Consumer Compliance

Consumer Credit Protection Act

The Consumer Credit Protection Act (CCPA) is one of the central consumer protection laws in the United States. Such laws are designed to safeguard American consumers against fraud, deception, and other unfair business practices. Whereas some consumer protection laws regulate the advertising, quality, and safety of the goods and services consumers buy, the Consumer Credit Protection Act is specifically aimed at regulating the consumer credit industry. Credit is a kind of loan that makes it possible for consumers to buy things without paying for them outright, or all at once, at the time of the purchase. When a financial institution extends a line of credit or credit financing to a consumer, it means that the consumer is given permission to spend up to a predetermined amount of money and pay it back over time. Home mortgages, student financial aid, and credit cards are all examples of consumer credit. Financial institutions do not lend out this money for free; rather, they charge interest (a percentage of the money borrowed) and other fees for their services. Also, financial institutions do not lend money to every consumer who asks for it; there is always a risk that the borrower will not be able to repay it. Thus, credit lenders routinely conduct background checks on people who apply for credit, in order to verify that the applicant has a good history of paying his or her bills on time, can afford to repay the amount of money he or she has requested, and is generally a financially reliable person. A person’s credit report is a record of his or her financial history. If this report is deemed unfavorable by the lender, the applicant may be denied credit. Consumer protection legislation is implemented both at the state and the federal level. The CCPA is a federal law that was passed by Congress in order to shield consumers from unfair lending practices. Contained within the CCPA are the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and other subchapters, each addressing specific credit-lending issues. The CCPA is enforced by the Federal Trace Commission (FTC; a government agency whose mission it is to protect consumers from various kinds of abuses) and state consumer protection agencies.

When Did It Begin

Consumer credit was not widely available in the United States during the first half of the twentieth century. In the aftermath of World War II (1939–45), however, the nation experienced an unprecedented boom in population growth, home construction, and consumer spending. The 1950s also marked the birth of the consumer credit industry. The industry grew quickly, as more and more people began to rely on credit as a way to finance their lives. Without any existing regulations or government oversight, however, some lenders took advantage of borrowers by charging exorbitant interest rates or extending credit without fully disclosing the terms of the loan. It was not long before consumer advocates began to call for the government to establish guidelines to specify the difference between fair and unfair lending practices. In 1968 Congress passed the Consumer Credit Protection Act, the umbrella term for what has become a series of laws governing consumer credit transactions.

More Detailed Information

• The amount of the loan or line of credit
• The interest rate, or APR (annual percentage rate), as an expression of the full cost of borrowing the money (meaning that there must not be hidden costs compensating for an artificially low interest rate)
• The method used to compute the monthly finance charge (the interest payment)
• The total cost of all payments (this applies to loans of a specific amount, not to credit)
• Any other conditions or terms of the loan, including the payment due date, any late fees, and early repayment penalties

In addition to requiring transparency from lenders about the terms of their loans, the CCPA also places important restrictions on wage garnishment. Wage garnishment is a legal procedure whereby a portion of a person’s earnings is withheld from his or her paycheck in order to pay off a debt. Wage garnishment can be ordered by a court when a person has defaulted on (failed to repay) a loan. The CCPA stipulates that an employer cannot fire an employee because his or her wages are being garnished for a single debt (the employer can fire the employee if his or her wages are garnished for more than one debt). It also sets a legal limit on how much (what portion) of a person’s wages can be withheld from any one paycheck. Usually, no more than 25 percent of a person’s wages can be garnished.

The Fair Credit Reporting Act (FCRA) was added to the CCPA in 1971. It was the first federal regulation to address the credit-reporting industry. (Credit-reporting agencies, also called consumer-reporting agencies or credit bureaus, are companies that collect and compile consumers’ credit-history information. The three major nationwide credit bureaus are Equifax, Experian, and TransUnion). The FCRA is intended to insure the accuracy, privacy, and fairness of consumer credit files. Protections contained in the FCRA also apply to consumer-reporting agencies that sell information about people’s medical histories (often used by insurance companies to decide whether or not to extend medical insurance coverage to individuals) and rental histories (used by prospective landlords). According to its provisions:

• The consumer has a right to see the information contained in his or her credit report. Traditionally there was a charge for accessing the report, but recent changes allow people to request a free credit report once a year from each of the major nationwide credit bureaus.
• The consumer must be notified if information in his or her credit report has been used to deny him or her credit.
• The consumer has a right to dispute any inaccurate information contained in his or her report, and the reporting agency is required to investigate any such claims unless they are deemed frivolous or baseless.
• Credit-reporting agencies are required to correct or delete any information about a consumer that is inaccurate, incomplete, or unverifiable.
• Credit-reporting agencies are not allowed to report negative information that is outdated (more than seven years old).
• Credit-reporting agencies may only give out an individual’s credit report to people with a valid need for seeing it, such as a prospective lender, landlord, insurer, or employer. Additionally, an individual must give the reporting agency written consent to disclose his or her credit report to an employer or prospective employer.

Another amendment to the CCPA, the Equal Credit Opportunity Act, which was added in 1976, prohibits credit lenders from discriminating against applicants on the basis of sex, race, age, marital status, religion, or national origin. Implemented in 1978, the Fair Debt Collection Practices Act (FDCPA) prohibits abusive, deceptive, and unfair debt-collection tactics, such as threats, persistent and intrusive phone calls, and other kinds of harassment.

The CCPA is designed to protect individual consumers. Its larger purpose, however, is to maintain consumer confidence in the financial system and thereby promote a robust economy. If consumers fear that they will be cheated by credit lenders, or that they have no access to, or control over, the information that is contained in their credit histories, their loss of confidence could cause them to avoid lending institutions altogether. A widespread loss of consumer confidence could lead to a major upset in the economy, something that the government, financial institutions, businesses, and consumers all have an interest in avoiding.

Recent Trends

The Consumer Credit Protection Act has been amended and updated several times since its inception. Among the most recent additions to the law is the Fair and Accurate Credit Transactions Act (FACTA), an amendment to the Fair Credit Reporting Act. Enacted by Congress in 2003, FACTA is aimed at protecting consumers against identity theft (the illegal act of stealing a person’s financial identity and using their credit to make purchases or otherwise profit). With the rapid growth of the Internet and electronic banking, identity theft has become an increasingly widespread criminal activity, which can cause serious damage to a person’s credit report. In order to help consumers monitor their own credit histories to make sure no one is impersonating them, FACTA stipulates that individuals must be able to obtain a free copy of their credit report from each of the major credit bureaus annually. The act also makes it possible for an individual to place a fraud alert on his or her credit history if he or she suspects that someone has stolen his or her identity.

Consumer Compliance

Consumer compliance focuses on the implementation and compliance with consumer protection laws and regulations. The FDIC promotes compliance with federal consumer protection laws, fair lending statutes and regulations, and the Community Reinvestment Act through supervisory activities and outreach programs. The FDIC is responsible for the supervision and examination of state-chartered banks and thrifts that are not members of the Federal Reserve System with a focus on identifying, addressing, and mitigating the risk of depositor and consumer harm.

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• Consumer Compliance
• Consumer Deposits And Related Activities
• Consumer Lending Compliance
• Mortgage Lending
• Privacy And Credit Reporting
• Unfair, Deceptive, Or Abusive Acts Or Practices

Consumer Deposits and Related Activities

Specific areas of focus include the Electronic Fund Transfer Act (EFTA), Expedited Funds Availability Act (EFA Act), Truth in Savings Act (TISA), Garnishments, Remittances, Prepaid Accounts, and Overdrafts.
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• The EFTA is intended to protect individual consumers engaging in electronic fund transfers and remittance transfers. The term “electronic fund transfer” generally refers to a transaction initiated through an electronic terminal, telephone, computer, or magnetic tape that instructs a financial institution either to credit or to debit a consumer’s asset account.
• Regulation CC implements two laws, the EFA Act and the Check Clearing for the 21st Century Act (Check 21). The regulation sets forth the requirements that institutions make funds deposited into transaction accounts available according to specified time schedules and that they disclose their funds availability policies to their customers. It also establishes rules designed to speed the collection and return of checks and electronic checks and describes requirements that affect banks that create or receive substitute checks, including requirements related to consumer disclosures and expedited recredit procedures.
• Regulation DD, which implements the TISA, supports consumers’ efforts to make informed decisions about their accounts at depository institutions through the use of uniform disclosures. The disclosures aid comparison shopping by informing consumers about the fees, annual percentage yield, interest rate, and other terms for deposit accounts. The regulation also includes requirements on the payment of interest, the methods of calculating the balance on which interest is paid, the calculation of the annual percentage yield, and advertising.
• The final joint Garnishment Rule establishes requirements financial institutions must adhere to when receiving garnishment orders to avoid garnishing protected funds.
• The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) established new standards with respect to remittance transfers (monies remitted to foreign countries). Among its requirements, the Dodd-Frank Act mandates remittance transfer providers to disclose the exact exchange rate, the amount of certain fees, and the amount expected to be delivered to the recipient.
• The CFPB issued a final rule to provide comprehensive consumer protections for prepaid accounts via Regulations E and Z. The rule requires tailored provisions governing disclosures, limited liability and error resolution, periodic statements, and adds new requirements regarding the posting of account agreements.
• Over time, institutions have added and/or expanded the types of overdraft payment programs provided to customers. If not properly managed, overdraft programs can have an adverse impact on bank customers and present a potential risk of consumer harm. In an effort to assist FDIC-supervised institutions in identifying, managing, and mitigating risks regarding overdraft payment programs, amendments to certain regulations and guidelines were issued.

Consumer Compliance: Consumer Lending

Reference materials covering regulations, examination manuals, and supervisory resources as they pertain to consumer lending not secured by real property. Specific areas of focus include the Truth in Lending Act (TILA), credit cards, small-dollar loans, student lending, the Fair Debt Collection Practices Act (FDCPA), the Servicemembers Civil Relief Act (SCRA), and the Military Lending Act (MLA).
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• The TILA, implemented by Regulation Z, is intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably. In addition to providing a uniform system for disclosures, the TILA protects consumers against inaccurate and unfair credit billing and credit card practices, provides ability to repay requirements and other limitations applicable to credit cards, provides consumers with rescission rights, provides for rate caps on certain dwelling-secured loans, imposes limitations on home equity lines of credit and certain closed-end home mortgages, provides minimum standards for most dwelling-secured loans, and delineates and prohibits unfair or deceptive mortgage lending practices.
• A credit card represents a payment mechanism which facilitates both consumer and commercial business transactions, including purchases and cash advances. A credit card generally operates as a substitute for cash or a check and most often provides an unsecured revolving line of credit. The borrower is required to pay at least part of the card’s outstanding balance each billing cycle, depending on the terms as set forth in the cardholder agreement. As the debt reduces, the available credit increases for accounts in good standing.
• Some small-dollar loan programs are designed for a broad base of customers. Others are targeted to certain markets, such as military customers, employers, low- or moderate-income customers, the underbanked, or customers with a limited or non-existent credit history. The goal of all these programs is to enable insured institutions to better meet community needs while helping consumers avoid, or transition away from, reliance on high-cost debt.
• Many students and their families use federal or private student loans to help pay for education after high school. Federal student loans come from the Department of Education while private student loans are made by a lender, such as a bank, credit union, or other financial institution. Private loans offer variable interest rates, so the interest rate may rise during the life of the loan. These loans also often have fewer options to reduce or postpone payments and less flexible payment options as compared to federal student loans.
• The FDCPA was designed to eliminate abusive, deceptive, and unfair debt collection practices. The federal law also protects reputable debt collectors from unfair competition and encourages consistent state action to protect consumers from abuses in debt collection. The FDCPA, implemented by Regulation F, applies only to the collection of debt incurred by a consumer primarily for personal, family, or household purposes. It does not apply to the collection of corporate debt or to debt for business or agricultural purposes.
• The SCRA was signed into law on December 19, 2003, amending and replacing the Soldiers’ and Sailors’ Civil Relief Act of 1940. The law protects members of the Army, Navy, Air Force, Marine Corps, and Coast Guard, including members of the National Guard, as they enter military service, as well as commissioned officers of the Public Health Service and the National Oceanic and Atmospheric Administration engaged in active service. Some of the benefits accorded servicemembers by the SCRA also extend to servicemembers’ spouses, dependents, and other persons subject to the obligations of servicemembers. Major relief provisions of the SCRA include, among other items, maximum rate of interest on loans, including mortgages, restrictions on residential and motor vehicle purchases and leases rescissions and terminations.
• The MLA is implemented by the Department of Defense (DoD) and protects active duty members of the military, their spouses, and their dependents from certain lending practices. These practices could pose risks for servicemembers and their families, and could pose a threat to military readiness and affect servicemember retention.

Examination Approach

Reference materials covering the FDIC’s Consumer Compliance Examination Manual and supervisory resources as they pertain to consumer compliance examinations conducted by the FDIC. Specific areas of focus include the compliance management system (CMS), ratings, pre-examination planning (PEP), appeals, and consumer harm.

• The FDIC promotes compliance with federal consumer protection laws, fair lending statutes and regulations, and the Community Reinvestment Act through supervisory and outreach programs. The elements of an effective CMS include Board of Directors and management oversight and a consumer compliance program. The FDIC conducts three types of supervisory activities to review an institution’s CMS: consumer compliance examinations, visitations, and investigations.
• The FDIC assigns consumer compliance ratings to institutions it supervises pursuant to the Uniform Interagency Consumer Compliance Rating System (CC Rating System) approved by the Federal Financial Institutions Examination Council (FFIEC) in 2016 and effective on March 31, 2017. The CC Rating System serves as a useful tool for summarizing the consumer compliance position of individual institutions. The CC Rating System is based upon a scale of 1 through 5 in increasing order of supervisory concern.
• The objective of the PEP process is to collect necessary information to understand the institution and the risks of consumer harm prior to the onsite phase of the examination.
• The Guidelines for Appeals of Material Supervisory Determinations describe the types of determinations that are eligible for review and the process by which appeals will be considered and decided. Such guidelines apply to the insured depository institutions that the FDIC supervises (i.e., insured State nonmember banks, insured branches of foreign banks, and state savings associations) and to other insured depository institutions with respect to which the FDIC makes material supervisory determinations.
• The FDIC has a risk-focused consumer compliance examination approach, based on the potential for compliance activities, errors, or omissions to have an adverse impact on banking customers. Consumer harm is an actual or potential injury or loss to a consumer, whether such injury or loss is economically quantifiable (e.g., overcharge) or non-quantifiable (e.g., discouragement). It may be caused by a financial institution’s violation of a federal consumer protection law or regulation directly or through a third party or reflect weaknesses in a financial institution’s CMS.

Consumer Compliance: Mortgage Lending

Reference materials related to mortgage lending, including credit, products, and services related to mortgages. Specific areas of focus include the Truth in Lending Act (TILA), the Ability-to-Repay/Qualified Mortgage (ATR/QM) Rule, the Real Estate Settlement Procedures Act (RESPA), the TILA-RESPA Integrated Disclosure (TRID) Rule, Flood Insurance, Mortgage Servicing Rules, the Home Ownership and Equity Protection Act (HOEPA) Rule, the Homeowners Protection Act, and the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act.
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• The TILA, implemented by Regulation Z, is intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably. In addition to providing a uniform system for disclosures, the TILA protects consumers against inaccurate and unfair credit billing and credit card practices, provides ability to repay requirements and other limitations applicable to credit cards, provides consumers with rescission rights, provides for rate caps on certain dwelling-secured loans, imposes limitations on home equity lines of credit and certain closed-end home mortgages, provides minimum standards for most dwelling secured loans, and delineates and prohibits unfair or deceptive mortgage lending practices.
• In the 2010 Dodd-Frank Act, Congress adopted similar (but not identical) ATR requirements for virtually all closed-end residential mortgage loans. The Dodd-Frank Act also established ATR requirements for classifiable QM loans. In January 2013, the CFPB adopted a rule that implements the ATR/QM provisions of the Dodd-Frank Act.
• The RESPA, implemented by Regulation X, requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. The RESPA also prohibits specific practices, such as kickbacks, and places limitations upon the use of escrow accounts.
• Sections 1098 and 1100A of the Dodd-Frank Act directed the CFPB to publish rules and forms that combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the TILA (Regulation Z) and the RESPA (Regulation X). Regulations X and Z were amended to establish new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property. In addition to combining the existing disclosure requirements and implementing new requirements imposed by the Dodd-Frank Act, the final rule provides extensive information regarding compliance with those requirements.
• The National Flood Insurance Program (NFIP) is administered primarily under the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973 (FDPA). The National Flood Insurance Act of 1968 made federally subsidized flood insurance available to owners of improved real estate or mobile homes located in special flood hazard areas (SFHA) if their community participates in the NFIP. The NFIP aims to reduce the impact of flooding by providing affordable insurance to property owners and by encouraging communities to adopt and enforce floodplain management regulations. The FDPA requires federal financial regulatory agencies to adopt regulations prohibiting their institutions from making, increasing, extending or renewing a loan secured by improved real estate or a mobile home located or to be located in an SFHA in a community participating in the NFIP unless the property securing the loan is covered by flood insurance. Flood insurance may be provided through the NFIP or through a private insurance carrier.
• In 2010, the Dodd-Frank Act amended TILA by expanding the scope of Home Ownership and Equity Protection Act (HOEPA) coverage to include purchase-money mortgages and open-end credit plans (i.e., home equity lines of credit, or HELOCs) and amended HOEPA’s coverage tests. The Dodd-Frank Act also added new protections for high-cost mortgages, including a requirement that consumers receive homeownership counseling before obtaining a high-cost mortgage. The CFPB’s 2013 HOEPA Rule also implemented, via separate amendments to RESPA’s Regulation X and TILA’s Regulation Z, two additional homeownership counseling-related requirements that may apply to creditors regardless of whether or not they make high-cost mortgages.
• The Homeowners Protection Act of 1998 also known as the “PMI Cancellation Act,” addresses homeowners’ difficulties in canceling private mortgage insurance (PMI) coverage. It establishes provisions for canceling and terminating PMI, establishes disclosure and notification requirements, and requires the return of unearned premiums.
• The SAFE Act mandates a nationwide licensing and registration system for residential mortgage loan originators (MLOs). The objectives of the SAFE Act include aggregating and improving the flow of information to and between regulators, providing increased accountability and tracking of MLOs, enhancing consumer protections, supporting anti-fraud measures, and providing consumers with easily accessible information at no charge regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against, MLOs.

Privacy and Credit Reporting

Reference materials covering regulations, examination manuals, and supervisory resources as they pertain to consumer privacy and credit reporting topics. Specific areas of focus include the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act (FACTA), the Telephone Consumer Protection Act (TCPA), and other consumer privacy topics.
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• The FCRA, implemented by Regulation V, contains significant responsibilities for business entities that are consumer reporting agencies and lesser responsibilities for those that are not. Generally, financial institutions are not considered to function as consumer reporting agencies; however, depending on the degree to which their information sharing business practices approximate those of a consumer reporting agency, they can be deemed as such. Financial institutions are subject to a number of different requirements under the FCRA, of which some are contained directly in the statute, while others are contained in regulations issued by the CFPB, Federal Reserve Board (FRB), and/or the Federal Trade Commission (FTC). The applicability of the various sections of the FCRA and implementing regulations depend on an institution’s unique operations.
• The FACTA amends the FCRA, and provides consumers with new tools to help fight identity theft and enhance the accuracy, security, and reliability of their financial information.
• The Federal Communications Commission (FCC) regulations that implement the TCPA provide consumers with options to avoid unwanted telephone solicitations. The regulations address, among other topics, the FCC’s adoption of a national “Do-Not-Call” registry that expands coverage to entities regulated by the Federal Trade Commission (FTC). Under the FCC’s rules, restrictions are placed on telephone solicitation activity and the information that must be made available by telemarketers.
• Title V, Subtitle A of the Gramm-Leach-Bliley Act (GLBA) governs the treatment of nonpublic personal information about consumers by financial institutions. Section 502 of the Subtitle, subject to certain exceptions, prohibits a financial institution from disclosing nonpublic personal information about a consumer to nonaffiliated third parties, unless the institution satisfies various notice and opt-out requirements, and the consumer has not elected to opt out of the disclosure. Section 503 requires the institution to provide notice of its privacy policies and practices to its customers while Section 504 authorizes the issuance of regulations to implement these provisions.

Unfair, Deceptive, or Abusive Acts or Practices

Supervisory resources pertaining to unfair, deceptive, or abusive acts or practices. This includes Unfair or Deceptive Acts or Practices (UDAP) under Section 5 of the Federal Trade Commission Act (FTC Act) as well as Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) pursuant to the Dodd-Frank Act.
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• UDAPs are illegal, can cause significant financial injury to consumers, erode consumer confidence, and can present significant credit and asset quality risks that could undermine the financial soundness of banking organizations. The FTC Act declares that UDAPs affecting commerce are illegal. The banking agencies have authority to enforce the FTC Act for the institutions they supervise. Unlike many consumer protection laws, the FTC Act also applies to transactions with non-consumers and businesses.
• The Dodd-Frank Act makes it unlawful for any covered person or service provider to engage in an “abusive act or practice.” Although abusive acts also may be unfair or deceptive, the legal standards for abusive, unfair, and deceptive each are separate.

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