May 2024 Newsletters

Last week, the United States Supreme Court issued its long-awaited decision on the challenge to the CFPB’s funding mechanism, which posed an existential threat to the agency. In short, the Court ruled that the CFPB’s funding does not violate the U.S. Constitution’s Appropriations Clause. Given that several of the CFPB’s recent rulemaking were delayed awaiting the Supreme Court’s decision, though, your next thought may naturally be, “well what’s next?”

Shortly after the ruling, the CFPB issued a statement about the decision, saying that “[T]he CFPB is here to stay.” And that “This ruling upholds the fact that the CFPB’s funding structure is not novel or unusual, but in fact an essential part of the nation’s financial regulatory system, providing stability and continuity for the agencies and the system as a whole.” In essence, the CFPB claims that it’s not going anywhere.

The day following the ruling, the CFPB held a virtual press conference to address industry uncertainty. The CFPB noted that multiple rules are still under challenge in different courts, including the payday lending rule, credit card late fee rule, and, the one everyone asks about, the Section 1071 small business lending rule. The CFPB indicated it would file for motions to lift stays for any matter that was paused in anticipation of the Supreme Court decision, meaning the agency intends to get the implementation of these rules back on its schedule. However, the CFPB also noted that in each of the stayed matters, opposing parties have raised arguments aside from the constitutional argument the Supreme Court just ruled on, and they will need to resume litigation efforts to fight these matters on the merits. Additional rulings in these outstanding cases could further impact the compliance dates or ultimate requirements for the rules, but whether that will happen remains to be seen. The CFPB also noted in its press conference that it anticipated a favorable outcome from the Supreme Court and that it is “firing on all cylinders” and expanding its enforcement department.

Compliance officers are quick to dismiss commercial loans as almost burdenless compared to consumer transactions. They worry about the alphabet soup of consumer compliance regulations, with “consumer” being the operative word. Commercial loans don’t involve consumers; therefore, there is no need to worry about consumer regulations, right? Wrong.

If I had to guess, I’d say most of your minds went to the Equal Credit Opportunity Act (ECOA) or its implementing regulation, Regulation B, as you read the opening paragraph. Just like with consumer applications, denying a commercial application requires Regulation B’s adverse action notice, so it is often thought of as a consumer regulation but it clearly applies in the commercial context. It would help if you also kept in mind that the rules on denying on a prohibited basis also apply in the commercial context and that the ever-dreaded 1071 rule also resides in Regulation B and is specifically directed at commercial credit.

Another obvious example of consumer rules applying to commercial credit is flood insurance. Commercial credit secured by a structure in a flood zone is subject to flood insurance rules just like consumer credit, with the notable exception being that there is an exemption from the escrow requirement.

Some banks are surprised to learn that the Servicemembers Civil Relief Act (SCRA) applies to commercial loans. The SCRA provides certain financial protections to servicemembers and, in some cases, their spouses, dependents, and other persons subject to the obligations of servicemembers. The SCRA’s protections apply to obligations contracted before entering military service, and no distinction is made between consumer and commercial credit, so don’t be so quick to SCRA when dealing with a servicemember’s business loan.

HMDA has an explicit exception for commercial credit: “The requirements of [HMDA] do not apply to … [a] closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose.” However, the exception goes on to note that it applies unless the credit meets the definition of a home purchase loan, refinancing, or home improvement loan under HMDA. Hence, the exception is much narrower than it seems at first glance. Banks need to remember the potential transactional reporting requirements that may apply when they have business credit secured by a dwelling.

Everyone knows that Regulation Z primarily focuses on consumer credit. Commercial credit is specifically exempted. However, two provisions may apply to credit cards issued for business purposes. First, credit cards can be issued, regardless of their purpose, only in response to an application, oral or written request, or as a substitute for or renewal of an existing card. Second, the regulation has provisions specifically applicable to the unauthorized use of a credit card where a card issuer provides ten or more credit cards for use by the employees of an organization.

The most common questions on the Compliance Hub Hotline about Regulation CC involve consumer check deposits. The regulation sets forth the requirements for banks to make funds deposited into transaction accounts available according to certain time schedules and disclose their funds availability policies to customers. The regulation applies to both consumer and commercial accounts, so remember that the next time a commercial customer comes in to make a check deposit.

Always question what you think you know in compliance and when you’re having doubts, please feel free to reach out to us on the Compliance Hub Hotline.

Marketing is the lifeblood of the banking industry. How to reach customers, when to reach customers, incentivize customers, and generate new sales and leads is a non-stop part of the industry. With people living their lives increasingly online, foot traffic has continued to decrease year over year, so banks are forever looking for new ways to connect with prospective clients. In the marketing-driven world, regulators and lawmakers alike have established restrictions on the ways in which marketing businesses, like banks, may engage with consumers.

The Telephone Consumer Protection Act (TCPA) emerged in response to growing concerns about invasive and unsolicited telemarketing practices that were becoming increasingly common in the late 1980s and early 1990s in the United States. As complaints about these intrusive telemarketing tactics mounted, Congress recognized the need to protect consumers from these unwanted communications. The TCPA was passed in 1991 to address these concerns and regulate various aspects of telemarketing, automated calls, and fax communications. It aimed to regulate telemarketing calls and specific practices, granting the Federal Communications Commission (FCC) regulatory authority under the law.

Over the years, the FCC implemented various rules under the TCPA, including establishing do-not-call lists and creating a national Do-Not-Call registry in 2003 to cover most telemarketers. The regulations also targeted reducing hang-up calls and dead air by imposing restrictions on autodialers and requiring Caller ID transmission. The FCC updated its rules in 2012, requiring explicit consent for automated calls and providing an opt-out mechanism for consumers. Further revisions in 2019 and 2021 introduced exemptions for reassigned telephone numbers, eliminated opt-out notices for fax advertisements with prior consent, and implemented exemptions for certain types of calls made by financial institutions.

Financial institutions, including banks and credit unions, fall under the purview of the TCPA regulations, subject to enforcement by regulatory bodies such as the FDIC, the Federal Reserve, the OCC, and the NCUA, not the FCC. Under section 8 of the Federal Deposit Insurance Act, these agencies can enforce compliance, issue cease and desist orders, restitution, and impose civil money penalties for TCPA violations. Declaratory rulings by the FCC serve as guidance for interpreting and applying TCPA regulations in specific scenarios. However, violations are cited based on the TCPA and its implementing rules rather than on these rulings. Violators may be fined up to $51,744 per violation, and each call may be considered a separate violation.

There is the closely related Telemarketing Sales Rule (TSR). This rule issued by the FTC affects the Telemarketing and Consumer Fraud and Abuse Prevention Act. This legislation gives the FTC and state attorneys general law enforcement tools to combat telemarketing fraud, gives consumers added privacy protections and defenses against unscrupulous telemarketers, and helps consumers tell the difference between fraudulent and legitimate telemarketing. A question that occasionally comes up on hotline is whether TSR applies to banks. In short, no, it does not. Banks fall outside of the FTC’s jurisdiction and, therefore, they are not subject to TSR.

If you have any questions or concerns about the TCPA or TSR, please feel free to contact the Compliance Hub hotline. You may also find our TCPA Cheat Sheet useful!