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On February 28, the Federal Reserve Board announced an enforcement action against a bank holding company for alleged internal control deficiencies, resulting in unsafe and unsound practices in violation of the Federal Deposit Insurance Act that caused a financial loss to the company. The consent order acknowledges that the company has since addressed the deficiencies that contributed to the loss and implemented additional improvements in its internal controls and audit programs. The Federal Reserve Board assessed a civil money penalty of $1,012,500.
8th Circuit: Bank that discharged employees as a “business necessity” did not violate Section 19 of the FDI Act
On August 29, the U.S. Court of Appeals for the 8th Circuit affirmed a lower court’s order granting summary judgment in favor of a national bank, holding that the bank did not violate the Federal Deposit Insurance Act’s Section 19 employment ban when it discharged African-American and Latino employees who previously had been convicted of crimes involving dishonesty. Under Section 19, individuals who have been convicted of a crime “involving dishonesty or a breach of trust” cannot be employed by a financial institution covered by federal deposit insurance. A bank that violates the ban is subject to criminal penalties, although an individual may request a waiver from the FDIC. According to the order, the bank screened all home mortgage division employees in 2012 and discharged anyone who was found to have a conviction without providing the option to apply for a waiver. The class members—who brought discrimination claims based on a disparate impact theory—complained that the bank’s automatic discharge of all affected employees impacted African Americans and Latinos at a higher rate than white employees, and contended that the bank could have prevented this result with an alternative such as giving employees “advance notice of the need for a Section 19 discharge, granting leave time to seek a waiver, and/or sponsoring a waiver.” The appellate court relied on data showing that approximately half of waiver applications are approved by the FDIC, and class members presented no data to show that sponsored waivers would ameliorate any racial disparity. In addition, the appellate court held that the bank’s decision to comply with the statute was a business necessity in light of the possibility of a $1 million-per-day fine “even if [the bank’s] policy of summarily terminating or not hiring any Section 19 disqualified individual creates a disparate impact.” Moreover, the appellate court stated that the class members “failed to establish a prima facie case of disparate impact,” and did not present a less discriminatory alternative that would serve the bank’s interests in compliance with the statute.
Federal Reserve Board fines national bank $8.6 million for legacy mortgage documentation deficiencies
On August 10, the Federal Reserve Board (Board) announced a settlement with a national bank for legacy mortgage servicing issues related to the improper preparation and notarization of lost note affidavits. Under the consent order, the Board assessed an $8.6 million civil money penalty for alleged safety and soundness violations under Section 8 of the Federal Deposit Insurance Act. The Board emphasized that the bank’s servicing subsidiary replaced the documents with properly executed and notarized affidavits and, as of September 2017, the subsidiary no longer participated in the mortgage servicing business. The Board also announced the termination, due to “sustainable improvements,” of a 2011 enforcement action against the national bank and its subsidiary related to residential mortgage loan servicing.
On August 3, the FDIC published in the Federal Register an updated statement of policy pursuant to Section 19 of the Federal Deposit Insurance Act (FDI Act) concerning participation in banking of a person convicted of a crime of dishonesty, breach of trust, money laundering or who has entered a pretrial diversion program in connection with the prosecution of such offenses. In addition to technical and clarifying changes, the final policy statement expands the criteria of de minimis offenses for which the FDIC will not require the filing of an application, and in response to comments received on the January proposal, (i) clarifies when an expungement is considered complete for Section 19 purposes; (ii) clearly recognizes that convictions set aside based on procedural or substantive error should not be considered convictions under Section 19; and (iii) adjusts the definition of “jail time” to not include “those on probation or parole who may be restricted to a particular jurisdiction.”
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program