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On December 4, FinCEN announced the release of a Financial Trend Analysis titled, “Elders Face Increased Financial Threat from Domestic and Foreign Actors.” In compiling the report, FinCEN reviewed Bank Secrecy Act (BSA) elder financial exploitation suspicious activity reports (SARs) from 2013 to 2019 to detect patterns and trends. Among other things, the study found that (i) elder financial exploitation filings nearly tripled during the study period, from around 2,000 per month in 2013 to nearly 7,500 in 2019, the majority of which were filed by money services businesses (MSBs) and depository institutions; (ii) while the amount of SARs filed by MSBs ebbed and flowed from 2013 to 2019, those of depository institutions steadily increased; (iii) MSBs filed nearly 80 percent of all SARs describing financial scams, while securities and futures firms filed just over 70 percent of all SARs describing theft; (iv) financial theft from elders is most frequently perpetrated by family members or caregivers; (v) SARs indicated that the most common scams included lottery, person-in-need, and romance scams, the majority of which saw elder victims transferring funds through MSBs; and (vi) money transfer scam SARs were most commonly filed by MSBs who transferred money to a receiver located outside the U.S.
On November 19, the FDIC announced a new advisory committee between the agency and state regulators to discuss issues related to the regulation and supervision of state-chartered financial institutions. The committee, titled the Advisory Committee of State Regulators (ACSR), will explore topics such as (i) safety and soundness; (ii) consumer protection issues; (iii) the creation of new banks; and (iv) financial system risks, including cyberattacks or money laundering. Members of the ACSR will be composed of state financial regulators, as well as other individuals “with expertise in the regulation of state-chartered financial institutions.”
On November 14, NYDFS announced a proposed regulation, which would allow regulated entities to share confidential supervisory information with legal counsel or with independent auditors without obtaining prior written approval from the agency. Currently, entities are required to receive prior written approval for each instance in which they want to share confidential supervisory information with hired legal counsel or independent auditors. The proposal would allow a regulated entity to share this information without prior written approval from NYDFS as long as there is a written agreement between the parties, in which the hired legal counsel or independent auditor agrees to, among other things, (i) only use the information for the purposes of legal representation or auditing services; (ii) not to disclose the information to its employees except on a “need to know” basis; (iii) promptly notify NYDFS of any requests for the information; and (iv) maintain records for all information disclosed pursuant to the regulation. Comments on the proposal will be accepted for 60 days following publication in the state register on November 27.
On October 8, the CFPB issued its Dodd-Frank mandated semi-annual report to Congress covering the Bureau’s work from October 1, 2018 to March 31, 2019. In presenting the report, Director Kathy Kraninger stressed that the Bureau will continue to use the tools provided by Congress to protect consumers, including “vigorous and even-handed enforcement” with a focus on prevention of harm. Kraninger also reiterated her commitment “to strengthening the consumer financial marketplace by providing financial institutions clear ‘rules of the road’ that allow them to offer consumers a range of high-quality, innovative financial services and products.” Among other things, the report analyzed significant problems consumers face when obtaining consumer financial products and services, assessed actions taken by state attorneys general or state regulators relating to federal consumer financial law, and provided a recap of supervisory and enforcement activities.
While the Bureau did not adopt any significant final rules or orders during the preceding year, it did issue two significant notices of proposed rulemaking relating to certain payday lending requirements under the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans.” (See previous InfoBytes coverage here.) The Bureau also adopted several “less significant rules,” and engaged in significant initiatives concerning, among other things, (i) the disclosure of loan-level HMDA data; (ii) Residential Property Assessed Clean Energy proposed rulemaking; (iii) an assessment of significant rules, including the Remittance Rule, the Ability to Repay/Qualified Mortgage Rule, and the RESPA Mortgage Servicing Rule; (iv) trial disclosure programs; (v) innovation policies related to no-action letters and product sandbox and trial disclosure programs; and (vi) suspicious activity reports on elder financial exploitation.
On October 1, the OCC’s Committee on Bank Supervision released its bank supervision operation plan (Plan) for fiscal year 2020. The Plan outlines the agency’s supervision priorities and specifically highlights the following supervisory focus areas: (i) cybersecurity and operational resiliency; (ii) Bank Secrecy Act/anti-money laundering compliance; (iii) commercial and retail credit loan underwriting; (iv) effects of changing interest rates on bank activities and risk exposures; (v) preparation necessary for the current expected credit losses accounting standard, as well the potential phase-out of the London Interbank Offering Rate; and (vi) technological innovation and implementation.
The annual plan guides the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, service providers, and agencies of foreign banking organizations. Updates about these priorities will be provided in the OCC’s Semiannual Risk Perspective.
On September 13, the CFPB released its summer 2019 Supervisory Highlights, which outlines its supervisory and enforcement actions in the areas of automobile loan origination, credit card account management, debt collection, furnishing, and mortgage origination. The findings of the report cover examinations that generally were completed between December 2018 and March 2019. Highlights of the examination findings include:
- Auto loan origination. The Bureau noted that one or more examinations found that guaranteed asset protection (GAP) products were sold to consumers with low loan-to-value (LTV) loans, resulting in those consumers purchasing a product that was not beneficial to them. The Bureau concluded these sales were an abusive practice, as “the lenders took unreasonable advantage of the consumers’ lack of understanding of the material risks, costs, or conditions of the product.”
- Credit card account management. The Bureau found several issues with credit card account servicing, including violations of Regulation Z for failing to clearly and conspicuously provide disclosures required by triggering terms in online advertisements and for offsetting consumers’ credit card debt against funds that the consumers had on deposit with the issuers without sufficient indication that the consumer intended to grant a security interest in those funds.
- Debt collection. The Bureau noted violations of the FDCPA’s prohibition on falsely representing the amount due when debt collectors claimed and collected interest that was not authorized by the underlying contracts between the debt collectors and the creditors.
- Credit information furnishing. The Bureau found multiple violations of the FCRA, including furnishers failing to complete dispute investigations within the required time period and failing to promptly send corrections or updates to all applicable credit reporting agencies after a determination that the information was no longer accurate.
- Mortgage origination. The Bureau noted that creditors had violated Regulation Z by disclosing inaccurate APRs for closed-end reverse mortgages and also by using a unit-period of one month instead of one year to calculate the total annual loan cost (TALC) rate and the future value of all advances, leading to inaccurate TALC disclosures.
The report notes that in response to most examination findings, the companies have taken, or are taking, remedial and corrective actions, including by identifying and compensating impacted consumers and updating their policies and procedures to prevent future violations.
Lastly, the report also highlights the Bureau’s recently issued rules and guidance.
On September 10, the FDIC announced updates to its Consumer Compliance Examination Manual (CEM). The CEM includes supervisory policies and examination procedures for evaluating financial institutions’ compliance with federal consumer protection laws and regulations. The recent updates include, among other things, (i) changes to the sections and questions of the Fair Lending Scope and Conclusions Memorandum; and (ii) incorporation of the private flood insurance final rule’s provisions pertaining to the mandatory and discretionary acceptance of private flood insurance by financial institutions.
On August 28, the CFPB updated its examination procedures for automobile finance in its Supervision and Examinations Manual. The procedures are comprised of seven modules and each examination will cover one or more modules. Prior to using the procedures, examiners will complete a risk assessment and examination scope memorandum, which will assist in determining which of the seven modules the exam will cover: (i) company business model; (ii) advertising and marketing; (iii) application and origination; (iv) payment processing and account maintenance; (v) collections, debt restructuring, repossession, and accounts in bankruptcy; (vi) credit reporting, information sharing, and privacy; and (vii) examiner conclusions and wrap-up.
On August 27, the FDIC issued Financial Institution Letter FIL-47-2019 announcing an update to its Risk Management Manual of Examination Policies to incorporate a new section titled “Risk-Focused, Forward-Looking Safety and Soundness Supervision.” According to the letter, the new section covers the FDIC’s “long-standing examination philosophy” that the focus of supervision should be on areas that present the greatest risk. The letter notes that the risk-focused approach is “forward-looking,” with the intent to look beyond the condition of an institution at a specific point in time to just how well the institution will be able to respond to a changing market and assist examiners in identifying and correcting “weaknesses in conditions or practices before they impact an institution’s financial condition.”
On July 22, the Federal Reserve Board, FDIC, NCUA, and the OCC along with the Financial Crimes Enforcement Network (FinCEN), released a joint statement to improve transparency of their risk-focused approach to Bank Secrecy Act/anti-money laundering (BSA/AML) supervision. The statement outlines common practices for assessing a bank’s risk profile, including (i) leveraging available information, including internal BSA/AML risk assessments, independent audits, and results from previous examinations; (ii) contacting banks between examinations or before finalizing the scope of an examination; and (iii) considering the bank’s ability to identify, measure, monitor, and control risks. Examiners will use the information from the risk assessments to scope and plan the examination, as well as to evaluate the adequacy of the bank’s BSA/AML compliance program. The statement notes that the extent of examination activities needed to evaluate a bank’s BSA/AML compliance program, “generally depends on a bank’s risk profile and the quality of its risk management processes.”
- Daniel P. Stipano to discuss “Beneficial Ownership: You have questions – We have quick answers” at the ABA/ABA Financial Crimes Enforcement Conference
- Moorari K. Shah to discuss "Legal & regulatory issues – Next wave of regulatory policy" at the Marketplace Lending & Alternative Financing Summit
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at an American Bar Association webinar
- Kari K. Hall and Christopher M. Walczyszyn to speak on the "Understanding updates to Regulation CC to ensure effective check processing" at a National Association of Federal Credit Unions webinar
- Daniel P. Stipano to discuss "ACAMS Moneylaundering.com Year-End Compliance Review and 2020 Outlook" at an ACAMS webinar
- APPROVED Webcast: Periodic reporting made easier
- Daniel P. Stipano to discuss "A 20/20 view on 2020’s legislative and regulatory outlook" at the ACAMS Anti-Financial Crime and Public Policy Conference