During the week of January 6, the CFPB released a “second” Winter 2024 Supervisory Highlights, focused on the agency’s most recent findings in deposits, small dollar lending, buy now, pay later (BNPL), paycheck advance products, and furnishing. Some key takeaways include:
Compliance Failures with Deposit Accounts
The Bureau reported that in recent examinations of depository institutions and service providers, companies were cited for unfair acts and practices for charging consumers unfair unanticipated overdraft fees, such as authorize-positive settle-negative (APSN) overdraft fees. Supervision continued to cite institutions in connection with charging consumers NSF fees on transactions that already incurred an NSF fee when it was previously declined. In addition, the Bureau cited service providers for unfair acts and practices by having their technology platforms continue to assess APSN fees unless client institutions specifically took action to avoid assessing these fees (even though the service provider knew that the fees should not be assessed). Finally, examiners cited institutions for unfair acts and practices for not offering consumers a way to easily stop preauthorized debit card transactions (which can be done through a network-based stopped payment service). (See here, here, and here for our previous discussions on the oversight of overdraft fees.)
Furnisher Compliance Failures
Furnishers of credit data were also cited for failures under the Fair Credit Reporting Act (FCRA). Key issues included furnishers’ inability to process identity theft block requests, inadequate investigations of consumer disputes, and deficient policies for ensuring data accuracy and integrity. The report highlights that deficiencies in furnishers’ internal controls regarding the accuracy and integrity of furnished information led to failures in identifying, and promptly remediating, accounts that were furnished inaccurately. Examiners also found that furnishers failed to conduct reasonable investigations of indirect disputes where they utilized automated dispute response systems. Furnishers, through their automated dispute response systems, verified the information subject to the dispute even though the furnishers’ records were insufficient to confirm the information. (We previously discussed FCRA compliance issues here and here.)
Small Dollar Lender Compliance Failures
Examiners found that BNPL lenders engaged in unfair acts or practices by delaying the resolution of consumer disputes, leaving consumers waiting months for refunds on items or services not delivered as promised, and also by allowing misleading advertisements about loan costs and terms to appear on merchant partner websites, confusing borrowers.
Paycheck advance lenders faced scrutiny for allegedly deceptive and abusive practices. Examiners found that lenders’ consumer interfaces misrepresented how tips were allocated, falsely suggesting they directly helped other borrowers when, in reality, tips were added to general revenue. Examiners found that certain paycheck advance lenders obstructed consumers from closing accounts and continued debiting funds despite claims that accounts could be closed at any time. Some lenders’ payment platforms engaged in unfair acts and practices by blocking consumers from accessing linked deposit accounts due to outstanding advances, which the Bureau claims exacerbated consumer financial harm. (See here, here, and here for our previous discussions on the regulation of paycheck advance lenders.)
Putting It Into Practice: This edition of the CFPB’s Supervisory Highlights offers critical lessons for financial institutions aiming to avoid regulatory scrutiny and protect consumers. Institutions should conduct thorough reviews of their policies and practices, particularly regarding fee structures, credit reporting, and dispute resolution mechanisms.
- For Deposit-Related Practices: Institutions should review how overdraft and NSF fees are assessed, paying close attention to configurations in core banking systems. Proactively addressing these issues can prevent harm to consumers and reduce exposure to regulatory penalties.
- In the Realm of Credit Reporting: Furnishers should prioritize the accuracy and integrity of data furnished to consumer reporting agencies. This includes implementing robust procedures to handle identity theft disputes, thoroughly investigating consumer disputes, and rectifying systemic data issues to ensure compliance with the FCRA and Regulation V.
- For Emerging Products like BNPL and Paycheck Advances: Financial institutions should establish clear policies to resolve disputes promptly and ensure accurate and transparent marketing practices. This includes monitoring third-party advertising to prevent misleading claims and adopting systems that facilitate timely refunds and accurate disclosures.