Consumer and Community Affairs
The Federal Reserve is committed to promoting fair and transparent financial service markets, protecting consumers' rights, and ensuring that its policies and research take consumer and community perspectives into account. The Board supports consumer financial inclusion and community development through targeted work in supervision, regulatory policy, and research and analysis. This section discusses the Federal Reserve's key consumer and community affairs activities during 2020:
- formulating and carrying out supervision and examination policy to ensure that financial institutions 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 and risks to inform policy decisions (also see figure 6.1); and
- identifying issues and advancing what works in community development by engaging, convening, and informing key stakeholders.
Consumer Compliance Supervision
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 including, but not limited to, fair lending, unfair or deceptive acts or practices (UDAP), flood insurance, the Home Mortgage Disclosure Act (HMDA), and the Real Estate Settlement Procedures Act (RESPA).
The Board's Division of Consumer and Community Affairs develops policies that govern, and establish requirements for 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 oversees the development and delivery of examiner training and supervision-related budget and technology efforts; analyzes bank and BHC applications related to consumer protection, convenience and needs, and the CRA; and oversees the handling of certain types of consumer complaints by the Reserve Banks and directly processes certain consumer complaints such as congressional complaints and appeals.
Consumer Compliance Examinations
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.1 During 2020, the Board, in conjunction with the federal financial institution regulators and state regulators, took extraordinary measures to support financial institutions in their efforts to meet the financial and economic needs of consumers and communities affected by the COVID-19 emergency.
Recognizing the potential impact of the coronavirus on the customers, members, and operations of many financial institutions, the agencies in March issued supervisory letters encouraging financial institutions to meet the financial needs of customers and members affected by the coronavirus. and affirming the agencies' intent to work with affected financial institutions in scheduling examinations or inspections to minimize disruption and burden.2 This posture included a temporary reduction in examination activities to allow firms to focus on adapting to coronavirus containment actions and provide customers with needed assistance, with the greatest reduction at smaller banks.3 This also allowed the Federal Reserve and other agencies to focus on outreach and monitoring to help financial institutions of all sizes understand the challenges and risks of this new operating environment.
In June, the Federal Reserve announced that examination activities would resume for all firms, including financial institutions with total consolidated assets of less than $100 billion, since financial institutions had implemented contingency operating plans and adapted operations to the COVID-19 operating environment.4
As a result of these actions, the number of examinations the Reserve Banks completed in 2020 decreased compared to 2019, from 479 to 311. In 2020, the breakdown of examinations completed by Reserve Banks included 159 consumer compliance examinations of state member banks, 138 CRA examinations of state member banks, 14 examinations of foreign banking organizations, and no examinations of Edge Act corporations or agreement corporations.5
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.6
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 2020 reporting period, the Reserve Banks completed 137 CRA examinations of state member banks. Of those banks examined, 18 were rated "Outstanding," 117 were rated "Satisfactory," 2 were rated "Needs to Improve," and none were rated "Substantial Non-Compliance."
In response to actions taken by banks to support borrowers and communities during the COVID-19 pandemic, the agencies issued guidance to clarify how activities would be considered under the CRA in March and May.7 The Joint Statement and the Frequently Asked Questions (FAQs) provided clarification on how both retail and community development activities will be considered in examinations, as well as agency treatment of COVID-19 designated disaster areas. This guidance also provided clarification on CRA eligibility and reporting standards for the Small Business Administration Paycheck Protection Program (PPP) and the Federal Reserve Main Street Lending Program.
In September, the Board issued an Advanced Notice of Proposed Rulemaking (ANPR) that invited public comment on an approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core purpose of the CRA. The ANPR sought feedback on ways to evaluate how banks meet the needs of low-and moderate-income (LMI) communities and address inequities in credit access.8 By reflecting significant stakeholder feedback and providing a long period for comment, one objective of the ANPR is to build a foundation for the banking agencies to come together on a consistent approach to CRA that has the broad support of the intended beneficiaries as well as banks of different sizes and business models.9
In an Open Board Meeting, Board members and staff spoke to the intent, structure, and goals of the ANPR, which received unanimous approval by the Board members.10 The ANPR also solicited feedback on ways to evaluate how banks meet the needs of LMI communities and address inequities in credit access. It sought public comment on an approach to modernize the CRA regulations by strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core purpose of the CRA. Through analysis and questions that contemplate potential regulatory approaches for assessing performance under the CRA, the ANPR sets forth 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.11
To inform the analysis and drafting of the CRA ANPR, Board staff gathered extensive CRA performance data to inform potential policy options. The Board released datasets that informed its analysis in March 2020.12 The Board also continued to update its website (https://www.federalreserve.gov/consumerscommunities/cra_about.htm) to centralize access to all information regarding the CRA.
Consumer Compliance Enforcement Activities
Fair Lending and UDAP Enforcement
The Federal Reserve is committed to ensuring that institutions it supervises comply fully with the federal fair lending laws: the Equal Credit Opportunity Act (ECOA), the Fair Housing Act (FHA), and the Federal Trade Commission Act (FTC Act), which prohibits unfair or deceptive acts or practices. 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 Federal Reserve supervises all state member banks for compliance with the FHA. The Federal Reserve and the CFPB 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 FTC Act and UDAP, the Federal Reserve has supervisory and enforcement authority over all state member banks, regardless of asset size and consults with the CFPB with regards to state member banks over $10 billion in assets.
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.
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 2020, the Board referred two fair lending matters to DOJ. One matter involved discrimination based on marital status, in violation of the ECOA. This institution improperly required spousal guarantees on loans, in violation of Regulation B. The second matter involved discrimination based on a pattern or practice of redlining in mortgage lending based on race or national origin.
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 announced no public UDAP enforcement actions and the termination of two public enforcement actions for UDAP violations in 2020. In June 2020, the Board terminated a consent order, initially issued in 2017, against a bank for deceptive practices related to the bank's mortgage origination services. The order required the bank to pay restitution of approximately $2.8 million to affected consumers and to take other corrective actions.13 In December 2020, the Board terminated a consent order, initially issued in 2018, against a bank for unfair and deceptive practices related to the bank's offering of certain add-on products. The order required the bank to pay restitution of approximately $4.75 million to more than 11,000 customers and to take other corrective actions.14
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.
To better understand consumer concerns arising from the changes to delivery of financial services during the pandemic, in 2020, the Board conducted a series of outreach meetings with consumer advocate groups. These outreach sessions explored areas of concern with respect to existing laws and policies, as well as potential policy gaps. In addition, outreach and technical assistance included the annual Board-sponsored interagency webinar on fair lending supervision, which attracted more than 5,700 registrants in 2020.15
Flood Insurance Enforcement
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 2020, the Federal Reserve issued six formal consent orders and assessed approximately $761,000 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.
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.16
The Board provides information on its actions associated with these merger and acquisition transactions, issuing press releases and Board Orders for each.17 The Federal Reserve also publishes semiannual reports that provide pertinent information on applications and notices filed with the Federal Reserve.18 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.
Coordination with Other Agencies
Coordination with the Consumer Financial Protection Bureau
During 2020, 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 Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (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.19 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 2020, the banking agencies worked together to develop numerous joint policy statements in response to the impact of COVID-19 in order to support regulatory relief and encourage financial institutions to support consumers and communities (see box 6.1).
Box 6.1. Supervisory and Policy Responses to Address COVID-19 Impacts on Consumers
In 2020, the Federal Reserve encouraged financial institutions to work with borrowers who may be unable to meet their financial obligations and exercised its authority to provide supervisory relief measures to regulated entities. To help banks support consumers, the Board's Division of Consumer and Community Affairs worked with the Supervision and Regulation division and other federal banking agencies to issue numerous statements to provide banks with guidance on policy responses.
The agencies sought to provide relief in the areas most critical to households—mortgages, loan modifications, small-dollar loans, and unrestrained access to savings—with a focus on prudent and responsible credit and banking practices.
In addition, to ensure that bankers, consumer groups, and community organizations were informed and understood the impact of these actions, the Board conducted extensive outreach and communications through webinars (https://bsr.stlouisfed.org/connectingcommunities/), publications (https://consumercomplianceoutlook.org/), and guidance and responses to FAQs (https://www.federalreserve.gov/supervisionreg/caletters/2020.htm).
The supervisory and regulatory actions—including consumer-related actions—are summarized on the Board's COVID-19 webpage at https://www.federalreserve.gov/supervisory-regulatory-action-response-covid-19.htm.Return to text
Updating Examination Procedures
In 2020, Board staff worked with other agencies to develop and revise examination procedures to provide clarity about supervisor expectations regarding consumer compliance. In March, the member agencies of the Federal Financial Institutions Examination Council (FFIEC) updated guidance identifying actions that financial institutions should take to minimize the potential adverse effects of a pandemic.20 This guidance, the Interagency Statement on Pandemic Planning, provided financial institutions direction to periodically review related risk-management plans, including business continuity plans, to ensure that they are able to continue to deliver products and services in a wide range of scenarios and with minimal disruption.
In July, the Board issued examination procedures for institutions supervised by the Federal Reserve with total consolidated assets of $10 billion or less to implement credit reporting and mortgage servicing provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).21 The CARES Act, signed into law in March to provide relief to those affected by the COVID-19 emergency, created new responsibilities for furnishers of certain credit information and for mortgage servicers of certain mortgage loans. In these procedures, the Board reiterated that when exercising supervisory and enforcement responsibilities, it will consider the unique circumstances impacting borrowers and institutions resulting from the COVID-19 emergency. The Board also will consider an institution's good-faith efforts demonstrably designed to support consumers and comply with consumer protection laws.
The Federal Reserve maintains a comprehensive public outreach program to promote consumer protection, financial inclusion, and community reinvestment. During 2020, the Federal Reserve continued to enhance its program, contributing to Consumer Compliance Outlook and Outlook Live seminars to deliver timely, relevant compliance information to the banking industry as well as to experienced examiners and other regulatory personnel.22
In 2020, four 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 to bank and savings and loan holding companies supervised by the Federal Reserve, among other subscribers.23 In addition, the Federal Reserve offered one Outlook Live seminar, "2020 Fair Lending Interagency Webinar."
The Federal Reserve'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 and beyond. 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."24
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 self-paced online learning, classroom offerings, 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 2020, 22 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. Special instructional and curriculum solutions were deployed throughout 2020 to ensure uninterrupted learning for supervisory staff at all levels during the pandemic.
Continuing Professional Development
In addition to providing core examiner training, continuing, career-long learning is offered. Opportunities for continuing professional development include online learning modules, 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. Staff have access to continuing professional development resources on a variety of topics, including learning assets for examiners moving into examiner responsibilities at larger financial institutions and other curated learning content.
In 2020, 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 2020. Additionally, 18 Rapid Response sessions were offered that addressed a broader range of supervisory issues, including consumer compliance issues and special topics to keep supervision function staff informed of the Federal Reserve's actions during the pandemic.
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 2020, FRCH processed 36,651 cases. Of these cases, 21,713 were inquiries and the remainder (14,938) were complaints, with most cases received directly from consumers. Approximately 9.2 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 (59.2 percent). Nevertheless, 40.8 percent (14,981) of complaint and inquiry submissions were made electronically (via email, online submissions, and fax), and the online form page received 33,176 visits during the year.
Complaints against Federal Reserve regulated entities totaled 4,318 in 2020. Of the total, 89 percent (3,915) were investigated. Sixty-two percent (2,432) of the investigated complaints involved unregulated practices, and 38 percent (1,483) involved regulated practices.
Approximately 4 percent of the total complaints were closed without investigation, pending the receipt of additional information from consumers, referred to another regulatory agency, or withdrawn by the consumer. Six percent of the total complaints were still under investigation in February 2021. (Table 6.1 shows the breakdown of complaints about regulated practices by regulation or act; table 6.2 shows complaints by product type.)
Table 6.1. Investigated complaints against state member banks and selected nonbank subsidiaries of bank holding companies about regulated practices, by regulation/act, 2020
|Regulation AA (Unfair or Deceptive Acts or Practices)||13|
|Regulation B (Equal Credit Opportunity)||20|
|Regulation BB (Community Reinvestment)||4|
|Regulation CC (Expedited Funds Availability)||51|
|Regulation D (Reserve Requirements)||3|
|Regulation DD (Truth in Savings)||72|
|Regulation E (Electronic Funds Transfers)||639|
|Regulation H (National Flood Insurance Act/Insurance Sales)||2|
|Regulation P (Privacy of Consumer Financial Information)||10|
|Regulation V (Fair and Accurate Credit Transactions)||84|
|Regulation Z (Truth in Lending)||111|
|Fair Credit Reporting Act||441|
|Fair Debt Collection Practices Act||7|
|Fair Housing Act||5|
|Real Estate Settlement Procedures Act||17|
|Servicemembers Civil Relief Act (SCRA)||1|
Table 6.2. Investigated complaints against state member banks and selected nonbank subsidiaries of bank holding companies about regulated practices, by product type, 2020
|Subject of complaint/product type||All complaints||Complaints involving violations|
|Real estate loans||10||1||1||1|
|Real estate loans||67||5||6||4|
Note: Percentages may not sum to 100 due to rounding.
Complaints about Regulated Practices
The majority of regulated practices complaints concerned prepaid accounts (41 percent), credit card accounts (30 percent), checking accounts (15 percent), and real estate (5 percent).25 The most common prepaid complaints related to inability to withdraw funds on the card (49 percent), error resolution (22 percent), and funds not being deposited on the card (4 percent). The most common credit card complaints related to inaccurate credit reporting (80 percent), payment errors or delays (4 percent), and account opening/closing problems (4 percent). The most common checking account complaints related to funds availability not as expected (42 percent), deposit error resolution (17 percent), and insufficient funds and overdraft charges (10 percent). The most common real estate complaints related to payment errors or delays (12 percent) and escrow problems (10 percent).
Nineteen regulated practices complaints alleging credit discrimination on the basis of prohibited borrower traits or rights were received in 2020. Fifteen discrimination complaints were related to the race, color, national origin, or ethnicity of the applicant or borrower. Four discrimination complaints were related to either the age or sex of the applicant or borrower. Of the closed complaints alleging credit discrimination based on a prohibited basis in 2020, there were three with a violation; however, they were 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, 15 percent were identified errors that were corrected by the bank; 10 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 2020, the Board received 2,629 complaints against Federal Reserve regulated entities that involved these unregulated practices. The majority of the complaints were related to electronic transactions/prepaid products (69 percent), checking account activity (12 percent), and credit cards (9 percent).
In 2020, the Federal Reserve forwarded 10,558 complaints to other regulatory agencies and government offices for investigation. The Federal Reserve forwarded five complaints to HUD that alleged violations of the FHA and were closed in 2020.26 The Federal Reserve's investigation of these complaints revealed no instances of illegal credit discrimination.
The Federal Reserve received 21,715 consumer inquiries in 2020 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 2020, 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.
Small-Dollar Lending Principles
In May, the federal financial regulatory agencies issued Interagency Lending Principles for Offering Responsible Small-Dollar Loans to encourage supervised banks, savings associations, and credit unions to offer responsible small-dollar loans to customers for both consumer and small business purposes.27 In doing so, the agencies recognized the important role that responsibly offered small-dollar loans can play in helping customers meet their ongoing needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income shortfalls, including during periods of economic stress, national emergencies, or disaster recoveries. Well-designed small-dollar lending programs can result in successful repayment outcomes that facilitate a customer's ability to demonstrate positive credit behavior and transition into additional financial products.
The principles were offered due to the evolving conditions and products in the small-dollar loan markets over the last several years. The lending principles describe the characteristics of responsible small-dollar loan programs and cover a variety of small-dollar loan structures.28
Interagency Questions and Answers for Flood Insurance Proposal
In July, five federal regulatory agencies, including the Board, issued for public comment new and revised Interagency Questions and Answers Regarding Flood Insurance.29 The Interagency Questions and Answers, which provide information addressing technical flood insurance-related compliance issues, were last updated in 2011.30
The agencies proposed new questions and answers in light of changes to flood insurance requirements under the agencies' 2015 joint rule regarding loans in special flood hazard areas. The proposal also revised existing questions and answers to improve clarity and reorganized questions and answers by topic to make it easier for users to find and review information related to technical flood insurance topics. The proposal is intended to help reduce the compliance burden for lenders related to the federal flood insurance laws.
The proposal incorporated new questions and answers in several areas, including
- escrow of flood insurance premiums;
- detached structure exemption to the mandatory purchase of flood insurance requirement; and
- force-placement procedures.
The public comment period for the proposed questions and answers was extended to November to ensure adequate time for input.
Annual Indexing of Exempt Consumer Credit and Lease Transactions
In November 2020, the Board and the CFPB announced that the dollar thresholds in Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) that will apply in 2021 for determining exempt consumer credit and lease transactions will remain at $58,300. 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.31
Annual Indexing of Threshold for Small Loan Exemption from Appraisal Requirements for Higher-Priced Mortgage Loans
In November 2020, the Board, the CFPB, and the OCC announced that the threshold for exempting loans from special appraisal requirements for higher-priced mortgage loans would remain the same in 2021, at $27,200.32 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 Community Reinvestment Act (CRA) Asset-Size Thresholds for Small and Intermediate Small Institutions
In December 2020, the Board and the FDIC announced the annual adjustment to the asset-size thresholds used to define "small bank," and "intermediate small bank" under the CRA regulations.33
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 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 1.29 percent increase in the CPI-W for the period ending in November 2020, the definitions of small and intermediate small institutions for CRA examinations were changed as follows:
- Small bank means an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.322 billion.
- Intermediate small bank means a small institution with assets of at least $330 million as of December 31 of both of the prior two calendar years and less than $1.322 billion as of December 31 of either of the prior two calendar years.
These asset-size threshold adjustments took effect on January 1, 2021.
Consumer Research and Analysis of Emerging Issues and Policy
Throughout 2020, the Board analyzed emerging issues in consumer financial services policies and practices in order to understand their implications for the consumer risk analyses 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 2020, the Board explored various issues related to consumers and communities by convening experts, conducting original research, and fielding surveys as part of its continuing to commitment to gain insights into consumers' financial and communities' economic development experiences. The expansion of this work during 2020 was essential to informing the Board's policy work in responding to the COVID-19 emergency, particularly as these efforts were aimed at ameliorating conditions for economically vulnerable households and areas. The information gleaned from these outreach efforts provided insights that informed Federal Reserve actions in supervisory, economic, and lending facilities responses.
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 seventh annual Survey of Household Economics and Decisionmaking (SHED) were published in the Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supplemental Data from April 2020, released in May 2020.34 The survey results reflected the financial situation at the end of 2019; however, many families had their financial lives disrupted in 2020 due to the COVID-19 pandemic. To understand the extent of these disruptions, the Federal Reserve Board implemented two smaller follow-up surveys. The first was fielded in the first week of April 2020 with results included in the May report. The second was fielded in July 2020, with results published in the Update on the Economic Well-Being of U.S. Households: July 2020 Results.35
The Board first launched the survey in 2013 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
Fielded in October 2019, the findings of the 2019 survey reflected that the financial experiences of individual families were generally positive in the United States before the pandemic, consistent with the economic improvements over the prior six years. The majority of families were faring substantially better than they were when the survey began in 2013. However, the results highlighted areas of persistent challenges and economic disparities across financial measures, even before the spread of COVID-19 in the United States. In particular, the substantial disparities in overall well-being by race and ethnicity remained in 2019, and the disparity by education widened in recent years.
While most adults were faring reasonably well financially, results also showed that a substantial minority of adults were financially vulnerable at the time of the survey and either could not pay their current month's bills in full or would have struggled to do so if faced with an emergency expense as small as $400. Even fewer had three months of emergency savings to cover expenses in the event of a job loss. This highlights the precarious financial situation that some families were in before the COVID-19 pandemic.
The 2019 survey also explored long-run financial circumstances, including returns to education, housing satisfaction, and retirement savings. It included several new topics that have not been asked in previous years of the survey. These new topics included self-perceptions of discrimination, differences in work locations by education level, and the repercussions of outstanding legal expenses and court costs. Additionally, the survey continued to monitor emerging issues that may be important to the economy in the future, such as experiences working in the gig economy.
Recognizing that these survey results reflected the financial situation at the end of 2019, the April and July 2020 surveys provided insights into how families were faring after the community spread of COVID-19 as well as measures implemented to limit its spread. In early April, the supplemental survey demonstrated that a substantial number of people experienced layoffs or reductions in hours worked and highlighted the extent to which some families dealing with layoffs have struggled to pay their monthly bills. Yet, it also indicated that those not experiencing employment disruptions generally were still faring relatively well financially as of early April.
The July 2020 survey subsequently showed that U.S. families were faring better financially in July than in April, but many still faced uncertainty regarding layoffs and prospects for returning to work. In July, 77 percent of adults said they were doing at least okay financially, up from 72 percent in early April and 75 percent in October 2019. This increase was likely due to some people returning to work as well as the availability of assistance programs either from the government or from charitable organizations.
A substantial number of families received one or more forms of financial assistance, and the effects of these programs were apparent in people's overall financial well-being and ability to cover expenses. The July survey demonstrated that people appeared better able to handle small financial emergencies than they were nine months prior in October 2019. Seventy percent of adults said in July that they would be able to pay an unexpected $400 emergency expense entirely by using cash, savings, or a credit card paid off at the next statement—an increase from 63 percent in October.
In addition to fielding and analyzing these surveys, economists in the Division of Consumer and Community Affairs published articles throughout the year in various publications and journals, contributing to body of research exploring issues impacting consumers and communities.36
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 2020, the Board analyzed a broad range of issues in financial services markets that potentially pose risks to consumers:
- Consumer risk workshop: Hosted a consumer risk-focused workshop in July for staff from across the Board, Reserve Banks, and other federal agencies. Discussion topics focused on balancing macro- and micro-consumer risks with data-driven tools and innovative techniques for identifying heightened risks to consumers.
- Retail banking: Published articles that explored two aspects of changes in retail banking: the implications of faster payments for cash-flow-constrained consumers and the emergence of online-only subsidiaries of traditional brick-and-mortar banks.37
- Mortgage credit: Analyzed the small-dollar mortgage market to understand the nature of banks' engagement in this sector and to assess opportunities for improving access to credit and reducing burden.
- Housing: Tracked general housing market trends, with a particular focus on the impact of COVID-19 on homeownership and rental housing, including risk of foreclosure and evictions.
- Small business lending: Monitored credit availability for smaller firms that often lack the financing options and in-house financial expertise of larger firms.
See box 6.2 for information about related publications presenting analyses of how consumers, communities, and community development organizations responded to the pandemic. Much of this work focused, in particular, on such issues as measuring the economic impact of the pandemic, the role and operations of community development financial institutions in responding to the pandemic, trends in complaints consumers had about their experiences with financial institutions, and survey results of organizations providing services to LMI communities during the pandemic.38
Box 6.2. Meeting the Need for Real-Time Data and Insights on Consumers' Experiences
In mid-March, as the country confronted the public health crisis sparked by the coronavirus, federal, state, and local governments began issuing stay-at-home orders to contain the virus. Many businesses shuttered, workplaces and schools moved to full-time virtual operations, and consumers and communities were faced with financial uncertainty and loss of income.
As the magnitude of the potential economic fallout became clearer, the federal government and the Federal Reserve launched emergency programs to provide immediate relief by providing fiscal support to businesses and households so they could continue to meet financial obligations (see box 6.1). Given the sudden onset and unprecedented nature of this crisis, there were limited data available to guide policy; thus, policymakers sought to provide access to financial relief through many channels while simultaneously working to understand the issues that consumers and communities were facing.
To help gather real-time data and community-level insights to inform the Board's actions and decisions on how best to support the economic stability of consumers and communities, the Division of Consumer and Community Affairs (DCCA) throughout the year conducted targeted research, surveys, and data analysis as well as outreach to key community stakeholders.
Research, Data, and Analysis
To help provide insight into how households were faring financially, the Board issued two supplements to its annual Survey of Household Economic and Decisionmaking in April and July 2020, to update the 2019 survey. These additional surveys, each of just over 1,000 adults, focused on the labor market effects of households' overall financial circumstances amid closures and stay-at-home orders, which highlighted the impact of the pandemic's unprecedented financial disruptions on the economic well-being of U.S. adults and their families.1 The April survey showed that a larger fraction of households were facing financial hardship than in the fall of 2019, with concentrations of those who had lost a job or had their hours cut reporting difficulty meeting financial obligations as a result of employment disruption.
Furthermore, Federal Reserve System Community Development Offices collaborated throughout 2020 to survey consumer groups, financial institutions, government agencies, and community organizations to understand the effects of COVID-19 on low- to moderate-income communities and the entities serving them. Analysis of four pulse surveys were published in a series of four reports entitled Perspectives from Main Street: The Impact of COVID-19 on Low- to Moderate-Income Communities and the Entities Serving Them.2 Additional information and data on the challenges stemming from the COVID-19 crisis, as well as other community development issues, were shared through various Connecting Communities webinars.3 And the Board's November 2020 issue of Consumer and Community Context compiled additional research and analysis on the impact of COVID-19.4
Outreach and Stakeholder Engagement
Because actions to protect public health were sudden and varied across states and localities, on-the-ground information was essential to informing how the Board weighed challenges confronting the economy, financial institutions, and consumers. To augment its community-level insights and feedback, the Board convened its network of bankers, community organizations, consumer advocates, and researchers so that they could share their perspectives with Board members and staff.
In April, the Board convened a special meeting of the Community Advisory Council (CAC) to discuss the public health and economic impacts of the pandemic, with members sharing their organizations' experiences and observations. The regular May and October CAC provided additional opportunities for council members to share insights on challenges facing their communities, including supporting small businesses and nonprofits, addressing housing instability and food security, and understanding the impacts of these issues on economically vulnerable households.5
In addition, the Board also conducted outreach to a broad range of stakeholders, including financial institutions, community organizations, consumer groups, small businesses and nonprofits, throughout the year to gain their perspectives on trends and impacts they were seeing in their communities as they worked to respond to the rapid pace of change. This included convening a group to advise and encourage participation of community development financial institutions and minority depository institutions in the Paycheck Protection Program Lending Facility and Main Street Lending Program.6 In addition, the Board posted resources for consumers, communities, and small businesses on its COVID-19 webpage (https://www.federalreserve.gov/covid-19.htm) for those seeking assistance through various programs.
1. See https://www.federalreserve.gov/consumerscommunities/shed.htm. Return to text
2. See https://fedcommunities.org/data/main-street-covid19-survey-2020/. Return to text
3. See https://bsr.stlouisfed.org/connectingcommunities/. Return to text
4. See https://www.federalreserve.gov/publications/files/consumer-community-context-20201118.pdf. Return to text
5. Records of meetings with the CAC are available at https://www.federalreserve.gov/aboutthefed/cac.htm. Return to text
6. For access to webinars on these programs, see Ask the Fed at https://bsr.stlouisfed.org/askthefed/Home/AllCalls. Return to text
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.
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 partnered with Reserve Banks in 2020 to gain insight into the impact of COVID-19 and how the many efforts to slow the spread of this disease affected communities across the nation. In order to obtain information, the Federal Reserve conducted four surveys on the effects of the coronavirus on communities and people in LMI households and the entities serving them.39 Using a convenience sampling method that relied on contact databases, the online survey sought input from representatives of nonprofit organizations, financial institutions, government agencies, and other community organizations. Issued in April, June, August, and October, these surveys provided an insightful and informative snapshot into how COVID-19 was affecting LMI people and organizations that serve them on the dates the survey was administered. In addition, the findings of the survey were discussed in webinar series that featured experts from industry, government agencies, and community organizations. For more information on the results of the survey and on webinar series, see box 6.2.
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). In 2020, in addition to releasing the Minority Depository Institutions (MDI) Annual Report to the Congress, the Board partnered with the Federal Reserve Bank of Kansas City on the development and promotion of a virtual conference, "Banking and the Economy: A Forum for Minorities in Banking."40 This forum was designed to provide leaders of minority banks with industry, leadership, and professional development knowledge that will enhance their careers and networks, in fulfillment of the Federal Reserve's commitment to supporting the success of MDIs as vital contributors to the diverse landscape of banks and providers of financial services through its Partnership for Progress program.41
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." Return to text
2. See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200309a.htm and https://www.federalreserve.gov/supervisionreg/srletters/SR2004.htm. Return to text
3. See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200324a.htm. Return to text
4. See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200615a.htm. Return to text
5. 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
6. For more information on various community development activities of the Federal Reserve System, see https://www.fedcommunities.org/. Return to text
7. For more information, see CA 20-4: CRA Consideration for Activities in Response to the Coronavirus at https://www.federalreserve.gov/supervisionreg/caletters/caltr2004.htm and CA 20-10: Community Reinvestment Act (CRA) Consideration for Activities in Response to the Coronavirus at https://www.federalreserve.gov/supervisionreg/caletters/caltr2010.htm. Return to text
8. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200921a.htm. Return to text
9. For comprehensive information related to CRA, see https://www.federalreserve.gov/consumerscommunities/community-reinvestment-act-proposed-rulemaking.htm. Return to text
10. For the video and materials presented at the Open Board Meeting, see https://www.federalreserve.gov/aboutthefed/boardmeetings/20200921open.htm. Return to text
11. For a list of speeches, see https://www.federalreserve.gov/consumerscommunities/community-reinvestment-act-proposed-rulemaking.htm. Return to text
12. 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
13. For more information, see termination announcement at https://www.federalreserve.gov/newsevents/pressreleases/enforcement20200630a.htm. Return to text
14. For more information, see termination announcement at, https://www.federalreserve.gov/newsevents/pressreleases/enforcement20201208a.htm. Return to text
15. To view the webinar, see "Consumer Compliance Outlook Live" at https://consumercomplianceoutlook.org/outlook-live/archives/. Return to text
16. 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
17. To access the Board's Orders on Banking Applications, see https://www.federalreserve.gov/newsevents/pressreleases.htm. Return to text
18. For these reports, see https://www.federalreserve.gov/supervisionreg/semiannual-reports-banking-applications-activity.htm. Return to text
19. For more information, see https://www.ffiec.gov/. Return to text
20. For more information, see https://www.federalreserve.gov/supervisionreg/srletters/SR2003.htm. Return to text
21. For more information, see https://www.federalreserve.gov/supervisionreg/caletters/caltr2011.htm. Return to text
22. For more information and to access the publications, see https://consumercomplianceoutlook.org/. Return to text
23. For more information and to download the seminars, see https://consumercomplianceoutlook.org/outlook-live/. Return to text
24. See https://www.federalreserve.gov/supervisionreg/srletters/sr1706.htm. Return to text
25. 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
26. 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
27. The agencies are the Board of Governors of the Federal Reserve System, the FDIC, the NCUA, and the OCC. Return to text
28. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200520a1.pdf. Return to text
29. The agencies are the Board of Governors of the Federal Reserve System, the Farm Credit Administration, the FDIC, the NCUA, and the OCC. Return to text
30. For more information, see Federal Register notice 85 Fed. Reg. 40,442 (July 6, 2020) at https://www.govinfo.gov/content/pkg/FR-2020-07-06/pdf/2020-14015.pdf and the press release at https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200520a1.pdf. Return to text
31. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/bcreg20201118b.htm. Return to text
32. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/bcreg20201118a.htm. Return to text
33. For more information, see https://www.federalreserve.gov/newsevents/pressreleases/bcreg20201217a.htm. Return to text
34. For the report and related data from the Survey of Household Economics and Decisionmaking, see https://www.federalreserve.gov/consumerscommunities/shed.htm. Return to text
35. For the July survey report, downloadable data, and a video summarizing the findings, see https://www.federalreserve.gov/consumerscommunities/shed.htm. Return to text
36. For papers by the Federal Reserve Board, see Theodore F. Figinski and Erin Troland, "Health Insurance and Hospital Supply: Evidence from 1950s Coal Country," FEDS working paper at https://www.federalreserve.gov/econres/feds/health-insurance-and-hospital-supply-evidence-from-1950s-coal-country.htm; and Jeff Larrimore and Erin Troland, "Improving Housing Payment Projections during the COVID-19 Pandemic," at https://www.federalreserve.gov/econres/notes/feds-notes/improving-housing-payment-projections-during-the-covid-19-pandemic-20201020.htm. Return to text
37. For the articles, see the August 2020 edition of Consumer and Community Context at https://www.federalreserve.gov/publications/2020-August-consumer-community-context.htm. Return to text
38. For the publication, see Consumer & Community Context, November 2020, at https://www.federalreserve.gov/publications/2020-November-consumer-community-context.htm. Return to text
39. To access the surveys, see https://fedcommunities.org/data/main-street-covid19-survey-2020/. Return to text
40. For more information about the report to Congress and other activities relating to minority depository institutions, see https://www.federalreserve.gov/supervisionreg/minority-depository-institutions.htm. For more information about the forum, see https://www.stlouisfed.org/events/2019/09/cd-mbf0919. Return to text
41. For more information about the Federal Reserve System's Partnership for Progress, see https://fedpartnership.gov/. Return to text