TILA led consumer compliance violations in 2022, but FTC Act abuses more serious, report shows

Pie chart of consumer compliance violations, 2022
Top five consumer compliance violations, 2022 (Source: FDIC)

Violations of Truth in Lending Act (TILA) disclosure requirements were the most frequently cited bank consumer compliance violations by examiners in 2022, according to a report issued Wednesday by the federal bank deposit insurance agency.

More specifically, the Federal Deposit Insurance Corp. (FDIC) said, the violations were those of Regulation Z, which implements TILA, which requires the creditor to disclose certain closing cost information on the closing disclosure using specified headings and tables. In a financial institution letter (FIL-13-2023), the agency said there were 490 TILA violations recorded, making up 35% of all consumer compliance violations.

All told, according to the report, there were 1,390 violations of consumer compliance laws and rules last year. The vast majority of those, 96%, were for “level 2” violations, the report stated. The report rates violations on a scale of levels 1 to 3, with 3 being the highest level of concern, and 1 being the lowest. The report indicated no level 1 violations were recorded, and 4% of all being level 3.

For example, for TILA violations, there was only one level 3 violation recorded. However, the second-most frequently cited violations – those of section 5 of the Federal Trade Commission (FTC) Act (which prohibits unfair or deceptive acts or practices in or affecting commerce), the report stated 35 of the total 172 violations were rated level 3, or highest (making up 20% of the total FTC Act consumer compliance violations). No other of the top five came close to that number, with the other four having no more than three.

Overall, the FTC Act abuses made up 13% of the violations recorded by the agency.

“The FDIC identified this violation most frequently when financial institutions charged multiple non-sufficient funds (NSF) fees for the re-presentment of the same transaction and disclosures did not fully or clearly describe the financial institution’s re-presentment practice, including not explaining that the same unpaid transaction might result in multiple NSF fees if an item was presented more than once,” the agency said in explaining the scope of violations.

Rounding out the top five violations were those of the:

  • Flood Disaster Protection Act (FDPA), 11%, requiring adequate flood insurance be in place at the time a covered loan is made, increased, extended, or renewed.
  • Electronic Fund Transfer Act (EFTA, Regulation E), 7%, requiring a financial institution to investigate allegations of electronic fund transfer errors, determine whether an error occurred, report the results to the consumer, and correct the error within certain timeframes.
  • Truth in Savings Act (TISA, Regulation DD), 7%, setting forth timing and content requirements for deposit account disclosures.

FDIC Consumer Compliance Supervisory Highlights