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CFPB Releases Student Banking Report Examining Credit Card Marketing Deals Targeting College Students
On December 14, the CFPB released a student banking report analyzing roughly 500 marketing agreements between colleges, universities and affiliated organizations, and large banks in an effort to identify trends in the school-sponsored credit card market. The report found in part that while credit cards offered in conjunction with educational institutions have declined since the CARD Act was enacted in 2009, many similar offers and deals still exist and may include features that lead students to rack up hundreds of dollars in fees. As explained by CFPB Student Loan Ombudsman Seth Frotman, “Colleges across the country continue to make deals with banks to promote products that have high fees, despite the availability of safer and more affordable products.” According to Mr. Frotman, “Students shouldn’t get stuck with the bill when their school inks a deal for an account that’s not in their best interest.”
In conjunction with the publication of this report, the Bureau also published a new compliance bulletin to assist colleges in understanding their obligations under the CARD Act and Regulation Z related to college credit card agreements. This bulletin noted, among other items, that many of the largest colleges and universities do not publish credit card agreements on their websites or make them available to students and the public upon request, creating increased risks of non-compliance. The complete set of credit card agreement data collected by the Bureau in accordance with its obligations under the Credit CARD Act of 2009 can be accessed here.
Justice Department Recovers Over $4.7 Billion From False Claims Act Cases in Fiscal Year 2016
On December 14, the DOJ announced that it has obtained more than $4.7 billion in settlements and judgments in civil cases involving fraud and false claims against the government in fiscal year 2016 (ending September 30). Of the $4.7 billion recovered, $2.5 billion came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. The DOJ also recovered $1.6 billion from housing and mortgage settlements and judgments this past fiscal year – the second highest annual recovery in the history of the federally insured mortgage program.
There were 845 new False Claims Act suits in 2016, one of the largest totals in history. Of those, 143 were initiated by the government and 702 were brought by whistleblowers. Approximately $100 million was recovered in cases handled exclusively by whistleblowers and their attorneys—a sharp drop from the record $1.1 billion recovered in 2015, but an amount comparable to the averate amount recovered in previous years. Notably, the $4.7 billion recovered in 2016 does not include state shares. Such shares were significant in 2016 because of payouts involving the federal-state Medicaid program, with the top three health care settlements alone resulting in distributions of approximately $500 million to states.
Fed Raises Rates for Only Second Time Since Financial Crisis
On December 14, the Federal Open Market Committee (FOMC) announced that it had voted unanimously to raise the target range for the federal funds rate by 25 basis points to 0.5 to 0.75 percent – marking only the second rate hike since the financial crisis. According to a statement released by the FOMC, Committee members attributed the increase to consistent economic growth, in particular strong job gains, throughout 2016. Projections released yesterday include accelerated growth over the next few years, which suggest a series of additional rate hikes throughout 2017. The Committee continued to stress, however, that future rate hikes will “depend on the economic outlook as informed by incoming data.” A transcript of Fed Chair Yellen’s press conference opening remarks can be found here.
As part of implementing the rate hike, the Federal Reserve Bank of New York, effective December 15, will conduct overnight reverse repurchase operations at an offering rate of 0.50 percent, with a per-counterparty limit of $30 billion per day. The regional bank’s Open Market Trading Desk estimates approximately $2 trillion of Treasury securities in its account will be available for these operations.
OFR Releases 2016 Annual Report to Congress; Reveals Credit Extended Through "Shadow Banking" Exceeds That of Traditional Banks
On December 13, the Office of Financial Research (OFR) announced the release of both its 2016 Annual Report to Congress and its 2016 Financial Stability Report. The reports met the reporting requirements of the Dodd-Frank Act, including an analysis of: (i) threats to U.S. financial stability; (ii) key findings and insights from the OFR’s research; and (iii) the status of OFR efforts in meeting its mission. Among other things, the report noted the increasingly prominent role of shadow banking — “the extension of credit by nonbank companies, or credit funded by liabilities susceptible to runs because they are payable on demand and lack a government backstop.” According to the OFR, credit provided by the so-called shadow banking sector is presently higher than that of established banks. Indeed, OFR research indicates that credit from nonbank companies reached about $15.1 trillion as of the first quarter of 2016, thus making it "the major source of credit to U.S. businesses and households" — providing 38 percent of credit compared with banks' 32 percent.
Implementation of New EU Regulation Establishes Uniform Legal Framework for e-Signatures Across All EU Member States
Recently, the EU adopted a new EU Electronic Signature Regulation 910/2014/EU, which established a new, comprehensive, legal framework for e-signatures, as well as e-identification, e-seals, e-timestamp, e-documents, e-delivery services, and website authentication. The new regulation applies to transactions dating back to July 1, replacing the prior Directive on Electronic Signatures (1999/93/EC). Among other things, the new regulation defines three levels of e-Signatures: (i) e-Signature, (ii) advanced e-Signature, and (iii) qualified e-Signature. “E-Signature” is defined as data in electronic form which are attached to, or logically associated with, other electronic data, which are used by the signatory to sign. “Advanced electronic signature” is defined as uniquely linked to the signatory, capable of identifying the signatory, and created using e-signature creation data that the signatory can, with a high level of confidence, use under his sole control. And finally, a “qualified electronic signature” is defined as an advanced electronic signature created by a qualified electronic signature creation device.
Notably, and in contrast to previous EU directives on e-signatures, the new regulation is directly applicable in all 28 EU Member States without any requirement that it be formally adopted into national law. Specifically, Article 25 of the New Regulation provides that an electronic signature shall not be denied legal effect and admissibility as evidence in legal proceedings solely on the grounds that it is in an electronic form or that it does not meet the requirements for qualified electronic signatures. Rather, a qualified electronic signature in one EU Member State shall now be recognized as a qualified electronic signature in all other Member States.
Former Guinean Minister of Mines Charged with Receiving and Laundering $8.5 Million in Bribes from Chinese Companies
On December 13, the former Minister of Mines and Geology of the Republic of Guinea was arrested and charged in the U.S. with laundering bribes he allegedly received from two Chinese companies in exchange for actions he took to secure valuable mining rights for a conglomerate associated with the companies. According to the complaint filed by the DOJ, the former mining Minister received approximately $8.5 million in bribes in 2009 and 2010. To conceal the bribes, he allegedly transferred the funds to a bank account in Hong Kong which he opened while misreporting his occupation to conceal his status as a government official. He later allegedly transferred millions of dollars from the bribe proceeds into two U.S. banks to whom he also allegedly lied to conceal his position as a foreign government official and the source of the funds. The former Minister is a United States citizen and was residing in New York City when he was arrested.
Argentine Sports Marketing Firm Agrees to $112.8 Million Settlement in Connection with FIFA Corruption Investigation
An Argentine sports marketing firm, entered into a deferred prosecution agreement with the U.S. DOJ on December 13, admitting to wire fraud conspiracy in connection with paying tens of millions of dollars in bribes and kickbacks to high-ranking FIFA officials in order to secure support for broadcasting rights in Argentina, Uruguay, and Paraguay for the 2018, 2022, 2026, and 2030 World Cup. The four-year DPA calls for the firm to pay approximately $112.8 million in forfeiture and criminal penalties. In announcing the DPA, the DOJ noted its consideration of the firm’s remedial actions including termination of its entire senior management team, hiring a new General Manager, Chief Financial Officer, Legal Director, Chief Compliance Officer, and Compliance Manager, cooperation, and implementation of enhanced internal controls and a rigorous corporate compliance program.
The deferred prosecution agreement is part of the DOJ’s wider investigation into corruption in international soccer. Thus far, DOJ has charged 42 defendants and obtained 19 guilty pleas in connection with the FIFA corruption prosecutions. Prior Scorecard coverage of the FIFA investigations can be found here.
First Israeli Enforcement Action Against a Company for Bribery of Foreign Government Officials
In a first under Israeli law, an IT solutions provider was fined approximately $1.2 million by the Tel Aviv Magistrate’s Court on December 15 for bribing a government official from the African county of Lesotho. The Israel-based company produces high-tech identification cards and products for population registration and border control. In 2012, the company entered into a $30 million agreement with the government of Lesotho to sell its products to the African country. The company was charged with paying a mediator $500,000 to advance that deal, with a significant amount of that sum intended as a bribe for the director general of Lesotho’s interior ministry. As part of the plea agreement, the company must also cooperate with an ongoing parallel investigation in Lesotho and implement an anti-corruption compliance program.
The prosecution and plea agreement represent the first time a company has been indicted or convicted of bribing a foreign official under Israeli law. In July 2008, Israel added Article 291A to its penal code, outlawing bribery of foreign public officials. The law was enacted in conjunction with Israel entering the UN Convention against Corruption in February 2009 and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in March 2009. Prior to the case against the company, Israel had come under international criticism for lack of enforcement of Article 291A. The case adds Israel to the list of countries prosecuting companies for bribery of foreign officials and places Israeli companies on notice of future prosecutions.
Special Alert: OCC Takes the Next Step Toward a Fintech National Bank Charter
On December 2, 2016, the Office of the Comptroller of the Currency (“OCC”) announced its plans to move forward with developing a special purpose national bank charter for financial technology (“fintech”) companies. Accompanying the Comptroller of the Currency, Thomas J. Curry’s announcement, the OCC published a white paper that describes the OCC’s authority to grant national bank charters to fintech companies and outlines minimum supervisory standards for successful fintech bank applicants.[1] These standards would include capital and liquidity standards, risk management requirements, enhanced disclosure requirements, and resolution plans. Over the past several months, the OCC has taken a series of carefully calculated steps to position itself as the preeminent regulator of fintech companies in a hotly-contested race among other federal and state regulators who have similarly expressed interest in formalizing a regulatory framework for fintech companies. This proposal from the OCC reflects the culmination of those efforts.
Click here to read the full special alert
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BuckleySandler welcomes questions regarding this new approach to fintech and banking, and would be happy to assist companies in determining whether a national bank charter would be beneficial for executing on their corporate strategies. Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeremiah S. Buckley, (202) 349-8010
- John P. Kromer, (202) 349-8040
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- Walter E. Zalenski, (202) 461-2910
CFPB Publishes Fall 2016 Rulemaking Agenda
On December 2, the CFPB published its Fall 2016 Statement of Regulatory Priorities, and its Fall 2016 rulemaking agenda, addressing current and future rulemakings in accordance with its obligations under the Regulatory Flexibility Act. In its Agenda, the Bureau notes, among other things, that: (i) publication of a final Arbitration rule is expected in February 2017; (ii) the Bureau intends to finalize proposed amendments to TRID by March 2017; and (iii) the Bureau plans to release in March 2017 a proposed set of technical corrections to the HMDA reporting requirements and proposed amendments to Regulation B “to clarify how financial institutions and creditors subject to Regulation C and Regulation B may comply with both regulations.” There was no next step identified for the proposed rule on payday loans and deposit advance products.
In a corresponding blog post, the Bureau provided a brief status update and overview of its various rulemakings, which are grouped into pre-rule, proposed rule, final rule, long-term, and completed stages. The CFPB noted that it anticipates that the next “larger participant” rulemaking will focus on the markets for consumer installment loans and vehicle title loans, including whether to impose registration requirements on non-depository lenders.