Overview of Banking Law

Every day, consumers and business owners rely on banks and financial institutions for essential services such as deposit accounts, lending, and smooth payment systems. But behind the scenes, a complex web of state and federal laws ensures these institutions operate securely and fairly.

Consumers can face challenges ranging from improper fees to disputes over loan terms, and businesses may encounter compliance or payment system issues. This guide explains the fundamentals of banking law, highlights the protections designed for consumers and businesses, and shows how a banking lawyer can help you resolve disputes more effectively.

What Is Banking Law?

Banking law refers to the body of regulations that governs how banks and financial institutions operate and conduct business with consumers. It establishes legal standards of conduct for banks when working with consumers, shareholders, and the financial system. It covers everything from account management to compliance protocols.

Banks and credit unions that manage accounts must adhere to how deposits are accepted and insured. Lenders must also adhere to legal regulations that apply to loan origination, terms, disclosures, and fairness. Also included are laws governing the processing of checks, ACH transactions, wire transfers, and electronic fund transfers.

Banking law exists to protect consumers and the greater public interest. It ensures banks hold adequate capital and practice responsible risk management. It protects depositors and strengthens the stability of the entire financial system. Consumers are entitled to clear disclosures about the financial services they use.

Which Government Agencies Regulate Banks?

Several federal regulatory bodies provide oversight for banking activities. The purpose is to protect consumers while also creating stability in the financial system. Preventing fraudulent activities and regulating actions helps to prevent financial crises that can negatively impact the overall economy.

Federal Reserve Board (The Fed)

The Federal Reserve Board, commonly referred to as “The Fed,” is a part of the Federal Reserve System. It is a federal agency that acts as the central bank for the United States.

One of its primary responsibilities is to supervise and regulate bank holding companies, financial holding companies, and certain state-chartered banks that are members of the Federal Reserve System.

The Fed oversees policies that promote stable prices, maximum employment, and moderate long-term interest rates. This ensures financial institutions manage risk and maintain adequate capital. These actions play a central role in maintaining overall stability for the financial system.

Federal Deposit Insurance Corporation (FDIC)

Many consumers are familiar with the FDIC as a form of banking insurance. It is an independent agency that was created in response to the bank closures that took place during the Great Depression.

The FDIC provides insurance coverage in the event of a bank failure for deposits of up to $250,000 per depositor, per insured bank. This coverage applies to several types of banking accounts, including checking and savings accounts. Its duties reach beyond this, though.

The FDIC also supervises financial institutions for safety, soundness, and consumer protection. If a bank does fail, the FDIC acts as a receiver and arranges payouts to depositors.

Consumer Financial Protection Bureau (CFPB)

The Consumer Financial Protection Bureau (CFPB) was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Its primary function is to enforce federal consumer financial protection laws. This includes overseeing consumer financial products like mortgages, credit cards, auto loans, and payday loans.

The CFPB also investigates consumer complaints and takes appropriate enforcement action.

Office of the Comptroller of the Currency (OCC)

Within the U.S. Department of the Treasury is the independent Office of the Comptroller of the Currency (OCC).

The OCC supervises all national banks and federal savings associations. Its purpose is to ensure all consumers have fair and equal access to financial services and institutions.

State Banking Regulators

Each state has an agency that provides banking regulation oversight. They are often called the Department of Banking or the Department of Financial Institutions.

Each state agency provides licensing and chartering oversight for state banks and credit unions. This includes conducting inspections and regulatory actions to ensure compliance with state banking laws. The oversight includes regulating mortgage lenders, money transmitters, and other non-bank financial services providers.

Interaction Between Federal and State Oversight

Financial institutions typically must comply with the dual regulation of the federal government and state agencies. This double-layer regulatory framework is intended to balance state-level flexibility with federal consistency and consumer protection.

National banks are chartered and primarily regulated by the Office of the Comptroller of the Currency (OCC), with FDIC insurance protection and sometimes Federal Reserve oversight. State-chartered banks are supervised by state banking authorities but may also be members of the Federal Reserve System, giving them federal oversight as well.

Key Federal Laws That Protect Consumers

Federal banking laws touch almost every financial aspect of consumers’ daily lives. From credit card applications to buying a home, applying for or refinancing loans, and banking activities, federal regulations and state laws increase transparency, fairness, and security.

Truth in Lending Act (TILA)

Enacted in 1968, the Truth in Lending Act (TILA) requires lenders to clearly communicate credit terms to consumers. This includes annual percentage rates (APR), total cost of credit, and repayment terms. The purpose is to give consumers a chance to compare loan products fairly. It effectively prevents hidden fees and misleading lending practices.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) of 1970 promotes accurate and fair consumer credit reporting. It protects consumers by limiting who can access credit reports and how those reports can be used. It also gives consumers the right to dispute errors on their credit report.

Real Estate Settlement Procedures Act (RESPA)

Consumers who are buying a home with a mortgage are protected under the Real Estate Settlement Procedures Act (RESPA). It requires lenders to provide disclosure of settlement costs in advance, during the underwriting process.

RESPA also prohibits the use of referrals and kickbacks that could inflate the overall cost for the borrower. The goal is to create increased transparency in mortgage lending, helping families avoid unfair surprises at closing.

Bank Secrecy Act (BSA)

The purpose of the Bank Secrecy Act (BSA) is to prevent banking and financial crimes. It requires banks and credit unions to monitor for suspicious activity. This includes evidence of money laundering, tax evasion, and terrorist financing activities. If suspicious activity is discovered, the financial institution is required to report the activity or transactions above a certain threshold.

Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA) doesn’t specifically regulate banking activity. However, it does relate to public financial matters by preventing discrimination. Financial institutions are prohibited from discriminating on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. These protections apply to consumers applying for loans, credit cards, and mortgages.

Electronic Fund Transfer Act (EFTA)

Consumers have protection when using electronic banking under the Electronic Fund Transfer Act (EFTA). This includes using debit cards, ATMs, and direct deposit services. It also protects consumers by limiting their liability if unauthorized transfers are discovered. Under the act, consumers are required to report such transfers promptly.

Community Reinvestment Act (CRA)

Enacted in 1977, the Community Reinvestment Act (CRA) creates regulatory responsibility for the FDIC, FRB, and OCC. Oversight obligations are divided among these regulatory agencies for the banks that must comply with the CRA. The CRA encourages financial institutions to identify and meet the financial needs of the local community. This includes providing financial solutions to moderate and low-income neighborhoods.

Federal Reserve Act

The Federal Reserve Act established the Federal Reserve System in 1913. It became the central bank of the United States. Congress has oversight of the Federal Reserve Act and the authority to make changes. Today, the Federal Reserve Act addresses domestic and foreign banks, allowing for continued economic growth.

Dodd-Frank Wall Street Reform and Consumer Protection Act

One of the more recent banking laws passed is the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as “Dodd-Frank”. It was a regulation that overhauled the financial regulation landscape after the Great Recession of 2008.

Common Legal Disputes in Banking

While banking laws cover a broad range of topics, there are a few issues that commonly arise:

• Loan disputes. Commonly occur over unclear or misleading terms, predatory lending practices, or disagreements over repayment obligations
• Credit reporting issues. Often arise from incorrect loan balances, duplicate accounts, or outdated negative information. In many cases, an identity mix-up can lead to inaccurate reporting.
• Improper repayment procedures. This could happen when a mortgage lender initiates incorrect foreclosure action on real estate. It could also happen if a debt collector participates in harassment, threats, or unlawful practices in an attempt to collect an outstanding debt.
• Disputes over banking activities. Excessive overdraft fees, surprise service charges, or unauthorized account fees could lead to legal problems. There could be hidden terms that were not disclosed at account opening.

In some situations, legal banking issues can rise to the level of criminal activity. The unauthorized use of bank accounts or credit cards can amount to fraud or identity theft. Other criminal actions include phishing, check fraud, money laundering, or account takeovers. These actions are often committed by a third party, with the banking institution and consumer suffering. However, banks have an obligation to monitor for suspicious activity.

Keeping accurate and detailed records is a must for protecting yourself against banking disputes. Save contracts, account statements, emails, and written correspondence. Always communicate in writing to create a paper trail.

Before pursuing a legal remedy, consumers should take every step possible to resolve a dispute through the banking system’s internal procedures. If internal channels fail, then consider filing complaints with the appropriate regulators. It is also advisable to seek legal representation. An attorney can identify violations, negotiate settlements, or represent you in court if disputes escalate.

How Can a Banking Law Attorney Help You?

Banking law attorneys can provide clients with a wide range of services. They can analyze loan agreements, mortgage documents, and credit contracts for unclear or unfair provisions, hidden fees, or potentially predatory terms.

Lawyers can advocate for clients in disputes with banks, credit unions, or debt collectors. Skilled advocacy helps level the playing field against large financial institutions with extensive legal resources.

Find an Experienced Banking Lawyer

Financial institutions are highly regulated. The laws that govern them, from state banking statutes to federal consumer protection laws, exist to protect both your money and your rights. While these protections provide a framework for safe banking, disputes still occur. Working with a banking law attorney ensures that you have expert guidance when challenging a bank or resolving complex financial issues.

Use the Super Lawyers directory to connect with an experienced banking law attorney who can help safeguard your interests.