Banking Brief: Financial Services Insights

The spate of class-action lawsuits against banks and credit unions (“Financial Institutions”) involving overdraft fees has prompted Indiana Financial Institutions to amend their existing account agreements to provide for arbitration (in lieu of costly litigation) and to prohibit consumers from initiating or joining into class-actions against Financial Institutions (“Arbitration/Class Action Waivers”). 

With the advent of the federal Corporate Transparency Act (“CTA”) that begins on January 1, 2024, financial institutions will need to re-think their information and certification requirements for account and loan customers.

Before responding to a creditor’s citation to discover assets ("CDA"), financial institutions should consider whether the court presiding over the judgment can lawfully direct them to act against a debtor's accounts. Even if a CDA is correctly filed and served, this does not necessarily mean that courts have proper jurisdiction. Thus, responding to these requests can lead to unsavory consequences.

Indiana recently enacted laws allowing creditors involved in consumer credit transactions secured by motor vehicles or other titled assets to record their liens electronically.

On June 14, 2023, the Office of the Comptroller of the Currency (OCC) published its Semiannual Risk Perspective which identifies key issues facing the federal banking system.

Since early 2023, there has been consistent reporting of possible turbulence and increased default risk relating to commercial real estate loans. These concerns are driven by historic levels of maturing debt, which is in many cases secured by real estate that has taken a sharp hit in value.

Recently, the Consumer Financial Protection Bureau (CFPB) released a report on the use of chatbots, such as ChatGPT, etc., by financial institutions. The report highlighted that chatbot use, as automated teller machines and offshore customer call centers before them, are increasingly used by financial institutions to streamline processes and lower operating costs. The CFPB report details a number of challenges in the use of chatbots, as well as guidance for successful deployment by financial institutions.

On June 6, 2023, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly released final guidance on managing risks associated with third-party relationships. The guidance is intended to promote consistency in supervisory approaches and replaces each agency’s existing guidance on the topic.

With the economy tightening and interest rates continuing to increase to amounts greater than have been seen in the recent past, lenders are facing more requests for assistance from debtors who are unable to repay their loans in accordance with their original terms. Hence, workouts are becoming an evermore important tool for lenders seeking to protect the collectability of their loans.

Reports of potential trouble in commercial real estate lending have steadily increased this year.