As the regulatory environment continues to evolve, the CFPB’s latest Supervisory Highlights offer crucial insights for financial institutions navigating an increasingly complex landscape. Issue 37 shines a spotlight on deposit operations, credit furnishing practices, and the burgeoning short-term lending market, while also addressing significant enforcement actions and new rules. Here’s what community banks need to learn—and act on.
Overdraft Fees: A Continuing Challenge
For years, overdraft and non-sufficient funds (NSF) fees have drawn regulatory scrutiny. This issue of Supervisory Highlights confirms that some practices—such as re-presentment NSF fees and Authorize-Positive Settle-Negative (APSN) overdraft fees—remain problematic. Despite progress, core processors often set fee structures to charge these fees by default unless institutions actively intervene.
Takeaway for Community Banks
It’s time to re-evaluate fee structures. Ensure that your core processor’s systems are configured to align with updated regulatory expectations. Educate staff and consumers about these changes to build trust and avoid regulatory pitfalls.
Furnishing Data: Accuracy Matters
Banks that furnish data to credit reporting agencies are under the microscope. The CFPB found widespread failures to maintain procedures for identity theft notifications, conduct thorough investigations of disputes, and ensure data accuracy. This isn’t just about compliance—it’s about your reputation.
Actionable Insight
Community banks should strengthen internal controls and train employees on handling credit disputes. Investing in accurate, consumer-friendly data practices not only mitigates risk but also reinforces your institution’s credibility.
Short-Term Lending: Transparency is Key
The Supervisory Highlights also scrutinize the exploding popularity of Buy Now, Pay Later (BNPL) programs and paycheck advance products. Findings revealed deceptive marketing practices, delayed dispute resolutions, and loan denials tied to trivial payment processing errors.
Why It Matters
Even if your bank doesn’t offer these products, they’re reshaping consumer expectations. Transparency in terms and processes isn’t optional—it’s a competitive necessity.
Technology Pitfalls: Lessons from Enforcement Actions
This issue features notable enforcement actions, including a $1.5 million penalty against VyStar Credit Union for botching the launch of an online banking platform. Consumers faced months of restricted access to their accounts, incurring fees and frustration.
A Word of Caution
Digital transformation is critical for community banks to stay relevant, but poorly executed rollouts can damage trust. Rigorous testing and a solid contingency plan can safeguard against consumer harm and regulatory penalties.
New Rules to Watch
The CFPB issued a final rule governing overdraft practices at large institutions, capping fees unless they are minimal. Additionally, supervisory authority now extends to digital payment platforms processing over 50 million transactions annually.
What’s Next for Community Banks?
Stay proactive in monitoring new rules and adapting processes. Even if you’re not directly impacted by these changes, they signal the regulatory trends shaping the future.
Final Thoughts: Protecting Your Institution
The themes in this issue of Supervisory Highlights boil down to a central lesson: consumer protection is non-negotiable. Whether it’s ensuring accurate reporting, transparent lending, or seamless technology implementation, community banks must prioritize their customers’ experience.
By addressing these areas, you’re not just avoiding penalties—you’re fortifying your role as a trusted partner in your community. For tailored guidance, connect with Young & Associates, your partner in navigating the ever-changing regulatory landscape. Contact us for tailored solutions to support your institution’s goals.
