Board of Governors of the Federal Reserve System

Consumer and Community Affairs

The Division of Consumer and Community Affairs (DCCA) has primary responsibility for carrying out the Board of Governors' consumer protection and community development activities to promote fair and transparent financial service markets, protect consumers' rights, and ensure that its policies and research take into account consumer and community perspectives. This charge includes assessing and taking corrective actions to address consumer risks among financial institutions it supervises while also fostering proven programs in consumer compliance and community reinvestment.

Throughout 2018, the division engaged in numerous consumer and community-related functions and policy activities in the following areas:

• Formulating consumer-focused supervision and examination policy to ensure that financial institutions for which the Federal Reserve has authority comply with consumer protection laws and regulations and meet requirements of community reinvestment laws and regulations. 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 those related to fair lending, unfair or deceptive acts or practices (UDAP), and flood insurance. The division developed policies that govern, and provided oversight of, the Reserve Banks' programs for consumer compliance supervision and examination of state member banks and bank holding companies (BHCs). The division's activities also included the development and delivery of examiner training; analysis of bank and BHC applications related to consumer protection, convenience and needs, and the CRA; and processing of consumer complaints.
• Conducting research, analysis, and data collection to inform Federal Reserve and other policymakers about consumer protection risks and community economic development issues and opportunities. The division analyzed ongoing and emerging consumer financial services and community risks, practices, issues, and opportunities to understand and act on their implications for supervisory policy as well as to gain insight into consumer decisionmaking related to financial services and access to credit for small businesses.
• Engaging and convening key stakeholders to identify emerging issues and advance what works in community reinvestment and consumer protection. The division continued to promote fair and informed access to financial markets for all consumers, particularly underserved populations, by engaging lenders, government officials, and community leaders. Throughout the year, DCCA convened programs to share information on the financial and economic needs in low- and moderate-income (LMI) communities, research on effective community development policies and strategies, and best practices in the management and control of consumer compliance risks.
• Writing and reviewing regulations that effectively implement consumer protection and community reinvestment laws. The division manages the Board's regulatory responsibilities with respect to certain entities and specific statutory provisions of the consumer financial services and fair lending laws. In 2018, DCCA participated in drafting interagency regulations and compliance guidance for the industry and the Reserve Banks.

Supervision and Examinations

DCCA develops supervisory policy and examination procedures for consumer protection laws and regulations, as well as for the CRA, as part of its supervision of the organizations for which the Board has authority, including bank and financial holding companies, state member banks, savings and loan holding companies, foreign banking organizations, Edge Act corporations, and agreement corporations.¹ The division also administers the Federal Reserve System's risk-focused program for assessing consumer compliance risk at the largest banks and financial holding companies in the System, with division staff ensuring that consumer compliance risk is effectively integrated into the consolidated supervision of the holding company. DCCA staff monitor trends in consumer products to inform the risk-based supervisory planning process. Quantitative risk metrics and screening systems use data to assess market activity, consumer complaints, and supervisory findings to assist with the determination of risk levels at firms.

The division oversees the efforts of the 12 Reserve Banks to ensure that the Federal Reserve's consumer compliance supervisory program reflects its commitment to promoting financial inclusion and compliance with applicable federal consumer protection laws and regulations in the 794 state member banks it supervises. Division staff coordinate 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 ensure that consumer compliance risk is appropriately incorporated into the consolidated risk-management program of the approximately 159 bank and financial holding companies with assets over $10 billion. Division staff provide guidance and expertise to the Reserve Banks on consumer protection laws and regulations, bank and BHC application analysis and processing, examination and enforcement techniques and policy matters, examiner training, and emerging issues. Finally, staff members participate in interagency activities that promote consistency in examination principles, standards, and processes.

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 2018, the Reserve Banks completed 253 consumer compliance examinations of state member banks, 237 CRA examinations of state member banks, 24 examinations of foreign banking organizations, 2 examinations of Edge Act corporations, and no examinations of agreement corporations.

Mortgage Servicing and Foreclosure

Payment Agreement Status

As of 2018, the majority of the enforcement actions that were issued by the Federal Reserve and the Office of the Comptroller of the Currency (OCC) against 16 mortgage loan servicers between April 2011 and April 2012 were terminated. At the time of the enforcement actions, along with other requirements, the two regulators directed servicers to retain independent consultants to conduct comprehensive reviews of foreclosure activity to determine whether eligible² borrowers suffered financial injury because of servicer errors, misrepresentations, or other deficiencies. The file review initiated by the independent consultants, combined with a significant borrower outreach process, was referred to as the Independent Foreclosure Review (IFR).

In 2013, the regulators entered into agreements with 15 of the mortgage loan servicers to replace the IFR with direct cash payments to all eligible borrowers and other assistance (the Payment Agreement).³ The participating servicers agreed to pay an estimated $3.9 billion to 4.4 million borrowers whose primary residence was in a foreclosure process in 2009 or 2010. The Payment Agreement also required the servicers to contribute an additional $5.8 billion in other foreclosure prevention assistance, such as loan modifications and forgiveness of deficiency judgments.

A paying agent, Rust Consulting, Inc. (Rust), was retained to administer payments to borrowers on behalf of the participating servicers.

More than $3.5 billion was distributed to eligible borrowers through 3.9 million checks, representing nearly 91 percent of the total value of the funds. Receiving a payment under the agreement did not prevent borrowers from taking any action they may wish to pursue related to their foreclosure. Servicers were not permitted to ask borrowers to sign a waiver of any legal claims they may have against their servicer in connection with receiving payment.⁴

At the Federal Reserve's direction, in August 2016, Rust redistributed any funds remaining after all outstanding initial checks expired, to eligible borrowers of Federal Reserve-supervised servicers who had cashed or deposited their initial checks. This direction applied only to funds related to mortgage servicers supervised by the Federal Reserve and was consistent with the Federal Reserve's intention to distribute the maximum amount of funds to borrowers potentially affected by deficient servicing and foreclosure practices. The redistribution of approximately $80 million in remaining funds resulted in nearly $59 million being cashed or deposited by borrowers of servicers supervised by the Federal Reserve. The borrower payment process concluded at the end of 2016.

In 2018, the audit of the final reconciliation of the payment funds was completed, and funds remaining that were provided by servicers supervised by the Federal Reserve as part of the Payment Agreement have been remitted to the U.S. Treasury. Board staff is currently working with Rust to close the qualified settlement funds.

Foreclosure Prevention Actions

The Payment Agreement also required servicers to undertake well-structured loss-mitigation efforts focused on foreclosure prevention, with preference given to activities designed to keep borrowers in their homes through affordable, sustainable, and meaningful home preservation actions within two years from the date the agreement in principle was reached.

All servicers were required to submit reports detailing the consumer-relief actions they had taken to satisfy these requirements. The foreclosure prevention assistance actions reported included loan modifications, short sales, deeds-in-lieu of foreclosure, debt cancellation, and lien extinguishment. In order to receive credit toward the servicer's total foreclosure prevention obligation, the actions submitted had to be validated by the regulators. A third party completed this validation to ensure that the foreclosure prevention assistance amounts met the requirements of the amendments to the enforcement actions.

Servicer Efforts to Address Deficiencies

In addition to the foreclosure review requirements, the enforcement actions required mortgage servicers to submit acceptable written plans to address various mortgage loan servicing and foreclosure processing deficiencies. In the time since the enforcement actions were issued, the banking organizations have been implementing the action plans, including enhanced controls, and improving systems and processes. The supervisory review of the mortgage servicers' action plans has shown that the banking organizations under the enforcement actions have implemented significant corrective actions with regard to their mortgage servicing and foreclosure processes, and for most servicers, those corrective actions appear to be sustainable. The majority of the enforcement actions were terminated in 2018.⁵ For the remaining servicers, the Federal Reserve supervisory team continues to monitor and evaluate the servicers' progress on implementing the action plans to address unsafe and unsound mortgage servicing and foreclosure practices as required by the enforcement actions.

Supervisory Matters

Enforcement Activities

Fair Lending and UDAP Enforcement

Through its Supervision and Enforcement teams, DCCA 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 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 DCCA's Fair Lending and UDAP Enforcement sections, which 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.

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. Most lenders readily agree to correct fair lending and UDAP violations, often taking corrective action as soon as they become aware of a problem. Thus, 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 2018, issuing a consent order against a bank for unfair practices related to the billing of deposit add-on products administered through third parties. The order required the bank to pay approximately $4.75 million in restitution to approximately 11,000 consumers and take other corrective actions.⁶

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 DCCA staff's participation in numerous meetings, conferences, and trainings sponsored by consumer advocates, industry representatives, and interagency groups.

Flood Insurance

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 2018, the Federal Reserve issued six formal consent orders and assessed $196,000 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.⁷

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 2018 reporting period, the Reserve Banks completed 237 CRA examinations of state member banks. Of those banks examined, 36 were rated "Outstanding," 198 were rated "Satisfactory," 3 were rated "Needs to Improve," and none were rated "Substantial Non-Compliance."

The Federal Reserve is interested in updating the CRA regulations to better reflect structural and technological changes in the banking industry. To help achieve that, in 2018 DCCA established a dedicated team to focus on modernizing the CRA. The Board also held a series of external engagement meetings with bankers and community members to collect information to help identify issues and potential solutions that will inform our work to revise the regulations.

The Federal Reserve also improved its public website to include better information on the CRA, including educational materials; enhanced navigation and functionality; and access to state and component ratings, as well as direct access to bank strategic plans and performance evaluations. The updated website is available at https://www.federalreserve.gov/consumerscommunities/cra_about.htm.

Mergers and Acquisitions

The Federal Reserve analyzes expansionary applications by banks or BHCs, taking into account the likely effects of the acquisition on competition, the convenience and needs of the communities to be served, the financial and managerial resources and future prospects of the companies and banks involved, and the effectiveness of the company's policies to combat money laundering. As part of this process, DCCA evaluates whether the institutions are currently meeting the convenience and needs of their communities and the effectiveness of existing managerial resources, as well as the institutions' ability to meet the convenience and needs of their communities and the adequacy of their managerial resources after the proposed transaction.

The depository institution's CRA record is a critical component of this analysis. The CRA requires the Federal Reserve to consider a bank's record of helping to meet the credit needs of its local communities in evaluating applications for mergers, acquisitions, and branches. An institution's most recent CRA performance evaluation is a particularly important consideration in the mergers and acquisitions process because it represents a detailed on-site evaluation of the institution's performance under the CRA by its federal supervisor.

As part of the analysis of managerial resources, the Federal Reserve reviews the institution's record of compliance with consumer protection laws and regulations. The institution's most recent consumer compliance rating is central to this review because, like the CRA performance evaluation, it represents the detailed findings of the institution's supervisory agency.

Less-than-satisfactory CRA or consumer compliance ratings or other significant consumer compliance issues can pose an impediment to the processing and approval of the application. Federal Reserve staff gather additional information about CRA and consumer compliance performance in many circumstances, such as when the financial institution(s) involved in a proposed transaction that has a less-than-satisfactory CRA or compliance ratings or recently identified consumer compliance issues, or when the Federal Reserve receives comments from interested parties that raise CRA or consumer compliance issues. To further enhance transparency about this process, the Board issued guidance to the public in 2014 describing the Federal Reserve's approach to applications and notices.⁸

Because these applications are of interest to the public, they often generate comments that raise various issues for Board staff to consider in their analyses of the supervisory and lending records of the applicants. With respect to consumer compliance and community reinvestment, one of the more common allegations is that either or both the target and the acquirer fail to make credit available to certain minority groups and to LMI individuals and communities. Commenters also often express concerns about branch closures or the banks' record of lending to small businesses in LMI geographies.

In evaluating the applications, the Board assesses the merits of the public comments in addition to information provided by applicants and analyzes supervisory information, including examination reports with evaluations of compliance with fair lending and other consumer protection laws and regulations, and confers with other regulators, as appropriate, for their supervisory views. 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 had been 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.

During 2018, the Board considered over 100 applications, with topics ranging from change in control notices, to branching requests, to mergers and acquisitions. DCCA staff analyzed 14 notices and applications for transactions involving bank mergers and branching that involved adverse public comments on CRA issues or consumer compliance issues, such as fair lending, which the Board considered and approved.¹²

Coordination with the Consumer Financial Protection Bureau

During 2018, 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, 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 (FFIEC) to develop consistent examination principles, standards, procedures, and report formats.¹³ In 2018, the banking agencies continued to work together on various initiatives.

Updating Examination Procedures

In June, the Board issued examination procedures with respect to the Protecting Tenants at Foreclosure Act (PTFA), which had previously expired at the end of December 2014 but was restored in May 2018 by the Economic Growth, Regulatory Relief, and Consumer Protection Act. When examiners review PTFA compliance in an examination, they use the examination procedures to evaluate an institution's awareness of the law, its compliance efforts, and its responsiveness to addressing implementation deficiencies.

In December, the Board, working in consultation with the Federal Deposit Insurance Corporation (FDIC) and the OCC developed updated information regarding the key data fields that examiners use in connection with validating the accuracy of Home Mortgage Disclosure Act (HMDA) data collected since January 1, 2018, pursuant to the CFPB's amendments to Regulation C and the Economic Growth, Regulatory Relief, and Consumer Protection Act's amendments to HMDA. The HMDA key data fields are those that the Federal Reserve, the FDIC, and the OCC collectively determined to be most critical to the integrity of analyses of overall HMDA data.

Outreach

The Federal Reserve maintains a comprehensive public outreach program to promote consumer protection, financial inclusion, and community reinvestment. During 2018, the Federal Reserve continued to enhance its program. Box 1 highlights some of the key supervisory-related outreach activities the Board engaged in during 2018.

Examiner Training

The Examiner Training team of DCCA supports the ongoing professional development of the 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."¹⁴

The consumer compliance examiner training curriculum consists of five courses focused on consumer protection laws, regulations, and examining concepts. 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 2018, 23 examiners passed the Consumer Compliance Proficiency Examination. The combination of multiple training delivery channels offers learners and Reserve Banks an ability to customize and to 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 begun to create a resource for examiners moving into examination responsibilities at large financial institutions.

In 2018, 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. Four Rapid Response sessions with an exclusive consumer compliance focus were designed, developed, and presented to System staff during 2018. Additionally, four 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 appropriate enforcement agency. 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 2018, FRCH processed 32,226 cases. Of these cases, 17,761 were inquiries and the remainder (14,465) were complaints, with most cases received directly from consumers. Approximately 8 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 (53 percent). Nevertheless, 47 percent (15,121) of complaint and inquiry submissions were made in writing (via email, online submissions, mail, and fax). The online form page received 20,135 visits during the year.

Consumer Complaints

Complaints against Federal Reserve regulated entities totaled 3,349 in 2018. Of the total, 89 percent (2,990) were investigated. Fifty-four percent (1,606) of the investigated complaints involved unregulated practices, and 46 percent (1,384) involved regulated practices. (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, 2018

Table 2. Investigated complaints against state member banks and selected nonbank subsidiaries of bank holding companies about regulated practices, by product type, 2018

Approximately 1 percent (33) of the total complaints were closed without investigation, pending the receipt of additional information from consumers. Two percent (64) were withdrawn by the consumer. Eight percent (262) of the total complaints were still under investigation in January 2019.

Complaints about Regulated Practices

The majority of regulated practices complaints concerned credit card accounts (approximately 54 percent), checking accounts (21 percent), and real estate (6 percent).¹⁵ The most common credit card complaints related to inaccurate credit reporting (75 percent), forgery/fraud (5 percent), and billing error resolution (4 percent). The most common checking account complaints related to deposit error resolution (24 percent), funds availability not as expected (22 percent), and insufficient funds/overdraft charges and procedures (9 percent). The most common real estate complaints by problem code related to debt collection/foreclosure concerns (14 percent), rates and/or fees (13 percent), and escrow problems (7 percent).

Twenty-two regulated practices complaints alleging credit discrimination on the basis of prohibited borrower traits or rights were received in 2018. Thirteen discrimination complaints were related to the race, color, national origin, or ethnicity of the applicant or borrower. Nine 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 2018, there were no violations related to illegal credit discrimination.

In 70 percent of investigated complaints against Federal Reserve regulated entities, evidence revealed that institutions correctly handled the situation. Of the remaining 30 percent of investigated complaints, 12 percent were identified errors that were corrected by the bank; 3 percent were deemed violations of law; and the remainder included matters involving litigation or factual disputes, internally referred complaints, or complaints about matters for which the consumer was provided responsive information.

Complaints about Unregulated Practices

The Board continued to monitor complaints about banking practices not subject to existing regulations. In 2018, the Board received 1,606 complaints against Federal Reserve regulated entities that involved these unregulated practices. The majority of the complaints were related to electronic transactions/prepaid products (45 percent), checking account activity (21 percent), and credit cards (13 percent).

Complaint Referrals

In 2018, the Federal Reserve forwarded 10,998 complaints to other regulatory agencies and government offices for investigation. The Federal Reserve forwarded 12 complaints to the Department of Housing and Urban Development (HUD) that alleged violations of the Fair Housing Act¹⁶ and were closed in 2018. The Federal Reserve's investigation of these complaints revealed no instances of illegal credit discrimination.

Consumer Inquiries

The Federal Reserve received 17,761 consumer inquiries in 2018 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 2018, DCCA continued to administer the Board's 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 the division's role in consulting with the CFPB on consumer financial services and fair lending regulations for which it has rulemaking responsibility.

Annual Indexing of Exempt Consumer Credit and Lease Transactions

In November 2018, 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 2019 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.¹⁷

Threshold for Small Loan Exemption from Appraisal Requirements for Higher-Priced Mortgage Loans

In November 2018, 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 2019.¹⁸ 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 Threshold for Small and Intermediate Small Institutions

In addition, in December the Board and other federal bank regulatory agencies 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.¹⁹

Financial institutions are evaluated under different CRA examination procedures based upon 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 2.59 percent increase in the CPI-W for the period ending in November 2018, 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 $1.284 billion.
• "Intermediate small bank" or "intermediate small savings association" means a small institution with assets of at least $321 million as of December 31 of both of the prior two calendar years and less than $1.284 billion as of December 31 of either of the prior two calendar years.

These asset-size threshold adjustments took effect January 1, 2019.

Consumer Research and Analysis of Emerging Issues and Policy

Throughout 2018, DCCA 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 2018, DCCA 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, DCCA periodically conducts internet panel surveys to gather data on consumers' experiences and perspectives on various issues of interest.

Results of DCCA's fifth annual Survey of Household Economics and Decisionmaking (SHED) were published in the Report on the Economic Well-Being of U.S. Households in 2017, released in May 2018.²⁰ DCCA launched the survey to better understand 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. It also oversamples LMI households in order to obtain additional precision regarding findings among these populations. In 2017, the survey was doubled in size to be able to study smaller subpopulations and geographies.

The survey also 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
• retirement

The latest findings underscored the overall economic recovery and expansion over the five years of the survey. When asked about their finances, 74 percent of adults said they were either doing okay or living comfortably in 2017—over 10 percentage points more than in the first survey in 2013. Despite these gains, stark differences in economic well-being remain, in particular, by education and race. Over three-fourths of whites were at least doing okay financially in 2017 versus less than two-thirds of blacks and Hispanics.

The survey also highlights some aspects of subjective well-being and emerging issues that can be missed in long-standing measures of objective outcomes. Our understanding of full employment and how to measure it is a key example. Many workers in the survey have a full-time job with regular hours, pay raises, and good benefits. Others who are also employed describe a very different experience: fewer hours than they want to work, only a few days' notice on work schedules, and little in benefits or pay increases. Still others supplement their income through side jobs and gig work. In an effort to understand how the opioid crisis may relate to economic well-being, the survey asked questions related to opioids for the first time. About one-fifth of adults (and one-quarter of white adults) personally know someone who has been addicted to opioids. Exposure to opioid addiction was much more common among whites—at all education levels—than among minorities. Those who have been exposed to addiction have somewhat less favorable assessments of economic conditions than those who have not been exposed.

Analysis of Emerging Issues

The Policy Analysis function of DCCA provides key insights, information, and analysis on emerging financial services issues that affect the well-being of consumers and communities. To this end, staff analyze 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 2018, Policy Analysis staff developed a new article series, Consumer & Community Context, for policymakers and the public about the financial conditions and experiences of consumers and communities, including traditionally underserved and economically vulnerable households and neighborhoods. The goal of the series is to further understanding of how the financial well-being of consumers and communities affects the broader economy. The first issue, released in January 2019, focused on student loans while subsequent issues will focus on other themes.²¹

In addition, staff developed analyses on a broad range of issues in financial services markets that potentially pose risks to consumers:

• Auto lending. Staff has continued to explore developments in the auto finance market and their impact on consumers, especially subprime auto borrowers. Topics of particular focus in 2018 included early payment delinquency rates and loan performance trends.
• Housing. In March, the team convened an invitation-only workshop with nationally recognized experts to discuss policies to address the diminished production of new affordable housing units in many areas of the country. Speakers discussed the various factors limiting new housing supply including rising labor and material costs as well as the growth of restrictive local regulations and the dearth of vacant lots for development. Representatives from four Federal Reserve Bank Districts highlighted regional challenges. DCCA will continue monitoring this issue along with general housing market trends.
• Retail banking. Policy Analysis team members have been collaborating with colleagues throughout the division to monitor trends in retail banking, such as rising numbers of branch closures and increasing adoption of online and mobile technologies by consumers for their banking needs. In 2019, staff will continue to track technology's influence on access to financial services and monitor the degree to which bank branches and branch alternatives are effectively serving customers.
• Small business lending. The Policy Analysis section monitored credit availability and access for smaller firms that often lack the financing options and in-house financial expertise of larger firms. Staff conducted outreach with banks, nonbank lenders, and borrower advocates to stay abreast of developments. In June, the team, together with the Federal Reserve Bank of Cleveland, released a report, Browsing to Borrow: "Mom and Pop" Small Business Perspectives on Online Lenders,²² that analyzes small business owners' perceptions of online lenders and their understanding of information provided by online lenders about credit products.
• Student lending. DCCA staff analyzed the relationship between rural-urban migration patterns and student loan balances. This work, presented at the Student Financial Aid Research Network Conference,²³ also was the basis of an article included in the first issue of Consumer & Community Context (mentioned above).
• Gender wealth gap. Recent media focus on income equality does not fully capture the challenges women experience in building household wealth, especially women of color and those who are lower income. In 2018, the Policy Analysis team gathered Federal Reserve economists specializing in the Survey of Consumer Finances (SCF) and the SHED along with researchers from the Closing the Women's Wealth Gap organization. These discussions have identified areas for further analysis that will enhance understanding of the issues surrounding the gender wealth gap.

Community Development

The Federal Reserve System's Community Development function promotes economic growth and financial stability—particularly for underserved households and communities—by informing research, policy, and action. Soliciting diverse views on issues affecting the economy and financial markets improves the quality of Federal Reserve research, ensures the fairness of its policies, and the transparency of its actions. Raising awareness of emerging economic trends and risks makes regulation and supervision more responsive to evolving consumer financial services markets and technologies.

Community Development is a decentralized function within the Federal Reserve System, and the Community Affairs Officers at each of the 12 Reserve Banks design activities to respond to the specific needs of the communities they serve. Board staff provide oversight for alignment with Board objectives and coordinate System priorities.

Over the next several years, Community Development staff across the System will focus their efforts on advancing the economic resiliency and mobility of LMI and underserved households and communities. The barriers that prevent LMI and underserved households and communities from participating and deriving benefit from the economy are complex and often structural in nature. The Federal Reserve is well positioned to research and analyze the underlying factors of those barriers as well as the policies and practices that can help to overcome them. The Community Development function is committed to engaging practitioners and policymakers in an independent, objective, and nonpartisan manner that will identify shared interests, stimulate new ideas, and foster collective action.

The Community Development function also advances the Federal Reserve's Community Reinvestment Act supervisory responsibilities by analyzing and disseminating information related to local financial needs and successful approaches for attracting and deploying capital. These efforts support both financial institutions and community organizations to meet the needs of the communities they serve.

In addition to providing a richer, more nuanced understanding of current economic and financial conditions, Community Development staff across the System are deeply engaged in helping lower-income and underserved communities overcome their challenges and capitalize on their assets. They foster local partnerships and comprehensive solutions that support building both physical infrastructure and human capital. To recognize the individual and collective efforts of System staff in this mission, the Board announced the Janet L. Yellen Award for Excellence in Community Development. For more information on the inaugural award, see box 2.

Access to Capital and Financial Services in Rural Communities

Rooted in its responsibility to help banks meet their obligations under the CRA, the Federal Reserve's Community Development function strives to understand the ever-changing financial services marketplace and its implications for access to capital, particularly for underserved households and communities. Bank branch locations and the people and communities that they are serving—or, in some cases, not serving adequately—are of particular interest.

Data at the county and national level indicate that most rural markets are well served, but that can mask the impact of bank branch closures in smaller markets. To assess the effects of bank closures on rural communities, the Community Development function conducted a national series of listening sessions with local residents and small business owners to hear what the loss of a bank meant to them and their community.²⁴ Not surprisingly, small businesses, older people, and people with limited access to transportation are most affected. The listening sessions also revealed that the loss of the branch often means more than the loss of access to financial services; it also means the loss of financial advice, local civic leadership, and an institution that brings needed customer activity to nearby businesses.

Understanding Disparities in the Labor Market

Labor market outcomes vary widely across demographic groups, including those defined by race/ethnicity, gender, and geography. Accordingly, economic analyses that focus exclusively on aggregate outcomes may overlook important disparities in how various groups experience the labor market. In recent years, community development programs across the System dedicated significant resources to identifying disparities in labor market outcomes and understanding policies that could improve economic outcomes for vulnerable workers. Board staff completed an analysis of disparities in job separations across racial groups based on data from the 2018 SHED.

Footnotes