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Financial Services Law Insights and Observations

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  • Arkansas amends Uniform Money Services Act

    State Issues

    On February 13, the Arkansas Governor approved SB 187, which amends the state’s Uniform Money Services Act as it relates to money transmission licensees and currency exchanges. Among other things, the amendments (i) revise surety bond and net worth amounts money transmission licensees are required to maintain; (ii) specify application and renewal requirements and deadlines; (iii) permit the use of international financial reporting standards (in addition to generally accepted accounting principles) to compute the value of permissible investments licensees are required to maintain; and (iv) repeal certain savings and transitional provisions. The amendments take effect 90 days after adjournment.

    State Issues State Legislation Licensing Money Service / Money Transmitters

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  • FHFA issues capital requirements final rule for FHL Bank

    Agency Rule-Making & Guidance

    On February 20, FHFA published a final rule setting capital requirements for Federal Home Loan Banks (FHL Banks). The final rule carries over without material change most of the existing Federal Housing Finance Board regulations, but substantively revises certain portions of the regulations. Specifically, the final rule, among other things, (i) removes the requirement that FHL Banks calculate credit risk capital charges and unsecured credit limits based on ratings issued by a Nationally Recognized Statistical Rating Organization (NRSRO), and instead requires FHL Banks to use their own internal rating methodology; (ii) revises the percentages used in the tables to calculate the credit risk capital charges for advances and non-mortgage assets; and (iii) revises the table numbers to align with the Federal Register’s new formatting standards. The rule is effective on January 1, 2020.

    Agency Rule-Making & Guidance FHLB FHFA

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  • Ohio Court of Appeals reverses trial court because no evidence consumer agreed to interest rate

    Courts

    On February 7, the Ohio Court of Appeals reversed a state trial court’s decision in favor of a national bank, holding that the bank failed to prove it had the right to charge interest exceeding the statutory limit on a credit card account. At trial, the bank sought payment of the consumer’s store credit card debt it acquired in a merger. The consumer argued that the bank had no standing to sue because it failed to prove ownership of the store credit card account. The trial court denied the consumer’s motion to dismiss and granted the bank’s motion for a directed verdict after trial.

    The appeals court agreed that, even though the bank was unable to establish that it acquired the consumer’s account, it had standing to bring its collection action by virtue of its own credit card agreement with the consumer and the consumer’s continued use of the card. But because the bank could only produce periodic statements that included the claimed interest rate, it failed to establish that the consumer “assented to any explicitly set forth interest rate over the statutory limit.” Thus, the trial court “erred in granting [the bank’s] motion for a directed verdict as to the precise amount of damages awarded,” and the appeals court remanded with instructions to determine whether Ohio law, as argued by the consumer, or South Dakota law, as argued by the bank, should be applied to verify the applicable statutory interest rates.

    Courts FCRA State Issues Credit Furnishing Interest Rate

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  • HUD permits use of Third Party Verification services for borrower information

    Federal Issues

    On February 15, HUD released Mortgagee Letter 2019-01, which provides guidance on the use of Third Party Verification (TPV) services for FHA-insured mortgages. Effective immediately, FHA now allows mortgagees to use TPV services for verification of a borrower’s employment, income, and asset information. The Letter provides specific requirements for each category of information but, in all circumstances, a borrower must authorize the mortgagee’s use of a TPV vendor for the verification (whether direct or electronic).

    Federal Issues HUD FHA Third-Party Underwriting Mortgages

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  • OCC releases enforcement actions for February 2019

    Federal Issues

    On February 15, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include a civil money penalty order against an individual, a notice of prohibition against an individual, and three removal and prohibition consent orders against individuals, and a cease and desist consent order described below.

    On January 7, the OCC entered into a consent order with a federal savings bank related to allegations of unsafe or unsound banking practices. The OCC alleges the bank failed to implement and maintain an effective compliance management system, risk governance framework, and information technology (IT) program. Among other provisions, the order requires the bank to develop written plans to strengthen the compliance, risk governance, and IT programs, and requires the Board to ensure the bank has adopted and implemented all the corrective actions required by the order. The bank neither admits nor denies the allegations and the OCC did not assess any monetary penalties against the bank.

    Federal Issues OCC Enforcement Bank Compliance Risk Governance Consent Order

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  • 1st Circuit rejects dismissal of a Massachusetts foreclosure notice action

    Courts

    On February 8, the U.S. Court of Appeals for the 1st Circuit reversed the district court’s dismissal of a Massachusetts homeowners’ action alleging that the mortgage holder failed to comply with the notice requirement in their mortgage before foreclosing on their property. The district court dismissed the action after concluding that the mortgage holder’s notice satisfied the notice requirements by including the default amount, a cure date, and the fact that failure to cure could result in acceleration. The homeowners appealed, arguing that the mortgage holder failed to strictly comply with the provision’s requirements because the notice provided did not include the conditions and time limitations associated with reinstatement after acceleration that were required by a separate provision in the mortgage.

    On appeal, the 1st Circuit reviewed the notice under Massachusetts law, which requires mortgage holders to strictly comply with two types of mortgage terms: (i) ones “directly concerned with the foreclosure sale. . .” and (ii) ones “prescribing actions the mortgagee must take in connection with the foreclosure sale—whether before or after the sale takes place.” In overturning the District Court’s dismissal, the 1st Circuit noted that, because the notice did not contain the additional conditions and time limitations associated with reinstatement from the separate provision, dismissal was inappropriate. 

    Courts Mortgages Foreclosure Notice State Issues

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  • CSBS agrees to implement recommendations from fintech advisory panel

    Fintech

    On February 14, the Conference of State Bank Supervisors (CSBS) agreed to implement specific recommendations from the CSBS Fintech Industry Advisory Panel. The Advisory Panel, which was formed in 2017 and consists of 33 fintech companies, works to “identify and remove unnecessary pain points in the multistate experience of fintechs and other nonbanks operating regionally or nationwide while improving financial supervision.” Of the 19 recommended actions by the Advisory Panel, CSBS supported 14, including: (i) creating a 50-state model law to license money services businesses; (ii) creating a standardized call report for consumer finance businesses; (iii) expanding the use of the Nationwide Multistate Licensing System across all license types; and (iv) building an online database of state licensing and fintech guidance. Recommendations related to small business lending were among the items saved for future action or implementation.

    Fintech State Issues CSBS Licensing NMLS

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  • OFAC reaches settlement with chemical manufacturer resolving Cuban sanctions violations

    Financial Crimes

    On February 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $5.5 million settlement with a German chemical manufacturer for 304 alleged violations of the Cuban Assets Control Regulations (CACR). According to OFAC, the settlement resolves the manufacturer’s alleged involvement in fulfilling Cuban orders for chemical reagents on 304 invoices. Prior to and upon acquiring the manufacturer, an Illinois-based company sent warnings to the manufacturer that all Cuban transactions must be ceased, along with guidelines for complying with U.S. sanctions. OFAC noted, however, that the manufacturer designed and implemented a system to conceal its on-going transactions, engaged an external logistics company to handle shipping documents and declarations, and conducted training sessions for staff to ensure the system was concealed from the Illinois company.

    In arriving at the settlement amount, OFAC considered the following as aggravating factors: (i) the willful conduct of the manufacturer’s management; (ii) the utilization of written procedures to “engage in a pattern of conduct in violation of the CACR”; (iii) the number of transactions over an extended period of time “caused significant harm to the sanctions program objective of maintaining a comprehensive embargo on Cuba”; and (iv) the sophistication and revenue stream of the manufacturer, and the fact that it is a subsidiary of a large, international company.

    OFAC also considered several mitigating factors, including the Illinois company’s cooperation with OFAC, voluntary self-disclosure, and execution of a tolling agreement on behalf of the manufacturer. OFAC further stressed the importance of implementing risk-based controls and due-diligence procedures to ensure subsidiaries comply with OFAC sanction obligations.

    Visit here for additional InfoBytes coverage on Cuban sanctions.

    Financial Crimes OFAC Department of Treasury Cuba Sanctions Of Interest to Non-US Persons Settlement

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  • OFAC sanctions officials aligned with Maduro regime

    Financial Crimes

    On February 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced additions to the Specially Designated Nationals List pursuant to Executive Order 13692. OFAC’s additions to the list include five current or former officials connected to former President Maduro, including the president of Venezuela’s state-owned oil company, which was sanctioned at the end of January. (See previous InfoBytes coverage here.) According to OFAC, the designated individuals have engaged in “significant corruption and fraud against the people of Venezuela,” and continue to assist the Maduro regime’s repression of Venezuelan people. As a result, any assets or interests therein belonging to the identified individuals—along with any entities directly or indirectly owned 50 percent or more by such individuals—subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are prohibited generally from dealing with any such property or interests.

    See here for continuing InfoBytes coverage of actions related to Venezuela.

    Financial Crimes OFAC Department of Treasury Sanctions Venezuela Of Interest to Non-US Persons

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  • FCC proposed rulemaking will expand caller ID spoofing enforcement

    Privacy, Cyber Risk & Data Security

    On February 14, the FCC released a notice of proposed rulemaking intended to strengthen its rules against caller ID spoofing and expand the agency’s enforcement efforts against illegal spoofed text messages and phone calls, including those from overseas. The proposed rules would enact requirements in the recently passed RAY BAUM’S Act of 2018, and expand Truth in Caller ID Act prohibitions against the transmittal of “misleading or inaccurate caller ID information (‘spoofing’) with the intent to defraud, cause harm, or wrongfully obtain anything of value” to text messages and calls to U.S. residents originating from outside the U.S.

    The FCC seeks comments on the proposed rules—adopted unanimously at the agency’s February 14 meeting—on, among other things, what changes to the Truth in Caller ID rules can be made “to better prevent inaccurate or misleading caller ID information from harming consumers.” Comments will be due 60 days after publication in the Federal Register.

    Privacy/Cyber Risk & Data Security FCC Robocalls Enforcement Truth in Caller ID Act

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