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FHA extends some pandemic-related waivers
On December 20, FHA published FHA INFO 2022-107, which extends temporary regulatory and Single Family Housing Policy Handbook 4000.1 waivers, and permits mortgagees to use alternative methods for conducting face-to-face interviews with borrowers in accordance with FHA’s early default intervention requirements. FHA initially published temporary partial waivers of these requirements on March 13, 2020, and previously extended them through December 31, 2022, in response to the Covid-19 pandemic. FHA is further extending the waivers due to the Covid-19 pandemic, the spread of the Respiratory Syncytial Virus and seasonal flu, and current staffing and resource constraints affecting mortgage servicers. The waivers are now effective through December 31, 2023.
CFPB fines bank over auto loan, mortgage, and deposit account allegations
On December 20, the CFPB announced a consent order against a national bank for allegedly mismanaging auto loans, mortgages, and deposit accounts. According to the Bureau, the bank allegedly engaged in deceptive or unfair acts or practices in violation of the CFPA by, among other things: (i) incorrectly processing auto-loan payments; (ii) assessing borrowers erroneous fees and interest due to technology, audit, and compliance failures; (iii) incorrectly denying mortgage loan modification applications; (iv) failing to ensure that unearned Guaranteed Asset Protection fees were refunded to borrowers who paid off their loans; (v) incorrectly denying mortgage loan modification applications and miscalculated fees; and (vi) charging “surprise” overdraft fees on debit card transactions and ATM withdrawals because, according to the Bureau, consumers “believed that if they had enough money to cover the relevant transaction when it was authorized they would not incur an [o]verdraft fee.”
Under the terms of the consent order, the bank is required to pay redress totaling more than $2 billion to allegedly harmed customers. Specifically, the bank is ordered to pay approximately: (i) $1.3 billion in consumer redress for affected auto lending accounts; (ii) $500 million in consumer redress for affected deposit accounts, including $205 million for illegal surprise overdraft fees; and (iii) nearly $200 million in consumer redress for affected mortgage servicing accounts. Among other things, the bank is prohibited from charging overdraft fees for deposit accounts when the consumer had available funds at the time of a purchase or other debit transaction, but then subsequently had a negative balance once the transaction settled. The bank is also ordered to pay a $1.7 billion civil penalty to the Bureau. CFPB Director Rohit Chopra released a statement following the announcement saying the order does not provide immunity for any individuals nor does it release claims for any ongoing illegal acts or practices.
The bank issued a press release stating that “[c]urrent leadership has made significant progress to transform the bank,” and noting that “the CFPB recognized that since 2020, the company has accelerated corrective actions and remediation, including to address the matters covered by today’s settlement.”
District Court preliminarily approves lending discrimination settlement
On December 15, the U.S. District Court for the Northern District of California preliminarily approved a $480,000 class action settlement concerning whether an online lender allegedly denied consumers’ applications based on their immigration status. Plaintiffs filed a putative class action against the defendants, alleging the lender denied their loan applications based on one of the plaintiff’s Deferred Action for Childhood Arrivals (DACA) status and the other plaintiff’s status as a conditional permanent resident (CPR). Plaintiffs claimed that these practices constituted unlawful discrimination and “alienage discrimination” in violation of federal law and California state law. Plaintiffs also alleged that the defendants violated the FCRA by accessing their credit reports without a permissible purpose. (Covered by InfoBytes here.) Under the terms of the preliminarily approved settlement, the defendants would be required to pay $155,000 into a settlement fund, as well as up to $300,000 in attorneys’ fees and $25,000 in administrative costs. The defendants have also agreed to change their lending policies to ensure DACA and CPR applicants are evaluated for loan eligibility based on the same terms as U.S. citizens.
The district court noted, however, that the proposed settlement includes a “clear sailing arrangement,” which provides that the defendants will not oppose plaintiffs’ motion for attorneys’ fees and costs provided the requested amount does not exceed $300,000. Referring to an opinion issued by the U.S. Court of Appeals for the Ninth Circuit in which the appellate court warned that clear sailing arrangements are “important warning signs of collusion” because they show an increased “likelihood that class counsel will have bargained away something of value to the class,” the district court explained that it intends to “carefully scrutinize the circumstances and determine what attorneys’ fee awards is appropriate in this case.”
District Court says debtor bears the burden of asserting a garnishment exemption
On December 15, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant’s motion for judgment on the pleadings in a debt collection garnishment suit. One of the plaintiffs was referred to collections after he defaulted on his credit card debt, and a judgment was entered against him by the original creditor. The defendant filed for a writ of execution, seeking to garnish funds that were in a joint bank account maintained by both plaintiffs. The writ outlined major exemptions under Pennsylvania and federal law, noting that the plaintiff may also be able to rely on other exemptions, and instructed him to complete a claim for exemption. Plaintiffs sued for violations of the FDCPA, claiming, among other things, that the defendant should have known that the account was a joint account, and therefore exempt, before seeking the writ of execution. According to the plaintiffs, the defendant should have known or reasonably known “that the funds in the joint account were immune from execution because it ‘performed its own private asset search to discover’ the account.” The court disagreed, holding, that under Pennsylvania’s garnishment procedures, the debtor bears the burden of asserting an exemption. This assertion, the court said, must be more than a “self-serving statement that an exemption applies.”
The court cited a ruling issued by the U.S. District Court for the Southern District of California, in which the court determined that “[t]he bottom line here is that, right or wrong, a judgment creditor has no duty under either California or federal law to investigate, much less confirm, that a judgment debtor’s bank accounts contain only non-exempt funds prior to authorizing a levy on those accounts. It is unreasonable to conclude that a judgment creditor’s failure to conduct a pre-levy debtor’s exam, when there is no legal obligation or requirement to do so, constitutes unfair or unconscionable action.”
NYDFS releases proposed guidance for mitigating climate-related risks
On December 21, NYDFS proposed guidance for regulated banking and mortgage institutions to support efforts for responding to evolving risks stemming from climate change. The proposed guidance—which was developed to align with the climate-related work of federal and international banking regulators—will aid institutions in identifying, measuring, monitoring, and controlling material climate-related financial risks, consistent with existing risk management principles. Institutions should “minimize and affirmatively mitigate adverse impacts on low- and moderate-income communities while managing climate-related financial risks,” NYDFS said, explaining that the proposed guidance focuses on areas of risk management related to corporate governance, internal control frameworks, risk management processes, data aggregation and reporting, and scenario analysis that also accounts for unknown future risks. Among other things, the proposed guidance warned institutions of the importance of ensuring fair lending is provided to all communities, including low- to moderate-income neighborhoods that may face heightened risks, when managing climate-related financial risks. The proposed guidance also outlined tools institutions should use to measure and protect against climate change risks. NYDFS warned institutions that they may have to directly absorb a greater portion of losses and should plan for insurance coverage premiums to either increase or be withdrawn entirely in areas where climate risks are prevalent.
NYDFS commented that the proposed guidance serves as a basis for supervisory dialogue and instructed interested parties to provide input as it undertakes a data-driven approach to formulating the final guidance. Comments are due by March 21, 2023. A webinar will be held on January 11, 2023 to provide an overview of the proposed guidance.
“Regulators must anticipate and respond to new risks to operational resiliency and safety and soundness, jeopardizing an institution’s future,” Superintendent Adrienne A. Harris said. “NYDFS is committed to working with all stakeholders to further refine expectations and finalize guidance appropriate for institutions to address material climate-related financial risks.”
DFPI orders online platform to cease offering crypto-related products
On December 21, the California Department of Financial Protection and Innovation (DFPI) announced it has ordered an online platform offering several crypto-related services and products to desist and refrain from violating the California Securities Law and the California Consumer Financial Protection Law. According to DFPI, the company, which is registered with the California Secretary of State, offers services including (i) a peer-to-peer loan brokering service in which it claims that loans are secured by borrowers’ crypto assets; (ii) an interest-bearing crypto asset account that promises a fixed annual percentage rate yield; and (iii) an interest-bearing fiat account that promises a fixed annual percentage interest rate return. DFPI maintained that the company engaged in unlicensed loan brokering by offering and providing brokering services for personal loans made from one consumer to another (known as peer-to-peer lending), and conducted the unregistered sale of securities, in which consumers’ assets were pooled together with the stated purpose of generating passive returns. DFPI claimed that the company was and is not registered to offer investment contracts or to operate in this capacity with any relevant authority. Finding that these peer-to-peer lending services and interest-bearing accounts violate state law, including a prohibition against engaging in unlawful acts or practices, DFPI ordered the company to stop offering the services and products in California.
Treasury implements humanitarian sanctions exceptions
On December 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it co-led, with Ireland, the development of UNSCR 2664, which implements a carveout from the asset freeze provisions of UN sanctions programs. OFAC noted that to implement the policy across U.S. sanctions programs, it issued or amended general licenses (GLs) to ease the delivery of humanitarian aid and ensure a baseline of authorizations for the provision of humanitarian support across many sanctions programs. The GLs being issued or amended provide authorizations in: (i) the official business of the U.S. government (see here); (ii) the official business of certain international organizations and entities (see here); (iii) certain humanitarian transactions in support of activities of nongovernmental organizations (NGOs), such as disaster relief, health services, and activities to support democracy, education, environmental protection, and peacebuilding (see here); and (iv) the provision of agricultural commodities, medicine, and medical devices, as well as replacement parts and components and software updates for medical devices, for personal, non-commercial use (see here). OFAC also noted that it is separately updating a regulatory interpretation in several sanctions programs’ regulations to explain that the property and interests in property of an entity are blocked if one or more blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest in the entity. These changes are effective immediately. OFAC is also publishing four new Frequently Asked Questions (FAQs 1105, 1106, 1107 and 1108), which provide further guidance on the action and the authorizations being issued or amended, including guidance for financial institutions facilitating activity for NGOs and OFAC’s due diligence expectations. According to OFAC, these historic steps “further enable the flow of legitimate humanitarian assistance supporting the basic human needs of vulnerable populations while continuing to deny resources to malicious actors.”
OFAC sanctions Iranian officials
On December 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13553 against the prosecutor general and key military and paramilitary officials in Iran, as well as a company manufacturing and providing Iran’s Law Enforcement Forces with anti-riot equipment. According to OFAC, the designations target the senior official overseeing the prosecution of protestors, as well as leaders of military and paramilitary organizations accused of violently cracking down and detaining protestors, and a company that procures and provides security forces with tools of suppression. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons subject to U.S. jurisdiction are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the individuals designated today may themselves be exposed to designation. Additionally, OFAC warned that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the persons designated today could be subject to U.S. sanctions.”
CFTC orders respondent to pay $6.5 million for CEA violations
On December 20, the CFTC announced a settlement with a registered futures commission merchant (respondent) for allegedly violating the Commodity Exchange Act, Commission regulations, and Bank Secrecy Act compliance requirements. According to the CFTC, the respondent allegedly “failed to implement an adequate anti-money laundering [] program, particularly as applied to a futures and options trading account controlled by [a customer],” and “failed to implement risk-based limits concerning trading by [a customer].” The CFTC also alleged supervisory and recordkeeping failures stemming from the inadequate anti-money laundering program. The respondent is ordered to pay a $6.5 million civil money penalty and undertake certain remedial measures relating to the violations.
OFAC publishes illicit drug trade sanctions regulations
On December 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced it is adding regulations to implement Executive Order (E.O.) 14059 of December 15, 2021, Imposing Sanctions on Foreign Persons Involved in the Global Illicit Drug Trade. As previously covered by InfoBytes, the E.O. was issued due to the threat of drug trafficking into the U.S of illicit drugs, which “is causing the deaths of tens of thousands of Americans annually, as well as countless more non-fatal overdoses with their own tragic human toll.” Among other provisions, the E.O authorizes the Treasury Department to impose certain sanctions on any foreign person determined to have engaged in activities contributing to the international proliferation of drugs or to have knowingly received property derived from drug proliferation. According to the notice, the regulations are being published in abbreviated form to provide immediate guidance, and OFAC intends to add a more comprehensive set of regulations, which may include additional interpretive guidance and definitions, general licenses, and other regulatory provisions.