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OCC revises civil money penalty manual
On November 29, the OCC announced revisions to its civil money penalty (CMP) manual. Specifically, the OCC revised the CMP matrix, which is a tool used to guide the OCC’s decision making in assessing CMPs. The revised CMP matrix, applicable to OCC-regulated institutions, allows for sufficient differentiation among varying levels of misconduct or by institution size, and includes updated mitigating factors to provide a stronger incentive for banks to fully address underlying deficiencies. The OCC also announced a revised Policies and Procedures Manual (PPM) for assessing CMPs. This version replaces the November 13, 2018, version conveyed by OCC Bulletin 2018-41, “OCC Enforcement Actions: OCC Enforcement Action Policies and Procedures Manuals.” Highlights of the PPM include, among other things; (i) revised mitigating factors of self-identification, remediation or corrective action, and restitution: (ii) increased scoring weight of mitigating factors; and (iii) a revised table titled “Suggested Action Based on Total Matrix Score and Total Assets of Bank.” The OCC further noted that the CMP matrix is not a substitute for sound supervisory judgment, and said the OCC may depart from the matrix suggestions when appropriate and when based on the specific facts and circumstances of each matter. The OCC will begin using the revisions on January 1, 2023.
Chopra: Large repeat offenders should face tougher consequences
On March 28, CFPB Director Rohit Chopra warned that large, dominant banks and firms that repeatedly break the law “should be subject to the same consequences of enforcement actions as small firms.” Speaking before the University of Pennsylvania Law School as the 2022 Distinguished Lecturer on Regulation, Chopra told attendees that the current “double-standard” enforcement approach needs to end, and that the Bureau intends to establish dedicated units within its supervision and enforcement divisions to detect repeat offenders and corporate recidivists “to better hold them accountable.” This may mean that insured depository institutions lose access to federal deposit insurance or are put directly into receivership, Chopra stated, explaining that “[r]epeat offenses and, in particular, order violations, may be a sign that an institution’s condition or behavior is unsafe and unsound.”
Pointing out that penalties become meaningless if regulators are not willing to enforce them, Chopra stated that the Bureau needs “to move away from just monetary penalties and consider an arsenal of options that really work to stop repeat offenses.” To address this, Chopra outlined a new set of “bright-line structural remedies, rather than press-driven approaches” that the Bureau will consider when it discovers large entities are repeatedly committing the same types of violations. These include: (i) imposing limits or caps on size or growth; (ii) banning certain types of business practices; (iii) forcing companies to divest certain product lines; (iv) placing limitations on leverage or requirements to raise equity capital; and (v) revoking government granted privileges. Additionally, with respect to licensed nonbank institutions of all sizes that repeatedly violate the law, Chopra indicated that the Bureau will deepen its collaboration with state licensing officials to allow states to determine whether to suspend licenses or liquidate assets.
Chopra also raised the prospect of targeting individuals. “Agency and court orders bind officers and directors of the corporation, and so do the laws themselves, so there are multiple ways in which individuals are held accountable. Where individuals play a role in repeat offenses and order violations, it may be appropriate for regulatory agencies and law enforcers to charge these individuals and disqualify them. Dismissal of senior management and board directors, and lifetime occupational bans should also be more frequently deployed in enforcement actions involving large firms.” Chopra emphasized that “[w]hen it comes to individuals, we also need to pay close attention to executive compensation incentives. Important remedies for restoring law and order may include clawbacks, forfeitures, and other changes to executive compensation, including where we tie up compensation for longer periods of time and use that deferred compensation as the first pot of money to pay fines.”
OFAC issues Ethiopia sanctions regulations and amendments for civil penalties
On February 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions regulations pursuant to Executive Order 14046 of September 17, 2021, “Imposing Sanctions on Certain Persons with Respect to the Humanitarian and Human Rights Crisis in Ethiopia.” According to the final rule, OFAC “intends to supplement these regulations with a more comprehensive set of regulations, which may include additional interpretive guidance and definitions, general licenses, and other regulatory provisions.” The regulations become effective February 9, upon publication in the Federal Register.
OFAC also announced that it is amending its regulations to implement the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which adjusts for inflation the maximum amount of the civil monetary penalties that may be assessed under relevant OFAC regulations. The amendments become effective February 9, upon publication in the Federal Register.
Agencies adjust civil penalties to account for inflation
Recently, the CFPB, CFTC, FDIC, FinCen, FHFA, and OCC provided notice in the Federal Register regarding adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule (see CFPB here, CFTC here, FDIC here, FinCen here, FHFA here, and OCC here) adjusts the maximum amounts of civil money penalties and provides a chart reflecting the inflation-adjusted maximum amounts associated with the penalty tiers for particular types of violations within each regulator’s jurisdiction. The OCC’s adjusted civil money penalty amounts are applicable to penalties assessed on or after January 12. The new CFPB, CFTC, FDIC, and FHFA civil money penalty amounts are applicable to penalties assessed on or after January 15. FinCEN's adjusted civil money penalty amounts are effective January 24.
FinCEN issues final rule replacing obsolete BSA civil penalty regulations
On December 23, the Financial Crimes Enforcement Network (FinCEN) published a final rule amending the Bank Secrecy Act civil penalty regulations concerning requirements for reporting foreign financial accounts and transactions with foreign financial agencies. Specifically, the final rule removes civil penalty language that was made obsolete by the American Jobs Creation Act of 2004’s enactment of statutory revisions to the computation of a civil money penalty, which included provisions for increasing the maximum penalty for willful violations. The final rule took effect immediately.
OCC settles with bank’s former GC on account openings
On January 15, the OCC announced a $3.5 million penalty against a national bank’s former general counsel for his role in the bank’s incentive compensation sales practices. As previously covered by InfoBytes, in January 2020, the OCC announced charges against the former general counsel and other executives, seeking a lifetime prohibition from participating in the banking industry, a personal cease and desist order, and/or civil money penalties. The January announcement included settlements with three of the executives, and the OCC settled with three others in September 2020 (covered by InfoBytes here).
In addition to the $3.5 million penalty, the consent order against the former general counsel includes a personal cease and desist, and a requirement to cooperate with the OCC in any investigation or proceeding related to the sales practices of the bank. The consent order does not prohibit the former general counsel from holding future executive positions within the industry.
CFPB settles with auto loan company for inaccurate furnishing
On December 22, the CFPB announced a settlement with a nonprime auto loan originator and servicer (company) for allegedly violating the FCRA by providing erroneous consumer loan data to consumer reporting agencies (CRAs). According to the consent order, between January 2016 and August 2019, the company (i) furnished inaccurate information to CRAs it knew or should have known was inaccurate; (ii) failed to promptly update information with the CRAs once it was determined to be inaccurate or incomplete; (iii) failed to furnish dates of first delinquency for severely delinquent or charged off accounts; and (iv) failed to implement reasonable written policies and procedures regarding the accuracy of furnished information. The consent order imposes a civil money penalty of $4.75 million and requires the company to, among other things, correct all inaccuracies identified by the Bureau, conduct monthly reviews of information furnished to CRAs, and establish reasonable written policies and procedures regarding the accuracy and integrity of furnished information.
Court enters nearly $90 million default judgment against student debt-relief defendants
On December 15, the U.S. District Court for the Central District of California entered a default judgment and order against two companies (collectively, “default defendants”) for their role in a student loan debt-relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the student loan debt relief operation (defendants) for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. The complaint alleged that the defendants violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the complaint asserts that the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments. In September, the court entered final judgments against four of the defendants (covered by InfoBytes here), which included a suspended monetary judgment of over $95 million due to the defendants’ inability to pay.
The new default order enters a $55 million judgment against one of the defaulting defendants and requires the defaulting defendant to pay a $30 million civil money penalty with $50,000 of that sum going directly to each of the states. Additionally, the court entered a judgment of over $165,000 to the other defaulting defendant and total civil money penalties of $2.5 million, with $10,000 going to each of the states directly and an additional $1.25 million to California. The judgment also, among other things, permanently bans the defaulting defendants from telemarketing any consumer financial product or service and from selling any debt-relief service.
Court enters judgments against multiple defendants in CFPB debt-relief action
On December 15, the U.S. District Court for the Central District of California entered final judgment against two defendants (defendants) and a default judgment against another defendant (defaulting defendant) in an action brought by the CFPB alleging the defendants (and others not subject to these judgments) charged thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, in July, the CFPB filed a complaint against the defendants, one other company, its two owners, and four attorneys, alleging the companies would market its debt-relief services to customers over the phone, encouraging those with private loans to sign up with an attorney to reduce or eliminate their student debt. The businesses allegedly charged the fees before the customer had made at least one payment on the altered debts, in violation of the TSR’s prohibition on requesting or receiving advance fees for debt-relief service or, for certain defendants, the TSR’s prohibition on providing substantial assistance to someone charging the illegal fees. In August, the court approved stipulated final judgments with one of the owners of the other company and three of the attorneys. In December, the court entered a default judgment against the other company and another owner (previous InfoBytes coverage available here).
The final judgment permanently bans the defendants from engaging in any debt-relief service or telemarketing of any consumer financial product or service. Additionally, the court entered a suspended judgment of over $11 million in redress, which will be satisfied by a payment of $5,000 (due to an inability to pay) and each defendant is required to pay a civil money penalty of $1 to the Bureau. Liability for nearly $5 million was entered by default judgment against the defaulting defendant and a civil monetary penalty in the amount of $5 million.
Court enters $41 million default judgment against student debt-relief operators
On December 3, the U.S. District Court of the Central District of California entered a default judgment against a student debt-relief company and one of its owners (collectively, “defaulting defendants”) in an action brought by the CFPB alleging the defaulting defendants (and others not subject to the judgment) charged thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, in July, the CFPB filed a complaint against the defaulting defendants, one other company, its owner, and four attorneys, alleging the companies would market its debt-relief services to customers over the phone, encouraging those with private loans to sign up with an attorney to reduce or eliminate their student debt. The businesses allegedly charged the fees before the customer had made at least one payment on the altered debts, in violation of the TSR’s prohibition on requesting or receiving advance fees for debt-relief service or, for certain defendants, the TSR’s prohibition on providing substantial assistance to someone charging the illegal fees. In August, the court approved stipulated final judgments with the other company owner (available here) and three of the attorneys (available here, here, and here).
The court entered into a default judgment against the defendants after they failed to file an answer or otherwise respond to the Bureau’s complaint. The judgment requires the defaulting defendants to pay over $11 million in consumer redress with separate $15 million civil money penalties entered against the company and the owner. Additionally, the defaulting defendants are permanently banned from providing debt-relief services or engaging in telemarketing of any consumer financial product or service.
- Keisha Whitehall Wolfe to discuss “Tips for successfully engaging your state regulator” at the MBA's State and Local Workshop
- Max Bonici to discuss “Enforcement risk and trends for crypto and digital assets (Part 2)” at ABA’s 2023 Business Law Section Hybrid Spring Meeting
- Jedd R. Bellman to present “An insider’s look at handling regulatory investigations” at the Maryland State Bar Association Legal Summit