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1998 Annual Report

Consumer Protection Activities



The FDIC has a significant consumer protection responsibility. The agency enforces compliance with consumer protection laws, including the Community Reinvestment Act (CRA) and fair lending laws. It also educates insured depository institutions and consumers in areas such as fair lending, community reinvestment and deposit insurance. The FDIC’s Division of Compliance and Consumer Affairs (DCA) primarily carries out the Corporation’s consumer protection activities, with support from other divisions and offices.

Community Reinvestment Act
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The FDIC continued working with the other federal banking agencies, financial institutions and community organizations to better implement the CRA regulations. The CRA is a law that encourages FDIC-insured lenders to help meet their communities’ credit needs.

One option for CRA compliance—the "strategic plan"—offers banks both flexibility and certainty, regardless of their asset size or product mix. The plan allows an institution to tailor its CRA goals and objectives to address its community’s needs, consistent with the institution’s business strategy, operational focus, capacity and constraints. Once an institution has proposed specific goals, the FDIC will work with the institution to determine the goals’ appropriateness and reasonableness. If the goals meet the criteria for either a satisfactory or outstanding rating, the FDIC will approve the goals and the institution will know its CRA performance rating provided it achieves those goals.

The FDIC's Guidelines for Strategic Plan Submissions, issued in March 1998, presents existing FDIC policy guidance in a more user-friendly format. Since the CRA strategic plan became an alternative CRA assessment method in January 1996, relatively few banks have exercised the option. This publication encourages institutions to consider the strategic plan method by providing "how-to" guidance for developing a workable strategic plan. It also includes references to help with data-gathering and analysis over the Internet.

Also during 1998, the FDIC, the Office of the Comptroller of the Currency, and the Federal Reserve Board initiated a three-part project to promote consistency in the CRA examination process for "large" banks. The project included eight joint interagency examinations, a review of sample CRA performance evaluations from each agency, and an interagency-sponsored CRA forum in October to address ways for improving examination consistency. The agencies will review the project results and consider recommendations for developing more consistent application of CRA examination procedures.

Kate Spears of the Division of Compliance
and Consumer Affairs (DCA) discusses deposit insurance with bank employees during one of the many educational outreach seminars conducted by DCA around the country.
Phot of FDIC-Sponsored Educational Outreach Seminar

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Compliance Examinations
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DCA examines FDIC-supervised banks for compliance with consumer protection, fair lending, and community reinvestment laws and regulations. During 1998, the FDIC initiated 1,989 examinations. At year-end, 96 percent of FDIC-supervised banks were rated satisfactory or outstanding for compliance with consumer protection and fair lending laws, while 99 percent were rated satisfactory or outstanding for compliance with the CRA. These percentages were fairly similar to 1997 levels.

During 1998, a total of 161 FDIC-supervised banks were required to reimburse over $1 million to 31,222 consumers for violations of the Truth in Lending Act, which requires accurate disclosures of interest rates and finance charges. The reimbursements ordered in 1998 stem from compliance examinations conducted in 1998 and in previous years.

To improve risk management, DCA increased the focus of the examination process on areas of highest risk to the public, financial institutions and the FDIC. This "scoping" policy ensures an on-site presence in all FDIC-supervised institutions every three years.

Another risk-management effort is relying more on an institution’s internal and external audit programs, which promote self-regulation. For example, under the Community Reinvestment Act, institutions are not required to perform any internal assessment of their CRA performance. However, if in the normal course of business, an institution conducted an analysis of its lending, service or investment activity, assessment area, community development lending, or other activities reviewed for CRA purposes, an examiner might request that information to review and use for the CRA examination. This would, in effect, reduce or limit CRA examination procedures.

Also, new interagency procedures were issued in August 1998 to assist compliance examiners when reviewing an interstate branch that has been operating for more than one year. Section 109 of the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 prohibits banks from establishing or acquiring interstate branches primarily for deposit production.

To ensure quality and efficiency in the FDIC’s fair lending examination program, the Corporation in 1998 helped create interagency fair lending examination procedures and conducted new training and development programs for its compliance examiners.

The goal of the new fair lending examination procedures was to give examiners guidance in taking an efficient risk-based approach to examining for compliance with the Fair Housing Act and the Equal Credit Opportunity Act. The procedures also are a blueprint for financial institutions wishing to conduct a thorough self-assessment.

Two new training and development programs were created for compliance examiners in 1998. One gave examiners practical knowledge of existing fair lending examination methodologies, familiarized them with the new interagency fair lending examination procedures and identified emerging issues. The other program sharpened senior compliance examiners’ fair lending expertise.

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Electronic Banking
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Financial institutions are continuing to use the Internet as an alternative delivery channel for offering an increasing number of consumer products and services online, such as deposit account applications, bill payment, and funds transfers. At year-end 1998, more than 950 FDIC-supervised institutions operated on the Internet. Over 200 were "transactional" sites that provided customers the ability to pay bills, transfer funds and open accounts—an increase of 500 percent over 1997. The FDIC responded to emerging electronic banking issues in areas such as consumer protection and fair lending laws and regulations, consumer privacy concerns, and bank fraud on the Internet.

The FDIC and other members of the Federal Financial Institutions Examination Council issued interagency guidance on the applicability of federal consumer protection and fair lending laws and regulations. The same guidance stressed the importance of a compliance review of electronic banking operations. During 1998, DCA also trained its compliance examiners nationwide on electronic banking systems, risks, and compliance examination guidelines.

Changes in the financial services industry, such as industry consolidation, new business affiliations with brokerage and insurance firms, and increasing use of technology, have renewed consumers’ concern about the privacy of personal information. Of particular concern to the public is financial institutions’ participation in the rapid growth of electronic commerce online, primarily over the Internet. In 1998, the FDIC issued guidance to financial institutions to raise awareness about consumer privacy concerns. Institutions were encouraged to take voluntary actions to provide consumers with privacy protections in the online environment. The FDIC also issued its own privacy policy statement to demonstrate its commitment to maintain the privacy of information. That policy statement has been posted on the FDIC’s Web site.

During 1998, the FDIC launched a "Suspicious Internet Banking" Web site, allowing the public to check whether an online institution is chartered by a legitimate regulatory authority and insured by the FDIC before transacting business with it. The site also allows the public to report any Internet banking sites they believe may be fraudulent.

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Educating Consumers and Bankers
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The FDIC offers a wide range of information and assistance to thousands of consumers and depository institution employees each year in areas ranging from federal deposit insurance to banking industry practices. DCA coordinates the agency’s efforts to educate consumers and bankers on these important topics.

Since 1980, the FDIC’s primary means of disseminating information to the public and banking community has been its toll-free Consumer Affairs Call Center (1-800-934-3342 or 1-800-925-4618 for the hearing impaired). Beginning in 1997, the FDIC increased public awareness of its Call Center and, as a result, the Call Center received more than 90,000 calls from consumers and bankers in 1998, approximately 30 percent more than in 1997. DCA regional offices received another 13,500 calls from consumers and bankers during the year.

DCA also received 2,300 written inquiries from consumers and 267 written inquiries from bankers in 1998, over one-third more than in 1997. The increase is attributed primarily to the success of DCA’s efforts to raise public awareness of the FDIC’s educational services. Another 2,399 inquiries were referred to other state and federal agencies.

To make it faster and easier for consumers and depository institution employees to obtain information from the FDIC, consumers and bankers can send questions and requests to the agency electronically at consumer@fdic.gov and receive a quick response via electronic mail. More than 1,000 of the inquiries received were submitted by electronic mail to the FDIC’s "consumer mailbox" in 1998, compared to 555 in 1997 and 120 in 1996.

Most consumer inquiries received by DCA—whether by telephone, electronic mail or traditional mail—involved requests to verify whether specific financial institutions are insured by the FDIC or questions about FDIC deposit insurance coverage. Other common inquiries were requests for copies of FDIC consumer publications, questions about banking practices and consumers’ rights under federal consumer protection laws, and requests for guidance on filing a consumer complaint against a financial institution. Most inquiries from financial institutions concerned the deposit insurance rules, requests for FDIC publications and consumer brochures, and questions about regulatory matters, including requests for guidance on the fair lending, community reinvestment, and consumer protection laws.

The FDIC develops educational tools designed to promote consumer and banker understanding of federal deposit insurance, banking, and federal consumer protection laws. An example is the recently developed Electronic Deposit Insurance Estimator, known as "EDIE." EDIE is a user-friendly Internet application that consumers and bankers can use to calculate the amount of insurance coverage for deposit accounts at FDIC-insured financial institutions. EDIE can be found on the FDIC’s Web site at www.fdic.gov/edie.

The FDIC also initiated a public awareness campaign regarding the Year 2000 challenge. During 1998, the FDIC published a brochure and a "statement stuffer" to help bankers educate their customers about the Year 2000 computer issue and what is being done to assure that the banking industry is ready for the new millennium. The FDIC also devoted an entire issue of its quarterly FDIC Consumer News to the Year 2000. More information on these and other efforts to educate consumers and bankers on Y2K can be found on (click here).

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Responses to Consumer Complaints
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The FDIC investigates complaints it receives from consumers about FDIC-supervised financial institutions. It also tracks the volume and nature of these complaints to monitor trends and identify emerging issues that may raise consumer protection concerns. In 1998, the FDIC received almost 3,900 written consumer complaints against state-chartered nonmember banks. Nearly two-thirds of these complaints concerned consumer credit card accounts issued by FDIC-supervised credit card banks. The most common complaints about credit card banks in 1998 involved billing disputes and account errors, disclosure of reasons for denying credit requests, misdirected credit card applications, reporting consumers’ credit history, and credit card fees and service charges.

To improve consumer awareness and understanding of credit card issues, DCA:

  • Centralized credit card complaints and inquiries to ensure greater consistency in its responses, and stepped up analysis and monitoring of specific issues.

  • Prepared a brochure that describes what consumers need to know when applying for credit cards. This brochure will be used at outreach events, mailed to major consumer organizations and placed on the FDIC’s Web site.

  • Included articles about emerging credit card issues in FDIC Consumer News.

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Community Affairs and Outreach
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The FDIC frequently meets with community and consumer groups, financial institution representatives and government officials to exchange views or provide information about community reinvestment, community and economic development, and fair lending issues. In 1998, the FDIC’s Community Affairs Program sponsored or participated in over 200 such events across the country. The activities were primarily of two types—those focusing on educating and those fostering partnerships between financial institutions and community-based organizations to promote community and economic development in low- and moderate-income communities.

The educational activities focused largely on encouraging insured depository institutions’ understanding of and compliance with CRA. They often were conducted in cooperation with state banking associations.

The FDIC also held several meetings and conferences to promote CRA compliance. Their size and purpose ranged from small meetings on the bank examination process with community-based organizations to co-sponsoring conferences in Miami and Las Vegas attended by more than 250 financial institutions, real estate developers, community-based organizations and others involved in community development. The FDIC reached more than 6,000 financial institution representatives through these initiatives.

The Corporation also made major strides in fostering ongoing communication between banks and community organizations. These efforts are expected to result in new partnerships, strengthen existing alliances, increase lending activities, improve lending performance or develop strategies to help meet identified credit needs. For the first time, the FDIC co-sponsored a national conference that focused on community and economic development. The theme of the conference co-sponsored with the American Bankers Association was "Revitalization and Development: Joining Forces for Healthy Communities." Attended by more than 250 financial institution representatives, community based-organizations and government representatives, the conference confirmed the FDIC’s strong commitment to helping the financial institutions it supervises further community development.

Two other 1998 events demonstrate the success of the FDIC’s partnership-building efforts and show the FDIC’s commitment to using a variety of techniques to address the needs of the communities of FDIC-supervised institutions. One event was a regional conference in Chattanooga, TN, which the FDIC co-sponsored with the Appalachian Regional Commission. The conference was designed to bring attention to the needs of the communities located within the Appalachian Region. Cooperating in the effort were the Tennessee Valley Authority, the Small Business Administration, the Department of Agriculture, and various development districts and government officials throughout the region. The second event was a hands-on effort to form a "micro-loan" program for small businesses in the Greater Humboldt Park area of Chicago, IL. A micro-loan pool involving eight financial institutions and an intermediary to serve small businesses was established in this predominantly low-income Hispanic community.


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