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FinCEN issues antiquities and art warning
On March 9, the Financial Crimes Enforcement Network (FinCEN) issued an advisory notice alerting financial institutions with existing Bank Secrecy Act (BSA) obligations about illicit activity associated with trade in antiquities and art. As previously covered by InfoBytes, the Anti-Money Laundering Act of 2020 (AML Act) was enacted in January as part of the National Defense Authorization Act (NDAA) for Fiscal Year 2021, and made significant changes to BSA and AML laws, including amending the definition of “financial institution” under the BSA to include persons “engaged in the trade of antiquities.” Among other things, FinCEN’s advisory notice updates financial institutions on AML Act measures related to the regulation of antiquities, noting in particular that the Department of Treasury, in coordination with the FBI, the U.S. Attorney General, and Homeland Security, “will perform a study of the facilitation of money laundering and the financing of terrorism through the trade in works of art.” The notice further warns financial institutions that crimes related to the trade of antiquities “may involve their institution” and could include the “sale of stolen or counterfeit objects,” as well as money laundering and sanctions violations. The advisory notice also provides suspicious activity report filing instructions related to trade in antiquities and art.
CFPB: Lenders cannot discriminate on the basis of sexual orientation or gender identity
On March 9, the CFPB issued an interpretive rule to clarify that ECOA’s prohibition against sex discrimination includes sexual orientation and gender identity discrimination. “This prohibition also covers discrimination based on actual or perceived nonconformity with traditional sex- or gender-based stereotypes, and discrimination based on an applicant’s social or other associations,” the Bureau stated. In 2020, the U.S. Supreme Court issued a decision in Bostock v. Clayton County, Georgia, holding that “the prohibition against sex discrimination in Title VII of the Civil Rights Act of 1964 encompasses sexual orientation discrimination and gender identity discrimination.” Following the Court’s decision, the Bureau issued a request for information (RFI) seeking, among other things, feedback on ways to provide clarity under ECOA and/or Regulation B related to the prohibition of discrimination on the basis of a sexual orientation or gender identity. (Covered by InfoBytes here.) Consistent with the Bostock decision and supported by many comments received in response to the RFI, the Bureau issued the interpretive rule to address any regulatory uncertainty that may still exist regarding the term “sex” under ECOA/Regulation B in order to protect against discrimination and ensure fair, equitable, and nondiscriminatory access to credit for both individuals and communities. The interpretive rule is effective upon publication in the Federal Register.
The Bureau also announced plans to review—and update as needed—publication and examination guidance documents to reflect the interpretive rule, and intends to take appropriate enforcement action against financial institutions that violate ECOA.
FTC, multiple states halt charitable telefunding operation
On March 4, the FTC, together with state attorneys general from 38 states and the District of Columbia, the secretaries of state from Colorado, Georgia, Maryland, North Carolina, and Tennessee, the Florida Department of Agriculture and Consumer Services, and the Utah Division of Consumer Protection (collectively, “plaintiffs”), announced settlements with a telefunding operation whose charitable fundraising calls allegedly collected over $110 million using deceptive solicitations. The plaintiffs’ complaint alleged, among other things, that the defendants engaged in deceptive fundraising by placing more than 1.3 billion prerecorded robocalls to convince consumers to donate to “practically nonexistent charitable programs.” The charitable organizations then paid the defendants typically 80 to 90 percent of every donation, the complaint states, noting that certain defendants knew that almost none of the donations would be spent supporting the charitable programs. The plaintiffs contended that these false or misleading actions violated the FTC Act. Moreover, in many instances, the plaintiffs alleged that the defendants knowingly violated the Telemarketing Sales Rule (TSR) by using soundboard technology to place the telemarketing calls. Using pre-recorded messages in calls to first-time donors is a violation of the TSR, the plaintiffs stated, as is using soundboard technology in calls to prior donors without first disclosing to recipients that they may opt-out of all future calls and providing them with a mechanism to do so.
Proposed settlements (see here, here, and here) reached with one group of defendants will, among other things, permanently ban them from engaging in any fundraising activities, conducting telemarketing to sell goods or services, or using existing donor information. The defendants will also be required to pay $110,063,848 each, which is either partially or fully suspended due to the defendants’ inability to pay.
Additionally, proposed settlements reached with the two fundraising company defendants and their senior managers (see here, here, and here) will permanently prohibit them from engaging in any fundraising activities or consulting on behalf of a charitable organization or nonprofit organization claiming to work on behalf of causes similar to those noted in the complaint. These defendants will also be banned from using robocalls connected to telemarketing, engaging in abusive calling practices, or making misrepresentations about a good, service, or contribution. The defendants will further be required to disclose when a donation is not tax deductible. The individual defendants also are required to pay $110,063,843 each, which is partially suspended due to the defendants’ inability to pay, while the two corporate defendants, along with two of the individual defendants, are subject to a partially suspended monetary judgment of $1.6 million.
FHFA extends Covid-19 flexibilities until April 30
On March 11, the FHFA announced the extension of several loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA extended until April 30 existing guidelines related to: (i) alternative appraisal requirements on purchase and rate term refinance loans; (ii) alternative methods for documenting income and verifying employment before loan closing; and (iii) the expanded use of power of attorney to assist with loan closings. The extensions are implemented in updates to Fannie Mae Lender Letters LL-2021-03 and LL-2021-04, and Freddie Mac Guide Bulletin 2021-10 and Selling FAQs.
Treasury announces Emergency Capital Investment Program for CDFIs and MDIs
On March 4, the U.S. Treasury Department announced a new initiative to provide access to capital for communities traditionally excluded from the financial system that have significantly struggled during the Covid-19 pandemic. The Emergency Capital Investment Program (ECIP), established by the Consolidated Appropriations Act of 2021, will provide up to $9 billion in capital directly to Community Development Financial Institutions (CDFIs) and minority depository institutions (MDIs) to provide, among other things, “loans, grants, and forbearance for small and minority businesses and consumers in low income communities.” The ECIP will set aside $2 billion for CDFIs and MDIs with less than $500 million in assets, as well as $2 billion for CDFIs and MDIs with less than $2 billion in assets. Treasury notes that the program is intended to incentivize impactful lending, and states it is currently “developing additional ‘deep impact’ metrics to further incentivize targeted investments by participants in those communities most in need of capital.” Institutions seeking to participate in the ECIP can access application instructions and materials along with an application portal here.
To support the implementation of the ECIP, the FDIC, Federal Reserve Board, and the OCC issued an interim final rule to “revis[e] their capital rules to provide that Treasury’s investments under the program qualify as regulatory capital of insured depository institutions and holding companies.” The interim final rule is effective immediately upon publication in the Federal Register. Comments will be accepted for 60 days following publication.
FDIC announces Oklahoma winter storm relief
On March 3, the FDIC issued FIL-13-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Oklahoma affected by severe winter storms. The guidance notes that the FDIC will consider the unusual circumstances faced by institutions affected by the winter storms. The guidance highlights suggest 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 will also consider relief from certain reporting and publishing requirements.
FTC settles with income scam operation targeting Latina consumers
On March 2, the FTC announced a settlement with a company and its owners (collectively, “defendants”) that used Spanish-language ads targeting Latina consumers with false promises of large profits reselling luxury products. The action—a part of the FTC’s “Operation Income Illusion” sweep (covered by InfoBytes here)—alleged the defendants violated the FTC Act by making false or unsubstantiated earnings claims when marketing work-at-home opportunities. The FTC also claimed the defendants violated the Telemarketing Sales Rule by, among other things, misrepresenting material aspects of the investment opportunities and routinely using threats or intimidation “to coerce consumers to pay Defendants, including but not limited to threatening consumers with damage to consumers’ credit history, false legal actions, and reports to federal government authorities.” The proposed settlement imposes a $7 million judgment, which is partially suspended due to the defendants’ inability to pay. The defendants are also permanently banned from (i) selling any goods or service that is represented as a means for consumers to make money working from home or elsewhere; (ii) making any deceptive claims about the risk, liquidity, earnings potential, or profitability of any goods or services, and making such claims through telemarketing; and (iii) using threats or intimidation to coerce consumers to pay for goods or services.
Agencies update CRA Covid-19 FAQs
On March 8, the OCC, Federal Reserve Board, and the FDIC released updated Community Reinvestment Act (CRA) FAQs related to Covid-19. The FAQs, first issued last May (covered by InfoBytes here), provide guidance for financial institutions and examiners regarding CRA consideration for activities taken in response to the pandemic. Highlights of the five new FAQs include:
- Banks cannot receive CRA service test consideration for Paycheck Protection Program (PPP)-related activities; however, the agencies recognize that because the PPP loan program responds to community credit needs, PPP activities will be considered under the CRA lending test when evaluating flexible or innovative lending programs offered by a bank.
- Banks should not report PPP loans that have been rescinded or returned under the SBA’s safe harbor on their CRA loan register. Moreover, examiners will not consider these loans in their CRA evaluations of banks during the applicable time period.
- PPP loans over $1 million in low- or moderate-income geographies or in distressed or underserved nonmetropolitan middle-income geographies “will be considered an eligible community development activity.”
- As noted in a joint statement released by the agencies last year (covered by InfoBytes here), favorable CRA consideration will be given to banks providing retail banking services and retail lending activities that respond to the needs of affected low- and moderate-income (LMI) individuals, small businesses, and small farms consistent with safe and sound banking practices. These activities may include waiving ATM fees, overdraft fees, and early withdrawal penalties on certificates of deposit (CDs), or allowing LMI consumers to make draws from a HELOC during the repayment period. The agencies note that allowing LMI consumers “to make a withdrawal from an IRA as allowed under the CARES Act, or to draw on a HELOC during the draw period are routine banking services and, as such, are not eligible for CRA consideration.”
- The agencies will consider community development services provided virtually by bank representatives on an individual level based on the event and the benefitted assessment area.
Fed extends PPP Liquidity Facility through June 30
On March 8, the Federal Reserve Board announced the extension of the Paycheck Protection Program Liquidity Facility (PPPLF) through June 30. The PPPLF was rolled out last year to provide liquidity to banks making loans to small businesses pursuant to the Small Business Administration’s Paycheck Protection Program at the start of the Covid-19 pandemic (covered by InfoBytes here). The Board noted, however, that the remaining Covid-19 lending facilities—the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility—will terminate March 31 as planned.
SBA allows self-employed filers to use gross income to calculate PPP loan amounts
On March 4, the Small Business Administration (SBA) issued an interim final rule (IFR) to implement recent changes to the Paycheck Protection Program (PPP) calculation for IRS Form 1040, Schedule C filers. Self-employed individuals who file Schedule C will now be able to calculate their maximum loan amount using gross income. This calculation change only applies to loans approved after March 4, 2021, and borrowers that have already had their loans approved cannot increase their PPP loan amount based on the new maximum loan formula. SBA also notes that a previously provided safe harbor presumption of making “the statutorily required certification concerning the necessity of the loan request in good faith” will not apply to Schedule C filers that elect to calculate their First Draw PPP loan using gross income if they report more than $150,000 in gross income. These borrowers will be subject to additional SBA review as they will most likely have additional sources of liquidity to support business operations. The IFR further removes eligibility restrictions that prohibit businesses owned at least 20 percent by individuals (i) who have a non-financial fraud felony conviction in the last year, or (ii) who are delinquent or in default on their federal student loans. These changes apply to both First Draw and Second Draw PPP loans.
To assist borrowers, SBA released the following revised forms: First Draw application form and Schedule C gross income form, Second Draw application form and Schedule C gross income form, and lender applications for First Draw and Second Draw loans. The IFR takes effect March 4.