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03.29.2024 | Legal Update

Headlines

1. New SEC Climate-Related Disclosure Rule Imposes Costly New Reporting Requirements
2. FDIC Proposes Revisions to its Statement of Policy on Bank Merger Transactions
3. CFPB Moves to Cut Excessive Credit Card Late Fees by Lowering Key Cap on Typical Fees
4. FDIC Publishes Summary of the Most Frequently Cited Consumer Compliance Violations
5. Other Developments: CRA Compliance and Consumer Protection

1. New SEC Climate-Related Disclosure Rule Imposes Costly New Reporting Requirements

The SEC has issued a controversial 886-page final rule imposing climate-related disclosure requirements on publicly traded companies, including banking organizations, which will require them to include certain climate-related information in annual reports and in most registration statements. The final rule approved on March 6 follows the convention used in an earlier proposed rule and adopts the terminology for greenhouse gas (GHG) emissions (e.g., “Scope 1”, “Scope 2”, and “Scope 3” emissions) used in the GHG Protocol—comprehensive global standardized frameworks to measure and manage GHG emissions created through a partnership between the World Resources Institute and the World Business Council for Sustainable Development. Complying with the SEC’s final rule will require a substantial commitment of time and resources by publicly traded companies and SEC registrants, though the regulatory burden will be less than it would have been under the reporting scheme originally proposed by the SEC. Click here to access our client advisory for a more detailed discussion of the climate-related disclosure requirements and to access a copy of the final rule.

Nutter Notes:  The final rule addresses climate-related risks in three respects primarily through the addition of Article 14 of Regulation S-X (financial statements) and Items 1500 through 1508 of Regulation S-K (disclosures outside of financial statements). The SEC adopting release for the final rule includes a table summarizing the phased-in compliance dates of the final rule. While the SEC’s final rule requires the first climate-related disclosures in 10-Ks filed by large accelerated filers for the fiscal year ending December 31, 2025, compliance deadlines may be delayed by lawsuits. At least 24 states, including Louisiana, Ohio, Texas, and West Virginia, and major business groups like the U.S. Chamber of Commerce are challenging the final rule in court, arguing that the SEC lacks clear authority to adopt the final rule and therefore the final rule violates the “major-questions doctrine” and asserting the final rule will only create more confusion and undermine investor confidence. Conversely, the Sierra Club, one of the largest environmental advocacy groups in the U.S., has filed a lawsuit arguing that the final rule does not go far enough to protect investors. All of the cases have been consolidated in the United States Court of Appeals for the Eighth Circuit.

2. FDIC Proposes Revisions to its Statement of Policy on Bank Merger Transactions

The FDIC has released for public comment a proposal to comprehensively overhaul its policy for evaluating bank merger transactions. Among other changes, the proposed Statement of Policy on Bank Merger Transactions published on March 21 would alter the ways in which the agency considers the potential anticompetitive effects of a merger transaction. For example, while the FDIC would still consider the impact of deposit concentration in relevant geographic markets, the importance of deposit concentration would be deemphasized by the consideration of other material factors, such as concentrations in other products or customer segments, like the volume of small business or residential loan originations. The proposed statement of policy also would ban non-compete agreements between a bank that divests branches or other business units in connection with a merger transaction and the employees of the divested business units in most circumstances. Public comments on the proposed statement of policy will be due 60 days after it is published in the Federal Register, which is expected shortly. Click here for a copy of the proposed statement of policy.

Nutter Notes:  The FDIC’s Statement of Policy on Bank Merger Transactions was last amended in 2008 to conform to amendments made to the Bank Merger Act by the Financial Services Regulatory Relief Act of 2006. The proposed statement of policy reflects legislative and other developments that have occurred since the 2008 amendments, including a more recent statutory requirement that the FDIC consider the risk to the stability of the United States banking or financial system when evaluating a bank merger transaction. The proposed statement of policy also reflects consideration of input received in response the FDIC’s March 2022 request for public comment on the FDIC’s bank merger policies. In 2022, the FDIC, OCC, and Federal Reserve each initiated reviews of various factors considered by the agencies when evaluating proposed bank merger transactions. The OCC is considering a new policy to increase the transparency of the standards that the agency applies to review business combinations involving national banks and federal savings associations that was proposed earlier this year. Separately, the U.S. Department of Justice is currently considered whether to update its bank merger guidelines, which provide a framework for evaluating the competitive effects of bank mergers.

3. CFPB Moves to Cut Excessive Credit Card Late Fees by Lowering Key Cap on Typical Fees

The CFPB adopted amendments to Regulation Z, which implements the Truth in Lending Act (TILA), to limit late fees charged by card issuers that together with their affiliates have one million or more open credit card accounts (Larger Card Issuers). The amendments released on March 5 reduce the credit card late fee safe harbor threshold from $32 to $8 for Larger Card Issuers and provides that annual inflation adjustments do not apply to the $8 threshold. TILA generally requires that late fees charged by credit card issuers, including banks, are “reasonable and proportional” to the late payment, and sets forth a safe harbor dollar amount for late fees. The amendments permit Larger Card Issuers to charge fees above the $8 safe harbor threshold if they can prove the higher fee is necessary to cover their actual collection costs. The amendments to Regulation Z will become effective 60 days after publication in the Federal Register, which is expected shortly. Click here for a copy of the final rule.

Nutter Notes: The CFPB indicated that it is ending the automatic inflation adjustment for the late fee safe harbor amount because it is not required by TILA and the CFPB believes that it does not necessarily reflect how collection costs change over time. The CFPB will instead monitor market conditions and amend Regulation Z from time to time to adjust the late fee safe harbor amount as necessary. The amendments to Regulation Z rule do not change the credit card issuer’s ability to raise interest rates, reduce credit lines, or take other actions to deter consumers from paying late. The CFPB said that it believes the amendments will increase the incentive for credit card companies to facilitate on-time payment, because it would lower incentives to build a business model on late fees.

4. FDIC Publishes Summary of the Most Frequently Cited Consumer Compliance Violations

According to an overview released by the FDIC of consumer compliance issues identified through its supervision of state non-member banks and thrifts in 2023, the violations most frequently cited in compliance exams included TILA compliance and Flood Disaster Protection Act violations. A description of the most frequently cited consumer compliance violations was included in the FDIC’s Spring 2024 edition of Consumer Compliance Supervisory Highlights issued on March 28. Also topping the list of most frequently cited consumer compliance issues were violations of the Electronic Fund Transfers Act (EFTA), the Truth in Savings Act (TISA), and unfair or deceptive acts or practices in violation of Section 5 of the Federal Trade Commission (FTC) Act. Notably, among the most frequently cited violations of Section 5 of the FTC Act were instances when banks charged multiple nonsufficient funds fees for the re-presentment of the same transaction, but consumer disclosures did not fully or clearly describe the bank’s re-presentment practice. Click here for a copy of the Spring 2024 edition of Consumer Compliance Supervisory Highlights.

Nutter Notes:  The FDIC’s report noted that, while TILA violations were among the most frequently cited during examinations in 2023, the natures of the violations were widely distributed among the various provisions of Regulation Z. However, violations of Section 1026.38(f) – (k) of Regulation Z, which requires a creditor to accurately disclose certain closing cost information on the Closing Disclosure, represented 9% of the total of all TILA violations cited. Nearly half of all cited violations of the EFTA involved failure to comply with Section 1005.11(c) of Regulation E, which implements the EFTA, and requires a bank to investigate allegations of electronic fund transfer errors, determine whether an error occurred, report the results to the consumer, and correct the error within certain timeframes. Violations of timing and content requirements for deposit account disclosures were among the more frequent TISA compliance problems noted by the FDIC.

5. Other Developments: CRA Compliance and Consumer Protection

• Federal Banking Agencies Extend Compliance Deadlines for New CRA Rules

The federal banking agencies jointly issued an interim final rule on March 21 that extends the applicability date of certain provisions in their Community Reinvestment Act (CRA) final rule issued in October 2023. The agencies extended the applicability date of the facility-based assessment areas and public file provisions from April 1, 2024 to January 1, 2026. Therefore, banks will not have to make changes to their assessment areas or their public files as a result of the 2023 CRA final rule until January 1, 2026. Click here for a copy of the interim final rule.

Nutter Notes:  The agencies also have requested comments on the extended applicability date of the facility-based assessment areas and public file provisions included in the 2023 CRA final rule. Public comments will be due 45 days after the interim final rule is published in the Federal Register, which is expected shortly.

• CFPB Issues Guidance on Rigged Comparison-Shopping Results for Credit Cards and Other Financial Products

The CFPB issued Consumer Financial Protection Circular 2024-01 on February 29 to clarify that operators of digital comparison-shopping tools or lead generators violate the Consumer Financial Protection Act (CFPA) when they preference products or services based on financial or other benefits to the operator. According to the CFPB’s guidance, steering consumers to certain financial products or services based on remuneration to the operator can violate the CFPA’s prohibition on abusive acts or practices. Click here for a copy of the CFPB’s guidance.

Nutter Notes:  The CFPB’s guidance also warned that lead generators can violate the CFPA’s prohibition on abusive practices if they steer consumers to one participating financial services provider instead of another based on compensation received. Banks involved in schemes to use rigged comparison-shopping tools or lead generators to improperly steer consumers to their credit cards or other financial products could be exposed to regulatory enforcement action under the CFPA.

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 Kadeem Apply and Heather F. Merton. The information in this publication is not legal advice. For further information, contact:

Kenneth F. Ehrlich kehrlich@nutter.com Tel: (617) 439-2989	Matthew D. Hanaghan mhanaghan@nutter.com Tel: (617) 439-2583	Michael K. Krebs mkrebs@nutter.com Tel: (617) 439-2288

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