Vol. XXXIV, No. 18 BSA-AML-Risk-Based Approach to Assessing Customer Relationships and Conducting Customer Due DiligenceThe Federal Banking Agencies have issued a joint statement to remind banks of the risk-based approach to assessing customer relationships and conducting customer due diligence (CDD). The statement does not alter existing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) legal or regulatory requirements, nor does it establish new supervisory expectations. The Agencies recognize that it is important for customers engaged in lawful activities to have access to financial services. Therefore, the Agencies are reinforcing a longstanding position that no customer type presents a single level of uniform risk or a particular risk profile related to money laundering, terrorist financing, or other illicit financial activity. Banks must apply a risk-based approach to CDD, including when developing the risk profiles of their customers. More specifically, banks must adopt appropriate risk-based procedures for conducting ongoing CDD that, among other things, enables banks to: (i) understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and (ii) conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. Customer relationships present varying levels of money laundering, terrorist financing and other illicit financial activity risks. The potential risk to a bank depends on the presence or absence of numerous factors, including facts and circumstances specific to the customer relationship. Not all customers of a particular type automatically represent a uniformly higher risk of money laundering, terrorist financing or other illicit financial activity. Banks that operate in compliance with applicable BSA/AML legal and regulatory requirements, and effectively manage and mitigate risks related tot he unique characteristics of customer relationships, are neither prohibited nor discouraged from providing banking services to customers of any specific class or type. As a general matter, the Agencies do not direct banks to open, close or maintain specific accounts. The Agencies continue to encourage banks to manage customer relationships and mitigate risks based on customer relationships, rather than decline to provide banking services to entire categories of customers. In addition, the Agencies recognize that banks choose whether to enter into or maintain business relationships based on their business objectives and other relevant factors, such as the products and services sought by the customer, the geographic locations where the customer will conduct or transact business, and banks' ability to manage risks effectivley. The statement addresses the Agencies' perspective on assessing customer relationships as well as CDD requirements. It applies to all customer types referenced in the Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act/Anti-Money-Laundering Examination Manual and also applies to any customer type not specifically addressed in the FFIEC BSA/AML Examination Manual. Full-Text PDF The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 17 NSF Fees for Re-Presentment - Disclosure ClarificationI. Introduction The NBA has recently received numerous inquiries regarding increased scrutiny of overdraft practices by regulatory agencies, including multiple fees imposed on re-presented items. Banks have been criticized by their regulators for not accurately disclosing their fees and processes, and in some cases have been ordered to submit "Restitution Plans" to reimburse customers for overdraft fees. Independent litigation and class action lawsuits have challenged banks' overdraft practices. II. Re-Presented Items When an ACH transaction or check is presented against the customer's account without sufficient funds to cover the item presented, banks typically charge a non-sufficient funds (NSF) fee. The fees are commonly disclosed in the account agreement as being charged on a "per item" or "per transaction" basis. It is not uncommon for a merchant, after an ACH transaction or check is declined, to re-present the item. NACHA rules allow two re-presentments following the initial return of an ACH transaction. While re-presentment checks are not limited, it is not unusual for a check to be re-presented multiple times. It is standard practice for banks to charge NSF fees for each re-presentment of these items. Until recently, this practice has not been questioned and federal regulations contain no express prohibition against charging NSF fees for re-presentments. In scrutinizing banks' practices, the regulators have focused on whether account agreements have clearly indicated that a separate NSF fee may be charged for each re-presented item. If not, the bank may be alleged to be in breach of contract, the language could be alleged to constitute a deceptive practice, or the practice of charging multiple NSF fees for the same transaction may be considered an inherently unfair practice. III. Operational Concerns Member banks have expressed significant operational concerns with the regulatory interpretations. The manner in which a transaction is coded may effectively prevent a bank from being able to identify if a re-presented item has been previously presented for payment. In addition, most banks are not equipped to conduct an automated search to identify re-presented checks, dictating a manual search to identify transactions for which multiple NSF fees may have been charged for re-presentments. IV. Updating Disclosures In response to regulatory criticism, banks may be reviewing their disclosures to ensure that they clearly explain how and when overdraft fees may be imposed. If banks elect to update their disclosures, it is recommended that any such changes be disclosed to existing customers as a CLARIFICATION. The bank does NOT want to provide the updated language as a CHANGE IN TERMS. Casting the revisions as a change in terms could imply that the existing disclosures do not authorize the bank to charge multiple NSF fees on re-presented items and could result in the regulators requiring reimbursement for overdraft fees previously charged to customers. Banks electing to update their disclosures may provide the clarification through a notice on their periodic statements sent to customers. Because this would not constitute a change in terms to existing accounts, there is no waiting period involved. The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 16 Elder Financial Exploitation - FinCEN AdvisoryI. IntroductionThe Financial Crimes Enforcement Network (FinCEN) has issued an advisory to alert financial institutions to the rising trend of elder financial exploitation (EFE) targeting older adults and to highlight new EFE typologies and red flags since FinCEN issued the first EFE advisory in 2011. For purposes of the advisory, EFE is defined as the illegal or improper use of an older adult’s funds, property, or assets. Additional information regarding trends and typologies of EFE and associated payments, as well as case studies on elder theft and elder scams are contained within the recent FinCEN advisory which may be viewed here on pages 3-8. II. Behavioral and Financial Red Flags A. Behavioral Red Flags Victims of EFE may have limited and irregular contact with others. For some, their only outside contact may involve visiting or communicating with their local financial institution, including at the bank branch, check-cashing counter, or MSB. Therefore, it is critical for customer-facing staff to identify and consider the behavioral red flags when conducting transactions involving their older customers, particularly suspicious behavior that also involves the financial red flags highlighted below. Such information should be incorporated into SAR filings and reported to law enforcement as appropriate. Financial institutions are reminded that behavioral red flags of EFE and the names of staff who witnessed them should be included in the SAR narrative to assist future law enforcement investigations. Behavioral red flags of EFE may include:
B. Financial Red Flags Identification of financial red flags of EFE and the associated payments are critical to detecting, preventing, and reporting suspicious activity potentially indicative of EFE. In addition to the financial red flags set out in DOJ and CFPB notices, financial red flags of EFE may include:
III. Suspicious Activity Reporting The FinCEN advisory also contains a refresher on the suspicious activity reporting and other relevant BSA reporting requirements which may be viewed here on pages 11-15. Full-Text PDF The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 15 UCC Article 12 - Security Interests in Digital AssetsI. Introduction With the passage of LB 649 (Nebraska Financial Innovation Act) in 2021 by the Nebraska Legislature, Nebraska adopted the then current “draft” of Uniform Commercial Code (UCC) Article 12 as proposed by the National Conference of Commissioners on Uniform State Laws. The new law addresses the perfection and priority of security interests in digital assets. The provisions of UCC Article 12 and accompanying amendments to the Uniform Commercial Code take effect on July 1, 2022. II. Perfecting an Interest in Personal Property Digital assets constitute personal property. Perfection of a security interest in personal property under Article 9 of the UCC can generally be accomplished by filing a UCC-1 financing statement, by taking control of the property, or by taking possession of the property. While Article 9 lists a number of different property types, digital assets are not included. III. Perfecting an Interest in Digital Assets Under Current Article 9 - (Pre-July 1, 2022) Individuals and entities currently own digital assets such as cryptocurrency or non-fungible tokens (NFTs). Individuals or entities with borrowing needs may want to pledge their digital assets as collateral for a loan. Lenders willing to accept digital assets as collateral have raised questions regarding the manner in which to perfect a security interest in the digital assets. Generally, a cryptocurrency is a digital medium of exchange that operates on blockchain technology. A blockchain is essentially a distributed database that allows transactions to be permanently recorded without the need for a central authority or trusted third-party to clear or verify the transaction and provides digitally authenticated record-keeping. In effect, cryptocurrency is a digital, decentralized "money" that has its transaction history recorded on a publicly-available ledger. NFTs use block chain to record and authenticate ownership of unique tangible and intangible assets such as digital collectibles. Unlike cryptocurrency, each NFT is intended to be unique and no two are alike–hence the name “non-fungible” token. NFTs authenticate ownership of digital art and are also used to identify the location of a file such as a piece of digital artwork or audio clip. Cryptocurrency and non-fungible tokens are generally referred to as digital assets, which constitute the category of assets issued and transferred using the blockchain. Because Article 9 does not include a separate classification for digital assets, some lenders have treated them as “general intangibles” - which are perfected by filing a UCC-1 financing statement. Others treat digital assets as “investment property” (securities, entitlements, and commodity contracts) - which can be perfected by filing a UCC-1 or by control, with control being the preferred method for perfection. However, it is uncertain under current law whether “control” of the digital wallet for a digital asset is sufficient to perfect a security interest. While filing a UCC-1 may perfect a lender’s security interest in most digital assets, lenders should also consider taking steps to ensure that they will be able to obtain possession and control over the collateral if the need to exercise its remedies against the collateral should arise in the event of default, such as conducting a sale or other disposition of the digital assets serving as collateral. IV. LB 649 - UCC Article 12 - Security Interest in Digital Assets A. Introduction The provisions of UCC Article 12 adopted in Nebraska may be viewed at https://www.nebraskalegislature.gov/laws/browse-ucc.php. Among other things, the provisions of UCC Article 12 update the UCC by:
In general, UCC Article 12 provides that a security interest in digital assets or CERs can be accomplished by filing a UCC-1 and/or by controlling the asset. They also provide that a lender that has perfected by control takes priority over a lender that has perfected by filing a UCC-1 but does not have control. For purposes of UCC Article 12, control occurs when a person has (1) the power to enjoy substantially all of the benefits of the CER, (2) the exclusive power to prevent others from enjoying substantially all of the benefits of the CER, and (3) the exclusive power to transfer control of the CER. Article 12 of the UCC is designed to address a limited set of transactions primarily involving emerging technologies, such as virtual (non-fiat) currencies, and distributed ledger technologies (so-called digital assets). Article 12 addresses concerns regarding the lack of definitive rules under the current UCC for transactions involving digital assets, including rules relating to the negotiability of virtual (non-fiat) currencies and the difficulties of secured lending against digital assets, including virtual currencies. Article 12 establishes rules for a class of digital assets – defined as “controllable electronic records” (CERs) – which includes certain virtual (non-fiat) currencies, nonfungible tokens, and digital assets in which specified payment rights are embedded. The amendments allow CER to be transferred in a manner that cuts off competing property claims (including security interests) to the CER. (“take-free” rule) B. Perfection The new provisions of UCC Article 12 provide for a security interest in a CER to be perfected by “control” (or by filing a financing statement) and for a security interest perfected by “control” to have priority over a security interest in the CER perfected only by the filing of a financing statement (or another method other than “control”). C. Definition of "Controllable Electronic Record" (CER) Article 12 covers only digital assets that are controllable electronic records. A controllable electronic record is a record in electronic form that is susceptible to “control.” (e.g., bitcoin). D. Control For a person to have "control" of a CER, the person must have
The person with control must be able to readily identify itself to a third-party as the person having this power. Identification may be made by a cryptographic key or account number. The exclusivity requirement is satisfied even if there is a sharing of these powers. Comments to proposed Article 12 include the following language: A virtual (non-fiat) currency would be an example of a CER. If a person owns an electronic “wallet” that contains a virtual currency, the person would have control of virtual currency if (a) the person may benefit from the use of the virtual currency as a medium of exchange by spending the virtual currency or exchanging the virtual currency for another virtual currency; (b) the person has the exclusive power to prevent others from doing so; and (c) the person has the exclusive power to transfer control of the virtual currency to another person. Digital assets are stored electronically in what is known as a digital wallet that can only be accessed by using a private key (similar to a password). Without the private key, lenders are unable to access the asset following a default. In order to protect their interests, lenders should consider either acquiring the private key upon execution of the security agreement or having the private key turned over to a third-party custodian to be held in escrow. Merely having access to the borrower’s private key will not prevent a borrower from transferring the asset to another digital wallet, such as a cold wallet, out of the lender’s reach. To minimize this risk, it has been suggested that borrowers transfer their NFTs or cryptocurrency to a digital wallet solely controlled by the lender or by using digital wallets that require more than one key to authorize transactions. Another type of secured wallet is a cold wallet, which is stored off-line and not connected to the Internet, making it more resistant to being hacked. Both of these methods have similarities to obtaining control over a securities or deposit account and provide assurances that the secured lender will have access to the collateral when it needs it. E. Transferee of a Controllable Electronic Record ("Take-Free" Rules) A “qualified purchaser” takes free of third-party claims (which may include both buyers and secured parties). If a CER is purchased (including obtaining a security interest in the CER), the purchaser requires all rights in the CER that the transferor had. Qualified purchaser - A purchaser who obtains control of a CER for value, in good faith, and without notice of a property claim to the CER (filing of a financing statement in and of itself is not notice of a property claim to the CER). Comments to UCC Article 12 provide as follows: Consider again the example of a person in control of a virtual (non-fiat) currency. If the person transfers control to another person, the transferee obtains whatever rights in the virtual currency that the transferor had. If the transferee is a “qualified purchaser” of the virtual currency, the transferee also benefits from the “take-free” rule. F. Tethering and Certain Payment Rights Establishing control over a CER does not “tether” to extrinsic rights and interests. As a result, if a CER does not have intrinsic value but rather derives its value from the tethered asset, control of the CER does not confer priority in the underlying tethered asset to the controlling party – just the rights in the controlling CER. An exception to this rule involves an “account” or “payment intangible,” (as those terms are defined in Article 9 of UCC) embodied under such circumstances. The “account” or “payment intangible” is a “controllable account” or “controllable payment intangible” if the account debtor (the person obligated on the account or payment intangible) has agreed to pay the person in control of the CER. If control of the CER with an embedded controllable account or controllable payment intangible is transferred, the controllable account or controllable payment intangible accompanies the CER, and the transferee is eligible to benefit from the same “take-free” rule that applies to the CER. G. Discharge of Account Debtor Similar to the rules under current UCC Article 9 relating to accounts and payment intangibles, an account debtor (the obligor on an account or payment intangible) receives a discharge by paying the person formerly in control until the account debtor receives a notification signed in writing or electronically by the debtor or its secured party that the secured party has a security interest in the controllable account or controllable payment intangible and a payment instruction (“deflection notification”) to pay the secured party as the person now in control. Following receipt of the deflection notification, the account debtor may obtain a discharge only by paying the secured party and may not obtain a discharge by paying the debtor. Also, similar to current UCC Article 9, the debtor may ask for reasonable proof that the secured party is the person in control prior to paying the secured party. However, unlike current Article 9, for a controllable account or controllable payment intangible the method of providing that reasonable proof must have been agreed to by the account debtor. Absent an agreed method of providing reasonable proof, the deflection notification is not effective, and the account debtor may obtain a discharge by continuing to pay the debtor. H. Scope of Coverage-Exclusions If an electronic record is not susceptible to control, it is outside the scope of the proposed amendments. Excluded from coverage under UCC Article 12 are electronic chattel paper, electronic documents, investment property, transferable records under the federal E-Sign law or the Uniform Electronic Transactions Act, deposit accounts, and to some extent, electronic money. I. Applicability UCC Article 12 applies to any transaction involving a controllable electronic record that arises on or after July 1, 2022 and does not apply to any transaction involving a controllable electronic record that arises before July 1, 2022, even if the transaction would be subject to UCC Article 12 if the transaction had arisen on or after July 1, 2022. UCC Article 12 does not apply to a right of action with regard to any transaction involving a controllable electronic record that has accrued before July 1, 2022. J. Savings Clause Any transaction involving a controllable electronic record that arose before July 1, 2022, and the rights, obligations, and interests flowing from that transaction are governed by any statute or other rule amended or repealed by Laws 2021, LB 649, as if such amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule. K. Conclusion The limitation of the applicability of UCC Article 12 to transactions involving a controllable electronic record arising on or after July 1, 2022 and the savings clause described above provide protections for pre-July 1, 2022 security interests in digital assets. However, the uncertainty surrounding the manner in which a security interest in digital assets is to be perfected under current UCC Article 9 and concerns regarding the ability of lenders to exercise their remedies against digital assets serving as collateral should move lenders with a such a security interest to take steps to obtain possession and control of the collateral. Lender should take control of the digital wallet by (a) acquiring the private key or having the private key turned over to a third-party custodian to be held in escrow; (b) requiring the borrower to transfer their NFTs or cryptocurrency to a digital wallet solely controlled by the lender; or (c) requiring use of digital wallets that require more than one key to authorize transactions. Full-Text PDF The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 14 OCC-SAR Exemptions (National Banks and Federal Savings Associations)I. Introduction To help banks develop more efficient and effective Bank Secrecy Act compliance programs, the Office of the Comptroller of the Currency (OCC) has finalized a rule that would allow the agency to issue exemptions from Suspicious Activity Report (SAR) requirements in certain circumstances. Under the final rule, national banks seeking an exemption must submit a request in writing to the OCC. In reviewing these requests, the OCC will consider whether the exemption is consistent with the purposes of the Bank Secrecy Act and with safe and sound banking, and may consider any other appropriate factors, including outstanding supervisory concerns regarding BSA/AML compliance. Institutions would also need to seek an exemption separately from the Financial Crimes Enforcement Network. The final rule will enable the OCC to facilitate changes required by the Anti-Money Laundering Act of 2020, and will also make it possible for the OCC to grant relief to national banks or federal savings associations that develop innovative solutions intended to meet Bank Secrecy Act requirements more efficiently and effectively. The FDIC and Federal Reserve have also issued separate proposals regarding SAR exemptions. The rule took effect on May 1, 2022. The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No 13 CFPB Advisory Opinion - Coverage of Fair Lending LawsThe Consumer Financial Protection Bureau (CFPB) has published an advisory opinion to affirm that the Equal Credit Opportunity Act (ECOA) bars lenders from discriminating against customers after they have received the loan, not just during the application process. The ECOA bans credit discrimination on the basis of race, color, religion, national origin, sex, marital status, and age. It also protects those who are receiving money from any public assistance program or exercising their rights under certain consumer protection laws. The CFPB advisory opinion and accompanying analysis clarifies that the ECOA protects people from discrimination in all aspects of a credit arrangement. Among other things, the advisory opinion states that the ECOA:
The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 12 CFPB - Mitigating Harm From Repossession of AutomobilesI. Introduction The Consumer Financial Protection Bureau (CFPB) has issued a Compliance Bulletin regarding repossession of vehicles, and the potential for violations of Sections 1031 and 1036 of the Dodd-Frank Wall Street Reform and Consumer Protection Act's (Dodd-Frank Act's) prohibition on engaging in unfair, deceptive, or abusive acts or practices when repossessing vehicles. The CFPB has issued the Bulletin to remind market participants about certain legal obligations with regard to auto repossession practices under federal consumer financial laws. Loan holders and servicers are responsible for ensuring that their repossession – related practices, and the practices of their service providers, do not violate the law. The CFPB intends to hold loan holders and services accountable for UDAAPs related to the repossession of consumers’ vehicles. The Bulletin became applicable on March 3, 2022. II. Unfair and Deceptive Acts or Practices in Supervision and Enforcement Matters Under the Dodd-Frank Act, all covered persons or service providers are prohibited from committing unfair, deceptive, or abusive acts or practices in violation of the Act. An act or practice is unfair when (i) it causes or is likely to cause substantial injury to consumers; (ii) the injury is not reasonably avoidable by consumers; and (iii) the injury is not outweighed by countervailing benefits to consumers or to competition. The Dodd-Frank Act prohibits two types of abusive practices. First, materially interfering with the ability of the consumer to understand a term or condition of a product or service is abusive. Second, taking unreasonable advantage of statutorily-specified market imbalances is abusive. Those market imbalances include (1) the consumer’s lack of understanding of the material risks, costs or conditions of a product or service, (2) a consumer’s inability to protect their interests in selecting or using a product or service, or (3) a consumer’s reasonable reliance on a covered person to act in their interests. A. Unfair or Deceptive Practices During the Repossession Process In its Supervisory and Enforcement work, the CFPB has found the following conduct related to repossession of automobiles to be UDAAPs.
B. Other Practices Causing Wrongful Repossession Supervision has also identified other practices related to repossession that resulted in unfair acts or practices. For example, the Bankruptcy Code imposes an automatic stay that bars collection activity, including repossession, from the moment a consumer has filed a bankruptcy petition. Supervision found that when servicers received notice that consumers had filed bankruptcy petitions and their accounts were subject to an automatic stay, the servicers committed an unfair act or practice by repossessing vehicles subject to such automatic bankruptcy stays. Additionally, Supervision has identified that servicers committed an unfair act or practice by wrongfully repossessing vehicles after communicating inaccurate information. For example, Supervision has found that some servicers sent consumers letters stating that loans would not be considered past due if the consumer paid the amount due by a specific date. Consumers reasonably expected the servicers not to repossess before the date listed in the letter. When the servicers repossessed the vehicles prior to that date, they committed an unfair act or practice. C. Representations of Amounts Owed Supervision has also identified that servicers committed deceptive acts or practices by failing to provide consumers with accurate information about the amount required to bring their accounts current. For example, when consumers called to determine what amount would bring their accounts current, servicing personnel erroneously represented to consumers an amount due that was less than what was actually owed. As a result of this misrepresentation, consumers paid an amount insufficient to avoid delinquency and the consequences of delinquency. This later led to repossessions that would not have occurred had consumers received accurate information. This conduct was deceptive because the servicer told consumers that an amount would bring their accounts current when, in fact, that amount would not bring their account current. III. Unfair or Deceptive Practices That May Lead to Repossession The following are examples of practices that lead to repossession of consumers' vehicles that the CFPB has considered to be UDAAPs. A. Applying Payments in a Different Order Than Disclosed to Consumers, Resulting in Repossession Payment application for auto loans is governed by the finance agreements between servicers and consumers. Supervision has found that entities engaged in a deceptive act or practice when they made representations to consumers that payments would be applied in a specific order, and then subsequently applied payments in a different order. For example, Supervision found that servicers represented on their websites that payments would be applied to interest, then principal, then past due payments, before being applied to other charges, such as late fees. Instead, the servicers applied partial payments to late fees first, in contravention of the methodology disclosed on the website. Because servicers applied payments to late fees first, some consumers were deemed more delinquent than they would have been under the disclosed payment allocation order, and these servicers repossessed some consumers’ vehicles. Under these circumstances, servicers’ websites provided inaccurate information about payment allocation order. In some instances, the underlying contract provided the servicer the right to apply payments in any order, which did not immunize the company from liability for the deceptive website content. B. Unlawful Fees That Push Consumers into Default and Repossession The CFPB has found that an entity engaged in an unfair act or practice by operating its force-placed insurance (FPI) program in an unfair manner, in some instances resulting in repossession. The entity purchased duplicative or unnecessary FPI policies and, in some instances, maintained the policies even after consumers had obtained adequate insurance and provided adequate proof of coverage. This conduct caused the entity to charge consumers for unnecessary FPI, resulting in additional fees, and in some instances delinquency or loan default. For some consumers the additional costs of unnecessary FPI contributed to a default that resulted in the repossession of a consumer’s vehicle. Charging unnecessary amounts to consumers and subjecting them to default and repossession caused or was likely to cause substantial injury. This injury was not reasonably avoidable and was not outweighed by countervailing benefits. C. Unfair Practices That May Result in Illegal Fees After Repossession The following are examples of practices that led to illegal fees after repossession of consumers' vehicles that the Bureau has considered to be UDAAPs.
IV. Conclusion The CFPB will continue to closely review the practices of entities repossessing automobiles for potential UDAAPs, including the practices described above. The CFPB will use all appropriate tools to hold entities accountable if they engage in UDAAPs in connection with these practices. The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 11 FDIC - Notification of Engaging in Crypto-Related ActivitiesI. Introduction The FDIC has recently issued a Financial Institution Letter requiring all FDIC-supervised institutions that intend to engage in, or that are currently engaged in, any activities involving or related to crypto assets (also referred to as “digital assets”) to notify the FDIC. Crypto-related activities may pose significant safety and soundness risks, as well as financial stability and consumer protection concerns. Moreover, these risks and concerns are evolving as crypto-related activities are not yet fully understood. The FDIC notes that there is little consistency in the definitions associated with many crypto assets and crypto-related activities, which makes it difficult to categorically identify these assets and activities. Further, the structure and scope of these activities are rapidly changing and expanding. As a result of the dynamic nature of crypto-related activities, it is difficult for institutions, as well as the FDIC, to adequately assess the safety and soundness, financial stability, and consumer protection implications without considering each crypto-related activity on an individual basis. Therefore, the FDIC is requesting all FDIC-supervised institutions that are considering engaging in crypto-related activities to notify the FDIC of their intent and to provide all necessary information that would allow the FDIC to engage with the institution regarding related risks. Any FDIC-supervised institution that is already engaged in crypto-related activities should promptly notify the FDIC. Institutions notifying the FDIC are also encouraged to notify their state regulator. II. Risk Consideration Set forth below is a description (not all-inclusive) of some of the crypto-related risks about which the FDIC is concerned. A. Safety and Soundness Crypto-related activities present new, heightened, or unique credit, liquidity, market, pricing, and operational risks that could present safety and soundness concerns. For example, there are fundamental ownership issues, including whether it is possible for ownership to be clearly validated and confirmed. Further, there are significant anti-money laundering/countering the financing of terrorism implications and concerns related to crypto assets, including reported instances of crypto assets being used for illicit activities. Relatedly, there are implications to information technology (IT) and information security, including IT risk exposure and whether sufficient frameworks are available, in relation to the level of risk, to maintain the confidentiality, integrity, and availability of information systems. There are concerns about the credit risk exposure posed by the crypto asset or the structure that the asset is held in, including whether it is possible to measure the degree of asset quality, credit risk, and counterparty risk exposure. This also includes whether it is possible to determine whether the asset is bankable - and whether it is possible for insured depository institutions to manage those risks and exposures. Significant market risk is also evident, as it is uncertain whether adequate methods for pricing and valuation exist. Moreover, accounting, auditing, and financial reporting treatment of crypto assets and crypto-related activities is evolving. There are also significant liquidity implications for insured depository institutions, such as liquidity risk exposure (particularly when crypto assets with very volatile values are involved). B. Financial Stability The FDIC is concerned that certain crypto assets or crypto-related activities may pose systemic risks to the financial system. Systemic risks could be created as an unintended consequence resulting from the structure of a crypto asset or through the interconnected nature of certain crypto-related activities. For example, a disruption in crypto-asset transactions or crypto-related activities could result in a “run” on financial assets backing a crypto asset or crypto-related activity. Like other runs, this could create a self-reinforcing cycle of redemptions and fire sales of financial assets, which, in turn, could disrupt critical funding markets. Further, operational failures related to crypto assets or crypto-related activities could have a destabilizing effect on the insured depository institutions engaging in such activities. C. Consumer Protection The FDIC is concerned about risks to consumers related to crypto-related activities. For example, the FDIC is concerned about the risk of consumer confusion regarding crypto assets offered by, through, or in connection with insured depository institutions, as consumers may not understand the role of the bank or the speculative nature of certain crypto assets as compared to traditional banking products, such as deposit accounts. In addition, insured depository institutions face risks in effectively managing the application of consumer protection requirements, including laws related to unfair or deceptive acts or practices, to new and changing crypto-related activities. D. Notification of Engagement in Crypto-Related Activities Prior to engaging in, or if currently engaged in, a crypto-related activity, an FDIC-supervised institution promptly should notify the appropriate FDIC Regional Director. The FDIC will request that the institution provide information necessary to allow the agency to assess the safety and soundness, consumer protection, and financial stability implications of such activities. The information requested by the FDIC will vary on a case-specific basis depending on the type of crypto-related activity. However, the initial notification to the FDIC Regional Director should describe the activity in detail and provide the institution's proposed timeline for engaging in the activity. Upon receipt, the FDIC will review the notification and information received, request additional information as needed, and consider the safety and soundness, financial stability, and consumer protection considerations of the proposed activity. The FDIC will provide relevant supervisory feedback to the FDIC-supervised institution, as appropriate, in a timely manner. E. Legal Implications Pursuant to Section 39 of the FDI Act, the FDIC has established in Part 364 (including Appendices A and B) safety and soundness standards for all FDIC-supervised institutions. As noted, activities involving new and rapidly emerging technologies can amplify risk to the insured depository institutions themselves, consumers, and the Deposit Insurance Fund. FDIC-supervised institutions should be able to demonstrate their ability to conduct crypto-related activities in a safe and sound manner. Full-Text PDF The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 10 FDIC - Deposit Insurance Simplification - Trust DepositsI. Introduction The Federal Deposit Insurance Corporation (FDIC) approved a final rule to simplify aspects of the agency’s deposit insurance coverage rules. The final rule simplifies deposit insurance coverage for deposits held in connection with revocable and irrevocable trusts by merging these two deposit insurance categories and applying a simpler, common calculation to determine coverage. The final rule will make the trust rules consistent and easier to understand for bankers and depositors and to facilitate prompt payment of deposit insurance by the FDIC in the event of the insured depository institution’s failure. Additionally, the final rule amends the rule that governs coverage for mortgage servicing accounts to allow principal and interest funds advanced by a mortgage servicer to be included in the deposit insurance calculation. The rule became effective on April 1, 2024, allowing depositories and insured depository institutions almost two years to prepare for the changes in coverage. II. Trust Accounts Under the final rule, a deposit owner’s trust deposits will be insured in an amount up to $250,000 for each of the trust beneficiaries, not to exceed five, regardless of whether a trust is revocable or irrevocable, and regardless of contingencies or the allocation of funds among the beneficiaries. This will result in a maximum amount of deposit insurance coverage of $1,250,000 per owner, per insured depository institution for trust deposits. III. Mortgage Servicing Account Deposits The deposit insurance rules for mortgage servicing accounts comprised of principal and interest funds currently provide coverage based on each mortgagor's payments of principal and interest into the mortgage servicing account, up to $250,000 per mortgagor. Some servicers advance their own funds into the lenders on behalf of borrowers. Under the current rule, such advances are not provided the same level of deposit insurance coverage as other deposits in a mortgage servicing account comprised of principal and interest payments directly from the mortgagors. Under the final rule, servicers' advances of principal and interest funds on behalf of mortgagors would be insured up to $250,000 per mortgagor, consistent with the coverage for payments of principal and interest collected directly from mortgagors. Full-Text PDF The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 9 DOJ Website Accessibility GuidanceI. Introduction The Department of Justice (DOJ) has issued guidance providing additional clarity about website accessibility and how businesses can ensure compliance with the Americans with Disabilities Act (ADA). The guidance provides examples of website accessibility barriers, clarifies when the ADA requires web content to be accessible and offers tips for improving website accessibility. The guidance describes how businesses open to the public can make sure that their websites are accessible to people with disabilities as required by the ADA. II. Examples of Website Accessibility Barriers The ways in which websites are designed and set up can create unnecessary barriers that make it difficult or impossible for people with disabilities to use websites. The guidance provides the following examples of website accessibility barriers:
III. When the ADA Requires Web Content to be Accessible Businesses that are open to the public (Title III)
IV. How to Make Web Content Accessible to People with Disabilities The DOJ does not have a regulation setting out detailed standards, but the Department's long-standing interpretation of the general nondiscrimination and effective communication provisions applies to web accessibility. Businesses can currently choose how they will ensure that the programs, services and goods they provide online are accessible to people with disabilities. Existing technical standards provide helpful guidance concerning how to ensure accessibility of website features. These include the Web Content Accessibility Guidelines (WCAG) and the Section 508 Standards, which the federal government uses for its own websites. Check out the resources section for more references. Even though businesses have flexibility in how they comply with the ADA's general requirements of nondiscrimination and effective communication, they still must ensure that the programs, services and goods that they provide to the public - including those provided online - are accessible to people with disabilities. Businesses should consider a variety of website features when ensuring that their websites are accessible. The resources section has links to organizations that explain how to make websites accessible. Examples of what businesses should do to make websites accessible include (but are not limited to) the following practices:
Full-Text PDF The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
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