A new Federal Reserve Board policy threatens heightened consumer compliance scrutiny for nonbank subsidiaries of bank holding companies and foreign banking organizations. Announced September 14, 2009, and effective immediately, the policy implements a consumer compliance supervision program for such entities that engage in activities covered by Fed-enforced consumer protection laws and regulations.

Those laws and regulations include the Truth in Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Real Estate Settlement Procedures Act, and any unfair trade practice rules under the Federal Trade Commission Act. The policy also provides for the Fed to investigate consumer complaints against these nonbank entities.

The Fed's action, established in a letter to Federal Reserve Bank officers and managers in charge of supervision and consumer affairs, is likely a response to criticism that the Fed has been too lax in enforcing consumer protection laws. The letter includes timetables for completing institutional profiles, consumer compliance risk assessments, and supervisory plans.

For nonbank subsidiaries of large complex banking organizations, profiles and assessments are to be completed by the fourth quarter of 2009 and supervisory plans by the end of the first quarter of 2010. For other nonbank subsidiaries, the completion deadline for profiles and assessments is  the end of the first quarter of 2010, and necessary supervisory work is to be identified and scheduled by the end of the second quarter of 2010. The Fed also expects to rate nonbank entities based on the results of target and full-scope consumer compliance examinations using its Consumer Compliance Risk Management Rating system.

About Ballard Spahr's Consumer Financial Services Group

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). The Group regularly counsels banks and thrifts in connection with supervisory exams conducted by federal and state banking agencies.

Contact Information

For more information, please contact Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; Barbara S. Mishkin, 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti, 215.864.8138 or furlettim@ballardspahr.com.

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