Written by Benjamin M. Litchfield, Regulatory Compliance Counsel
Happy Friday to all of you out there in regulatory compliance land. On Wednesday, September 28, 2016, the U.S. Department of Justice announced that it reached a settlement with Charter Bank of Corpus Christi, Texas, over allegations that the bank engaged in a pattern or practice of discrimination on the basis of national origin. The Justice Department alleged that between 2009 and 2014, Charter permitted employees to adjust interest rates on vehicle title loans upward or downward by approximately three percentage points without any consideration for the borrower’s credit risk. This policy purportedly resulted in Hispanic borrowers being charged higher interest rates than similarly situated non-Hispanic borrowers. As part of the settlement, Charter agreed to maintain uniform pricing policies and pay more than $165,000 to victims of the alleged discrimination.
The Equal Credit Opportunity Act and its implementing regulation, Regulation B, prohibit discrimination on a prohibited basis in any aspect of a credit transaction. See, 12 C.F.R. § 1002.4(a). The term “prohibited basis” is defined broadly in Regulation B to include “race, color, religion, national origin, sex, marital status, or age” as well as the fact that the consumer’s income derives from a public assistance program or the fact that the consumer has exercised any right under the Consumer Credit Protection Act or any state consumer protection laws. 12 C.F.R. § 1002.2(z). Furthermore, the Act and Regulation B not only prohibit overt discrimination but facially neutral policies that have a disparate impact without an adequate business justification. See, 12 C.F.R. pt. 1002, Supp. I, comment 6(a)-2. For more information, compliance officers may want to consult the FFIEC Fair Lending Examination Manual, which provides a detailed discussion of fair lending issues and possible red flags.
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In other news, the CFPB released its monthly complaint snapshot on September 27, 2016. The report notes that the volume of student loan complains has increased by 78 percent from last year. Bank account and prepaid card complains have also increased by 26 percent and 20 percent respectively. On the other hand, complains regarding payday loans and mortgages have dropped by 18 percent and 11 percent over the same period. The largest number of complaints received by the Bureau this month appears to center around debt collection, which has seen a 50 percent increase in complaint volume from last month. The report also draws particular attention to money transfer services with some of the more common complaints relating to seller fraud and funds availability.
Depending on the structure of the program, Regulation E may impose some requirements on credit unions handling consumer complaints involving money transfer services. For example, Regulation E treats payments made through online bill pay as an “electronic funds transfer” unless the contract for the bill-payment service clearly states that all payments will be solely by check. See, 12 C.F.R. pt. 1005, Supp. I, comment 3(b)(1)-vi. This means that the member may have the right to stop payment under section 1005.10(c) as well as limitations of liability and error resolution rights for these kinds of transactions. See, 12 C.F.R. §§ 1005.6; 1005.11. One thing to note, however, is that unlike Regulation Z, Regulation E does not appear to allow the member to assert claims regarding property or services purchased through electronic funds transfer against the credit union. Compare, 12 C.F.R. § 1005.2(m) (definition of unauthorized electronic funds transfer) with 12 C.F.R. § 1026.12(c)(1).
If the money transfer service is provided to the member solely by check, such as through the sale of money orders, then state law may govern the substantive rights of the parties. Since the structure of any money transfer service program can involve some degree of risk both from a compliance and litigation standpoint, credit unions may want to consult with counsel on the appropriate policies and procedures for mitigating these kinds of risks as well as how to structure a compliant program.
Have a great weekend!
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