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  • Agencies issue model risk management guidance; seek comments on BSA/AML compliance

    Agency Rule-Making & Guidance

    On April 9, the Federal Reserve Board, FDIC, and OCC, in consultation with FinCEN and the NCUA, issued a joint statement on the use of risk management principles outlined in the agencies’ “Supervisory Guidance on Model Risk Management” (known as the “model risk management guidance” or MRMG) as it relates to financial institutions’ compliance with Bank Secrecy Act/anti-money laundering (BSA/AML) rules. While the joint statement is “intended to clarify how the MRMG may be a useful resource to guide a bank’s [model risk management] framework, whether formal or informal, and assist with BSA/AML compliance,” the agencies emphasized that the MRMG is nonbinding and does not alter existing BSA/AML legal or regulatory requirements or establish new supervisory expectations. In conjunction with the release of the joint statement, the agencies also issued a request for information (RFI) on the extent to which the principles discussed in the MRMG support compliance by financial institutions with BSA/AML and Office of Foreign Assets Control requirements. The agencies seek comments and information to better understand bank practices in these specific areas and to determine whether additional explanation or clarification may be helpful in increasing transparency, effectiveness, or efficiency. Comments on the RFI are due within 60 days of publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC FinCEN NCUA Bank Secrecy Act Anti-Money Laundering OFAC Risk Management Of Interest to Non-US Persons

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  • FTC settles with technology operation

    Federal Issues

    On April 8, the U.S. District Court for the Southern District of New York issued a nearly $32 million judgment against the owners and operators of a New York-based enterprise that sells antennas and amplifiers (collectively, “defendants”) for allegedly misleading customers about the quality of their products. The agency alleges in its complaint that the defendants violated the FTC Act by “making deceptive performance claims for their over-the-air television antennas and related signal amplifiers, using deceptive consumer endorsements, and misrepresenting that some of their web pages were objective news reports about the antennas.” Under the terms of the order, the company is barred from making misleading claims about the products’ quality, the number of channels users can acquire, or any other claims about its ranking compared to other products. While the order imposes a $32 million judgment against the defendants, the full judgment will be suspended upon payment of $650,000, subject to certain conditions.

    Federal Issues FTC Settlement UDAP Deceptive FTC Act Enforcement

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  • Fannie and Freddie update General QM Rule loan eligibility

    Federal Issues

    On April 8, Fannie Mae issued Lender Letter LL-2021-09 announcing updates to eligibility for loans subject to the CFPB’s revised General Qualified Mortgage (QM) Rule (covered by InfoBytes here). Among other things, Fannie notes that because its preferred stock purchase agreement (PSPA) with the U.S. Department of Treasury requires that acquired loans meet the General QM Rule’s loan definition that became effective March 1, it will no longer, in accordance with the dates below, acquire GSE Patch loans that fail to meet to the revised General QM Rule. Specifically, in order to be eligible for purchase by Fannie (certain exceptions are provided for government loans), such loans “must have application dates on or before June 30, 2021” and must “be purchased as whole loans on or before August. 31, 2021, or in MBS pools with an issue date on or before August 1, 2021.” Fannie further notes that it continues to assess the impact of the revised General QM Rule and PSPA on its policies and operations and anticipates further eligibility and underwriting requirement changes. The same day Freddie Mac also issued Bulletin 2021-13, which provides similar updates for loans with application received dates on or after July 1, 2021, and all mortgages with settlement dates after August 31, 2021.

    Federal Issues Fannie Mae Freddie Mac GSEs Mortgages Qualified Mortgage

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  • Industry group sues to stop Washington’s emergency rule banning credit scoring in insurance underwriting

    State Issues

    According to sources, the American Property Casualty Insurance Association (APCIA) recently filed a lawsuit in Washington Superior Court in an attempt to stop an emergency rule issued last month by the Washington Insurance Commissioner, which bans the use of credit-based insurance scores in the rating and underwriting of insurance for a three-year period. The rule specifically prohibits insurers from “us[ing] credit history to place insurance coverage with a particular affiliated insurer or insurer within an overall group of affiliated insurance companies” and applies to all new policies effective, and existing policies processed for renewal, on or after June 20, 2021.

    According to a press release issued by the Commissioner, the emergency rule is intended to prevent discriminatory pricing in private auto, renters, and homeowners insurance in anticipation of the end of the CARES Act, which will expire 120 days after President Biden declares an end to the national emergency caused by the Covid-19 pandemic. Under the CARES Act, Congress required furnishers of information to credit bureaus to modify credit reporting practices if and when they grant an “accommodation”—that is, an agreement to defer payments, modify a loan, or grant other relief—to borrowers impacted by the Covid-19 pandemic, irrespective of asset type to ensure that borrowers who sought and obtained forbearance or other relief were not credit reported as becoming delinquent or further delinquent as a result of the forbearance or other relief (see Buckley Special Alert), which the Commissioner believes has disrupted the credit reporting process and reportedly caused credit bureaus to collect inaccurate credit histories for some consumers. The Commissioner further contends that because “the predicative ability of current credit scoring models cannot be assumed,” scoring models used by insurers to set rates for policyholders have been degraded and will have a disparate impact on consumers with lower incomes and communities of color. Sources report that APCIA’s lawsuit—which seeks declaratory and injunctive relief (and asks the court to declare the Commissioner’s rule invalid and to enjoin its enforcement)—claims the Commissioner’s rule will harm insured consumers in the state who pay less for auto, homeowners, and renters insurance because of the use of credit-based insurance scores to predict risk and set rates.

    State Issues State Regulators Covid-19 Credit Scores Insurance Underwriting Courts CARES Act

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  • CFPB settles with California-based company for debt collection violations

    Federal Issues

    On April 6, the CFPB announced a consent order against a California-based debt collector and its former owner for allegedly harassing consumers and threatening to take legal action if they did not pay their debts. According to the CFPB, the respondents violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by mailing letters to consumers printed with “Litigation Notice” that threatened recipients with legal action if they did not repay their debts. However, the Bureau stated that the respondents did not file lawsuits against the consumers, nor did they hire law firms or lawyers to obtain any judgments or collect on any such judgments. Under the terms of the consent order, the respondents are permanently banned from the debt collection industry and are ordered to pay $860,000 in redress to its victims, which has been suspended due to an inability to pay, as well as a $2,200 civil money penalty. This is the CFPB’s latest action taken against debt collectors that have used false threats to collect debts. As previously covered in InfoBytes, in 2019 the CFPB and New York attorney general announced proposed settlements with a network of New York-based debt collectors to resolve allegations that the defendants engaged in improper debt collection tactics in violation of the CFPA, the FDCPA, and various New York laws. Also, in 2018, the CFPB announced a settlement with a Kansas-based company and its former CEO and part-owner that allegedly engaged in improper debt collection tactics in violation of the CFPB’s prohibitions on engaging in unfair, deceptive, or abusive acts or practices (covered by InfoBytes here).

    Federal Issues Consumer Finance CFPB Settlement Enforcement Debt Collection CFPA FDCPA UDAAP Deceptive

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  • FINRA fines broker-dealer for alleged supervision failures


    On April 5, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), with a New York-based broker-dealer subsidiary of a global financial services company to resolve allegations that it failed to monitor employees’ outside brokerage accounts for “potentially deceptive trading practices.” Among other things, FINRA alleged that the firm’s failure to maintain a supervisory system to ensure employees disclosed their outside brokerage accounts precluded the personal account trading team from accurately monitoring account activity for compliance with the firm’s trading restrictions. FINRA further indicated that “[w]hile the firm ultimately was able to review the relevant trading activity, the inability to do so earlier led to the firm’s failure to timely monitor trading in these accounts.” The firm neither admitted nor denied the findings set forth in the AWC letter but agreed to pay a $345,000 fine.

    Securities FINRA Enforcement Settlement

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  • OFAC sanctions Pakistan-based transnational human smuggling organization

    Financial Crimes

    On April 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13581, “Blocking Property of Transnational Criminal Organizations,” against a Pakistani national and a transnational criminal organization (TCO). In addition, OFAC designated three individuals and one entity associated with the TCO. According to OFAC, Treasury’s designation of this human smuggling organization as a significant TCO is an “important step taken alongside our partners, towards disrupting . . . operations based in Pakistan and around the world.” As a result of the sanctions, all assets belonging to the designated persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. U.S. persons are generally prohibited from engaging in dealings involving any property or interests in property of the blocked or designated persons.


    Financial Crimes Department of Treasury OFAC Sanctions OFAC Designations Pakistan SDN List Of Interest to Non-US Persons

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  • OFAC sanctions Mexican cartel members and facilitator

    Financial Crimes

    On April 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against two members of a major Mexico-based drug trafficking cartel, along with another individual responsible for facilitating travel related to the illicit activities for senior cartel members and their allies. In addition, OFAC designated two businesses located in Mexico. According to OFAC, the designations serve as “a reminder that Treasury will continue to sanction those providing support to [the cartel], whether that person is a violent actor or a complicit businessperson.” As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and entities subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.

    Financial Crimes Department of Treasury OFAC Sanctions OFAC Designations SDN List Of Interest to Non-US Persons Mexico

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  • Arkansas amends FMLA mortgage licensing provisions

    On April 1, the Arkansas governor signed SB 149, which amends provisions related to licensing requirements under the state’s Fair Mortgage Lending Act (FMLA). Among other things, the act (i) modifies certain definitions, including expanding the definition of a mortgage servicer to include a person that makes a payment to a borrower in the case of a home equity conversion mortgage or a reverse mortgage; (ii) clarifies the qualifications for licensure under the FMLA and outlines licensing renewal requirements; (iii) provides a process for the Arkansas Securities Commissioner to allow loan officers to work from a location that is not licensed as the principal place of business or branch office; (iv) modifies the process concerning notice of a change in name or address; and (v) requires licensees to establish and enforce written cybersecurity policies and procedures that comply with the FMLA and any regulations or orders promulgated thereunder. The act takes effect 90 days after adjournment of the legislature.

    Licensing State Legislation Mortgages Mortgages Servicing State Issues

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  • New York enacts LIBOR replacement provisions

    State Issues

    On April 6, the New York Governor signed S297B into law, which addresses the permanent discontinuance of LIBOR for specified contracts, securities, and other instruments that are economically tied to LIBOR. Among other things, S297B stipulates that contracts using LIBOR as a benchmark that do not contain adequate interest rate fallback provisions (or contain a fallback provision “that result[s] in a benchmark replacement, other than a recommended benchmark replacement, that is based in any way on any LIBOR value”) will automatically convert to the “recommended benchmark replacement”—currently the secured overnight financing rate (SOFR)—when LIBOR is no longer available. As previously covered by InfoBytes, all sterling, euro, Swiss franc and Japanese yen settings, and one-week and two-month U.S. dollar settings will cease immediately after December 31, 2021, while all remaining U.S. dollar settings will cease immediately after June 30, 2023. Of note, S297B will not override LIBOR replacements that are mutually agreed upon by contracting parties, and provides a safe harbor from liability for parties that use a recommended benchmark replacement. Further, parties are also prohibited from discharging or refusing to perform contractual obligations or declaring a breach of contract as a result of the discontinuance of LIBOR or the use of a replacement.

    Find continuing InfoBytes coverage on LIBOR here.


    State Issues State Legislation LIBOR SOFR

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