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Agencies announce several resolution plan actions
On December 9, the FDIC and Federal Reserve Board announced several resolution plan actions, including providing finalized guidance for the resolution plans of four large foreign banking organizations (FBOs). Pursuant to the Dodd-Frank Act, FBOs must submit resolution plans—also known as “living wills”—which detail the strategic plans for their U.S. operations and subsidiaries for rapid and orderly resolution in bankruptcy in the event that the banks fail or fall under material financial distress. The final guidance modifies the proposed updates issued last March (covered by InfoBytes here) in several ways. Among other changes, the agencies “tailored their expectations around resolution capital and liquidity, derivatives and trading activity, as well as payment, clearing, and settlement activities,” and modified the scope of the guidance “to generally cover foreign banks in category II of the agencies' large bank regulatory framework.” As a result, three FBOs would be subject to the guidance for their plan submissions for 2021, and an additional FBO would be subject to the guidance for its full plan due in 2024 if it remains within the scope. The agencies also released information for 15 large foreign and domestic banks in categories II and III of the large bank regulatory framework that identifies required targeted information to be included in their next resolutions plans, due December 17, 2021. The agencies also confirmed that certain previously identified weaknesses in four FBOs have been remediated.
CFPB sues debt collection company that used DA letterhead to threaten consumers
On December 9, the CFPB announced it filed a complaint in the U.S. District Court for the Western District of Missouri against a Missouri-based company alleging violations of the FDCPA and the CFPA. The company allegedly engaged in deceptive and otherwise unlawful debt collection acts and practices in the course of operating “bad-check pretrial-diversion programs on behalf of more than 90 district attorneys’ offices throughout the United States.” According to the Bureau, the company used district-attorney letterhead to threaten consumers with criminal prosecution unless they paid the amount of the dishonored check, enrolled and paid for a financial-education course, and paid various other administrative fees. The complaint claims that not only did the company fail to include required FDCPA disclosures in the letters it sent to consumers, it also failed to identify itself in the letters and did not inform consumers that it is a debt collector and not a district attorney. The company also allegedly failed to inform consumers that district attorneys almost never prosecute individuals who do not pay back the amount owed. Moreover, the Bureau claims that in most cases the company did not refer cases for prosecution, even if the check writer failed to respond to the collection letter, did not pay the alleged outstanding debt and fees, or failed to complete the financial-education course. The complaint seeks an injunction against the company as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.
Virginia issues modified stay at home order identifying banks and financial institution as essential retail businesses
On December 10, the governor of Virginia issued a modified stay at home order limiting travel and gatherings for Virginia residents and operations for certain businesses. However, banks and other financial institutions with retail functions are considered essential retail businesses and may continue to remain open during normal business hours. All businesses, including essential retail businesses, are advised to adhere to the Guidelines for All Business Sectors.
New Jersey charges MCA provider with deceptive practices
On December 8, the New Jersey attorney general announced an action against a merchant cash advance provider, its parent company, and six other associated entities (collectively, “defendants”) alleging the defendants violated the New Jersey Consumer Fraud Act (CFA) and the General Advertising Regulations through the marketing and transacting of their merchant cash advance (MCA) product. (The defendants are currently facing similar allegations from the FTC, covered by InfoBytes here.) According to the complaint, the defendants engaged in “unconscionable business practices, deceived consumers, and/or made false or misleading statements” by marketing and advertising an MCA product, which was allegedly structured as a short-term, high-cost loan. New Jersey argues that the MCA contracts contain terms that “eliminate the distinctions between loans (with fixed regular payments over a defined term) and legitimate MCAs (with variable payments tied to actual receivables and an undefined term).” New Jersey asserts that traditionally, MCA’s do not have a finite repayment term and thus, the fixed repayment period was the equivalent of a loan to its customers. Moreover, the agreements’ “fixed daily payments extracted from Consumers’ accounts have little to no relation to the businesses’ receivables.” Additionally, New Jersey asserts that the defendants allegedly engaged in unconscionable collection practices, including requiring consumers to sign, in their individual capacity and on behalf of their business, an Affidavit of Confessions of Judgment to obtain the MCA, which would allow judgment against both the Consumer’s business assets and personal assets in the event of a purported default. New Jersey is seeking a permanent injunction, civil penalties, restitution, and disgorgement.
Notably, the New Jersey complaint follows a recent enforcement action against a merchant cash advance provider in California (covered by InfoBytes here), where the California Department of Financial Protection and Innovation (DFPI) found, in apparent contrast to the New Jersey action, that MCA agreements with an indefinite repayment period, among other things, operate as a loan equivalent by, placing the “risk of repayment on the merchant by leaving the repayment period open until fully repaid (with fees and interest).”
CFPB reaches settlement with unlicensed debt collector
On December 8, the CFPB announced a settlement with a New Jersey-based debt collector resolving allegations that the defendant violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by obtaining judgments and demanding payments from consumers in states where it was not legally licensed to do so. According to the Bureau, the defendant purchased consumer debts from debt brokers, used law firms to obtain judgments against the consumers, and “continued to collect on those judgments . . . as well as on a handful of payment agreements it obtained from debtors.” The Bureau found that the defendant falsely implied that it had a legally enforceable right to recover payments from consumers in Connecticut, New Jersey, and Rhode Island, and demanded payments and threatened legal action even though it did not hold the debt collection licenses required under the laws of those states. The consent order requires the defendant to pay a $204,000 civil money penalty, and prohibits the defendant from collecting on the judgments against, or payment agreements entered into with, consumers in Connecticut, New Jersey, and Rhode Island when it was not legally allowed to do so. The defendant is also required to “take all necessary steps to vacate all judgments not discharged in bankruptcy or [that were] previously satisfied,” and must suspend collection of those judgments and provide notice to consumers with payment agreements that have been satisfied.
House passes NDAA with significant AML/CFT provisions
On December 8, the U.S. House of Representatives passed the National Defense Authorization Act (NDAA) for Fiscal Year 2021 in a 335-78 vote, which includes significant language from the September 2019 proposed legislation, the “Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act,” among other proposed laws. Highlights of the anti-money laundering (AML) provisions include:
- Establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”;
- Expand the declaration of purpose of the Bank Secrecy Act (BSA) and establish national examinations and supervision priorities;
- Require streamlined, real-time reporting of Suspicious Activity Reports;
- Establish a Subcommittee on Innovation and Technology within the Bank Secrecy Act Advisory Group to encourage and support technological innovation in the area of AML and countering the financing of terrorism and proliferation (CFT);
- Expand the definition of financial institution under the BSA to include dealers in antiquities;
- Require federal agencies to study the facilitation of money laundering and the financing of terrorism through the trade of works of art; and
- Inclusion of digital currency in AML-CFT enforcement by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.”
OFAC sanctions entities connected to IRGC-QF
On December 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13224 against an official in the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), along with the Iranian regime’s envoy to the Houthi rebels in Yemen, for allegedly “acting for or on behalf of the IRGC-QF.” OFAC also announced sanctions against an Iranian university and a separate individual for providing support to IRGC-QF operations. As a result, all property and interests in property belonging to the designated persons subject to U.S. jurisdiction are blocked, and any “entities that are owned, directly or indirectly, 50 percent or more by such persons, are also blocked.” U.S. persons are “generally prohibited from engaging in transactions” with the designated persons. OFAC further warned foreign financial institutions that if they knowingly facilitate significant transactions for the designated persons they “risk exposure to sanctions that could sever their access to the U.S. financial system or block their property and interests in property under U.S. jurisdiction.”
OFAC sanctions entities for assisting North Korean coal exportation
On December 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Orders 13687, 13722, and 13810 against six entities related to the alleged transportation of North Korean coal. OFAC also identified four vessels as blocked property. According to OFAC, by engaging in activities prohibited under UN Security Council resolution 2371, the six sanctioned entities have assisted North Korea’s continued efforts to circumvent UN prohibitions on the exportation of North Korean coal. As a result of the sanctions, “all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated persons, and warned foreign financial institutions that if they knowingly facilitate significant transactions for any of the designated individuals or entities, they may be subject to U.S. secondary sanctions. OFAC also recommended all relevant jurisdictions review a global advisory issued last May by the U.S. Departments of State and Treasury, along with the U.S. Coast Guard (covered by InfoBytes here), which warned the maritime industry of deceptive shipping practices used by Iran, North Korea, and Syria to evade economic sanctions.
FINRA fines firm for AML and due diligence violations
On December 4, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), fining a New York-based member firm $55,000 for allegedly failing to implement a reasonable anti-money laundering (AML) program for transactions involving low-priced securities. The firm also allegedly failed to establish a due diligence program for monitoring and reporting “known or suspected money laundering activity conducted through or involving correspondent accounts for foreign financial institutions.” According to FINRA, the firm failed to, among other things, (i) “include reasonable procedures for the surveillance of potentially suspicious trading in low-priced securities,” such as listing “some of the most relevant red flags”; (ii) ensure its surveillance reports and tools were “reasonably designed to detect and cause the reporting of potentially suspicious activity”; and (iii) reasonably respond to red flags received from a clearing firm related to potentially suspicious activity. FINRA also claimed that the firm failed to identify all of its foreign financial institution accounts (FFIs) due to a lack of systems or processes to do so. Specifically, the firm allegedly failed to review 33 correspondent accounts for FFIs, nor did it identify 15 of these 33 accounts as FFIs. As a result, the firm allegedly violated FINRA Rules 3310(b) and 2010. The firm neither admitted nor denied the findings set forth in the AWC agreement but agreed to pay the fine, address identified deficiencies in its programs to ensure compliance with its AML obligations, and provide a certification of compliance with FINRA Rule 3310.
FHFA extends Covid-19 flexibilities until January 31
On December 10, the FHFA announced the extension of several loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA extended until January 31 existing guidelines related to: (i) alternative appraisal requirements on purchase and rate term refinance loans; (ii) alternative methods for documenting income and verifying employment before loan closing; and (iii) expanding the use of power of attorney to assist with loan closings. The extensions are implemented in updates to Fannie Mae Lender Letters LL-2020-03, LL 2020-04; and Freddie Mac Guide Bulletin 2020-47 and Selling FAQs.