FDIC Reports on 2023 Consumer Compliance Exams

The FDIC summarized the results of consumer compliance examinations of supervised institutions in 2023 and offered recommendations to strengthen compliance management systems.

In a "Consumer Compliance Supervisory Highlights" Report, the FDIC identified the following problems and made related corrective recommendations:

• Part 328: Third-Party’s Misrepresentations of Insured Status and Misuse of FDIC’s Name or Logo. The FDIC observed instances where third parties misrepresented that uninsured financial products were FDIC-insured. The FDIC reported that in some cases, these third parties had relationships with FDIC-insured banks. To ensure compliance with Section 18(a)(4) of the FDI Act ("False advertising, misuse of FDIC names, and misrepresentation to indicate insured status,") and Part 328 ("False Advertising, Misrepresentation of Insured Status,") the FDIC recommended the following compliance procedures: (i) verifying representations, (ii) providing automated pop-up disclosures to better alert customers to account limitations, and (iii) ensuring board and management oversight involvement of the third-party relationship.
• Section 5 of the FTC Act: Substantiating Claims in the Advertising of Credit Builder Products. When advertising credit-building products, or credit building as a product feature, the FDIC recommended that institutions and third parties support claims about improvements in credit reports and score increases, and explain the potential for negative credit reporting.
• Regulation E: Managing Electronic Funds Transfer Act Dispute Investigations Handled by Third Parties. The FDIC reported that a financial institution, which outsourced its EFTA dispute process, systematically denied disputes for transactions authenticated by a security program without investigating, leaving consumers without recourse. This practice led to revoked provisional credits and denied resolution disputes. The FDIC recommended: (i) implementing an effective Content Management System ("CMS") to include a third-party oversight program; (ii) conducting reasonable investigations of all EFTA disputes, documenting investigation findings, and upon request providing consumers with the documents the institution relied upon in making its final determination on the consumer’s EFT dispute; (iii) confirming that Regulation E-related actions taken and procedures implemented by the third party on the bank’s behalf comply with laws and regulations; and (iv) verifying that the bank and third party provide adequate training to staff on Regulation E.
• RESPA Section 8: Payments for Mortgage Brokerage Services. The FDIC recommended monitoring mortgage broker relationships and providing training on the institution’s policies and procedures for both the institution’s employees and employees of third parties in a mortgage broker relationship with the institution.
• Fair Lending: Building Strong Third-Party Oversight and Internal Controls. The FDIC found fair lending violations involving institutions that partnered with third-party lenders to offer unsecured consumer loans and other credit products. The FDIC recommended (i) performing periodic risk assessments; (ii) instituting policies, procedures, and processes to address fair lending risks involving the use of third-party service providers; and (iii) ensuring agreements with third-party service providers protect a bank’s rights.
• Fair Lending: Evaluating Compliance with Anti-Discrimination Laws and Regulations. The FDIC said that most of the DOJ referral matters in 2023 involved discrimination, including findings of redlining, pricing for automobile financing and overt policies for the underwriting of credit. The FDIC recommended (i) improving the understanding of the bank’s reasonably expected market area and the demographics of the geographies within that area, (ii) evaluating the methods by which the bank obtains loan applications, and (iii) monitoring lending activity to assess the bank’s lending performance within the market area.