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Beware of this Emerging Issue - Cashless ATMs

The financial services industry has observed over the past couple of years that there is a common practice in the cannabis industry, the usage of cashless ATMs, to bypass the restrictions from Visa and Mastercard’s credit and debit card networks which prohibit cannabis activity.

News about this practice has been addressed in a variety of articles and is now receiving more attention from Visa. As recently reported by Bloomberg and Forbes, Visa communicated in an earlier issuance, that they are aware of a scenario where POS (point-of-sale) devices, described as cashless ATMs, are being utilized at merchant outlets, operating in violation of network rules. 

It’s our understanding that a typical scenario using a cashless ATM involves payment transactions that are made to appear as being performed at an ATM. The transaction is often rounded up to an even amount and miscoded as an ATM transaction, all done to conceal the accurate details of the transaction and to circumvent network rules. It has also been reported that in some cases, the address of the merchant has not been accurately reflected on the transaction, further disguising the details. 

What to do now?

Institutions working with cannabis or marijuana-related businesses should first re-familiarize themselves with Visa and Mastercard network rules. Second, those institutions should review any communications received from Visa related to cashless ATMs to ensure they are fully aware of the concerns related to this scheme. Third, those institutions should consider the risk involved with their business relationships and the potential for use of cashless ATMs, which may include the collection of information from the business.   

Want to learn more about this and other emerging BSA/AML issues?

Please make plans to join us for Sheshunoff’s Annual BSA/AML webinar. Mark your calendar for June 15^th. When further details are available, they will be posted to Sheshunoff’s Online Compliance Consulting Dashboard. 

"Overdraft Programs: Searching for New Solutions"

Just last month, the NCUA delivered their webinar, “Overdraft Programs: Searching for New Solutions.” The opening remarks made by NCUA Board Chairman Harper reflected that effective overdraft protection programs require careful and thoughtful planning and institutions must be sensitive to the burden such programs place on their members, especially people of color. He also relayed that because of that, the NCUA has prioritized a review of credit union overdraft programs as part of its supervisory priorities for 2022. He stated that examiners will request:  

·        Information on overdraft policies and procedures,

·        Monitoring tools and audits of overdraft programs, and

·        Member communications.

The webinar proceeded with speakers from CUCollaborate and Filene Research Institute. An initial discussion focused on an overview of new trends in fees and non-interest income. It was noted that in our current environment, credit unions are re-examining fees for overdraft programs and are considering new sources of noninterest income. The program then shared information on our current landscape where we’ve seen various institutions announce reductions or eliminations of overdraft or NSF fees, as well as the general public becoming more fee adverse.

The NCUA webinar has been uploaded to YouTube and may be accessed here.  

In case you missed it… the FFIEC has issued a 2022 edition of their “Guide to HMDA Reporting: Getting it Right!” Sheshunoff clients can find this information on our Online Compliance Dashboard. It can also be found on the FFIEC website here.

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FDIC Supervisory Highlights

The FDIC has published their “Consumer Compliance Supervisory Highlights” issuance that provides an overview of their 2021 supervisory activities and findings. This resource provides a great synopsis of various compliance-related observations.

Frequently cited violations and observations include:

• Reg. E and Liability Protections – Observations related to consumers being targeted for fraud by scammers. One instance mentioned in this section related to a consumer being targeted by someone posing as the institution’s third-party service provider; whereby the consumer was asked for, and provided, the consumer’s account verification codes. While the institution attempted to limit its liability by relying on their account agreement that states they, nor their provider, would ever request those codes, the FDIC determined that the regulatory liability protections apply.

• Overdraft Programs (ODP) – Observations related to automated ODP focused on limits that are static (seldom changing) and dynamic (vary per customer and periodically changing). Examiners noted that customer communications were lacking, or non-existent, when an ODP transitioned from being static to dynamic. Findings noted that the omission of such information to customers was material and resulted in a deceptive act or practice.

• Other Observations – Examiners also noted concerns surrounding the handling of re-presentment of unpaid items, where multiple NSF fees were charged on an item that was previously presented. As noted, the failure to disclose this practice may be deceptive. Another issue, related to fair lending, was noted. The observation focused on the use of a particular eligibility requirement in connection with private education loans, i.e. the use of the “Cohort Default Rate”. While that requirement was applied on a neutral basis, the result of its use revealed a disparate impact on a prohibited basis. 

While the FDIC’s publication addressed a wide variety of regulatory and other developments, two items in particular caught our attention:

• National Flood Insurance Program (NFIP) – Risk Rating 2.0 – This section provides some background on FEMA’s new pricing methodology and clarifies that it does not affect the mandatory purchase requirements. In part, it reflects the following: “If there is a discrepancy regarding whether a property is located in a SFHA, the borrower may use FEMA’s Letter of Map Amendment process to review the determination. Pricing for flood insurance policies issued by a private food insurer and National Flood Insurance Program (NFIP) policies that have not yet been issued under Risk Rating 2.0 may still include the food zone on a declarations page. In these cases, lenders need not reconcile a food zone discrepancy.”

• CARES Act and Mortgage Servicing – This item provided background information related to the CARES Act-mandated forbearance and other debt relief options. It was noted that while the pandemic presented serious challenges, supervised institutions were observed to support compliance with the CARES Act and mortgage servicing rules by adjusting policies, procedures, training, and oversight to support compliance. 

The FDIC’s Highlights publication also provides a variety of information about resources, including information from the National Center for Consumer and Depositor Assistance’s Consumer Response Unit on consumer complaint trends. At a high level, it was noted that most complaints were focused on two areas: credit cards and checking accounts. It was also noted that fair lending complaints increased in 2021 by 31%. 

Interested persons may find the entire publication here.