FDIC Issues 2018 “Consumer Compliance Supervisory Highlights”

Financial Services Law

Improper overdraft fees and prohibited kickbacks were just two of many concerns identified by the Federal Deposit Insurance Corporation (FDIC) in its first-ever publication of “Consumer Compliance Supervisory Highlights” (“Highlights”).

What happened

The FDIC conducts hundreds of examinations of supervised institutions each year. The new “Highlights” provide important insight to understand, identify and mitigate risks from reoccurring issues discovered during those examinations. Historically, the FDIC issued a “Supervisory Insights” publication containing similar content, but the first-ever 2019 “Supervisory Highlights” more closely tracks the Consumer Financial Protection Bureau’s format for its own supervision reports. For examinations conducted in 2018, the FDIC keyed in on the following reoccurring issues:

  • Transaction Processing for Debit Card Overdraft Programs – The FDIC stated two concerns about the available balance method of assessing overdraft fees. First, the agency cautioned institutions to avoid imposing overdraft fees if the transaction results in a positive balance when authorized (an extra impermissible overdraft charge may occur under the common “available balance” method where an intervening transaction leads to a negative balance prior to settlement). Second, the FDIC noted that some institutions did not sufficiently disclose the manner in which their systems assessed overdraft fees such that a reasonable consumer could understand.
  • Prohibited Kickbacks to Service Providers – The FDIC noted that some institutions had attempted to disguise kickbacks to service providers prohibited by the Real Estate Settlement Procedures Act by paying above-market compensation for lead generation, marketing services, and office space or desk rentals. The agency recommended that supervised institutions provide training to executives and staff involved in mortgage lending operations and that regulated entities perform careful due diligence when considering new third-party lead generation relationships.
  • Mistakes Made During the Consumer Liability/Error Resolution Process of Regulation E – The FDIC noted several issues regarding supervised institutions’ treatment of electronic funds transfers (EFTs). First, the FDIC reiterated that where a consumer fails to provide notice of an unauthorized EFT within 60 days, the consumer is only liable for unauthorized debits from the day after the expiration of the initial 60-day notification period to the date of notification. Second, the FDIC identified three areas of concern about institutions’ Regulation E error resolution processes: (a) failing to begin investigations promptly upon notification; (b) failing to provide written notice upon completion of an error resolution investigation; and (c) improperly discouraging consumers from filing error resolution requests. The FDIC recommended that supervised institutions maintain error tracking logs that cover the various timing requirements of Regulation E to avoid these missteps.
  • Issues Related to “Skip-a-Payment” Loan Programs – In order to avoid potential unfair or deceptive practice concerns with “Skip-a-Payment” programs, the FDIC noted that entities offering this product should (1) make clear disclosures to consumers that skipping a payment may lead to paying additional interest over the life of the loan; (2) disclose that skipping a payment does not affect a real estate borrower’s obligation to make a monthly escrow payment; and (3) not assess a late fee in a month when a customer’s payment was skipped.
  • Inaccurate Finance Charge Calculation and Disclosures for Lines of Credit – The FDIC said that institutions offering consumer purpose lines of credit, such as home equity lines and unsecured personal lines, should take care to accurately calculate and properly disclose finance charges and APRs for such loans.

Why it matters

The FDIC’s publication of the “Highlights” suggests that the FDIC may have an increased focus on consumer compliance in the near future. Moreover, the issues raised in the “Highlights” are germane not just to the institutions the FDIC directly supervises, but also to other entities that partner with supervised institutions or offer similar products. For example, fintech companies that partner with banks supervised by the FDIC for lending platforms should also ensure that they have reviewed the “Highlights” and are following the FDIC’s guidance to the extent it applies to them.