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FinCEN Fines Michigan MSB For BSA/AML Violations, Bans Owner From Serving at Any U.S. Financial Institution
On May 29, a Michigan-based money service business (MSB), along with its owner, admitted to repeated violations of the BSA and have agreed to pay FinCEN a civil money penalty in the amount of $12,000. The company violated the BSA in numerous ways, including but not limited to: (i) failing to maintain a sufficient anti-money laundering program; (ii) engaging in high-risk transactions, including wire transfers to Yemen, totaling millions of dollars, without keeping proper records of the transfers or performing due diligence; and (iii) conducting suspicious transactions “with no apparent business or lawful purpose.” According to FinCEN, the MSB failed to monitor the suspicious transactions, had no review process in place, and neglected to file a Suspicious Activity Report or a Currency Transaction Report while operating as a business entity. Furthermore, in addition to the aforementioned MSB, the owner opened an additional MSB in October 2010, containing similar BSA deficiencies. The owner has “agreed to immediately and permanently cease serving as an employee, officer, director, or agent of any financial institution located in the United States or that conducts business within the United States.”
National Bank to Pay $30 Million Civil Penalty to OCC for Alleged SCRA Violations
On May 29, the OCC entered into a consent order with a national bank to resolve allegations that it (i) violated the SCRA; (ii) engaged in unsafe and unsound practices in its efforts to comply with the SCRA; and (iii) engaged in unsafe and unsound practices in regards to its sworn document and collections litigation practices. The OCC claimed that the bank did not comply with the SCRA by failing to: (i) maintain effective policies and procedures; (ii) devote adequate financial, staffing and managerial resources to guarantee the SCRA compliance process was properly administered; and (iii) provide sufficient internal controls, compliance risk management, internal audit, third party management, and training related to its SCRA compliance process. In relation to the sworn document and collections litigation process, the OCC asserted that the bank’s deficiencies in its enterprise compliance risk management function resulted in unsafe and unsound practices, including failure to ensure that affidavits filed in court followed proper notary procedures. Under the terms of the consent order for a civil money penalty, the OCC will collect $30,000,000 from the bank.
CFPB and DOJ Settle With Mortgage Lender for Alleged Discriminatory Mortgage Pricing
On May 28, the CFPB, along with the DOJ, filed a joint complaint against a California-based mortgage lender alleging that the lender violated the Equal Credit Opportunity Act by engaging in a pattern or practice of discrimination from 2006 to 2011 that increased loan prices for African-American and Hispanic borrowers. The DOJ also alleges that the lender violated the Fair Housing Act. According to the complaint, the lender’s mortgage broker compensation policy, which incented discretionary interest rate and fee increases to borrowers, resulted in approximately 14,000 African-American and Hispanic borrowers being charged higher total broker fees on wholesale mortgage loans than non-Hispanic white borrowers. The complaint alleges that the higher fees were not based on the borrowers’ credit risk profile, but rather on the basis of race or national origin. The parties separately filed a proposed consent order which would require the mortgage lender to, among other things, pay $9 million in consumer relief to affected borrowers to resolve the allegations. The proposed consent order is currently pending court approval.
HUD Reaches $200 Million Settlement Over Redlining Allegations
On May 26, the U.S. Department of Housing and Urban Development announced that it entered into a conciliation agreement with a Wisconsin-based bank to resolve claims that, from 2008 to 2010, the bank discriminated on the basis of race and national origin by denying loans to qualified African-American and Hispanic applicants, and making few loans in majority-minority census tracts in five metropolitan areas in Illinois, Minnesota, and Wisconsin (while making loans in nearby predominantly white tracts). Among other things, the agreement requires the bank, over a three-year period, to: (i) pay nearly $10 million in the form of lower interest rate home mortgages and down payment/closing cost assistance to qualified borrowers in majority-minority census tracts in specified housing markets in Illinois, Minnesota, and Wisconsin, (ii) invest nearly $200 million in increased mortgage lending in majority-minority census tracts in these areas, (iii) provide nearly $3 million to help existing homeowners repair their properties in these predominantly minority communities, (iv) pay $1.4 million to support affirmative marketing of loans in these census tracts, and (v) open offices in certain specified majority-minority census tract areas. According to HUD, this is the largest redlining settlement that it has initiated.
DOJ Announces Plea Agreements with Five Major Banks for Manipulating Foreign Currency Exchange Markets
On May 20, the DOJ announced plea agreements with five major banks relating to manipulations of foreign currency exchange markets. Four of the banks pled guilty to felony charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.” These four banks agreed to pay criminal fines totaling more than $2.5 billion and to a three-year period of “corporate probation,” which will be “overseen by the court and require regular reporting to authorities as well as cessation of all criminal activities.” A fifth bank pled guilty to manipulating benchmark interest rates, including LIBOR, and to violating a prior non-prosecution agreement arising out of the DOJ’s LIBOR investigation. That bank agreed to pay a $203 million criminal penalty. The DOJ emphasized that these were “parent-level guilty pleas” to felony charges and that it would continue to investigate potentially culpable individuals. The five banks also agreed to various additional fines and settlements with other regulators, including the Federal Reserve, the CFTC, NYDFS, and the U.K. Financial Conduct Authority. Combined with previous payments arising out of the FX investigations, the five banks have paid nearly $9 billion in fines and penalties.
CFPB Fines Worldwide Payment System $25 Million for Alleged Deceptive Practices
On May 19, the CFPB announced a stipulated final judgment against a California-based worldwide payment system company. According to the CFPB’s complaint, filed the same day, the defendant (i) failed to honor advertised promotional benefits; (ii) charged consumers deferred-interest fees; (iii) enrolled consumers in a credit product without their knowledge or consent; (iv) failed to remove late fees and interest charges that consumers accrued because of website failures; and (v) mishandled consumers’ billing disputes. Under the terms of the final judgment, the company will improve its disclosures regarding enrollment options and payment allocation, pay $15 million to reimburse consumers who were the victims of its practices, and pay $10 million to the CFPB’s Civil Penalty Fund.
FCC Releases Enforcement Advisory Regarding Privacy and Internet Service Providers
On May 20, the FCC released an enforcement advisory regarding the enforcement of Section 222 of the Communications Act as it relates to providers of broadband Internet access service (BIAS). The advisory bulletin indicates that, until the FCC implements new BIAS-specific privacy regulations, the Enforcement Bureau will “focus on whether broadband providers are taking reasonable, good-faith steps to comply with Section 222, rather than focusing on technical details.” Thus, “the Enforcement Bureau intends that broadband providers should employ effective privacy protections in line with their privacy policies and core tenets of basic privacy protections.”
California-Based Storage Company Agrees to Settle SCRA Claims
On May 15, a San Diego-based storage company entered into a consent order with the DOJ to settle claims that the company’s practice of auctioning off active duty servicemembers’ stored belongings violated the Servicemembers Civil Relief Act (SCRA). As part of the settlement, the storage company will: (i) pay $170,000 in damages to those servicemembers whose stored belongings it sold without obtaining a court order; (ii) implement new SCRA policies and procedures, which are to be approved by the government; and (iii) ensure that those employees who are involved with the enforcement of storage liens receive government approved SCRA training annually.
CA Department of Business Oversight Files Suit Against Loan Payment Company
On May 15, the California Department of Business Oversight (DBO) announced that it filed a complaint against a debt payment company for allegedly operating in California without having the proper license and for charging fees in excess of statutory limits. According to the complaint, the company contracts with borrowers to make their mortgage, credit card, or other loan payments for them, and then debits their account every two weeks in an amount equal to one-half of the required monthly payment on the loan. This payment schedule results in 26 debits per year, equating to an extra month’s worth of payments. The company claims that the extra debits are used to pay down the principal on the loan. The lawsuit alleges, however, that the California Financial Code requires companies providing debt payment services to be licensed as “proraters” by the DBO, and the company has never had such a license. The complaint also alleges that the company’s “set up fee” of one-half of the monthly loan payment amount often far exceeded the $50 limit on origination fees imposed by state law, and that the company’s advertising misrepresented how much its customers would pay for services and how much they would save on interest. Since 2009, the company has collected more than $300 million from its 10,000-25,000 customers for distribution to creditors and earned more than $10 million in fees.
DOJ Settles with Illinois-Based Lender over Allegations of Discriminatory Lending
On May 7, the DOJ announced a consent order with an Illinois-based lender to settle allegations that the state-chartered bank engaged in a pattern of discriminatory lending, violating the Equal Credit Opportunity Act (ECOA). According to the complaint, from at least January 1, 2011 to March 9, 2014, approximately 1,500 Hispanic borrowers and 700 African-American borrowers paid higher interest rates for their motorcycle loans than white borrowers. The average victim of the bank’s discretionary dealer markup system paid over $200 more during the loan term, allegedly because of their national origin and not because of their creditworthiness. Until March 2014, the lender’s business practice was such that the motorcycle dealers submitted loan applications to the lender, allowing the dealers “subjective and unguided discretion to vary a loan’s interest rate from the price [the lender] initially set.” In March 2014, the lender adopted a new policy that compensated dealers “based on a percentage of the loan principal amount that does not vary based on the loan’s interest rate;” since the implementation of the new policy, no discrimination has been found in the loans analyzed by the United States. Neither admitting nor denying the allegations, the lender voluntarily entered into a consent order with the U.S., agreeing to provide $395,000 in monetary relief to victims of the lender’s alleged practices.