On June 2, the FDIC announced a settlement with eight financial institutions to resolve federal and state securities law claims based on the institutions’ residential mortgage-backed securities (RMBS) practices. As the receiver for five failed banks from November 2011 through August 2012, the FDIC filed six lawsuits for alleged violations of federal and state securities laws. Specifically, according to the FDIC, the eight financial institutions made misrepresentations in offering documents in connection with the sale of 21 RMBS to the five failed banks. The $190 million in settlement funds will be distributed among the receiverships for the five failed banks.
FFIEC Issues Cybersecurity Statement, Comments on Recent Attacks on Interbank Messaging and Payment Networks
On June 7, the FFIEC issued a statement on behalf of its members (the OCC, Federal Reserve, FDIC, NCUA, CFPB, and State Liaison Committee) advising financial institutions to “actively manage the risks associated with interbank messaging and wholesale payment networks.” According to the statement, recent cyber attacks against interbank networks and wholesale payment systems have demonstrated the ability to: (i) bypass information security controls and compromise a financial institution’s wholesale payment origination environment; (ii) “obtain and use valid operator credentials with the authority to create, approve, and submit messages”; (iii) make use of sophisticated understanding of funds transfer operations and operational controls; (iv) disable security logging and reporting by using highly customized malware, as well as conceal and delay detection of fraudulent transactions with the use of other operational controls; and (v) quickly transfer stolen funds across multiple jurisdictions. Read more…
CFPB, Federal Banking Agencies, and NCUA Issue Interagency Guidance Regarding Deposit Reconciliation Practices
On May 18, the CFPB, the Federal Reserve, the OCC, the FDIC, and the NCUA issued interagency guidance on supervisory expectations regarding customer account deposit reconciliation practices. According to the guidance, banks create a “credit discrepancy” if they credit a customer a different amount than the total of the items the customer tried to deposit into an account. In further explaining what constitutes a credit discrepancy, the guidance states, “the customer may deposit $110 to an account, but may indicate on the deposit slip that only $100 has been tendered. In this case, the financial institution may credit $100 to the customer’s account as indicated on the deposit slip without reconciling the $10 discrepancy.” According to the guidance, some financial institutions fail to correct the inconsistencies between the dollar value of items deposited to the customer’s account and the amount actually credited to that same account. This is a potential violation of (i) the Expedited Funds Availability Act’s, as implemented by Regulation CC, requirement to make deposited funds available for withdrawal within prescribed time limits; (ii) the FTC Act’s ban of unfair or deceptive acts or practices; and (iii) the Dodd-Frank Act’s prohibition of unfair, deceptive, or abusive acts or practices. In addition to reminding financial institutions of their obligations to comply with the aforementioned applicable laws, the guidance stresses that financial institutions are expected to “adopt deposit reconciliation policies and practices that are designed to avoid or reconcile discrepancies, or designed to resolve discrepancies such that customers are not disadvantaged.”
On May 25, the FDIC published a report titled “Opportunities for Mobile Financial Services to Engage Underserved Consumers.” The report is the product of FDIC qualitative research with consumers and industry stakeholders regarding mobile financial services’ (MFS) potential to increase economic inclusion. The report identifies the following areas as core financial needs for underserved consumers: (i) control over finances, noting that consumers want to know precisely when and why money is withdrawn from an account; (ii) access to money, stressing that consumers expect financial providers to make funds available as quickly as possible; (iii) convenience, emphasizing the value consumers place on features that save time or effort when making a transaction; (iv) affordability, commenting that consumers aim to “minimize or avoid fees for account maintenance and everyday transactions”; (v) security, emphasizing consumers’ need for protection from theft of funds or personal information; (vi) customer service, with a consumer expectation for having access to live help through their preferred banking channel; and (vii) long-term financial management (i.e., advice on money management or the availability of tools to meet financial goals). According to the report, mobile banking “helps meet consumer needs in areas where traditional banking is perceived to be weak.” Specifically, the report states that mobile banking improves the convenience of banking services, helps consumers maintain better control of their finances, and, in some cases, is more affordable than traditional banking. The FDIC concluded that “consumers make tradeoffs when selecting financial services on certain financial needs.” As such, the report makes suggestions based off consumer feedback as to how both MFS and traditional banking services can better streamline their products to best benefit the underserved, and how to address consumers’ real and perceived fears about the security risks of using MFS.
The FDIC’s report follows a May 3 letter seeking input regarding the FDIC’s plans to explore the economic inclusion potential of MFS. The FDIC requested that all feedback be submitted by June 15, 2016.
On April 26, the FDIC voted to approve a final rule that amends how small banks – those with less than $10 billion in total assets – are assessed for deposit insurance. The rule will (i) revise the financial ratios method, basing it on a statistical model that estimates the probability of failure over three years; (ii) update the financial measures used in the financial ratios method to ensure consistency with the statistical model; and (iii) eliminate risk categories for established small banks and use the financial ratios method to determine assessment rates for the small banks. According to FDIC Chairman Martin J. Gruenberg, the final rule will “allow future assessments to better differentiate riskier banks from safer banks . . . . [and] will better allocate the costs of maintaining a strong Deposit Insurance Fund.” The FDIC first published a proposed rule regarding the deposit insurance assessment of small banks in June 2015, and issued a revised proposal in January 2016. Intended to be revenue neutral, the final rule is effective July 1, 2016 with the following caveat: “[i]f the reserve ratio reaches 1.15 percent before that date, the assessment system described in the final rule will become operative July 1, 2016. If the reserve ratio has not reached 1.15 percent by that date, the assessment system described in the final rule will become operative the first day of the calendar quarter after the reserve ratio reaches 1.15 percent.”