In This Issue

• Learn About Security, Fraud and Risk Management on October 20
• CFPB Finalizes New Rules, Disclosures on Prepaid Products
• OCC Issues Guidance on AML/BSA Risk Management
• CFPB to Publish List of Companies Offering Free Credit Scores
• ABA: FDIC Exam Appeals Changes Need to Go Much Further

• CFPB Issues Exam Procedures for Military Lending Act Changes

Learn About Security, Fraud and Risk Management on October 20

The SDBA will hold its Bank Security Management Training: Security, Fraud and Risk Management on Oct. 20 in Sioux Falls. The training will be held at Clubhouse Hotel & Suites.

This seminar will highlight issues impacting the banking industry on fraud trends, card fraud and physical security issues. This fast-paced training will focus on issues that are sometimes not considered by bankers who are taxed to the limit with the operational challenges of running their banks. The instructor will present current trends and include examples of how financial institutions and law enforcement are responding to today’s perils.

Topics will include No Trojan Horse Required--How the Crooks Exploit Banks, Using Social Media in Investigations, Physical Security/Robbery Preparedness, and The Insider Threat--Don't Look the Other Way.

Learn more and register.

CFPB Finalizes New Rules, Disclosures on Prepaid Products

 
The Consumer Financial Protection Bureau yesterday issued final rules on prepaid financial products, including prepaid cards and digital wallets that store and transfer funds. The final rule includes many elements formalizing consumer protections already offered by banks that provide these products, such as those related to unauthorized transactions. The bureau made some improvements reflecting the feedback from ABA and others, but the proposal could create steep compliance barriers and limit services to “underbanked” individuals.

“Many people choose prepaid products as a useful alternative to a traditional checking account,” said ABA SVP Nessa Feddis. “ABA will review the rules closely to ensure they protect bankers’ ability to offer convenient, affordable prepaid products for consumers who may not want a traditional checking account or are just looking for a simple solution for managing their money.”

The final rule allows prepaid issuers to provide account information online in lieu of periodic statements. After a customer registers a card, issuers would also be required to resolve account errors promptly and protect customers against unauthorized or fraudulent transactions--protections that customers already enjoy due to card network rules. The final rule also includes a standard set of two disclosures--one short and one longer--detailing key account information and fees, plus online posting of account terms.

The final rule includes several small tweaks intended by the bureau to reduce unnecessary compliance burdens associated with the disclosure requirements, such as requiring disclosure of two fees rather than three and extending the time period after which disclosures must be updated. The bureau said it made other changes related to disclosures for payroll card accounts and aligned its periodic statement alternative with the practices of many financial institutions.

The CFPB also changed the requirement for public posting of prepaid agreements to cover only agreements offered to the general public. While the final rule takes effect on Oct. 1, 2017, issuers will not be required to submit their agreements until Oct. 1, 2018. ABA experts will review the full rule--nearly 1,700 pages--in depth and issue a staff analysis in the coming weeks.

• Read the final rule.
• View the required disclosures.
• Read ABA’s comment letter.
• For more information, contact ABA’s Nessa Feddis.

OCC Issues Guidance on AML/BSA Risk Management

 
As promised by Comptroller of the Currency Thomas Curry last week, the OCC yesterday released guidance articulating its expectations for banks with respect to terminating foreign correspondent relationships. The guidance addresses the recent “derisking” trend in anti-money laundering and Bank Secrecy Act compliance.

The guidance directs banks to establish and implement procedures for periodically reevaluating the risk posed by foreign correspondent relationships, taking into account the risks present in foreign institutions’ business and markets, the anticipated account activity and the supervisory regime of the geographic location in which the foreign financial institution is licensed. Reevaluations should be performed periodically for all foreign correspondent accounts, and banks making decisions to terminate foreign correspondent relationships should base their determinations on these reevaluations.

Along with the guidance, the OCC included “best practices” for banks when conducting risk reevaluations, which include establishing a governance function to review and monitor recommendations regarding foreign account termination; ensuring that decisions are properly communicated to both senior management and the foreign financial institution in question (if permitted by law); and ensuring proper documentation of the decision-making process before taking any steps to terminate a foreign correspondent accounts. As part of that process, the agency expects banks to consider the effects account closure might have on the foreign correspondent, particularly with respect to accessing banking services.

Unlike most BSA/AML guidance typically released under a joint-agency approach, the guidance was issued independently by the OCC and without industry input. ABA is currently in the process of analyzing the guidance, but fears that the expectations outlined by the agency (which are often interpreted as mandates by examiners) could ultimately serve to perpetuate the derisking trend rather than curb it. Additionally, ABA noted that establishing a set of requirements that must be met before a bank can terminate a foreign correspondent relationship may run contradictory to the agency’s claim that it “does not direct banks to open, close or maintain individual accounts.”

• View the guidance.  
• Read Curry's speech.
• For more information, contact ABA's Rob Rowe.

CFPB to Publish List of Companies Offering Free Credit Scores

 
The Consumer Financial Protection Bureau has announced plans to compile and publish a list of companies that offer customers access to a free credit score, which the bureau said would help “bring customer attention to the topic of credit scores, and follow up with content to educate, inform and empower consumers on the availability of credit scores and credit reports an how consumers can use this information.”

In a Federal Register notice today, the CFPB invited financial institutions to request inclusion on the list. To meet the inclusion criteria, a company must be a credit card issuer; offer “at least some, but not necessarily all” existing customers the ability to obtain a free credit score which either the company or other lenders use for account origination, portfolio management or other business purposes; offer access to a credit score on a continuous basis, as opposed to on a time-limited or promotional basis; and periodically update the credit score. The bureau said it may also consider expanding the scope of the list to include companies that are not credit card issuers in the future.

The CFPB has previously pressed card issuers to make consumers’ credit scores available for free--in letters to bank CEOs in 2014, Director Richard Cordray said that the bureau would consider doing so a “best practice” for card issuers. While the bureau said that participation in the list is not connected to any supervisory activity, ABA is concerned that this action could further pressure banks to provide free credit scores, which could add to the cost burden for community banks in particular. Read the notice. For more information, contact ABA's Nessa Feddis.

ABA: FDIC Exam Appeals Changes Need to Go Much Further

 
The FDIC’s proposed supervisory changes to expand banks’ exam appeals options are positive but not nearly enough to address exam fairness problems, ABA said in a comment letter on Monday. The letter provided feedback on the FDIC’s proposal to amend its supervisory guidelines to expand banks’ rights to appeal exam decisions and improve consistency with other agencies’ appeals processes, which came after a blistering report earlier this year from the agency’s independent watchdog on the FDIC’s handling of banks making tax refund anticipation loans.

The FDIC’s proposal would allow banks to appeal a determination of compliance with an existing formal enforcement action and a determination to initiate an informal enforcement action. It would also modify when formal enforcement actions become unappealable and provide additional Supervision Appeals Review Committee appeal rights.

While ABA welcomed the changes as “minor but positive,” ABA said the proposed guidelines “fall well short of establishing an independent appeals process that would allow prompt and adequate correction of examination excesses and errors,” adding that “[w]e are aware of other cases where errors from the field are not corrected by [examiners’] supervisors. There is no independent avenue for appealing this internal review process when it proves inadequate.”

ABA supports bipartisan exam fairness legislation in both houses of Congress that would provide an independent appeals option to financial institutions along with safeguards to protect against retaliation, and the association urged the FDIC to lend its support to the bills. Read the letter. For more information, contact ABA’s Shaun Kern.

CFPB Issues Exam Procedures for Military Lending Act Changes

 
The Consumer Financial Protection Bureau last Friday issued examination procedures for the amendments to the Military Lending Act rule. The procedures are based on those developed jointly by other banking agencies.

The bureau’s early MLA compliance examinations will focus on financial institutions’ compliance management systems and overall efforts to comply, including implementation plans, actions to update policies and procedures, staff training and handling of early implementation hurdles.

The MLA amendments--which extend MLA restrictions to cover credit cards, lines of credit, installment loans and deposit advances offered to service members and their dependents--took effect on Monday (though credit cards have a later compliance deadline of October 2017).

• View the exam procedures.
• View ABA’s MLA compliance checklist.
• View ABA’s MLA resource page.
• For more information, contact ABA’s Nessa Feddis or Rob Rowe.