InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Treasury awards $1.7 billion in CDFI grants
On April 10, Vice President Kamala Harris and Deputy Secretary of the Treasury Wally Adeyemo announced that the U.S. Treasury Department’s Community Development Financial Institutions (CDFIs) Fund has awarded more than $1.73 billion in grants to 603 CDFIs to help low- and moderate-income communities recover from the Covid-19 pandemic. Financial institutions that received grants through the CDFI Equitable Recovery Program include banks, holding companies, and credit unions, as well as CDFI-designated non-depository loan funds and venture funds. Treasury noted that the recipients of the grants are “mission-driven financial institutions [that] specialize in delivering responsible capital, credit, and financial services to underserved communities.” The CDFI grants “may be used to support lending related to small businesses and microenterprises, community facilities, affordable housing, commercial real estate, and intermediary lending to nonprofits and CDFIs,” Treasury explained, adding that funds may also go towards financial and developmental services to support borrowers, as well as operational support for grant recipients.
HUD extends Covid-19 forbearance through May
On April 7, HUD issued Mortgagee Letter 2023-08, which extends through May 31 the final date for borrowers to request Covid-19 forbearance and home equity conversion mortgage (HECM) extensions. The extension is intended to allow ample time for affected borrowers to submit requests and for mortgagees to offer and process the requests in the event that the presidentially-declared national emergency ends earlier than originally expected. As stated in the letter, HUD determined that providing a short period beyond the expiration of the national emergency will be beneficial to both FHA borrowers and mortgagees. The extension will also align Covid-19 forbearance and HECM extension requests with the monthly billing cycle. The letter stated that no Covid-19 forbearance period may extend beyond November 30.
CFPB sues co-trustees for concealing assets to avoid fine
On April 5, the CFPB filed a complaint against two individuals, both individually and in their roles as co-trustees of two trusts, accusing them of concealing assets to avoid paying a fine owed to the Bureau. In 2015 the Bureau filed an administrative action alleging one of the co-trustees—the former president of a Delaware-based online payday lender (the “individual defendant”)—and the lender violated TILA and EFTA and engaged in unfair or deceptive acts or practices when making short-term loans. (Covered by InfoBytes here.) The Bureau’s administrative order required the payment of more than $38 million in both legal and equitable restitution, along with $7.5 million in civil penalties for the company and $5 million in civil penalties for the individual defendant.
As previously covered by InfoBytes, two different administrative law judges (ALJs) decided the present case years apart, with their recommendations separately appealed to the Bureau’s director. The director upheld the decision by the second ALJ and ordered the lender and the individual defendant to pay the restitution. A district court issued a final order upholding the award, which was appealed on the grounds that the enforcement action violated their due process rights by denying the individual defendant additional discovery concerning the statute of limitations. The lender and the individual defendant recently filed a petition for writ of certiorari challenging the U.S. Court of Appeals for the Tenth Circuit’s affirmation of the CFPB administrative ruling, and asked the U.S. Supreme Court to review whether the high court’s ruling in Lucia v. SEC, which “instructed that an agency must hold a ‘new hearing’ before a new and properly appointed official in order to cure an Appointments Clause violation” (covered by InfoBytes here), meant that a CFPB ALJ could “conduct a cold review of the paper record of the first, tainted hearing, without any additional discovery or new testimony,” or whether the Court intended for the agency to actually conduct a new hearing.
The Bureau claimed in its announcement that to date, the defendants have not complied with the agency’s order, nor have they obtained a stay while their appeal was pending. The defendants have also made no payments to satisfy the judgment, the Bureau said. The complaint alleges that the co-trustee defendants transferred funds to hinder, delay, or defraud the Bureau, in violation of the FDCPA, in order to avoid paying the owed restitution and penalties. Specifically, the complaint alleges that between 2013 and 2015, after becoming aware of the Bureau’s investigation, the individual defendant transferred $12.3 million to his wife through their revocable trusts, for which his wife is the beneficiary. The complaint requests a declaration that the transactions were fraudulent, seeks to recover the value of the transferred assets via liens on the property in partial satisfaction of the Bureau’s judgment against the individual defendant, and seeks a monetary judgment against the wife and her trust for the value of the respective property and/or funds received as a transferee of fraudulent conveyances of the property belonging to the individual defendant.
HUD announces Arkansas disaster relief
On April 5, HUD announced disaster assistance for areas in Arkansas impacted by severe storms and tornadoes on March 31. The disaster assistance follows President Biden’s major disaster declaration on April 2. According to the announcement, HUD is providing immediate foreclosure relief, making FHA mortgage insurance available to disaster victims, and providing information on housing providers, as well as HUD-approved housing counseling agencies, among other measures. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties, as well as an automatic 90-day extension for home equity conversion mortgages, effective April 2. It is also making various FHA insurance options available to victims whose homes require repairs or were destroyed. HUD’s Section 203(h) program allows borrowers from participating FHA-approved lenders to obtain 100 percent financing, including closing costs, for homes that require “reconstruction or complete replacement.” HUD’s Section 203(k) loan program enables individuals to finance the repair of their existing homes or to include repair costs in the financing of a home purchase or a refinancing of a home through a single mortgage. HUD is also allowing administrative flexibilities for community planning and development grantees, as well as to public housing agencies and Tribes. Additionally, HUD is advising consumers who believe they have experienced housing discrimination as a result of the disaster to reach out to the agency’s Office of Fair Housing and Equal Opportunity.
FHFA updates GSE equitable housing finance plans
On April 5, FHFA announced updates to Fannie Mae and Freddie Mac’s (GSEs) equitable housing finance plans for 2023. (See plans here and here.) The updates include adjustments to plans first announced last year (covered by InfoBytes here), which faced pushback from several Republican senators who argued that the plans raised “significant legal concerns” and that “no law authorizes FHFA to use a GSE’s assets to pursue affirmative action in housing.” (Covered by InfoBytes here.) The senators also argued that the Biden administration was “conscripting the GSEs as instrumentalities of its progressive racial equity agenda to achieve outcomes it cannot achieve legislatively or even legally.”
According to FHA’s announcement, the updated plans provide the GSEs with a three-year roadmap to address barriers to sustainable housing opportunities. Updates include (i) taking actions to remove barriers faced by Latino renters and homeowners in Fannie Mae’s plan; (ii) an improved focus on ensuring existing borrowers are able to receive fair loss mitigation support and outcomes through monitoring and developing strategies to close gaps; (iii) providing financial capabilities coaching to build credit and savings; (iv) supporting locally-owned modular construction facilities in communities of color; and (v) increasing the reach of GSE special purpose credit programs to support homeownership attainment and housing sustainability in underserved communities.
FDIC issues 2023 Consumer Compliance Supervisory Highlights
On April 5, the FDIC released the March 2023 edition of the Consumer Compliance Supervisory Highlights, which is intended to “enhance transparency regarding the FDIC’s consumer compliance supervisory activities and to provide a high-level overview of consumer compliance issues identified in 2022 through the FDIC’s supervision of state non-member banks and thrifts.” In 2022, the FDIC conducted approximately 1,000 consumer compliance examinations and noted that “[o]verall, supervised institutions demonstrated effective management of their consumer compliance responsibilities.” The agency also initiated 21 formal enforcement actions and 10 informal enforcement actions addressing consumer compliance examination observations and issued civil money penalties totaling $1.3 million against institutions to address violations of the Flood Disaster Protection Act (FDPA), RESPA Section 8, FCRA, and Section 5 of the FTC Act, with an additional $13.6 million in voluntary restitutions to consumers. Additionally, the FDIC referred 12 fair lending matters to the DOJ in 2022. Covered topics include:
- An overview of the most frequently cited violations, with approximately 73 percent of total violations involving TILA, Reg Z, Section 5 of the FTC Act, the FDPA, EFTA, and the Truth in Savings Act, with violations of Section 5 of the FTC (which prohibits unfair or deceptive acts or practices) moving up as a top-five violation.
- An overview of issues found during examinations involving institutions that purchased “trigger leads” but did not provide consumers with a firm offer of credit. Among other things, examiners identified occurrences where representatives failed to comply with FCRA disclosure requirements during sales calls by not communicating, among other things, that an offer of credit was being made.
- Findings where institutions “unilaterally applied excess interest to the servicemember’s principal loan balance without giving the servicemember an option of how to receive the funds”—a violation of the SCRA’s anti-acceleration provision.
- Information on regulatory developments, including recent FDIC actions and efforts to (i) address appraisal bias; (ii) modernize the Community Reinvestment Act; (iii) remind creditors that they may establish special purpose credit programs under ECOA to meet the credit needs of certain classes of persons; (iv) implement a supervisory approach, consistent with the CFPB’s approach, for FDIC-supervised institutions with respect to reporting HMDA data; (v) provide revised information on flood insurance compliance responsibilities; (vi) address occurrences where persons misuse the FDIC’s name or logo, or make false or misleading representations about deposit insurance; (vii) assess crypto-asset-related activities; (viii) adopt revised guidelines for appeals of material supervisory determinations; and (ix) address compliance risks associated with multiple re-presentment of NSF fees.
- A summary of consumer compliance resources available to financial institutions.
- An overview of consumer complaint trends.
National bank fined $98 million by OFAC, Fed for sanctions violations
On March 30, the U.S. Treasury Department’s Office of Foreign Assets (OFAC) announced a $30 million settlement with a national bank to resolve potential civil liabilities stemming from trade insourcing software that the bank and its predecessor bank provided to a foreign European bank between 2008 and 2015. According to OFAC’s web notice, at the direction of a mid-level manager, the predecessor bank customized the software for general use by the European bank, which the predecessor bank “knew or should have known would involve engaging in trade-finance transactions with sanctioned jurisdictions and persons.” The European bank used the software to manage 124 non-OFAC compliant transactions totaling approximately $532 million involving parties in jurisdictions subject at the time of the transactions to sanctions regulations.
OFAC noted that the national bank inherited the trade insourcing relationships when it acquired the predecessor bank, claiming that the national bank “did not identify or stop the European bank’s use of the software platform for trade-finance transactions involving sanctioned jurisdictions and persons for seven years despite potential concerns raised internally” following the acquisition. OFAC also noted, however, that the national bank’s alleged failure to stop the violations “was not a result of a systemic compliance breakdown within the broader [] organization,” which OFAC acknowledged has “a historically strong overall sanctions-compliance program.”
In arriving at the settlement amount, OFAC considered various mitigating factors, including that (i) the majority of the 124 apparent violations related to agriculture, medicine, and telecommunications and therefore may have been eligible for a general or specific license, thus mitigating the harm to sanctions policy objectives; (ii) the legacy business unit at the predecessor bank was relatively small and that there was no indication that senior management either directed or had actual knowledge that the predecessor bank provided the software to the European bank for such purpose; and (iii) upon identifying the alleged violations, the bank promptly terminated the European bank’s access, voluntarily disclosed the matter to OFAC, conducted an extensive internal investigation, produced the results to OFAC, cooperated with OFAC throughout the investigation, agreed to toll the statute of limitations, and took remedial measures.
Concurrently, the Federal Reserve Board issued an order fining the bank holding company in the amount of $67.8 million for allegedly engaging in unsafe or unsound practices related to its oversight of sanctions compliance risks at the national bank. The Fed noted that the national bank “no longer offers the trading platform to foreign banks” and has “strengthened firmwide compliance with OFAC regulations.”
OFAC sanctions darknet marketplace for selling stolen data
On April 5, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order (E.O.) 13694, as amended by E.O. 13757, against one of the world’s largest darknet marketplaces for its involvement in the theft and sale of device credentials and related sensitive information. According to OFAC, the marketplace accesses victims’ devices without authorization and sells the stolen data, including usernames and passwords, on the darknet. The action was taken in coordination with the DOJ and international partners from a dozen countries who are also taking action against market users across multiple jurisdictions and seizing associated website domains. The designation built upon previous actions taken against darknet marketplaces, including sanctions issued last year against the world’s most prominent darknet market. (Covered by InfoBytes here.) OFAC also referenced FinCEN’s 2019 Advisory on Illicit Activity Involving Convertible Virtual Currency, to warn “that darknet markets frequently include offers for the sale of illicit goods and services that use virtual currencies as a method of payment.” (Covered by InfoBytes here.) As a result of the sanctions, all property and interests in property belonging to the sanctioned entity in the U.S. must be blocked and reported to OFAC. OFAC noted that U.S. persons are prohibited from participating in transactions with sanctioned persons, and that “persons that engage in certain transactions with the entity designated today may themselves be exposed to sanctions.”
The DOJ stated in its press release that, along with its partners, it had “dismantled” the marketplace and “arrested many of its users around the world.” The DOJ explained that the marketplace “was also one also one of the most prolific initial access brokers [] in the cybercrime world,” and “attract[ed] criminals looking to easily infiltrate a victim’s computer system.” The marketplace sold access to ransomware actors looking to attack computer networks in the United States and globally, the DOJ said, adding that the marketplace also sold device “fingerprints” used to trick third-party websites into thinking the marketplace user was the actual account owner.
District Court upholds arbitration in website terms of use
On March 28, the U.S. District Court for the Western District of North Carolina ruled that class members must arbitrate their claims against an online lending marketplace relating to a 2022 data breach that affected current, former, and prospective customers. The court found that a mandatory arbitration clause contained in the defendant’s terms of use agreement “is broad enough to encompass the claims” brought by class members, and adopted recommendations made by a magistrate judge in February, who found that the agreement not only requires users to agree to be bound by its terms of use when they make their accounts, but also requires that users consent, acknowledge, and agree to its terms of use any time they submit consumer loan searches on the website. The plaintiff argued that there was not a binding contract between the parties because he did not “fully and clearly” understand that he had agreed to arbitrate disputes with the defendant. He further attested that because he never saw the terms of use, he “lacked actual or inquiry notice.” In particular, the plaintiff complained about the placement and font size of the notice, which he claimed no reasonable consumer would have seen “as there is no reason to scroll down the page after seeing the ‘Create Account’ tab.” The magistrate judge disagreed, stating that the “[p]laintiff had multiple opportunities to read and decline the terms if he chose,” and that “[t]his is not the needle in a haystack search that [p]laintiff depicts.” In agreeing with the recommendations, the court concluded that the plaintiff failed to show that the magistrate judge’s determination “was clearly erroneous or contrary to law” and said the plaintiff is bound by the arbitration clause.
Colorado restricts vehicle value protection agreements
On March 23, the Colorado governor signed SB 23-015, which prohibits placing conditions on the terms of a vehicle sale, lease, or the extension or terms of credit, upon the purchase of a vehicle value protection agreement. In addition, the bill requires, among other things, that such agreements must outline eligibility requirements, coverage conditions or exclusions, provide certain consumer notices, and must benefit the consumer “upon the trade-in, total loss, or unrecovered theft of a covered vehicle.” Providers of such agreements must also obtain a contractual liability insurance policy that guarantees their obligations under the agreement. Finally, the act establishes that value protection agreements themselves are not insurance and are exempt from state insurance regulations.