CFPB cracks down on subscription fees; Bitzlato charged with money laundering

The Washington Wrap is a weekly recap of financial regulation, news and chatter from around the capital.

At the CFPB

The Consumer Financial Protection Bureau on Jan. 19 told companies they need to "clearly and conspicuously" disclose terms of subscription services that automatically renew or those with recurring fees — a move that could have a significant impact on banks and financial services companies.

The CFPB issued a circular targeting "negative option" subscription services that automatically renew unless the consumer affirmatively cancels. The guidance also includes trial marketing programs that charge a reduced fee for an initial period and then automatically begin charging a higher fee.

"Companies risk violating the law if they do not clearly and conspicuously disclose the terms of their subscription services and obtain consumers' informed consent, or if they make it unreasonably difficult for consumers to cancel," the CFPB said in a news release.

The agency indicated concern about practices at banks and financial services companies by referring to previous legal action against TransUnion for deceptive marketing and against payment platform ACTIVE Network.

Attorneys said the circular could have a big impact on the financial community.

"'Negative option' subscription programs, such as automatic renewal plans, continuity plans, or trial marketing plans, are common across the market, including in the market for consumer financial products and services, and such programs can take a variety of forms," Eamonn Moran, senior counsel at Norton Rose Fulbright, said in written comments.

James Kim, a partner at Troutman Pepper who formerly worked on enforcement matters at the consumer watchdog, said the circular "signals that the CFPB will look at these issues during examinations of banks and other companies" under the agency's supervisory authority. Kim noted that while the Federal Trade Commission has been "leading the charge" on negative options and recurring fees, the CFPB adds to that analysis by saying companies must comply with the "abusive" prong of the prohibition against unfair, deceptive or abusive acts or practices.

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Elsewhere, the CFPB updated its mortgage servicing examination procedures to provide transparency to stakeholders about its work.

The latest update to the procedures covers forbearances and other tools that mortgage servicers have used during COVID-19, which include streamlined loss mitigation options that satisfy the temporary flexibilities in the agency's mortgage servicing rules established by the COVID-19-related amendments.

The updates also integrate focus areas from the consumer watchdog's supervisory highlights findings, including further questions about the fees servicers charge borrowers, such as phone pay fees and misrepresentations related to foreclosure.

The latest update also advises examiners to seek information on how the servicers communicate with borrowers about homeowner assistance programs.

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In a separate instance, the consumer watchdog said it is mulling new restrictions on fees levied by money-transfer companies for wiring money abroad, The Wall Street Journal reported Jan. 17.

The new restrictions could be part of the agency's ongoing efforts to scrutinize fees across the financial system in the U.S., the report said.

The CFPB is currently trying to understand the way these money-transfer companies disclose exchange rates and certain fees when it comes to overseas money transfers, which makes it difficult for consumers to choose the option that is best suited to them.

At the Treasury

Cryptocurrency exchange Bitzlato Ltd. was designated as a primary money-laundering concern by the U.S. authorities that also charged the exchange's founder and majority owner Anatoly Legkodymov for allegedly facilitating money laundering for criminals, The Wall Street Journal reported Jan. 18.

Bitzlato was designated under a section of the USA Patriot Act by the Treasury Department for allegedly allowing the laundering of illicit funds for ransomware actors based in Russia.

The Justice Department also alleged that Bitzlato exchanged over $700 million in cryptocurrency with Hydra Market, a darknet marketplace that was shut down in April 2022, and that the cryptocurrency exchange also received more than $15 million of ransomware proceeds.

Legkodymov was arrested Jan. 17 in Miami, the report said.

At the Fed

The future price growth is expected to moderate further as the selling prices increased at a modest pace in most Federal Reserve districts, according to the Fed's latest Beige Book.

The Beige Book is an anecdotal summary of Fed officials' conversations with local contacts across the central bank's 12 districts.

Freight costs and commodity prices, including steel and lumber, continued to ease, according to manufacturers in many districts, but some believe that the input costs are still elevated.

Meanwhile, labor markets continued to be tight as wage pressures remained elevated across districts even though pressures had eased in some. Companies find it difficult to fill open positions despite some districts witnessing an increase in labor availability. However, companies are hesitant in laying off employees but plan to reduce head count through attrition if needed.

Overall, economic activity witnessed a modest increase in the five districts, while six districts noted no change or a slight decline, and only one saw a significant decline. The contacts from districts expect little growth in the coming months.

At the Office of the Comptroller of the Currency

Simplifying issues by divesting businesses, curtailing operations and reducing complexity is the most effective and efficient way to successfully fix issues at "too big to manage" banks, acting Comptroller of the Currency Michael Hsu said at an event Jan. 17.

The acting comptroller suggested that big banks should divest their businesses into smaller, more manageable entities. The misdiagnosis of a problem at a large bank can lead to ineffective solutions and impact the credibility of supervisors, Hsu said.

He highlighted that ineffective solutions "can prolong the risk of harm to consumers, counterparties, and the financial system."

The acting Comptroller believes that the large banks "can and should" address deficiencies more quickly but they tend to take "inordinate amounts of time" to remedy such deficiencies.

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Elsewhere, on Nov. 17, 2022, the OCC terminated its enforcement action against Colorado City, Texas-based City National Bank of Colorado City.

The agency and the bank entered into an agreement on March 31, 2021.

The regulator believes that the safety and soundness of City National Bank of Colorado City and its compliance with laws and regulations do not require the continued existence of the agreement.