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Fed, OCC report on health of MDIs
Recently, the Federal Reserve Board and the OCC issued reports pursuant to Section 367 of the Dodd-Frank Act generally detailing the health of Minority Depository Institutions (MDIs) and the agencies’ efforts taken to assist MDIs as the Covid-19 pandemic disproportionately affected low- and moderate-income communities and racial and ethnic minorities. The Fed’s report, “Promoting Minority Depository Institutions,” discussed, among other things, extra steps taken by the agency to support and assist MDIs over the past year, which included conducting individualized outreach on several topics like how to access the discount window and the Paycheck Protection Program Liquidity Facility (covered by InfoBytes here and here). The report also examined efforts taken by the Fed to preserve and promote MDIs through its Partnership for Progress program—“a national outreach effort to help MDIs confront unique business-model challenges, cultivate safe banking practices, and compete more effectively in the marketplace”—and covered the Fed’s unanimous approval last September to approve an Advance Notice of Proposed Rulemaking on modernizing the Community Reinvestment Act (covered by InfoBytes here).
The OCC outlined actions taken to preserve and promote MDIs in its “2020 Annual Report,” including the launch of the Roundtable for Economic Access and Change known as Project REACh (covered by InfoBytes here). OCC subject matter experts also provided regulatory technical assistance to MDIs on topics including safety and soundness, cybersecurity, compliance with Bank Secrecy Act/anti-money laundering requirements, and current expected credit loss accounting methodology, among others. The OCC also noted that despite a seven-basis-points drop on the average return on assets for MDIs through the pandemic, the health of those institutions “remained satisfactory.”
FTC settles over illegal telemarketing practices
On July 16, the FTC announced a $1.6 million settlement with a New Jersey-based septic tank cleaning company, its officers, and an individual connected to the officers (collectively, “defendants”) for allegedly making illegal robocalls to consumers, including tens of millions of calls to numbers listed on the FTC’s Do Not Call Registry. The complaint, which was filed on behalf of the FTC by the DOJ in July, alleged that the defendants violated the FTC Act and the Telemarketing Sales Rule, among other things, by engaging in illegal telemarketing practices, including the use of prerecorded messages. The defendants allegedly falsely told consumers they were calling from an unnamed “environmental company” to provide consumers with “free info” regarding their septic tank cleaning products. In addition, the defendants allegedly sent letters to customers “threatening to direct their purportedly delinquent accounts to a collection agency or legal department even though [the company] never intended to send customer accounts to either a collections agency or legal department.” Under the terms of the stipulated final order, the defendants are, among other things: (i) permanently banned from engaging in telemarketing; (ii) prohibited from making misrepresentations to consumers regarding referrals to attorneys or collection agencies or material facts concerning goods or services; (iii) prohibited from billing or attempting to collect payments from any consumers connected to the sale of their septic tank cleaning products; and (vi) required to notify all customers with unpaid balances that their balances have been cancelled. A $10.2 million monetary judgment will be partially suspended after the officers pay approximately $1.6 million and the individual pays $15,000 to the U.S. Treasury.
OCC marks first anniversary of financial inclusion project
On July 15, the OCC marked the one-year anniversary of Project REACh, an initiative launched by the agency last year to promote greater financial inclusion of underserved populations. As previously covered by InfoBytes, Project REACh (Roundtable for Economic Access and Change) brings together leaders from the banking industry, national civil rights organizations, and various businesses and technology organizations to identify and reduce barriers to accessing capital and credit. While the project’s scope in its first year included a national workstream and a regional effort centered on Los Angeles, acting Comptroller Michael Hsu announced that Project REACh will soon expand its regional focus to Washington, D.C., Dallas, and Detroit in order “to replicate the success of the project’s national workstream.” In prepared remarks, Hsu emphasized that addressing economic inequality needs to be “transformational, not transactional,” pointing out that “the financial system can perpetuate inequality” as “traditional credit scores, traditional overdraft practices, and predatory lending make it expensive to be poor, while wealthy clients can borrow and access a wide range of financial services at lower cost.” Hsu explained that Project REACh’s structure and approach allows for collaborative problem identification and problem solving and creates opportunities for business and community representatives to incubate ideas and pilots “that can later be implemented on a broader scale than possible by any one institution.”
FTC settles with financial services company
On July 14, the FTC announced an $18 million settlement with a financial services company (defendant) over allegations that it deceived consumers. The FTC originally filed a complaint in 2018 claiming, among other things, that the defendant violated the FTC Act, the Privacy of Consumer Financial Information Rule, and the Gramm-Leach-Bliley Act, by falsely advertising loans with “no hidden fees” and misleading consumers with respect to whether their loan applications had been approved. The complaint also alleged that the defendant withdrew double payments from consumers’ accounts and continued to charge consumers who cancelled automatic payments or paid off their loan, leading to overdraft fees and preventing borrowers from making other payments. Under the terms of the stipulated final order, the defendant is permanently barred from (i) misrepresenting fee amounts, the status of an application, and other material facts concerning any extension of credit; and (ii) making any representation about a specific loan amount prior to accepting a loan application, without clear and conspicuous disclosure of the dollar amount of any prepaid, up-front, or origination fee or the total amount of funds that would be disbursed to the consumer.
SBA outlines guaranty purchase, charge-off process for PPP loans
On July 15, the SBA issued Procedural Notice 5000-812316 to remind lenders of their servicing responsibilities and provide guidance on the agency’s guaranty purchase process for Paycheck Protection Program (PPP) first-draw and second-draw loans. Lenders may submit requests for SBA to purchase and charge off PPP loans in instances where a borrower (i) is past due 60 days or more on scheduled loan payments where the default has not been cured; (ii) has permanently closed and does not intend to submit a forgiveness application; (iii); has filed for bankruptcy; or (iv) is deceased in the case of self-employed individuals, sole proprietors, single-member LLCs, or independent contractors. In circumstances where a borrower or any owner of 20 percent or more of the borrower has been indicted for, or convicted of, a felony related to a PPP loan, or in a case where a borrower has appealed an SBA loan review decision, the lender may request guaranty purchase without charge-off from SBA. Additionally, SBA outlines procedures for lenders when a borrower submits a forgiveness application after the lender has submitted a request to SBA for guaranty purchase. Guidelines for submitting guaranty purchase and charge-off requests are provided in the procedural notice.
Senate Republicans say Chopra’s refusal to answer questions should disqualify him as next CFPB director
On July 13, Republican members of the Senate Banking Committee sent a follow-up letter to CFPB director nominee and FTC Commissioner Rohit Chopra, claiming Chopra’s refusal to answer questions concerning potential violations of law at the Bureau should disqualify him from consideration as its next director. The Senators referred to Ranking Member Pat Toomey’s June 17 letter, which asked Chopra whether he was aware of any alleged improper treatment of, or efforts to, “sideline” Bureau employees. A similar letter was sent to CFPB acting Director Dave Uejio, asking for certain records on staff departures, separation incentives, and investigations. Uejio initially responded that the CFPB needed additional time to respond to the Senators’ request, then later sent a letter stating “it would not be appropriate for me to confirm or deny the placement of any Bureau employee on administrative leave or the pendency of any internal investigations into alleged employee misconduct” citing, among other things, confidentiality restrictions under the Privacy Act. Uejio stressed the CFPB’s compliance with all applicable laws and regulations designed to protect career employees and added that “no career Bureau Executive has been involuntarily separated” from the agency under his watch, nor has the CFPB taken disciplinary or adverse action against any such individuals or offered voluntary separation compensation (VSC) incentives “for any political or partisan reason.” Uejio also emphasized that Chopra has had no involvement with VSC decisions or internal investigations into employees.
Chopra currently awaits a Senate confirmation vote on his nomination.
FTC settles with payment processors in student loan debt relief scam
On July 12, the FTC announced a settlement with two Florida-based payment processing companies and their CEO (collectively, “defendants”) accused of participating in a student loan debt relief scam. As previously covered by InfoBytes, in 2018, the FTC alleged the student loan debt relief operation violated the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, falsely claiming borrowers had pre-qualified for federal loan assistance programs that would reduce their monthly debt payments or result in total loan forgiveness and accepting monthly payments that were not applied towards student loans. A settlement was reached last December (covered by InfoBytes here). According to the FTC’s most recent complaint, the defendants allegedly “applied for and obtained merchant accounts for the [scam] by knowingly and repeatedly providing false information to payment processors about the [operation’s] three companies.” The defendants’ payment processing applications, the FTC contended, concealed the fraudulent activity, denied that the operation was offering consumers prohibited debt relief services, and repeatedly ignored warnings and direct evidence that the operation was defrauding consumers.
Under the terms of the settlement order, the defendants are permanently banned from payment processing or acting as an independent sales organization or sales agency. The defendants are also prohibited from assisting and facilitating any unfair and deceptive trade practice, including to obtain payment processing services. In addition, the order imposes a $28.6 million judgment against the defendants, which is partially suspended following the payment of $20,493, due to the defendants’ inability to pay the full amount.
CFPB settles with fintech over loan scheme operation
On July 12, the CFPB announced a consent order against a Georgia-based fintech company for allegedly enabling contractors and other merchants to take out loans on behalf of thousands of consumers who did not authorize them. According to the CFPB, the respondent allegedly violated the CFPA’s prohibition against unfair acts or practices by (i) servicing and facilitating the origination of unauthorized loans to consumers and (ii) enabling unauthorized loans by, among other things, failing to implement appropriate and effective controls during the loan application, approval, and funding processes. The CFPB noted that over 6,000 complaints were filed between 2014 and 2019 about the respondent, with some consumers claiming to have no prior involvement or knowledge of the respondent before receiving billing statements and collection letters. Under the terms of the consent order, the respondent must verify consumers’ identities and confirm their authorizations before activating loans or disbursing loan proceeds and implement an effective consumer complaint management program, exercising oversight of third-party merchant partners, and implementing uniform standards regarding the write-off of illegal loans. The respondent is also ordered to pay up to approximately $9 million in redress to its victims and a $2.5 million civil money penalty.
Biden orders federal agencies to evaluate banking, consumer protections
On July 9, President Biden issued a broad Executive Order (E.O.) that includes provisions related to the financial services industry.
- CFPB. The E.O. encourages the CFPB director to issue rules under Section 1033 of Dodd-Frank “to facilitate the portability of consumer financial transaction data so consumers can more easily switch financial institutions and use new, innovative financial products.” As previously covered by InfoBytes, last October, the Bureau issued an advanced notice of proposed rulemaking on Section 1033, seeking comments on questions related to consumers’ access to their financial records. The E.O. also instructs the Bureau to enforce Section 1031 of Dodd-Frank, which prohibits unfair, deceptive, or abusive acts or practices in consumer financial products or services, “to ensure that actors engaged in unlawful activities do not distort the proper functioning of the competitive process or obtain an unfair advantage over competitors who follow the law.”
- Treasury Department. The E.O. calls on Treasury to submit a report within 270 days on the effects on competition of large technology and other non-bank companies’ entry into the financial services space.
- FTC. The E.O. tasks the FTC with establishing rules to address concerns about “unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy.” The FTC already commenced that process on July 1, when it approved changes to its Rules of Practice to amend and simplify the agency’s procedures for initiating rulemaking proceedings. According to Commissioner Rebecca Kelly Slaughter, “[s]treamlined procedures for Section 18 rulemaking means that the Commission will have the ability to issue timely rules on issues ranging from data abuses to dark patterns to other unfair and deceptive practices widespread in our economy.”
- Bank Mergers. The E.O. encourages the Attorney General, in consultation with the Federal Reserve Board, FDIC, and OCC, to “review current practices and adopt a plan, not later than 180 days after the date of this order, for the revitalization of merger oversight under the Bank Merger Act and the Bank Holding Company Act of 1956.”
FINRA reminds firms to disclose digital asset involvement
On July 8, FINRA issued Regulatory Notice 21-25, reminding firms to notify their FINRA risk-monitoring analysts if they currently engage in, or plan to engage in, activities regarding digital assets. The notice discusses the types of activities of interest to FINRA, which include, among other things: (i) transactions in digital assets; (ii) pooled funds investing in digital assets; (iii) derivatives associated with digital assets; (iv) engagement in an initial or secondary offering of digital assets; (v) participation in cryptocurrencies and other virtual coins and tokens; (vi) acceptance or mining of cryptocurrency; and (vii) “recording cryptocurrencies and other virtual coins and tokens using distributed ledger technology or any other use of blockchain technology.” The notice encourages firms to promptly notify their risk monitoring analyst in writing on an ongoing basis.