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  • CFPB settles with auto loan company over deceptive sales practices

    Federal Issues

    On November 20, the CFPB announced a settlement with a Florida-based nonbank and the nonbank’s founder (collectively, “defendants”), resolving allegations that the defendants violated the Consumer Financial Protection Act by making misleading statements in disclosures and advertisements for their auto loan payment accelerator program. According to the Bureau, the defendants’ program automatically deducts partial payments on a bi-weekly basis from consumers’ bank accounts and then forwards those payments every month to consumers’ lenders or servicers. As a result, enrolled consumers end up making the equivalent of 13 monthly payments each year instead of 12. While the program is marketed as an opportunity for consumers to save money, the Bureau claimed that the defendants misrepresented the amount consumers would save by not disclosing a $399 enrollment fee in the savings calculations presented to consumers. Due to the enrollment fee, the program’s costs “ordinarily exceed[ed] any savings,” the Bureau alleged, noting that the defendants had no basis for claiming that thousands of consumers saved money by enrolling in the program.

    The consent order requires the defendants to pay a $1 civil money penalty and $9.3 million in consumer redress, which is suspended upon payment of $900,000 based on the defendants’ demonstrated inability to pay the full judgment. The Bureau noted in its press release that harmed consumers may be eligible to receive additional relief from the Bureau’s Civil Penalty Fund. The defendants are also prohibited from making any deceptive misrepresentations about the payment program or any other payment accelerator programs.

    Federal Issues CFPB Enforcement UDAAP Deceptive CFPA Auto Finance

  • OCC releases recent enforcement actions

    Federal Issues

    On November 19, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included among the actions is an October 9 consent order to resolve the OCC’s claims that a Washington, D.C.-based branch of a Caribbean bank (bank) engaged in Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program violations. According to the consent order, the OCC identified “critical deficiencies” in certain elements of the bank’s BSA/AML compliance program, including failure to implement a compliance program that “adequately covered the required BSA/AML program elements,” and failure to timely file Suspicious Activity Reports (SARs). Among the compliance program failures, the consent order states that the bank had (i) “systemic deficiencies in its transaction monitoring systems and alert management processes, which resulted in monitoring gaps”; (ii) “systemic deficiencies in its customer due diligence, enhanced due diligence, and customer risk rating processes”; and (iii) “an inadequate system of internal controls, ineffective independent testing, a weak BSA Officer function, and insufficient staffing and training.” The consent order requires the bank to pay a $5 million civil money penalty as a result of the deficiencies.

    Federal Issues OCC Financial Crimes Bank Secrecy Act SARs Of Interest to Non-US Persons

  • Fed extends some Covid-19 lending facilities through March 2021

    Federal Issues

    On November 30, the Federal Reserve Board announced the extension of the Commercial Paper Funding Facility (CPFF), the Money Market Liquidity Facility (MMLF), the Primary Dealer Credit Facility (PDCF), and the Paycheck Protection Program Liquidity Facility (PPPLF) through March 31, 2021, while many other Covid-19 lending facilities will terminate at the end of the year.

    Earlier this month, Treasury Secretary Steven T. Mnuchin sent a letter to Federal Reserve Board Chairman Jerome Powell stating that he intends to let several Covid-19-related lending facilities that rely on Coronavirus Aid, Relief, and Economic Security (CARES) Act funding expire at the end of the year, while requesting a 90-day extension for facilities that do not rely on Treasury’s funding. Specifically, Mnuchin stated that the lending facilities that used CARES Act funding—the Primary Market Corporate Credit Facility (PMCCF), the Secondary Market Corporate Credit Facility (SMCCF), the Municipal Liquidity Facility (MLF), the Main Street Lending Program (MSLP), and the Term Asset-Back Securities Loan Facility (TALF)—“have clearly achieved their objective,” noting that “[b]anks have the lending capacity to meet the borrowing needs of their corporate, municipal, and nonprofit clients.” Mnuchin stated that while portions of the economy are still in need of fiscal support, “financial conditions have responded” and the use of the CARES Act-reliant facilities “has been limited.” Thus, Mnuchin requested that the Federal Reserve return the unused facility funds to Treasury so that Congress can “re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds.” Mnuchin, however, in “an abundance of caution,” requested a 90-day extension on facilities that do not require Treasury funding—the CPFF, MMLF, PDCF, and the PPPLF.

    In response, the Federal Reserve Bank of Boston updated the Main Street Lending Program For-Profit Business and Nonprofit Organization FAQs to address the Main Street facilities at the end of this year. The update advises that (i) lender registration should be initiated by December 4; (ii) eligible loans should be submitted to the Main Street Portal for participation by December 14, and the Fed “will make efforts to process the loans submitted [] by December 14, 2020, in order to effect the purchase of eligible participation interests in advance of the termination date”; and (iii) the Main Street Special Purpose Vehicle will cease issuing commitment letters as of December 23.

    Federal Issues Covid-19 Department of Treasury Federal Reserve

  • HUD issues mortgage letters extending temporary guidance permitting endorsement despite forbearance and guidance on self-employment and rental income

    Federal Issues

    On November 25, HUD issued Mortgage Letters 2020-39 and 2020-40 extending its temporary guidance for endorsement of mortgages where the borrower has been granted a Covid-related forbearance from ML 2020-16 (previously covered here) and for verification of self-employment, rental income, and 203(k) Rehabilitation Escrow Accounts from ML 2020-24 (previously covered here). The guidance is extended through December 31, 2020.

    Federal Issues Covid-19 HUD Mortgages Forbearance

  • Agencies provide regulatory relief to community banks

    Federal Issues

    On November 20, the Federal Reserve Board, the OCC, and the FDIC issued an interim final rule providing temporary relief from certain regulation and reporting requirements for community banking organizations. Specifically, the interim final rule—which applies to community banking organizations and financial institutions with less than $10 billion in total assets as of December 31, 2019—gives community banks relief from expanded regulation and reporting requirements that may have been triggered due to participation in federal coronavirus response programs. The agencies note that programs, such as the Paycheck Protection Program and other lending facilities, may cause rapid and unexpected increases in the community bank’s size. The agencies expect these increases to be temporary and thus, the rule states that asset growth in 2020 or 2021 will not trigger new regulatory requirements for applicable community banking organizations until January 1, 2022, at the earliest. The rule is effective upon publication in the Federal Register.

    Federal Issues Agency Rule-Making & Guidance Federal Reserve OCC FDIC Community Banks Covid-19

  • Treasury: Expenses paid from PPP loans are not deductible

    Federal Issues

    On November 18, the U.S. Treasury Department and Internal Revenue Service (IRS) clarified the tax treatment of expenses where a Paycheck Protection Program (PPP) loan has not been forgiven by the end of the year the loan was received. According to the IRS revenue ruling, businesses are not taxed on the proceeds of a forgiven PPP loan, thus the business expenses paid from those proceeds are not deductible. The revenue ruling illustrates multiple taxpayer scenarios, which conclude that if the PPP loan has not yet been forgiven by the end of 2020, but the business reasonably believes the loan will be forgiven in the future, the expenses are not deductible. This applies whether the business has filed for forgiveness yet or not. However, if a PPP loan was expected to be forgiven, and was not, the expenses are deductible.

    Federal Issues Covid-19 SBA IRS Department of Treasury

  • FTC says mobile banking app is deceptive

    Federal Issues

    On November 18, the FTC filed a complaint against a mobile banking app operator alleging the defendants violated the FTC Act by deceiving users about their high-interest bank accounts and falsely promising users “24/7” access to their funds. The FTC’s complaint alleges that the defendants represented that users would receive “‘minimum base’ interest rates” of at least 0.2 percent or 1.0 percent, but that users actually received a starting interest rate of 0.04 percent and stopped earning any interest if they requested that their funds be returned. Additionally, the complaint claims that while the defendants promised users 24/7 access to their funds and represented they could make transfers out of their accounts and receive the requested funds within three to five business days, some users waited weeks or months to receive their funds despite submitting repeated complaints to the defendants. Other users claimed they never received their money. Moreover, some users claimed that the defendants blamed the failure to deliver the requested funds on “unspecified issues with unspecified ‘banking partners’ or ‘technology partners’ and promised the delays were temporary.

    The FTC seeks an injunction against the defendants, along with monetary relief including “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.”

    Federal Issues FTC Fintech Enforcement Mobile Banking UDAP Deceptive

  • FHFA finalizes GSE capital framework

    Federal Issues

    On November 18, the FHFA announced a final rule, which establishes a new regulatory capital framework for Fannie Mae and Freddie Mac (GSEs) to ensure safety and soundness. The final rule is similar to the proposed rule published earlier this year (covered by InfoBytes here), and it generally makes the following notable modifications in response to comments: (i) increases the dollar amount of capital relief for the GSEs’ credit risk transfers; (ii) reduces the credit risk capital requirements for single-family mortgage exposure subject to Covid-19 related forbearance; and (iii) increases the exposure level risk-weight floor for single-family and multifamily mortgage exposures to 20 percent.

    According to a fact sheet released in conjunction with the announcement, the final rule preserves key enhancements contained within the proposed rule. These include, among other things, (i) ensuring each GSE “maintains high-quality regulatory capital by including a set of supplemental capital requirements based on the U.S. banking framework’s definitions of [common equity tier 1], tier 1, and total capital”; (ii) strengthening the quality of regulatory capital; (iii) including backstop leverage requirements; and (iv) addressing pro-cyclicality through measures such as capital buffers and single-family mortgage exposure countercyclical adjustments.

    The final rule takes effect 60 days after publication in the Federal Register.

    Federal Issues FHFA GSE Fannie Mae Freddie Mac

  • Trump to nominate Brooks as Comptroller

    Federal Issues

    On November 17, President Trump announced his intention to nominate Brian P. Brooks as Comptroller of the Currency. Brooks has been serving as acting Comptroller since the end of May 2020. Prior to serving as acting Comptroller, Brooks served as Senior Deputy Comptroller and Chief Operating Officer of the OCC. Prior to joining the OCC, Brooks was Chief Legal Officer of a digital currency exchange, and prior to that, he served as Executive Vice President, General Counsel, and Corporate Secretary of Fannie Mae. In a statement, Brooks called the intent to nominate a “great honor” and stated he “will work ceaselessly to ensure the agency continues to fulfill its critical mission.”

    Federal Issues OCC Trump

  • CFPB, Colorado AG to host innovation office hours

    Federal Issues

    On November 16, the CFPB and Colorado attorney general announced that they will host joint, virtual office hours on December 2, as part of the American Consumer Financial Innovation Network (covered by InfoBytes here). The office hours will provide innovators the opportunity to discuss issues related to financial technology, innovative products or services, and other matters related to financial innovation. Those interested need to request a virtual session by November 23 and should include details on what they would like to discuss at the meeting.

    Federal Issues CFPB State Attorney General Fintech

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