CFPB Issues Final Rule to Supervise the Largest Nonbank Companies Offering Digital Funds Transfer and Payment Wallet Apps

Regulatory Developments

CFPB Issues Final Rule to Supervise the Largest Nonbank Companies Offering Digital Funds Transfer and Payment Wallet Apps
On November 21, the CFPB issued a final rule making nonbank companies subject to CFPB supervision (i.e., examination, as opposed to only enforcement) if they (1) provide general-use digital consumer payment applications with an annual volume of at least 50 million consumer payment transactions in U.S. dollars and (2) are not a small business concern per the applicable Small Business Administration’s size standard. Anyone who qualifies as a larger participant will remain a larger participant until two years from the first day of the tax year in which the person last met this larger-participant test. This rule is set to take effect 30 days after publication in the Federal Register.

FinCEN Issues Alert on Fraud Schemes Involving Deepfake Media Targeting Financial Institutions
On November 13, FinCEN issued an alert to help financial institutions identify fraud associated with deepfake tools used to falsify identification documents, biometrics, or other customer verification methods, noting that the widespread adoption of generative AI has increased the prevalence and sophistication of deepfakes used to target financial institutions. FinCEN identified the following red flags for deepfakes:

• Inconsistent photos or identifying information presented by the customer.
• The customer declining to verify their identity via a live call or multifactor authentication.
• A reverse-image lookup or deepfake detection software flagging a customer’s image as created by generative AI.
• A customer’s metadata (e.g., geographic data) not matching their identity documents.
• A newly opened account with little prior transaction history and high volumes of payments to risky sources or repeat rejected payments.

FinCEN requests that financial institutions observing any of these red flags file a Suspicious Activity Report, with “FIN-2024-DEEPFAKEFRAUD” referenced in the commentary.

“Vigilance by financial institutions to the use of deepfakes, and reporting of related suspicious activity, will help safeguard the U.S. financial system and protect innocent Americans from the abuse of these tools.”
— Andrea Gacki, FinCEN Director

Federal Reserve Releases Semiannual Report on Supervision and Regulation
In November, the Federal Reserve released its latest semiannual report on supervision and regulation, reporting that the banking system remains sound and resilient overall, as evidenced by most banks continuing to report strong capital levels above applicable regulatory requirements, liquidity and funding conditions remaining stable compared to 2023, and asset quality generally remaining sound. The report also acknowledges continued signs of weakness in credit performance in commercial real estate lending and some consumer lending sectors. To protect against potential credit losses, banks are adding to credit loss reserves. The report also offers regulatory developments and supervisory updates.

CFPB Report Details Student Borrower Harms from Servicing Failures and Program Disruptions
On November 15, the CFPB released its annual report of the CFPB Student Loan Ombudsman covering the 2023-2024 award year. The report highlights several persistent problems that borrowers face when interacting with student loan servicers, including payment processing errors, inaccurate repayment information, and customer service grievances. The report also examines the ongoing litigation regarding the SAVE repayment plan implemented by the Biden Administration and its impact on borrowers. The report recommends several reforms for the federal student loan system, including holding borrowers harmless when a student loan servicer causes an error and extending accountability for those errors to the servicers. The CFPB also endorses broader reforms for the student loan system, including with respect to student loan debt cancellation, lowering the cost of college, and strengthening consumer protection laws in the private student loan marketplace.

FDIC Extends Comment Period for Proposed Rule on Custodial Deposit Accounts with Transactional Features and Prompt Payment of Deposit Insurance to Depositors
On November 18, the FDIC extended the comment period by 45 days for its proposed rule on recordkeeping for custodial accounts. The proposed rule is aimed at enhancing the FDIC’s ability to determine deposit insurance coverage and pay deposit insurance claims “as soon as possible” in the event of the failure of an insured depository institution holding custodial deposit accounts with transactional features. Comments must now be received by the FDIC on or before January 16, 2025.

Statement of CFPB Director Rohit Chopra on the FTC’s Click-to-Cancel Rule
On November 14, CFPB Director Rohit Chopra issued a statement praising the consumer protection aspects of the FTC’s Click-to-Cancel Rule, finalized by the FTC on October 16, and promising that the CFPB would take action against consumer financial firms and other covered entities that violate the Click-to-Cancel Rule. Among other requirements for subscription services, the Click-to-Cancel Rule requires that entities offering subscription services make it as easy to cancel the subscription as it was to enroll in the subscription. Chopra’s statement highlighted the numerous complaints that the CFPB has received from consumers regarding subscription services offered by financial institutions, including complaints related to unintentionally signing up for subscription services and the difficulty of cancelling those services.

CFPB Pilot Study Finds Differential Treatment in Small Business Lending Markets
The CFPB and US Department of Justice conducted matched-pair testing among trained testers to identify potential differential treatment among well-qualified Black and white small business owners seeking credit from large bank lenders. Using both objective and subjective measures, the study found statistically significant evidence that Black testers received less encouragement to apply for financing than their white counterparts. Black testers also received more information than their white counterparts about non-requested product types, including credit products typically targeted to higher credit-risk businesses, such as business credit cards and real estate-secured loans. The CFPB published its report of these findings, emphasizing the CFPB’s ongoing attention to Equal Credit Opportunity Act compliance in small business lending and suggesting that the new small business data collection rule is likely to result in increased supervisory and enforcement actions by the CFPB.

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