One charged a fee of 50 cents for using the debit card linked to the OneAccount as a point-of-sale purchase that was executed through the entry of a PIN, rather than by signature like a credit card, as well as a fee of 3.5 percent for withdrawing funds from a bank teller.

In December 2015, the Board took an enforcement action against Higher One, requiring the company to refrain from future violations of the FTC Act and provide restitution of roughly $24 million in fees to more than 500,000 students who opened accounts with Higher One while its website and marketing materials were deceptive. Those payments have now been “substantially completed,” the Board said, and Higher One took “material corrective action” to address its practices.

The Board then turned its sights to Customers Bank, which agreed to pay a $960,000 penalty. The bank also agreed to take “all action necessary to correct all violations of the FTC Act” and maintain future compliance with the statute. Further, the order to cease and desist mandates that the bank “shall not make, or allow to be made, any misleading or deceptive representation, statement, or omission, expressly or by implication, in the marketing materials, telemarketing scripts, sales presentations, websites, mobile applications, social media content, and/or any similar communications used to solicit any consumer in connection with any consumer or commercial deposit, lending, or other product or service that the Bank offers or may offer.”

A written plan to strengthen Customers Bank’s board of directors’ oversight of the compliance risk management program also must be submitted to the Board, along with progress reports.

To read the cease and desist and assessment of civil money penalty order in In the Matter of Customers Bank, click here.

Why it matters

The enforcement action serves as a reminder to financial institutions that the Board will hold banks responsible for the actions of their agents. In this case, Higher One’s violations of the FTC Act resulted in a cease and desist order requiring an updated compliance risk management program and civil money penalty of almost $1 million for Customers Bank.

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CFPB Acts Against Three Reverse Mortgage Companies

The Consumer Financial Protection Bureau entered into consent orders with three reverse mortgage companies alleging each committed deceptive advertising in connection with the marketing of their products.

What happened

According to the CFPB, American Advisors Group, Reverse Mortgage Solutions, and Aegean Financial misled consumers with claims about the alleged benefits and advantages of reverse mortgages while failing to disclose the risks of such arrangements.

The three lenders entered into consent orders alleging that they violated the Mortgage Acts and Practices Advertising Rule—which bans misleading claims in mortgage advertising—as well as the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on deceptive acts or practices, according to the Bureau.

The consent orders note that the largest reverse mortgage lender in the United States, California-based American Advisors Group, ran television ads almost daily and disseminated its information kit—containing a DVD and brochures about its products—to approximately 1 million consumers. Despite all of that information, the Bureau said the ads misrepresented that consumers could not lose their home under a reverse mortgage agreement and that they would have the right to remain in their home for the rest of their lives. The ads also informed consumers that they would have no monthly payments and would be able to pay off all their debts with a reverse mortgage.

But reverse mortgages still require payments and can result in default, the CFPB noted, with borrowers losing their homes if they fail to comply with loan terms and payment of property taxes, homeowners insurance, and property maintenance.

To settle the charges, American Advisors must make clear and prominent disclosures in its reverse mortgage advertisements of these facts and implement a program to ensure compliance with all applicable laws. The CFPB also charged the company a $400,000 civil penalty.

The CFPB alleges that similarly deceptive claims were made by Reverse Mortgage Solutions (RMS) of Texas, which marketed its products via television, radio, print, direct mail and the Internet, misrepresenting since 2012 that consumers would not lose their homes, could remain in their homes for the rest of their lives, would “always retain ownership,” and could not “be forced to leave.” Consumers were also promised that their heirs would inherit the home without the disclosure of any material conditions (such as a requirement that the heir repay the reverse mortgage or pay 95 percent of the assessed value).

RMS used other deceptive tactics to sell its reverse mortgages, the CFPB said, creating a false sense of urgency for borrowers. Potential customers were told that if they didn’t sign the agreement by the end of the day, their file would be turned down and “you will miss out on a tremendous money-saving opportunity.”

Pursuant to the consent order with the CFPB, RMS will pay a $325,000 civil penalty, implement a program to ensure compliance with all applicable laws, and make clear and prominent disclosures in its reverse mortgage advertisements.

In the final action, the Bureau alleged Aegean Financial also led consumers astray with deceptive marketing claims (in print, direct mail, radio, and the Internet) that consumers could not lose their homes, would have the right to stay in their homes for the rest of their lives, would have no payments with a reverse mortgage, and would not be subject to costs associated with refinancing a reverse mortgage.

Aegean also falsely affiliated itself with the government in Spanish-language advertisements, making statements such as, “if you are 62 years old or older and you own a house, we have good news for you; you qualify for a reverse mortgage from the United States Housing Department.” Any disclosures provided by Aegean were in “small type” or “rapidly recited” at the end of commercials, the CFPB added.

On top of a ban on implying affiliations with the government and payment of a $65,000 civil penalty, Aegean must maintain complete and accurate records of its advertisements, make clear and prominent disclosures in its reverse mortgage advertisements, and implement a program to ensure compliance with all applicable laws.

To read the consent order in In the Matter of American Advisors Group, click here.

To read the consent order in In the Matter of Reverse Mortgage Solutions, click here.

To read the consent order in In the Matter of Aegean Financial, click here.

Why it matters

The CFPB is paying close attention to reverse mortgage products and is increasingly dubious of reverse mortgage product claims despite their many advantages for elder Americans seeking to tap into their home equity. “These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,” Bureau Director Richard Cordray said in a statement about the actions. “All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products.” The CFPB noted that it has warned of the dangers of misleading and deceptive advertising for reverse mortgages since 2012, followed up by a 2015 study and Consumer Advisory warning. The actions also underscore the CFPB’s focus on the protection of the elderly from financial abuse, including through its Office of Older Americans.

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ABA Challenges NCUA With Lawsuit Over New Membership Rule

The American Bankers Association has challenged a new rule expanding credit union membership, filing suit in federal court to argue that the National Credit Union Administration has overstepped its congressionally mandated bounds.

What happened

On December 7, 2016, the National Credit Union Administration (NCUA) adopted a final rule expanding the universe of members eligible to join a single federally chartered credit union.

But the rule flies in the face of congressional intent and historic practice, the American Bankers Association (ABA) argued in a new complaint filed in Washington, D.C., federal court.

The Federal Credit Union Act (FCUA), 12 U.S.C. § 1751 et seq., authorizes the NCUA to charter three types of credit unions, distinguished by field of membership. The new rule concerns community common-bond credit unions, which are limited to “[p]ersons or organizations within a well-defined local community.”

Pursuant to the new rule, the NCUA declared a “well-defined local community” to include up to 2.5 million people in a “combined statistical area,” up to 2.5 million people in a “core-based statistical area,” and areas adjacent to well-defined local communities.

“The Final Rule permits credit unions to expand their tax-exempt operations at the expense of other financial institutions,” the ABA alleged, adding that multiple federally chartered credit unions are already planning to take “prompt advantage” of the rule change to expand the scope of their operations. According to the complaint, “ABA’s member banks compete with credit unions, and thus will suffer competitive injury as a result of provisions in the Final Rule that allow credit unions to serve larger areas and greater numbers of customers. This competitive injury, which flows directly from the Final Rule, would be redressed by a favorable court ruling.”

Federal credit unions receive significant tax and regulatory advantages over banks that compete with them for business, the ABA said, with an estimated $2.68 billion saved per year by credit unions because of the federal income tax exemption alone. ABA argues that because Congress granted credit unions highly favorable tax treatment, Congress also restricted the markets that they can serve to ensure they do not also receive an unfair competitive advantage over taxpaying banks.

Requiring that members share a common bond or community of interest is one of the primary limitations imposed by Congress, the ABA asserted. But the Final Rule “permits a single ‘community’ credit union to serve an area that is far larger than a single ‘local community’ or ‘rural district,’” the group said. For example, the Washington-Baltimore-Arlington, DC-MD-VA-WV-PA area has a population of more than nine million and includes the District of Columbia, most of Maryland, a large portion of Northern Virginia, three counties in West Virginia, and one county in Pennsylvania.

“No reasonable definition of ‘a well-defined local community’ could include so many different communities spread over such a large area,” the ABA contended. “The Final Rule thus permits NCUA to rubber stamp the expansion application of any credit union, paving the way for uncontrolled enlargement of credit unions beyond the ‘local community’ lines Congress required.”

The Final Rule also expanded the definition of a “rural district” by quadrupling the numeric limit, effectively permitting an entire state (such as Alaska and North Dakota, among others) to qualify as a single “rural district.” This change creates the potential for indefinite expansion, allowing a credit union to expand to any “immediately adjacent area” to geographic units, the ABA said.

This is not the first time the NCUA has attempted to impermissibly expand membership, the ABA told the court. Twice before the ABA has successfully challenged NCUA efforts to broaden membership, via charter expansions in Pennsylvania and Utah, both rejected by federal courts. See Am. Bankers Ass’n v. NCUA, 347 F. Supp. 2d 1061, 1069 (D. Utah 2004); Am. Bankers Ass’n v. NCUA, 2008 WL 2857678, at *10 (M.D. Pa. July 21, 2008).

The complaint seeks declaratory and injunctive relief enjoining the NCUA from granting approval of any federal credit union’s field of membership pursuant to the Final Rule.

To read the complaint in American Bankers Association v. National Credit Union Administration, click here.

Why it matters

If the Final Rule stands, the market share of community credit unions is likely to expand, perhaps exponentially. As the ABA noted in the complaint, the number of credit unions with more than $1 billion in assets more than doubled between 1995 and 2015 as the NCUA has gradually eased membership limitations. On the other hand, if the Final Rule falls, the status quo generally will be preserved without major reductions in the number or size of community credit unions based on membership criteria. Unless the court takes action, the Final Rule is set to take effect February 6, 2017.

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Fintech Advocacy Group Reaches Out To Trump

A financial technology advocacy group has reached out to President-elect Donald J. Trump, encouraging him to create a new position at the Treasury Department to support fintech. The position that the President-elect and his administration will take on financial technology is still unclear. As a result, advocacy groups are attempting to gain leverage on these important issues.

What happened

In a letter to President-elect Donald J. Trump, Financial Innovation Now (FIN) suggested the creation of an Undersecretary for Technology position in the Department of the Treasury to “ensure the growth of financial technology jobs in the U.S.” as well as “foster competition and innovation in financial services to better serve consumers and the economy.”

“Technology and the Internet are changing the way consumers and small businesses manage money, access capital, and grow commerce,” Executive Director Brian Peters wrote. “While America’s financial regulators and Congress have recognized this potential on a bipartisan basis, more leadership and federal coordination is necessary.”

Federal agencies have developed some initiatives and programs to enable innovation in financial services, the letter acknowledged—citing the Consumer Financial Protection Bureau’s Project Catalyst and the Office of the Comptroller of the Currency’s “Innovation Initiative”—but FIN advocated for the appointment of financial regulators who “value technology’s potential.”

“In particular, we encourage the appointment of a Treasury Undersecretary for Technology, responsible for developing a national vision and coordinated strategy to ensure America is the best country to create companies and grow jobs developing financial technologies; and work across all federal financial regulators to foster competition and innovation in an antiquated banking sector to better serve consumers and the economy,” the group wrote.

The Trump administration should also promote open, interoperable standards for card payment security, FIN said. “[I]ncumbent financial services companies are building closed and proprietary networks, which locks out innovation and diminishes the greatest potential security and fraud reduction methods,” according to the letter. “FIN urges your administration to scrutinize technological barriers to payment security innovation and explore authentication methods that are truly standards-based, open, and interoperable.”

Other priorities for the group include streamlined money transmission licensing so that payment innovators are not forced to obtain and update licenses in nearly every state, consumer access to financial accounts and data (via whatever application or technology they wish, without charges that favor any one application or technology over another), and small business access to capital via the Internet.

“Antiquated state lending rules did not contemplate Internet-based services, and these inconsistencies may actually hold back the availability of capital from main street businesses that need it most,” FIN said, recommending that the President-elect’s administration and Congress “streamline lending laws across state jurisdictions to account for the innovative lending market of today.”

The group also recommended setting a deadline for real-time payments. While check deposits and payments can take days to clear through the system in the United States, other countries have already achieved real-time payment, FIN wrote. “American consumers cannot afford delays in accessing their own money,” according to the letter. “FIN urges your administration to ensure the availability of real-time payment networks for all Americans by 2020 and ensure such networks are affordable and secure.”

Finally, FIN advocated for leveraging fintech to lower the amount of unbanked and underbanked households in the country, encouraging President-elect Trump “to promote technology and mobile financial services as a means to overcome old barriers to financial services.”

To read the letter, click here.

Why it matters

The financial technology advocacy group encouraged the Trump administration to create a unified, coordinated national strategy to address the growing fintech market. Under the leadership of a Treasury Department Undersecretary of Technology, President-elect Trump should embrace technology in the world of finance by achieving real-time payments, ensuring consumer access to financial accounts and data, and leveraging mobile technology to increase financial inclusion, FIN advocated.

It is possible that a dedicated Undersecretary of Technology will work more swiftly to implement the results of the Request for Information regarding the Marketplace Lending Industry that it completed in early 2016. However, being more of a policy agency than regulator, the impact of the Treasury Department under any President in modernizing the current charter and licensing process is questionable. We expect to see more activity from the Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and Federal Deposit Insurance Corporation in the coming year, with possible significant structural changes resulting from financial technology.

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