On December 9, the OCC released its Semiannual Risk Perspective for Fall 2019. The report covers risks facing national banks and federal savings associations based on data as of June 30, 2019 and presents information in five main areas: the operating environment, bank performance, special topics in emerging risk, trends in key risks, and supervisory actions. While noting the sound financial performance of banks generally, the OCC identified the following key risks facing the industry:
- Operational risk is elevated as banks adapt to a changing and increasingly complex operating environment. Key drivers elevating operational risk include the need to adapt and evolve current technology systems for ongoing cybersecurity threats.
- Credit risk has accumulated in many portfolios. Banks should prepare for a cyclical change while credit performance remains strong. Preparation includes maintaining robust credit control functions, particularly credit review, problem loan identification and workout, collections, and collateral management.
- Recent volatility in market rates has led to increasing levels of interest rate risk. The complexity of asset/liability management is exacerbated by the recent yield curve inversions.
- The London InterBank Offered Rate (Libor) will likely cease to be an active index by the end of 2021. Accordingly, the OCC is increasing regulatory oversight of this area to evaluate bank awareness and preparedness.
- Banks face strategic risks from non-depository financial institutions, use of innovative and evolving technology, and progressive data analysis capabilities.
The report also highlights cybersecurity and technology management as a special topic in emerging risks.
On December 4, the FSOC issued final interpretive guidance regarding nonbank financial company designations (Guidance), replacing prior interpretive guidance issued by FSOC in 2012 and 2015. The Guidance prioritizes an activities-based approach, over an entity-specific approach, to FSOC’s efforts to identify, assess, and address potential risks to U.S. financial stability by identifying and evaluating products, activities, and practices that could pose such risks. The Guidance is also intended to enhance FSOC’s analytic framework for nonbank financial company designations and create a more efficient and effective designation process. Notably, the Guidance consolidates the prior three-stage determination process into two stages by eliminating a prior stage one that had applied quantitative metrics to a broad group of nonbank financial companies to identify those for further evaluation; eliminates the six-category framework set forth in prior guidance; and clarifies the “off ramp” toward rescission of a nonbank financial company designation. The Guidance will be effective 30 days after publication in the Federal Register.
Enforcement & Litigation
On November 25, the CFPB filed concurrent consent orders against a Kentucky-based military travel loan lender (here) and its loan servicer (here). The lender sold and financed airline tickets to military servicemembers and their families from 2010 to 2016 by both facilitating financing by other creditors and originating loans itself. The CFPB alleged that the lender provided documentation to customers that failed to include the actual finance charge, a description of the total amount financed, and the total payment amounts. The lender also failed to include a mark-up imposed on tickets purchased using financing when providing the actual finance charge and the annual percentage rate (APR) to customers. Further, in 2012, the lender began accepting upfront payment for the airline tickets it sold, typically with debit or credit cards. But for tickets purchased using financing, the lender charged mark-ups averaging 109% of the cost. The lender also instructed employees to provide false answers regarding the lender’s interest rates in response to customer inquiries. The lender’s servicer began purchasing the finance contracts from the lender in 2014, and furnished consumer information about the contracts to consumer-reporting agencies. Read the Enforcement Watch blog post.
On November 22, the CFPB announced that it had filed a proposed stipulated judgment in the federal district court in the Southern District of New York that would resolve claims that a New York-based employment background screening company violated sections 605(a), 607(b), and 613(a) of the Fair Credit Reporting Act (FCRA), 5 U.S.C. §§ 1681c(a), 1681e(b) and 1681k(a). The CFPB alleges that the company, which prepares background screening reports on individuals applying for jobs, did not have adequate policies and procedures in place to ensure utmost accuracy of the information it provided to prospective employers. Read the Enforcement Watch blog post.
On November 19, the Massachusetts Attorney General’s Office (AG) announced that it had settled its investigation into a used car dealership’s allegedly unfair and deceptive sales practices in violation of the Massachusetts Consumer Protection Act. The AG alleged that the Massachusetts car dealership and its owner misrepresented material information about the used cars sold, sold add-on service contracts that did not cover purchased vehicles, falsified down payments, and added undisclosed fees. Read the Enforcement Watch blog post.
On November 15, the Eleventh Circuit decertified a Telephone Consumer Protection Act (TCPA) class in Cordoba v. DIRECTV, LLC (No. 18-12077, 2019 WL 6044305), finding that the plaintiff could not adequately identify potential class members without resorting to individualized inquiries. The plaintiff alleged that DIRECTV failed to maintain an internal “do not call” list to track consumers who stated that they did not want to receive telemarketing calls, and called customers who indicated that they did not want to be called in violation of the TCPA regulation 47 C.F.R. 64.1200(d)(3). Although the district court certified a class, the Eleventh Circuit ultimately concluded that the class could not be certified because the plaintiff could not demonstrate how many potential class members actually asked DIRECTV not to contact them, or how they could prove that they made such a request to DIRECTV, in order to establish an Article III injury for purposes of standing. Read the LenderLaw Watch blog post.