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Federal Reserve Financial Services yesterday released the results of studies indicating that U.S. businesses and consumers are rapidly adopting digital, faster and instant payment services, according to studies released today by Federal Reserve Financial Services. Digital wallet use saw especially strong growth in 2023 — efficiency-focused businesses increased their use by 31% over the prior year, and convenience-minded consumers experienced a 32% increase.

These changes, particularly consumers’ use of digital wallets and online banking, are leading to increases in instant and faster payment use cases such as bill payment, mobile wallet funding and defunding, account-to-account transfers, and immediate payroll for employees.

Overall, 86% of businesses and 74% of consumers said they used faster or instant payments in 2023, and most (74% of businesses and 79% of consumers) reported looking to their financial institution to provide these services. Other key findings:

• Younger consumers are leading the move to digital, faster and instant payments. More than half of Generation Z (ages 18-25) and millennials (26-41) now use digital wallets, and 80% of these younger consumers say it is important to be able to make payments by mobile device.
• One in four (25%) consumers are challenged by the slow speed of payments and prefer to have better options for instant money movement to help manage personal finances.
• Businesses are using faster/instant payments because it helps them reduce cost (48%) and provides flexibility to pay and be paid as customers prefer (39%). Additionally, 35% appreciate the 24/7 nature of instant payment services.
• Businesses say key use cases that benefit from instant payments include business-to-business (92%), business-to-person (71%) and account-to-account (40%). Many businesses also believe instant payments will be useful for digital wallet funding/defunding (50%) and earned wage access (25%).

Full reports:

• Business Research Brief
• Consumer Research Brief
  

The Federal Reserve Board has reported that First Citizens Bank of Butte, Butte, Montana, has entered into a formal agreement with the Federal Reserve Bank of Minneapolis and the Montana Division of Banking and Financial Institutions, to address deficiencies identified in the most recent examination of the bank conducted by the Division and the Reserve Bank relating to the bank's risk management and compliance with applicable federal laws, rules, and regulations relating to BSA/AML compliance.

The FDIC has released the report from the independent third-party review of allegations of sexual harassment and other interpersonal misconduct at the FDIC and management’s response to that harassment and misconduct, and the independent third-party assessment of the FDIC’s workplace culture. The independent third-party review was conducted by Cleary Gottlieb and overseen by the Special Committee of the FDIC Board of Directors.

As detailed in the report, the independent review found that, for far too many employees and for far too long, the FDIC has failed to provide a workplace safe from sexual harassment, discrimination, and other interpersonal misconduct. It further found that management’s responses to allegations of misconduct, as well as the culture and conditions that gave rise to them, have been insufficient and ineffective.

“Today’s report establishes the urgent imperative of a culture transformation at the FDIC led by those with the leadership capacity to effectuate that change,” said Special Committee co-chair Jonathan McKernan. “The report marks an important first step towards healing, repair, and sustainable change at the FDIC. Fostering an environment that promotes a safe, respectful, and inclusive workplace is fundamental to achieving the agency’s mission.”

Cleary Gottlieb was asked to conduct a review of allegations of sexual harassment and other interpersonal misconduct at the FDIC and management’s response to such harassment and misconduct, as well as the FDIC’s workplace culture. Cleary Gottlieb was not asked, nor did it assess, whether particular individuals within the FDIC, such as the Chairman, should be removed or otherwise disciplined for alleged misconduct. Any decisions on that subject can only be by those who have the requisite authority and following the appropriate process.

The U.S. Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), has announced it has extended its foreclosure moratorium for borrowers with FHA-insured mortgages in Maui County, HI, through January 1, 2025. FHA took this action due to the extent of the devastation from the wildfires, the reduced capacity for borrowers to access needed resources, and the unique challenges associated with the geographic location of Maui. The extension will provide affected borrowers more time to obtain federal, state, and local assistance, to work with a HUD-certified housing counselor, and/or to rebuild without the added burden of dealing with foreclosure actions. FHA’s foreclosure moratorium for Maui County has been in place for eight months and was set to expire on May 6, 2024.

With this extension, FHA is instructing mortgage servicers that they must not initiate new, or continue with existing, foreclosure actions on FHA-insured single family forward mortgages and Home Equity Conversion Mortgages for properties located in Maui County.

The May 3, 2024, issue of FDIC Consumer News has been posted, with an article on "Your Business, Your Deposits." The article includes sections on:

• Things to know about small business accounts
• Payments from customers
• Deciding on whether the separate consumer and business deposit accounts
• Varying protections for consumer versus commercial accounts
• Watching out for scams targeting businesses

OFAC has announced the formal launch of its new OFAC Sanctions List Service (SLS) application. SLS is now the primary application OFAC will use to deliver sanctions list files and data to the public.

SLS includes support for all OFAC legacy and modern sanctions list data files. While certain sanctions list data are now hosted within the SLS cloud, existing links to OFAC list files remain functional through URL redirects.

The Sanctions List Service application incorporates the traditional OFAC Sanctions List Search tool which will continue to be available at https://sanctionssearch.ofac.treas.gov/.

The CFPB has announced it has taken action against Chime Financial for failing to give consumers timely refunds when their accounts were closed. Thousands of consumers waited for weeks or even months for balance refunds after closing their accounts — a failure that inflicted significant financial harm on consumers who did not have access to critical funds to help make ends meet. In some cases, consumers had to seek expensive forms of credit to cover bills that were due. The CFPB’s order requires Chime to provide at least $1.3 million in redress to consumers it harmed, and pay a $3.25 million penalty into the CFPB’s victims relief fund.

Chime Financial is a nonbank company headquartered in San Francisco. The company partners with banks to offer financial products, including checking accounts, savings accounts, and credit cards. Chime has $1.5 billion in annualized revenue. Approximately seven million consumers make $8 billion in transactions using Chime cards each month. It is not publicly owned, and relies, in large part, on investments through venture capital firms.

In most instances, when consumers’ checking and savings accounts are closed, Chime automatically refunds remaining balances by check. Until 2021, Chime’s policy, reflected in consumer account agreements, was to process and mail refund checks within 14 days of an account’s closure. But the CFPB found that Chime:

• Failed to timely provide consumer refunds: Chime failed to issue consumer refunds within the 14 days promised by its policy, including thousands of instances in which Chime did not get refunds to consumers within 90 days.
• Deprived consumers of needed funds to meet their responsibilities: Chime’s slow response in returning consumer funds prevented thousands of consumers from accessing their money – sometimes for months on end. Consumers who did not have access to their funds were often unable to pay for basic living expenses, and likely had to use or search for expensive credit alternatives, such as credit cards or payday loans.

Under the CFPB’s order (click HERE), Chime must:

• Pay at least $1.3 million in redress: Chime must pay at least $1.3 million in redress to harmed consumers. Generally, a harmed consumer will receive at least $150 in redress if, after 14 days from account closure, they still had a minimum unrefunded balance of $10.
• Pay $3.25 million in penalties: Chime will pay $3.25 million in penalties to the CFPB’s victims relief fund.
• Provide timely refunds: Chime must come into compliance with the law, including providing refund checks on closed accounts within a reasonable period.

The Federal Reserve Board has released the results of its April 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices, which addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally correspond to the first quarter of 2024.

Regarding loans to businesses, survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to firms of all sizes over the first quarter. Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.

Banks also responded to a set of special questions about changes in lending policies and demand for CRE loans over the past year. For all CRE loan categories, banks reported having tightened all queried lending policies, including the spread of loan rates over the cost of funds, maximum loan sizes, loan-to-value ratios, debt service coverage ratios, and interest-only payment periods.

For loans to households, banks reported that lending standards tightened across some categories of residential real estate (RRE) loans while remaining unchanged for others on balance. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Moreover, for credit card, auto, and other consumer loans, standards reportedly tightened and demand weakened.

While banks, on balance, reported having tightened lending standards further for most loan categories in the first quarter, lower net shares of banks reported tightening lending standards than in the fourth quarter of last year across most loan categories.

On Tuesday, the United States designated Dmitry Yuryevich Khoroshev, a Russian national and a leader of the Russia-based LockBit group, for his role in developing and distributing LockBit ransomware. This designation is the result of a collaborative effort with the U.S. Department of Justice, Federal Bureau of Investigation, the United Kingdom’s National Crime Agency, the Australian Federal Police, and other international partners.

Concurrently, the Department of Justice is unsealing an indictment and the Department of State is announcing a reward offer for information leading to the arrest and/or conviction of Khoroshev. The United Kingdom and Australia are also announcing the designation of Khoroshev.

For identification information on Khoroshev, see BankersOnline’s May 7, 2024, OFAC Update.

The Securities and Exchange Commission has announced it has charged audit firm BF Borgers CPA PC and its owner, Benjamin F. Borgers, with deliberate and systemic failures to comply with Public Company Accounting Oversight Board (PCAOB) standards in its audits and reviews incorporated in more than 1,500 SEC filings from January 2021 through June 2023. The SEC also charged the Respondents with falsely representing to their clients that the firm’s work would comply with PCAOB standards; fabricating audit documentation to make it appear that the firm’s work did comply with PCAOB standards; and falsely stating in audit reports included in more than 500 public company SEC filings that the firm’s audits complied with PCAOB standards.

To settle the SEC’s charges, BF Borgers agreed to pay a $12 million civil penalty, and Benjamin Borgers agreed to pay a $2 million civil penalty. Both Respondents also agreed to permanent suspensions from appearing and practicing before the Commission as accountants, effective immediately.

• SEC Order

The FDIC has released its May 2024 list of banks examined for CRA compliance. Of the 56 banks listed, one headquartered in Salt Lake City, Utah, that "focuses its lending efforts on financing tiny homes" and "did not lend in its assessment area" received a "Substantial Noncompliance" rating. Another bank, headquartered in Rhinebeck, New York, received a "Needs to Improve" rating. Fifty-two of the banks earned "Satisfactory" ratings.

We congratulate First Bank of the Lake, Osage Beach, Missouri, and Union Bank, Morrisville, Vermont, for receiving evaluation ratings of "Outstanding."

The FDIC, OCC and Federal Reserve Board have jointly announced their issuance of a guide to support community banks in managing risks presented by third-party relationships.

Third-party relationships present varied risks that community banks are expected to appropriately identify, assess, monitor, and control to ensure that their activities are performed in a safe and sound manner and in compliance with applicable laws and regulations. These laws and regulations include, but are not limited to, those designed to protect consumers and those addressing financial crimes.

The guide offers potential considerations, resources, and examples through each stage of the third-party relationship and may be a helpful resource for community banks. While the guide illustrates the principles discussed in the third-party risk management guidance issued by the agencies in June 2023, it is not a substitute for that guidance.

• Third-Party Risk Managment: A Guide for Community Banks
• OCC Bulletin 2024-11
• FIL-20-2024

The FDIC, Federal Housing Finance Agency, NCUA, and OCC have issued a Joint Press Release announcing that the FDIC, the OCC, and the FHFA have adopted a Notice of Proposed Rulemaking (NPR) to address incentive-based compensation arrangements, as required under section 956 of the Dodd-Frank Act (section 956). The NCUA is expected to take action on the NPR in the near future. The U.S. Securities and Exchange Commission (SEC) has included a rulemaking to implement section 956 on its rulemaking agenda. This NPR is intended to advance stakeholder engagement needed to develop a final incentive-based compensation rule.

The NPR re-proposes the regulatory text previously proposed in June 2016, and seeks public comment in the preamble on certain alternatives and questions.

Section 956 requires the appropriate Federal regulators—the FDIC, the Board of Governors of the Federal Reserve System (FRB), the OCC, the NCUA, the FHFA, and the SEC—to jointly prescribe regulations or guidelines with respect to incentive-based compensation practices at certain financial institutions that have $1 billion or more in assets. Once the NPR is adopted by all six agencies, it will be published in the Federal Register with a comment period of 60 days following publication. Until then, each agency acting on the NPR will make it available on their respective website, and will accept comments. If any of the six regulators specified by section 956 fails to join in the rulemaking, the rulemaking will not go forward.

The proposed rule includes prohibitions intended to make incentive-based compensation arrangements more sensitive to risk. These include a prohibition on incentive-based compensation arrangements that do not include risk adjustment of awards, deferral of payments, and forfeiture and clawback provisions. The prohibitions also emphasize the important role of sound governance and risk management control mechanisms. These prohibitions would help safeguard covered institutions from the types and features of incentive-based compensation arrangements that encourage inappropriate risks. The recordkeeping and disclosure requirements in the proposed regulatory text would assist the appropriate Federal regulator in monitoring and identifying areas of potential concern at covered institutions.

Comments received on this NPR and those previously submitted on the 2016 NPR will further inform efforts to address incentive-based compensation arrangements, as required under section 956.

The Federal Reserve Board has requested comment on a proposal to expand the operating days of the Federal Reserve Banks' two large-value payments services to include weekends and holidays, so that they would operate every day of the year.

Currently, both the Fedwire Funds Service and the National Settlement Service, or NSS, operate Monday through Friday, excluding holidays. Under the proposal, both services would operate every day of the year. The operating hours each day would remain the same, with the Fedwire Funds Service open 22 hours per day, and NSS open 21.5 hours per day. Use of the expanded operating days by service participants, such as banks and credit unions, would be voluntary.

The Fedwire Funds Service is a wholesale payment service that allows service participants to send and receive individual electronic funds transfers up to $10 billion. The NSS is a settlement service for participants in private-sector clearing arrangements, such as check clearinghouses, a private-sector automated clearinghouse network, and securities settlement systems. The proposal does not include changes to the Fedwire Securities Service or the Federal Reserve's new retail service for instant payments, the FedNow Service.

Comments on the proposal will be accepted up to 60 days after publication in the Federal Register.

• Fed staff memo to Board of Governors
• UPDATE: Scheduled for publication on 5/9/2024, with a comment period ending 7/8/2024
• FURTHER UPDATE: The Fed Board has announced it is extending the comment period, which will now end on 9/6/2024.

The CFPB has announced actions taken yesterday against Pennsylvania Higher Education Assistance Agency (PHEAA) and National Collegiate Student Loan Trusts (the Trusts) for multi-year servicing failures. Trusts purchase and securitize student loans, and PHEAA services the loans. The CFPB alleges that the defendants failed to respond to borrowers seeking relief from student loan payments, including during the COVID-19 national emergency. The CFPB yesterday filed proposed stipulated final judgments, which, if entered by the court, would require the Trusts and PHEAA to pay $400,000 and $1.75 million in penalties, respectively, to the CFPB’s victims relief fund. They would also pay nearly $3 million in redress to harmed borrowers.

During the leadup to the financial crisis, there was a boom in subprime-style student lending. Student lenders worked with investment bankers to turn student loans into securities. The National Collegiate Student Loan Trusts were an infamous example of this type of securitization. They are a group of fifteen securitization trusts organized under Delaware law. The Trusts acquire, pool, and securitize student loans, which they then service. As of February 2024, the Trusts collectively held approximately 163,000 private student loans with approximately $907 million in outstanding balances.

Pennsylvania Higher Education Assistance Agency, which is commonly known as American Education Services or AES, is a student loan servicer with its principal office in Harrisburg, Pennsylvania. As of December 2023, PHEAA serviced a portfolio of student loans worth roughly $17.8 billion. It has been the primary servicer for active loans held by the National Collegiate Student Loan Trusts since at least 2006.

This is the CFPB’s second public enforcement action against the National Collegiate Student Loan Trusts. The CFPB earlier filed a lawsuit against this web of investment vehicles alleging, among other things, that the Trusts brought improper debt collection lawsuits for private student loan debt that they could not prove was owed or that was too old to sue over. The Trusts claimed that, as trusts, they were not covered under the Consumer Financial Protection Act. In March 2024, the United States Court of Appeals for the Third Circuit ruled the National Collegiate Student Loan Trusts are covered persons under the Consumer Financial Protection Act. That case remains pending in federal court.

In yesterday's case, the CFPB alleges that the defendants violated the Consumer Financial Protection Act. The CFPB’s complaint alleges that from 2015 until 2021, thousands of borrower requests—often seeking forms of payment relief—went unanswered. These included requests for co-signer release, extension of forbearance or deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits, or other forms of payment or interest rate reduction.

The defendants failed to properly respond to borrower requests for years, including during the COVID-19 pandemic. Thousands of borrowers sent requests during the pandemic seeking forbearance on loans held by the National Collegiate Student Loan Trusts. However, many of those requests were mishandled. Specifically, the defendants harmed consumers by:

• Failing to ensure responses to borrower requests
• Failing to provide accurate information to borrowers
• Incorrectly denying forbearance requests

If entered by the court, the orders would require:

• Payment of nearly $3 million in redress to borrowers
• Correct outstanding requests
• Pay fines totaling $2.15 million

RELATED DOCUMENTS:

• The CFPB's Complaint
• Proposed Stipulated Final Judgment and Order as to the National Collegiate Student Loan Trusts
• Proposed Stipulated Final Judgment and Order as to Pennsylvania Higher Education Assistance Agency

Yesterday, the Department of the Treasury reported that OFAC has designated five individuals for helping U.S.-designated Hizballah money exchanger Hassan Moukalled (Moukalled) and his company, CTEX Exchange, evade sanctions and facilitate illicit activities in support of Hizballah. These individuals, including two co-founders of CTEX Exchange and two of Moukalled’s sons, operate two companies in Lebanon and the United Arab Emirates (UAE) that were concurrently designated. Individuals and entities targeted yesterday were designated pursuant to Executive Order (E.O.) 13224, as amended, which targets terrorist groups, their supporters, and those who aid acts of terrorism.

For the names and identification information of the designated parties, see the May 2, 2024, BankersOnline OFAC Update.

The Office of the Comptroller of the Currency (OCC) yesterday released a list of CRA performance evaluations that became public in April. The list contains only national banks, federal savings associations, and insured federal branches of foreign banks that have received ratings. The possible ratings are outstanding, satisfactory, needs to improve, and substantial noncompliance.

Of the 13 evaluations made public in April, one located in Los Angeles, California, is rated needs to improve, 11 are rated satisfactory, and one is rated outstanding. We congratulate MidFirst Bank, Oklahoma City, Oklahoma, on its outstanding CRA rating.

The Department of Housing and Urban Development has announced its release of two guidance documents addressing the application of the Fair Housing Act to two areas in which the use of artificial intelligence poses particular concerns: the tenant screening process and its application to the advertising of housing opportunities through online platforms that use targeted ads.

The tenant screening guidance describes fair housing issues created by tenant screening practices, including the increasing use of third-party screening companies to aid with tenant screening decisions and the emerging use of machine learning and artificial intelligence. The guidance also suggests best practices for fair, transparent, and non-discriminatory tenant screening policies, for both housing providers and companies that offer tenant screening services.

Advertisers and online platforms should be alert about the risks of deploying targeting advertisement tools for ads covered by the Fair Housing Act. Violations of the Act may occur when certain ad targeting and delivery functions unlawfully deny consumers information about housing opportunities based on the consumers’ protected characteristics. Violations of the Act may also occur when ad targeting and delivery functions are used, on the basis of protected characteristics, to target vulnerable consumers for predatory products or services, display content that could discourage or deter potential consumers, or charge different amounts for delivered advertisements.

The Federal Housing Finance Agency has issued its annual report on single-family guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises). Guarantee fees are intended to cover the expected credit losses, administrative costs, and cost of capital that the Enterprises incur when they acquire single-family loans from lenders. The report analyzes loans acquired by the Enterprises in 2022 by product type, risk class, and lender delivery volume, including a comparison to similar data from loans acquired in 2021.

Significant findings in the report indicate:

• For all loan products combined, the average single-family guarantee fee increased by 4 basis points to 61 basis points in 2022. The upfront portion of the guarantee fee, which is based on credit risk attributes (e.g., loan purpose, loan-to-value ratio, credit score), increased by 3 basis points to 17 basis points, on average, in 2022. The increase in upfront fees was driven by a shift from a predominantly refinance market to a predominantly purchase market.​
• The average guarantee fee in 2022 on 30-year fixed-rate loans rose by 3 basis points to 63 basis points, while the average guarantee fee on 15-year fixed-rate loans was unchanged at 42 basis points.

Yesterday, SBA Administrator Isabel Casilla Guzman announced a new rule that will remove restrictions on SBA loan programs that currently prevent many returning citizens, including those on parole and probation, from being eligible for SBA-backed loans to start or grow a business. As part of this rule change, the SBA will also remove questions on criminal history from its applications. Individuals who are currently incarcerated and those who have previously defrauded the government will remain ineligible.

In addition to removing restrictions on loan programs for the returning citizen population – including the nearly 4 million Americans on parole or probation – the final rule will also standardize most criminal history eligibility rules across SBA loan programs, which collectively provide more than $40 billion in capital annually to small businesses. The rule change will have no negative impact on the loan repayment process, and the SBA will continue to diligently perform fraud checks on all loan applications in accordance with its Risk Mitigation Framework. Lenders will also continue to evaluate individual loan applications for approval. In that context, lenders can evaluate criminal history on an individualized basis—as part of the full review of a loan application and consistent with federal, state, and local law. Lenders can deny loans based on evidence of an unacceptable credit risk.

No link to the new rule was provided with the press release.

Yesterday, the Treasury Department announced actions to further degrade Russia’s ability to sustain its war machine, continuing a multilateral campaign to limit the Kremlin’s revenue and access to the materiel it needs to prosecute its illegal war against Ukraine. Yesterday’s actions target Russia’s military-industrial base and chemical and biological weapons programs as well as companies and individuals in third countries that help Russia acquire key inputs for weapons or defense-related production. Nearly 300 targets were sanctioned by Treasury and the Department of State, including sanctions on dozens of actors that have enabled Russia to acquire technology and equipment from abroad.

In addition to the nearly 200 targets sanctioned by the Department of the Treasury, the Department of State has imposed sanctions on over 80 entities and individuals that are engaged in sanctions evasion and circumvention or are related to Russia’s chemical and biological weapons programs and defense industrial base. The Department of State also targeted Russia’s revenue generation through its future energy, metals, and mining production and sanctioning additional individuals in connection with the death of opposition leader and anticorruption activist Aleksey Navalny. For more information on State actions, see the Department of State Fact Sheet.

Today’s action includes nearly 60 targets located in Azerbaijan, Belgium, the PRC, Russia, Slovakia, Türkiye, and the United Arab Emirates (UAE), that enable Russia to acquire desperately-needed technology and equipment from abroad.

For the names and identification information of the designated individuals, entities, and vessels, see the May 1, 2024, BankersOnline OFAC Update.

The CFPB yesterday released an issue spotlight report, Health Savings Accounts, detailing the complex costs and fees that many consumers with health savings accounts are forced to pay. The report indicates there were approximately 36 million health savings accounts in 2023 – holding more than $116 billion. These accounts provide tax benefits to help offset the costs of high deductible health plans. However, these benefits are being offset by charges like monthly maintenance fees, paper statement fees, outbound transfer fees, and account closure fees.

According to the CFPB, consumers have reported a range of concerns with health savings accounts. For some consumers, these accounts come with high costs. Employers often decide on the financial service provider that will manage employees’ health savings accounts. The factors that motivate employers can differ from those of employees. Providers design health savings accounts to compete for employers. The result is that health savings accounts can often present challenges and costs for consumers, such as surprise fees, lack of fund portability, and low-yield interest rates.

The Federal Housing Finance Agency has announced that Fannie Mae and Freddie Mac (the Enterprises) published new Reconsideration of Value (ROV) policies after months of collaboration with FHFA and the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration. A Reconsideration of Value is a request to an appraiser to re-assess the appraised value of a property due to potential appraisal reporting deficiencies or inappropriate selection of comparable properties, or based upon additional information the appraiser should consider.

In June 2023, as part of the Interagency Task Force on Property Appraisal and Valuation Equity, FHFA and HUD established a working group to develop consistent ROV standards. The Enterprises’ new policies provide clear requirements for lenders to disclose and outline the ROV process for consumers, standardize communication to appraisers, and establish ROV response expectations. Lenders will also be required to refer appraisers to local, state, and federal agencies for violations of anti-discrimination laws.

The Department of Housing and Urban Development, through the FHA, announced a new FHA requirement for lenders participating in its Single Family program that will enable borrowers to request a re-assessment of the appraised value of their property if they believe that the appraisal was inaccurate or biased.

• Fannie Mae Selling Guide Announcement
• Freddie Mac Bulletin
• FHA ROV Mortgagee Letter

The Federal Bureau of Investigation yesterday reported the elder fraud complaints to the FBI's Internet Crime Complaint Center (IC3) increased by 14 percent in 2023, and associated losses increased by about 11 percent, according the IC3’s 2023 Elder Fraud Report, released yesterday. Five takeaways from the report:

• Elder fraud is an expensive crime. Scams targeting individuals aged 60 and older caused over $3.4 billion in losses in 2023—an increase of approximately 11% from the year prior. The average victim of elder fraud lost $33,915 due to these crimes in 2023.
• Older Americans seem to be disproportionately impacted by scams and fraud. Over 101,000 victims aged 60 and over reported this kind of crime to IC3 in 2023. On the flip side, victims under the age of 20 years old seemed to be the least-impacted demographic, with about 18,000 victims in this demographic reporting suspected scams or frauds to IC3 last year.
• Tech support scams were the most widely reported kind of elder fraud in 2023. Nearly 18,000 victims aged 60 and over reported such scams to IC3. Personal data breaches, confidence and romance scams, non-payment or non-delivery scams, and investment scams rounded out the top five most common types of elder fraud reported to IC3 last year.
• Investment scams were the costliest kind of elder fraud in 2023. These schemes cost victims more than $1.2 billion in losses last year. And tech support scams, business email compromise scams, confidence and romance scams, government impersonation scams, and personal data breaches all respectively cost victims hundreds of millions of dollars in 2023.
• Scammers are coming for people’s cryptocurrency. More than 12,000 victims aged 60 and over indicated that cryptocurrency was “a medium or tool used to facilitate” the scam or fraud that targeted them when reporting it to IC3.

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

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 Department of Housing and Urban Development has reported it has approved a Conciliation Agreement under the Fair Housing Act between the Metropolitan Management Corporation and Lancaster Court Associates, both of Narberth, Pennsylvania, and a family of former tenants. The agreement resolves allegations that the housing providers discriminated against the family when terminating their lease because a member of the family had a second child. The Fair Housing Acts makes it illegal to discriminate in the sale or rental of housing based on race, color, national origin, disability, religion, sex (including sexual orientation and gender identity), and familial status.

The agreement stems from a complaint alleging that Metropolitan Management Corporation and Lancaster Court Associates violated the Fair Housing Act by having an overly rigid occupancy policy that discriminated based on familial status. The complaint alleges that when a baby was born to a family of four, Respondents terminated the family’s lease for a two-bedroom unit because of Respondents’ occupancy policy.

The Federal Housing Finance Agency reports that U.S. house prices rose in February, up 1.2 percent from January, according to the FHFA's seasonally adjusted monthly House Price Index. House prices rose 7.0 percent from February 2023 to February 2024. The previously reported 0.1 percent price decrease in January remained unchanged.

For the nine census divisions, seasonally adjusted monthly price changes from January 2024 to February 2024 ranged from +0.4 percent in the West South Central division to +3.0 percent in the New England division. The 12-month changes were all positive, ranging from +3.7 percent in the West South Central division to +10.8 percent in the Middle Atlantic division.

“U.S. house prices rebounded with an increase in February, after declining slightly in January” said Dr. Anju Vajja, Deputy Director for FHFA’s Division of Research and Statistics. “All nine census divisions experienced price appreciation over the last 12 months, with New England and Middle Atlantic divisions posting double digit growth.”

The Federal Housing Finance Agency has announced the creation of a new Division of Public Interest Examination (DPIE), which will be responsible for supervisory oversight of the Agency’s regulated entities in the areas of affordable housing, community development, diversity and inclusion, consumer protection, and fair lending. FHFA serves as regulator and conservator of Fannie Mae and Freddie Mac (the Enterprises) and regulator of the Federal Home Loan Bank System.

Establishment of the new division will highlight the Agency’s focus on public interest examinations and increase synergy and collaboration between existing public interest examination programs. James Wylie will serve as the Deputy Director for DPIE. He has led FHFA’s Office of Fair Lending Oversight since 2018.

The FDIC has announced the April 2024 updates to its Risk Management Manual of Examination Policies (RMS Manual). This month's updates include:

• Section 6.1 – Liquidity and Funds Management: Updates to Section 6.1 include revisions to incorporate regulatory changes related to brokered deposits; to provide additional guidance regarding uninsured deposits, Federal Home Loan Bank advances, and public funds; to add new sections on evaluating asset encumbrance and intraday liquidity monitoring; and to make other technical edits.
• Section 22.1 – Examination Documentation Modules: Updates to Section 22.1 include the addition of two new Supplemental Modules for Automated Clearing House (ACH) and Wire Transfers.

The following sections of the RMS Manual were updated to include instructions for the review and assessment of government-guaranteed lending (GGL) programs conducted by FDIC-supervised institutions.

• Section 3.2 – Loans: A new section was added to provide background and examination considerations on GGL programs.
• Section 16.1 – Report of Examination Instructions: Instructions for scheduling concentrations in the Report of Examination were enhanced to include considerations relative to GGL programs.

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

The Federal Housing Finance Agency on Monday announced it has released its Fair Lending, Fair Housing, and Equitable Housing Finance Plans Final Rule, together with Fannie Mae's and Freddie Mac’s (the Enterprises) Equitable Housing Finance Plan updates for 2024 and Performance Reports for 2023.

The final rule codifies in regulations FHFA’s fair lending oversight requirements for the Enterprises and the Federal Home Loan Banks; the Enterprises’ Equitable Housing Finance Plans (Plans); collection of homeownership education, housing counseling, and language preference information from the Supplemental Consumer Information Form (SCIF); and new Federal Home Loan Bank reporting requirements. The rule will become effective 60 days after it is published in the Federal Register, except for subpart D of the regulation, which becomes effective February 15, 2026.

The FHFA will seek public feedback to inform the next three-year Plans through a Request for Input and listening session. FHFA expects to hold a public listening session in June 2024, and anticipates releasing the next Plans in January 2025.

• Fannie Mae​ 2​024 Equitable Housing Finance Plan
• Fannie Mae 2023 Equitable Housing Performance Report
• Freddie Mac 2024 Equitable Housing Finance Plan
• Freddie Mac 2023 Equitable Housing Performance Report
  ​

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 CFPB on Monday announced it has released a data point research report, Recent Changes in Medical Collection on Consumer Credit Reports, showing that 15 million Americans still have medical bills on their credit reports despite changes by Equifax, Experian, and TransUnion. The 15 million Americans disproportionately live in the South and low-income communities. Collectively, they have more than $49 billion in outstanding medical bills in collections.

This is the CFPB’s second analysis of the changes made by the three national credit reporting companies to reduce the number of medical bills on credit reports. Monday’s report follows the start of a CFPB rulemaking that will consider options to restrict the reporting of allegedly unpaid medical bills on credit reports.

In early March 2022, a CFPB study found an estimated $88 billion in medical bills on Americans’ credit reports. Following that study, the three nationwide credit reporting companies – Equifax, Experian, and TransUnion – announced they would no longer report certain medical bills in collections. The companies announced they would increase the time before medical bills in collections can appear on credit reports – from 180 days to one year. Second, the companies would stop reporting medical bills that had been in collections but were resolved. Third, the companies would remove medical bills below $500 from credit reports.

Monday’s research report found the number of people with medical bills in collections on their credit reports has declined. As of June 2023, about 5% of Americans had unpaid medical bills on their credit reports – down from 14% in March 2022. Older Americans saw the largest improvement – 8.4% of older Americans had medical bills on their credit reports in March 2022 compared to below 3% in June 2023.

For the 15 million Americans with medical bills on their credit reports, the current report finds:

• Many live in low-income communities and the southern U.S.
• The average medical balance on credit reports increased from $2,000 to over $3,100, due to removal of small balances
• Most medical collections balances stayed on credit reports

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 announced it will join the Department of Transportation at 10:00 a.m. ET, May 9, 2024, to host a hearing on airline and credit card rewards programs. Members of the public will hear from CFPB Director Rohit Chopra and Secretary of Transportation Pete Buttigieg, who will moderate a discussion with industry representatives, labor leaders, and consumer advocates about competition issues and challenges that consumers are experiencing with airline and credit card rewards programs.

A livestream of the event will be available on the day of the hearing.

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 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 CFPB has releases issue 33 of its Supervisory Highlights report. The findings in this report cover select examinations regarding mortgage servicing completed from April 1 through December 31, 2023.

The report indicates that examiners continue to find supervised mortgage servicers assessing junk fees, including unnecessary property inspection fees and improper late fees. Additionally, examiners found that mortgage servicers engaged in other unfair, deceptive, and abusive acts or practices (UDAAP) such as sending deceptive loss mitigation eligibility notices to consumers. Mortgage servicers also violated several of Regulation X’s loss mitigation provisions.

Outlook Live reports that its April 17, 2024, webinar, "Compliance Resources: Learning Where to Find Answers to Your Compliance Questions," is now available for downloading from the Outlook Live website. The slides were updated to add additional resources.

The Financial Stability Board (FSB) has announced its publication of a report on financial resources and tools for central counterparty (CCP) resolution.

The availability of adequate resources and tools for CCP resolution remains critical for financial stability and for ensuring confidence in the financial system. Progress in implementing the G20 regulatory reforms agreed to after the 2008-09 financial crisis, including the central clearing mandate, has increased the systemic importance of CCPs. While material advances have been achieved to enhance the resilience and recovery of CCPs, it is also necessary to ensure that adequate financial resources and tools are available in resolution to maintain the continuity of critical functions and safeguard financial stability, should resolution become necessary.

The FSB has developed a global standard for financial resources and tools to facilitate the orderly resolution of systemically important CCPs with two expectations:

• Resolution authorities of systemically important CCPs should have access to a set of resolution-specific resources and tools, in addition to recovery resources and tools where these are available to the resolution authority. The resolution toolbox should include a combination of resolution-specific resources and tools from the list of seven in the report. Not all seven resources and tools need to be included. Financial resources and tools have different strengths and weaknesses, and no single resource or tool would be sufficient by itself to meet the resolution objectives.
• Jurisdictions should make their approach to calibrating the resolution-specific resources and tools in the toolbox transparent.

The FSB will monitor implementation for CCPs that are systemically important in more than one jurisdiction through the FSB’s regular monitoring tools. The findings will be aggregated and published in the FSB’s annual Resolution Report.

The Federal Trade Commission yesterday announced a final rule to promote competition by banning noncompetes nationwide.

Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives — who represent less than 0.75% of workers — can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.

In the final rule, the Commission has determined that it is an unfair method of competition, and therefore a violation of Section 5 of the FTC Act, for employers to enter into noncompetes with workers and to enforce certain noncompetes.

The Commission said that trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a noncompete already have an NDA.

The final rule will become effective 120 days after it is published in the Federal Register.

Publication and effective date: Published at 89 FR 38342 in the May 7, 2024, Federal Register, with an effective date of September 4, 2024.

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.

The U.S. Department of Labor has announced it has finalized its Retirement Security Rule to protect the millions of workers who are saving for retirement diligently and rely on advice from trusted professionals on how to invest their savings. This final rule will achieve this by updating the definition of an investment advice fiduciary under the Employee Retirement Income Security Act and the Internal Revenue Code.

The final rule and related amended prohibited transaction exemptions require trusted investment advice providers to give prudent, loyal, honest advice free from overcharges. These fiduciaries must adhere to high standards of care and loyalty when they recommend investments and avoid recommendations that favor the investment advice providers’ interests — financial or otherwise — at the retirement savers’ expense. Under the final rule and amended exemptions, financial institutions overseeing investment advice providers must have policies and procedures to manage conflicts of interest and ensure providers follow these guidelines.

The updated definition of an investment advice fiduciary, which takes effect on September. 23, 2024, applies when trusted financial services providers give compensated investment advice to retirement plan participants, individual retirement account owners and plan officials responsible for administering plans and managing their assets.

On Tuesday, a Treasury Department news release reported that OFAC has sanctioned two companies and four individuals involved in malicious cyber activity on behalf of the Iranian Islamic Revolutionary Guard Corps Cyber Electronic Command (IRGC-CEC). These actors targeted more than a dozen U.S. companies and government entities through cyber operations, including spear phishing and malware attacks. In conjunction with today’s action, the U.S. Department of Justice and the Federal Bureau of Investigation unsealed an indictment against the four individuals for their roles in cyber activity targeting U.S. entities.

Treasury also reported that OFAC had sanctioned two leaders of al-Qa’ida-aligned terrorist group Jama’at Nusrat al-Islam wal-Muslimin (JNIM) for hostage-taking of U.S. persons in West Africa. The Department of State concurrently announced its designation of seven JNIM leaders.

For names and identification information of the designated parties, see the April 23, 2024, BankersOnline OFAC Update.

HUD has announced it has published [89 FR 30850] in this morning's Federal Register a final rule with a Federal Flood Risk Management Standard (FFRMS) to help communities prepare for and reduce flood damage. This rule aims to protect communities from flood risk, heavy storms, increased frequency of severe weather events and disasters, changes in development patterns, and erosion.

The final rule implements the FFRMS required by Executive Order 13690 (1/30/2015) by updating two of HUD’s regulations: Part 55, Floodplain Management and Protection of Wetlands and Part 200, Minimum Property Standards. This rule strengthens standards by increasing elevations and flood proofing requirements of properties in areas at risk of flooding, where federal funds are used to develop or provide financing for new construction within the now defined FFRMS floodplain. It also applies to substantial improvement to structures financed through HUD grants, subsidy programs, and applicable multifamily programs. The update to Minimum Property Standards only applies to FHA-insured new construction within the 100-year floodplain.

The Department of Defense's Military Lending Act website includes a notice that the MLA’s next system release (version 5.19) is scheduled for Thursday, April 25, 2024. MLA v 5.19 will include updates to the password requirements check list and error messages to increase clarity and create a better user experience. It will also include additional security and accessibility enhancements. The MLA website will not be available from 6:00 P.M. until 9:00 P.M. PDT [9:00 P.M. until midnight EDT] while the updates are performed.

Yesterday was Earth Day. FinCEN issued a reminder to financial institutions to remain vigilant in identifying and reporting suspicious activity related to environmental crimes. Environmental crimes frequently involve transnational criminal activity related to several of FinCEN’s Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) National Priorities, including corruption, fraud, human trafficking, and drug trafficking.

FinCEN has previously published resources to help stakeholders identify and combat environmental crimes and associated illicit financial activity. FinCEN’s December 2021 Financial Threat Analysis contains information on wildlife trafficking threat patterns and trend information identified in Bank Secrecy Act (BSA) data. FinCEN’s Notice FIN-2021-NTC4 provides financial institutions with specific Suspicious Activity Report (SAR) filing instructions and highlights illicit financial activity related to several types of environmental crimes such as wildlife trafficking and illegal logging, fishing, or mining. SAR filings, along with effective implementation of BSA compliance requirements, are crucial to identifying and stopping environmental crimes and related money laundering.