Weekly RoundUp
March 9, 2023

FINRA Provides Update on Social Media Influencers, Customer Acquisition and Related Information Protection

In this Weekly Roundup Issue. The Financial Industry Regulatory Authority (FINRA) provided an update on social media influencers, customer acquisition and related information protection; the Consumer Financial Protection Bureau (CFPB) issued the 29th edition of its supervisory highlights that included a focus on junk fees; the CFPB and National Labor Review Board (NLRB) signed an information sharing agreement in the interest of identifying and ending financial practices that harm workers and enhancing the enforcement of federal consumer financial protection and labor laws and regulations; and the Securities and Exchange Commission (SEC) solicited public comments on fixed income clearing corporation proposed rule change revising the stressed period used to calculate the value-at-risk charge. These and other developments are discussed in more detail below.

Regulatory Developments

In February, FINRA provided an update (Update) concerning the targeted exam (Sweep) launched in September 2021 to review firms’ practices concerning customer acquisition through social media channels and the way firms share customer usage information with affiliates and non-affiliated third parties. The Update summarizes selected practices FINRA has observed firms implement to this point in the Sweep. The selected practices include those covering social media influence and referral programs and privacy notices.  

  • Social Media Influencer and Referral Programs
    Firms should consider the following practices as they evaluate their social media influencer and referral programs, including whether their practices and supervisory systems are reasonably designed to address relevant risks such as, maintaining written supervisory procedures focusing on social media influencer and referral programs, evaluating potential social media influencers’ background and prior public social media activities for compliance and reputational risks before admitting them into their social media influencer programs, providing training and defining permitted and prohibited conduct for social media influencers, maintaining records of social media influencer and referral program communications with the public consistent with applicable SEC and FINRA recordkeeping obligations, addressing social media influencer- and referral program-related compliance and reputational risks and concerns. 
  • Privacy Notices
    Firms must comply with their obligations pursuant to Regulation S-P and other applicable laws, rules, and regulations for protecting customer nonpublic information (“NPI”) and are limited in disclosing customer NPI with non-affiliated third parties. Firms should also consider other practices as appropriate as they evaluate whether their privacy program practices and supervisory systems are reasonably designed to address relevant risks and sharing of customers’ NPI with affiliates and non-affiliated third parties.   

CFPB Issues 29th Edition of Supervisory Highlights with Focus on Junk Fees

On March 8, the CFPB released its 29th edition of Supervisory Highlights with a focus on unlawful junk fees in the areas of deposits, auto servicing, mortgage servicing, payday and small dollar lending, and student loan servicing. The violations reported in the Supervisory Highlights were identified during examinations between July 1, 2022, and February 1, 2023, and include:

  • Deposits – Charging surprise overdraft fees or multiple non-sufficient funds fees that could not reasonably be avoided by account holders, irrespective of account disclosures; 
  • Auto Servicing – Charging late fees that exceeded the permissible amounts stated in borrowers’ contracts or that were not due because the loan was accelerated or the borrower’s car was repossessed, charging inflated estimated repossession fees, and charging payment processing fees that far exceeded servicers’ costs for processing payments; 
  • Mortgage Servicing – Charging late fees above the maximum permissible amounts stated in a homeowner’s mortgage contract, charging property inspection fees for visits to addresses known by the servicer to be incorrect, charging private mortgage insurance premiums to homeowners that did not owe any such premiums, and charging late fees, fees, and penalties charged and not waived in violation of the CARES Act and the Department of Housing and Urban Development’s additional protections; 
  • Payday and Small Dollar Lending – Charging repossession fees or retrieval fees for personal property in a vehicle that were not permitted in a borrower’s loan agreement, and charging fees despite prior payment arrangements. 
  • Student Loan Servicing – Charging late fees and interest after payments were made on time. 

Upcoming Goodwin webinar on this topic (Wednesday, March 15, 3:00 – 3:45 pm ET): Please join members of Goodwin’s leading Consumer Financial Services team as they discuss 1) CFPB Director Chopra’s movement to eliminate “junk fees,” and related regulatory focus, enforcement actions, and policy guidelines; and 2) what to know about the proposed Reg. Z Penalty Fee Rule and how it will impact longstanding CARD Act legislation and influence consumer credit card pricing strategy.
This webinar is open to current and prospective Goodwin clients. If you are interested in attending this webinar, please click here.

CFPB and NLRB Sign Information Sharing Agreement 

On March 7, the CFPB and NLRB signed a Memorandum of Understanding to share information with each other in the interest of identifying and ending financial practices that harm workers and enhancing the enforcement of federal consumer financial protection and labor laws and regulations. Harmful financial practices that will be a focus of the CFPB include:

  • Employers’ surveillance of workers outside of working hours and the sale of data obtained through that surveillance to financial institutions, insurers, and other employers;
  • Employers’ use of artificial intelligence or other technology to chill workers from exercising their labor rights; and
  • Debt incurred by workers for employer-mandated training or equipment that stymies workers from changing jobs for better wages or working conditions. 

“Employers’ practices and use of artificial intelligence tools can chill workers from exercising their labor rights. As our economy, industries, and workplaces continue to change, we are excited to work with CFPB to strengthen our whole-of-government approach and ensure that employers obey the law and workers are able to fully and freely exercise their rights without interference or adverse consequences.” 

- NLRB General Counsel Jennifer Abruzzo

SEC Solicits Public Comments on Fixed Income Clearing Corporation Proposed Rule Change Revising the Stressed Period Used to Calculate the Value-at-Risk Charge

On March 1, the SEC published for public comment a notice of proposed rule change filed by Fixed Income Clearing Corporation (“FICC”) to revise the stressed period used to calculate the value-at-risk charge. FICC has observed significant volatility in the U.S. government securities market due to tightening monetary policy, increasing inflation, and recession fears. The significant volatility has led to greater risk exposures for FICC. 
In order to mitigate the increased risk exposures, FICC proposed the following rule change: (i) amendments to the GSD Methodology Document – GSD Initial Market Risk Margin Model (“GSD QRM Methodology Document”) and the MBSD Methodology and Model Operations Document – MBSD Quantitative Risk Model (“MBSD QRM Methodology Document”, and collectively with the GSD QRM Methodology Document, the “QRM Methodology Documents”) in order to revise the description of the stressed period used to calculate the VaR Charge; (ii) amendments to the GSD QRM Methodology Document in order to clarify the language describing the floor parameters used for the calculation of the VaR Floor; and (iii) amendments to the QRM Methodology Documents to make certain technical changes.

Transfer-on-Death Designations: A Word of Warning

Although transfer-on-death (TOD) and payable-on-death (POD) designations on financial accounts can be an effective tool to avoid the probate process, these account designations have the potential to derail a customer’s estate plan when not coordinated properly with the overall plan. Prior to making a TOD/POD designation, customers should be cautioned about the potential pitfalls of doing so and advised to consult with an estate planning attorney to avoid unwanted results.
Read more about this topic in a recent client alert

SEC and FINRA to Securities Influencers: Disclose the Truth of Your Compensation, or Else!

The SEC has settled several cases of improper celebrity crypto endorsements over the past several years. The most recent example involved NBA hall of famer Paul Pierce, also known as the “Truth.” The crux of the SEC’s allegations in this and similar settlements is that the celebrities failed to adequately disclose the receipt and amount of the compensation they received for their promotions of securities. In particular, Section 17(b) of the Securities Act makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of consideration received or to be received.
Read more about this topic in a recent client alert.

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