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OFAC Penalizes Credit Card Issuer for Violations of Cuban Assets Control Regulations
On November 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it had reached a $204,277 settlement with a U.S. financial institution for alleged violations of the Cuban Assets Control Regulations (CACR). The settlement involves actions taken by an international credit card company which, at the time of the apparent violations, was a wholly owned subsidiary of an entity that was itself 50 percent owned by the U.S. financial institution. According to the announcement, between 2009 and 2014, credit cards that the company issued to over 100 corporate customers were used to make purchases in Cuba or otherwise involved Cuba. OFAC asserts that the company failed to implement controls to prevent this even though it had policies and procedures in place to review transactions for compliance with CACR.
In determining the settlement amount, OFAC considered that (i) employees within the company had reason to know of the conduct that led to the alleged violations; (ii) none of the entities involved appeared to appreciate the risk that the credit cards might be used in Cuba; (iii) at the time they occurred, the actions resulted in harm to the US sanctions program objectives; (iv) the U.S. financial institution is a large and sophisticated financial entity; and (v) during the investigation, the entities provided “verifiably inaccurate or incomplete, including material omissions.” OFAC also considered the fact that the entities voluntarily self-disclosed the alleged violations and the U.S. financial institution took “swift and appropriate remedial action” upon discovery.
OFAC recently announced updates to CACR, covered by InfoBytes here.
CFPB Fines Loan-Servicing Software Company $1.1 Million for Flaws Leading to the Reporting of Inaccurate Consumer Information
On November 17, the CFPB ordered a loan-servicing software company to pay a $1.1 million penalty for errors that resulted in the company furnishing incorrect consumer information related to over one million borrowers to the credit reporting agencies. The consent order alleges that the company violated the Consumer Financial Protection Act when its third-party software application generated and furnished inaccurate and incomplete information to consumer reporting agencies because of known software defects. The company allegedly did not share the existence of the defects with its auto-lender clients. In addition to the civil money penalty, the company was ordered to: (i) explain its errors to its clients; (ii) fix the faulty software; and (iii) provide the Bureau with a compliance plan outlining how it plans to identify and fix the defects, as well as ensure that the software is capable of reporting accurate information.
SEC Releases FY 2017 Annual Report on Enforcement Priorities and Results
On November 15, the SEC Division of Enforcement released a report highlighting the division’s priorities for the coming year and summarizing the enforcement actions from FY 2017. Division Co-Directors Stephanie Avakian and Steven Peikin identify and discuss the five core principles that guide their decision making: (i) “Focus on the Main Street Investor”; (ii) “Focus on Individual Accountability”; (iii) “Keep Pace With Technological Change”; (iv) “Impose Sanctions That Most Effectively Further Enforcement Goals”; and (v) “Constantly Assess the Allocation of [the Division’s] Resources.”
The report highlights the two new initiatives announced in 2017 as key priorities: the Cyber Unit and Retail Strategy Task Force (previously covered by InfoBytes). The report also gives an overview of the 754 FY 2017 enforcement actions, including a summary of the various remedies the Division sought.
DOJ Announces $5.4 Million in Additional Relief for Servicemembers Impacted by Bank’s Alleged SCRA Violations
On November 14, the DOJ announced it had secured an additional $5.4 million from a major U.S. bank related to a September 2016 settlement (previously covered by InfoBytes) resolving allegations that between January 2008 and July 2015 the bank repossessed vehicles owned by active duty servicemembers without required court orders in violation of the Servicemembers Civil Relief Act. The original consent order with the DOJ required the bank to pay $10,000, plus lost equity, to each of the 413 affected servicemembers whose cars were found to be unlawfully seized and further stipulated the bank could be required to compensate additional servicemembers. Since entering into the 2016 settlement with the DOJ, the bank announced it had uncovered another 450 qualifying servicemembers, bringing the combined affected total to 863, with compensatory payouts of more than $10 million.
SEC Reaches $3.5 Million Settlement With Broker-Dealer Over Failure to File Suspicious Activity Reports
On November 13, the SEC announced it has reached a settlement in an administrative proceeding against a broker-dealer firm for allegedly willful violations of Section 17(a) of the Securities and Exchange Act, including the firm’s failure to file, or timely file, at least 50 Suspicious Activity Reports (SARs) with the Financial Crime Enforcement Network (FinCEN) from approximately March 2012 through June 2013. As the SEC Order notes, Bank Secrecy Act regulations require a broker-dealer to file a SAR if it knows, suspects or has reason to suspect that a transaction of a certain minimum or aggregated amount involved funds derived from illegal activity or if the transaction was conducted to disguise funds derived from illegal activities. Other factors requiring a broker-dealer to file a SAR include the absence of any business or apparent lawful purpose for the transaction or if the transaction is to facilitate criminal activity.
When deciding whether to accept the firm’s settlement offer, the SEC considered voluntary remedial efforts undertaken by the firm, including the fact that the firm retained a third-party anti-money laundering (AML) compliance company to conduct a review of some of the firm’s SAR investigations. Under the terms of the settlement, the firm voluntarily agreed to, among other things, conduct a review of its AML policies and procedures for the identification, evaluation and reporting of suspicious activity related to firm accounts; and provide additional training to staff responsible for conducting investigations and filing SARs. Additionally, the firm was assessed a civil money penalty of $3.5 million.
FTC Files Complaint Against Debt Collection Business for Alleged Violations of FTC Act, FDCPA
On November 8, the FTC issued a press release announcing charges against a Georgia-based debt collection business for allegedly violating the FTC Act by making false, unsubstantiated, or misleading claims to trick consumers into paying debt they did not actually owe. In the complaint, the FTC alleged defendants threatened legal action, garnishment, and imprisonment if the purported debt was not paid, and in other instances, attempted to collect debts after consumers provided proof the debt was paid off. Additionally, the defendants allegedly violated the Fair Debt Collection Practice Act (FDCPA) by (i) making false, deceptive, or misleading representations, including withholding the true status of the debt, threatening legal action or imprisonment, and failing to disclose they were debt collectors; (ii) engaging in unlawful third-party communications without obtaining prior consumer consent; and (iii) failing to provide consumers written verification of their debt within the required time frame. According to the FTC, defendants have collected more than $3.4 million from consumers since January 2015. A federal judge in the U.S. District Court for the Northern District of Georgia has temporarily restrained and enjoined the defendants’ alleged illegal practices and frozen their assets.
CFPB Takes Action Against Largest Debt Settlement Provider
On November 9, the CFPB announced the filing of a complaint against the largest debt settlement provider in the country and its co-CEO for allegedly deceiving consumers about its debt settlement services. According to the complaint, the defendants engaged in deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by:
- misleading consumers about the settlement provider’s ability to negotiate with creditors that the settlement provider knew maintained policies against working with settlement companies;
- instructing consumers to mislead creditors when asked about their participation in a debt settlement program;
- leading consumers to believe the defendants would negotiate on their behalf when, in fact, some consumers were only “coached” on how to negotiate settlements on their own;
- misleading consumers by charging them the full fee when creditors stop collection efforts without the defendants taking any action despite advertising that the fee is only charged if settlement is negotiated by the settlement provider and payments begin under the terms of a settlement; and
- failing to clearly and conspicuously disclose consumers’ rights to refunds from their deposit accounts if they leave the settlement program.
The CFPB is seeking monetary relief, civil money penalties, and injunctive relief against the defendants.
FTC Fines California Auto Dealer for Violating Order About Disclosures
On November 6, the FTC announced a settlement of $1.4 million with a Southern California auto dealership for violating a 2014 administrative order (Order). The Order prohibited the dealership from misrepresenting the cost to finance or lease a vehicle. In issuing the Order, the FTC alleged that the dealership had violated the FTC Act by using advertisements that deceptively stated a $0 up-front lease option while excluding other fees and costs, and also that the dealership’s advertisements violated disclosure requirements of the Consumer Leasing Act (CLA) and TILA.
The new settlement resolves a complaint in which the FTC alleged the auto dealership “routinely violated” the Order requiring the dealership to, among other things, (i) accurately represent costs and terms of financing or leasing vehicles; (ii) conform its advertisements to the requirements of the CLA and TILA; and (iv) maintain necessary records and make those records available to the agency. In addition to the monetary penalty and the prohibition of similar practices, the settlement also subjects the dealership to strong compliance and reporting requirements.
Illinois AG and FTC Reach $9 Million Settlement With Phantom Debt Collector
On October 31, Illinois Attorney General Lisa Madigan and the Federal Trade Commission (FTC) announced settlements with three operators of a fake debt collection scheme in Chicago. According to the Attorney General’s office, the three individuals and associated companies identified people who had recently applied for or received a short-term loan and then posed as a law firm to collect on the debt. The companies also sold fictitious loan debt portfolios to other debt buyers, who then attempted to collect on the fake debts. The settlements require the operators to surrender at least $9 million in assets (which will be used to refund impacted consumers) and, among other things, ban them from the debt collection business and from selling debt portfolios.
OCC Updates Guidance on Federal Branch Supervision and Enforcement Action Policies and Procedures
On October 27, the OCC issued Bulletin 2017-46, updating guidance related to federal bank branch supervision and licensing. The OCC issued a revised version of its “Federal Branches and Agencies” booklet, which clarifies the process for reviewing and evaluating license conversion applications by a state-licensed branch or agency operated by a foreign bank to a federal branch or agency. Bulletin 2017-46 also replaced the 2014 agency paper entitled, The OCC’s Approach to Federal Branch and Agency Supervision. The paper outlines the OCC’s framework and considerations related to (i) the regulatory approach and supervision process for large and complex federal branches and agencies (not community banks), and (ii) the general overview of the filing requirements for applications, notices, and licenses, as well as the review and decision process.
On October 31, the OCC issued Bulletin 2017-48 to update its policies and procedures regarding bank enforcement actions. The updates are designed to provide more clarity and consistency in the implementation, communication and monitoring of enforcement actions. In particular, the updates are intended to, among other things, better describe the relationship between violations, concerns identified in matters requiring attention, and enforcement actions, emphasize communication with bank management and personnel and OCC supervisors, and enhance standard processes for tracking and resolving corrective actions. The updates are effective December 1, and are reflected in its “Bank Supervision Process,” “Community Bank Supervision,” “Federal Branches and Agencies Supervision,” and “Large Bank Supervision” booklets of the Comptroller’s Handbook.