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State AGs Urge the CFPB to Ensure that States Maintain the Right to Set Usury Caps on High Cost Loans
In October, New York AG Eric T. Schneiderman, along with seven other state AGs (Connecticut, Maryland, Massachusetts, New Hampshire, Pennsylvania, Vermont and the District of Columbia), submitted a letter to the CFPB in response to the agency’s proposed rule addressing payday loans, vehicle title loans, and certain high-cost installment loans. While commending the CFPB for introducing additional consumer protections, the letter urges the CFPB to integrate the following language from the preamble of the proposed rule into the body of the final rule: “The protections imposed by this proposal would operate as a floor across the country, while leaving State and local jurisdictions to adopt additional regulatory requirements (whether a usury limit or another form of protection) above that floor as they judge appropriate to protect consumers in their respective jurisdictions.” The letter explains that because the CFPB does not have the authority to set interest rates – or usury caps – for loans, it is “crucial” that states maintain their right to do so.
California AG Harris Launches New Consumer Privacy Tool
On October 14, California AG Harris released an online complaint form designed to help consumers report potential violations of the California Online Privacy Protection Act (CalOPPA). Pursuant to the CalOPPA, commercial websites and online services collecting consumer information are required to post privacy policies that include “the categories of information collected, the types of the third parties with whom the operator may share that information, instructions regarding how the consumer can review and request changes to his or her information, and the [policy’s] effective date.” As part of AG Harris’s “multi-pronged” effort to improve online privacy for consumers, the form will allow consumers to “crowdsource” privacy policy violations, thus “exponentially increasing the California Department of Justice’s ability to identify and notify those in violation of CalOPPA.”
NYDFS Issues New Guidance on Banks' Incentive Compensation Arrangements
On October 11, the New York Department of Financial Services (NYDFS) issued new guidance regarding incentive compensation arrangements, advising “all regulated banking institutions that no incentive compensation may be tied to employee performance indicators, such as the number of accounts opened, or the number of products sold per customer, without effective risk management, oversight and control.” At a minimum, the guidance requires that a bank’s incentive compensation arrangement address the following principles: (i) balance between risks and rewards; (ii) effective controls and risk management; and (iii) effective corporate governance. NYDFS stated that a bank’s lack of compliance with the guidance will be reflected in its regulatory examination rating and may result in additional regulatory action.
The NYDFS’s recently released guidance comes in the wake of a September action taken jointly by the OCC and the CFPB over a bank’s alleged sales practices under which, in an effort to meet sales goals and earn financial rewards under the bank’s incentive compensation program, employees purportedly opened deposit and credit card accounts for consumers without obtaining those consumers’ consent.
California Amends Finance Lenders Law and Residential Mortgage Lending Act
The California legislature amended the California Finance Lenders Law (CFLL) allowing persons to make one commercial loan in a 12-month period without obtaining a license. This change effectively reenacts a de minimis exemption that was repealed in 2014, and is effective January 1, 2017 through January 1, 2022.
Effective September 28, 2016, the implementing regulations to the CFLL and California Residential Mortgage Lending Act (CRMLA) were amended such that subsidiaries and affiliates of exempt institutions are no longer exempt, by nature of this association, from the licensing requirements with respect to consumer and residential mortgage loans. The Department of Business Oversight filed the action to reverse through regulation previous Commissioner opinions that interpreted licensing exemptions under the CFLL and CRMLA to apply broadly to include subsidiaries of exempt financial institutions.
The definition of a lender under the CRMLA was also amended and now includes a person, other than a natural person, and a natural person who is also an independent contractor, who engages in the activities of a loan processor or underwriter for residential mortgage loans, but does not solicit loan applicants, originate mortgage loans, or fund mortgage loans. Further, the Commissioner may require a licensee who is engaged in the processing or underwriting of residential mortgage loans to continuously maintain a minimum tangible net worth in an amount that is greater than $250,000, but that does not exceed the net worth required of an approved lender under the Federal Housing Administration.
Connecticut AG Jepsen and Banking Commissioner Perez Resolve RMBS Investigation
On October 3, Connecticut AG Jepsen, alongside Banking Commissioner Jorge Perez, resolved a four-year investigation into a Connecticut-based investment bank’s residential mortgage-back securities (RMBS) practices. According to the consent order, from January 2005 to December 2008, the investment bank was the lead securities underwriter of about 250 RMBS deals with a value of more than $250 billion. The state alleged, among other things, that the bank’s due diligence process on the 250 RMBS deals was “inadequate and resulted in omissions and misstatements in the representations made to the public and investors about the securities.” The $120 million settlement is Connecticut’s largest single settlement in history.
State Attorneys General Settle with London-based Financial Institution over Alleged LIBOR Manipulation
On August 9, Massachusetts AG Healey announced, in coordination with more than 40 state attorneys general, a $100 million settlement with a London-based financial institution and related international investment bank (collectively, defendants) to resolve allegations that the defendants manipulated the U.S. Dollar London InterBank Offered Rate (LIBOR) and defrauded government and non-profit entities across the nation. According to AG Healey, from 2007-2009, defendants’ managers instructed its LIBOR submitters to lower their LIBOR rate setting. LIBOR submitters allegedly agreed to these instructions. State attorneys general further allege that, at various times beginning in 2005 and continuing at least into 2009, the defendants’ traders asked LIBOR submitters “to change their LIBOR submissions in order to benefit their trading positions.” LIBOR submitters allegedly often agreed to the traders’ requests. The defendants are the first of “several USD-LIBOR-setting panel banks under investigation by the state attorneys general to resolve the claims against it.”
CSBS Announces Dates for Community Banking Research Conference
On August 2, the CSBS announced that it will co-host with the Federal Reserve System the fourth annual “Community Banking in the 21st Century” research and policy conference on September 28 and 29. The two-day event will take place in St. Louis and will feature, among other things, the release of the 2016 Community Banking in the 21st Century national survey and a panel discussion of its findings. Federal Reserve Governor Jerome Powell and Federal Reserve Bank of Chicago President Charles Evans are among the speakers scheduled to deliver keynote speeches.
NYDFS Adopts Final Anti-Terrorism and Anti-Money Laundering Regulation
On June 30, the NYDFS adopted a final rule that requires regulated financial institutions to maintain a transaction monitoring program for potential BSA/AML violations and a filtering program intended to ban transactions prohibited by federal economic and trade sanctions. Further, the Board of Directors or Senior Officer(s) are required to submit annually, by April 15, a Board Resolution or Compliance Officer Finding, confirming the steps taken to ascertain compliance with the regulation and stating that, “to the best of the [Board or Officer’s] knowledge, the Transaction Monitoring and Filtering Program complies with [the regulation].” The law applies to Regulated Institutions, which include banks, trust companies, private bankers, savings banks and savings and loan associations chartered pursuant to the New York Banking Law, and all branches and agencies of foreign banking corporations licensed under the Banking Law to conduct banking operations in New York; and non-banks, which include check cashers and money transmitters licensed under the Banking Law.
Each Regulated Institution’s transaction monitoring system must be designed, reviewed, updated, and tested in accordance with the detailed parameters of the Rule. The required Filtering Program may be manual or automated, and must be “reasonably designed for the purpose of interdicting transactions that are prohibited by OFAC.” Like the Transaction Monitoring Program, the Filtering Program must also be designed, reviewed, updated, and tested in accordance with the detailed parameters of the Rule.
New York Senate Confirms Maria Vullo as Superintendent of NYDFS
On June 15, the New York State Senate confirmed Governor Andrew Cuomo’s nomination of Maria Vullo as Superintendent of the NYDFS. Replacing former Superintendent Benjamin Lawsky, Vullo will be responsible for the regulation of more than 1,500 insurance companies and almost 1,600 banking and other financial institutions. Prior to joining the NYDFS as Acting Superintendent in February 2016, Vullo was a litigation partner in private practice, and formerly served as Executive Deputy Attorney General for Economic Justice Division in the New York AG’s office. Commenting on her role, Vullo noted that she is “committed to strengthening New York’s status as the financial capital of the world, protecting consumers, and ensuring that everyone follows the law.”
CSBS Names Charles Cooper Chairman of Board of Directors; Calls for Regulatory Collaboration
On May 24, the Conference of State Bank Supervisors (CSBS) announced several new officers, including Charles G. Cooper, Commissioner of the Texas Department of Banking, who will serve as the chairman of the CSBS Board of Directors. In his new role, Cooper delivered remarks at the State-Federal Supervisors Forum on May 26, addressing the following current issues facing the banking industry: (i) community banking; (ii) cybersecurity; and (iii) financial services provided by non-depository institutions, commenting on the expansion of the Nationwide Multistate Licensing System & Registry to include check cashers, debt collectors, and money service businesses. Cooper emphasized the significance of community banks, stating, “[t]heir role in providing credit and banking services is just as important as that of the largest financial intuitions.” Observing the decline in the number of community banks, Cooper called on Congress to implement “right-size regulation through legislation,” and stressed that regulators “need to continue to right-size [their] regulatory and supervisory processes.” Regarding cybersecurity, Cooper mentioned the CSBS Executive Leadership on Cyber Security (ELOC) program, which is intended to “bring [the] cyber issue out of the backroom and into the Board room.” Finally, Cooper concluded by calling on state and federal regulators, including the newer CFPB and FinCEN agencies, to “commit to working better together.”