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  • OCC consent order addresses risk management at mortgage servicer

    Federal Issues

    On October 26, the OCC issued a consent order against a leading subservicer of mortgage loans for allegedly maintaining inadequate risk management controls related to its servicing and default servicing activities. According to the OCC, the bank’s “internal controls and risk management practices do not support the current risk profile and size of the [b]ank’s mortgage sub-servicing portfolio, which is an unsafe or unsound practice.” The OCC also asserted that the bank had previously been informed about the alleged risk management deficiencies and did not take timely corrective action. Under the terms of the consent order, the bank is required, among other things, to take comprehensive corrective measures, including developing and implementing internal controls that are “commensurate with the types and complexity of risks associated with all transactions the [b]ank executes.” The bank is also required to implement an effective default operations program for its loss mitigation, foreclosure, and claims activities to ensure compliance with applicable state and federal laws and GSE requirements. The order also requires the bank to receive a non-objection from OCC prior to onboarding new clients or before paying dividends to shareholders while the order is in effect. The order does not indicate any specific violations of consumer protection laws and does not contain a civil money penalty. The bank did not admit or deny the allegations.

    Federal Issues OCC Enforcement Bank Regulatory Risk Management Mortgages Mortgage Servicing

  • Agencies seek to update uniform rules for administrative enforcement proceedings

    Agency Rule-Making & Guidance

    Recently, the FDIC, OCC, Federal Reserve Board, and NCUA issued a notice of proposed rulemaking (NPRM) to modernize the agencies’ Uniform Rules of Practice and Procedure (Uniform Rules) applicable to formal administrative enforcement proceedings. The amendments would recognize the use of electronic communications and technology in all aspects of administrative hearings to increase the efficiency and fairness of administrative adjudications. Among other things, the NPRM would (i) allow electronic signatures and filings; (ii) permit depositions to be held by remote means; (iii) modernize language and definitions; and (iv) extend certain filing time limits. Amended provisions also address the authority of administrative law judges, adjudicatory proceedings, good faith certifications, ex parte communications, and expenses. The agencies also propose to modify their specific rules of administrative practice and procedure (known as the Local Rules) applicable to enforcement actions brought by each agency. FDIC staff released a memo recommending its board approve and authorize the NPRM, pointing out that the rules have not been substantively updated in 25 years and do not account for technological advances.

    Agency Rule-Making & Guidance FDIC OCC Federal Reserve NCUA Enforcement Bank Regulatory

  • FTC settles with companies involved with alleged deceptive investment training company

    Federal Issues

    On October 21, the FTC announced a proposed settlement with the funder and servicer (collectively, “defendants”) of payment plans utilized by consumers to pay for investment “trainings” from a professional trader education company (company). Under the proposed settlement, the funder is required to offer debt forgiveness to company consumers who have debt held by the funder. According to the complaint, the defendants allegedly violated the FTC Act by, among other things, facilitating the company’s deceptive scheme by underwriting, funding, and servicing its retail installment contracts. According to the announcement, in September 2020, the FTC settled with the company and, as part of that settlement, the company was required to offer debt forgiveness to consumers who owed it money. The settlement, however, did not cover consumers whose debt was held by the funder. The funder is also required to give these consumers notice of the offer of debt forgiveness and allow 45 days to request forgiveness from the funder. Additionally, the proposed settlement requires the defendants to utilize adequate due diligence when screening prospective covered clients, monitor covered clients, and investigate consumer complaints.

    Federal Issues FTC UDAP FTC Act Deceptive Enforcement

  • District Court approves order permanently banning defendants from making robocalls

    Federal Issues

    On October 21, the U.S. District Court for the Middle District of Florida issued an order approving a permanent injunction and $6.4 million civil money penalty against the remaining participants in a cruise line telemarketing operation allegedly aimed at marketing free cruise packages to consumers. In January, the FTC filed a complaint against the defendants (two individuals and five companies they controlled, including the cruise line) for their alleged involvement in the telemarketing operation. As previously covered by InfoBytes, the complaint asserted violations of the FTC Act and the Telemarketing Sales Rule. The same day the complaint was filed, the FTC announced that it had entered into two settlement agreements—one with a call center and two individuals, and one with an additional individual—for their roles in the telemarketing operation. The court’s October order follows a recent FTC announcement (covered by InfoBytes here), indicating it had reached an agreement with the defendants who neither admitted nor denied the allegations. The court’s order requires the individual defendants to cooperate with any future FTC investigations and to disclose “the contents of their auto-dialed, telemarketing, or pre-recorded telephone communications and records or other information pertaining to [the] autodialed, telemarketing, or pre-recorded telephone communications.” The order also suspends the $6.4 million civil money penalty after the two individual defendants each pay $50,000 to the Treasury Department.

    Federal Issues FTC Enforcement Robocalls FTC Act Telemarketing Sales Rule UDAP

  • DOJ, CFPB, and OCC announce aggressive redlining initiative; take action against national bank for alleged lending discrimination

    Federal Issues

    On October 22, the DOJ, in collaboration with the CFPB and the OCC, announced a new initiative to combat redlining and lending discrimination. The Combatting Redlining Initiative will be led by the DOJ’s Civil Rights Division’s Housing and Civil Enforcement Section in partnership with U.S. Attorney’s offices, and will, among other things, (i) “ensure that fair lending enforcement is informed by local expertise on housing markets and the credit needs of local communities of color”; (ii) “[e]xpand the department’s analyses of potential redlining to both depository and non-depository institutions” (the DOJ noted that non-depository lenders now make the majority of mortgages in the U.S.); (iii) strengthen financial regulator partnerships to ensure fair lending violations are identified and referred to the DOJ; and (iv) increase fair lending coordination with state attorneys general to identify potential violations. Attorney General Merrick Garland stated that the initiative will “address[] modern-day redlining by making far more robust use of our fair lending authorities,” and marks the DOJ’s “most aggressive, coordinated effort to address redlining.” Garland noted that several redlining investigations are currently ongoing and more are expected to be opened in the upcoming months.

    In his remarks, CFPB Director Rohit Chopra also warned that the Bureau will be “closely watching for digital redlining, disguised through so-called ‘neutral algorithms, that may reinforce the biases that have long existed.’” He added that “the speed with which banks and lenders are turning lending and advertising decisions over to algorithms is concerning,” and cautioned against assuming that algorithms will be bias free.

    In conjunction with the announcement of the multi-agency initiative, the DOJ, CFPB, and OCC, took action against a national bank for alleged redlining practices. According to the complaint, the bank violated the Fair Housing Act, ECOA, and the CFPA by deliberately engaging in conduct that discouraged consumers in majority-Black and Hispanic neighborhoods in the Memphis metropolitan area from seeking credit. The bank also allegedly established a limited number of branches in majority-Black and Hispanic communities, and did not provide mortgage-lending services to walk-in customers in these neighborhoods. The complaint further alleged, among other things, that the bank’s fair lending policies and procedures did not adequately ensure equal access to credit to majority-Black and Hispanic neighborhoods, and that internal governance and oversight committees to oversee fair lending were not established until after the OCC initiated a fair lending examination of the bank.

    Under the terms of the proposed settlement, the bank will be required to pay a $5 million civil money penalty. The bank will also have to invest $3.85 million through a loan subsidy program to increase access to credit, and provide $400,000 to develop community partnerships to increase access to residential mortgage credit. The loan subsidy program will go towards closing cost assistance, down payment assistance, and payment of mortgage insurance premiums. Additionally, the bank must increase branches and outreach efforts in majority-Black and Hispanic neighborhoods, devote at least $200,000 in targeted advertising annually to generate applications for mortgages in these neighborhoods, and take remedial efforts to improve its fair lending compliance.

    Federal Issues CFPB DOJ OCC Enforcement Fair Lending Mortgages Redlining Fair Housing Act ECOA Consumer Finance

  • OCC releases October enforcement actions

    Federal Issues

    On October 21, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently or formerly affiliated with such entities. Included is a civil money penalty order against a Seattle-based bank, which requires the bank to pay $2.5 million for, among other things, allegedly failing to adopt and implement a Bank Secrecy Act/Anti-Money Laundering compliance program.

    Federal Issues OCC Enforcement Bank Secrecy Act Anti-Money Laundering Bank Regulatory

  • CFPB and debt relief company agree to permanent injunction

    Courts

    On October 20, the U.S. District Court for the Northern District of Georgia entered a default judgment and order against five participants in an allegedly illegal debt collection scheme involving certain payment processors and a telephone broadcast service provider (collectively, “default defendants”) for their role in the operation. As previously covered by InfoBytes, in 2017, the U.S. District Court for the Northern District of Georgia dismissed claims brought by the CFPB against the default defendants. (See additional InfoBytes coverage here.) According to a complaint filed in 2015, the defendants “knew, or should have known” that the debt collectors were contacting millions of consumers in an attempt to collect debt that consumers did not owe or that the collectors were not authorized to collect by using threats, intimidation, and deceptive techniques in violation of the CFPA and the FDCPA.

    The court entered a $5.1 million judgment against the default defendants, who are jointly and severally liable with the non-default defendants. The default defendants must pay civil monetary penalties ranging from $100,000 to $500,000 to the Bureau. The judgment also, among other things, permanently bans the default defendants from attempting collections on any consumer financial product or service and from selling any debt-relief service.

    Courts CFPB Payment Processors CFPA FDCPA UDAAP Debt Collection Enforcement

  • District Court approves non-party settlement in student debt-relief action

    Courts

    On October 20, the U.S. District Court for the Central District of California approved a settlement with two non-parties in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney, alleging a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint asserted that the defendants violated the CFPA, the Telemarketing Sales Rule, and various state laws. Amended complaints (see here and here) also added new defendants and included claims for avoidance of fraudulent transfers under the FDCPA and California’s Uniform Voidable Transactions Act, among other things. A stipulated final judgment and order was entered against the named defendant in July (covered by InfoBytes here), which required the payment of more than $35 million in redress to affected consumers, a $1 civil money penalty to the Bureau, and $5,000 in civil money penalties to each of the three states. The court also previously entered final judgments against several of the defendants, as well as a default judgment and order against two other defendants (covered by InfoBytes hereherehere, and here). The most recent settlement resolves a dispute between a court-appointed receiver and the two non-parties. The settlement requires the non-parties to pay $675,000 to the receiver.

    Courts CFPB Enforcement State Attorney General State Issues CFPA UDAAP Telemarketing Sales Rule FDCPA Student Lending Debt Relief Consumer Finance Settlement

  • European banks resolve Mozambican bond offerings matter

    Financial Crimes

    On October 19, multiple agencies—the DOJ, SEC and UK’s FCA—announced a coordinated resolution with a European bank related to debt offerings for entities in Mozambique. (See here and here.) In total, fines to U.S. and U.K. authorities reached almost $475 million, and the institution also agreed to forgive $200 million of the debt.

    In a related action, a London-based subsidiary of a Russian bank (bank) separately agreed to pay over $6 million to settle SEC charges related to its role in a second 2016 bond offering. According to the SEC’s order, the second offering as structured by the bank and reespondent permitted investors “to exchange their loan participation notes (LPNs) for a direct sovereign bond issued by the Republic of Mozambique” in an earlier bond offering. However, the SEC alleged that the offering materials distributed and marketed by the respondent and bank “failed to disclose the full nature of Mozambique’s indebtedness and, relatedly, its risk of default on the notes.” Furthermore, the SEC alleged that proceeds from the financing from the respondent and bank were supposed to be used exclusively for maritime projects, but in reality, without the bank’s knowledge, only a portion of the loan proceeds was applied towards maritime projects while the rest was diverted to pay kickbacks and make improper payments to Mozambican government officials. Mozambique later defaulted on the financings after the full extent of “secret” debt was revealed.

    Financial Crimes Securities DOJ SEC Of Interest to Non-US Persons Bond Fraud FCPA UK Enforcement

  • CFPB reaches $6 million settlement with prison financial services company

    Federal Issues

    On October 19, the CFPB issued its first enforcement action under newly-appointed Director Rohit Chopra. The consent order, issued against a provider of financial services to prisons and jails, stated that the company engaged in unfair, deceptive, and abusive acts or practices in violation of the CFPA by charging consumers fees to access their own funds on prepaid debit cards that they were required to use. The CFPB also claimed the company violated the EFTA and implementing Regulation E by requiring consumers to sign up for its debit card as a condition of receiving gate money (i.e. “money provided under state law to help people meet their essential needs as they are released from incarceration”). According to the CFPB, the company provided approximately 1.2 million debit release cards to consumers, which replaced cash or check options previously offered by state departments of correction. In addition to forcing consumers to use the debit cards to access their funds, the company also allegedly charged consumers fees that were not authorized by the cardholder agreement and misrepresented the fees that it charged. Pursuant to the consent order, the company—which neither admitted nor denied the allegations—may only charge “a reasonable inactivity fee” if a debit card is not used for 90 days. The company is also required to pay $4 million in consumer redress and a $2 million civil money penalty.

    Chopra released a separate statement, saying the “case illustrates some of the market failures and harms that occur when the disbursement of government benefits is outsourced to third-party financial services companies that fail to adhere to the law.” He warned that the CFPB “will continue to scrutinize these companies, particularly when law violations and abuses of dominance undermine the intent of such government benefits, and where the harms fall heavily on people who are struggling financially.”

    Federal Issues CFPB Enforcement CFPA EFTA UDAAP Abusive Deceptive Unfair Regulation E Debit Cards Fees Consumer Finance

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