Top Story Compliance Related

The CFPB has released a study revealing significant disparities in how lenders treat Black and white small business owners seeking loans. The research found that Black entrepreneurs received less encouragement to apply for a loan and were more frequently steered toward alternative loan products compared to white shoppers with similar or weaker business credit profiles. The Bureau said that, while focused on specific testing sites, this research provides insights into potential lending disparities that warrant further exploration.

The CFPB conducted matched-pair testing using trained individuals who posed as small business owners seeking credit. Testers visited 25 unique bank branches in Fairfax County, Virginia and 25 branches in Nassau County, New York, resulting in a total of 100 in-person test visits. Each visit was audio recorded and participants completed a survey after the bank interaction that documented their experience. Black participants were assigned slightly more favorable financial profiles compared to their white counterparts. In many tests, the Black and white participant each met with the same bank representative.

The study revealed statistically significant disparities in two key areas:

• Black participants received less encouragement to apply for a loan.
• Lenders were more likely to suggest credit cards and home equity loans to Black business owners.

The CFPB noted it finalized its Small Business Lending Collection and Reporting ("Section 1071") Rule in March. The largest lenders will be required to collection and report data on their lending decisions beginning in July 2025, and the CFPB will review their lending data starting in July 2026.

• Matched-Pair Testing in Small Business Lending Markets

FinCEN has issued FIN-2024-Alert004 to help financial institutions identify fraud schemes associated with the use of deepfake media created with generative artificial intelligence (GenAI) tools. The alert explains typologies associated with these schemes, provides red flag indicators to assist with identifying and reporting related suspicious activity, and reminds financial institutions of their reporting requirements under the Bank Secrecy Act (BSA). This alert is also part of the U.S. Department of the Treasury’s broader effort to provide financial institutions with information on the opportunities and challenges that may arise from the use of AI.

The Federal Trade Commission has announced a proposed settlement with H&R Block Inc. and affiliates that will require the company to make a number of changes for the 2025 tax filing season in addition to longer-term changes. The settlement would also require the company to pay $7 million to the FTC to be used to redress consumers harmed by the company’s unlawful practices.

The proposed settlement would stop H&R Block from unfairly requiring consumers seeking to downgrade to a cheaper H&R Block product to contact customer service, from unfairly deleting users' previously entered data and from making deceptive claims about “free” tax filing.

• FTC's record of filings in this matter

The CFPB has released a report, "State Consumer Privacy Laws and the Monetization of Consumer Financial Data," summarizing state laws that give consumers more control over their data, how these rights complement the protections under federal law, and the gaps in protection that result from state law exemptions for financial institutions subject to the Gramm-Leach-Bliley Act (GLBA) or the Fair Credit Reporting Act (FCRA).

The CFPB suggests that state policymakers should assess gaps in their state data privacy laws, and consider the importance of ensuring that their citizens are protected in instances where federal law currently has gaps or may be ineffective.

The Federal Reserve Board reports it has prohibited Anthony R. Gressak III from future participation in the banking industry and fined him $75,000.

Gressak is a former director and former interim chief executive officer of Nano Financial Holdings, Inc. and Nano Banc. In his former role, Gressak violated a prior written agreement between the firm and the Federal Reserve. Gressak also fraudulently obtained loans and grants administered under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and violated other laws and banking regulations.

The Board also announced that it had prohibited James T. Chung, also a former director of Nano Financial Holdings, Inc. and Nano Banc, from future participation in the banking industry for fraudulently obtaining loans and grants administered under the CARES Act.

The Treasury Department yesterday announced that OFAC has sanctioned Abdel Rahman Joma’a Barakallah for his leadership role in the Rapid Support Forces (RSF), a primary party responsible for the ongoing violence against civilians in Sudan since April 2023.

For identification information on Barakallah and a notice on amendments to OFAC's Sudan Sanctions Regulations, see yesterday's BankersOnline OFAC Update.

Today, FinCEN published [89 FR 89700] a 61-day notice in the Federal Register concerning the form that select real estate professionals will use to report information about certain residential real estate transfers under the Residential Real Estate Rule. This notice gives the public an opportunity to comment on the reporting form, and on FinCEN’s estimate of the burden involved in the reporting process. Comments will be accepted through January 13, 2025.

The Securities and Exchange Commission on Friday reported that it had charged Invesco Advisers, Inc. for making misleading statements about the percentage of company-wide assets under management that integrated environmental, social, and governance (ESG) factors in investment decisions. The Atlanta-based registered investment adviser agreed to pay a $17.5 million civil penalty to settle the SEC’s charges.

According to the SEC’s order, from 2020 to 2022, Invesco told clients and stated in marketing materials that between 70 and 94 percent of its parent company’s assets under management were “ESG integrated.” However, in reality, these percentages included a substantial amount of assets that were held in passive ETFs that did not consider ESG factors in investment decisions. Furthermore, the SEC’s order found that Invesco lacked any written policy defining ESG integration.

Without admitting or denying the order’s findings, Invesco also agreed to cease and desist from violations of the charged provisions and be censured.

The Federal Reserve Board has published [89 FR 88877] a final rule that applies an inflation adjustment to the threshold for total consolidated assets in Regulation I (12 C.F.R. Part 209). Federal Reserve Bank (Reserve Bank) stockholders that have total consolidated assets above the threshold receive a different dividend rate on their Reserve Bank stock than stockholders with total consolidated assets at or below the threshold (which is being increased to $12,841,000,000).

The amendments, which are effective today but will apply beginning on January 1, 2025, have been noted in affected sections of Regulation I in the BankersOnline Regulations webpages.

FinCEN has reported its September 2024 outreach efforts on its Beneficial Ownership Reporting Rule requirements.

The report also included a list of upcoming events at which FinCEN representatives are scheduled to further disseminate BOI reporting information through the end of the year.