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NYDFS details redlining issues from nonbank lenders
On February 4, NYDFS released a report on redlining in the Buffalo metropolitan area, concluding that there is a “distinct lack of lending by mortgage lenders, particularly non-depository lenders” to majority-minority populations and to minority homebuyers in general. Among other things, the report concluded that (i) while minorities in the Buffalo region comprise about 20 percent of the population, they receive less than 10 percent of total loans made in the region; (ii) nonbank lenders lent at a lower rate in majority-minority neighborhoods than depository institutions did; and (iii) several of the nonbank mortgage lenders did not have adequate fair lending compliance programs and do not make an effort to serve majority-minority neighborhoods. The report made numerous recommendations, including a recommendation to amend the New York Community Reinvestment Act (CRA) to cover nonbank mortgage lenders and a request that the OCC and the CFPB investigate federally regulated institutions serving the Buffalo area for violations of fair lending laws.
Additionally, NYDFS announced a settlement with a nonbank lender in connection with its lending to minorities and in majority-minority neighborhoods in Buffalo and Syracuse, New York. The settlement agreement found no evidence of intentional discrimination or fair lending law violations but rather weaknesses in the lender’s compliance program. The agreement outlines efforts the lender will take to “provide more meaningful access to residential loans and financing for minorities and individuals living in majority-minority neighborhoods” in Western and Central New York. Among other things, the lender will (i) develop a compliance management plan; (ii) increase marketing to majority-minority census tracts; (iii) create a $150,000 special financing program to increase loan originations for residents of majority-minority neighborhoods; and (iv) increase annual training.
Bank reaches $5.2 million settlement in ATM fee class action
On February 3, consolidated class members filed an unopposed motion for preliminary approval of a settlement agreement in the U.S. District Court for the Southern District of Ohio to resolve allegations that a national bank breached its account agreement by assessing balance inquiry fees in certain circumstances. Class members, comprised of current and former account holders, claimed that the bank assessed fees if account holders used an ATM outside of the bank’s network (non-bank ATM) to check their balances. The class also alleged that the bank assessed multiple fees if a balance inquiry was undertaken “during the same ATM visit as a cash withdrawal or other funds transfer.” As a result of the action, the bank modified its account disclosures to “better inform its customers that they could be charged a fee for a balance inquiry” at a non-bank ATM. The preliminary settlement seeks to certify class members who were assessed the contested fees from January 1, 2010 through October 31, 2018 and will not require class members to file claims to receive the settlement’s benefits. Under the preliminary settlement terms, the bank will pay $5.2 million into a common fund, and has agreed to analyze its historical transaction data to identify settlement class members and automatically credit settlement proceeds into their accounts via direct deposit.
Court approves grocery store data breach settlement
On January 25, the U.S. District Court for the Central District of Illinois preliminarily approved a class action settlement, resolving allegations that a grocery chain was responsible for a data breach that exposed the credit card information of consumers. The preliminary settlement would allow class members to receive reimbursement of up to $225 for out-of-pocket expenses related to the breach, including (i) unreimbursed bank, overdraft, and late fees; (ii) long distance and cell phone charges; and (iii) costs related to credit monitoring and identity theft protection. Additionally, class members may be awarded up to $5,000 for “extraordinary unreimbursed monetary losses” resulting from the compromise of personal information. Moreover, the grocery chain agreed to “establish and maintain security enhancements that are estimated to cost more than $20 million.” Class members who do not agree to the settlement may keep their right to independently sue if they opt out by May 24.
District court approves $13 million settlement in ATM fee class action
On January 21, the U.S. District Court for the Southern District of California granted final approval of a $13 million class action out-of-network (OON) ATM fee settlement. As previously covered by InfoBytes, the plaintiffs filed the action asserting that the bank charges its customers two OON fees when an account holder conducts a balance inquiry and then obtains a cash withdrawal at an OON ATM. The bank moved for summary judgment on the breach of contract claim, which the district court denied, concluding that there were ambiguities regarding the fee terms provided in the contract and on the on-screen ATM warnings. After participating in a private mediation, the plaintiffs filed an unopposed motion for preliminary approval of the settlement. The $13 million settlement covers a total of over 1.6 million class members—defined as all bank account holders in the U.S. who incurred at least one OON balance inquiry fee during varying time periods based on location— and provides for a $10,000 incentive award to each of the named plaintiffs and $3.9 million for plaintiffs’ counsel. In exchange for their share of the settlement funds, the class members will agree to release the bank from all claims relating to the action.
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.
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.”
OFAC issues Syria-related settlement with French bank for $8.5 million
On January 4, the Department of Treasury’s Office of Foreign Assets Control (OFAC) announced an over $8.5 million settlement with a French bank that facilitates trade finance between Europe and the Middle East, North Africa, sub-Saharan Africa, and Asia for 127 apparent violations of Syria-related sanctions. The 127 apparent violations include: (i) 114 internal transfers on behalf of Syrian entities totaling over $1 billion, with 45 of the transfers processed between two clients, one being a sanctioned Syrian entity and 69 of the transfers conducted as a foreign exchange transaction with a sanctioned Syrian customer; and (ii) 13 “back-to-back” letter of credit transactions or other trade finance transactions involving sanctioned Syrian parties, processed through a U.S. bank.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that management had “actual knowledge” of the conduct, and that the bank “conferred substantial economic benefit to U.S.-sanctioned parties,” causing “significant harm to the integrity of U.S. sanctions programs and their associated policy objectives.”
OFAC also considered various mitigating factors, including (i) the majority of the violations occurred in late 2011, after an August 2011 Executive Order significantly expanded U.S. sanctions against Syria; (ii) the bank voluntarily self-disclosed the apparent violations and cooperated with the investigations; and (iii) had a compliance program in place at the time of the apparent violations.
OFAC settles with digital asset company over multiple sanctions violations
On December 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a nearly $100,000 settlement with a California-based digital asset security company for 183 apparent violations of multiple sanctions programs. According to OFAC, between March 2015 and December 2019, the company processed 183 digital currency transactions, totaling over $9,000, on behalf of individuals who were located in sanctioned jurisdictions, such as the Crimea region of Ukraine, Cuba, Iran, Sudan, and Syria. OFAC notes that, prior to April 2018, the company allowed users to open accounts by providing only a name and email address, and while it then amended its policies to require all new accountholders to verify the country in which they were located, it did not perform additional verification or diligence on their actual location.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that the company (i) failed to implement appropriate, risk-based sanctions compliance controls; and (ii) had reason to know that some of its users were located in sanctioned jurisdictions based on users’ IP address data.
OFAC also considered various mitigating factors, such as (i) the company not having received a penalty notice from OFAC in the proceeding five years; (ii) the company cooperating with the investigation; and (iii) the company having undertaken remedial measures, including hiring a Chief Compliance Officer and implementing a new OFAC policy.
Special Alert: Federal and state authorities take significant actions to address mortgage servicing concerns
On December 7, the Consumer Financial Protection Bureau, Multi-State Mortgage Committee of state mortgage banking regulators, and every state attorney general took actions against a large nonbank mortgage company for alleged violations pertaining to both mortgage origination and servicing practices that took place largely between January 2012 and December 31, 2015. The Special Inspector General for the Troubled Asset Relief Program also provided assistance as part of the government’s efforts. The settlement will result in approximately $85 million in remediation to consumers, the majority of which has been paid, and $6 million in fees and penalties. The Department of Justice, through its U.S. Trustee Program, also reached settlements with this mortgage company, as well as two national banks, pertaining to alleged violations of the bankruptcy code. Those three bankruptcy settlements will result in approximately $117 million of refunds and credits to impacted borrowers.
Online bank reaches settlement with customers over service disruption
On October 28, the U.S. District Court for the Northern District of California issued an order granting preliminary approval of a putative class action settlement concerning allegations that an online bank’s service disruption prevented customers from accessing their account, including through card purchases and ATM withdrawals. The plaintiffs also claimed that after the service disruption, “some customers reported incorrect account balances and unauthorized charges.” The plaintiffs alleged, among other things, claims for negligence, unjust enrichment, breaches of contract and fiduciary duty, conversion, and violations of several state laws. Following a series of settlement negotiations, the parties entered into an amended settlement identifying the settlement class as “[a]ll consumers who attempted to and were unable to access or utilize the functions of their accounts with [the defendant], as confirmed by a failed transaction or locked card as recorded in [the defendant]’s business records, beginning on October 16, 2019 through October 19, 2019, as a result of the Service Disruption.” Under the settlement, tier one customers who are unable or choose not to provide documentation substantiating their alleged losses can receive up to $25 for verified claims. Tier two customers who can show “‘reasonable documentation’ to substantiate their loss” can receive their verified loss, up to $750. The defendant has agreed to set aside $4 million to cover tier one claims and $1.5 million to cover tier two claims. The defendant is also required to make a minimum payment of $1.5 million in addition to the nearly $6 million it already paid to active customers in connection with the service disruption in the form of $10 “courtesy” payments, as well as credits the defendant issued to customers “who incurred ‘certain transaction fees’” during the service disruption.