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Senate passes NDAA with significant AML provisions
On December 11, the U.S. Senate passed the National Defense Authorization Act (NDAA) for Fiscal Year 2021 in a 84-13 vote, which was passed by the U.S. House of Representatives earlier in the week. As previously covered by InfoBytes, the NDAA includes a number of anti-money laundering provisions, such as (i) establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”; (ii) expanding the declaration of purpose of the Bank Secrecy Act (BSA) and establishing national examinations and supervision priorities; (iii) requiring streamlined, real-time reporting of Suspicious Activity Reports; (iv) expanding the definition of financial institution under the BSA to include dealers in antiquities; and (v) including digital currency in the AML-CFT enforcement regime by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.” The NDAA has been sent to President Trump, who has publicly threatened to veto the measure; however, the legislation passed both the Senate and the House with majorities large enough to override a veto.
FTC settles with payment processor for fraud
On December 10, the FTC announced a settlement with a payment processor and its former CEO (collectively, “defendants”) for allegedly processing consumer credit card payments for certain entities “when they knew or should have known that the schemes were defrauding consumers,” in violation of the FTC Act. According to the complaint, the defendants allegedly arranged for merchants engaged in fraud to obtain merchant accounts with acquiring banks in order to process “unlawful credit and debit card payments through the card networks” totaling more than $93 million in consumer charges. The FTC alleges the defendants knew or should have known that the merchant accounts were being used by third parties that the defendants had not underwritten or being used by merchants to sell products that the defendants had not underwritten. Specifically, the FTC argues that the defendants ignored “clear red flags” that the merchants were operating fraudulent schemes, including high rates of consumer chargebacks and the use of multiple accounts to artificially reduce the number of chargebacks. The FTC notes that a number of the merchants the defendants contracted with were shut down by federal law enforcement.
The proposed order requires the defendants to pay $1.5 million to provide redress to affected consumers, and permanently bans the defendants from (i) acting as a payment processor for any companies providing free trial offers for nutraceutical products; (ii) engaging in credit card laundering; and (iii) assisting companies in the evasion of financial institutions’ fraud monitoring. Additionally, the defendants must conduct enhanced screening and monitoring of merchant clients.
Special Alert: CFPB redefines Qualified Mortgage; “GSE Patch” to expire
The Consumer Financial Protection Bureau last week released two final rules further defining what types of loans can be a “qualified mortgage loan” for purposes of the bureau’s Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule). The General QM Final Rule substantially revamps the general rules defining what constitutes a General QM and removes the existing debt-to-income threshold over which a loan cannot be considered a General QM. The Seasoned QM Final Rule creates a new class of QM that allows certain rebuttable presumption QMs and non-QMs to achieve “safe harbor” QM status three years after origination provided the consumer has strong repayment history.
Importantly, the “GSE Patch,” which provides QM status to loans qualifying for sale to Fannie Mae or Freddie Mac, expires for applications submitted before July 1, 2021, at which point the General QM Rule will take effect (although compliance with both rules is permitted 60 days after publication in the Federal Register).
Bipartisan Covid-19 legislation includes new PPP funding
On December 14, congressional lawmakers released the details of bipartisan Covid-19 relief legislation (and accompanying memorandum), titled “the Emergency Coronavirus Relief Act of 2020,” which would provide $300 billion to the U.S. Small Business Administration to allow for second forgivable Paycheck Protection Program (PPP) loans to certain businesses after the program’s lending expired in August (covered by InfoBytes here). In addition to capping the maximum PPP loan amount at $2 million, the proposed legislation would limit eligibility of new PPP loans to (i) businesses with 300 or fewer employees that have sustained a 30 percent revenue loss in any quarter of 2020; and (ii) non-lobbying, tax-exempt organizations that have 150 employees or fewer. Additionally, the legislation clarifies that business expenses paid for with the proceeds of PPP loans are tax deductible, and simplifies the loan forgiveness process for loans $150,000 or less. Lastly, the legislation includes set-asides for (i) small businesses with 10 or fewer employees; (ii) loans made by small community lenders, including Community Development Financial Institutions, credit unions, Minority Depository Institutions; and (iii) the Minority Business Development Agency.
Agencies announce several resolution plan actions
On December 9, the FDIC and Federal Reserve Board announced several resolution plan actions, including providing finalized guidance for the resolution plans of four large foreign banking organizations (FBOs). Pursuant to the Dodd-Frank Act, FBOs must submit resolution plans—also known as “living wills”—which detail the strategic plans for their U.S. operations and subsidiaries for rapid and orderly resolution in bankruptcy in the event that the banks fail or fall under material financial distress. The final guidance modifies the proposed updates issued last March (covered by InfoBytes here) in several ways. Among other changes, the agencies “tailored their expectations around resolution capital and liquidity, derivatives and trading activity, as well as payment, clearing, and settlement activities,” and modified the scope of the guidance “to generally cover foreign banks in category II of the agencies' large bank regulatory framework.” As a result, three FBOs would be subject to the guidance for their plan submissions for 2021, and an additional FBO would be subject to the guidance for its full plan due in 2024 if it remains within the scope. The agencies also released information for 15 large foreign and domestic banks in categories II and III of the large bank regulatory framework that identifies required targeted information to be included in their next resolutions plans, due December 17, 2021. The agencies also confirmed that certain previously identified weaknesses in four FBOs have been remediated.
CFPB sues debt collection company that used DA letterhead to threaten consumers
On December 9, the CFPB announced it filed a complaint in the U.S. District Court for the Western District of Missouri against a Missouri-based company alleging violations of the FDCPA and the CFPA. The company allegedly engaged in deceptive and otherwise unlawful debt collection acts and practices in the course of operating “bad-check pretrial-diversion programs on behalf of more than 90 district attorneys’ offices throughout the United States.” According to the Bureau, the company used district-attorney letterhead to threaten consumers with criminal prosecution unless they paid the amount of the dishonored check, enrolled and paid for a financial-education course, and paid various other administrative fees. The complaint claims that not only did the company fail to include required FDCPA disclosures in the letters it sent to consumers, it also failed to identify itself in the letters and did not inform consumers that it is a debt collector and not a district attorney. The company also allegedly failed to inform consumers that district attorneys almost never prosecute individuals who do not pay back the amount owed. Moreover, the Bureau claims that in most cases the company did not refer cases for prosecution, even if the check writer failed to respond to the collection letter, did not pay the alleged outstanding debt and fees, or failed to complete the financial-education course. The complaint seeks an injunction against the company as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.
CFPB reaches settlement with unlicensed debt collector
On December 8, the CFPB announced a settlement with a New Jersey-based debt collector resolving allegations that the defendant violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by obtaining judgments and demanding payments from consumers in states where it was not legally licensed to do so. According to the Bureau, the defendant purchased consumer debts from debt brokers, used law firms to obtain judgments against the consumers, and “continued to collect on those judgments . . . as well as on a handful of payment agreements it obtained from debtors.” The Bureau found that the defendant falsely implied that it had a legally enforceable right to recover payments from consumers in Connecticut, New Jersey, and Rhode Island, and demanded payments and threatened legal action even though it did not hold the debt collection licenses required under the laws of those states. The consent order requires the defendant to pay a $204,000 civil money penalty, and prohibits the defendant from collecting on the judgments against, or payment agreements entered into with, consumers in Connecticut, New Jersey, and Rhode Island when it was not legally allowed to do so. The defendant is also required to “take all necessary steps to vacate all judgments not discharged in bankruptcy or [that were] previously satisfied,” and must suspend collection of those judgments and provide notice to consumers with payment agreements that have been satisfied.
House passes NDAA with significant AML/CFT provisions
On December 8, the U.S. House of Representatives passed the National Defense Authorization Act (NDAA) for Fiscal Year 2021 in a 335-78 vote, which includes significant language from the September 2019 proposed legislation, the “Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act,” among other proposed laws. Highlights of the anti-money laundering (AML) provisions include:
- Establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”;
- Expand the declaration of purpose of the Bank Secrecy Act (BSA) and establish national examinations and supervision priorities;
- Require streamlined, real-time reporting of Suspicious Activity Reports;
- Establish a Subcommittee on Innovation and Technology within the Bank Secrecy Act Advisory Group to encourage and support technological innovation in the area of AML and countering the financing of terrorism and proliferation (CFT);
- Expand the definition of financial institution under the BSA to include dealers in antiquities;
- Require federal agencies to study the facilitation of money laundering and the financing of terrorism through the trade of works of art; and
- Inclusion of digital currency in AML-CFT enforcement by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.”
FHFA extends Covid-19 flexibilities until January 31
On December 10, 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 January 31 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) expanding the use of power of attorney to assist with loan closings. The extensions are implemented in updates to Fannie Mae Lender Letters LL-2020-03, LL 2020-04; and Freddie Mac Guide Bulletin 2020-47 and Selling FAQs.
Waters recommends Biden reverse several of Trump's actions
On December 4, Chairman of the House Financial Services Committee, Maxine Waters (D-CA) sent a letter to President-Elect Biden providing a list of regulations and other executive actions taken by the Trump administration that the Biden administration should immediately reverse, as well as recommendations for strengthening other regulations. Among other things, Waters recommended that the Biden administration (i) issue an executive order to prevent evictions by “directing the CDC to extend and improve its public health order so people can remain in their homes until emergency rental assistance is available”; (ii) amend HUD and FHFA policies that impose restrictions and increased costs for certain loans that go into forbearance prior to FHA endorsement or purchase by Fannie Mae or Freddie Mac to ensure these loans are still eligible for FHA insurance and purchase by Fannie and Freddie; and (iii) fully use Coronavirus Aid, Relief, and Economic Security (CARES) Act lending authorities, many of which will terminate at the end of December (covered by InfoBytes here).
Waters also urged the Biden administration to take measures to ensure consumer protections, including by, among other things, dismissing Director Kathy Kraninger, enforcing CARES Act protections, and directing the CFPB to (i) issue guidance to financial institutions to ensure affected borrowers are afforded “appropriate forbearance and loan modifications”; (ii) “work to replace the ’Payday, Vehicle Title, and Certain High-Cost Installment Loans’ rule with [one] that protects consumers from predatory lenders”; (iii) restore the Bureau’s Office of Fair Lending and Equal Opportunity’s roles and responsibilities; and (iv) rescind its recently issued final rule amending certain debt collection rules (covered by InfoBytes here), and instead strengthen “consumer protections against abusive debt collection practices.” Other recommendations address diversity and inclusion, financial stability, investor protection, affordable housing, and international development.