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On October 20, the FDIC issued an interim final rule providing regulatory relief to insured depository institutions (IDIs) that have experienced significant, but temporary, asset growth due to government stimulus efforts. Previously, an IDI would be subject to annual independent audit and reporting requirements in any fiscal year in which its assets at the start of the year were $500 million or more. The interim rule permits IDIs to determine if they are subject to these requirements for fiscal years ending in 2021 based on their consolidated total assets as of December 31, 2019, or as of the beginning of their fiscal years ending in 2021, whichever is less. However, the rules also permit the FDIC to require IDIs to comply with the audit and reporting requirements if asset growth was related to a merger or acquisition. The rule will remain in effect through December 31, 2020, unless extended.
On October 20, FHA announced that homeowners experiencing a Covid-19 financial hardship with FHA-insured mortgages can request an initial forbearance or a Home Equity Conversion Mortgage (HECM) extension through December 31. Specifically, Mortgagee Letter 2020-34 extends the date by which mortgagees must approve the initial Covid-19 forbearance or Covid-19 HECM extension originally provided for in ML 2020-06 and expanded in ML 2020-22 (covered by InfoBytes here and here). FHA notes that due to the continued Covid-19 pandemic and its impact on borrowers around the country, the agency is extending the deadline through December 31 from the original deadline of October 30.
Recently, FINRA announced that all in-person arbitration and mediation proceedings will be postponed until January 1, 2021, except in certain specified circumstances. In particular, a proceeding may occur prior to that date: (1) if all parties to the arbitration or mediation agree to proceed in-person and the participants comply with state and local health orders; (2) if a panel orders that the arbitration or mediation take place telephonically or by Zoom; or (3) the parties stipulate that the proceeding may take place telephonically or by Zoom.
On October 13, the Financial Stability Board (FSB) published a report providing high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” (GSC) arrangements. FSB defines “stablecoins” as a “specific category of crypto-assets which have the potential to enhance the efficiency of the provision of financial services, but may also generate risks to financial stability, particularly if they are adopted at a significant scale.” GSCs are those with multi-jurisdictional reach that “could become systemically important in and across one or many jurisdictions, including as a means of making payments.” The report, Regulation, Supervision, and Oversight of “Global Stablecoin” Arrangements, follows an analysis of financial stability risks raised by GSCs as well as a survey of FSB and non-FSB members’ approaches to stablecoins. Prior to issuing the report, FSB also conducted several outreach meetings with representatives from regulated financial institutions, fintech firms, academia, and the legal field. The October report, which takes into account public feedback received earlier in the year, outlines 10 high-level recommendations that “call for regulation, supervision and oversight that is proportionate to the risks, and stress the value of flexible, efficient, inclusive, and multi-sectoral cross-border cooperation, coordination, and information sharing arrangements among authorities that take into account the evolving nature of GSC arrangements and the risks they may pose over time.” However, the report stresses that because these recommendations primarily address financial stability risks, issues such as anti-money laundering/combating the financing of terrorism, data privacy, cyber security consumer and investor protection, and competition are not covered. These issues, which may present consequences for financial stability if not properly addressed, should be incorporated as part of a comprehensive supervisory, regulatory, and oversight framework, the report states.
Among other things, the report also provides regulatory authorities a guide “of relevant international standards and potential tools to address vulnerabilities arising from GSC activities,” and outlines a timeline of actions that will build a roadmap to ensure “any relevant international standard-setting work is completed.”
On October 13, the CFPB announced a settlement with the Texas-based auto-financing subsidiary of a Japanese automobile manufacturer to resolve allegations that the servicer violated the Consumer Financial Protection Act by engaging in illegal repossession and collection practices. The CFPB alleged that the servicer engaged in unfair and deceptive practices by (i) wrongfully repossessing vehicles even though customers made payments to decrease their delinquency to less than 60 days past due or kept a promise to pay; (ii) limiting the ability of borrowers who pay over the phone to select payment options with significantly lower fees; (iii) making false statements in loan extension agreements, which “created the net impression that consumers could not file for bankruptcy”; and (iv) knowing its repossession agents were charging customers upfront storage fees before returning personal property left inside repossessed cars.
Under the terms of the consent order, the servicer must pay a $4 million civil money penalty, as well as up to $1 million in consumer redress. The servicer must also credit any outstanding fees stemming from the repossession and pay consumers redress for each day it wrongfully held their vehicles. The servicer is also ordered to, among other things, (i) cease using language that creates the impression that customers may not file for bankruptcy; (ii) conduct a quarterly review to identify and remediate any future wrongful repossessions; (iii) adopt policies and procedures to correct its repossession practices; (iv) prohibit its repossession agents from charging fees to get personal property returned; and (v) clearly disclose phone payment fees to consumers.
On October 13, the member nations of the G7 issued a joint statement stressing their commitment to working with the financial services sector to address and mitigate ransomware attacks. The statement highlights the recent increase in ransomware attacks over the last few years and notes that the scale, sophistication, and frequency has intensified as attackers “demand payments primarily in virtual assets to facilitate money laundering.” These ransom payments, the G7 warns, “can incentivize further malicious cyber activity; benefit malign actors and fund illicit activities; and present a risk of money laundering, terrorist financing, and proliferation financing, and other illicit financial activity.” The G7 reminds financial institutions that paying ransom is subject to anti-money laundering/combating the financing of terrorism (AML/CFT) laws and regulations, and warns non-financial services companies that providing certain services, such as money transfers, may subject them to the same obligations. The G7 further urges entities to follow international obligations for reporting ransom payments as suspicious activity and to take measures to prevent sanctions evasions. Moreover, the G7 recommends that entities implement standards set by the Financial Action Task Force to reduce criminals’ access to and use of financial services and digital assets, and emphasizes the importance of implementing effective programs to “hold and exchange information about the originators and beneficiaries of virtual asset transfers.” The G7 plans to share information related to ransomware threats, explore opportunities for coordinated targeted financial sanctions, and encourage a global implementation of AML/CFT obligations on virtual assets and virtual asset service providers.
On October 15, the CFPB announced a proposed settlement with the largest U.S. debt collector and debt buyer and its subsidiaries (collectively, “defendants”), resolving allegations that the defendants violated the terms of a 2015 consent order related to their debt collection practices. As previously covered by InfoBytes, the Bureau filed an action against the defendants in September alleging that they collected more than $300 million from consumers by violating the terms of the 2015 consent order—and again violating the FDCPA and CFPA—by, among other things, (i) filing lawsuits without possessing certain original account-level documentation (OALD) or first providing the required disclosures; (ii) failing to provide debtors with OALD within 30 days of the debtor’s request; (iii) filing lawsuits to collect on time-barred debt; and (iv) failing to disclose that debtors may incur international-transaction fees when making payments to foreign countries, which “effectively den[ied] consumers the opportunity to make informed choices of their preferred payment methods.”
The stipulated final judgment, if entered by the court, would require the defendants to pay nearly $80,000 in consumer redress and a $15 million civil money penalty. Moreover, among other things, the defendants are subject to a five-year extension of certain conduct provisions of the 2015 consent order and must disclose to consumers the potential for international-transaction fees and that the fees can be avoided by using alternative payment methods.
On October 9, the FDIC issued FIL-96-2020 to provide regulatory relief to financial institutions and, starting on September 14, help facilitate recovery in areas of Florida affected by Hurricane Sally. The guidance notes that the FDIC will consider the unusual circumstances faced by institutions affected by the hurricane. The guidance suggests that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are “done in a manner consistent with sound banking practices.” Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC states it will also consider relief from certain reporting and publishing requirements.
Additionally, on October 8, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by Hurricane Delta “for as long as deemed necessary for bank operation or public safety.” The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
Find continuing InfoBytes coverage on disaster relief here.
On October 9, the Federal Reserve Board issued SR 20-22,which strongly advises supervised institutions to transition away from LIBOR and consider following the International Swaps and Derivatives Association’s (ISDA) IBOR Fallback Protocol and IBOR Fallback Supplement (collectively, “the Protocol”). The Fed warned market participants that because the publication of LIBOR is not guaranteed after 2021, its continued use poses financial stability risks. The Fed recommended that examiners alert supervised firms active in the derivatives market to strongly consider adhering to the Protocol, which will, among other things, “facilitate the transition away from LIBOR by providing derivatives market participants with new fallbacks for legacy and new derivative contracts,” and will “allow LIBOR derivatives contracts to continue to perform through the transition.” The ISDA released a statement the same day announcing the Protocol will be launched on October 23 and take effect on January 25, 2021.
Find continuing InfoBytes coverage on LIBOR here.
On October 8, U.S. Attorney General William P. Barr released his Cyber-Digital Task Force’s comprehensive overview of emerging threats and enforcement challenges associated with the increased use of cryptocurrencies. The report, titled Cryptocurrency: An Enforcement Framework, is divided into three parts and details the relationships that the DOJ has built with U.S. and foreign regulatory and enforcement partners, and summarizes the Department’s response strategies.
- Part I: Threat Overview. This section illustrates how malicious actors misuse cryptocurrency technology to harm users and commit crimes. The task force catalogs most illicit uses of cryptocurrency into the following three broad categories: (i) “financial transactions associated with the commission of crimes,” including soliciting funds to support terrorist activities; (ii) money laundering and the shielding of otherwise legitimate activity from tax, reporting, or other legal requirements; or (iii) crimes that directly implicate the cryptocurrency marketplace itself, such as stealing cryptocurrency or promising cryptocurrency to defraud investors.
- Part II: Law and Regulations. This section explores the various legal and regulatory authorities that the DOJ has used to bring cryptocurrency enforcement actions, and highlights its partnerships with other U.S. federal and state authorities and foreign enforcement agencies to prevent crime and provide investigatory assistance.
- Part III: Ongoing Challenges and Future Strategies. This section discusses the ongoing challenges presented by the misuse of cryptocurrency, as well as ongoing strategies to combat emerging threats. This includes an examination of certain business models and activities employed by cryptocurrency exchanges, including money service businesses, virtual asset and peer-to-peer exchanges and platforms, kiosk operators, and casinos.
This is the task force’s second report. The first report, published in 2018, provides a more general overview of cyber threats.
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- Jeffrey P. Naimon to discuss "2021 - A new beginning/what's to come" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- H Joshua Kotin to discuss "Mortgage servicing in a recession: Early intervention, loss mitigation and more" at the NAFCU Virtual Regulatory Compliance Seminar
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "Cyber security, incident response, crisis management" at the Legal & Diversity Summit
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "BSA/AML - Covid impact and regulatory/guidance roundup" at an NAFCU webinar