June 2024

Consumer Financial Services Practice Digest

5 min

Legal and Regulatory Developments

CFPB to Launch Registry of Nonbank Enforcement Actions

In a move that's sure to make nonbank financial institutions even more uncomfortable, the Consumer Financial Protection Bureau (CFPB) has decided to shine a brighter light on those that have been alleged to violate consumer financial law. Effective September 16, 2024, the CFPB's Nonbank Registration of Orders Rule (creating 12 C.F.R. Part 1092) will require certain nonbank covered persons to report final public orders related to violations of consumer financial laws.

Drip Pricing, Surcharging, and the Push for "Total Price" Disclosures

One of the questions that remains uncertain among looming federal and state "junk fee" and "drip pricing" bans in 2024 concerns the impact these rules will have on credit card surcharges. Surcharges are added to sale transactions by some retailers when the buyer uses a credit card to make a purchase. Is this a mandatory fee that must be incorporated in the total price under the new laws? Or does the consumer's choice to use a credit card to pay make the convenience of paying by credit card an optional service or feature that need not be included in the advertised price?

Crystal Clear: New Guide on Third-Party Risk Management for Community Banks—and Others

It is no secret that the Federal Reserve, the FDIC, and the OCC have zeroed in on banks' use of third parties for products, services, and other operations, the risks those arrangements may pose, and banks' responsibility to properly manage those risks. Supervisory scrutiny and public enforcement actions since the 2023 spring bank failures, as well as the release of the final interagency guidance on third-party risk management (Original Guidance), all clearly demonstrate that trend (see our coverage here). We estimate that approximately one in four recent public enforcement actions against banks have expressly noted deficiencies in how the target institution managed third-party service provider risks.

What the CFPB's Supreme Court Victory Means for Financial Institutions

Until recently, the most popular topic of discussion in the financial services world has been the outcome of the Supreme Court case CFPB v. Community Financial Services Association of America, regarding the constitutionality of the CFPB's funding mechanism. The case was an existential threat to the CFPB, its enforcement litigation, open rulemakings, and the overall U.S. financial regulatory framework. Many financial institutions, consumer advocates, and legal experts alike were on edge, waiting to see if the CFPB's structure, specifically its funding independent of congressional appropriations, would withstand judicial scrutiny.

Fintechs, Novel Charters, and Fed Master Accounts—Of Elephants and Mouseholes

A U.S. District Court recently rejected arguments that banks and institutions with novel charters have a statutory right to obtain a Federal Reserve master account. Master accounts let institutions access key parts of the Federal Reserve's payments system. Entities that do not have master accounts generally need to have banking relationships with institutions that do have them, adding cost, friction, and other complexity to transactions. The court's decision stemmed from a lawsuit filed by Custodia Bank, which applied for a master account in October 2020 but was denied by the Federal Reserve Board of Kansas City. The court agreed with the Federal Reserve Board (Fed) that the Fed has the discretion to grant or deny master accounts.

The FDIC's Tougher Policy on Mergers—Why It Matters for Banks and Fintechs

The FDIC proposed revisions last month to its existing policy on how it evaluates merger transactions that require the FDIC's approval under the Bank Merger Act (BMA). The proposed policy outlines how the FDIC would evaluate these transactions under the BMA's statutory factors relating to competition, financial resources, the convenience and needs of communities, financial stability, and money laundering, as well as other considerations that reflect FDIC policies and goals.

CFPB Homes in on Mortgage "Junk Fees"

Recent releases from the Consumer Financial Protection Bureau (CFPB) show that the mortgage industry is in the crosshairs of the CFPB's campaign against so-called junk fees. Earlier this year, the CFPB indicated its interest in mortgage servicing fees when it, along with the Federal Trade Commission, filed an amicus brief in a case concerning whether payment convenience fees, what the Bureau calls "pay-to-pay" fees, are permissible when collecting mortgage loan payments. The CFPB argued that, unless the payment convenience fee was explicitly authorized by the mortgage agreements, payment convenience fees may not be charged by a mortgage servicer acting as a debt collector under the Fair Debt Collection Practices Act.

Irregular Time—A Quasi-Proposed Rule on Incentive-Based Compensation

For the third time, federal agencies have issued a proposed rule to regulate incentive-based compensation paid by certain financial institutions and other entities (the 2024 Proposal). The 2024 Proposal has been released by the FDIC, OCC, NCUA, and the Federal Housing Finance Agency. Section 956 of the Dodd-Frank Act, however, requires that six specific federal agencies issue a joint rule or guidance on incentive-based compensation. In the absence of the Federal Reserve and the SEC, the 2024 Proposal will not be published in the Federal Register for formal comment. The issuing agencies will accept comments on the draft version in the meantime. While the 2024 Proposal is not an actual proposal, entities that would be covered should note how the agencies' thinking on these issues may be evolving.

Potential Advertising Pitfalls for Consumer Financial Product and Service Providers

Venable attorneys Shahin Rothermel, Jonathan Pompan, and David McGee discussed some of the potential advertising pitfalls consumer financial service and product providers may face when advertising and marketing their products and how to avoid them.