Consumer and Community Affairs
The Federal Reserve is committed to promoting fair and transparent financial service markets, protecting consumers' rights, and ensuring that Federal Reserve policies and research take consumer and community perspectives into account. The Board is charged with identifying and monitoring consumer and community development issues, and makes sure the voices of consumers and communities are heard at the Fed. The Board supports consumer financial inclusion and community development through targeted work in supervision, regulatory policy, and research and analysis.
To fulfill its consumer protection and community development function, the Federal Reserve performs several key roles:
- Formulating and carrying out supervision and examination policy to ensure that financial institutions under its jurisdiction1 comply with consumer protection laws and regulations and meet requirements of community reinvestment laws and regulations;
- writing and reviewing regulations that implement consumer protection and community reinvestment laws;
- conducting research, analysis, and data collection to identify and assess emerging consumer and
community development issues to understand
opportunities and risks when making policy decisions; and
- engaging, convening, and informing key stakeholders to identify issues and advance what works in community reinvestment and consumer protection.
Supervision and Examinations
The Federal Reserve's consumer protection supervision program includes a review of state member banks' performance under the Community Reinvestment Act (CRA) as well as assessment of compliance with and enforcement of a wide range of consumer protection laws and regulations, for example, those related to fair lending, unfair or deceptive acts or practices (UDAP), and flood insurance.
The Board's Division of Consumer and Community Affairs develops policies that govern, and provide oversight of, the Reserve Banks' programs for consumer compliance supervision and examination of state member banks and bank holding companies (BHCs). In addition, the Board coordinates with the prudential regulators and the Consumer Financial Protection Bureau (CFPB) as part of the supervisory coordination requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), and ensures that consumer
compliance risk is appropriately incorporated into financial institutions' consolidated risk-management programs. The Board also develops and delivers examiner training; analyzes bank and BHC applications related to consumer protection, convenience and needs, and the CRA; and processes consumer complaints.
Examinations are the Federal Reserve's primary method of ensuring compliance with consumer protection laws and assessing the adequacy of consumer compliance risk-management systems within regulated entities. During 2019, the Reserve Banks completed 238 consumer compliance examinations of state member banks, 221 CRA examinations of state member banks, 19 examinations of foreign banking organizations, 1 examination of Edge Act corporations, and no examinations of agreement corporations.
In February 2019, the Board revised its ratings system for large financial institutions that represents a supervisory evaluation of whether a firm possesses sufficient financial and operational strength and resilience to maintain safe-and-sound operations and comply with laws and regulations, including those related to consumer protection, through a range of conditions.2 The Board also released a letter to clarify the supervisory rating system to be applied for holding companies with less than $100 billion in consolidated assets.3
Fair Lending and UDAP Enforcement
The Board is committed to ensuring that the institutions it supervises comply fully with the federal fair lending laws—the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). The ECOA prohibits creditors from discriminating against any applicant, in any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age. In addition, creditors may not discriminate against an applicant because the applicant receives income from a public assistance program or has exercised, in good faith, any right under the Consumer Credit Protection Act. The FHA prohibits discrimination in residential real-estate-related transactions—including the making and purchasing of mortgage loans—on the basis of race, color, religion, sex, handicap, familial status, or national origin.
The Board supervises all state member banks for compliance with the FHA. The Board and the CFPB both have supervisory authority for compliance with the ECOA. For state member banks with assets of $10 billion or less, the Board has the authority to enforce the ECOA. For state member banks with assets over $10 billion, the CFPB has this authority.
With respect to the Federal Trade Commission Act (FTC Act), which prohibits unfair or deceptive acts or practices, the Board has supervisory and enforcement authority over all state member banks, regardless of asset size. The Board is committed to ensuring that the institutions it supervises comply fully with the prohibition on unfair or deceptive acts or practices as outlined in the FTC Act. An act or practice may be found to be unfair if it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers and not outweighed by countervailing benefits to consumers or to competition. A representation, omission, or practice is deceptive if it is likely to mislead a consumer acting reasonably under the circumstances and is material, and thus likely to affect a consumer's conduct or decision regarding a product or service.
Fair lending and UDAP reviews are conducted regularly within the supervisory cycle. Additionally, examiners may conduct fair lending and UDAP reviews outside of the usual supervisory cycle, if warranted by fair lending and UDAP risk. When examiners find evidence of potential discrimination or potential UDAP violations, they work closely with the Board's Fair Lending or UDAP Enforcement staff, who provide additional legal and statistical expertise and ensure that fair lending and UDAP laws are enforced consistently and rigorously throughout the Federal Reserve System.
With respect to fair lending, pursuant to the ECOA, if the Board has reason to believe that a creditor has engaged in a pattern or practice of discrimination in violation of the ECOA, the matter must be referred to the Department of Justice (DOJ). The DOJ reviews the referral and determines whether further investigation is warranted. A DOJ investigation may result in a public civil enforcement action. Alternatively, the DOJ may decide to return the matter to the Board for administrative enforcement. When a matter is returned to the Board, staff ensure that the institution takes all appropriate corrective action. In 2019, the Board referred one fair lending matter to DOJ.
If there is a fair lending violation that does not constitute a pattern or practice under the ECOA or a UDAP violation, the Federal Reserve takes action to ensure that the violation is remedied by the bank. The Federal Reserve frequently uses informal supervisory tools (such as memoranda of understanding between banks' boards of directors and the Reserve Banks, or board resolutions) to ensure that violations are corrected. When necessary, the Board can bring public enforcement actions.
The Board brought one public enforcement action for UDAP violations in 2019, issuing a consent order against a bank for deceptive and unfair practices related to the bank's operation and billing of certain add-on products. The order required the bank to validate that it has provided appropriate restitution to more than 30,000 customers and to take other corrective actions.4 The bank claimed to have paid $8.8 million in restitution prior to the entry of the consent order. The bank also reported that it would pay additional restitution to the affected customers pursuant to the terms of the consent order.
Given the complexity of this area of supervision, the Federal Reserve seeks to provide transparency on its perspectives and processes to the industry and the public. Fair Lending and UDAP Enforcement staff meet regularly with consumer advocates, supervised institutions, and industry representatives to discuss fair lending and UDAP issues and receive feedback. Through this outreach, the Board is able to address emerging fair lending and UDAP issues and promote sound fair lending and UDAP compliance. This includes staff participation in numerous meetings, conferences, and trainings sponsored by consumer advocates, industry representatives, and interagency groups.
The National Flood Insurance Act imposes certain requirements on loans secured by buildings or mobile homes located in, or to be located in, areas determined to have special flood hazards. Under the Federal Reserve's Regulation H, which implements the act, state member banks are generally prohibited from making, extending, increasing, or renewing any such loan unless the building or mobile home, as well as any personal property securing the loan, are covered by flood insurance for the term of the loan. The law requires the Board and other federal financial institution regulatory agencies to impose civil money penalties when they find a pattern or practice of violations of the regulation.
In 2019, the Federal Reserve issued four formal consent orders and assessed $162,000 in civil money penalties against state member banks to address violations of the flood regulations. These statutorily mandated penalties were forwarded to the National Flood Mitigation Fund held by the Treasury for the benefit of the Federal Emergency Management Agency.
Community Reinvestment Act
The CRA requires that the Federal Reserve and other federal banking regulatory agencies encourage financial institutions to help meet the credit needs of the local communities where they do business, consistent with safe-and-sound operations. To carry out this mandate, the Federal Reserve
- examines state member banks to assess their performance under the CRA;
- considers banks' CRA performance in context with other supervisory information when analyzing applications for mergers and acquisitions; and
- disseminates information about community development practices to bankers and the public through community development offices at the Reserve Banks.5
The Federal Reserve assesses and rates the CRA performance of state member banks in the course of examinations conducted by staff at the 12 Reserve Banks. During the 2019 reporting period, the Reserve Banks completed 221 CRA examinations of state member banks. Of those banks examined, 24 were rated "Outstanding," 196 were rated "Satisfactory," none were rated "Needs to Improve," and 1 was rated "Substantial Non-Compliance."
The Board is committed to strong, interagency CRA regulations that help banks meet the credit needs of the local low- and moderate-income (LMI) communities they serve and align with the ways financial products and services are delivered. Toward this end, the Federal Reserve has been actively engaged with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) in working to update the CRA regulations to better reflect structural and technological changes in the banking industry and provide clarity in supervisory expectations.
Throughout 2019, the Board's CRA team focused on modernizing the CRA. In particular, the Board worked with the OCC and the FDIC to analyze potential regulatory approaches in order to develop interagency standards for performance under the CRA, with the goals of tailoring regulations to bank size and business model while accounting for the different credit needs of the local communities—including LMI areas—that are at the heart of the statute.6
Board staff gathered extensive CRA performance data to inform potential policy opportunities. Governor Lael Brainard shared this detailed analysis in public remarks in January 2020, and the Board released datasets that informed its analysis in March 2020.7 In addition, the Board published a report on a series of external engagement meetings that were held in October 2018 through January 2019 with bankers and community members to collect information to help identify issues and potential solutions that informed its work to revise the regulations.8 The Board also continued to update its website to provide access to information and educational materials on the CRA (https://www.federalreserve.gov/consumerscommunities/cra_about.htm).
Mergers and Acquisitions
The Board is required by law to consider specific factors when evaluating proposed mergers and acquisitions, including competitive considerations, financial condition, managerial resources (including compliance with laws and regulations), convenience and needs of the community to be served (including the record of performance under the CRA), and financial stability. In evaluating bank applications, the Federal Reserve relies on the banks' overall compliance record, including recent fair lending examinations. In addition, the Federal Reserve considers the CRA records of the relevant depository institutions, assessments of other relevant supervisors, the supervisory views of examiners, and information provided by the applicant and public commenters. If warranted, the Federal Reserve will also conduct pre-membership exams for a transaction in which an insured depository institution will become a state member bank or in which the surviving entity of a merger would be a state member bank.9
The Board provides information on its actions associated with these merger and acquisition transactions, issuing press releases and Board Orders for each.10 The Federal Reserve also publishes semiannual reports that provide pertinent information on applications and notices filed with the Federal Reserve.11 The reports include statistics on the number of proposals that were approved, denied, and withdrawn as well as general information about the length of time taken to process proposals. Additionally, the reports discuss common reasons that proposals have been withdrawn from consideration. Furthermore, the reports compare processing times for merger and acquisition proposals that received adverse public comments and those that did not.
In 2019, the Board amended its Rules Regarding Delegation of Authority to delegate to the Federal Reserve Banks authority to approve certain types of applications, including applications and notices regarding mergers and acquisitions that are within competitive criteria described in the delegation rules.12 The Board expects that the revised Rules Regarding Delegation of Authority will improve efficiency and timeliness in the applications process.13
Coordination with the Consumer Financial Protection Bureau
During 2019, staff continued to coordinate on supervisory matters with the CFPB in accordance with the Interagency Memorandum of Understanding on Supervision Coordination with the CFPB. The agreement is intended to establish arrangements for coordination and cooperation among the CFPB and the OCC, the FDIC, the National Credit Union Association (NCUA), and the Board of Governors. The agreement strives to minimize unnecessary regulatory burden and to avoid unnecessary duplication of effort and conflicting supervisory directives amongst the prudential regulators. The regulators work cooperatively to share exam schedules for covered institutions and covered activities to plan simultaneous exams, provide final drafts of examination reports for comment, and share supervisory information.
Coordination with Other Federal Banking Agencies
The Board regularly coordinates with other federal banking agencies, including through the development of interagency guidance, in order to clearly communicate supervisory expectations. The Federal Reserve also works with the other member agencies of the Federal Financial Institutions Examination Council to develop consistent examination principles, standards, procedures, and report formats.14 In addition, the Federal Reserve participates in the Joint Task Force on Fair Lending, composed of all of the prudential regulators, the CFPB, the DOJ, and the Department of Housing and Urban Development (HUD). In 2019, the banking agencies continued to work together on various initiatives. In addition, interagency guidance on reporting mortgage lending data under the Home Mortgage Disclosure Act was issued in April.15 In December, the agencies jointly issued statements that provided guidance to the industry on consumer compliance matters relating to the use of alternative data in credit underwriting that focused on consumer protection implications and highlighted potential benefits and risks.16
Updating Examination Procedures
Throughout 2019, Board staff worked with other agencies to develop and revise examination procedures related to various consumer compliance regulations. In April, the Board issued examination procedures under Regulations E and Z related to consumer protections for prepaid accounts, including those with covered credit features ("hybrid prepaid-credit cards"), applicable to institutions supervised by the Federal Reserve with total consolidated assets of $10 billion or less.17 Also in April, the Board issued revised examination procedures for use in connection with HMDA data collected since January 1, 2018, pursuant to the CFPB's rules, amendments to Regulation C, and amendments to HMDA in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).18 In August, the Board published examination procedures to reflect a final interagency rule to address the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012.19
The Federal Reserve maintains a comprehensive public outreach program to promote consumer protection, financial inclusion, and community reinvestment. During 2019, the Federal Reserve continued to enhance its program, offering several Outlook Live seminars. Outlook Live seminars focused on delivering timely, relevant compliance information to the banking industry as well as to experienced examiners and other regulatory personnel.20
The Federal Reserve offered the following Outlook Live seminars:
- "Regulation E – Error Resolution Examiner Insights"
- "2019 Fair Lending Interagency Webinar"
- "Interagency Flood Insurance Update on Private Flood Insurance Rule"
Additionally, in 2019 three issues of Consumer Compliance Outlook were released, discussing regulatory and supervisory topics of interest to compliance professionals. This publication is distributed to state member banks, as well as bank and savings and loan holding companies supervised by the Federal Reserve, among other subscribers.21
In December, the Board published Consumer Compliance Supervision Bulletin, which provides bankers and others interested in consumer protection with high-level summaries of pertinent supervisory issues and practical steps for institutions to consider when managing consumer compliance risks.
Box 1 highlights supervisory-related outreach activities focused on fintech and use of alternative data.
Box 1. Recognizing and Managing Consumer Protection in Fintech Services
The Federal Reserve recognizes the promise of technology and innovation—enabled largely by fintech and Big Tech—to transform the financial system and reduce frictions and delays in payments while preserving consumer protections, data privacy and security, and financial stability. The potential benefits to consumers, small businesses, and financial institutions of all sizes include enhanced product offerings, speed, and lower transaction costs that can expand responsible and socially beneficial access to financial services.
Although the expansion and pace of innovations in financial services technology offers the conveniences of seamless integration and lower costs, it introduces risks as well. In 2019, the Federal Reserve provided guidance and publications that discussed techniques to manage potential consumer protection risks related to technology when providing financial services.
- In December 2019, the Board joined four other agencies in issuing a joint statement on using alternative data in credit underwriting that addresses potential risks and benefits from the use of alternative data in underwriting (https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20191203b1.pdf). The statement noted that alternative data may expand access to credit for certain consumers and enable them to obtain additional loan products or more favorable pricing or terms. It also explained that a well-designed compliance management program provides for a thorough analysis of relevant consumer protection laws and regulations to ensure that financial institutions understand the opportunities, risks, and compliance requirements before using alternative data.
- The December 2019 Consumer Compliance Supervision Bulletin (https://www.federalreserve.gov/publications/2019-december-consumer-compliance-supervision-bulletin.htm) provided high-level summaries of consumer compliance issues associated with fintech risk to enhance financial institution management's understanding of common fact patterns and emerging risks and support appropriate and efficient fintech risk-management practices. This publication helps enhance transparency of the Federal Reserve's consumer compliance supervisory activities by (1) sharing information about its examiners' observations and noteworthy developments related to consumer protection, and (2) providing practical steps that institutions may consider when addressing certain consumer compliance risks.
- The third issue 2019 of Consumer Compliance Outlook featured the article "From Catalogs to Clicks: The Fair Lending Implications of Targeted, Internet Marketing" (https://www.consumercomplianceoutlook.org/2019/third-issue/from-catalogs-to-clicks-the-fair-lending-implications-of-targeted-internet-marketing/). This article highlighted consumer protection and financial inclusion concerns, including fair lending risks of steering and redlining, and focused on the increased use of internet-based marketing practices to target audiences by personal characteristics, geography, or even hobbies. As discussed in the article, such a practice may explicitly or implicitly classify users by prohibited characteristics protected under fair lending laws—such as race, national origin, or sex—and risk making financial inclusion out of reach for millions of consumers.
The Board's Examiner Training program supports the ongoing professional development of consumer compliance supervisory staff, from an initial introduction to the Federal Reserve System through the development of proficiency in consumer compliance topics sufficient to earn an examiner's commission. The goal of these efforts is to ensure that examiners have the skills necessary to meet their supervisory responsibilities now and in the future.
Consumer Compliance Examiner Commissioning Program
An overview of the Federal Reserve System's Examiner Commissioning Program for assistant examiners is set forth in supervision and regulation (SR)/community affairs (CA) letter SR 17-6/CA 17-1, "Overview of the Federal Reserve's Supervisory Education Programs."22
The Consumer Compliance Examiner Commissioning Program is designed to provide an examiner with (1) a foundation for supervision in the Federal Reserve System and (2) the skills necessary to effectively perform examiner-in-charge responsibilities at a non-complex community bank. On average, examiners progress through a combination of classroom offerings, self-paced learning, virtual instruction, and on-the-job training over a period of two to three years. Achievement is measured by completing the required course content, demonstrating adequate on-the-job knowledge, and passing a professionally validated proficiency examination. In 2019, 23 examiners passed the Consumer Compliance Proficiency Examination. The combination of multiple training delivery channels offers learners and Reserve Banks an ability to customize learning and meet training demands more individually and cost effectively.
Continuing Professional Development
In addition to providing core examiner training, the Examiner Staff Development function emphasizes the importance of continuing, career-long learning. Opportunities for continuing professional development include special projects and assignments, self-study programs, rotational assignments, instruction at System schools, mentoring programs, and a consumer compliance examiner forum held every 18 months. Additionally, staff have created a learning resource for examiners moving into examination responsibilities at large financial institutions.
In 2019, the System continued to offer Rapid Response sessions. Introduced in 2008, these sessions offer examiners webinars and case studies on emerging issues or urgent training needs that result from, for example, the implementation of new laws or regulations. Three Rapid Response sessions with an exclusive consumer compliance focus were designed, developed, and presented to System staff during 2019. Additionally, seven Rapid Response sessions were offered that addressed a broader range of supervisory issues, including consumer compliance issues.
Responding to Consumer Complaints and Inquiries
The Federal Reserve investigates complaints against state member banks and selected nonbank subsidiaries of BHCs (Federal Reserve regulated entities), and forwards complaints against other creditors and businesses to the agency with relevant authority. Each Reserve Bank investigates complaints against Federal Reserve regulated entities in its District. The Federal Reserve also responds to consumer inquiries on a broad range of banking topics, including consumer protection questions.
Federal Reserve Consumer Help (FRCH) processes consumer complaints and inquiries centrally. In 2019, FRCH processed 33,782 cases. Of these cases, 19,812 were inquiries and the remainder (13,970) were complaints, with most cases received directly from consumers. Approximately 8.83 percent of cases were referred to the Federal Reserve from other federal and state agencies.
While consumers can contact FRCH by a variety of different channels, more than half of the FRCH consumer contacts occurred by telephone (56 percent). Nevertheless, 44 percent (14,714) of complaint and inquiry submissions were made electronically (via email, online submissions, and fax), and the online form page received 20,778 visits during the year.
Complaints against Federal Reserve regulated entities totaled 3,574 in 2019. Of the total, 85 percent (3,048) were investigated. Fifty-nine percent (1,802) of the investigated complaints involved unregulated practices, and 41 percent (1,246) involved regulated practices. Approximately 2 percent of the total complaints were closed without investigation, pending the receipt of additional information from consumers or withdrawn by the consumer. Thirteen percent of the total complaints were still under investigation in January 2020. (Table 1 shows the breakdown of complaints about regulated practices by regulation or act; table 2 shows complaints by product type.)
Table 1. Investigated complaints against state member banks and selected nonbank subsidiaries of bank holding companies about regulated practices, by regulation/act, 2019
|Regulation AA (Unfair or Deceptive Acts or Practices)||15|
|Regulation B (Equal Credit Opportunity)||15|
|Regulation BB (Community Reinvestment)||7|
|Regulation C (Home Mortgage Disclosure Act)||1|
|Regulation CC (Expedited Funds Availability)||136|
|Regulation D (Reserve Requirements)||1|
|Regulation DD (Truth in Savings)||54|
|Regulation E (Electronic Funds Transfers)||411|
|Regulation H (National Flood Insurance Act/Insurance Sales)||10|
|Regulation P (Privacy of Consumer Financial Information)||14|
|Regulation V (Fair and Accurate Credit Transactions)||50|
|Regulation Z (Truth in Lending)||78|
|Homeowners Protection Act of 1998||1|
|Fair Credit Reporting Act||425|
|Fair Debt Collection Practices Act||3|
|Fair Housing Act||9|
|Real Estate Settlement Procedures Act||6|
|Right to Financial Privacy Act||1|
|Servicemembers Civil Relief Act (SCRA)||3|
Table 2. Investigated complaints against state member banks and selected nonbank subsidiaries of bank holding companies about regulated practices, by product type, 2019
|Subject of complaint/product type||All complaints||Complaints involving violations|
|Real estate loans||13||1||0||0|
|Real estate loans||37||3||5||8|
Note: Percentages may not sum to 100 due to rounding.
Complaints about Regulated Practices
The majority of regulated practices complaints concerned credit card accounts (37 percent), checking accounts (23 percent), and real estate (3 percent).23 The most common credit card complaints related to inaccurate credit reporting (82 percent), billing error resolution (4 percent), and forgery/fraud (2 percent). The most common checking account complaints related to funds availability not as expected (21 percent), deposit error resolution (16 percent), and disputed withdrawal of funds (14 percent). The most common real estate complaints related to rates and/or fees (22 percent) and flood insurance (18 percent).
Twenty-one regulated practices complaints alleging credit discrimination on the basis of prohibited borrower traits or rights were received in 2019. Sixteen discrimination complaints were related to the race, color, national origin, or ethnicity of the applicant or borrower. Five discrimination complaints were related to either the age, handicap, familial status, or religion of the applicant or borrower. Of the closed complaints alleging credit discrimination based on a prohibited basis in 2019, there was one with a violation; however, it was not related to illegal credit discrimination.
In 69 percent of investigated complaints against Federal Reserve regulated entities, evidence revealed that institutions correctly handled the situation. Of the remaining 31 percent of investigated complaints, 8 percent were identified errors that were corrected by the bank; 5 percent were deemed violations of law; and the remainder included matters involving litigation or factual disputes, internally referred complaints, or information was provided to the consumer.
Complaints about Unregulated Practices
The Board continued to monitor complaints about banking practices not subject to existing regulations. In 2019, the Board received 1,802 complaints against Federal Reserve regulated entities that involved these unregulated practices. The majority of the complaints were related to electronic transactions/prepaid products (51 percent), checking account activity (21 percent), and credit cards (11 percent).
In 2019, the Federal Reserve forwarded 10,320 complaints to other regulatory agencies and government offices for investigation. The Federal Reserve forwarded 14 complaints to HUD that alleged violations of the FHA and were closed in 2019.24 The Federal Reserve's investigation of these complaints revealed no instances of illegal credit discrimination.
The Federal Reserve received 19,812 consumer inquiries in 2019 covering a wide range of topics. Consumers were typically directed to other resources, including other federal agencies or written materials, to address their inquiries.
Consumer Laws and Regulations
Throughout 2019, the Board continued to administer its regulatory responsibilities with respect to certain entities and specific statutory provisions of the consumer financial services and fair lending laws. This included drafting regulations and issuing compliance guidance for the industry and the Reserve Banks and fulfilling its role in consulting with the CFPB on consumer financial services and fair lending regulations for which the CFPB has rulemaking responsibility.
Private Flood Insurance Rule
In February 2019, the Board, the Farm Credit Administration, FDIC, NCUA, and OCC issued a final rule to implement the provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. The rule requires regulated institutions to accept certain private flood insurance policies. The final rule also allows institutions to rely on an insurer's written assurance that the policy meets the criteria for a private flood insurance policy that must be accepted. At their discretion, institutions may also accept certain flood insurance policies issued by private insurers that do not meet the criteria for private flood insurance policies that must be accepted. The final rule also allows institutions to accept certain mutual aid plans, subject to agency approval.25
Annual Indexing of Exempt Consumer Credit and Lease Transactions
In October 2019, the Board and the CFPB announced the revised dollar thresholds in Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) that will apply in 2020 for determining exempt consumer credit and lease transactions. These thresholds are set pursuant to statutory changes enacted by the Dodd-Frank Act that require adjusting these thresholds annually based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Transactions at or below the thresholds are subject to the protections of the regulations.26
Annual Indexing of Threshold for Small Loan Exemption from Appraisal Requirements for Higher-Priced Mortgage Loans
In October 2019, the Board, the CFPB, and the OCC announced that the threshold for exempting loans from special appraisal requirements for higher-priced mortgage loans would increase for 2020.27 The Dodd-Frank Act amended the Truth in Lending Act to add special appraisal requirements for higher-priced mortgage loans, including a requirement that creditors obtain a written appraisal based on a physical visit to the home's interior before making a higher-priced mortgage loan. The rules implementing these requirements contain an exemption for loans of $25,000 or less and also provide that the exemption threshold will be adjusted annually to reflect increases in the CPI-W.
Annual Adjustment to CRA Asset-Size Thresholds for Small and Intermediate Small Institutions
In addition, in December the Board, the FDIC, and the OCC announced the annual adjustment to the asset-size thresholds used to define small bank, small savings association, intermediate small bank, and intermediate small savings association under the CRA regulations.28
Financial institutions are evaluated under different CRA examination procedures based on their asset-size classification. Those meeting the small and intermediate small institution asset-size thresholds are not subject to the reporting requirements applicable to large banks and savings associations unless they choose to be evaluated as a large institution.
Annual adjustments to these asset-size thresholds are based on the change in the average of the CPI-W, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million.
As a result of the 1.62 percent increase in the CPI-W for the period ending in November 2019, the definitions of small and intermediate small institutions for CRA examinations were changed as follows:
- "Small bank" or "small savings association" means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.305 billion.
- "Intermediate small bank" or "intermediate small savings association" means a small institution with assets of at least $326 million as of December 31 of both of the prior two calendar years and less than $1.305 billion as of December 31 of either of the prior two calendar years.
These asset-size threshold adjustments took effect on January 1, 2020.
Consumer Research and Analysis of Emerging Issues and Policy
Throughout 2019, the Board analyzed emerging issues in consumer financial services policies and practices in order to understand their implications for the market-risk surveillance and supervisory policies that are core to the Federal Reserve's functions. This research and analysis also provided insight into consumer financial decisionmaking.
Researching Issues Affecting Consumers and Communities
In 2019, the Board explored various issues related to consumers and communities by convening experts, conducting original research, and fielding surveys. The information gleaned from these undertakings provided insights into the factors affecting consumers and households.
Household Economics and Decisionmaking
In order to better understand consumer decisionmaking in the rapidly evolving financial services sector, the Board periodically conducts internet panel surveys to gather data on consumers' experiences and perspectives on various issues of interest.
Results of the Board's sixth annual Survey of Household Economics and Decisionmaking (SHED) were published in the Report on the Economic Well-Being of U.S. Households in 2018, released in May 2019. The Board launched the survey to understand better consumer decisionmaking in the wake of the Great Recession, with the aim to capture a snapshot of the financial and economic well-being of U.S. households. In doing so, the SHED collects information on households that is not readily available from other sources or is not available in combination with other variables of interest.
The survey asked respondents about specific aspects of their financial lives, including the following areas:
- employment and informal work
- income and savings
- economic preparedness
- banking and credit
- housing and living arrangements
- education and human capital
- education debt and student loans
The findings underscored the overall economic recovery and expansion over the six years of the survey. When asked about their finances, 11,000 adults surveyed in 2018 were largely positive, reflecting substantial gains since the survey began in 2013. When asked about their overall economic well-being, 75 percent of U.S. adults said they were "doing okay" or "living comfortably"—up 12 percentage points from 2013. Despite the improved finances of many adults, the survey continued to detect areas of financial distress as well as persistent differences by race, education level, and, in some cases, geography. Nearly 8 in 10 whites reported doing at least okay financially, compared to two-thirds of blacks and Hispanics.
A new topic in the 2019 report—aimed at understanding the experiences of bank customers—was difficulty accessing funds in their bank accounts. Thirteen percent of those with a bank account had at least one problem accessing funds in their account in the prior year. Problems with a bank website or mobile app (7 percent) and delays in when funds were available to use (6 percent) were the most common problems cited. Those with volatile income and low savings were more likely to experience these problems.
Community Development Research Conference
Every two years, the Board and the 12 Federal Reserve Banks collaborate to host the Federal Reserve System Community Development Research Conference. These conferences convene researchers, policymakers, and practitioners across sectors to consider important issues that low- to moderate-income people and communities face, exploring the latest research to inform effective strategies to advance opportunity for economically vulnerable households and areas.
In 2019, the System hosted its 11th biennial conference, "Renewing the Promise of the Middle Class."29 Research and presentations focused on
- emerging trends in education, labor practices, entrepreneurship, housing, credit, wealth, indebtedness, and other developments affecting the middle class;
- policy innovations and legacies that either encourage or discourage the creation of an inclusive middle class; and
- actions by individuals and institutions, including governments, financial institutions, community groups, businesses, and nonprofits, to create new and enduring paths to the middle class.
The conference featured keynote remarks by Federal Reserve Chair Jerome Powell, Federal Reserve Bank of Chicago President Charles Evans, Federal Reserve Board Governor Lael Brainard, and City Colleges of Chicago Chancellor Juan Salgado.
Analysis of Emerging Issues
Board staff analyze data and anticipate trends, monitor legislative activity, form working groups, and organize expert roundtables to identify emerging consumer risks and inform supervision, research, and policy. In 2019, the Board analyzed a broad range of issues in financial services markets that potentially pose risks to consumers:
- Auto lending: Continued to develop and maintain tools for monitoring developments in the auto finance market and their impact on consumers, especially subprime auto borrowers.
- Consumer risk workshop: Hosted a consumer risk-focused workshop in June for staff from across the Board, Reserve Banks, and other federal agencies. Discussion topics included defining consumer risk in a post-crisis environment, identifying stress in the household balance sheet, and using data in novel ways to signal consumer risk.
- Housing: Tracked general housing market trends, with a particular focus on the various factors limiting new housing supply, as well as on state and local initiatives designed to alleviate area housing shortages.
- Small business lending: Monitored credit availability for smaller firms that often lack the financing options and in-house financial expertise of larger firms.
- Student lending: Continued to analyze the impact of student loan borrowing on consumers, sharing insights from this work with the Board, other federal agencies, and the public at external conferences. In addition, staff participated in the Treasury Department's Financial Literacy and Education Commission's Postsecondary Education Committee.
See box 2 for information about related publications covering topics of student loans, small business' access to capital, and how online lenders present information about the costs and features of their credit products to prospective borrowers.
The Federal Reserve System's Community Development function promotes economic growth and
financial stability for underserved households and communities by informing research, policy, and action. Community Development is a decentralized function within the Federal Reserve System, and the Community Affairs Officers at each of the 12 Reserve Banks design strategies to respond to the specific needs in their respective Districts. Board staff provide oversight for alignment with Board objectives and coordination of System priorities.
The Economics of Place
In 2019, economic growth and employment were at record levels. However, some lower-income populations and communities have not fully realized advancement as others. The Community Development function at the Board and the Reserve Banks promotes efforts to support new ways to advance the economic outcomes of people and places where economic challenges remain.
Perspectives from Main Street
Through its work, the Community Development function also ensures the voices of consumers and communities inform policy and research and solicits diverse views on issues affecting the economy and financial markets. These perspectives help improve research, policies, and transparency.
To that end, the Board released qualitative analysis based on a series of roundtable discussions and listening sessions in 2019 to inform regulatory and supervisory approaches to the CRA and on bank branching trends in rural areas. Box 2 provides more details about these reports.
Similarly, the Federal Reserve supports access to credit and financial services for communities of color by understanding and promoting the viability of minority depository institutions (MDIs). Most recently, the Board commissioned research that explored how the CRA could better leverage investment in Native American-owned banks and how the evolution of financial technologies and public policy impact the efforts of MDIs in Los Angeles.30
Box 2. Consumer and Community Outreach Highlights and Publications in 2019
The Board supports consumer financial inclusion and community development through targeted work in research and analysis, supervision, and regulatory policy. It also conducts outreach to provide various stakeholders with information and resources that support their roles in consumer protection, financial inclusion, and community reinvestment. Highlights of 2019 Federal Reserve outreach activities and related publications are below.
- Throughout 2019, the Federal Reserve System hosted 14 Fed Listens events, including a research conference in June 2019 at the Federal Reserve Bank of Chicago. Reserve Banks planned additional public events around the country to solicit a wide range of perspectives from diverse stakeholders on issues related to the job market, inflation, and central bank communications to the broader economy. The events were part of a comprehensive and public review of the Board's monetary policy strategy, tools, and communications practices—as a means to understand better how monetary policy affects consumers' lives. See https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-fed-listens-events.htm.
- In January, the Federal Reserve launched Consumer & Community Context, an article series targeting a general audience that features original analysis about the financial conditions and experiences of consumers and communities, including traditionally underserved and economically vulnerable households and neighborhoods. Themes covered during the year included student loans and small businesses' access to capital. See https://www.federalreserve.gov/publications/consumer-community-context.htm.
- The Federal Reserve System's 11th biennial Community Development Research Conference, "Renewing the Promise of the Middle Class," took place in May in Washington, D.C. The conference featured research on challenges faced by low- and moderate-income families when moving into the middle class, as well as threats to the economic security of middle-class households. See https://www.chicagofed.org/region/community-development/2019-federal-reserve-system-community-development-research-conference.
- Between October 2018 and January 2019, the Federal Reserve System hosted 29 information-gathering roundtables on the current state of, and potential revisions to, the Community Reinvestment Act (CRA). More than 400 participants, including bankers and community groups, shared views that will factor into the Board's consideration of any CRA modernization proposals. Additionally, representatives from the other federal banking agencies with CRA responsibility were invited to attend the roundtables. In June 2019, the Board published a summary of feedback received from bankers and community groups in the report Perspectives from Main Street: Stakeholder Feedback on Modernizing the Community Reinvestment Act. See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190613a.htm.
- In November, the Board released Perspectives from Main Street: Bank Branch Access in Rural Communities, a report that examines how rural consumers and small businesses use bank branches and how their communities have been affected by branch closures. Of the counties analyzed in the report, more than half lost bank branches between 2012 and 2017, with some predominantly rural counties experiencing considerable declines. See https://www.federalreserve.gov/publications/bank-branch-access-in-rural-communities.htm.
- In December, the Board, in collaboration with the Federal Reserve Bank of Cleveland, published Uncertain Terms: What Small Business Borrowers Find When Browsing Online Lender Websites. The study was conducted in support of the Federal Reserve's ongoing interest in small businesses and the access to credit they need to succeed and grow. It found that nonbank online lenders are becoming more mainstream alternative providers of financing to small businesses and in 2018, nearly one-third of small business owners seeking credit had applied at a nonbank online lender. See https://www.federalreserve.gov/publications/what-small-business-borrowers-find-when-browsing-online-lender-websites.htm.
1. The Federal Reserve has examination and enforcement authority for federal consumer financial laws and regulations for insured depository institutions with assets of $10 billion or less that are state member banks and not affiliates of covered institutions, as well as for conducting CRA examinations for all state member banks regardless of size. The Federal Reserve Board also has examination and enforcement authority for certain federal consumer financial laws and regulations for insured depository institutions that are state member banks with $10 billion or less in assets, while the Consumer Financial Protection Bureau has examination and enforcement authority for many federal consumer financial laws and regulations for insured depository institutions with over $10 billion in assets and their affiliates (covered institutions), as mandated by the Dodd-Frank Act. For data on state member banks and other institutions supervised by the Federal Reserve (including number and assets of), see section 4, "Supervision and Regulation." Agency and branch offices of foreign banking organizations, Edge Act corporations, and agreement corporations fall under the Federal Reserve's purview for consumer compliance activities. An agreement corporation is a type of bank chartered by a state to engage in international banking. The bank agrees with the Federal Reserve Board to limit its activities to those allowed by an Edge Act corporation. An Edge Act corporation is a banking institution with a special charter from the Federal Reserve to conduct international banking operations and certain other forms of business without complying with state-by-state banking laws. By setting up or investing in Edge Act corporations, U.S. banks are able to gain portfolio exposure to financial investing operations not available under standard banking laws. Return to text
4. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/files/orders20191119a2.pdf. Return to text
6. In December, the FDIC and OCC issued a notice of proposed rulemaking (NPR) to seek public comment on their proposal to modernize CRA. Although the Board did not join the NPR, staff will analyze comments submitted in response to the NPR to inform the Board's consideration of potential options to strengthen regulatory and supervisory processes that benefit low- and moderate-income communities. For the FDIC and OCC's NPR, see https://www.federalregister.gov/documents/2020/01/09/2019-27940/community-reinvestment-act-regulations. Return to text
7. For remarks, see https://www.federalreserve.gov/newsevents/speech/brainard20200108a.htm. For press release and data, see https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200306a.htm. Return to text
8. See Perspectives from Main Street: Stakeholder Feedback on Modernizing the Community Reinvestment Act, at https://www.federalreserve.gov/publications/stakeholder-feedback-on-modernizing-the-community-reinvestment-act.htm. Return to text
9. In October 2015, the Federal Reserve issued guidance providing further explanation on its criteria for waiving or conducting such pre-merger or pre-membership examinations. For more information, see https://www.federalreserve.gov/supervisionreg/srletters/SR1511.htm. Return to text
10. To access the Board's Orders on Banking Applications, see
https://www.federalreserve.gov/newsevents/pressreleases.htm. Return to text
11. For these reports, see https://www.federalreserve.gov/supervisionreg/semiannual-reports-banking-applications-activity.htm. Return to text
12. 84 Fed. Reg. 31,701 (July 3, 2019), https://www.govinfo.gov/content/pkg/FR-2019-07-03/pdf/2019-13970.pdf. Return to text
13. For more information, see https://www.federalreserve.gov/supervisionreg/srletters/SR1910.htm. Return to text
20. For more information and to download the seminars, see https://consumercomplianceoutlook.org/outlook-live/. Return to text
23. Real estate loans include adjustable-rate mortgages, residential construction loans, open-end home equity lines of credit, home improvement loans, home purchase loans, home refinance/closed-end loans, and reverse mortgages. Return to text
24. A memorandum of understanding between HUD and the federal bank regulatory agencies requires that complaints alleging a violation of the FHA be forwarded to HUD. Return to text
25. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190212a.htm. Return to text
26. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191031b.htm. Return to text
27. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191031a.htm. Return to text
28. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191231a.htm. Return to text
29. For more information, including the agenda and papers, see https://www.chicagofed.org/region/community-development/2019-federal-reserve-system-community-development-research-conference. Return to text
30. For more information, see https://www.fedpartnership.gov/-/media/federal-reserve-resources/research/buckley_kashian_craforindiancoutry_final_073119.pdf and https://www.fedpartnership.gov/-/media/federal-reserve-resources/mdis-evolving-financial-technologies-and-the-challenge-of-governance.pdf. Return to text