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On October 8, the CFPB released its annual report to Congress on college credit card agreements. The report was prepared pursuant to the CARD Act, which requires credit card issuers to submit to the Bureau the terms and conditions of any agreements they make with colleges, as well as certain organizations affiliated with colleges. The Bureau cited data from 2019 showing that (i) the number of college credit card agreements, as well as the number of open accounts under these agreements, “continues a general trajectory of decline,” which is anticipated to continue into 2020; (ii) payments by issuers to the educational or affiliated entities remain stable overall; and (iii) agreements with alumni associations continue to dominate the market based on most metrics. The report also highlighted a statement issued by the Bureau in March, which was intended to temporarily provide more flexibility and reduce administrative burdens on credit card issuers (covered by InfoBytes here). The complete set of credit card agreement data collected by the Bureau can be accessed here.
On October 14, Fannie Mae and Freddie Mac (collectively, “GSEs”) clarified that a borrower will not lose any future “pay for performance” HAMP incentives if the borrower: (i) immediately reinstates the mortgage loan upon expiration of the Covid-19-related forbearance plan; or (ii) transitions directly from a Covid-19 related forbearance plan to a repayment plan. The GSEs previously clarified that if a mortgage loan was modified pursuant to a HAMP modification and the borrower remains in good standing, the borrower will not lose any pay for performance incentives if the borrower had a Covid-19 related hardship immediately preceding the Covid-19 payment deferral (covered by InfoBytes here and here). The updates are reflected in Fannie Mae’s Lender Letters LL-2020-02, LL-2020-07, and Freddie Mac’s Guide Bulletin 2020-39.
On October 13, the Small Business Administration (SBA) updated the Paycheck Protection Program (PPP) loan forgiveness FAQs to include a new question covering the PPP loan forgiveness application forms (3508, 3508EZ, and 3508S). Specifically, the SBA notes that even though the application forms display an expiration date of October 31, that is not a deadline to apply for forgiveness. Rather, the date posted on the forms is displayed for Paperwork Reduction Act purposes and will be extended when the same forms are re-approved. Borrowers may submit loan forgiveness applications any time before the maturity date of the loan, which can be either two or five years after origination.
On October 13, the Financial Crimes Enforcement Network (FinCEN) issued an advisory for financial institutions to assist in detecting and preventing Covid-19-related unemployment insurance (UI) fraud. The advisory highlights specific ways illicit actors are exploiting the pandemic to engage in UI fraud, including, among other things, employees receiving UI payments while still being paid reduced, unreported wages from their employer, and the submission of UI claims using stolen or fake identification information. The advisory includes a specific list of red flag indicators for financial institutions to be aware of, such as (i) UI payments from a different state from the one in which the customer resides; (ii) multiple state UI payments within the same disbursement period; (iii) UI payments in a different name from the account holder; (iv) the withdrawal of UI funds in lump sums by cashier’s check or prepaid debit card; (v) multiple accounts receiving UI payments being associated with the same free, web-based email account; and (vi) a newly opened account that starts to receive numerous UI deposits. Financial institutions are encouraged to perform additional inquiries and investigations where appropriate, consistent with a risk-based approach for compliance with the Bank Secrecy Act. Lastly, should financial institutions need to report any UI fraud in a suspicious activity report, FinCEN encourages the institution to reference the advisory.
On October 9, the Conference of State Bank Supervisors (CSBS) wrote to the ranking members of the Senate Banking Committee and the House Financial Services Committee with an update on the organization’s efforts regarding the CARES Act and oversight of nonbank mortgage servicers. CSBS notes that state regulators are the primary authority over nonbank mortgage servicers, and during the early stages of the Covid-19 pandemic, the state regulators “identified liquidity as a supervisory priority.” Thus, according to CSBS, state regulators have been actively monitoring liquidity and other business operations by seeking real time data and other updates from nonbank mortgage servicers. Moreover, CSBS discusses the efforts made in response to the CARES Act, including consumer and servicer guidance issued in conjunction with the CFPB (covered by InfoBytes here and here), as well as examination procedure guidance. Lastly, the letter highlights the organization’s recent release of proposed regulatory prudential standards for nonbank mortgage servicers. As previously covered by InfoBytes, the proposal includes baseline standards that would apply to all covered servicers and enhanced standards—covering capital, liquidity, stress testing, and living will/recovery and resolution planning—that would apply to certain larger servicers. CSBS concludes the letter with a commitment for “continued coordination and information exchange with federal agencies.”
On October 7, the OCC and Federal Reserve Board announced enforcement actions against a financial services firm and its national bank subsidiary (bank) to resolve alleged enterprise-wide risk management, data governance, and internal controls deficiencies. According to the OCC’s announcement, the bank allegedly engaged in unsafe or unsound banking practices by failing to “establish effective risk management and data governance programs and internal controls.” While neither admitting nor denying the allegations, the bank has agreed to pay a $400 million civil money penalty. Additionally, under the terms of the OCC’s cease and desist order, the bank must implement corrective measures to improve its risk management, data governance, and internal controls. The agency’s announcement states that the order further requires the bank “to seek the OCC’s non-objection before making significant new acquisitions and reserves the OCC’s authority to implement additional business restrictions or require changes in senior management and the bank’s board should the bank not make timely, sufficient progress in complying with the order.”
In conjunction with the OCC’s action, the Fed also announced a cease and desist order against the financial services firm, which identified ongoing deficiencies with respect to areas of compliance risk management, data quality management, and internal controls. Among other things, the Fed claims the firm also failed to adequately remediate “longstanding” deficiencies identified in previously issued consent orders, including in areas such as anti-money laundering compliance. The order requires the firm to enhance firm-wide risk management and internal controls, and imposes a series of deadlines for the firm to take measures to ensure compliance with the OCC’s order, enhance its compliance risk management programs, devise a plan to hold senior management accountable, and improve data quality management.
On October 7, the CFPB issued FAQs covering RESPA Section 8 and corresponding Regulation X sections. The FAQs provide a general overview of Section 8 and its prohibited activities. The FAQs also address the application of Section 8 to common scenarios involving gifts and promotional activities and marketing services agreements (MSAs). Highlights of the examples include:
- Gifts. The FAQs note that if a gift ( “thing of value”) is given or accepted as part of an agreement or understanding for referral of business related to a real estate settlement service involving a federally related mortgage loan then it is prohibited under Section 8. The FAQs emphasize that the agreement or understanding need not be in writing or oral and can be established by a practice, pattern, or course of conduct.
- Promotional activities. The FAQs state that promotional or educational activities connected to a referral source would be allowed under Regulation X if the activities (i) are not conditioned on referral of business; and (ii) do not involve defraying expenses that otherwise would be incurred by the referral source. The FAQs describe these conditions in more detail and provide example of activities that meet and do not meet Regulation X’s conditions.
- Marketing Services Agreements. The FAQs emphasize that MSAs that involve payments for referrals are prohibited under RESPA Section 8(a), whereas MSAs that involve payments for marketing services may be permitted under RESPA Section 8(c)(2), depending on certain facts and circumstances. MSAs are lawful under RESPA when structured and implemented as an agreement for the performance of actual marketing services and the payment reasonably reflects the value of the services performed. The FAQs provide examples of prohibited MSAs under Section 8(a) and Section 8(b), including (i) agreements structured to provide payments based on the number of referrals received; or (ii) the use of split charges, either being paid to a person that does not actually perform the services or the amount paid exceeds the value of the services performed by the person receiving the split.
Notably, with the release of the FAQs, the Bureau is rescinding its Compliance Bulletin 2015-05, entitled RESPA Compliance and Marketing Services Agreements, noting that the Bulletin “does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X.” The Bureau emphasizes that with the rescission, MSAs will still “remain subject to scrutiny, and [the Bureau] remain[s] committed to vigorous enforcement of RESPA Section 8.”
On October 9, the United States Supreme Court announced that all oral arguments scheduled for November and December will take place by telephone conference, and all parties will participate remotely. The proceedings will follow a similar format as hearings in October, including for live audio feed, and posting of audio and transcripts on the website daily.
On October 8, Fannie Mae updated its Covid-19 Seller FAQs to include new guidance covering, among other things, (i) general standards for audited profit and loss statements; (ii) when a mortgage loan is considered to be reinstated; (iii) reusing desktop and exterior-only appraisals for subsequent refinances; and (iv) using credit supplements as a form of due diligence to determine whether a borrower’s existing mortgage payments are current. Additionally, Fannie Mae updated previous questions related to refinancing an existing loan in forbearance and timely payments in certain repayment plans.
On October 8, the OCC, FDIC and Federal Reserve Board finalized two rules intended to encourage depository institutions to utilize their capital buffers, which must be maintained in order to avoid having restrictions placed on capital distributions, for lending and other financial intermediation activities. The agencies amended rules governing risk-based capital and leverage ratio requirements for U.S. banking organizations, to make limitations on capital distributions more gradual in nature. The agencies also amended rules governing the total loss-absorption capacity of the largest U.S. bank holding companies and U.S. operations of the largest foreign banking organizations.
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- Jeffrey P. Naimon to discuss "2021 - A new beginning/what's to come" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- H Joshua Kotin to discuss "Mortgage servicing in a recession: Early intervention, loss mitigation and more" at the NAFCU Virtual Regulatory Compliance Seminar
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "Cyber security, incident response, crisis management" at the Legal & Diversity Summit
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "BSA/AML - Covid impact and regulatory/guidance roundup" at an NAFCU webinar