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Financial Services Law Insights and Observations


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  • OCC releases enforcement actions

    On November 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included is a cease and desist order against an Indiana bank for allegedly engaging in unsafe or unsound practices, related to corporate governance and enterprise risk management, credit underwriting and administration, liquidity risk management, and interest rate risk management. The order requires the bank to, among other things, (i) provide quarterly reports detailing corrective action and efforts to comply with the order; (ii) develop a written strategic plan; (iii) maintain specified capital ratios; (iv) engage an independent third party to review board and management supervision; (v) submit a written concentration risk management program and a written liquidity risk management program; (vi) adopt a credit underwriting and administration program; (vii) submit and adopt a written adequate allowance for credit losses; and (viii) adopt a written credit derivatives program.

    Bank Regulatory Federal Issues OCC Enforcement Cease and Desist

  • CFPB approves pilot program for construction loans

    Federal Issues

    On November 21, the CFPB announced it approved an application from a community banking trade organization to pilot disclosures for construction loans. The application was submitted pursuant to the CFPB’s trial policy programs under Section 1032(e) of Dodd-Frank. According to the community banking trade organization, the application aims to increase the number of affordable loans that combine a construction phase loan with a mortgage, all within a single set of closing costs, i.e., a single-close construction-to-permanent loan. The community banking trade organization hopes to increase the number of these specific loans because first-time homebuyers in rural and small-town communities are more likely to build their first home than purchase existing ones. The community banking trade organization also stated that the current loan disclosure requirements offered by the CFPB were designed for either standard home purchase or refinance mortgage loans. The Bureau states that it wishes to receive applications for this pilot disclosure from lenders rather than single-market participants.

    Federal Issues CFPB Construction Consumer Finance Mortgages

  • CFPB orders large bank to pay $25.9 million

    Federal Issues

    On November 8, the CFPB announced an enforcement action against a large bank for allegedly discriminating against credit card applicants of Armenian descent. According to the consent order, from at least 2015-2021, respondent allegedly engaged in discriminatory practices that involved denying credit applications and providing false reasons for denials to credit applicants based on their national origin. Respondent’s supervisors also allegedly instructed employees not to discuss these practices in writing or on recorded phone lines. Respondent will pay $1.4 million to affected consumers and a $24.5 million civil money penalty. The CFPB found that respondent violated the Equal Credit Opportunity Act and its implementing Regulation B by unlawfully denying credit based on national origin stereotypes, as well as the CFPA.

    Federal Issues Discrimination Regulation B CFPA

  • FTC publishes letter to CFPB on its law enforcement and public outreach

    Federal Issues

    On November 16, the FTC released its letter of its annual summary of activities in 2022 to the CFPB. The CFPB used the findings in its annual report to Congress on the Fair Debt Collection Practices Act (FDCPA). In the letter, the FTC outlined several of its important procedural law enforcement activities, such as debt collection issues affecting small businesses, redressing consumers harmed by debt collection schemes, halting collection in consumer debt, and combating unauthorized charges to consumers. The second part of the letter outlines how the FTC enables public outreach and cross-agency coordination. For public outreach, the FTC proactively educates consumers about their rights under the FDCPA, and how debt collectors can comply with the law. The FTC also noted that it publishes material in both English and Spanish to broaden its outreach. In addition, the FTC added that it distributes print publications to libraries and businesses and logs more than 50 million views on its website pages. In its efforts to raise awareness about scams targeting the Latino community, the FTC highlighted its series of fotonovelas (graphic novels) in Spanish.

    Federal Issues FTC CFPB Congress FDCPA Small Business Debt Collection

  • DOJ and DOE share success after first year of student loan bankruptcy discharge process

    Agency Rule-Making & Guidance

    On November 16, the DOJ and DOE announced a successful first year of their new student loan bankruptcy discharge process during 2022. The discharge process extinguishes a borrower’s obligation to pay back either some or all of a student loan in bankruptcy based on undue hardship. The DOJ cites two previous standards used by bankruptcy courts to determine if a borrower’s repayment would cause an undue hardship: the Brunner and Totality Tests. The DOJ’s guidance simplified the current standards to enhance “consistency and equity in the handling of these cases” and applies in both Burner and Totality Test jurisdictions. The guide permits a court to grant a discharge if three conditions are satisfied: (i) “the debtor presently lacks an ability to pay the loan”; (ii) “the debtor’s inability to pay the loan is likely to persist in the future”; and (iii) “the debtor has acted in good faith in attempting to repay the loan.”

    The DOJ reported the success of their new guidance with several findings: (i) there were 632 cases filed in the first 10 months of the new process, a significant increase from recent years; (ii) this process was used by 97 percent of all borrowers; (iii) 99 percent of borrowers received either full or partial discharges; and (iv) two bankruptcy courts adopted this process. The DOJ is optimistic that some or all these trends will continue.

    Agency Rule-Making & Guidance Federal Issues DOJ Department of Education Student Lending Bankruptcy Supervision Consumer Finance

  • CFPB’s Language Access Plan breakdown for consumers with limited English proficiency

    Federal Issues

    On November 15, the CFPB issued a report, titled “The CFPB Language Access Plan for consumers with limited English proficiency,” on expanding consumer needs in the financial marketplace for individuals with limited English proficiency. The CFPB released this report consistent with the mandates under E.O. 13166 to “educate and empower all consumers, provide information and assistance to traditionally underserved consumer and communities, enforce fair lending laws, and promote an equitable workforce for all consumers.”

    The CFPB cites that 22 percent of the U.S. population over the age of five speak a language other than English at home. The CFPB commits itself to ensuring that tools, programs, and services are available to those who need language assistance by (i) understanding the needs of the population; (ii) conducting outreach and engagement; (iii) providing products and services in eight different languages other than English; and (iv) promoting fair and equitable access to the financial marketplace.

    The CFPB’s report also lists several public enforcement actions involving communicating with consumer with limited English proficiency. The report mainly outlines how well the agency does in addressing the diverse language needs of the U.S. population, including translated disclosures, websites, and outreach and engagement sessions.

    Federal Issues Agency Rule-Making & Guidance CFPB Consumer Protection Executive Order

  • Regulators address concerns at Senate Banking Committee hearing, receive written concerns regarding Basel III

    Federal Issues

    On November 14, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing where regulators, Fed Vice Chair for Supervision Michael Barr, FDIC Chair Martin Gruenberg, NCUA Chair Todd Harper, and acting Comptroller of Currency Michael Hsu, testified regarding the Basel III Endgame proposal. Gruenberg’s prepared remarks noted that Basel III reforms are a “continuation of the federal banking agencies’ efforts to revise the regulatory capital framework for our nation’s largest financial institutions, which were found to be undercapitalized and over-leveraged during the Global Financial Crisis of 2008.” The proposal would raise capital requirements for large banks (covered by InfoBytes here).

    Concerning Basel III, Senator Tester (D-MO) mentioned he has “some concerns about the proposed changes and how its impact will be on workers’ and households’ and small businesses’ access to credit and overall vibrancy of our capital markets.” “These rules don’t affect any banks in Montana, but they do affect the big guys that affect Montana,” he noted.

    Among other testimonies, Senator Warner (D-VA) expressed concerns regarding the timeline of the comment period and potential changes to the proposal. Specifically, Sen. Warner mentioned that comments may not be received until after the rule is close to finalization. Fed Vice Chair Barr noted that the regulators have yet to evaluate comments on the proposal, as most are expected to come through mid-January, and that depending on the substance of some comments, they are open to making appropriate changes to the proposal. Acting Comptroller of the Currency Hsu’s written testimony echoed Barr’s remarks, stating “[w]e will consider all comments, including alternative approaches.”

    Moreover, on November 12, a group of Republican lawmakers of the committee also sent a letter to the OCC, FDIC, and the Fed. In the letter, the senators argued that the proposal would restrict billions of dollars in capital, resulting in costlier and more limited access to credit for millions of consumers, impacting affordable housing, mortgage lending, small business lending, and consumer access to credit cards and home equity lines. The proposal was also criticized for its potential to disadvantage U.S. companies globally and harm middle-market private entities and small businesses. Moreover, the letter suggested that the proposal could negatively impact pension funds, increase fees for risk hedging, and decrease returns for retirees.

    Also on November 12, several banking industry groups sent a letter to the Fed, FDIC, and the OCC requesting them to issue a revised proposal. The letter alleges violations of the Administrative Procedures Act because the data used to inform the interagency proposal is not publicly available. The groups also argued that the proposed rule repeatedly utilizes non-public analyses based on the agencies’ “supervisory experience” to support different aspects of the rule. Regarding sensitive data, the groups say, “Nothing prevents the agencies from releasing such data and analyses in a manner that is anonymized or aggregated to the extent necessary to protect bank or other party confidentiality.” The senators also believe the proposal would impose “significant harm” throughout the economy “particularly in the face of current economic headwinds and tightening credit conditions.”

    Federal Issues OCC FDIC Federal Reserve Bank Supervision Capital Requirements Consumer Finance CRA Administrative Procedures Act

  • CFPB imposes $15 million penalty on lender for violating 2019 order

    Federal Issues

    On November 15, the CFPB announced a consent order against a Chicago-based small-dollar lender for allegedly violating a 2019 order and by independently violating the CFPA. According to the 2019 consent order, the respondent allegedly withdrew funds from consumers’ bank accounts without permission and failed to honor loan extensions. Specifically, the respondent replaced consumers’ bank account information used to pay for existing loans with separate account information supplied by a “lead generator.” Respondent allegedly debited consumers’ payments through the accounts provided by the lead generator, instead of the consumers’ originally saved payment method. The 2019 order, among other things, (i) barred the respondent from making or initiating electronic fund transfers without valid authorization; (ii) barred the respondent from failing to honor loan extensions; (iii) required the respondent to pay a $3.8 million civil money penalty. In its most recent order, the CFPB alleged that through an investigation of the respondent’s compliance with the 2019 order, the respondent continued the same unauthorized withdrawals and canceled loan extensions. The Bureau also alleged that the respondent failed to disclose that making a partial payment could cancel a loan extension and misrepresent associated fees, and they failed to provide consumers copies of signed authorizations. The respondent also allegedly provided inaccurate due dates, misrepresented skipping payments, and misrepresented loan amounts. The respondent released a statement on the enforcement action, highlighting its cooperation with the CFPB, and internal technical issues.

    In the most recent order, the respondent, without admitting nor denying the CFPB’s allegations, agreed to pay a $15 million civil money penalty and refund affected consumers. The respondent also agreed to stop providing certain types of consumer loans for seven years (beginning in 2022) and to reform its executive compensation agreements and policies to ensure that compensation accounts for executives’ compliance with consumer financial protection laws, including the Consent Order. The respondent must conduct an annual compensation review and provide a report of the review to the CFPB.

    Federal Issues CFPB Consumer Finance Enforcement Civil Money Penalties Payday Lending

  • SEC and DOJ charge two co-CEOs operating a $100 million fraud scheme

    Federal Issues

    On November 9, the SEC and DOJ charged two co-CEOs of a tech investment firm for allegedly directing a $100 million fraud scheme. The two individuals were the founders of a failed Fresno-based technology company and were charged with “conspiring to commit wire fraud and taking more than $100,000,000 from various businesses and individuals” under U.S.C. § 1349. The two founders allegedly misled investors through falsified documents, bank records, auditing reports, and accounting statements.

    The DOJ alleges that, as recently as January 2022, “[the two individuals lied] to board members, investors, lenders, and others about [the company’s] finances to obtain investments, loans, and other funding… Much of the money went towards paying payroll, including the [co-CEOs’] $600,000 per year salaries.” Authorities discovered the alleged fraud scheme back in May 2023 when the company failed to make payroll and then terminated all its 900 employees. If convicted, the two founders face a maximum statutory penalty of 20 years in prison each and a $250,000 fine.

    Federal Issues California Fintech Fraud SEC DOJ Enforcement

  • DOE moves to empower student loan oversight for better borrower support

    Federal Issues

    On November 9, the DOE announced it is outlining a framework for how it will increase borrower support and ensure student loan servicers are accountable for errors. Richard Cordray, Federal Student Aid (FSA) Chief Operating Officer, noted, “The landscape of loan servicing has substantially changed since the Department began collaboration with multiple servicers in 2009. FSA is dedicated to evolving servicing contracts to meet borrower requirements. As we approach the Direct Loan program’s unprecedented return to repayment, our upcoming transition to new contracts in 2024 will bring updated servicer obligations and increased avenues to ensure borrowers receive adequate support.”

    The DOE has implemented various strategies to bolster oversight and monitoring of servicers:

    • Direct Servicer Monitoring: FSA staff actively evaluate the quality of customer service provided by loan servicers, which involves scoring interactions between servicers’ representatives and borrowers, reviewing calls and chats, and conducting secret shopper calls to assess the accuracy of servicers’ responses to borrower inquiries.
    • Partnership with Federal and State Regulators: The DOE collaborates with agencies like the CFPB and state attorneys general responsible for enforcing consumer financial laws. Updates in the interpretation of federal preemption provide clear guidance for the ability of states to enforce state consumer protection laws and allow for coordination between the DOE and state partners.
    • Utilizing Borrower Complaints: The DOE leverages complaints filed through the FSA’s Office of the Ombudsman, which collaborates with the oversight team to discern if complaints signal wider servicer issues. The DOE also monitors social media and news stories to identify broader patterns of complaints, which allow the DOE to discern isolated instances from systemic errors affecting multiple borrowers. These listening tools serve as mechanisms for borrowers to report issues impacting their repayment directly.

    The DOE and the Biden administration wield several measures to ensure servicers meet their obligations and maintain standards. The announcement highlighted that the DOE could withhold payments from servicers failing to serve borrowers adequately, as exemplified by the recent $7.2 million withheld from a Missouri servicer for delayed billing statements to 2.5 million borrowers. The DOE also has the authority to suspend or re-allocate borrowers to other servicers, which impacts the financial compensation of underperforming servicers. In addition, Contractor Performance Reports assess servicer performance and influence future contract awards, while Corrective Action Plans demand remedies for servicing errors to ensure borrower satisfaction and prevent reoccurrence. The DOE also safeguards borrowers from servicer errors by instructing servicers to grant affected borrowers a temporary administrative forbearance during error resolution. Additionally, the DOE directs servicers to count these periods as qualifying for loan forgiveness and adjusts accrued interest to zero when errors might impede borrowers’ progress toward forgiveness.

    Finally, the DOE mentioned it is gearing up to transition to the USDS, a new loan servicing system, by spring 2024. This shift aims to enhance accountability, transparency, and performance evaluation for over 37 million federally managed student loan borrowers with a focus on rewarding good performance and ensuring servicers meet higher standards. By incentivizing servicers to maintain borrowers’ repayment status and improving tracking mechanisms, the DOE will prioritize borrower success and aim for a smoother repayment experience.

    Federal Issues Student Lending Department of Education Student Loan Servicer


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