CFPB Grants Reprieve on Prepaid Accounts Rule

By Mary Crotty, Freelance Writer for Banks and Third-Party Service Providers

Making good on a promise it made in December, the Consumer Financial Protection Bureau (CFPB) yesterday announced that it is officially delaying the effective date of its Prepaid Accounts Rule along with other changes to its original final rule on the matter.

Effective Date for Prepaid Accounts Rule Moves to April 1, 2019

Financial institutions that issue prepaid accounts and cards will now have until April 1, 2019 to comply with the CFPB’s rule. This additional year, which provides time for issuers to update their prepaid card packaging to meet new disclosure requirements, appears to be the CFPB’s compromise between issuers’ need for additional preparation time and the Bureau’s continued stance that this increasingly popular consumer financial product should benefit from consumer protection regulations.

The other two major changes announced on January 25 also reflect this sentiment.

Error Resolution and Liability Changes

Under the Final Rule’s amendment, “financial institutions are not required to resolve errors or limit consumers’ liability on unverified accounts.” The CFPB indicates that this change is intended to encourage consumers to register their prepaid accounts in order to enjoy their full utility, while ultimately lessening the compliance burden of this rule on financial institutions.

In addition, financial institutions will not be required to retroactively resolve errors or limit liability on transactions made prior to the account verification.

Provision for Credit Cards Linked to Digital Wallets

The CFPB estimates that $116 billion will be loaded onto prepaid accounts by the year 2020. This rapidly escalating number is fueled in part by credit card holders linking their credit card accounts to digital wallets, which fall under the prepaid accounts definition. The final major change from the CFPB “ensures consumers continue to receive full federal credit card protections on their traditional credit card accounts while making it easier for them to link those accounts to digital wallets that can store funds.”

Make Sure to Update Employees on Revised Effective Date

The project team within your institution that is working on preparations for the Prepaid Accounts Rule implementation should communicate the revised effective date to all relevant departments to ensure that everyone is aware of the delay and understands the other changes associated with this rule amendment.

 

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OCC Warns Banks Against Complacency

By Mary Crotty, Freelance Writer for Banks and Third-Party Service Providers

Twice a year the Office of the Comptroller of the Currency (OCC) releases a summary of current and emerging risk trends for the banking system. The OCC’s latest “Semiannual Risk Perspective for Fall 2017” (Perspective) was published last Friday, January 18, and is based on financial data compiled and analyzed through June 30, 2017.

While noting a strong economy and continued improvement in overall bank performance, the Perspective does sound some warning bells. “The current operating environment presents strategic risk for many banks in increasingly diverse ways. Thus, this report emphasizes the need for vigilance by bank management at this point in the economic cycle.”

OCC-Noted Risk Areas

  • Credit Policy and Practices: The OCC warns that banks are slowly loosening their commercial credit underwriting practices due to increased competition. It also noted an increased concentration in Commercial Real Estate (CRE), a trend it noted could hurt the entire financial system if not monitored and checked.
  • Cybersecurity Programs: Cyber criminals continue to evolve their methods and tools faster than bank cybersecurity programs can keep up.
  • Vendor Management Programs: Banks’ increasing reliance on third-party service providers, especially for critical functions, continues to concern the OCC.
  • Bank Secrecy Act (BSA) Compliance: Just like cybercrime, money laundering continues to evolve into an ever more complex crime that creates significant problems for banks. The OCC warns that banks are struggling to comply with the BSA, even before the related Customer Due Diligence (CDD) Final Rule goes into effect on May 11, 2018.
  • Consumer Protection Compliance: According to the Perspective, consumer compliance risk management continues to be an issue for banks “due to the increasing complexity in consumer compliance regulations.”
  • Current Expected Credit Loss (CECL) Model: The OCC also warns that the “current expected credit losses standard for which implementation begins in 2020 may pose operational and strategic risk to some banks when measuring and assessing the collectability of financial assets.”

Avoid Complacency

The Perspective reads like a road map for determining what areas will receive the most attention during upcoming regulatory examinations. There are two things your bank can do right now to improve its performance on such examinations:

  1. Review the following policies and make sure processes and procedures reflect any updates: Credit Policy, Cybersecurity Policy, Vendor Management Policy, Bank Secrecy Act Policy, UDAAP Policy and other consumer protection policies.
  2. Reiterate your bank’s policy stances by communicating them with your employees.

Civil Money Penalty Maximums Going Up

By Mary Crotty, Freelance Writer for Banks and Third-Party Service Providers

If your bank or credit union is cited for a compliance violation this year, expect to pay more. Within the last week, each of the primary financial regulatory agencies announced increases to their maximum civil money penalties (CMPs). These increases adjust for inflation as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

Financial Regulatory Agencies Announce CMP Maximum Increases

On January 10, the Board of Governors of the Federal Reserve System (Fed) published a final rule adjusting its CMPs for inflation, which was effective that same day.

The Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB) each published a final rule for adjusting maximum CMPs on January 12 with an effective date of January 15, 2018.

For its part, the Office of the Comptroller of the Currency  (OCC) issued A Notice of Monetary Penalties 2018 that is “applicable to penalties assessed on or after January 12, 2018, for conduct occurring on or after November 2, 2015.”

Finally, the National Credit Union Administration (NCUA) issued its final rule in the Federal Register on January 16 with an effective date of January 15, 2018.

Communication Is Key to Avoiding CMPs

Well written documentation and routine communication with employees about your organization’s compliance requirements is a vital part of a sound and robust compliance program. If you need help creating compliance documentation or communicating policy updates or requirement changes, contact bank risk and compliance writer Mary Crotty at marycrottywriting@gmail.com.