CFPB Report November 14, 2014

CFPB Hosts Field Hearing on Prepaid Cards; Releases Proposed Rule

On Thursday, November 13, 2014, the CFPB, at a field hearing in Wilmington, DE, released its proposed rule on prepaid products. The hearing included opening remarks from CFPB Director Richard Cordray, a panel of consumer and industry representatives, and concluded with a question and answer session with the public.


"By bringing prepaid accounts under the Electronic Fund Transfer Act, we are proposing to give consumers the basic protections – including safety of the funds – they have come to expect when they pull a debit card out of their wallet or shop online with it. All prepaid consumers would receive the same basic protections as long as they register the card with the institution that provided it," Director Cordray said in his remarks.


Major points from the CFPB at the field hearing included:

  • Prepaid products are used primarily by vulnerable populations, predominantly the unbanked and underbanked;
  • The proposal's scope goes beyond general purpose reloadable prepaid cards and includes other prepaid products, such as payroll cards, and E-products like mobile wallets or PayPal, even when no physical card is issued;
  • Issuers must post agreements online and with the CFPB in order to give the public "the ability to size them up;"
  • The CFPB believes overdraft is impractical in the context of prepaid products.  

During the panel discussion, consumer groups generally favored the proposal as a positive step forward for consumers. However, they believe overdraft and FDIC pass-through insurance need improvement. The consumer groups appeared to disagree with the CFPB's proposal for allowing certain overdraft features. They also strongly suggested that FDIC insurance of the funds be mandatory. The Pew Charitable Trust advocated for their lengthy model prepaid disclosures, as Pew believes the proposed pre-purchase disclosures do not provide enough information for quality comparison shopping.


Industry panelists were generally supportive of the proposal, but stressed special attention should be paid to the details in order to protect innovation and access to the traditional banking system provided by prepaid cards. The panelists also agreed the application of Regulation E guidelines are appropriate, and consumer issues will be better served with a transparent and level playing field; nearly all current prepaid issuers are already providing these protections.


In response to the proposal, CBA President and CEO Richard Hunt issued a statement supporting the proposal with minor exceptions to ensure prepaid cards remain affordable and accessible.

CBA Submits CRA Comment Letter

On Monday, November 10, 2014, CBA submitted comments to the FDIC, OCC and the Federal Reserve Board regarding the proposed revisions to the Community Reinvestment Act Q&A, the vehicle collectively used by the agencies to interpret regulations.


In its comments, CBA supported the expansion of consideration of alternative delivery channels in the Service Test, as a greater recognition of the expanded role played by such channels in providing services to low and moderate income individuals. At the same time, CBA stressed the value of retaining branch location for the identification of the assessment area of traditional banks.


CBA applauded the additional guidance given throughout the Q&A, while stressing the importance of examples being non-exclusive, terms being used consistently, and flexibility being accorded wherever possible.


The comments emphasized the importance of examiner training in fully understanding bank performance and obtaining the full measure of the proposed Q&A revisions.


CBA will continue to monitor the issue and keep members informed.

CBA Sends Cyber Letter to Capitol Hill

On Wednesday, November 12, 2014, CBA and other trades sent a joint letter to Congressional Leadership and all Members of the U.S. House and Senate correcting misleading statements made in a Thursday, November 6, 2014 letter sent by elements of the retail industry to Congressional Leadership. CBA's letter also stresses the need for retailers to provide better data protection.


"National consumer notification alone – as advocated by the November 6th letter – will not solve this problem," CBA stated. "It is only when coupled with the development of strong internal data protection standards and robust oversight that the retail community will find itself in a better position to protect consumers and their confidential personal financial information from criminal abuse."

OCC Fines Banks for Exchange Manipulation

On Wednesday, November 12, 2014, the OCC announced it had fined three banks a total of $950 million for alleged manipulation of certain foreign exchange rates. "These enforcement actions were taken because several large banks permitted an environment to develop in which unscrupulous traders discussed manipulating foreign exchange markets," Comptroller of the Currency Thomas Curry said in astatement. "Our action today, and those of our fellow regulatory agencies here in the United States, in the United Kingdom and in Europe, sends a very strong signal that such misconduct will not be tolerated."

CBA Default Management Committee Meets with OCC

On Friday, November 12, 2014, representatives from the CBA Default Management Committee (DMC) met with the OCC to discuss its Monday, August 4, 2014 bulletin on debt sales. While the committee appreciated the OCC's efforts to provide guidance to the industry on debt sale practices, many DMC members were left confused by certain aspects of the bulletin. The meeting with the OCC was an opportunity for CBA members to voice concerns and for the agency to provide additional clarity to the industry.

Comments on CBA TCPA Petition Due Monday

Comments for CBA's Telephone Consumer Protection Act (TCPA) petition are due Monday, November 17, 2014. CBA's petition asks the Federal Communications Commission (FCC) to define "called party" as "intended recipient" for purposes of the TCPA's prior consent requirement. CBA appreciates member support to help guide the FCC towards a much-needed common-sense solution. For question on this issue, contact Kate Larson.

Federal Reserve Release Annual Index Amounts for Reserve Requirement

On Thursday, November 13, 2014, the Federal Reserve released annual indexing for the reserve requirement exemption amount, and the low reserve tranche, which are used to determine banks' reserve requirements amount.


For net transaction accounts in 2015, the first $14.5 million will be exempt from reserve requirements, which is an increase from the 2014 threshold of $13.3 million. A three percent reserve ratio will be assessed on net transaction accounts over $14.5 million up to and including $103.6 million, which is up from $89.0 million in 2014. A 10 percent reserve ratio will be assessed on net transaction accounts in excess of $103.6 million.

Loretta Lynch Nominated as U.S. Attorney General

On Saturday, November 8, 2014, President Barack Obama appointed Loretta Lynch to be the next Attorney General of the United States. Lynch is currently in her second stint as U.S. Attorney in Brooklyn, for which she was appointed by the President in 2010 and also served under President Bill Clinton from 1999 to 2001.


"It's pretty hard to be more qualified for this job than Loretta," said President Obama in a statement. "Throughout her 30-year career, she has distinguished herself as tough, as fair, an independent lawyer who has twice headed one of the most prominent U.S. Attorney's offices in the country. She has spent years in the trenches as a prosecutor, aggressively fighting terrorism, financial fraud, cybercrime, all while vigorously defending civil rights."


If confirmed by the Senate, Lynch would replace Attorney General Eric Holder who recently announced he is stepping down from the position.

Prudential Regulators Concerned For Credit Risk, Leveraged Lending

On Friday, November 7, 2014, the Federal Reserve, FDIC, and OCC released a statement entitled: "Credit Risk in the Shared National Credit Portfolio is High; Leveraged Lending Remains a Concern." In their Shared National Credits (SNC) review, which is conducted annually, the agencies found leveraged lending volume remains well above pre-crisis levels. The report also noted credit quality of these assets was down after seeing three consecutive years of improvement following the financial crisis.


The agencies also noted examiners have observed risk management weaknesses at several institutions engaged in leveraged lending. Regulators plan to monitor leveraged loans more closely and are working to conduct targeted reviews.

White House Announces Appointment for Under Secretary for Domestic Finance

On Wednesday, November 12, 2014, the White House announced the appointment of Antonio Weiss to serve as the Under Secretary for Domestic Finance at the U.S Department of Treasury. Weiss currently is the Global Head of Investment Banking for Lazard, and has been with the firm since 2009. If confirmed by the Senate, he will lead the Treasury Department on fiscal policy such as raising the debt ceiling, government assets and liabilities, and related economic matters. Weiss would replace Mary J. Miller, who announced this summer her plans to step down from the post.