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Fed continues to allow bank insiders access to PPP loans
On May 14, the Federal Reserve Board announced the third extension of a temporary exception from the requirements of section 22(h) of the Federal Reserve Act and corresponding provisions of Regulation O to allow certain bank directors and shareholders to apply for Small Business Administration (SBA) Paycheck Protection Program (PPP) loans from their affiliated banks. The extension is effective immediately and applies to PPP loans made from March 31 through June 30. If the PPP is extended, the rule change will ultimately end on March 31, 2022. The Fed reiterated that any PPP loans extended to bank directors and shareholders must be consistent with SBA’s PPP lending restrictions and done without favoritism from the bank. The original extension was announced on April 17 (covered by InfoBytes here).
Fed further extends temporary exception to allow bank insiders access to PPP
On February 9, the Federal Reserve Board announced the second extension of a temporary exception from the requirements of section 22(h) of the Federal Reserve Act and corresponding provisions of Regulation O to allow bank directors and shareholders to apply for Small Business Administration (SBA) Paycheck Protection Program (PPP) loans from their affiliated banks. The extension is effective immediately and goes through March 31. The Fed reiterated that any PPP loans extended to bank directors and shareholders must be consistent with SBA’s PPP lending restrictions and done without favoritism from the bank. The original extension was announced on April 17 and already extended once (covered by InfoBytes here).
Foreclosure relief operation ordered to pay $40,000 penalty in CFPB action
On July 23, the CFPB announced that the U.S. District Court for the Central District of California entered a stipulated final judgment and order against a foreclosure relief services company, along with the company’s president/CEO (defendants), resolving CFPB allegations that the defendants engaged in deceptive and abusive acts and practices in connection with the marketing and sale of purported financial-advisory and mortgage-assistance-relief services to consumers. As previously covered by InfoBytes, in September 2019, the CFPB filed a complaint alleging that since 2014, the defendants violated the Consumer Financial Protection Act (CFPA) and Regulation O by, among other things, making deceptive and unsubstantiated representations about the efficacy and material aspects of its mortgage assistance relief services, as well as making misleading or false claims about the experience and qualifications of its employees. The Bureau also alleged the defendants’ misrepresentations constituted abusive acts and practices because consumers “generally did not understand and were not in a position to evaluate the accuracy of [the defendants’] marketing representations or the quality of the mortgage-assistance-relief services that [the defendants] sold.” Moreover, the Bureau claimed the defendants further violated Regulation O by charging consumers advance fees before rendering services.
The stipulated final judgment suspends $3 million in consumer redress based upon the defendants’ sworn financial statements and disclosures of material assets that detailed their inability to pay, but orders the defendants to pay $40,000 in civil money penalties. Additionally, the judgment permanently restrains the defendants from offering mortgage relief and financial advisory services and subjects the defendants to certain reporting and recordkeeping requirements.
Court rejects dismissal of CFPB claims against foreclosure relief services company
On May 20, the U.S. District Court for the Central District of California denied a foreclosure relief services company and its owner’s (collectively, “defendants”) motion to dismiss an action by the CFPB accusing the defendants of violating the Consumer Financial Protection Act (CFPA) and Regulation O. As previously covered by InfoBytes, in September 2019, the CFPB filed a complaint against the defendants, alleging that since 2014 the defendants made deceptive and unsubstantiated representations about the efficacy and material aspects of its mortgage assistance relief services, and made misleading or false claims about the experience and qualifications of its employees. The Bureau alleged that the defendants’ representations constituted abusive acts and practices because, among other things, consumers “generally did not understand and were not in a position to evaluate the accuracy of [the defendants’] marketing representations or the quality of the mortgage-assistance-relief services that [the defendants] sold.” Moreover, the Bureau claimed the defendants further violated Regulation O by charging consumers advance fees before rendering services. The defendants moved to dismiss the action.
The district court rejected all of the defendants’ arguments, concluding that the Bureau “as an organization and its establishment” are constitutionally permissible, and therefore, can bring enforcement actions against the company. The court also held that the Bureau adequately pleaded that the defendants’ were covered by the CFPA and Regulation O, as providers of “[a]udit and litigation documents to consumers, which Defendants claim will prevent foreclosure or modify the terms of [consumers] mortgage[s].” And lastly, the court held that the Bureau sufficiently alleged that the defendants took “unreasonable advantage of the consumer’s lack of understanding” of the material terms of the product they were selling.
FDIC releases April enforcement actions
On May 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in April. The FDIC issued 23 orders and 2 notices of changes, which “consisted of 12 Section 19 orders, 3 orders of prohibition, 1 order to pay, 3 consent orders, 1 order to cease and desist, 4 orders terminating consent orders, and 1 order terminating an order of restitution.” Among the actions is a cease and desist order and civil money penalty issued against a Louisiana-based bank for allegedly violating the Bank Secrecy Act, EFTA, RESPA, TILA, the National Flood Insurance Program, and HMDA. The order follows the issuance of a 2019 recommended decision on remand by an FDIC administrative law judge (ALJ), who also found that the bank failed to comply with a majority of the provisions outlined in a 2011 memorandum of understanding entered into with the FDIC two years prior to the filing of this action. Specifically, the recommended decision found that the bank, among other things, “violated the independence requirement of the FDIC’s rules and regulations pertaining to appraisals by allowing a lending officer originating loans to appraise the collateral underlying the loan,” and “allow[ing] a high ranking officer to repeatedly overdraw his bank account without being charged overdraft fees” in violation of Regulation O of the Federal Reserve Board. Other violations included that the bank failed to: (i) conduct independent property evaluations and appraisals; (ii) disclose unauthorized fees or investigate reports of erroneous charges; (iii) assess flood insurance needs or inform borrowers of force-placed flood insurance rules; (iv) file suspicious activity reports and currency transaction reports; (v) implement a “meaningful compliance program” to ensure the bank did not engage in foreign financial transactions with prohibited persons identified by the Office of Foreign Assets Control; and (v) “conduct proper compliance training or maintain an effective audit program for consumer compliance matters.” The FDIC’s order affirmed the ALJ’s recommended decision to subject the bank to an order to cease and desist and pay a $500,000 civil money penalty.
Additionally, the FDIC entered a consent order against an Illinois-based bank relating to alleged weaknesses in its Bank Secrecy Act compliance program.
Indiana amends certain financial institution and consumer credit provisions
On March 18, the Indiana governor signed House Enrolled Act No. 1353, which amends various provisions concerning financial institutions and consumer credit, including those related to first lien mortgage lenders, credit unions, and surety bond requirements for licensed mortgage loans originators, pawnbrokers, and money transmitters, among others. Among other things, the act also amends a provision in the state statute governing credit unions, which provides that loans made by a credit union to the credit union’s individual officers (and to the immediate family members of an officer, director, or supervisory committee member) must be made in accordance with Regulation O of the Federal Reserve Board. The act also stipulates that required appraisals connected to mortgage loans made to credit union members must be “consistent with the appraisal standards and transaction value limitations” outlined in the National Credit Union Administration’s appraisal regulations. The amendments take effect July 1.
District Court orders millions in restitution and civil penalties against two foreclosure relief companies
On November 4, the U.S. District Court for the Western District of Wisconsin ordered restitution and disgorgement, civil penalties, and permanent injunctive relief in an action brought by the CFPB against two former foreclosure relief companies and their principals (collectively, “defendants”) for violations of Regulation O. As previously covered by InfoBytes, in 2014, the CFPB, FTC, and 15 state authorities took action against foreclosure relief companies and associated individuals, including the defendants, alleging the use of deceptive marketing tactics to obtain business from distressed borrowers. The CFPB filed three suits, the FTC filed six, and the state authorities collectively initiated 32 actions. Specifically, the CFPB alleged that the companies and individuals (i) collected fees before obtaining a loan modification; (ii) inflated success rates and likelihood of obtaining a modification; (iii) led borrowers to believe they would receive legal representation; and (iv) made false promises about loan modifications to consumers, in violation of Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule. Among other things, the court order holds company one and its principals jointly and severally liable for over $18 million in restitution, while company two and its same principals are jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.
CFPB files deceptive and abusive allegations against foreclosure relief services company and principals
On September 6, the CFPB announced a complaint filed in the U.S. District Court for the Central District of California against a foreclosure relief services company, along with the company’s president/CEO (defendants), for allegedly engaging in deceptive and abusive acts and practices in connection with the marketing and sale of purported financial-advisory and mortgage-assistance-relief services to consumers. According to the complaint, since 2014 the defendants allegedly violated the Consumer Financial Protection Act (CFPA) and Regulation O by making deceptive and unsubstantiated representations about the efficacy and material aspects of its mortgage assistance relief services, as well as making misleading or false claims about the experience and qualifications of its employees. Additionally, the Bureau alleged the defendants’ representations about their services constituted abusive acts and practices because, among other things, consumers “generally did not understand and were not in a position to evaluate the accuracy of [the defendants’] marketing representations or the quality of the mortgage-assistance-relief services that [the defendants] sold.” Moreover, the Bureau claimed the defendants further violated Regulation O by charging consumers advance fees before rendering services.
In addition, the Bureau entered a proposed stipulated final judgment and order against the company’s principal auditor for providing “substantial assistance in furtherance of [the defendants’] unlawful conduct” in violation of the CFPA and Regulation O. The proposed judgment imposes a $493,403.04 civil penalty, of which all but $5,000 is suspended due to the auditor’s limited ability to pay. The auditor is also permanently banned from providing mortgage assistance relief services or consumer financial products and services.