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Court permanently bans companies and officer from payment processing
On January 22, the U.S. District Court for the District of Arizona entered judgments (available here and here) prohibiting two companies and one officer from engaging in payment processing services, credit card laundering, and telemarketing as a result of their involvement in a credit card laundering scheme. As previously covered by InfoBytes, in July 2017, the FTC filed a complaint against 12 defendants, comprised of an independent sales organization (ISO), sales agents, payment processors, and identified principals, for allegedly violating the FTC Act and the Telemarketing Sales Rule by laundering credit card transactions on behalf of a “telemarketing scam” operation through fictitious merchant accounts. The defendants purportedly (i) underwrote and approved the operation’s fictitious companies; (ii) set up merchant accounts with its acquirer for the fictitious companies; (iii) used sales agents to market processing services to merchants; (iv) processed nearly $6 million through credit card networks; and (v) transferred sales revenue from the transactions to companies controlled by the defendants. In addition to the permanent injunctions, the court entered into an over $4.6 million suspended judgment against the companies and an over $460,000 suspended judgment against the officer. However, the judgments can be lifted should the court find that the officer failed to disclose material assets or the accurate value of material assets.
FDIC revises supervisory appeals guidelines
On January 19, the FDIC issued FIL-04-2021 announcing the adoption of revised Guidelines for Appeals of Material Supervisory Determinations (Guidelines). The Guidelines, originally proposed last August (covered by InfoBytes here), will establish a new, independent Office of Supervisory Appeals (Office) replacing the current Supervision Appeals Review Committee. The new Office will have final authority to resolve appeals by a panel of reviewing officials and will be independent from other divisions within the FDIC that have authority to issue material supervisory determinations. The Guidelines provide that appeals submitted to the Office will be decided by a panel of term-appointed reviewing officials with bank supervisory or examination experience. Additionally, the division director will make an independent supervisory determination without deferring to the judgments of either party, with communications between the Office and members of either the supervisory staff or the appealing institution to be shared with the other party to the appeal. The Guidelines will also permit an institution to request expedited review of its appeal, and will amend the procedures and timeframes for considering formal enforcement-related decisions through the supervisory appeals process. The Guidelines will take effect once the new Office is fully operational. In the meantime, the current guidelines will remain in effect.
DFPI launches debt collection investigation
On January 19, California’s Department of Financial Protection and Innovation (DFPI) announced the issuance of subpoenas to a dozen debt collection companies as part of its investigation into consumer complaints about alleged unlawful, unfair, deceptive, or abusive debt collection practices. This is DFPI’s first significant action since the California Consumer Financial Protection Law—which, among other things, expanded DFPI’s UDAAP authority by adding a prohibition on “abusive” acts or practices to California law—went into effect January 1 (covered by a Buckley Special Alert). According to DFPI, consumers across the country have filed complaints against the companies, alleging the debt collectors make repeated phone calls, fail to validate debts, and threaten to sue consumers for debts they do not owe. DFPI notes that the state’s new Debt Collection Licensing Act (enacted last September and covered by InfoBytes here) requires a person engaging in the business of debt collecting in the state of California to be licensed and provides for the regulation and oversight of debt collectors by the agency.
FinCEN reaches $390 million settlement with bank for BSA violations
On January 15, the Financial Crimes Enforcement Network (FinCEN) announced a $390 million civil money penalty against a national bank for allegedly violating the Bank Secrecy Act and its implementing regulations. The settlement resolves an investigation into the bank’s alleged failure to maintain an effective anti-money laundering (AML) program. According to FinCEN, the bank’s check-cashing business unit failed to file thousands of suspicious activity reports (SARs) and currency transaction reports (CTR). As a result, suspicious transactions were not reported in a timely and accurate manner. FinCen noted that while the bank was allegedly aware of several compliance and money laundering risks associated with its check-cashing business unit, its process for investigating suspicious transactions was insufficient. The bank also allegedly failed to file SARs even though it had actual knowledge of criminal charges against specific customers and continued to process transactions for these customers’ businesses. In determining the penalty, FinCEN considered the bank’s significant remediation efforts—including taking remedial measures related to its SARs and CTR filing systems and enhancing its AML program over the past several years—as well as its cooperation with the agency’s investigation.
CFPB finalizes rule stating supervisory guidance lacks force of law
On January 19, the CFPB issued a final rule codifying the Interagency Statement Clarifying the Role of Supervisory Guidance issued by the CFPB, OCC, Federal Reserve Board, FDIC, and the NCUA on September 11, 2018 (2018 Statement). As previously covered by InfoBytes, the October 2018 joint proposal amended the 2018 Statement by (i) clarifying that references in the Statement limiting agency “criticisms” includes criticizing institutions “through the issuance of [matters requiring attention] MRAs and other supervisory criticisms, including those communicated through matters requiring board attention, documents of resolution, and supervisory recommendations”; and (ii) adding that supervisory criticisms should be “specific as to practices, operations, financial conditions, or other matters that could have a negative effect on the safety and soundness of the financial institution, could cause consumer harm, or could cause violations of laws, regulations, final agency orders, or other legally enforceable conditions.”
The Bureau notes that it chose to issue a final rule that is specific to the Bureau and Bureau-supervised institutions, rather than a joint version including the five agencies as it did with the proposal. However, the final rule adopts the proposed rule without substantive change. The final rule is effective 30 days after publication in the Federal Register.
Similar announcements were issued by the OCC, FDIC, and NCUA.
Online lender settles MLA violations for $1.25 million
On January 19, the CFPB announced a settlement with a California-based online lender resolving allegations that the company violated the Military Lending Act (MLA) when making installment loans. This settlement is part of “the Bureau’s broader sweep of investigations of multiple lenders that may be violating the MLA,” which provides protections connected to extensions of consumer credit for active-duty servicemembers and their dependents. As previously covered by InfoBytes, last month the Bureau filed a complaint in the U.S. District Court for the Northern District of California alleging that since October 2016 the lender, among other things, made more than 4,000 single-payment or installment loans to over 1,200 covered borrowers in violation of the MLA. These violations included (i) extending loans with Military Annual Percentage Rates (MAPR) exceeding the MLA’s 36 percent cap; (ii) requiring borrowers to submit to arbitration in loan agreements; and (iii) failing to make certain required loan disclosures, including a statement of the applicable MAPR, before or at the time of the transaction.
Under the terms of the settlement, the company is required to pay $300,000 in consumer redress and pay a $950,000 civil money penalty. The company is also be prohibited from committing future MLA violations and from “collecting on, selling, or assigning any debts arising from Void Loans.” Furthermore, the company is required to submit a compliance plan to ensure its extension of consumer credit complies with the MLA. This plan must include, among other things, a process for correcting information furnished to credit reporting agencies about affected consumers.
CFPB files action against mortgage lender for unlawful practices
On January 15, the CFPB announced a complaint filed in the U.S. District Court for the District of Connecticut against a mortgage lender and four executives (collectively, “defendants”) alleging the defendants engaged in unlawful mortgage lending practices in violation of TILA, FCRA, ECOA, the Mortgage Acts and Practices—Advertising Rule (MAP Rule), and the CFPA. According to the complaint, from as early as 2015 until August 2019 (i) unlicensed sales people would take mortgage applications and offer and negotiate mortgage terms, in violation of TILA and Regulation Z; (ii) company policy regularly required consumers to submit documents for verification before receiving a Loan Estimate, in violation of TILA and Regulation Z; (iii) employees would deny consumers credit without issuing an adverse action notice, as required by the FCRA or ECOA; and (iv) defendants regularly made misrepresentations about, among other things, the availability and cost savings of a FHA streamlined refinance loan, in violation of the MAP Rule. The Bureau is seeking an injunction, as well as, damages, redress, disgorgement, and civil money penalties.
SEC issues nearly $600,000 whistleblower award
On January 14, the SEC announced a whistleblower award of nearly $600,000 in connection with a successful enforcement action. According to the redacted order, the whistleblower provided new, highly valuable information during the course of the investigation, as well as substantial assistance, including meeting with enforcement staff numerous times and providing critical investigative leads. Additionally, the SEC notes that “there is a close nexus” between the whistleblower’s information and certain charges in the covered action.
The SEC has now paid approximately $738 million to 134 individuals since the inception of the program.
Indonesian company settles with OFAC for $1 million for North Korea sanctions violations, enters into deferred prosecution agreement with DOJ
On January 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a more than $1 million settlement with an Indonesian-based paper products manufacturer for 28 apparent violations of the North Korea Sanction Regulations. According to OFAC’s web notice, between 2016 and 2018, the company “exported cigarette paper to entities located in or doing business on behalf of the Democratic People’s Republic of Korea (DPRK),” including a Chinese intermediary that procured paper on behalf of an OFAC-designated company operating under an alias. The company allegedly directed payments for its DPRK-related exports to a U.S. dollar bank account held at a non U.S. bank, leading to 28 wire transfers being cleared through U.S. banks. OFAC noted that while the company initially referenced the DPRK entities on documents such as invoices, packing lists, and bills of lading, it eventually replaced the references with the names of intermediaries located in third countries.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that the company (i) “acted with reckless disregard for U.S. sanctions laws and regulations” by directing DPRK-related payments to its U.S. dollar account; (ii) was aware that management had actual knowledge of the conduct at issue; and (iii) the company’s actions “caused U.S. persons to confer economic benefits to the DPRK and an OFAC-designated person.”
OFAC also considered various mitigating factors, including that the company (i) cooperated with OFAC’s investigation; (ii) has undertaken remedial measures, ceased all dealings with the DPRK, and enhanced its compliance controls and internal policies by, among other things, procuring a sanctions screening service from a third-party provider, implementing a know-your-customer process, and requiring that “all trading companies or agents purchasing goods on behalf of other end-users sign an anti-diversion agreement that includes OFAC sanctions compliance commitments.”
Separately, the DOJ announced that the company agreed to pay a $1.5 million fine and enter into a deferred prosecution agreement for conspiring to commit bank fraud after admitting it deceived U.S. banks in order to trade with the DPRK. The company also “agreed to implement a compliance program designed to prevent and detect violations of U.S. sanctions laws and regulations and to regularly report to the [DOJ] on the implementation of that program.” The company is also required to report violations of relevant U.S. laws to the DOJ and “cooperate in the investigation of such offenses.”
SEC issues whistleblower awards totaling over $1.1 million
On January 7, the SEC announced whistleblower awards totaling over $1.1 million in separate enforcement actions. According to the first redacted order, the SEC awarded three whistleblowers nearly $500,000 for providing information in two related enforcement actions. Information voluntarily provided by the first whistleblower—a company outsider—prompted the opening of the investigation, while the second and third whistleblowers provided significant information contributing to the success of the actions, while also assisting investigative staff.
In the second redacted order, the SEC awarded a whistleblower nearly $600,000 for voluntarily providing information leading to a successful enforcement action, assisting Commission staff, and repeatedly reporting “concerns internally in an effort to correct the problems at the company.”
In the third redacted order, a whistleblower was awarded more than $100,000 for providing independent analysis leading to a successful enforcement action. The whistleblower, among other things, “used information from various publicly available documents to calculate an estimate of an important metric for [the company],” and then “showed that the [c]ompany’s disclosures regarding that metric were implausible.” According to the SEC, this is the fifth individual who received an award based on independent analysis in fiscal year 2021.
The SEC has now paid approximately $737 million to 133 individuals since the inception of the program.