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Financial Services Law Insights and Observations

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  • FTC reaches settlement with dealership to resolve UDAP and fair lending allegations

    Federal Issues

    On May 27, the FTC announced settlements with a New York City auto dealer and its general manager (collectively, “defendants”) to resolve allegations that the defendants engaged in illegal auto financing sales practices and maintained a policy of charging African-American and Hispanic car buyers more for financing that similarly situated non-Hispanic white consumers. The complaint alleges that the defendants violated the FTC Act, TILA, and ECOA. According to the complaint, the defendants engaged in deceptive and unfair practices by, among other things, allegedly (i) advertising low sales prices but failing to honor them; (ii) inflating the cost through a variety of methods, including telling buyers that they had to pay unnecessary charges to purchase “certified pre-owned” cars, double-charging consumers for taxes and fees without their consent, and altering the terms in the middle of a sale; and (iii) charge higher financing “markups” and fees to African-American and Hispanic customers.

    The defendants—who neither admit nor deny the allegations—have each agreed under the terms of the settlements (see here and here) to pay $1.5 million in consumer redress. The orders also prohibit the defendants from misrepresenting the cost or terms to purchase, lease, or finance a car, and require the defendants to obtain express, informed buyer consent for all charges and provide clear financing disclosures. The defendants are also banned from engaging in unlawful credit discrimination, and are prohibited from engaging in credit transactions unless they establish a fair lending program that will, among other things, provide training for employees and cap the allowed rate markups.

    The Commission vote authorizing the filing of the complaint and stipulated final order was 5-0. Commissioner Chopra issued a concurring statement addressing disparate impact and unfair discrimination in the auto industry, and emphasized it is time for the FTC to use its rulemaking authority to establish protections for car buyers and honest auto dealers. Commissioner Slaughter agreed that there is a need for auto financing and sales market reform, and suggested that the FTC can begin by initiating a rulemaking under Dodd-Frank to regulate dealer markups.

    Federal Issues FTC Fair Lending FTC Act TILA ECOA Enforcement Settlement

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  • ARRC issues LIBOR transition “best practices”

    Federal Issues

    On May 27, the Alternative Reference Rates Committee (ARRC)—a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York—released a set of best practices for market participants to transition from LIBOR to the Secured Overnight Financing Rate (SOFR) before the anticipated cessation of LIBOR at the end of 2021. Key practices recommended include: (i) new USD LIBOR cash products should include ARRC-recommended fallback language as soon as possible; (ii) third-party technology and operations vendors should complete enhancements necessary to support the preferred alternative SOFR by the end of 2020 as outlined in previously issued guidance; (iii) new use of LIBOR should end no later than June 30, 2021, depending on the specific cash product market; and (iv) parties that choose to select a replacement rate at their discretion following a LIBOR transition event should disclose the planned rate selection to relevant parties at least six months prior to the new rate’s effective date.

    Find continuing InfoBytes coverage on LIBOR here.

    Federal Issues LIBOR Interest Rate SOFR Vendor Management

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  • HUD issues mortgagee letter extending interim procedures relating to FHA Section 232 approved mortgages

    Federal Issues

    On May 28, the U.S. Department of Housing and Urban Development issued Mortgagee Letter 2020-15 to all FHA Section 232 Approved Mortgagees regarding the extension of interim procedures issued in Mortgagee Letter 20-10 to address site access issues during the Covid-19 pandemic. The guidance provides temporary modifications pertaining to third-party site inspections for Section 232 FHA-insured healthcare facilities with effective dates within 60 days of the issuance of the mortgagee letter. The letter also provides guidance on other aspects relating to Section 232 properties, including regarding Property Capital Needs Assessments, appraisals, Section 232 Phase 1 Environmental Site Assessments, asbestos surveys, and radon testing, among other things.

    Federal Issues Covid-19 HUD Mortgages FHA Third-Party Insurance

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  • FINRA updates guidance on fingerprinting requirements

    Federal Issues

    On May 28, FINRA updated frequently asked questions guidance regarding relief from certain fingerprinting requirements. The guidance notes that, on May 27, the SEC extended its order providing a temporary relief from fingerprinting requirements of the Securities Exchange Act Rule 17f-2 for FINRA members until June 20, 2020. Because FINRA already provided notification to the SEC in March on behalf of its members, their employees, and associated persons, such individuals may continue to rely on the commissioner’s order and FINRA’s notification. However, for an individual seeking registration pursuant to the submission of a Form U4, a FINRA member firm seeking to rely on temporary exemptive relief for registered persons must comply with FINRA’s guidance with respect to FINRA Rule 1010.

    Federal Issues Covid-19 FINRA SEC Securities Exchange Act

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  • CFPB and Massachusetts AG sue credit-repair telemarketers

    Federal Issues

    On May 22, the CFPB and the Massachusetts attorney general announced a joint lawsuit against a credit repair organization and the company’s president and owner (collectively, “defendants”) for allegedly committing deceptive acts and practices in violation of the Consumer Financial Protection Act (CFPA) and the Massachusetts Consumer Protection Law. The complaint also alleges the defendants engaged in deceptive and abusive telemarketing acts or practices in violation of the Consumer Financial Protection Act’s (CFPA) prohibition against deceptive acts or practices and the FTC’s Telemarketing Sales Rule (TSR). According to the complaint filed in the U.S. District Court for the District of Massachusetts, the defendants allegedly enrolled tens of thousands of consumers by deceptively claiming that their credit-repair services could help consumers substantially improve their credit scores. The services also allegedly promised to fix “unlimited” amounts of negative items from consumers’ credit reports. However, the complaint asserts that in “numerous instances,” the defendants failed to achieve these results. The defendants also allegedly engaged in abusive acts and practices in violation of the TSR by requesting and collecting fees before achieving any results related to repairing a consumer’s credit. Among other things, the complaint further alleges that the defendants claimed to have more than 60 credit repair experts but actually only employed a handful of Boston-based employees, only some of whom interacted with consumers. The majority of the interactions, the complaint alleges, were conducted by telemarketers located in Central America who were paid “almost entirely by commission” based on the number of consumers they enrolled.

    The complaint seeks injunctive relief; “damages and other monetary relief against [the defendants] as the Court finds necessary to redress injury to consumers resulting from [the defendants’] violations, which may include, among other things, rescission or reformation of contracts, refund of monies paid, and restitution; and civil money penalties.”

    Federal Issues CFPB State Attorney General Enforcement Credit Repair State Issues CFPA Telemarketing Sales Rule

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  • OCC releases recent enforcement actions

    Federal Issues

    On May 21, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included among the actions is an April 14 consent order to resolve the OCC’s claims that a California-based bank engaged in Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program violations. According to the consent order, an OCC examination identified deficiencies in the bank’s BSA/AML compliance program, including failure to implement a compliance program that “adequately covered the required BSA/AML program elements,” and failure to correct a previously identified BSA/AML compliance program problem. The consent order requires the bank to, among other things, (i) appoint a compliance committee of independent directors ; (ii) submit a written strategic plan to the OCC covering at least the next three years; (iii) ensure competent management and staff is in place to ensure compliance with the order, applicable laws, and rules and regulations; (iv) appoint a “permanent, qualified, and experienced BSA Officer”; (v) create and adopt a “written program of policies and procedures to provide for compliance with the BSA”; (vi) adopt a “written risk-based program of internal controls and processes to ensure compliance with the requirements to file SARs”; (vi) develop policies and procedures for performing customer due diligence; (vii) implement a program to manage BSA/AML and Office of Foreign Assets Control risk associated with processing wire transfers; and (viii) conduct a SAR “look-back” review, implement an independent BSA/AML audit program, and develop a comprehensive training program for bank employees.

    Federal Issues OCC Enforcement Bank Secrecy Act Anti-Money Laundering Bank Compliance

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  • SBA clarifies PPP loan forgiveness process, lender and borrower responsibilities

    Federal Issues

    Recently, the Small Business Administration released two interim final rules (IFR) to provide guidance on the Paycheck Protection Program (PPP) loan forgiveness process, as well as directions on lender and borrower responsibilities. Both IFRs are effective immediately, and comments will be received for 30 days following publication in the Federal Register.

    The loan forgiveness IFR outlines PPP loan forgiveness requirements for borrowers and lenders. Among other things, lenders must confirm that they received the borrower certifications in the loan forgiveness application form (covered by InfoBytes here) and verify the borrower’s calculations. The IFR also clarifies several questions, including those related to employee status, payroll calculations, and nonpayroll expenses eligible for forgiveness.

    The lender and borrower responsibilities IFR provides additional guidance on the SBA PPP loan review, the loan forgiveness process for lenders, and lender eligibility for processing fees. While the IFR recommends that lenders work with borrowers to correct identified “errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents,” it does not require lenders to “independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.” Lenders must report their decisions on forgiveness applications to the SBA and request payment from the SBA for borrowers that are eligible for forgiveness no later than 60 days after receiving a complete application. The SBA also has the authority to review any PPP loan, although it will evaluate a loan based on the “rules and guidance available at the time of the borrower’s PPP loan application.” In addition, the IFR notes that lenders may lose fees for any loans deemed to be ineligible, and that the SBA may claw back already issued-fees if it determines the lender has failed to fulfill its obligations under the PPP. According to the IFR, lenders will receive payment from the SBA on eligible loans, plus any accrued interest through the date of payment, no later than 90 days after a lender reports its decision to SBA. 

    Federal Issues SBA Small Business Lending Covid-19 Department of Treasury

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  • FTC temporarily halts payday lending enterprise

    Federal Issues

    On May 22, the FTC announced that the U.S. District Court for the District of Nevada granted a temporary restraining order against a group of 11 defendants operating a payday lending enterprise for allegedly deceptively overcharging consumers and withdrawing money from consumers’ accounts without permission. According to the complaint filed by the FTC, the defendants advertised loans with fixed payback terms, but in many cases, the payback terms would default to debiting the financial fee only. In some circumstances, consumers would receive an email with payback options, including “full payoff, loan extension, and loan buy down,” but the defendants would still require the consumer to notify them three days in advance if they wanted to pay off the entire loan amount, if not, only the “financial fee” would be debited. The FTC argues that the defendants violated the FTC Act, the Telemarketing Sales Rule, TILA/Regulation Z, and the Electronic Funds Transfer Act/Regulation E by, among other things, (i) marketing loan products as having a fixed number of payments when funds were only being applied to finance charges and payment withdrawals continued beyond the promised number of payments; (ii) failing to make the required loan disclosures; (iii) failing to obtain proper authorization for reoccurring bank account withdrawals; and (iv) unlawfully using remotely created checks. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, contract rescission, restitution, and disgorgement.

    Federal Issues FTC Payday Lending Courts Enforcement FTC Act Telemarketing Sales Rule TILA EFTA

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  • Brian Brooks named acting Comptroller, Otting steps down

    Federal Issues

    On May 21, the OCC announced that Comptroller of the Currency, Joseph Otting will step down from office on May 29, and Brian P. Brooks will become acting Comptroller of the Currency. Brooks currently serves as First Deputy and Chief Operating Officer. Prior to joining the OCC, Brooks was Chief Legal Officer of a digital currency exchange, and prior to that, he served as Executive Vice President, General Counsel, and Corporate Secretary of Fannie Mae.

    Federal Issues OCC Fannie Mae

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  • Federal agencies issue FAQs covering CRA and Covid-19

    Federal Issues

    On May 27, the Federal Reserve Board, the OCC, and the FDIC posted Community Reinvestment Act (CRA) FAQs related to Covid-19. The FAQs acknowledge that while Covid-19 affected states are categorized by the Federal Emergency Management Agency (FEMA) as Category B, which would normally not be considered designated disasters under the CRA, the agencies will grant consideration for activities that revitalize or stabilize affected areas by protecting public health and safety. The FAQs frequently cite to the joint statement on CRA consideration for activities in response to Covid-19, issued by the agencies in March (covered by InfoBytes here). Among other things, the FAQs discuss how Paycheck Protection Program and Main Street Lending Program loans may be eligible for CRA consideration and how bank examiners will consider affordable housing measures under the CRA.

    Federal Issues Covid-19 SBA Federal Reserve CRA FDIC OCC Small Business Lending

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