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  • FDIC proposes new standards TDRs

    On July 20, the FDIC issued a notice of proposed rulemaking (NPR) to incorporate updated accounting standards in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions (IDIs). The NPR is in response to the Financial Accounting Standards Board’s elimination of accounting guidance for troubled debt restructurings (TDR) for adopters of the current expected credit loss standard. The NPR noted that the “FDIC calculates deposit insurance assessment rates for large and highly complex IDIs based on supervisory ratings and financial measures, including the underperforming assets ratio and the higher-risk assets ratio, both of which are determined, in part, using restructured loans or [TDRs].” Both of these measures, the underperforming assets ratio and higher-risk assets ratio, are used to determine deposit insurance assessments for large and highly complex [IDIs]. According to the FDIC, the NPR “would amend the assessment regulations to include a new term, ‘modifications to borrowers experiencing financial difficulty’” for the underperforming assets ratio and higher-risk assets ratio. The NPR does not apply to FDIC-insured and/or FDIC- supervised institutions with less than $10 billion in total consolidated assets. Comments are due 30 days after publication the Federal Register.

    Bank Regulatory Federal Register FDIC Troubled Debt Restructuring

  • U.S.-EU release statement on Joint Financial Regulatory Forum

    Financial Crimes

    On July 20, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S. – EU Joint Financial Regulatory Forum to continue their ongoing financial regulatory dialogue. Matters discussed focused on six themes: “(1) market developments and financial stability risks, (2) sustainable finance and climate-related financial risks, (3) regulatory developments in banking and insurance, (4) regulatory and supervisory cooperation in capital markets, (5) operational resilience and digital finance, and (6) anti-money laundering and countering the financing of terrorism (AML/CFT).”

    The statement acknowledged that the Russia/Ukraine conflict, as well as “inflationary pressures”, exposes “a series of downside risks to financial markets both in the EU and in the U.S.” The statement notes that financial markets have so far proven to be “resilient” and stressed that “[i]nternational cooperation in monitoring and mitigating financial stability risks remains essential in the current global environment in light of the negative impacts on global energy and commodities markets.” During the Forum, participants also discussed recent developments related to digital finance and crypto-assets, including so-called stablecoins, as well as potential central bank digital currencies. Additionally, participants discussed various issues related to third-party providers; climate-related financial risks and challenges, including sustainability reporting standards; the transition away from LIBOR; and progress made in strengthening their respective AML/CFT frameworks.

    Financial Crimes Digital Assets Of Interest to Non-US Persons Department of Treasury EU Central Bank Digital Currency Stablecoins Anti-Money Laundering Combating the Financing of Terrorism Fintech Climate-Related Financial Risks LIBOR

  • DOJ announces settlement with ride sharing company over ADA violations

    Federal Issues

    On July 18, the DOJ announced a settlement in the U.S. District Court for the Northern District of California to resolve a lawsuit alleging that a ride sharing service (defendant) violated the Americans with Disabilities Act (ADA). According to the complaint, in April 2016, the defendant started charging passengers wait time fees, which charged wait time fees starting two minutes after the defendant’s vehicle arrives at the pickup location, and the fees are charged until the vehicle starts its trip. The DOJ claimed that the defendant violated the ADA by failing to: (i) “ensure adequate vehicle boarding time for passengers with disabilities”; (ii) “ensure equitable fares for passengers with disabilities”; and (iii) “make reasonable modifications to its policies and practices of imposing wait time fees as applied to passengers who, because of disability, require more time to board the vehicle.” According to the settlement agreement, the defendant – who denies any wrongdoing, liability, or fault – must, among other things: (i) pay $1.7 million to more than 1,000 riders who have already complained to the company about being charged wait time fees as a result of a disability; (ii) pay $500,000 to “other harmed individuals identified by the department”; and (iii) pay a $50,000 civil money penalty to the U.S. Additionally, according to the DOJ, the defendant has committed under the two-year agreement to waive wait time fees for all riders who certify that they (or someone they frequently travel with) need more time to get in a car due to a disability. Among other things, the defendant also will ensure that refunds are easily available for anyone who does not have a waiver and is charged a wait time fee because of disability.

    Federal Issues DOJ Americans with Disabilities Act Enforcement

  • SEC fines company $50 million over misleading account statements

    Securities

    On July 18, the SEC issued a cease and desist order to a life insurance company for allegedly providing materially misleading account statements to roughly 1.4 million variable annuity investors in violation of the antifraud provisions of the Securities Act of 1933. According to the SEC, since at least 2016, the company misled investors into thinking that their quarterly account statements listed all fees paid during the period. An SEC investigation found, however, that the statements listed only administrative, transaction, and plan operating fees that investors infrequently incurred. The SEC noted that these fees were usually negligible, and only a slight fraction of the overall fees paid by an investor. “When considering how to invest their hard-earned money and save for retirement, it is essential that investors not be misled about the fees they are paying,” Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said in the announcement. “This case should serve as an important reminder to investment firms to carefully review their statements to ensure fee information is disclosed properly.” Without admitting or denying the allegations, the company agreed to pay a $50 million civil penalty that will be distributed to affected investors. The company will also cease and desist from committing or causing any future violations and will revise the way it presents fee information in its variable annuity account statements.

    Securities SEC Enforcement Consumer Finance Securities Act Fees

  • FHFA launches Office of Financial Technology

    Fintech

    On July 18, FHFA announced the establishment of the Office of Financial Technology to help address emerging fintech risks and priorities. The new office will support the agency in: (i) developing strategies for FHFA-regulated entities to advance safe, responsible, and equitable fintech innovation; (ii) sharing best practices related to fintech in housing finance; (iii) establishing outreach through regulated entities to promote awareness and understanding of fintech innovation; (iv) facilitating interagency collaboration and partnerships with other regulators; and (v) providing resources on innovation, general trends, and emerging risks in housing finance. The new office will also help develop strategies for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks to advance fintech in a responsible manner.

    The agency also issued a request for information (RFI) on the role of financial technology in housing finance and the risks and opportunities presented by technology throughout the mortgage lifecycle. Among other things, the RFI seeks feedback on ways the agency can “constructively interact with other stakeholders to facilitate responsible innovation, including the identification of any barriers to or challenges in implementing fintech in the housing finance ecosystem, while also focusing on supporting equity in the housing finance landscape for both homeowners and renters.” FHFA stated it also has an interest in understanding ways technology might automate and increase the effectiveness of compliance and regulatory processes (broadly referred to as “regtech”), commenting that “[r]egtech provides an opportunity to enhance transparency, consistency, and standardization of those processes, while reducing compliance costs.” Comments are due by October 16.

    Fintech Agency Rule-Making & Guidance Federal Issues FHFA Fannie Mae Freddie Mac Federal Home Loan Banks Mortgages Consumer Finance

  • DOJ reports on cybersecurity and announces seizure of $500,000 from hackers

    Privacy, Cyber Risk & Data Security

    On July 19, Deputy Attorney General Lisa O. Monaco spoke before the International Conference on Cyber Security (ICCS) 2022 regarding DOJ’s efforts to combat the increase of cyberattacks. Monaco also announced the release of the Comprehensive Cyber Review, which reflects “the need to prioritize prevention, to ensure we are doing all we can to help victims, and above all else – to use all the tools at our disposal, working with partners here and around the globe, across the government and across the private sector.” The report noted that the “failure of certain technology companies” to meet their legal obligations “is a major factor in allowing criminals to escape detection and apprehension.” The report also noted that over the last decade,” companies have “proactively taken independent actions” against cybercriminals without prior coordination with U.S. law enforcement officials. The report argues that “there is no reason that criminal activities in the cyber context should be handled differently than in the real world, where it would almost be unheard of for private companies to observe criminal activity” without informing law enforcement as soon as possible and then working with law enforcement to further identify and disrupt the criminal activity. The report recommends that the Justice Department and U.S. technology companies “develop a voluntary set of principles regarding the proactive and systematic reporting of cybercriminal activities using their platforms.”

    Monaco also announced that the FBI and DOJ “disrupted” a North Korean state-sponsored hacking group that targeted U.S. medical facilities and other public health sector organizations. According to the DOJ’s press release, the Department seized $500,000 in cryptocurrency paid as ransom to North Korean hackers who used a ransomware strain to encrypt the files and servers of a medical center in Kansas. After more than a week of being unable to access encrypted servers, the Kansas hospital paid approximately $100,000 in Bitcoin to regain the use of their computers and equipment. Because the Kansas medical center notified the FBI and cooperated with law enforcement, the FBI was able to identify the never-before-seen North Korean ransomware and trace the cryptocurrency to China-based money launderers.

    Privacy, Cyber Risk & Data Security DOJ Cryptocurrency Enforcement Cyber Risk & Data Security

  • NYDFS to study overdraft fees

    State Issues

    On July 15, New York’s governor signed S9348, directing the superintendent of NYDFS to conduct a study of overdraft fees in the state. (See also NYDFS press release here.) The study will examine, among other things: (i) the total amount of overdraft fees paid in the state; (ii) the geographical distribution of these fees; (iii) whether certain communities have higher rates of overdraft fees than others and the possible reason for such high rates; (iv) “the percentage of overdraft fees reduced through direct or indirect negotiation”; and (v) the enumeration of consumer rights related to overdraft fee negotiations. The results of the study are to be delivered within one year to the governor, the temporary president of the senate, and the speaker of the assembly. The act is effective immediately.

    State Issues State Legislation New York Overdraft NYDFS Consumer Finance State Regulators

  • DFPI issues annual reports on 2021 mortgage, payday loan trends

    State Issues

    Recently, the California Department of Financial Protection and Innovation (DFPI) issued two reports: Annual Report of Activity Under the California Residential Mortgage Lending Act and the Annual Report Of Payday Lending Activity Under The California Deferred Deposit Transaction Law. The DFPI’s first report noted decreases in the number and cumulative amounts of loan originations and payday loans in 2021 compared to 2020. Additionally, it found that the number of loans originated by licensees decreased from 1,130,230 in 2020 to 1,018,286 in 2021. The report also found that the number of brokered loans increased from 17,715 in 2020 to 18,508 in 2021. In addition, the report found that licensees’ complaints regarding non-traditional mortgage loans increased from 13,421 in 2020 to 17,404 in 2021.

    In its second report, the DFPI noted that the Covid-19 pandemic “likely played a role” in the decrease in payday lending in the state. The number of individuals taking out payday loans also fell from 1.128 million in 2020 to 790,143 in 2021. Other highlights of the reports include, among other things, that: (i) the number of payday loan customers referred by lead generators rose from 98,555 in 2020 to 109,486 in 2021; (ii) approximately 20 percent of licensees made payday loans over the Internet during 2021, with online payday loans accounting for about 45.2 percent (2,047,889) of all payday loans; and (iii) approximately 416,000 payday loan customers, or about 53 percent of the total, obtained their loans online.

    State Issues California Payday Lending DFPI

  • District Court grants final approval in a FCRA case remanded by the 9th Circuit

    Courts

    On December 15, the U.S. District Court for the Northern District of California granted final approval of a plaintiff’s motion for preliminary approval in a class action settlement in a FCRA case. In a class action against a credit reporting agency (CRA) for allegedly violating FCRA by erroneously linking class members to criminals and terrorists with similar names in a database maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the district court ruled that all class members had standing to assert their FCRA claims. The jury returned a verdict for the plaintiffs and awarded punitive damages. As previously covered by InfoBytes, in February 2020, the 9th Circuit reduced the punitive damages award and affirmed the district court’s ruling that all class members had standing due to, among other things, the CRA’s alleged “reckless handling of information from OFAC,” which subjected class members to “a real risk of harm.” As previously covered by InfoBytes, in April 2020, the 9th Circuit granted a joint motion to stay the mandate pending the CRA’s filing of a petition for writ of certiorari with the U.S. Supreme Court. The Supreme Court granted the CRA’s petition for certiorari and reversed the 9th Circuit’s finding on standing, holding that the class members whose credit reports were not provided to third-party businesses did not suffer a concrete harm and thus did not have standing to assert their “reasonable procedures” claims under the FCRA. The Court also held that none of the class members had standing to pursue the disclosure claims under the FCRA because they had not “suffered a concrete harm.” The Ninth Circuit remanded to the district court for further proceedings consistent with the Supreme Court’s ruling.

    The parties participated in a mediation and reached a class-wide settlement. The plaintiff moved for preliminary approval, which the district court granted on July 19. The settlement class is composed of two categories of individuals: (1) the 1,853 class members that the defendant CRA identified in its pre-trial stipulation as individuals for whom the defendant had delivered a credit report containing OFAC data to a third-party, and (2) class members from the remaining group of 6,332 individuals not identified in the stipulation who submit a claim demonstrating publication of OFAC data to a third-party during the class period. The Settlement agreement, among other things, requires the defendant to establish a settlement fund of $9 million, which includes attorney fees and costs.

    Courts FCRA Credit Reporting Agency Class Action OFAC Department of Treasury

  • District court partially grants summary judgment in FDCPA suit

    Courts

    On July 12, the U.S. District Court for the Northern District of Alabama partially granted a plaintiff’s motion for summary judgment in an FDCPA case. According to the memorandum opinion, the plaintiff purchased a home security system, which, after a period of time, she transferred to someone else. The account became delinquent and the plaintiff began receiving collection letters from a debt collection agency regarding the debt owed to the security company. The plaintiff filed for bankruptcy protection. More than two years later, the debt collection agency assigned plaintiff’s account to the defendant for collection. The plaintiff contended that the defendant violated the FDCPA because when it contacted her – via a text message and several alleged telephone calls – to collect a debt on behalf of the debt collection agency, she was a party to Chapter 13 bankruptcy proceedings in which the alleged debt was listed. The defendant argued that the text message was not an attempt to collect on the debt because it made no demand or request for payment. The district court disagreed, based on the “plain language” of the text message, which stated, “This communication is from a debt collector, this is an attempt to collect a debt.” The text message also referenced a specific debt, thus making the text a “false representation” because it asserted that money was due. The defendant also argued that it should be entitled to the FDCPA’s bona fide error defense. The district court found that the defendant’s actions were “not intentional,” stating that “[w]hen it sent the text message, [the defendant] was not aware that [the plaintiff] had filed for bankruptcy or was represented by an attorney in connection with the debt.” The district court continued, “Moreover, [the plaintiff] had not notified [the defendant] in writing that she refused to pay the debt or that she wished communications to cease. Thus, [the defendant] did not deliberately contact a debtor who had filed for bankruptcy, was represented by an attorney, was refusing to pay the debt, or wished communications to cease.” Though the district court found that the defendant’s error was bona fide, it held that the defendant’s procedure of “relying exclusively” on the collection agency that had assigned the debt to defendant, without any “internal controls,” was “not reasonably adapted to avoid” the error at issue—and thus the defendant was not entitled to the bona fide error defense.

    Courts Debt Collection Bankruptcy Alabama

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