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FinCEN addresses efforts to counter business email compromise schemes
On July 16, the Financial Crimes Enforcement Network (FinCEN) discussed efforts designed to restrict and impede business email compromise (BEC) scammers and other illicit actors who profit from email compromise fraud schemes. BEC schemes, FinCEN reports, generally involve “criminal attempts to compromise the email accounts of victims to send fraudulent payment instructions to financial institutions or business associates in order to misappropriate funds or to assist in financial fraud.” An updated advisory provides current operational definitions and general trends in BEC schemes, information concerning the targeting of non-business entities and data by these types of schemes, and risks associated with the targeting of vulnerable business processes. The advisory also discusses opportunities for information sharing between financial institutions concerning subjects and accounts affiliated with BEC schemes in the interest of identifying risks of fraudulent transactions and money laundering. An in-depth strategic Financial Trend Analysis of Bank Secrecy Act (BSA) data explores industries targeted by BEC scammers as well as employed methodologies, and highlights BSA information collected by regulated financial institutions. Suspicious activity report highlights reveal a nearly tripling of attempted BEC thefts—from $110 million per month in 2016 to $301 million per month in 2018 on average. FinCEN’s release also discusses its Rapid Response Program as well as international information sharing initiatives addressing BEC schemes and associated fraudulently-induced transactions.
FINRA supplements guidance on enforcement credit for “extraordinary cooperation”
On July 11, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 19-23, which provides clarifying guidance on enforcement credit for firms or individuals that provide “extraordinary cooperation” in investigations that exceed FINRA’s rule requirements. Specifically, FINRA defines “extraordinary cooperation” as including (i) self-reporting violations prior to regulator detection and intervention; (ii) taking voluntary, extraordinary steps to correct problems; (iii) making voluntary remediation to customers prior to detection; and (iv) providing a substantial amount of assistance to FINRA’s investigation. The notice, which supplements prior guidance issued in 2008, also clarifies the difference between required cooperation and extraordinary efforts, and outlines the types of credit firms or individuals may receive.
Agencies adopt final rules excluding community banks from the Volcker Rule; simplify regulatory capital rules
On July 9, the Federal Reserve Board (Fed), CFTC, FDIC, OCC, and SEC adopted a final rule implementing sections of the Economic Growth, Regulatory Relief, and Consumer Protection Act to grant an exclusion for community banks from the Volcker Rule, which generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with hedge funds or private equity funds. Qualifying financial institutions must have fewer than $10 billion in total consolidated assets and total trading assets, as well as liabilities that are equal to or less than five percent of their total consolidated assets. The rule also permits, under certain circumstances, a hedge fund or private equity fund organized and offered by a banking entity to share a name with a banking entity that is its investment advisor that is not an insured bank or bank holding company. The rule will take effect upon publication in the Federal Register.
The same day, the Fed, FDIC, and OCC also finalized a rule “intended to simplify and clarify a number of the more complex aspects of the agencies’ existing regulatory capital rules” for banks with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. Among other changes, the rule alters the capital treatment for mortgage servicing assets, certain deferred tax assets, as well as investments in the capital instruments of unconsolidated financial institutions. The final rule will be effective as of April 1, 2020, for the amendments to simplify capital rules, and as of October 1, 2019 for revisions to the pre-approval requirements for the redemption of common stock and other technical amendments.
OCC releases guidance documents for final rule implementing HOLA amendments
On July 1, the OCC issued Bulletin 2019-31, which describes the process for federal savings associations to make an election to operate as “covered savings associations,” with the rights and privileges of national banks under the May 24 Home Owners’ Loan Act (HOLA) final rule. As previously covered by InfoBytes, the OCC issued a final rule—pursuant to section 206 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, amending the Home Owners’ Loan Act (HOLA)—which establishes standards permitting federal savings associations with total consolidated assets of $20 billion or less as of December 31, 2017, to elect to operate as “covered savings associations,” with the rights and privileges of national banks. The final rule provides that associations who choose this election will retain their federal savings association charters and existing governance frameworks, and will generally be subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that apply to national banks.
Bulletin 2019-31 reminds entities of the July 1 effective date of the final rule and provides details on the process for making an election pursuant to the rule. Additionally, along with the Bulletin, the OCC released a set of Frequently Asked Questions covering the final rule.
VA updates fee guidance for IRRRLs
On June 28, the Department of Veterans Affairs (VA) issued Circular 26-19-17, which provides new funding fee guidance to lenders and servicers concerning Interest Rate Reduction Refinancing Loans (IRRRLs). The new guidance, effective immediately, requires, among other things, that: (i) a Certificate of Eligibility (COE) be obtained for IRRRLs to ensure the funding fee exemption information is up to date at the time of closing; (ii) lenders ask active duty servicemembers if they have a pre-discharge claim pending, and, if so, contact the Regional Loan Center to request assistance in obtaining a proposed or memorandum rating in the event the servicemember is eligible for a funding fee exemption; and (iii) if a lender or servicer is notified by the VA or the veteran of an overpayment of a funding fee, such lender initiate a refund request in the Funding Fee Payment System (FFPS) within three business days.
CFPB updates Payday Rule Small Entity Compliance Guide
On June 28, the CFPB updated its Small Entity Compliance Guide for the Payday Lending Rule, which covers the payment-related requirements of the Rule. In addition to technical corrections, the update reflects the delayed compliance date for the mandatory underwriting provisions of the Rule. As previously covered by InfoBytes, on June 6, the Bureau released a final rule to delay the August 19, 2019 compliance date for the mandatory underwriting provisions of the Rule. Compliance with these provisions is now required by November 19, 2020.
CFPB and Fed issue final amendments to Regulation CC
On June 24, the CFPB and the Federal Reserve Board (Fed) announced a final rule amending Regulation CC to adjust dollar amounts cited in the rule for inflation. The Dodd-Frank Act requires that the dollar amounts be adjusted for inflation every five years by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The agencies selected July as the CPI-W month and will use July 2011 to July 2018 as the initial inflation measurement period. If there is no aggregate percentage increase in the CPI-W or it is negative, the dollar amounts will not be adjusted. The final rule also implements certain measures of the Economic Growth, Regulatory Relief, and Consumer Protection Act , including extending coverage of the Expedited Funds Availability Act to American Samoa, the Commonwealth of the Northern Mariana Islands, and Guam.
The compliance date for the adjustment amounts is July 1, 2020. Other amendments are effective 60 days after publication in the Federal Register.
FTC finalizes rule providing free credit monitoring for servicemembers
On June 24, the FTC finalized the “Free Electronic Credit Monitoring for Active Duty Military Rule,” which implements the Economic Growth, Regulatory Relief, and Consumer Protection Act requirement for nationwide consumer reporting agencies (CRAs) to provide free electronic credit monitoring services for active duty military consumers. The proposed rule, issued in November 2018 (covered by InfoBytes here), defined the term “electronic credit monitoring service” as a service through which the CRAs provide, at a minimum, electronic notification of material additions or modifications to a consumer’s file and requires CRAs to notify active duty military consumers within 24 hours of any material change. The proposal noted that CRAs may require that active duty military provide contact information, proof of identity, and proof of active duty status in order to use the free service and outlines how a servicemember may prove active duty status, such as with a copy of active duty orders. Additionally, the proposal prohibited CRAs from requiring active duty military consumers to purchase a product in order to obtain the free service.
In response to comments on the proposal, the final rule refers to the definition of “active duty military consumer” in the FCRA, which requires that the servicemember be assigned to service away from their usual duty station, or be a member of the National Guard, regardless of whether the National Guard member is stationed away from their normal duty station. The FTC noted that commenters requested the requirement that the servicemember be stationed away from their normal duty station be eliminated but “the statutory language limit[ed] the Commission’s discretion on [the] topic.” However, the FCRA does not apply the same duty station requirement to the National Guard. Additionally, the final rule, among other things (i) requires CRAs to provide free access to a credit file when it notifies an active duty military consumer about a material change to the file; (ii) extends the amount of time the CRAs have to notify an active duty military consumer of a material change from 24 hours to 48 hours; and (iii) prohibits CRAs from requiring that active duty military consumers agree to terms or conditions as a requirement to obtain their free credit file, unless the terms or conditions are necessary to comply with certain legal requirements.
While the final rule goes into effect three months after publication in the Federal Register, CRAs will be allowed to comply with certain portions of the final rule by offering existing credit monitoring services to active duty military consumers for free, for a period of up to one year from the effective date.
OFAC amends the Reporting, Procedures and Penalties Regulations
On June 20, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) issued a final interim rule amending its Reporting, Procedures and Penalties Regulations, which set forth the standard reporting and recordkeeping requirements, license application, and other procedures relevant to the economic sanctions programs administered by OFAC. Among other things, the final interim rule: (i) expands the information that must be included in reports on blocked property and rejected transactions; (ii) includes details on the information that must be included when OFAC requires a report that property has been unblocked; (iii) revises procedures for (a) reporting on rejected transactions; (b) licensing of otherwise prohibited transactions; and (c) releasing blocked funds; and (iv) clarifies rules governing the availability of information under the Freedom of Information Act. Importantly, the revisions clarify that all U.S. persons must report transactions that have been rejected for sanctions compliance reasons. Previously, the requirement was thought to apply only to U.S. financial institutions. The final interim rule will take effect upon publication in the Federal Register, which is scheduled for June 21.
OCC issues new guidance for higher-LTV mortgage loans
On June 19, the OCC issued Bulletin 2019-28, which highlights “core lending principles” for banks offering higher loan-to-value (LTV) loans. The Bulletin rescinds 2017 guidance from the OCC—Bulletin 2017-28, “Mortgage Lending: Risk Management Guidance for Higher-Loan-to-Value Lending Programs in Communities Targeted for Revitalization”— noting that “banks have engaged in responsible, innovative lending strategies that are different from [the previous bulletin’s] specific program parameters while being consistent with its goals.” The new guidance instead covers core lending principles that banks should consider when offering higher-LTV loans in an effort revitalize communities. Among other things, the OCC states that higher-LTV loans (i) should be consistent with safe and sound banking and comply with applicable laws and regulations; (ii) performance is effectively monitored, tracked, and managed; (iii) should be underwritten consistent with the Interagency Guidelines for Real Estate Lending and the bank’s standards for review and approval of exception loans. The Bulletin notes examples of sound policies and processes for higher-LTV loans, including underwriting standards and portfolio limits for the aggregate amount of higher-LTV loans. Lastly, the Bulletin emphasizes that marketing and consumer disclosures should describe the potential financial impacts and marketability of a higher-LTV loan where the value of the property is and could remain less than the loan amount.