Financial Services Enforcement Actions Tracker

Guidehouse’s Financial Services Enforcement Actions Tracker compiles publicly available data from both federal and state regulators regarding quarterly enforcement actions against financial institutions. First published in 2016, the Tracker highlights the types of activities that consumer finance-focused regulators are currently monitoring and helps the audience better address the trends and challenges in today’s regulatory environment.

Market Highlights and a Look Ahead

Stock market volatility, high inflation, and conflicts in Europe are examples of notable events that impacted the financial markets in 2022. However, in the first half of 2023, regulators and financial services firms have faced significant challenges, leading to new areas of focus for enforcement. Below, Guidehouse reflects on a few highlights from 1H 2023 that have challenged, and could continue to challenge, industry participants, regulators, and the banking industry.

Electronic / “Off-Channel” Communications

• With remote and largely decentralized workforces, and the access to a number of messaging applications, many individuals have turned to unapproved channels of communication, such as iMessage and WhatsApp, to conduct business activities with colleagues and customers.
• Federal regulators, including the US Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Industry Regulatory Authority (FINRA), brought charges and significant fines against several firms for their failure to adequately control the use of these “off-channel”/unapproved communications, and, as a result, violating federal recordkeeping provisions.
• Despite regulations dictating the specific retention requirements that firms must adhere to, there are a number of complexities that financial institutions must wade through and implement, including establishment of necessary controls, processes, and procedures to curb/eliminate the use of unapproved communication channels.
• Regulators have stated they will continue to examine and enforce record-retention regulations and the use of unapproved communication channels to ensure they can effectively provide regulatory oversight and ensure compliance with the laws and regulations in their purview.
• Guidehouse continues to monitor the regulator activity on this topic, as there continues to be activity with settlements and investigations being reported weekly.

Small Business Rule 1071

• The Consumer Financial Protection Bureau (CFPB) has prioritized small-business lending as part of continued efforts to enforce fair lending regulation and laws.  On March 30, 2023, the CFPB finalized the rule on small business data collection, Dodd-Frank 1071, which requires lenders to collect and report data on loan applications for small businesses with gross annual revenue less than $5 million.
• Several industry participants, including trade groups and financial institutions, have brought cases challenging the 1071 rule and CFPB’s standing in enforcing it, given the pending US Supreme Court case regarding CFPB’s funding structure. In Texas, a federal judge blocked enforcement of the CFPB’s Section 1071 final rule while the Supreme Court hears a challenge to the constitutionality of the CFPB’s funding structure. The injunction came at the request of the American Bankers Association, the Texas Bankers Association, and McAllen, Texas-based Rio Bank in litigation brought challenging the Section 1071 rule. This was followed by a ruling in Kentucky, which joined Texas in limiting the CFPB from enforcing the 1071 rule.
• Increased transparency around small business lending has been emphasized during the pandemic. Guidehouse expects the CFPB and other regulators to continue its examination and enforcement to combat unlawful discrimination.

Payday Lender Collection Practices

• Most recently, the CFPB identified payday lenders engaged in abusive and unfair collection practices. Examples of such actions include making false collection threats to garnish wages of borrowers and seeking wage deductions from the borrower’s employer in amounts higher than the individual scheduled payment due.
• Although this issue came to light at the beginning of Q2 2023, Guidehouse expects the CFPB to continue to focus on lender collection practices, given the significant impact to consumers.

Bank Failures

• When Silicon Valley Bank collapsed after a bank run and a capital crisis in March 2023, the financial markets were overly influenced by panicked responses, which led to similar failures, such as Signature Bank and First Republic. 
• It was clear from the three bank failures that social media played a significant role in short selling, and continues to adversely impact the “health” of remaining banks, resulting in, amongst others, the plummeting of bank trades.
• To ensure their place in the market, many banks have raised their lending standards for business and consumer loans, and it is anticipated they will continue to increase them, which may further slow the future economy, with increased recession risk. Just before the publication of this tracker, the FDIC approved a proposal for an increase of capital requirements for US banks.

Given the current environment, Guidehouse expects regulators to continue review of their existing policies by focusing on topics such as deposit insurance, liquidity and capital management, management of interest rate risk, overall risk management practices, and mergers and acquisitions, to regain the trust of depositors.

Although there were no enforcement actions in the first half of 2023 related to previously noted events, Guidehouse anticipates the tougher rules will significantly impact the regulators and their approach in the months ahead.

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