2016 Annual Report
I. Management’s Discussion and Analysis
The Year in Review
DEPOSITOR AND CONSUMER PROTECTION
A major component of the FDIC’s mission is to ensure that financial institutions treat consumers and depositors fairly and operate in compliance with federal consumer protection, anti-discrimination, and community reinvestment laws. The FDIC also promotes economic inclusion to build and strengthen positive connections between insured financial institutions and consumers, depositors, small businesses and communities.
Loans in Areas Having Special Flood Hazards
In April 2016, the FDIC, OCC, FRB, NCUA, and Farm Credit Administration jointly issued interagency examination procedures pertaining to force placement of flood insurance, escrowing of flood insurance premiums and fees, exemptions to the mandatory flood insurance purchase requirement for detached structures, and civil money penalties.
Uniform Interagency Consumer Compliance Rating System
In 2016, the FFIEC finalized changes to the Uniform Interagency Consumer Compliance Rating System to reflect regulatory, supervisory, technological, and market changes since the system was established. The Consumer Compliance Rating System is a supervisory policy for evaluating financial institutions’ adherence to consumer compliance requirements. The revisions are designed to align the rating system more fully with the FFIEC agencies’ current risk-based, tailored examination approaches. The FFIEC new rating system will apply to all exams starting after March 31, 2017.
Interagency Guidance on Deposit-Reconciliation Practices
In May 2016, the FDIC, OCC, FRB, NCUA, and Consumer Financial Protection Bureau (CFPB) issued guidance to alert financial institutions to supervisory expectations regarding deposit-reconciliation practices that may be detrimental to customers. This guidance addresses a set of situations in which customers make deposits to accounts and the dollar amount that the financial institution credits to that account differs from the total of the items deposited. Such discrepancies may arise in a variety of situations, including inaccuracies on the deposit slip, encoding errors, or poor image-capture. The result may be a detriment to the customer and a benefit to the financial institution if not appropriately reconciled.
Community Reinvestment Act
In July 2016, the FDIC, OCC, and FRB (i.e., the federal bank regulatory agencies with responsibility for CRA rulemaking) published final revisions to “Interagency Questions and Answers Regarding Community Reinvestment.” The Q&A provides additional guidance to financial institutions and the public regarding the agencies’ CRA regulations in the following areas: availability and effectiveness of retail banking services; innovative or flexible lending practices; community development-related issues; and responsiveness and innovativeness of an institution’s loans, qualified investments, and community development services.
Privacy of Consumer Financial Information
In October 2016, the FDIC released revised interagency examination procedures for privacy of consumer financial information that reflect the statutory amendments made by the Fixing America’s Surface Transportation Act (FAST Act) to the Gramm-Leach-Bliley Act annual privacy notice requirements. The procedures contain new guidance on an exception to the annual privacy notice requirement.
Military Lending Act
In October 2016, the FDIC released revised interagency examination procedures that reflect the Department of Defense’s 2015 amendments to the implementing regulations of the Military Lending Act of 2006 (MLA) and its August 2016 interpretive rule that provides guidance on compliance with the MLA rule. The FDIC also provided accompanying guidance on its initial supervisory expectations in connection with its examinations of financial institutions for compliance with the MLA rule.
Promoting Economic Inclusion
The FDIC is strongly committed to promoting consumer access to a broad array of banking products to meet consumer financial needs. To promote financial access to responsible and sustainable products offered by IDIs, the FDIC:
- conducts research on the unbanked and underbanked;
- engages in research and development on models of products meeting the needs of lower-income consumers;
- supports partnerships to promote consumer access and use of banking services;
- advances financial education and literacy; and
- facilitates partnerships to support community and small business development.
Advisory Committee on Economic Inclusion
The Advisory Committee on Economic Inclusion (ComE-IN) provides the FDIC with advice and recommendations on important initiatives focused on expanding access to mainstream banking services to underserved populations. This may include reviewing basic retail financial services such as low-cost, safe transaction accounts, affordable small-dollar loans, savings accounts, and other services that promote individual asset accumulation and financial stability. In May 2016, ComE-IN met to discuss payment system modernization, banks’ efforts to serve the unbanked and underbanked, new savings accounts designed to assist individuals with disabilities, and next steps planned to explore the potential of mobile financial services to further economic inclusion.
FDIC National Survey of Unbanked and Underbanked Households and Related Research
As part of its ongoing commitment to expanding economic inclusion in the United States, the FDIC works to fill the research and data gap regarding household participation in mainstream banking and the use of nonbank financial services. In addition, Section 7 of the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 mandates that the FDIC regularly report on underserved populations and bank efforts to bring individuals and families into the conventional banking system. In response, the FDIC regularly conducts and reports on surveys of households and banks to inform the public and enhance the understanding of financial institutions, policymakers, regulators, researchers, academics, and others.
During 2016, the FDIC prepared a report on the 2015 FDIC National Survey of Unbanked and Underbanked Households, in partnership with the U.S. Census Bureau. The survey focused on basic checking and savings account ownership, but it also explored household use of alternative financial services to better understand the extent to which families are meeting their financial needs outside of mainstream financial institutions. In addition, the survey incorporated questions designed to assess the typical monthly financial services consumption patterns and to better understand households’ use of bank and nonbank consumer credit instruments. A full report was issued by the FDIC to the public on October 20, 2016. Those results are available on economicinclusion.gov.
In 2016, the FDIC also published two qualitative research projects to develop further understanding of this area. In the first, the FDIC studied the economic inclusion potential of mobile financial services. The findings confirmed and provided more detailed insights into the opportunity of mobile financial services to improve the sustainability of banking relationships. As a follow-up to this report, the FDIC requested comments on opportunities to demonstrate empirically the benefits of mobile financial services. In the second project, the FDIC interviewed bankers and other stakeholders to understand better the programs, products, and strategies that banks are finding useful for attracting and retaining unbanked households as customers. In addition to summarizing findings from these interviews, the paper suggests several implications that banks and their partners can use to enhance these efforts.
Community and Small Business Development and Affordable Mortgage Lending
In 2016, the FDIC provided technical assistance to banks and community organizations through 61 outreach events designed to increase shared knowledge and support collaboration between financial institutions and other community, housing, and small business development resources and to improve knowledge about the Community Reinvestment Act.
The FDIC’s work particularly emphasized sharing information to support bank efforts to provide prudent access to responsible, affordable mortgage credit. In 2016, the FDIC released the Affordable Mortgage Lending Guide and launched the Affordable Mortgage Lending Center, an online resource. These resources are designed to provide a comprehensive overview of the programs and services available to community banks to support affordable mortgage lending, particularly to low- and moderate-income borrowers. By year-end 2016, the Guide had already been downloaded more than 3,500 times, and more than 20,000 visitors have viewed the online Affordable Mortgage Lending Center.
Also in 2016, the FDIC, other federal regulators, and federal and state housing agencies hosted 10 affordable mortgage lending forums to offer technical assistance to help expand access to mortgage credit for low-or moderate-income (LMI) households. During these events, banks and program managers shared experiences with federal mortgage guarantee and secondary market programs and state and local down payment assistance and counseling programs. They offered details of their work so that audiences could gain a better understanding of how to address challenges and identify opportunities for expanding participation in these programs.
In addition, the FDIC sponsored sessions with interagency partners covering basic and advanced CRA training for banks. The agencies also offered CRA basics for community-based organizations as well as seminars on establishing effective bank-community collaborations for community development in more than 45 communities. The FDIC had a particular focus on encouraging community development initiatives in rural communities, including workshops that highlighted housing needs and programs, economic development programs, and community development financial institution collaborations, including those serving Native American communities.
Advancing Financial Education
Financial education helps consumers understand and use bank products effectively and sustain a banking relationship over time. The FDIC continued to be a leader in developing high-quality, free financial education resources and pursuing collaborations to use those tools to educate the public. The FDIC’s work during 2016 dealt primarily with young people, consistent with the Financial Literacy and Education Commission focus on Starting Early for Financial Success.
Money Smart for Young People
Money Smart for Young People, a standards-aligned curriculum designed to involve teachers, students, and parents/caregivers in the learning process about money, was downloaded more than 39,000 times since its launch. In addition, 189 educators from 26 school districts received professional development training to assist them in using Money Smart for Young People as part of a small pilot project. The FDIC used stakeholder input to enhance the curriculum, such as by making it available to download on a lesson-by-lesson basis.
Money Smart for Older Adults
The FDIC also worked with the CFPB to launch an enhanced version of Money Smart for Older Adults, a free financial education curriculum first released in 2013 to help prevent elder financial exploitation. The 2016 enhancements include technical updates and revisions to the material based on input from trainers. The newly updated resource includes an expanded discussion on common types of elder financial exploitation such as tax, charity, debt collection, and grandchild imposter scams. The resource also incorporates federal resources that can be helpful on topics such as how to research an investment advisor.
Money Smart for Small Business
The FDIC continues to strengthen collaboration with the Small Business Administration (SBA) and other small business resources beyond training. In 2016, each of the six FDIC regional Community Affairs teams sponsored regional events for banks, the SBA, and the SBA Resource Partner Network (comprised of SCORE, Small Business Development Centers, Women’s Business Centers, and Veteran’s Business Outreach Centers) to convene and collaborate or provide technical assistance to small business leaders. Moreover, new training resources were released to encourage expanded use of Money Smart for Small Business, and the group of training providers identified as Money Smart for Small Business Alliance members continued to grow, reaching 143 at year-end.
Youth Savings Pilot Program
The FDIC continues to collaborate with the CFPB to promote youth financial capability by giving teachers trusted resources to teach financial education, empowering parents and caregivers to discuss financial topics with their children, and emphasizing hands-on activities. To promote hands-on learning, the FDIC completed a report on the two-year Youth Savings Pilot Program in 2016. The pilot was designed to identify and highlight promising approaches to linking financial education to opportunities for school-aged children to open safe, low-cost savings accounts. The report, which draws from the experiences of 21 participating banks, describes three model approaches that have been used to build financial education programs and can be a resource for banks, schools, and others. Lessons learned from the pilot also were presented at the October 20 meeting of ComE-IN. In addition, FDIC hosted a symposium on October 21 to bring together representatives of the banks, schools, and non-profit partners that participated in the Youth Savings Pilot to discuss lessons learned and promising practices.
The FDIC also developed and began to implement strategies to improve financial education and access to mainstream financial services for youth participating in youth employment programs funded through the Workforce Innovation and Opportunity Act (WIOA). For workforce providers and their partners teaching financial education, FDIC developed a tool to map Money Smart to WIOA’s financial education element, and drafted a Money Smart supplement to prepare youth to open their first accounts. The FDIC also led three webinars in collaboration with the Department of Labor to increase awareness of Money Smart among organizations that receive federal funding for youth employment. In addition, FDIC participated in three regional events in collaboration with the Department of Labor and FRB to strengthen the capacity of workforce development organizations to work with financial institutions on financial capability initiatives.
Financial Education Webinars for Teachers
In 2016, the FDIC enhanced its Teacher Online Resource Center, a repository of resources from the FDIC and CFPB, to help teachers provide youth financial education. Five new videos that overview the key features of the curriculum were added. There were more than 27,000 visits to the site during the year. The FDIC continued to collaborate with strategic partners to increase awareness of the FDIC’s free resources. For example, more than 600 people participated in four conference call/webinars held in collaboration with the Jump$tart Coalition to make educators feel more comfortable using the curriculum.
Partnerships for Access to Mainstream Banking
The FDIC supports broadening access to mainstream banking for consumers and small business through work with the Alliances for Economic Inclusion (AEI), Bank On initiatives, local and state governments, and in collaboration with federal partners and many local and national organizations. The FDIC also collaborates with other financial regulatory agencies to provide information and technical assistance on community development to banks and community leaders across the country.
Local collaborations are many and diverse. The FDIC sponsored or co-sponsored more than 125 events during 2016 that provided opportunities for partners to collaborate on increasing access to bank accounts and credit services, opportunities to build savings and improve credit histories, and initiatives to strengthen significantly the financial capability of community service providers who directly serve LMI consumers and very small businesses.
During 2016, the FDIC helped convene financial institutions, community organizations, local, state, and federal agencies, and other partners to support coalitions that bring unbanked and underbanked consumers and owners of small businesses into the financial mainstream through a wide range of partnership organizations. In the 14 AEI communities and in other areas, the FDIC helped committees and working groups of bankers and community leaders develop responses to the financial capability and services needs in their communities. To integrate financial capability into community services more effectively, the FDIC supported seminars and training sessions for community service providers and asset building organizations, workshops for financial coaches and counselors, promotion of savings opportunities for LMI people and communities, initiatives to expand access to savings accounts for all ages, outreach to bring larger numbers of people to expanded tax preparation assistance sites, and education for business owners to help them become bankable.
The FDIC also provided information and technical assistance in the development of safe and affordable transaction and savings accounts and worked to connect unbanked consumers to those accounts. The FDIC provided technical assistance to local Bank On initiatives and asset-building coalition activities designed to reduce barriers to banking and increase access to the financial mainstream in more than 28 communities and in 23 states. For example, the FDIC collaborated with the Cities for Financial Empowerment Fund to support its national efforts to work with local government and other partners to increase the access of LMI consumers to safe and affordable financial products and services. During 2016, in collaboration with Cities for Financial Empowerment and local coalitions, the FDIC worked in seven Bank On cities to convene 14 forums and roundtables designed to advance strategies to expand access to safe deposit accounts. The FDIC also supported efforts to link consumers to financial education and savings through activities organized for designated Money Smart or “financial fitness” weeks or months, involving hundreds of consumer outreach events. Moreover, working with the national, local, state, and targeted (i.e., youth, military, and minority consumer-focused) America Saves campaigns, the FDIC continued to link banking companies to active efforts for engaging consumers with setting savings goals at tax time and year-round.
The FDIC designed strategies to reach two particular segments of the population that the National Survey of Unbanked and Underbanked Consumers revealed are disproportionately unbanked and underbanked: people with disabilities and low- and moderate-income young people. The Advisory Committee on Economic Inclusion was engaged in discussions of financial education and outreach initiatives to promote economic inclusion of people with disabilities. The FDIC discussed its efforts to work with federal, nonprofit, and bank partners on the tax-advantaged savings accounts (known as ABLE Accounts), being launched by state governments. The FDIC also expanded efforts with local partners through 14 community events to bring banks and organizations representing people with disabilities together at the state and local level.
Youth benefiting from employment programs under the WIOA, who are generally low- or moderate-income, are required to be offered financial education. To support grantees of the Department of Labor and local initiatives, the FDIC developed train- the-trainer resources and delivered webinars to enhance the capability of youth-serving employment organizations. Workforce development organizations, banks, the FRB and other partners convened in two communities to expand opportunities for young people to become financially capable and banked.
Consumer Complaints and Inquiries
The FDIC helps consumers by receiving, investigating, and responding to consumer complaints about FDIC-supervised institutions and answering inquiries about banking laws and regulations, FDIC operations, and other related topics. In addition, the FDIC provides analytical reports and information on complaint data for internal and external use, and conducts outreach activities to educate consumers.
The FDIC recognizes that consumer complaints and inquiries play an important role in the development of strong public and supervisory policy. Assessing and resolving these matters helps the agency identify trends or problems affecting consumer rights, understand the public perception of consumer protection issues, formulate policy that aids consumers, and foster confidence in the banking system by educating consumers about the protection they receive under certain consumer protection laws and regulations.
Consumer Complaints by Product and Issue
The FDIC receives complaints and inquiries by telephone, fax, U.S. mail, email, and online through the FDIC’s website. In 2016, the FDIC handled 19,251 written and telephonic complaints and inquiries. Of this total, 10,884 related to FDIC-supervised institutions. The FDIC responded to nearly 98 percent of these complaints within time frames established by corporate policy, and acknowledged 100 percent of all consumer complaints and inquiries within 14 days. As part of the complaint and inquiry handling process, the FDIC works with the other federal financial regulatory agencies to ensure that complaints and inquiries are forwarded to the appropriate agencies for response. The FDIC carefully analyzes the products and issues involved in complaints about FDIC-supervised institutions. The number of complaints received about a specific bank product and issue can serve as a red flag to prompt further review of practices that may raise consumer protection or supervisory concerns.
In 2016, the four most frequently identified consumer product complaints and inquiries about FDIC-supervised institutions concerned credit cards (24 percent), consumer loans (14 percent), residential real estate (12 percent), and checking accounts (11 percent). Credit card complaints and inquiries most frequently described issues with collection practices and billing disputes, while the issues most commonly cited in correspondence about consumer loans were concerns with the reporting of erroneous information. Complaints and inquiries on residential real estate related to repossession/foreclosure and loan modification. The largest share of correspondence about checking accounts cited discrepancies in deposit accounts and refusal to cash checks or provide services.
The FDIC also investigated 84 Fair Lending complaints alleging discrimination during 2016. The number of discrimination complaints investigated has fluctuated over the past several years but averaged approximately 84 complaints per year between 2011 and 2016. Over this period, nearly 45 percent of the complaints investigated alleged discrimination based on the race, color, national origin, or ethnicity of the applicant or borrower; 24 percent related to discrimination allegations based on age; nearly 9 percent involved the sex of the borrower or applicant; and roughly 5 percent concerned disability.
Consumer refunds generally involve the financial institution offering a voluntary credit to the consumer’s account, often as a direct result of complaint investigations and identification of a banking error or violation of law. In 2016, consumers received more than $531,349 in refunds from financial institutions as a result of the assistance provided by the FDIC’s Consumer Affairs Program.
Public Awareness of Deposit Insurance Coverage
An important part of the FDIC’s deposit insurance mission is to ensure that bankers and consumers have access to accurate information about the FDIC's rules for deposit insurance coverage. The FDIC has an extensive deposit insurance education program consisting of seminars for bankers, electronic tools for estimating deposit insurance coverage, and written and electronic information targeted to both bankers and consumers.
The FDIC continued its efforts to educate bankers and consumers about the rules and requirements for FDIC insurance coverage during 2016. For example, as of December 31, 2016, the FDIC conducted six telephone seminars for bankers on deposit insurance coverage, reaching an estimated 5,282 bankers participating at approximately 1,509 bank sites throughout the country. The FDIC also created deposit insurance training videos that are available on the FDIC’s website and YouTube channel.
As of December 31, 2016, the FDIC received and answered approximately 90,412 telephone inquiries from consumers and bankers regarding deposit insurance-related inquiries. The FDIC Call Center addressed 40,374 of these inquiries, and deposit insurance subject matter experts handled the other 50,038. In addition to telephone inquiries about deposit insurance coverage, the FDIC received 1,966 written inquiries from consumers and bankers. Of these inquiries, 99 percent received responses within two weeks, as required by corporate policy.
Center for Financial Research
The FDIC’s Center for Financial Research (CFR) encourages and supports innovative research on topics that are important to the FDIC’s roles as deposit insurer and bank supervisor. Research from CFR staff was accepted during the year for publication in leading banking, finance, and economics journals, and was presented at banking and finance seminars at major conferences, regulatory institutions, and universities.
In 2016, the CFR and the Journal of Financial Services Research jointly sponsored the 16th Annual Bank Research Conference. The conference organizers received more than 550 submissions for the 20 available presentation slots. Douglas Diamond, the Merton H. Miller Distinguished Service Professor of Finance at the University of Chicago, was the keynote speaker. CFR researchers also produced a number of new working papers in 2016. In addition, the CFR is administering the Small Business Lending Survey. Analysis and results of this survey will be made available in 2017.