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SEC awards whistleblower $1.5 million after reducing amount for reporting delay
On September 14, the Securities and Exchange Commission (Commission) announced a whistleblower award likely to yield the whistleblower more than $1.5 million for volunteering information that led to a successful enforcement action. In its order, the Commission notes that it “severely reduced the award here after considering the award criteria identified in Rule 21F-6 of the Exchange Act.” Specifically, the Commission alleges the whistleblower was culpable and “unreasonably delayed” reporting the information for over a year after the occurrence of the underlying facts, only doing so after learning a Commission investigation was ongoing and receiving a “significant and direct financial benefit.”
The SEC’s whistleblower program has awarded approximately $322 million to 58 individuals since issuing its first award in 2012.
SEC confirms staff statements create no enforceable legal obligations
On September 13, Securities and Exchange Commission (Commission) Chairman, Jay Clayton, issued a statement confirming that staff communications, in the form of written statements, compliance guides, letters, speeches, responses to frequently asked questions, and responses to specific requests for assistance, are “nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.” Clayton’s statement echoes a similar position taken in a joint statement by five federal agencies regarding supervisory guidance, released two days earlier (previously covered by InfoBytes here). Clayton emphasized that only Commission adopted rules and regulations have the force and effect of law and encouraged public engagement on staff statements in order to assist the Commission in developing future rules and regulations.
Agencies say supervisory guidance does not have the “force and effect” of law
On September 11, five federal agencies (the Federal Reserve Board, CFPB, FDIC, NCUA, and OCC) issued a joint statement confirming that supervisory guidance “does not have the force and effect of law, and [that] the agencies do not take enforcement actions based on supervisory guidance.” The statement distinguishes the various types of supervisory guidance—interagency statements, advisories, bulletins, policy statements, questions and answers, and frequently asked questions—from laws or regulations and emphasizes that the intention of supervisory guidance is to outline agencies’ expectations or priorities. The statement highlights five policies and practices related to supervisory guidance: (i) limit the use of numerical thresholds or other “bright-line” requirements; (ii) examiners will not cite to “violations” of supervisory guidance; (iii) request for public comment does not mean the guidance has the force and effect of law; (iv) limit multiple issuances of guidance on the same topic; and (v) continue to emphasize the role of supervisory guidance to examiners and to supervised institutions.
FTC settles with debt collection operators for alleged fraudulent collections
On September 7, the FTC announced a series of settlements with the operators of a Georgia-based debt collection business for allegedly violating the FTC Act by making false, or misleading claims and threats during debt collection. As previously covered by InfoBytes, in November 2017, the FTC filed a complaint alleging that the defendants threatened legal action, garnishment, and imprisonment if purported debts were not paid, and in other instances, attempted to collect debts after consumers provided proof that the debt was paid off. Each settlement order (available here, here, and here) imposes a $3.4 million penalty against the defendants, which, after surrendering certain assets, will be partially suspended due to the inability to pay. The settlement orders ban the defendants from the business of debt collection, and prohibit the defendants from (i) misrepresenting information related to financial products and services, and (ii) disclosing, using, or benefitting from the consumer information obtained through the course of the debt collection activities.
Federal Reserve Board issues flood insurance enforcement action against New York bank
On August 28, the Federal Reserve Board (Board) announced an enforcement action against a New York state bank for allegedly violating the National Flood Insurance Act (NFIA). The consent order assesses a $16,000 penalty against the bank, but does not specify the number or nature of the alleged violations. The maximum civil money penalty under that NFIA is $2,000 per violation.
FDIC releases July enforcement actions
On August 31, the FDIC announced a list of administrative enforcement actions taken against banks and individuals in July. The 15 orders include “three Section 19 orders; four removal and prohibition orders; one civil money penalty; three terminations of consent orders; and four adjudicated decisions.” The FDIC assessed a $10,800 civil money penalty against a New Mexico-based bank for alleged violations of the Flood Disaster Protection Act in connection with alleged failures to (i) obtain flood insurance coverage on loans at or before origination or renewal; (ii) maintain flood insurance; (iii) notify borrowers that they were required to obtain flood insurance; and (iv) obtain flood insurance on a borrower’s behalf when the borrower did not obtain insurance within 45 days after receiving such notification. There are no administrative hearings scheduled for September 2018. The FDIC database containing all 15 enforcement decisions and orders may be accessed here.
Global bank settles two FCPA actions for $10.5 million
On August 16, the SEC announced that a global bank had settled two enforcement actions involving alleged violations of the FCPA’s books and records and internal control provisions. The FCPA’s anti-bribery provisions were not implicated in either action.
The first action alleged that three traders employed by a U.S. subsidiary of the bank had mismarked positions in certain proprietary accounts, causing $81 million in losses that were not reflected in the company’s books and records. Some of these losses were from allegedly “widespread unauthorized trading.” The second action alleged that the bank had “failed to devise and maintain adequate internal accounting controls,” causing $475 million in losses, when the company did not identify that a Mexican subsidiary had loaned nearly $3.3 billion to a counterparty on the basis of fraudulent documentation provided by the counterparty. Without admitting or denying the SEC’s findings, the bank “agreed to pay $10.5 million in penalties”: $5.75 million for the first action, and $4.75 million for the second.
Federal Reserve Board fines national bank $8.6 million for legacy mortgage documentation deficiencies
On August 10, the Federal Reserve Board (Board) announced a settlement with a national bank for legacy mortgage servicing issues related to the improper preparation and notarization of lost note affidavits. Under the consent order, the Board assessed an $8.6 million civil money penalty for alleged safety and soundness violations under Section 8 of the Federal Deposit Insurance Act. The Board emphasized that the bank’s servicing subsidiary replaced the documents with properly executed and notarized affidavits and, as of September 2017, the subsidiary no longer participated in the mortgage servicing business. The Board also announced the termination, due to “sustainable improvements,” of a 2011 enforcement action against the national bank and its subsidiary related to residential mortgage loan servicing.
CFPB settles unauthorized payday loan allegations
On August 10, the CFPB announced a settlement with multiple defendants that allegedly made unauthorized payday loans. The settlement results from a 2014 complaint that alleged, among other things, that the defendants accessed consumer checking accounts to illegally deposit the proceeds of payday loans and withdraw related fees without consumer consent. The stipulated final judgment and order, among other things, (i) imposes a penalty of up to approximately $69 million if the defendants fail to fully comply with the operative terms of the settlement; (ii) prohibits the defendants from performing similar activities in the future; and (iii) assesses a civil money penalty of $1, in part based on the defendants’ inability to pay.
On July 23, as previously covered by InfoBytes, a court approved a stipulated final judgment and order against one of the defendants, who neither admitted nor denied the Bureau’s allegations, for a civil money penalty of $1 (based, in part, on his inability to pay) and agreement to fully cooperate with the Bureau.
Georgia Attorney General reaches settlement with mortgage company to resolve allegations concerning unauthorized third-party fees
On August 1, the Georgia Attorney General announced a settlement with a New Jersey-based mortgage company to resolve allegations that it charged unauthorized fees to Georgia consumers in violation of the state’s Fair Business Practices Act. According to the Attorney General’s office, the company allegedly marketed various third-party products and services, such as insurance products and home warranty programs, for certain mortgages it serviced and added the charges for these products and services to consumers’ monthly mortgage bills without their knowledge. Under the settlement terms, the company is required to (i) comply with the Fair Business Practices Act; (ii) refrain from soliciting third-party products and/or services to Georgia consumers; (iii) cease all billing for the alleged third-party products and services; (iv) notify consumers currently being billed for the alleged third-party products and services that the remainder of their contracts may be cancelled without penalty; (v) pay $25,000 in restitution; and (vi) pay $50,000 to the Attorney General’s office to go towards fees, penalties, investigation and litigation costs, and future consumer protection and education costs.