Guidance on Overdraft Protection Practices

The FDIC, OCC and Federal Reserve have recently issued guidance on overdraft protection program practices, risk management, and representment. 

FDIC: Supervisory Guidance on Multiple Re-Presentment NSF Fees

OCC: Overdraft Protection Programs: Risk Management Practices

Federal Reserve: Supervisory Observations on Representment Fees

Also see The Gold Book for continuing updates:

Checking Accounts: Overdraft Protection Programs

Electronic Collection of Fees

FDIC launching new site for consumer compliance, CRA exam activities

New this month: The will launch a new Banker Engagement Site (BES) through FDICconnect for examination-related activities. The site will: Serve as the primary tool for exchanging documents, information, and communications for consumer compliance and Community Reinvestment Act examinations. Allow financial institutions’ authorized staff to communicate with FDIC exam staff and to respond to information and document requests made throughout the supervisory process. More: The FDIC’s existing tool to exchange exam information, the Enterprise File Exchange, will continue to be used for activity initiated prior to the availability of BES. FDIC exam management will inform financial institutions of the application that will be used for their exam during the transition to BES.

What's New? New 401(k) Catch-Up Contribution Rules for 2024

The SECURE 2.0 Act substantially changed retirement account rules. Some of these changes have already taken effect and have caused confusion. That’s been problematic for some older adults who need clarity on crucial retirement planning aspects, such as when to take required minimum distributions (RMDs).

Another concern is the upcoming changes to the rules governing catch-up contributions for 401(k) plans. These changes, which won’t be effective until 2024, will require catch-up contributions for higher-income earners to be made on a Roth basis. Read more HERE in The Gold Book. 

EEOC Proposes Regs For New Pregnancy Law

The U.S. Equal Employment Opportunity Commission recently unveiled proposed regulations for implementing the Pregnant Workers Fairness Act, a law enacted in late 2022 that requires employers to make reasonable changes in the workplace to help employees who have pregnancy-related limitations do their jobs.

Read more about the proposed rule on the EEOC website HERE.

What's New? SEC: Disclose Cybersecurity Incidents

The Securities and Exchange Commission (SEC) adopted final rules requiring disclosure of material cybersecurity incidents on Form 8-K and periodic disclosure of a registrant’s cybersecurity risk management, strategy, and governance in annual reports. Read more about SEC Registrant requirements in the Cybersecurity sub-chapter of The Gold Book. 

Diversity Policies and Practices

The FDIC issued a letter this week encouraging FDIC-supervised financial institutions to voluntarily conduct and submit self-assessments of their diversity policies and practices. The assessment is not part of the CRA examination requirement. Assessment responses are due back to the agency by September 30, 2023.

What's New? Pregnant Workers Fairness Act

On June 27, 2023, the Pregnant Workers Fairness Act (PWFA) went into effect. Under the PWFA, private and public sector employers with fifteen or more employees are required to provide a reasonable accommodation to a worker’s known limitation related to pregnancy, childbirth, and related medical conditions, unless the accommodation will cause the employer an undue hardship, which is defined as significant difficulty or expense for the employer. Read more about PWFA in the Human Resources chapter of The Gold Book. 

What's New? Real Estate Loan Accommodations & Workouts

Federal banking regulators have issued a final Policy Statement for Prudent Commercial Real Estate Loan Accommodations and Workouts that calls for financial institutions to work prudently and constructively with creditworthy borrowers during times of financial stress. The policy statement updates and replaces guidance issued in 2009 and includes a new provision on short-term loan accommodations. Read more about this topic in The Gold Book, Federal Laws and Regulations section.

What's New? NYC AEDT Compliance Date: July 5th

Starting Wednesday, July 5th,  employers in New York City must comply with Local Law 144 and Department of Consumer and Work Protection (DCWP) Rules regulating the use of Automated Employment Decision Tools (AEDT) found in software used during the application or promotion process.

Learn more about the NYC AEDT law in the Employee Selection section of the Human Resources chapter of The Gold Book. 

New York State DFS issues SOFR Final Rule

The New York State Department of Financial Services (“DFS”) announced its adoption of a Final Rule making permanent the provisions of an emergency rule in effect since January, 2022, and authorizing the use of the Secured Overnight Financing Rate (SOFR) as the benchmark for setting interest rates on certain variable rate, closed end personal loans and retail installment credit agreements.

Effective August 28: Amendments to Operating Circular 10, Lending

Effective August 28, 2023, the Federal Reserve Banks are amending Operating Circular 10, Lending. The revisions include a new Appendix 7: Discount Window Direct, which discusses the terms of use for Discount Window Direct, a new online application that will be forthcoming later this year. Additional updates include changes to allow the Reserve Banks and Borrowers to transact with documents in electronic form more easily. 

Please see the Operating Circulars page for more information, including the amended operating circular, a summary of changes and a redlined comparison document. Any questions can be directed to your local Reserve Bank.

What's New? Small Business Lending Rule

he CFPB issued guidance on how it intends to enforce the final rule on Section 1071 of the Dodd-Frank Act, which requires lenders to collect and report credit application data for small businesses, including women-owned and minority-owned small businesses. Read more about the Small Business Lending Rule in The Gold Book. 

What's New? Abandoned Property and Email

Financial institutions are required to report a deposit account as abandoned property if there has been no activity in the account or written contact from the customer evidencing that the customer is aware of the account for a period of three years. Published guidance from the Comptroller never specifically addressed whether receipt of an email from a customer or other electronic activity constituted sufficient written contact from the customer to reset the dormancy period. 

New regulations state that certain electronic activity does constitute sufficient contact to reset the dormancy period. The electronic activity cited in the regulation is the following:

(1) the receipt of electronic mail (email) communication from the entitled account holder of the property that matches the registered email address on record; or

(2) evidence that the entitled account holder has accessed their personal account through the electronic method made available by the holder of the property, including but not limited to, a website, mobile application, or any other reasonable electronic method.

Read more in the Abandoned Property chapter of The Gold Book

AI and Home Valuations

In conjunction with the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Administration, and Office of the Comptroller of the Currency, the CFPB is proposing a rule that would, if finalized, ensure that automated home valuations are fair and nondiscriminatory. 

Algorithmic appraisals that use so-called automated valuation models can be used as a check on a human appraiser or in place of an appraisal. Unlike an appraisal or broker price opinion, where an individual person looks at the property and assesses the comparability of other sales, automated valuations rely on mathematical formulas and number crunching machines to produce an estimate of value.

While machines crunching numbers might seem capable of taking human bias out of the equation, they can’t. Based on the data they are fed and the algorithms they use, automated models can embed the very human bias they are meant to correct. And the design and development of the models and algorithms can reflect the biases and blind spots of the developers. Indeed, automated valuation models can make bias harder to eradicate in home valuations because the algorithms used cloak the biased inputs and design in a false mantle of objectivity.

Inaccurate or biased algorithms can lead to serious harm. A home valued too high can lock a homeowner into an unaffordable mortgage and increase the risk of foreclosure. A home valued too low can deprive homeowners of access to their equity and limit the mobility of sellers. In addition to harming homeowners, systemic biases in valuations, either too low or too high, hurt neighborhoods, distort the housing market, and impact the tax base. When it comes to buying or selling a home, we all need and deserve fair and nondiscriminatory home valuations.

The proposed rule would, if finalized, create basic safeguards to mitigate the risks associated with automated valuation models. Covered institutions that employ these models to help make home value decisions would have to take steps to boost confidence in valuation estimates and protect against data manipulation. The proposed rule would also require companies to have policies and processes in place to avoid conflicts of interest, to conduct random sample testing and reviews, and to comply with nondiscrimination laws.

This proposal complements recent work by the CFPB and guidance is available here: guidance 

FDIC Guidance on Common Consumer Compliance Violations

The FDIC has issued supervisory guidance that highlights areas of consumer compliance concern for examiners, including Truth in Lending disclosure requirements, UDAAP violations involving multiple non-sufficient funds (NSF) fees for representment of the same transaction, and the Real Estate Settlement Procedures Act anti-kickback rule. The guidance included in the most recent edition of the FDIC’s Consumer Compliance Supervisory Highlights, released on April 5, provides an overview of the most frequently cited consumer protection violations cited by examiners during 2022. The guidance describes UDAAP violations resulting from the practice of charging multiple NSF fees for the same represented transaction as among the top regulatory areas of concern cited for violations. Click here to read the FDIC Guidance.

Agencies Issue Overdraft Guidance

The FDIC and OCC issued supervisory guidance on consumer compliance risks associated with bank overdraft protection programs.

 

Authorize Positive, Settle Negative: Both agencies address “authorize positive, settle negative” transactions, in which institutions assess overdraft fees on a transaction that was authorized against a positive balance but settled against a negative balance. The agencies say these transactions are unfair, cannot be reasonably avoided by the consumer, and pose risks of violating Section 5 of the Federal Trade Commission Act.

 

Re-presentment Fees: The OCC guidance also addresses re-presentment fees, in which institutions charge disclosed non-sufficient-funds fees for the same transaction when a merchant re-presents an ACH payment or check more than once after the transaction has been declined. The OCC guidance says disclosures may be deceptive if they do not clearly explain that multiple or additional fees may result from multiple presentments of the same transaction, while bank practices may also be unfair under Section 5 if consumers cannot reasonably avoid harm.

FDIC Supervisory Guidance on Multiple Re-Presentment NSF Fees

OCC Guidance on Overdraft Protection Programs

CFPB: Methodology for Determining Average Prime Offer Rates

The Consumer Financial Protection Bureau (CFPB) announced a revised version of its “Methodology for Determining Average Prime Offer Rates.” The revised methodology describes the calculations used to determine average prime offer rates (APOR) for purposes of federal mortgage rules. APORs are annual percentage rates derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage loans that have low-risk pricing characteristics.

The methodology statement has been revised to address the upcoming unavailability of certain data the CFPB previously relied on to calculate APORs. On or after April 21, 2023, the CFPB began using ICE Mortgage Technology data and the CFPB’s revised methodology to calculate APORs.

Notice of Availability of Revised Methodology for Determining Average Prime Offer Rates

Methodology for Determing Average Prime Offer Rates

Small Business Review Panel for Personal Financial Data Rights Rulemaking

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress directed the Consumer Financial Protection Bureau (CFPB) to adopt regulations governing consumers’ rights to access certain financial information. Section 1033 generally requires a covered person to make available to a consumer, upon request, information in the control or possession of the covered person concerning the consumer financial product or service that the consumer obtained from such covered person. The information must be made available in an electronic form usable by consumers.

The CFPB is now in the process of writing regulations to implement section 1033. Under the process established by Congress in the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), the CFPB is required to obtain feedback on the potential impacts of the proposals the CFPB is considering from representatives of small entities likely to be directly affected. For additional materials, see:

https://www.consumerfinance.gov/personal-financial-data-rights/

https://www.consumerfinance.gov/rules-policy/small-business-review-panels/

https://www.consumerfinance.gov/rules-policy/small-business-review-panels/small-business-review-panel-for-personal-financial-data-rights-rulemaking/

https://files.consumerfinance.gov/f/documents/cfpb_1033-data-rights-rule-sbrefa-panel-report_2023-03.pdf

What's New: IRA Changes for 2023 and Beyond

On December 29, 2022, the Consolidated Appropriations Act of 2023 (HR 2617) was signed into law. The Act includes important provisions affecting retirement savings plans which are intended to build upon the 2019 SECURE Act. These provisions, collectively referred to as SECURE 2.0, offer many new benefits to employers and employees which are designed to make it more attractive for employers to offer retirement plans and to improve retirement outcomes for employees.

The topics below are linked to updated sections of The Gold Book: 

RMD age increased to 73

RMD Penalty Reduced

Expanded Penalty Exceptions

Qualified Charitable Distribution Expansion

529 Rollovers to Roth IRAs

QLAC Premium Increases

Savers Credit Replaced by Savers Match

What's New? New NYS Check Cashing Law

Effective March 30, 2023 new Banking Law Section 9-Z requires New York State chartered financial institutions to cash certain checks drawn on the institution if certain conditions are met. Read more here in The Gold Book.