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The first 2024 issue of Consumer Compliance Outlook has been released, and is available on the Federal Reserve System’s Consumer Compliance Outlook webpage. Included in this issue are articles on:

• Overview of Private Flood Insurance Compliance Requirements
• Consumer Compliance Requirements for Commercial Products and Services
• Compliance Spotlight: Resources to Combat Increased Check Fraud
• Recent Supervisory Data for Institutions the Federal Reserve Supervises
• and more

The CFPB on Tuesday published research that suggests consumers tend to pay more for products that have more complex pricing structures. The report is based on experiments with multiple rounds of buyers and sellers interacting in simple markets, and found that participants tended to pay more when prices were broken into sub-parts and were harder to understand. The research, said the CFPB, has implications for understanding how junk fees impede fair and competitive pricing in markets like auto loans or mortgages, where consumers have to evaluate extended warranties, add-ons, closing costs, and a wide variety of other fees instead of an all-inclusive price.

While not expected to exactly mirror real-world transactions, the CFPB found in these experiments that more complex pricing generally led to more detrimental outcomes for consumers:

• Higher total prices: Sellers' total asking prices were 60 percent higher in markets with 16 sub-prices than in those with one price.
• Comparing prices was more difficult: Buyers were 15 times more likely to select a higher-priced option in markets with 16 sub-prices than in those with one price.
• Consumers paid more overall: Transaction prices were 70 percent higher in markets with 16 sub-prices than in those with one price, on average.

The CFPB has previously highlighted how the use of complex terms and pricing can pose challenges for consumers. In many instances, consumers face complex pricing when shopping for financial products and services including credit cards, checking and savings accounts, mortgages, and auto loans.

• Price Complexity in Laboratory Markets

FinCEN reports it is offering a webinar on its YouTube channel this afternoon at 2 p.m. ET on Beneficial Ownership Information Reporting Requirements.

The FDIC has announced that Philadelphia-based Republic First Bank (doing business as Republic Bank) was closed Friday by the Pennsylvania Department of Banking and Securities, which appointed the FDIC as receiver. To protect depositors, the FDIC entered into an agreement with Fulton Bank, National Association of Lancaster, Pennsylvania to assume substantially all of the deposits and purchase substantially all of the assets of Republic Bank.

As of January 31, 2024, Republic Bank had approximately $6 billion in total assets and $4 billion in total deposits. The FDIC estimated that the cost to the Deposit Insurance Fund (DIF) related to the failure of Republic Bank will be $667 million. The FDIC determined that compared to other alternatives, Fulton Bank’s acquisition of Republic Bank is the least costly resolution for the DIF.

Republic Bank is the first U.S. bank failure this year; the last failure was Citizens Bank, Sac City, Iowa on November 3, 2023.

The FDIC has released a list of enforcement orders issued against FDIC-supervised institutions and institution-affiliated individuals that were issued in March 2024.

• First Fed Bank, Port Angeles, Washington, was assessed a $500,000 civil money penalty for UDAP and RESPA violations
• The Pitney Bowes Bank, Inc., Salt Lake City, Utah, was assessed a $6,098 penalty for failing to take the steps needed to allow the FDIC to debit an account at the bank to pay an FDIC assessment for the last quarter of 2023
• Danielle M. Desrosiers, former EVP of Independence Bank, East Greenwich, Rhode Island, was issued an order of prohibition after determining that she engaged or participated in violations of regulations, unsafe or unsound practices, and breaches of her fiduciary duties owed to the Bank in connection with loan applications submitted by one of the bank’s referral agents and breached her fiduciary duty by failing to document or disclose to the Bank her conflicts of interest with the referral agent.
• Carlene Bartley, formerly an operations specialist at Flushing Bank, Uniondale, New York, was issued an order of prohibition after determining that she embezzled $74,937 from three deceased customers' accounts
• River Bank & Trust, Prattville, Alabama, received a consent order from the FDIC and the State of Alabama Banking Department after the agencies concluded that the bank violated certain provisions of the Bank Secrecy Act and related federal and state regulations
• The Exchange Bank, Skiatook, Oklahoma, was issued a consent order by the FDIC and the Oklahoma State Banking Department for unspecified alleged unsafe or unsound banking practices and violations of law and/or regulations. The order directs the bank to take specific actions to improve its BSA/AML/CFT compliance program.

OFAC has posted a Notice that it has issued Russia-related General License 8I, "Authorizing Transactions Related to Energy."

The CFPB has issued a data spotlight report that shows that many banks changed their OD/NSF fee policies in 2022, and reported annual overdraft/NSF revenue has dropped by $6.1 billion since before the pandemic – a reduction of more than half – saving the average household who overdrafts $185 per year. This reflects a nearly $2 billion annual reduction in NSF fees, and a roughly $4 billion annual reduction in overdraft fees.

In 2023, overdraft/NSF fees were approximately $1.8 billion lower than in 2022, a 24% decrease. However, banks appear to have stopped significantly reducing overdraft fees, as their major policy changes have taken effect and further policy changes have slowed. Following five straight quarterly declines in overdraft/NSF revenue, such revenue remained flat across all quarters of 2023. Even with the substantial reductions in fees versus prior years, consumers paid over $5.8 billion in 2023 in reported overdraft/NSF fees. The report indicates that evidence continues to suggest that financial institutions are generally not increasing other checking account fees to compensate for reduced overdraft/NSF revenue. Across all reporting banks, combined account maintenance and ATM fees remained flat from 2019 to 2023.

The Bureau reports that, since the CFPB heightened its supervisory attention on overdraft and NSF fees in 2022, financial institutions have agreed to refund over $240 million to consumers—approximately $177 million in "unfair unanticipated overdraft fees" charged on transactions that were authorized when the consumer had sufficient funds, and approximately $64 million in NSF fees charged on the same transaction that already incurred an NSF fee when it was previously declined. This $240 million reflects $120 million that the CFPB previously announced in October 2023, and an additional more than $120 million that financial institutions have agreed to refund since the period covered by that announcement.

The FDIC Board of Directors yesterday released the first semiannual update of 2024 on the Restoration Plan for the agency’s Deposit Insurance Fund (DIF). Staff project that the reserve ratio remains on track to reach the statutory minimum of 1.35 percent ahead of the deadline of September 30, 2028.

As of December 31, 2023, the DIF reserve ratio was 1.15 percent, up from 1.11 percent as of June 30, 2023. The fund balance stood at $121.8 billion at the end of the year. Growth in the DIF balance in the second half of 2023 outpaced insured deposit growth, resulting in the increase of the reserve ratio.

On September 15, 2020, the FDIC established the Restoration Plan to restore the DIF reserve ratio to at least 1.35 percent by the statutory deadline, after extraordinary deposit growth during the first half of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35 percent. The Plan maintained the assessment rate schedules in place at the time.

On June 21, 2022, based on projections indicating that the reserve ratio was at risk of not reaching the required minimum by the statutory deadline, the FDIC Board amended the Restoration Plan. In conjunction with the Amended Restoration Plan, the FDIC Board increased deposit insurance assessment rates by 2 basis points for all insured depository institutions, effective in the first quarterly assessment period of 2023.

The Federal Deposit Insurance Act (FDI Act) requires that the FDIC Board adopt a restoration plan when the DIF’s reserve ratio—the ratio of the fund balance relative to insured deposits—falls below 1.35 percent.

The Treasury Department yesterday reported that OFAC has sanctioned over one dozen entities, individuals, and vessels that have played a central role in facilitating and financing the clandestine sale of Iranian unmanned aerial vehicles (UAVs) for Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL), which itself is involved in supporting Iran’s Islamic Revolutionary Guard Corps (IRGC) and Russia’s war in Ukraine.

For identification information on the individuals, entities, vessels, and aircraft that OFAC designated, see BankersOnline’s April 25, 2024, OFAC Update.

The Labor Department announced yesterday that it has issued a final rule that expands overtime pay protections by increasing the salary thresholds required to exempt a salaried bona fide executive, administrative or professional employee from federal overtime pay requirements.

Effective July 1, 2024, the salary threshold will increase to the equivalent of an annual salary of $43,888 and increase to $58,656 on Jan. 1, 2025. The July 1 increase updates the present annual salary threshold of $35,568 based on the methodology used by the prior administration in the 2019 overtime rule update. On January 1, 2025, the rule’s new methodology takes effect, resulting in the additional increase. In addition, the rule will adjust the threshold for highly compensated employees. Starting July 1, 2027, salary thresholds will update every three years, by applying up-to-date wage data to determine new salary levels.