- Compliance & Regulation
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New regulations and updates to current regulations impact compliance policies for financial services professionals. Staff members need to know about these changes, what is expected of them, and when the changes take place to make sure they are compliant with all the regulations that affect them.
BAI constantly monitors regulation updates impacting the financial services industry. Many updates were passed in Q4 of 2022 that go into effect in Q1 of 2023. Below are some of the biggest changes that were passed, along with what needs to be done to be compliant with them.
Since multiple entities are involved when it comes to beneficial ownership, it is important to make sure all information is kept secure.
(FinCEN) issued a proposal to implement strict access and confidentiality safeguard requirements to protect sensitive BOI submitted to FinCEN’s confidential database. The database requirement was created under the Corporate Transparency Act (CTA), which was passed in 2021. The proposal includes the following measures:
If the proposal passes, organizations will need to update their Bank Secrecy Act/anti-money laundering policies and procedures to comply with the changes. Written comments on this proposed rule were due to be submitted on or before February 14, 2023.
When the Federal Reserve Board promulgated Regulation II, the market had not yet developed solutions to broadly support multiple networks over which merchants could route card-not-present debit card transactions. At the time, many networks could not process such transactions at all, while others could do so only with technology that was not widely deployed in the marketplace. In the decade since the adoption of Regulation II, however, technology has evolved to address these barriers, and most networks can now process card-not-present transactions. Recent data collected by the Board confirm that most single message networks are now capable of processing card-not-present transactions.
In light of these technological updates, the Board of Governors is adopting a final rule going into effect on July 1, 2023. The rule amends Regulation II to include the following:
To be compliant with these updates, banks must be able to do the following to process debit card transactions:
Overdraft fees were established as a way for financial institutions to approve transactions for consumers when they don’t have sufficient funds to otherwise make a purchase. More and more transactions are being done with auto draft though, and given
the way institutions settle previous transactions, some consumers might think they have a higher balance than they do. This has caused more instances of overdraft fees being assessed and has regulators looking at banks for UDAAP violations.
In most cases, an available balance is the ledger balance plus any deposits that have not yet cleared but are made available, less any pending (i.e., authorized but not yet settled) debits. Since consumers can easily access their available balance via mobile application, online, at an ATM, or by phone, they reasonably may not expect to incur an overdraft fee on a debit card transaction when their balance shows sufficient available funds. However, the way some institutions used back-office practices was both misleading and harmful to the consumer.
In September 2022, the Consumer Financial Protection Bureau (CFPB) found that a financial institution had engaged in unfair and abusive conduct when it charged authorize positive, settle negative (APSN) fees. They determined that the account had a sufficient available balance at the time the financial institution authorized the payment, but through complex background settlement practices, the financial institution ended up charging an overdraft fee to the consumer.
With this ruling by the CFPB, it is important for institutions to clearly lay out how they manage transaction settlements so consumers can have an accurate idea of how much money and what type of spending power they have before incurring an overdraft fee. Institutions need to monitor their UDAAP and overdraft policies and review and update procedures, disclosures, and practices if necessary to ensure compliance with the guidance.
In many circumstances, a check depositor has no control over whether a deposited check will be returned, and likely no reason to anticipate
that it will be. The check depositor generally cannot verify with the check originator’s depository institution, before depositing a check, that there are sufficient funds in the issuer’s account for the check to clear.
Many depository institutions have blanket policies of charging fees to the check depositor for every returned deposited item, irrespective of the circumstances of the transaction or patterns of behavior on the account. While certain entities, such as lenders and landlords, may be able to recoup such fees from the check originator, consumers generally cannot.
The CFPB issued a statement saying blanket policies of charging returned deposited item fees to consumers for all returned transactions irrespective of the circumstances of the transaction or patterns of behavior on the account are likely to be considered unfair. With that announcement, it is important for institutions to review their UDAAP and fee assessment policies and procedures, disclosures, and practices, and update them if necessary to ensure compliance with the guidance.
In many circumstances, a check depositor has no control over whether a deposited check will be returned, and likely no reason to anticipate that it will be. The check depositor generally cannot verify with the check originator’s depository institution, before depositing a check, that there are sufficient funds in the issuer’s account for the check to clear.
Many depository institutions have blanket policies of charging fees to the check depositor for every returned deposited item, irrespective of the circumstances of the transaction or patterns of behavior on the account. While certain entities, such as lenders and landlords, may be able to recoup such fees from the check originator, consumers generally cannot.
The CFPB issued a statement saying blanket policies of charging returned deposited item fees to consumers for all returned transactions irrespective of the circumstances of the transaction or patterns of behavior on the account are likely to be considered unfair. With that announcement, it is important for institutions to review their UDAAP and fee assessment policies and procedures, disclosures, and practices, and update them if necessary to ensure compliance with the guidance.
Crypto-assets are increasingly offered and marketed to consumers, including crypto-asset rewards incorporated into other products such as credit, debit, and prepaid cards and crypto-asset product offerings by person-to-person (P2P) payments platforms. As these offerings have increased, so too have consumers’ complaints to the CFPB related to crypto assets.
More than 8,300 complaints related to crypto assets were submitted to the CFPB from October 2018 to September 2022, most of which were made in the last two years. In these complaints, the most common issue selected was fraud and scams (40%), followed by transaction issues (with 25% about the issue of “Other transaction problem,” 16% about “Money was not available when promised,” and 12% about “Other service problem”).
The CFPB takes both consumer complaints and harm against consumers very seriously. We can expect them to use complaints about crypto assets to either create legislation to supervise cryptocurrency firms or investigate the claims and issue enforcement actions against cryptocurrency organizations to hold them accountable for unfair business practices.
On November 21, 2022, the Federal Communications Commission (FCC) clarified by a unanimous decision that ringless voicemail constitutes a “call” subject to the Telephone Consumer Protection Act (TCPA), for the same reasons the Commission found computer-generated text messages sent to a carrier’s text server to be calls for purposes of the TCPA. The TCPA protects consumers from unwanted robocalls, or an artificial or prerecorded voice to a wireless telephone number without the prior express consent of the consumer being called. The clarification means a company would be out of compliance with the Act for delivering ringless voicemails without receiving prior consent from the called consumer; such an act would be considered illegal. Violations of the rule could be enforced by the FCC or the consumer(s) could sue in court. On February 2, 2023, FCC Chairwoman Jessica Rosenworcel proposed the Commission take action and vote on adopting the new clarification.
An organization’s marketing and communication policies and procedures should be updated to clarify the ruling on ringless voicemails and how the organization will comply with the TCPA requirements if they are engaging in this type of activity. Once the policies and procedures have been updated, the organization should communicate the information to all staff to clarify the changes and expectations going forward.
BAI has almost 100 years of experience in the financial services industry. We have worked with over 2,300 banks, credit unions, and other financial institutions to help them improve their compliance programs. Understanding new regulation and regulatory updates that have been passed is important for lenders to be compliant with each governing body that makes the rules. BAI monitors financial regulatory entities to make sure people in the financial services industry know what changes are coming and what they need to do to prepare. For more information on how BAI can help you and your business stay ahead of regulation updates, visit here: info.bai.org/contact-bai
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