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Financial Services Law Insights and Observations

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  • Agencies: Cease LIBOR-based contracts as soon as practicable

    Federal Issues

    On November 30, the Federal Reserve Board, FDIC, and OCC issued a joint statement encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. The statement notes that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks given the range of consumer protection, litigation, and reputation risks at stake. As previously covered by InfoBytes, the agencies announced that they do not intend to recommend a specific credit-sensitive rate for use in place of LIBOR. Instead, the agencies encourage banks to “either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation” for all new contracts prior to December 31, 2021, in order to “facilitate an orderly—and safe and sound—LIBOR transition.” Additionally, the statement recognizes certain instances in which it would be appropriate for banks for enter into LIBOR contracts after December 31, 2021, including novations of LIBOR transactions executed before January 1, 2022.

    Federal Issues LIBOR Federal Reserve OCC FDIC

  • FTC charges company with passive debt collection

    Federal Issues

    On November 30, the FTC announced a stipulated order entered by the U.S. District Court for the Eastern District of Missouri against a debt collection company and three of its officers (collectively, “defendants”) for allegedly engaging in passive debt collection in violation of the FTC Act, the FDCPA, and the FCRA. According to the complaint, the defendants would place debts that consumers did not owe or the defendants were not authorized to collect on consumers’ credit reports without first attempting to communicate with the consumers about the debts. The complaint alleges further that consumers often did not discover these debts until they “threatened to interfere with an important, time-sensitive transaction.” The FTC alleges that each month, after receiving and investigating complaints from consumers, the defendants would determine between 80 to 97 percent of disputed debts were inaccurate or invalid. However, the defendants continued to collect on unauthorized debts “[d]espite the persistent inaccuracies.”

    The defendants neither admit nor deny the allegations in the settlement order. In addition to the $24,300,000 in monetary relief, which is partially suspended due to the inability to pay (with one officer and corporate defendant required to pay over $56,000), the order also, among other things, (i) prohibits the defendants from furnishing credit information prior to communicating with the consumer; (ii) requires the defendants to request deletion of any debts reported prior to the order; and (iii) bars the defendants from engaging in unlawful debt collection practices.

    The vote authorizing the complaint and settlement was 4-1, with Commissioner Chopra voting no, arguing that the agency should work “in concert” with the CFPB for debt collection enforcement in order to “help make victims whole through access to the CFPB's Civil Penalty Fund and reduce duplicative efforts.”

    Federal Issues FTC Courts Enforcement Debt Collection Phantom Debt Credit Report

  • FDIC releases October enforcement actions

    Federal Issues

    On November 27, the FDIC released a list of administrative enforcement actions taken against banks and individuals in October. During the month, the FDIC issued eight orders and two notices consisting of “one consent order, one order to pay a civil money penalty, one section 19 order, one removal order, two orders terminating consent or cease and desist orders, two orders modifying removal orders, one notice of assessment, and one notice of charges.” The consent order, issued against a Wisconsin-based bank, relates to alleged violations of 12 C.F.R. Part 339, which implements the requirements of the National Flood Insurance Act (NFIA) and the Flood Disaster Protection Act. Among other things, the FDIC claims that the bank failed to (i) obtain an adequate amount of flood insurance at the origination of several loans; (ii) provide notice to borrowers of the insufficiencies or follow force-placement requirements; or (iii) provide notice to borrowers about the availability of flood insurance under the NFIA. The consent order requires the payment of a $12,841 civil money penalty.

    Federal Issues FDIC Enforcement National Flood Insurance Act Flood Disaster Protection Act Mortgages

  • FHFA increases conforming loan limits for 2021

    Federal Issues

    On November 24, the FHFA announced that it will raise the maximum conforming loan limits (CLL) for mortgages purchased in 2021 by Fannie Mae and Freddie Mac from $510,400 to $548,250. In most high-cost areas, the maximum loan limit for one-unit properties will be $822,375. According to the FHFA, due to generally rising home values, “the maximum CLL will be higher in 2021 in all but 18 counties or county equivalents in the U.S.” A county-specific list of the maximum loan limits in the U.S. can be accessed here.

    Federal Issues FHA Mortgages Fannie Mae Freddie Mac Conforming Loan

  • CFPB releases enforcement database

    Federal Issues

    On November 25, the CFPB announced a refreshed website that includes an “interactive enforcement database” to assist the public in tracking the Bureau’s enforcement actions. According to a blog post accompanying the announcement, the enforcement database identifies each public enforcement action by its initial filing date and provides the specific consumer relief associated with each resolution, including the estimated number of consumers or consumer accounts eligible to receive relief, and the total amount of civil money penalties ordered. The data does not include any non-public information about consumer relief and penalties, such as the monetary amounts actually paid and whether those funds are paid to consumers or disgorged.

    Additionally, the website updates include a page for petitions for rulemaking, allowing users to search for and find petitions in one centralized location. The Bureau has also archived content that is older than two years old. The archived materials are still accessible, but will be identified as archived and include a note that they may not be the most up-to-date resources offered by the Bureau.

    Federal Issues CFPB Enforcement

  • CFPB charges debt-relief company and owners

    Federal Issues

    On November 20, the CFPB announced it filed a complaint in the U.S. District Court for the Northern District of Illinois against a debt-relief company and its two owners (collectively, “defendants”) for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act. According to the complaint, between 2011 and April 2019, the defendants allegedly misrepresented material aspects of their student loan debt-relief services, by, among other things, falsely representing that the services would reduce or eliminate payments, stop wage garnishment, lift tax liens, and improve credit scores. Additionally, the Bureau alleges the defendants violated the TSR by requesting and receiving payment of fees for their services before they renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to an agreement. Moreover, the defendants’ fees were allegedly not proportional to or a percentage of the amount saved as a result of their services. The complaint seeks injunctions against the defendants as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.

    Federal Issues CFPB Enforcement Courts Debt Relief Debt Settlement CFPA Telemarketing Sales Rule

  • FHFA extends foreclosure moratorium

    Federal Issues

    On December 2, the FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until at least January 31, 2021 (which was set to expire on December 31, previously covered here). The foreclosure moratorium applies to homeowners with a GSE-backed, single-family mortgage, and the REO eviction moratorium applies to properties that were acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions.

    Federal Issues FHFA Covid-19 Foreclosure Fannie Mae Freddie Mac Mortgages GSE

  • OCC updates Comptroller’s Licensing Manual

    Federal Issues

    On November 23, the OCC announced a new Comptroller’s Licensing Manual booklet, “Mutual to Stock Conversions,” which incorporates provisions of revised regulation 12 CFR Part 192. The new booklet, among other things, “provides an overview of policy considerations and decision criteria that the OCC considers when reviewing applications by federal savings associations to convert from a mutual to stock form of ownership under 12 CFR 192.” The new booklet also outlines requirements for covered institutions when filing conversion applications, as well as references and information resources for prospective filers.

    Federal Issues OCC Comptroller's Licensing Manual Bank Compliance

  • FinCEN, federal banking agencies clarify CDD requirements for charities and non-profit organizations

    Federal Issues

    On November 19, the Financial Crimes Enforcement Network (FinCEN), in concurrence with the Federal Reserve Board, FDIC, NCUA, and OCC (collectively, “federal banking agencies”), released a fact sheet clarifying that Bank Secrecy Act (BSA) customer due diligence (CDD) requirements for charities and nonprofit organizations (NPOs) should be based on the money laundering risks posed by customer relationships. FinCEN and the federal banking agencies remind banks that “the application of a risk-based approach for charities and other NPOs is consistent with existing CDD and other [BSA/anti-money laundering] compliance requirements.” The fact sheet further emphasizes that while “the U.S. government does not view the charitable sector as a whole as presenting a uniform or unacceptably high risk of being used or exploited for money laundering, terrorist financing [], or sanctions violations,” banks must adopt risk-based procedures for conducting CDD that will allow banks to (i) understand the nature and purpose of a customer relationship in order to develop a customer risk profile, and (ii) conduct ongoing monitoring for the purposes of identifying and reporting suspicious transactions “on a risk basis, to maintain and update customer information.” The fact sheet does not alter existing BSA/AML legal or regulatory requirements, nor does it establish new supervisory expectations. (See also OCC Bulletin 2020-101 and FDIC FIL-106-2020.)

    Federal Issues Financial Crimes FinCEN Federal Reserve NCUA FDIC OCC Bank Secrecy Act Anti-Money Laundering CDD Rule Of Interest to Non-US Persons

  • FTC reaches $62 million settlement with student loan debt relief operation

    Federal Issues

    On November 19, the FTC entered into a settlement with defendants accused of engaging in deceptive practices when marketing and selling student loan debt relief services. As part of its enforcement initiative, Operation Game of Loans (covered by InfoBytes here), the FTC alleged that the defendants violated the FTC Act and Telemarketing Sales Rule (TSR) by, among other things, charging illegal up-front fees to enroll consumers in debt relief programs, accepting monthly payments that were not applied towards student loans, and collecting monthly fees that consumers believed were being applied to their loans but instead were going towards unrelated “financial education” programs (see previous InfoBytes coverage here). Under the terms of the order, the defendants are permanently banned from providing secured and unsecured debt relief products and services, and are prohibited from (i) engaging in unlawful telemarketing practices and violating the TSR; (ii) misrepresenting financial products and services; (iii) making unsubstantiated claims; and (iii) collecting, or assigning any right to collect, payments from consumers for products sold by the defendants. The defendants are also ordered to pay $62 million in monetary relief.

    Federal Issues FTC Debt Relief Enforcement Student Lending FTC Act Telemarketing Sales Rule UDAP Deceptive

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