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Nutter Bank Report: December 2024
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- CFPB Imposes $5 Cap on Overdraft Fees Charged by Large Banks
- Federal Financial Regulators Issue Guidance on Elder Financial Exploitation
- Treasury Secretary Highlights Risks to Banking Sector at FSOC Meeting
- CFPB Issues Rule on Home Improvement Loans Paid Back Through Property Taxes
- Other Developments: FDIC Logo and Excess Balance Accounts
1. CFPB Imposes $5 Cap on Overdraft Fees Charged by Large Banks
The CFPB has adopted a final rule capping overdraft fees at $5 for banks and other depository institutions with more than $10 billion in assets (covered depository institutions). The final rule issued on December 12 permits covered depository institutions to either choose to cap overdraft fees at $5 or impose a fee based on its own calculations of total direct costs and charge-off losses for providing overdraft credit in the previous year using a standard set forth in the rule. According to the CFPB, the latter option is “not designed to allow a financial institution to turn a profit on” overdrafts. Covered depository institutions are permitted to offer optional overdraft lines of credit, which are not subject to the overdraft fee cap, by complying with applicable Truth in Lending disclosure requirements, including disclosure of finance charges. While the final rule does not apply to banks with $10 billion or less in assets, the overdraft fee cap applicable to large depository institutions may set consumer expectations for overdraft fees charged by all banks. The final rule will become effective on October 1, 2025. Click for a copy of the final rule.
Nutter Notes: The CFPB’s final rule on overdrafts fees amends both Regulation Z, which implements the federal Truth in Lending Act, and Regulation E, which implements the federal Electronic Fund Transfer Act. Among other things, the final rule eliminates an exception from the definition of finance charge under Regulation Z for any charges for credit extended to pay account overdrafts. The CFPB pointed out that other, similar consumer credit products are subject to Regulation Z. The CFPB explained that this exception “was evidently intended to allow banks to continue providing limited overdraft services as a courtesy to consumers who inadvertently overdrew their account, without the banks complying with Regulation Z.” The CFPB observed that the volume of overdrafts has risen dramatically along with the associated costs to consumers. The CFPB estimates that the final rule will amount to $5 billion in annual overdraft fee savings for consumers. The American Bankers Association and several state banking associations have filed a federal lawsuit in the U.S. District Court for the Southern District of Mississippi challenging the final rule.
2. Federal Financial Regulators Issue Guidance on Elder Financial Exploitation
The federal banking agencies, the CFPB, the NCUA, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), and state financial regulators, including the Massachusetts Division of Banks, have published guidance to banks and other financial institutions on preventing elder financial exploitation. The new guidance released on December 4 offers examples of risk management and other practices that may be effective in combatting elder financial exploitation. For example, the guidance suggests that policies that encourage “open lines of communication” among departments responsible for addressing unusual account activity, such as BSA compliance, fraud prevention, and consumer protection, can be effective at guarding against elder financial exploitation. The guidance also suggests that financial institutions consider how they may use transaction holds and disbursement delays to prevent consumer losses and respond to situations that may involve elder financial exploitation. Click to access the new guidance.
Nutter Notes: The new guidance on elder financial exploitation explains that elder financial exploitation refers to “the illegal use of an older adult’s funds or other resources for the benefit of an unauthorized recipient.” The new guidance recommends that financial institutions provide “clear, comprehensive, and recurring training for their employees on recognizing and responding to elder financial exploitation.” Such training may include identifying red flags for types of financial exploitation, methods for detecting and preventing elder financial exploitation, and outlining actions employees are expected to take if they have concerns about possible elder financial exploitation. The new guidance points out that federal law provides protection from liability to financial institutions and certain employees in civil or administrative proceedings when they disclose suspected elder financial exploitation to covered agencies, provided that the financial institution has timely trained its employees on identifying elder financial exploitation.
3. Treasury Secretary Highlights Risks to Banking Sector at FSOC Meeting
In recent remarks at a Meeting of the Financial Stability Oversight Council (FSOC), Secretary of the Treasury Janet Yellen highlighted risks to banks detailed in the FSOC’s 2024 Annual Report, including credit risk in commercial real estate (CRE). Secretary Yellen expressed at the December 6 meeting that more work needs to be done “to ensure that banks are prepared for liquidity stress by making sure that they have diverse sources of contingency funding and the capacity to borrow at the discount window.” The 2024 Annual Report noted that, of the $5.9 trillion in outstanding mortgage debt in the CRE sector as of the second quarter of 2024, half was held by banks. The 2024 Annual Report indicates that signs of stress in the CRE sector “became more pronounced in 2024 after recovering in 2021 and 2022 following the pandemic.” Click for a copy of the FSOC’s 2024 Annual Report.
Nutter Notes: As Secretary Yellen noted in her remarks, the FSOC’s 2024 Annual Report includes recommendations that the federal banking agencies ensure that depository institutions can access contingent liquidity facilities. The report also recommends that regulators encourage depository institutions to engage in effective liquidity management and planning, and that regulators consider adjustments to the current bank liquidity regulatory framework. The report also recommended that the Federal Home Loan Banks improve their member risk management systems. According to the report, market disruptions in March 2023 “exposed weaknesses in certain Federal Home Loan Banks’ member credit evaluations, including undue reliance on collateral protection to make or extend advances.”
4. CFPB Issues Rule on Home Improvement Loans Paid Back Through Property Taxes
The CFPB has adopted amendments to Regulation Z to apply existing residential mortgage protections to Property Assessed Clean Energy (PACE) loans. The amendments issued on December 17 implement Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Section 307 of the EGRRCPA directs the CFPB to prescribe ability-to-repay rules for PACE financing and to apply the civil liability provisions of the Truth in Lending Act for violations. The CFPB explained that PACE loans are used by homeowners for clean energy upgrades and disaster readiness that are paid back through their property tax bills. The amendments to Regulation Z require that PACE lenders deliver standard mortgage disclosures that allow borrowers to compare the cost of the PACE loan with other forms of financing. The amendments to Regulation Z will become effective on March 1, 2026. Click for a copy of the final rule.
Nutter Notes: According to the CFPB, PACE loans are often marketed to homeowners through door-to-door sales by a company who brokers financing and contracts for clean energy installation or other home improvements. The CFPB conducted research on PACE loans and found that most PACE borrowers are eligible for other forms of home improvement financing, often at lower rates than PACE loans. The CFPB also found that PACE loans caused borrowers’ property taxes to increase by about $2,700 per year, and that PACE borrowers were more likely to miss payments on their first mortgage than borrowers who chose not to finance home improvements with PACE.
5. Other Developments: FDIC Logo and Excess Balance Accounts
- FDIC Issues Guidance on Use and Misuse of the FDIC Name or Logo
The FDIC published new guidance on December 2 in the form of answers to frequently asked questions about FDIC official signs and advertising requirements. The new questions and answers cover implementation topics such as the use of the FDIC digital sign and placement of the FDIC official sign in bank branches. Click to access the new guidance.
Nutter Notes: The FDIC amended Part 328 of its rules in 2023 to modernize the regulations governing the official FDIC sign and advertising statements, and rules related to false advertising and misrepresentations regarding deposit insurance coverage, and misuse of the FDIC's name or logo.
- Federal Reserve Clarifies that Account Access Guidelines Apply to Excess Balance Accounts
The Federal Reserve on December 9 provided a technical clarification that its account access guidelines also apply to excess balance accounts, known as EBAs. The revised account access guidelines addressing EBAs will become effective upon its publication in the Federal Register, which is expected shortly. Click to access the revised guidelines.
Nutter Notes: An EBA is a limited-purpose account at a Federal Reserve Bank established for maintaining the reserve balances of eligible institutions. An EBA is managed by an agent on behalf of the participating institutions.
Nutter Bank Report
Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, after interviewing our clients and our peers in the profession, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. Visit the U.S. rankings at Chambers.com. The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Heather F. Merton. The information in this publication is not legal advice. For further information, contact:
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Michael K. Krebs Tel: (617) 439-2288 |
Matthew D. Hanaghan Tel: (617) 439-2583 |
Kate Henry Tel: (617) 439-2304 |
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
