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11.30.2022 | Legal Update

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1. CFPB Reminds Credit Bureaus and Furnishers of Their Obligations to Investigate Disputes
2. Fed Seeks Public Input on Proposal to Publish List of Banks With Master Accounts
3. CFPB Report on Crypto-Asset Complaints Emphasizes Prevalence of Fraud and Scams
4. Federal Reserve Publishes 2023 Fee Schedule for Payment Services
5. Other Developments: Mortgage Loan Servicing and FHLB Advances

1. CFPB Reminds Credit Bureaus and Furnishers of Their Obligations to Investigate Disputes

The CFPB has issued guidance on the obligations of both credit bureaus and furnishers of consumer credit information, including banks, to investigate and resolve consumer report disputes under the Fair Credit Reporting Act (“FCRA”). In the November 10 guidance, published in Consumer Financial Protection Circular 2022-07, the CFPB said that it has found that some furnishers have failed to conduct reasonable investigations of consumer disputes and to spend the time necessary to resolve alleged inaccuracies. The guidance reminds furnishers that FCRA requires both the credit bureaus and furnishers to conduct a reasonable investigation of all disputes filed by consumers about information furnished in consumer reports that are not frivolous or irrelevant. In particular, the guidance notes that the credit bureaus and furnishers cannot avoid their obligation to conduct reasonable investigations of disputes by making consumers satisfy demands other than those specified by statute or regulation. Consumer reporting companies and furnishers may be liable under FCRA if they fail to investigate relevant disputes, and claims can be pursued by both state and federal consumer protection enforcers and regulators. Click here for a copy of the guidance.

Nutter Notes:  The CFPB’s guidance includes examples of the types of impermissible demands that the credit bureaus and furnishers may not impose on consumers as prerequisite to performing investigations of disputes, such as requiring a consumer to provide a recent copy of the consumer report that contains the disputed information. If a consumer provides sufficient information to investigate the disputed information, a credit bureau or a furnisher may not avoid or delay the performance of a reasonable investigation by requiring a consumer to provide a recent copy of the consumer report that contains the disputed information. A credit bureau or furnisher also may not require a consumer to attach a complete proprietary form before investigating the consumer’s dispute. The guidance notes that FCRA obligates furnishers to reasonably investigate all indirect disputes received from credit bureaus even if the consumer does not include or use the credit bureau or furnisher’s preferred format, intake forms, or documentation.

2. Fed Seeks Public Input on Proposal to Publish List of Banks With Master Accounts

The Federal Reserve has released proposed amendments to its Guidelines for Evaluating Account and Services Requests that would require the Federal Reserve Banks to publish a periodic list of depository institutions with access to Federal Reserve accounts (commonly referred to as "master accounts") and to Federal Reserve payment services (i.e., whether the institution settles its transactions directly in its own master account or settles through a correspondent institution’s master account). The proposal published on November 4 would reverse the Federal Reserve’s longstanding practice of not disclosing account-related information to the general public on the basis that such information is considered confidential business information. However, the Federal Reserve indicated that it was prompted by the development and publication in August 2022 of the Account Access Guidelines to consider whether there may be benefits to expanding the disclosure of the names of institutions that have access to master accounts and payment services. Public comments on the proposal are due by January 17, 2023. Click here to access the proposal.

Nutter Notes: The Federal Reserve adopted the final version of its Guidelines for Evaluating Account and Services Requests on August 15, 2022. The guidelines establish a transparent, risk-based, and consistent set of factors for the Reserve Banks to use in reviewing requests from depository institutions to access master accounts or financial services. The guidelines also include a tiered review framework to provide additional clarity on the level of due diligence and scrutiny that Reserve Banks will apply when reviewing access requests from different types of institutions. The Federal Reserve’s adoption of the guidelines resulted from recent developments in novel charter types being authorized or considered by federal and state banking authorities for use by fintech companies that wish to access electronic payments systems directly. The Federal Reserve Banks reportedly have been receiving an increasing number of inquiries about access to master accounts and payments services from these companies that have obtained, or are considering obtaining, novel fintech charter types. In a related development, a federal court has ruled on November 11 that a crypto-asset focused, state-chartered bank whose application for a master account has been pending for more than 2 years could proceed with its lawsuit claiming that the Federal Reserve Bank of Kansas City engaged in “unreasonable delay” in processing the master account application.

3. CFPB Report on Crypto-Asset Complaints Emphasizes Prevalence of Fraud and Scams

The CFPB has released a new report summarizing its analysis of more than 8,300 complaints related to crypto-assets submitted to the CFPB from October 2018 to September 2022. Highlighting some of the risks associated with crypto-assets, the Complaint Bulletin published on November 10 noted that consumers most commonly reported being victimized by frauds, theft, account hacks, and scams. According to the report, frauds and scams were the main issues in about 40% of crypto-asset complaints since October 2018. Various transactional issues with crypto-assets accounted for about 25% of complaints, and issues with assets not being available when promised made up about 16% of complaints. The report also noted that several large crypto-asset platforms have recently either frozen customers’ ability to make withdrawals, filed for bankruptcy protection, or both, impacting millions of consumers. Click here for a copy of the report.

Nutter Notes: The CFPB’s report draws a distinction between crypto-assets and central bank digital currencies, both of which the report categorizes as digital assets. The report deals with complaints involving only crypto-assets, which it describes as “a private sector digital asset that depends primarily on cryptography and a distributed ledger (such as a blockchain) or similar technology.” The report suggests that there may be more than 1.8 million distinct types of crypto-asset tokens, of which a “non-trivial percentage” are designed to be scams. For example, some crypto-asset tokens are intentionally coded so that they can be purchased but not sold by the holder according to the report. The report also warned of firms misusing the name or logo of the FDIC or otherwise making misrepresentations to consumers about deposit insurance coverage of crypto-assets. Acting Comptroller of the Currency Michael J. Hsu referred to the CFPB’s report on crypto-asset complaints during his November 17 remarks at the Financial Literacy and Education Commission’s Public Meeting, describing the U.S. banking system as “more resilient, more fair, and more trustworthy” as compared with crypto-assets.

4. Federal Reserve Publishes 2023 Fee Schedule for Payment Services

The Federal Reserve has announced pricing for payment services the Federal Reserve Banks provide to banks, such as the clearing of checks, ACH transactions, and wholesale payment and settlement services. The new pricing released on November 3 will become effective on January 3, 2023. The Federal Reserve also announced the 2023 pricing for its new, real-time payments platform, the FedNow Service, which is expected to first become available to banks between May and July next year. According to the Federal Reserve, the final pricing for the FedNow Service is substantially similar to the anticipated pricing announced on January 27, 2022. Click here for a copy of the pricing schedule.

Nutter Notes:  Overall, the Federal Reserve estimates that the price changes for 2023 will result in a 2.9% percent average price increase. The Federal Reserve is required by law to establish fees for its payment services that will recover, over the long run, all direct and indirect costs and imputed costs, including financing costs, taxes, and certain other expenses, as well as the return on profit that would have been earned if a private-sector business provided the services. The Federal Reserve expects to recover 100.2% of actual and imputed expenses in 2023, including the return on equity that would have been earned if a private sector firm provided the services.

5. Other Developments: Mortgage Loan Servicing and FHLB Advances

• CFPB Flags Loan Servicer Misconduct in Misleading Consumers About Loan Modifications

The most recent edition of the CFPB’s Supervisory Highlights notes a trend in regulatory compliance deficiencies seen by examiners in which calls to home mortgage loan servicers where consumers who were delinquent on their loans and requested payment assistance received misleading advice from the servicers. According to the CFPB, some servicers stated that the consumers were “preliminarily approved” for loan modifications but had to make a payment equal to the standard monthly payment before the servicers would finalize the modifications. However, the servicers denied most of the modification requests after consumers made the requested payments. Click here for a copy of the Fall 2022 edition of the CFPB’s Supervisory Highlights.

Nutter Notes:  According to the CFPB, examiners found that servicers engaged in deceptive acts or practices in violation of the Consumer Financial Protection Act by representing to consumers that their loan modifications were preliminarily approved pending a “good faith” payment because it gave consumers the impression that if they made the requested payments, then they would likely have their loan modifications finalized. While these practices were employed by third-party loan services, the federal banking agencies generally expect banks to oversee compliance by third-party services providers, including their mortgage loan servicers.

• Banking Trade Groups Urge FHFA to Revise Tangible Capital Rule

Recently, dozens of banking trade groups, including the American Bankers Association (“ABA”), the Independent Community Bankers of America (“ICBA”), and the Massachusetts Bankers Association, petitioned the FHFA to amend its rules that allow advances by the Federal Home Loan Banks (“FHLBs”) only if the borrowing bank has positive tangible capital rather than positive Tier 1 capital. According to letters delivered to the FHFA on October 18, because of differences between the ways in which tangible capital is calculated versus Tier 1 capital since the federal banking agencies implemented the Basel III regulatory capital reforms beginning in 2013, the FHFA’s rules may prohibit an FHLB from making a new advance to a bank because the bank has negative tangible capital even if it is well capitalized under the federal banking agencies’ regulatory capital rules. Click here for a copy of the joint letter from the ABA and ICBA to the FHFA.

Nutter Notes:  FHFA rules prohibit an FHLB from making a new advance to an FHLB member bank if the bank does not have positive tangible capital unless the bank’s primary federal regulator requests in writing that the FHLB make such advance. As the joint letter from the ABA and ICBA points out, unrealized gains and losses on available for sale securities, which may be excluded from Tier 1 capital by all but the largest banks, must be included in tangible capital.  As a result, the current rising rate environment has reduced tangible equity for community banks, even though it has not affected Tier 1 capital, as described in the joint letter from the ABA and ICBA. The letters delivered to the FHFA on October 18 point out that the FHFA’s rules have not been updated since the federal banking agencies implemented the Basel III regulatory capital reforms beginning in 2013. 

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