On June 13, 2019, the FDIC released its first edition of Consumer Compliance Supervisory Highlights, the purpose of which is to increase transparency regarding the FDIC’s consumer compliance supervisory activities. The publication provides a high-level overview of the consumer compliance issues identified through approximately 1,200 consumer compliance examinations conducted in 2018 for non-member state-chartered banks and thrifts.

In describing these supervisory highlights, the FDIC noted that 98% of all FDIC-supervised institutions were rated satisfactory or better for consumer compliance. However, the FDIC brought 21 consumer compliance-related formal enforcement actions that included civil money penalties totaling approximately $3.5 million. The institutions subject to these formal enforcement actions paid approximately $18.1 million in required restitution and $4 million in voluntary restitution. The most frequently cited violations in 2018 included the Truth in Lending Act (Regulation Z), the Truth in Savings Act (Regulation DD), Electronic Funds Transfer (Regulation E), the Flood Disaster Protection Act, and the Equal Credit Opportunity Act/Regulation B.

In the publication, the FDIC discusses a number of areas in which it has found violations, including overdraft programs (unfair and deceptive acts or practices), mortgage loan referral payments to third parties (RESPA), electronic fund transfers (Regulation E), skip-a-payment loan programs (unfair or deceptive acts or practices), and finance charges and annual percentage rate (“APR”) calculations (Regulation Z). These findings are described below. In addition, the publication includes summaries of actions taken to mitigate the risks of violations.

According to the FDIC, the “most salient issues” identified in the 2018 supervisory examinations include:

  • Overdraft Programs: The FDIC found that some institutions used an available balance method to assess overdraft fees for any transaction that settles against a negative balance, even though the institution authorized the transaction based on sufficient funds available at the time of authorization. According to the FDIC, customers may have incurred unwarranted overdraft fees as a result of the available balance method, and some institutions did not appropriately disclose the available balance method to customers. The FDIC found that these practices violated consumer laws and regulations, including Section 5 of the Federal Trade Commission Act (“FTC Act”), which prohibits unfair and deceptive acts or practices.
  • RESPA Section 8 Violations: The FDIC also identified violations of the Real Estate Settlement Procedures Act (“RESPA”) when financial institutions paid illegal kickbacks disguised as marketing services, office space or desk rentals, and above-market payments for lead generation.
  • Regulation E Violations: Through its supervisory process, the FDIC also found that some financial institutions (i) incorrectly calculated consumers’ liability for unauthorized transfers; and (ii) violated Regulation E’s requirements for error resolution, including by failing to promptly initiate an investigation, discouraging customers from filing error resolution requests, and failing to provide notice that the financial institution completed the investigation.
  • Skip-a-Payment Loan Programs: In connection with “Skip-a-Payment” loan programs, the FDIC found that some institutions failed to adequately disclose that skipping a payment would lead to the accrual of additional interest. The FDIC also found that some institutions did not disclose that skipping a payment would not affect the customer’s escrow payment options. Finally, the FDIC found that some institutions assessed late fees for the month the customer’s payment was skipped. The FDIC found that these issues were unfair or deceptive acts or practices in violation of Section 5 of the FTC Act.
  • Finance Charges and APR Calculations: The last “salient issue” involved failures to properly disclose or accurately calculate finance charges or APRs, which resulted in finance charges and APRs that exceeded the tolerances under Regulation Z.