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Financial Services Law Insights and Observations


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  • VA provides additional lender guidance concerning Covid-19

    Federal Issues

    On May 19, the Department of Veterans Affairs (VA) issued Circular 26-20-19 to remind lenders of certain VA policies and provide guidance regarding the processing of VA-guaranteed loans during Covid-19. The circular provides guidance regarding IRS Form 4506-T, renewal applications, applications for underwriter approvals, and fees to conduct business with the VA. The circular is rescinded on April 1, 2021.

    Federal Issues Covid-19 Department of Veterans Affairs Underwriting Military Lending

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  • 34 state AGs urge inclusion of cannabis banking legislation in Covid-19 relief

    State Issues

    On May 19, a group of 34 state attorneys general wrote to congressional leaders urging the inclusion of the SAFE Banking Act in any future Covid-19 relief package. As previously covered by InfoBytes, the SAFE Banking Act was passed by the House in September 2019 and would provide a safe harbor for depository institutions that provide a financial product or service to a covered business in a state that has implemented laws and regulations that ensure accountability in the marijuana industry. In the letter, the attorneys general outline three reasons legislative action for cannabis banking is needed based on the Covid-19 pandemic: (i) cash-intensive business models could be a target of increased criminal activity; (ii) large cash transactions place the public and government officials at heightened risk of virus exposure; and (iii) tax revenue from over $15 billion in sales in 2019 could provide critical relief for state and local governments. The letter reminds congressional leaders that support for the SAFE Banking Act, or similar legislation, “is not a call for the legalization of medical or retail marijuana in [] jurisdictions that choose not to pursue such an approach,” instead it would be a reflection that “our federalist system of government that is flexible enough to accommodate divergent state approaches.”

    State Issues State Attorney General Covid-19 Federal Issues Federal Legislation Cannabis Banking SAFE Act

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  • Treasury and Fed testify on CARES Act relief

    Federal Issues

    On May 19, the Senate Committee on Banking, Housing, and Urban Affairs conducted a hearing with Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven T. Mnuchin to discuss the agencies’ efforts to implement the CARES Act relief provisions to support consumers and help stabilize the infrastructure of the economic system. Topics discussed included emergency lending facilities, such as the Main Street Lending Program and the Municipal Liquidity Facility, as well as the Paycheck Protection Program (PPP) and the Payroll Support Program.

    Mnuchin testified that Treasury has “worked closely with the Small Business Administration on the [PPP] to ensure the processing of more than 4.2 million loans for over $530 billion[.]” He issued praise for the nearly 400 Community Development Financial Institutions and Minority Depository Institutions, as well as the many small and non-bank lenders that are participating in the program. Mnuchin noted that, while Treasury has already committed up to $195 billion of the $500 billion provided by Congress, the agency plans to use the remainder to create or expand programs as necessary after determining how best to deploy the money to help losses associated with the Covid-19 pandemic. “The only reason I have not allocated it fully is we are just starting to get these facilities up and running,” Mnuchin emphasized during the hearing. “We want to have a better idea as to which one of the facilities needs more capital as well as the potential for adding additional facilities.” Mnuchin also stated that Treasury is “fully prepared to take losses in certain scenarios on that capital.”

    Powell discussed lending programs and monetary policy efforts taken by the Fed under section 13(3) of the Federal Reserve Act since the pandemic started, including measures to help stabilize short-term funding markets. These include lengthening the term and lowering the rate on discount window loans to depository institutions, and—together with Treasury—establishing the Commercial Paper Funding Facility and the Money Market Mutual Fund Liquidity Facility. Powell also discussed the Term Asset-Backed Securities Loan Facility, which will lend against asset-backed securities “backed by newly issued auto loans, credit card loans, and other consumer and small business loans.” Powell stressed that “public input has been crucial” in the agency’s development of these facilities and that additional adjustments may occur “as we learn more” about the needs of potential borrowers.

    Federal Issues Department of Treasury Federal Reserve Senate Banking Committee Covid-19 CARES Act

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  • Fannie and Freddie: Borrowers eligible for refinance or purchase while in forbearance

    Federal Issues

    On May 19, the FHFA announced that Fannie Mae and Freddie Mac issued temporary guidance that would allow borrowers who are in forbearance, or have recently ended forbearance, to be eligible to refinance or purchase a new home. According to Fannie Mae Lender Letter LL-2020-03 and Freddie Mac Bulletin 2020-17, borrowers are eligible to purchase a new home or refinance their mortgage if they are current on their mortgage—defined as having “made all mortgage payments due in the month prior to the note date of the new loan transaction by no later than the last business day of that month”—or if the mortgage is currently in a loss mitigation solution (the borrower must have made at least three timely payments as of the note date of the new transaction). Lenders are required to apply the guidance to loans with application dates on or after June 2, but may apply them immediately.

    On the same day, Fannie Mae also issued an update to LL-2020-06, which extends the effective date for eligible loans in forbearance due to a Covid-19 hardship to June 30 with delivery to Fannie Mae by August 31.

    Federal Issues Covid-19 Fannie Mae Freddie Mac Forbearance Loss Mitigation Refinance Mortgages

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  • FinCEN advisory warns of Covid-19 medical scams, provides guidance on reporting suspicious activity

    Federal Issues

    On May 18, the Financial Crimes Enforcement Network (FinCEN) issued an advisory and companion notice on medical scams related to the Covid-19 pandemic that provide detailed instructions for financial institutions filing reports of Covid-19-related suspicious activities. The advisory outlines numerous red flag indicators and case studies addressing Covid-19 medical-related fraudulent activity to assist financial institutions in detecting, preventing, and reporting suspicious transactions. FinCEN also encourages financial institutions to consider additional contextual information, such as a customer’s historical financial activity and whether a customer exhibits multiple indicators, before making a determination that a transaction is suspicious. FinCEN further advises financial institutions—when taking a risk-based approach to Bank Secrecy Act compliance—to perform additional inquiries and conduct investigations as necessary.

    The companion notice provides, among other things, that suspicious activity reports (SAR) should only include Covid-19 statements tied to suspicious activity and that statements related to Covid-19’s impact on SAR filing abilities should not be included. However, FinCEN states that filers who previously included these references are not required to file corrected reports. For fraud schemes, including those that exploit the Covid-19 pandemic, FinCEN reiterates that full details related to SAR filings and supporting documentation should be submitted as quickly as possible. The notice also addresses information sharing among financial institutions and provides contact information for reporting Covid-19-related criminal activity to other agencies.

    Federal Issues FinCEN Covid-19 Financial Crimes Bank Secrecy Act SARs Of Interest to Non-US Persons

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  • FINRA updates guidance on verification of Form U4 for individual registration

    Federal Issues

    On May 15, FINRA updated its response to a frequently asked questions regarding verification on Form U4 for individual registration. Under FINRA Rule 3110(e), members are required to have written procedures to verify the accuracy and completeness of an applicant’s initial or transfer Form U4 within 30 calendar days after the Form U4 is filed with FINRA. In light of challenges posed by Covid-19, if a firm is unable to verify the information within 30 days following submission, the firm must document which information could not be verified and the reasons and maintain an appropriate record, including steps taken to verify the information. For an initial or transfer Form U4, firms should make reasonable efforts to verify the information contained therein by June 30, 2020, and, if necessary, file an amended Form U4 to correct any discrepancies.

    Federal Issues Covid-19 FINRA

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  • 6th Circuit denies stay of injunction against PPP Ineligibility Rule

    Federal Issues

    On May 15, the U.S. Court of Appeals for the Sixth Circuit denied the SBA’s emergency motion for a stay of the district court’s injunction against the agency’s Paycheck Protection Program (PPP) Ineligibility Rule. As previously covered by InfoBytes, the district court granted a preliminary injunction against the SBA’s PPP Ineligibility Rule—which, in relevant part, excludes from PPP loan eligibility “sexually oriented businesses that present entertainment or sell products of a ‘prurient’ (but not unlawful) nature.” The district court concluded that the Rule was in conflict with the Congressional purpose of the CARES Act, which houses the PPP, to protect workers in need during the Covid-19 pandemic, including workers for businesses that have been historically excluded from SBA financial assistance.

    The 6th Circuit agreed with the district court, denying the motion for a stay. The court noted that the CARES Act specifies that eligibility “is conferred on ‘any business concern,’” which “encompasses sexually oriented businesses.” It went on to state that “the public interest is served in guaranteeing that any business, including plaintiffs, receive loans to protect and support their employees during the pandemic.”

    In dissent, one judge argued that it is “unclear whether Congress meant that any business concern was eligible for a PPP loan regardless of SBA restrictions,” and therefore, the injunction should be stayed pending a decision on the merits.

    Federal Issues Courts SBA Covid-19 Small Business Lending Appellate Sixth Circuit CARES Act

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  • SEC issues exemption for broker-dealer TALF Agents

    Federal Issues

    On May 15, the SEC granted an exemption to broker-dealers designated by the Federal Reserve Bank of New York (NY Fed) as Term Asset-Backed Securities Loan Facility (TALF) Agents from certain requirements of Section 11(d)(1) of the Exchange Act. As previously covered by InfoBytes, under the TALF, the NY Fed will provide loans to U.S. companies that are secured by certain eligible consumer and small business asset-backed securities, such as student loans, auto and credit card loans, loans guaranteed by the SBA and certain other assets. The exemption for broker-dealers was requested by the NY Fed on May 12, because Section11(d)(1) would prevent TALF Agents from arranging nonrecourse loans in which the broker-dealer participated as a member of a selling syndicate or group.

    The SEC granted the exemption with respect to asset-backed securities that are or may be designated as “eligible collateral,” declaring that any broker-dealer designated as a TALF Agent and participating in TALF 2020 is exempted from the requirements of Section 11(d)(1).

    Federal Issues SEC Broker-Dealer Covid-19 Federal Reserve Securities

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  • FTC alleges telemarketer charged organizations for unordered subscriptions

    Federal Issues

    On May 13, the FTC filed a complaint against a Pennsylvania-based telemarketing operation for allegedly misrepresenting “no obligation” trial offers to organizations and then enrolling recipients in subscriptions for several hundred dollars without their consent. The complaint also charged a New York-based debt collector with violating the FTC Act by illegally threatening the organizations if they did not pay for the unordered subscriptions. The FTC alleged that the telemarketing operation violated the FTC Act and the Unordered Merchandise Statute by calling organizations such as businesses, schools, fire and police departments, and non-profits to offer sample books or newsletters without disclosing that they were selling subscriptions and then sending publications without the recipients’ consent. The FTC alleged that, if the organizations agreed to accept what they believed to be free publications, the defendants enrolled the organizations in a negative option program without their consent, and automatically charged the organizations for annual subscriptions. The telemarketer worked with a debt collection firm that allegedly misrepresented that the debts were valid and used false threats to collect outstanding balances. According to the FTC, the debt collection firm handled collections nationwide despite not having a valid corporate registration in any state and only being licensed to collect debt in Washington State. The FTC seeks a permanent injunction against the defendants, along with monetary relief “including rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”

    Federal Issues FTC Enforcement FTC Act Debt Collection Deceptive UDAP

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  • CFPB reaches $18 million settlement in credit-report scheme

    Federal Issues

    On May 14, the CFPB filed a proposed stipulated final judgment and order in the U.S. District Court for the Central District of California against a mortgage lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in January claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education.

    If approved by the Court, the Bureau’s proposed settlement would (i) impose an $18 million redress judgment against the mortgage lender, of which all but $200,000 would be suspended due to the lender’s limited ability to pay; (ii) require one of the individuals and his company to disgorge $403,750 in profits to provide redress; (iii) impose a $406,150 judgement against a second individual and his company, which will be suspended due to the defendants’ inability to pay; (iv) impose a total $450,001 civil money penalty against the defendants; (v) permanently ban the defendants from the debt-relief industry and from using or obtaining prescreened consumer reports; and (vi) prohibit the defendants from on using or obtaining consumer reports for “any business purpose other than underwriting or otherwise evaluating mortgage loans.”

    Federal Issues Courts CFPB Enforcement Consumer Finance Debt Relief Student Lending FCRA CFPA Telemarketing Sales Rule Deceptive UDAAP

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