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Federal Reserve Orders Community Bank to Improve its BSA/AML Program
On June 23, the Board of Governors announced the execution of an enforcement action against a California-based community bank over BSA/AML deficiencies. According to the Cease and Desist Order, the deficiencies were identified by the Federal Reserve Bank of San Francisco and the California Department of Business Oversight, and directs the Bank to submit written plans outlining their efforts to strengthen their BSA/AML risk management program, including customer due-diligence and suspicious activity monitoring and reporting policies and procedures. In addition, the Bank must retain an independent third party to conduct a review of account and transaction activity affiliated with any high-risk customer and foreign branch accounts conducted at, by, or through the Bank from July 2014 through December 2014. No civil money penalty was imposed on the Bank.
OCC Fines National Bank for Alleged Unfair Billing Practices
On June 19, the OCC released recent enforcement actions taken against national banks, federal savings associations, and individuals currently or formerly affiliated with national banks and federal savings associations. Among the actions was the issuance of a consent order for a civil money penalty against a national bank for allegedly violating the Federal Trade Commission Act. During its investigation, the OCC discovered deficiencies relating to the bank’s billing and marketing practices, specifically with regard to identity protection and debt cancellation products. According to the consent order, since April 2004, the bank, along with an identity protection product vendor, marketed and sold various types of identity theft protection products to its customers. Before customers could access the credit monitoring service of the identity theft product, they “were required to provide sufficient personal verification information and consent before their credit bureau reports could be accessed.” However, the OCC found that the vendor (i) billed the bank’s customers the full fee for the products, even if they were not receiving all of the credit monitoring services; (ii) billed the customers prior to receiving the customers’ information and consent and establishment of credit monitoring; and (iii) failed to ensure that customers received electronic benefit notifications. The bank retained a portion of the fees that the customers paid. Additionally, the bank’s vendors incorrectly informed customers during telemarketing calls that only one of the products offered had the ability to access identity protection benefits electronically. As a result, some customers purchased the more expensive Enhanced Identity Theft Protection, as opposed to the less expensive Identity Theft Protection, under the mistaken belief that this was the only way they could access the product’s benefits online. Finally, the OCC also alleged that, from August 2005 through November 2013, the bank’s debt cancellation product vendor’s billing practices, which posted recurring payments on the same day of the month regardless of the payments’ due dates, resulted in some customers paying recurring late fees. The bank will pay $4,000,000 to resolve the OCC’s allegations.
New York AG Announces Nearly $14 Million Agreement with Local Auto Dealers Over Deceptive Sales Practices, Plans to Sue an Additional 11 Auto Dealerships
On June 17, New York Attorney General Eric Schneiderman announced an approximate $14 million agreement with three jointly-owned auto dealers in connection with the alleged unlawful sale of add-on products, such as credit repair and identity-theft prevention services. According to the AG, the auto dealers failed to disclose the costs and fees of many “after-sale” items to consumers, in some instances resulting in the addition of $2,000 to the purchase or leasing price of a vehicle. Furthermore, the AG contends that the dealers concealed that they were charging consumers for the add-on services, or misrepresented that the services were free of charge. Under the terms of the settlement agreement, the auto dealers must, among other things, (i) pay more than $13.5 million in restitution to affected consumers and (ii) pay $325,000 in penalties, fees, and costs to New York State. In addition to the settlement announcement, AG Schneiderman made public that his office has served notices of intent to file suits against an additional eleven dealerships for allegedly engaging in similar practices.
OCC to Escheat Funds from Foreclosure Review; Agency Terminates Three Consent Orders and Issues Six Amended Orders
On June 17, the OCC announced that, at year-end 2015, it will escheat any remaining uncashed payments made pursuant to the Independent Foreclosure Review Payment Agreement. Despite the IFR Payment Agreement having already resulted in the distribution of over $2.7 billion to more than 3.2 million eligible borrowers, the OCC anticipates that roughly $280 million from OCC-supervised institutions will remain unclaimed by the end of 2015. By escheating the remaining available funds, eligible borrowers and their heirs will have the opportunity to claim the funds. The agency also announced that it terminated foreclosure-related consent orders against three financial institutions because they have complied with the April 2011 orders and the February 2013 amendments to the orders. In addition, the OCC issued amended consent orders to six banks that did not meet all of the requirements of the consent orders by placing restrictions on the following business activities: (i) acquisition of residential mortgage servicing or residential mortgage servicing rights; (ii) new contracts to perform residential mortgage servicing for other parties; (iii) outsourcing or sub-servicing of new residential mortgage servicing activities to other parties; (iv) off-shoring new residential mortgage servicing activities; and (v) new appointments of senior officers in charge of residential mortgage servicing or residential mortgage servicing risk management and compliance. The limitations placed on the financial institutions were based on each bank’s particular circumstances.
Illinois AG Madigan Announces $1 Million Settlement Regarding Company's Management of Foreclosed Properties
On June 3, Illinois AG Madigan announced a $1 million settlement with an Ohio-based company that mortgage lenders hire to manage properties throughout the foreclosure process and ensure that the properties retain their value. The settlement resolves a 2013 lawsuit by Madigan that alleged that the company wrongly deemed homes vacant, and instructed its contractors to shut off utilities, change the properties’ locks and illegally remove residents’ personal belongings even though they actively remained in their homes. Under the settlement, the company agreed to overhaul its business practices by using objective standards to ensure that homes are vacant, such as: (i) requiring its inspectors to support their inspections with photographs and an affidavit; (ii) posting notice to the occupant that the property has been deemed vacant; (iii) not misrepresenting the occupants’ rights to stay in their home, even if they are behind on their mortgage payments and in foreclosure; (iv) increasing its oversight and quality control of its subcontractors; (v) providing consumers with access to a 24-hour hotline for submitting complaints; and (vi) unless the company obtains a court order, not removing any personal property prior to foreclosure.
In addition to the $1 million agreement, which will be paid in restitution to consumers who filed complaints with respect to the company’s business practices, the company agreed to adhere to ongoing monitoring by Madigan’s office to ensure compliance with the settlement.
CFPB Director Issues Decision on First Appeal of an Administrative Enforcement Proceeding
On June 4, CFPB Director Richard Cordray issued a decision on a mortgage lender’s appeal of an administrative law judge’s (ALJ) order concerning alleged RESPA violations with respect to the lender’s mortgage reinsurance business. In his decision, Cordray largely affirmed the ALJ decision and ordered the lender to pay $109 million in disgorgement. Notably, because most of the conduct alleged occurred prior to the CFPB assuming jurisdiction over enforcement of RESPA, Cordray declined to impose a civil money penalty. In addition, Cordray agreed with the ALJ that no statute of limitations applies when the CFPB challenges a RESPA violation in an administrative proceeding, declaring that the statute of limitations applies only to judicial proceedings. Cordray also held that the lender committed a separate violation of RESPA every time it accepted a reinsurance payment from a mortgage insurer, even if the loan with which the payment was associated had already been consummated. This was the first appeal of an administrative enforcement proceeding before the CFPB.
CFPB and Florida AG Obtain Judgment Against Law Group and Corporate Affiliates for "Mass-Joinder" Foreclosure Relief Scam
On May 29, a final order was entered against a law group and its corporate affiliates in an action brought by the CFPB and the State of Florida. The July 2014 complaint alleged that the law group and its affiliates violated Regulation O, or the Mortgage Assistance Relief Services Rule, and Florida state law by convincing consumers to participate in “mass-joinder” lawsuits against their mortgage lenders with the false promise that the suits would result in mortgage modifications or foreclosure relief. More specifically, the defendants’ Regulation O violations included: (i) charging consumers advance fees before obtaining loan modifications for them; (ii) misrepresenting success rates of receiving a loan modification; (iii) deceiving consumers into believing that they would receive legal representation; and (iv) discouraging consumers from making their loan payments and/or communicating with their lenders or servicers. The final order, which follows a temporary restraining order and an asset freeze against the defendants, requires that the defendants pay redress to victims and a total of $16 million in civil and state penalties and cease all business operations. Final orders were issued against the three named individuals in the suit as well.
Regional Bank Agrees to Pay Over $200 Million for Alleged Violations of the False Claims Act
On June 1, a regional bank agreed to pay the United States $212.5 million to resolve allegations that it knowingly violated the False Claims Act by originating and underwriting FHA-insured mortgage loans that did not meet applicable requirements. The bank – through its subsidiary and as a Direct Endorsement Lender in the FHA insurance program – had the authority to approve mortgage loans for FHA insurance without having FHA or HUD review the loan application first. The DOJ Civil Division’s investigation concluded that, from January 2006 through October 2008, the bank, even though it was aware of material deficiencies in its loan origination process, “failed to report even a single deficient mortgage to FHA.” DOJ further concluded that, while the bank profited from its loan process, taxpayers suffered significant losses when the loans defaulted and FHA incurred “substantial losses when it later paid insurance claims on these loans.” The bank admitted to failing to comply with FHA origination, underwriting, and quality control regulations.
FinCEN Levies $75 Million Penalty on International Casino for BSA/AML Lapse
On June 3, FinCEN announced a $75 million civil money penalty against an international casino for alleged “willful and egregious” violations of the BSA. As detailed in the Assessment, the casino (i) failed to develop and implement an AML program; (ii) failed to designate an official BSA officer to oversee compliance requirements of the BSA; and (iii) failed to train employees in adequate recordkeeping, or in identifying, monitoring or reporting suspicious activity – all considered to be critical components of an adequate BSA/AML program. Moreover, FinCen alleges that casino employees “provided detailed instructions” to undercover agents on how to conduct transactions without being properly reported to U.S. authorities. FinCen’s latest action follows a March announcement, when the agency imposed a $10 million civil money penalty against a New Jersey-based casino.
Federal Reserve Orders Two Financial Institutions to Improve BSA/AML Compliance Programs
On June 1, a Boston-based international financial services holding company and its banking subsidiary agreed to address deficiencies in how they manage compliance risks with respect to their BSA/AML compliance program. The Agreement, entered into with the Federal Reserve Bank of Boston and the Massachusetts Division of Banks, requires both entities to submit a written plan outlining their efforts to improve their compliance with OFAC and internal controls, customer due-diligence procedures, and suspicious activity monitoring and reporting, among other things. In addition, the banking subsidiary must hire an independent third-party to review account and transaction activity during a specified period to ensure suspicious activity was properly identified and reported.
In a separate enforcement action, the Federal Reserve Bank of Chicago entered into an agreement on May 26 with an Illinois-based financial services company, requiring the parent company and its banking subsidiary to, among other things, submit written plans to (i) strengthen its BSA/AML compliance risk management program; and (ii) “ensure the identification and timely, accurate, and complete reporting” of suspicious transactions to the appropriate law enforcement and supervisory [banking] authorities.” No civil money penalties were imposed in either enforcement action.