Published Article

FDIC Releases Consumer Compliance Supervisory Highlights

May 1, 2023

The FDIC has released its Consumer Compliance Supervisory Highlights for 2022, covering the 3,000+ state-chartered banks and thrifts the FDIC supervises, most of which are community banks that provide credit and services locally. The FDIC evaluates these “supervised institutions” for compliance with consumer protection, anti-discrimination, and community reinvestment laws, with a focus on laws and regulations that represent the greatest potential for consumer harm.

The most frequently violated laws and regulations, the percentage of total complaints, and the most frequently cited violation in each area were:

• TILA (35%): failure to disclose certain closing cost information on the Closing Disclosure.
• Federal Trade Commission Act (13%): engaging in an “unfair or deceptive act or practice” by charging multiple non-sufficient funds (NSF) fees for the re-presentment of the same transaction without giving adequate disclosure of that practice.
• Flood Disaster Protection Act (11%): failure to ensure that adequate flood insurance is in place at the time a covered loan is made, increased, extended, or renewed.
• Electronic Funds Transfer Act (7%): failure to adequately 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.
• Truth in Savings Act (7%): failure to comply with timing and content requirements for deposit account disclosures.

Other areas of concern to the FDIC were:

• “Lead generation services” that were actually prohibited referral arrangements.
• The use of “trigger leads” (a type of prescreened consumer report) without complying with requirements pertaining to prescreened reports, including failure to convey that (1) an offer of credit is being made, and (2) that the offer is guaranteed so long as the consumer continues to meet the credit criteria.
• For loans to servicemembers on active duty (which are capped at 6% interest), automatically crediting accrued excess interest to the principal balance, instead of giving the servicemember a choice among cash refund, applying it to current or future monthly payments, or applying it to past-due amounts.
• Credit discrimination involving redlining (including failure to place branches in majority-minority areas and a lack of marketing and outreach there), pricing for indirect automobile financing, and the use of “prohibited bases” in the credit decision process.

In 2022, the FDIC initiated twenty-one formal enforcement actions and ten informal enforcement actions, resulting in $1.3 million in monetary penalties. Institutions voluntarily paid $13.6 million to more than 61,000 consumers to resolve violations of various laws and regulations.

Reprinted with permission from the American Bar Association’s Business Law Today April Month-In-Brief: Business Regulation & Regulated Industries.