InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
California extends measures to provide regulatory relief, reduce Covid-19 impact
On October 28, the California governor issued an executive order extending previously granted relief due to the continuing negative impact of the Covid-19 pandemic on businesses and individuals. The order suspends or extends numerous requirements related to professional fees, reporting and applications through June 2021.
FHA issues mortgagee letter extending guidance on employment reverification and appraisals
On October 28, FHA issued Mortgagee Letter 2020-37, which re-extends the effective date of the employment reverification guidance in Mortgagee Letter 2020-05, previously covered here, here, here, and here. The Mortgagee Letter also updates the appraisal scope of work inspection option providing for exterior-only appraisals, which limits face-to-face contact for certain transactions affected by Covid-19. The updated appraisal guidance is effective on November 1, 2020 and is applicable to appraisals with an effective date on or before December 31, 2020. The extension of the employment reverification guidance is effective immediately for cases closed on or before December 31, 2020.
CFPB releases education ombudsman’s annual report
On October 28, the CFPB Private Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2019 and August 31, 2020. The report is based on approximately 7,000 complaints received by the Bureau relating to federal and private student loans. Of these complaints, roughly 1,700 were related to debt collection, while approximately 500 mentioned Covid-19. The Bureau’s press release notes that the continued decrease in both federal and private student loan complaints may be attributed to factors such as “borrower education and outreach by federal and state agencies and regulators; borrower education and outreach by consumer advocates; and continued maturation of some industry participants’ compliance management systems, complaint monitoring systems, and their internal consumer advocate and ombudsman offices.” Topics discussed within the report include (i) an analysis of socio-economic and racial gaps in the student loan market; (ii) supervisory examinations and prioritized assessments of federal student loan servicers; (iii) enforcement actions taken against student loan debt relief companies and a student loan trust; (iv) borrower education and outreach; and (v) the impact of Covid-19 on student loan borrowers, including CARES Act relief for federally held federal student loans. The report also discusses a Memorandum of Understanding reached with the Department of Education at the beginning of the year, which clarifies the roles and responsibilities for each agency and permits the sharing of student loan complaint data and other information and recommendations (covered by InfoBytes here).
The report provides several recommendations, including that policymakers—when addressing near-term and long-term repayment issues—“may wish to consider simplifying the various loan repayment plans and the various forgiveness, discharge, and cancellation programs,” as well as examine ways to (i) enhance data sharing between federal agencies; (ii) enroll debtors who file for bankruptcy in income driven repayment plans; (iii) revisit the undue hardship bankruptcy test; (iv) assess socio-economic and racial gaps in student loan debt load and degree attainment; and (v) pursue student loan debt relief scams.
Parties file unopposed settlement requiring credit union to pay $16 million to resolve insufficient funds fee lawsuit
On October 21, class members filed an unopposed motion for preliminary approval of a class action settlement in the U.S. District Court for the Eastern District of Virginia, which would—if approved—require a national credit union to establish a $16 million common fund, pay all settlement administration costs, and modify its account agreement policy to clarify how it assesses insufficient funds fees. The named plaintiff filed a lawsuit against the credit union alleging that its fee-assessment practices for insufficient funds violated her agreement with the credit union. According to the named plaintiff, the credit union charged multiple $29 insufficient funds fees (NSF fees) per transaction, even though she argued her contract only permitted the credit union to charge one NSF fee per transaction, “regardless of how many times the merchant re-presents the debit item or check for payment.” The credit union, however, denied that its NSF fee assessment practices violated the law or were in breach of member contracts. While the court originally dismissed the suit for failure to state a claim, on appeal, the U.S. Court of Appeals for the Fourth Circuit stayed further proceedings to allow the parties to mediate an agreement. If approved, class members will not be required to file claims to receive settlement benefits.
Whistleblower receives record $114 million award
On October 22, the SEC announced a more than $114 million award to a whistleblower in connection with successful agency enforcement action. The SEC’s press release states that the award “consists of an approximately $52 million award in connection with the SEC case and an approximately $62 million award arising out of the related actions by another agency.” The award is the highest award issued to date by the SEC. The SEC also noted that, “[a]fter repeatedly reporting concerns internally, and despite personal and professional hardships, the whistleblower alerted the SEC and the other agency of the wrongdoing and provided substantial, ongoing assistance that proved critical to the success of the actions.” The redacted order determining the whistleblower award further states that the whistleblower voluntarily provided significant information. The SEC also denied award applications submitted by three other claimants, citing determinations made by the Claims Review Staff that “their information did not ‘lead to’ the success of the Covered Action,” and that, among other things, the submitted information did not relate to the SEC’s charges and was not used by staff in the enforcement action.
The SEC has now paid approximately $676 million to 108 individuals since the inception of the program.
OFAC sanctions Iranian entities connected to IRGC-QF
On October 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13848 against five Iranian entities for allegedly attempting to influence the U.S. electoral process. According to OFAC, these designations are intended to “counter efforts” from foreign actors that “spread[] disinformation online and execut[e] malign influence operations aimed at misleading U.S. voters.” Three of the entities, including the Islamic Revolutionary Guard Corps (IRGC) and the IRGC-Qods Force (IRGC-QF), are designated “for having directly or indirectly engaged in, sponsored, concealed, or otherwise been complicit in foreign interference in the 2020 U.S. presidential election.” Two other entities are designated for being owned or controlled by the IRGC-QF, which, along with the IRGC, has been designated under a number of authorities since 2007. As a result, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked, and “any entities 50 percent or more owned by one or more designated persons are also blocked.”
The same day, OFAC also sanctioned an IRGC-QF general pursuant to E.O. 13224 for allegedly “exploit[ing] his position as the Iranian regime’s ambassador in Iraq to obfuscate financial transfers conducted for the benefit of the IRGC-QF.” According to OFAC, the designated individual, among other things, allegedly facilitated financial transfers benefiting the IRGC-QF, and helped “IRGC-QF obtain foreign currency in Iraq, in return for equivalent sums that the IRGC-QF in Iran has transferred to relevant entities.”
As a result of OFAC’s recent actions, all property and interests in property belonging to, or owned by, the designated persons subject to U.S. jurisdiction are blocked. U.S. persons are also “generally prohibited from engaging in transactions” with the designated individuals. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant support to the designated entities may subject them to sanctions and could terminate access to the U.S. financial system.
OFAC sanctions Hizballah council members
On October 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13224 against two members of Hizballah’s Central Council, which supports Hizballah’s activities by identifying and electing council members that assert control over policies and military initiatives. As a result of the sanctions, all property and interests in property of the individuals, “and of any entities that are owned, directly or indirectly, 50 percent or more by them, individually, or with other blocked persons, that are in the United States or in the possession or control of U.S. persons, are blocked and must be reported to OFAC.” OFAC noted that its regulations “generally prohibit” U.S. persons from participating in transactions with the designated individuals, including “the making of any contribution of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution of funds, goods or services from any such person.” OFAC further warned that engaging in certain transactions with the designated individuals subjects persons to the risk of secondary sanctions pursuant to E.O. 13224 and the Hizballah Financial Sanctions Regulations, which implement the Hizballah International Financing Prevention Act of 2015. Furthermore, OFAC noted that it has the authority to “prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that knowingly facilitates a significant transaction for Hizballah or on behalf of a designated terrorist group, or a person acting on behalf of or at the direction of, or owned or controlled by, Hizballah.”
Fed targets flood insurance violations
On October 15, the Federal Reserve Board announced an enforcement action against a New York-based bank for alleged violation of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assessed a $546,000 penalty against the bank for an alleged pattern or practice of violations of Regulation H, but did not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,000 per violation.
9th Circuit affirms arbitration in putative class action against CRA
On October 21, the U.S. Court of Appeals for the Ninth Circuit affirmed arbitration in a FCRA action against a national credit reporting agency (CRA), concluding that the consumer “expressly agreed” to the 2014 terms of use, which included an enforceable arbitration provision. According to the opinion, a consumer purchased a credit score program from the CRA in June 2014 and assented to the terms and conditions, including an arbitration provision and change-of-terms provision, which stated that each time the consumer accessed the website, “she would be manifesting assent to ‘the then current’ terms of the agreement.” The consumer canceled her credit score subscription in July 2014. The consumer accessed the CRA website against in 2018 and at the time of access, the arbitration provision included a carve out for certain disputes relating to the FCRA. The consumer subsequently filed a putative class action against the CRA, alleging, among other things, a violation of the FCRA’s requirement to assist the consumer in understanding the credit scoring assessment. The district court granted the CRA’s motion to compel arbitration.
On appeal, the 9th Circuit concluded that the consumer was not bound to the new arbitration terms based on her 2018 visit to the website. The appellate court noted that the consumer did not allege she received notice of the new terms in effect, and therefore, she was bound to the 2014 terms to which she had previously assented. Moreover, the appellate court rejected the consumer’s argument that the arbitration agreement was unenforceable under the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here, holding that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable). The appellate court held that the 2014 arbitration provision did not “flatly prohibit a plaintiff seeking public injunctive relief in court,” because it subjects disputes to arbitration “to the fullest extent of the law,” which presumably would “exclude claims for public injunctive relief in California.” Thus, the appellate court affirmed arbitration.
CFPB issues ANPR on consumer access to financial records
On October 22, the CFPB released an advanced notice of proposed rulemaking (ANPR), which seeks comments to assist the Bureau in developing regulations covering consumers’ access to financial records. The Bureau is required to promulgate regulations to implement Section 1033 of the Dodd-Frank Act, which provides, among other things, that consumer financial services providers must make certain product or service information available to consumers. The Bureau’s press release notes that access to this information would allow consumers’ enhanced control of their financial matters. Additionally, should consumers allow third parties to access the information, those parties may “deliver new or improved financial products and services,” such as personal financial management and making or receiving payments. However, the Bureau acknowledges certain risks associated with access to financial records, including risks related to the methods of authorization and risks related to an institution’s collection and use of the records. The ANPR seeks comments on questions grouped into nine categories: (i) costs and benefits of consumer data access; (ii) competitive incentives; (iii) standard-setting; (iv) access scope; (v) consumer control and privacy; (vi) legal requirements outside of Section 1033; (vii) data security; (viii) data accuracy; and (ix) other information. Comments are due 90 days after publication in the Federal Register.