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  • CFPB issues order against veterans’ mortgage originator, fines it $2.25M

    Federal Issues

    On August 29, the CFPB released a consent order and stipulation against a national mortgage originator for alleged deceptive acts under the CFPA. The CFPB found the respondent misrepresented certain payment terms on a specific worksheet in three states during closings. The worksheet, called the borrower “net benefit” worksheet, accompanied closings on VA cash-out refinance loans. It allegedly misstated how a consumer’s “previous” monthly mortgage payment would compare to a “new” monthly mortgage payment after refinancing with the respondent. Specifically, only principal and interest payments were included in the “new loan payment amount,” making the loans appear less expensive by omitting taxes and insurance from the “new loan payment” calculations. The misstatements were provided to borrowers in North Carolina and Maine through 2020 and in Minnesota through 2018, affecting at least 3,000 cash-out refinances.

    As part of the consent order, the company agreed to pay a $2.25 million civil money penalty and to implement a comprehensive compliance plan within 30 days. The plan must ensure that the company’s mortgage lending activities comply with all applicable laws and the terms of the consent order. The company’s executive officers must oversee compliance and submit a written progress report to the Bureau one year after the order’s effective date. Specifically, the consent order will require the company to retain specific business records, sales scripts, training materials, consumer complaints, and to avail these documents to the Bureau upon request. The order will remain in effect for five years, during which the company must provide a copy of the consent order to any persons with responsibilities related to its subject matter. The Bureau may impose additional penalties if the company violates the terms of the consent order. The company neither admitted nor denied any of the CFPB’s findings.

    Federal Issues CFPB Department of Veterans Affairs Mortgage Origination Enforcement CFPA

  • Broker-Dealer fined for “No Remuneration” indicators in FINRA reports

    Securities

    On August 27, FINRA accepted a broker dealer firm’s Letter of Acceptance, Waiver, and Consent (AWC) regarding alleged trade reporting violations and supervisory failures. According to the AWC, the respondent failed to include a required “No Remuneration” indicator on about 50,000 reports to FINRA’s Trade Reporting and Compliance Engine (TRACE) from 2016-2023, which violated FINRA Rules 6730 and 2010. FINRA further alleged that the respondent did not establish an acceptable system to achieve compliance with Rule 6730 and did not conduct supervisory reviews of TRACE reports, thereby failing to detect errors with certain indicators.

    Without admitting or denying the allegations, the respondent agreed to a censure, a $175,000 fine, and an undertaking to certify within 60 days that the firm remediated the alleged issues and implemented a supervisory system designed to comply with FINRA Rule 6730.

    Securities Federal Issues AWC Enforcement Compliance

  • Crowdfunding portal member expelled from FINRA Membership

    Securities

    On August 26, FINRA accepted a Letter of Acceptance, Waiver, and Consent (AWC) from a former funding portal member (the respondent) that acted as an intermediary for crowdfunding offerings conducted under Section 4(a)(6) of the Securities Act. The AWC outlined the respondent’s alleged violation of FINRA Funding Portal Rules 800(a) and 200(a) and FINRA Rule 8210. It asserted that FINRA began investigating one of the respondent’s offerings in January 2023 and, while the respondent initially cooperated with the investigation, the respondent subsequently “fail[ed] to respond to requests for documents and information,” despite multiple requests.

    To resolve FINRA’s allegations, the respondent consented to an expulsion from FINRA funding portal membership, effective upon approval of the AWC, and acknowledged that the AWC will become part of its permanent disciplinary record. Respondent did not admit nor deny FINRA’s claims.

    Securities Federal Issues FINRA Enforcement AWC

  • Broker-dealer to pay $1.19M for suspicious activity reporting violations

    Securities

    On August 12, the SEC issued published a settled enforcement action order against a broker-dealer for failing to monitor, investigate, and file Suspicious Activity Reports (SARs) between March 2020 and May 2023, violating Sections 15(b) and 21C of the Securities Exchange Act. The SEC ordered the broker-dealer to cease and desist from future violations of Section 17(a) of the Exchange Act and Rule 17a-8. The firm was also censured and required to pay a civil money penalty of $1.19 million.

    The broker-dealer admitted other registered broker-dealers as subscribers to its trading system platform, which traded over-the-counter securities like microcap or penny stocks. Despite being required to comply with the BSA and its regulations, the broker-dealer failed to adopt or implement adequate AML policies and procedures. The SEC alleged that the broker-dealer did not surveil, investigate, or file SARs on numerous transactions indicating possible fraudulent activity or lacking a lawful business purpose. The SEC highlighted several red flags the broker-dealer failed to address, such as large volume trading, one-sided trading with price increases, and trading activities involving pre-arranged or wash trades. Additionally, the broker-dealer did not investigate transactions involving subscribers known to be subjects of criminal, civil or regulatory actions.

    The broker-dealer’s surveillance system alerted potentially suspicious trading activity, but the firm did not review these alerts. Between January 2020 and June 2021, the system generated 1,862 alerts (about 310 alerts per month). However, the compliance team devoted only about five hours per month to review these alerts, which the SEC found insufficient. Consequently, the broker-dealer failed to file any SARs during the relevant period despite suspicious trading activity. The broker-dealer neither admitted nor denied these findings.

    Securities Broker-Dealer Enforcement Anti-Money Laundering Act of 2020 SARs Surveillance

  • CFTC orders bank to pay $5M for swap reporting violations

    Securities

    On August 26, the CFTC issued an order against a bank for allegedly failing to correctly report millions of swap transactions to a registered swap data repository, in violation of a prior CFTC order, and for failing to properly supervise its swap dealer business. According to the consent order, the CFTC found that from at least 2018 through 2023, the respondent violated multiple sections of the Commodity Exchange Act and CFTC regulations related to swap data reporting, engaged in improper supervision of its swap dealer business, and failed to comply with a 2019 CFTC order.

    The respondent self-reported the violations and agreed to engage an outside compliance consultant to review and provide advice regarding its compliance program. The consent order imposed a $5 million civil monetary penalty. The CFTC acknowledged the respondent’s cooperation, which, according to the CFTC, resulted in a reduced civil monetary penalty.

    Securities CFTC Enforcement Swaps

  • OCC announces enforcement actions for August 2024

    On August 22, the OCC released a list of recent enforcement actions against national banks, federal savings associations, and individuals affiliated with such entities (defined as institution-affiliated parties, or IAPs). The OCC listed twelve recent actions: four formal agreements with banks, six actions against IAPs, and two orders terminating preexisting formal agreements. 

    With respect to the formal agreements with banks, all four involved unsafe and unsound practices, including those related to strategic planning, board oversight, liquidity risk management, and interest rate risk management. One agreement involved internal BSA/AML controls, audit, and training, with another agreement involving an affiliate-transaction violation. The six actions against IAPs involved misappropriation. With respect to the termination orders, one involved a prior formal agreement relating to credit risk management, insider activities, and exception reporting, and the other involved BSA risk management and strategic planning. More information on the OCC’s enforcement action types can be found here.

    Bank Regulatory OCC Enforcement Federal Issues

  • CFPB orders mortgage servicer to pay after violating 2017 order

    Federal Issues

    On August 21, the CFPB announced an administrative proceeding against a residential mortgage servicer (the respondent) for allegedly taking foreclosure actions against borrowers and preventing borrowers from leveraging foreclosure relief options. As previously covered by InfoBytes, the CFPB issued a 2017 consent order to resolve allegations that the respondent failed to provide mortgage borrowers with the required protections against foreclosures, among other things.

    According to the 2024 consent order, the respondent failed to implement proper loss mitigation practices and therefore engaged in improper foreclosure activities. Specifically, the respondent allegedly took up to five days to review loss mitigation applications and decide whether the documents made the application complete before placing a foreclosure hold, then placed foreclosure holds retroactively which resulted in prohibited foreclosure activities. The CPFB stated such actions during that up-to five-day period violated Regulation X, 12 C.F.R. § 1024.41(f)(2) or (g).

    Other allegations included (i) a violation of the 2017 order and RESPA’s Regulation X due to respondent advancing the foreclosure process improperly for certain borrowers, (ii) failing to terminate borrower-paid private mortgage insurance (PMI) in a timely manner and disbursing PMI premiums from escrow accounts incorrectly, failing to comply with the Homeowners Protection Act and Regulation X, and (iii) assessing late fees that were inconsistent with the terms of borrowers’ promissory notes, in violation of TILA’s Regulation Z. Additionally, respondent’s policies and procedures allegedly were not reasonably designed to ensure compliance with federal regulations and the 2017 order.

    As part of the consent order, the respondent agreed to pay a civil money penalty of $2 million and providing $3 million in restitution to affected consumers. The respondent also agreed to invest at least $2 million to update its servicing technology and compliance management systems, establish a Compliance Committee of the Board, which must meet monthly, and engage an independent third-party auditor to conduct an annual comprehensive review and audit of respondent’s compliance with the consent order for the next five years. The order also put compensation limits on Edward Fay, the company’s Chairman of the Board and Chief Executive Officer CEO, if Mr. Fay does not take the necessary actions to comply with the order.

    Federal Issues CFPB Mortgage Servicing Enforcement Foreclosure TILA RESPA Consumer Finance Consumer Protection

  • Group of passive securitization trusts filed petition for certiorari with U.S. Supreme Court on CFPB enforcement remedies

    Courts

    On August 16, a group of passive securitization trusts formed between 2001 and 2007 (the petitioners or trusts) petitioned the U.S. Supreme Court for a writ of certiorari to hear its case against the CFPB on the “unaccountable exercise of executive power to target individual companies.” In their cert petition, the petitioners posed two questions: one on whether enforcement actions should be dismissed based on unconstitutional agency structures; and the other on whether securitization vehicles are covered persons under the CFPA. Specifically, the two questions presented were: 

    1. “When should an enforcement action that is insulated by an agency head unconstitutionally insulated from removal be dismissed to remedy that separation-of-powers violation?  
    2. “Whether passive securitization vehicles used to acquire and pool consumer loans are ‘covered persons’ because they ‘engage in offering or providing a consumer financial product or service’ under the CFPA.” 

    As background, in September 2014, the CFPB issued a civil investigative demand (CID) to each petitioner seeking information on collections lawsuits brought against student loan borrowers. Three years later, the CFPB brought an enforcement action against the petitioner, ultimately moving for a proposed consent judgment following an agreed upon settlement. The district court, however, denied the proposed consent judgment. The case was initially dismissed following the Supreme Court’s decision in Seila Law LLC v. CFPB, which held that the CFPA’s restrictions on removing the CFPB director were unconstitutional (covered by Orrick Insights here). The CFPB then filed the operative complaint alleging both that the trusts were “covered persons” under the CFPA and that the trusts had violated the CFPA. The district court declined to dismiss the amended complaint, finding both that the trusts were “covered persons” under the CFPA and that an unconstitutional removal restriction does not invalidate agency action taken by a properly appointed agency head, relying on the Supreme Court’s decision in Collins v. Yellen. The appellate court affirmed both holdings, finding that the trusts were “covered persons” and that the trusts were not entitled to relief for actions taken by the CFPB while its director was unconstitutionally insulated from removal. 

    The petitioners argue that a grant of certiorari is appropriate because lower courts are divided on the interpretation of Collins v. Yellen as to the remedies available to targets of enforcement actions brought by an agency with constitutionally subject removal provisions. Additionally, the petitioners argue that the lower court’s interpretation of the CFPA is incorrect and threatens the stability of securitization markets, justifying a grant of certiorari. 

    Courts Supreme Court CFPB CFPA Enforcement

  • Fed issues enforcement action against bank holding company

    On August 15, the Fed released an enforcement action against a registered bank holding company and its parent company alleging financial and governance concerns. The agreement established concrete steps and regulatory standards to ensure the bank holding company will comply with a consent order issued by the OCC on April 2. The agreement emphasized the need to maintain sufficient capital and included provisions that require raising additional capital or improving the bank’s financial condition and submitting a cash flow projection and a capital plan within 60 days. The consent order aims to improve the bank’s operations and financial condition. Additionally, the companies are prohibited from declaring or paying dividends, engaging in share repurchases, or making any other capital distributions without prior written approval from the Fed. The companies also must seek prior written approval before taking on or managing any debt. Progress reports detailing actions taken to comply with the agreement will be submitted quarterly.

    Bank Regulatory Federal Reserve Minnesota OCC Enforcement Liquidity

  • FHFA releases NPRM on housing goals for 2025-2027

    Agency Rule-Making & Guidance

    On August 22, FHFA released a proposed rule on its housing goals for Fannie Mae and Freddie Mac (the GSEs) for 2025-2027 as required by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. FHFA is requesting comments on all aspects of the proposed rule. The rule included goals and subgoals for single-family and multifamily mortgages for low-income and very low-income families, set requirements for housing plans, and made technical changes to 12 C.F.R. § 1282. FHFA also proposed new criteria that would assess if a housing plan would be required for certain single-family housing goals during the 2025-2027 housing goals period. FHFA stated that it proposed these changes “to encourage the [GSEs] to focus on meeting the market levels rather than focusing exclusively on the housing goals benchmark levels in the event of unexpected disruptions to the market[.]”

    The proposed rule would amend the housing goals to update the benchmark levels for the total number of purchase money mortgages for low-income families to 25 percent, down from 28 percent; and for very low-income families from 7 percent to 6 percent. Revised subgoals include  low-income census tract housing remaining at 4 percent, but the minority census tracts housing subgoal increased from 10 percent to 12 percent. The refinancing housing goal remains at 26 percent. The previous goals were for 2022-2024.

    The NPRM also included a new section (Section 1282.21) to codify rules on compliance with housing goals and notice of final determination. The new enforcement factors for 2025-2027 were listed under Section 1282.22. The NPRM included multiple tables outlining FHFA’s housing goals. FHFA will accept written comments on the proposed rule on or before 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues NPRM FHFA Enforcement

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