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CFPB and South Carolina take action against loan broker for veteran pension loans
On October 1, the CFPB and the South Carolina Department of Consumer Affairs filed an action in the U.S. District Court for the District of South Carolina against two companies and their owner, alleging that the defendants violated the Consumer Financial Protection Act (CFPA) and the South Carolina Consumer Protection Code (SCCPC) by offering high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments. The complaint alleges that the majority of the credit offers are brokered for veterans with disability pensions or retirement pensions. The defendants allegedly did not disclose to consumers the interest rates associated with the products, marketing the contracts as sale of payments and not credit offers. The defendants also allegedly did not disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits. The Bureau and South Carolina are seeking injunctive relief, restitution, damages, disgorgement, and civil money penalties.
The Bureau’s announcement notes that this is the third action in 2019 related to the marketing or administration of high-interest credit to veterans. As previously covered by InfoBytes, in January 2019, the Bureau settled with an online loan broker resolving allegations that the broker violated the CFPA by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments. Additionally, in August 2019, the Bureau and the Arkansas attorney general announced a proposed settlement with three loan brokerage companies, along with their owner and operator, for allegedly misrepresenting high-interest credit offers to veterans and other consumers as purchases of future pension or disability payments (covered by Infobytes here).
Republican lawmakers urge CFPB to extend Remittance Rule safe harbor
On September 30, 16 Republican members of Congress wrote to CFPB Director Kathy Kraninger to express concern over the upcoming expiration of a safe harbor to the Remittance Rule (the Rule), which allows certain insured depository institutions to estimate exchange rates and certain fees they are required to disclose to customers about remittance transactions. As previously covered by InfoBytes, the CFPB issued a Request for Information (RFI) last April on two aspects of the Rule that require financial institutions handling international money transfers, or remittance transfers, to disclose to individuals transferring money information about the exact exchange rate, fees, and the amount expected to be delivered. The RFI also sought feedback on a possible extension of the current statutory exception, which is set to expire July 21, 2020. While lawmakers recognize the CFPB’s interest in mitigating negative effects that may result from the exception’s expiration, they urged the CFPB to “take every available step” to ensure that consumers may continue to access remittance services. The lawmakers stressed that it is often difficult, if not “virtually impossible,” for depository institutions to calculate the exact cost of certain remittance transactions. The letter further noted that “depository institutions cannot readily covert all foreign currencies at the time a transfer is conducted, and if the currency exchange takes place after the transfer is initiated, a consumer’s financial institution may only be able to estimate the applicable exchange rate.” Accordingly, if the exception expired, it could cause many depository institutions to discontinue providing remittance services due to increased compliance risk, or cease transfers to certain countries or beneficial banks due to non-compliance risks.
The lawmakers urged the CFPB to use its statutory authority under the Electronic Fund Transfer Act or Dodd-Frank to make the exception permanent “so financial institutions are able to make long-term decisions regarding the provision of these services.”
CFPB report examines bankruptcy trends
On September 25, the CFPB released the latest quarterly consumer credit trends report, which examines how the volume and types of bankruptcy filings have changed from 2001 to 2018. The report focuses on consumers who filed for Chapter 7 or Chapter 13 bankruptcy during the reported timeframe. Key findings of the report include: (i) in 2005, there was a rush to file for bankruptcy before the income limits of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect, increasing the share of Chapter 7 filings to 80 percent of all personal bankruptcy filings that year; (ii) from 2015 to 2018, with the effects of the recession fading, Chapter 7 filings appear to have stabilized at about 63 percent; (iii) Chapter 7 and 13 filers, on average, had more than twice the mortgage debt during the recession than in the periods before and after; and (iv) median credit scores increase steadily from year-to-year after consumers file a bankruptcy petition, with Chapter 7 filers’ scores increasing more quickly than Chapter 13, on average.
FDIC fines bank for flood insurance violations
On September 27, the FDIC announced its release of a list of administrative enforcement actions taken against banks and individuals in August. According to the press release, the FDIC issued 13 orders, which include “four consent orders; one removal and prohibition order; four civil money penalty orders; two terminations of consent orders; and five section 19 orders.” Notably, the FDIC assessed a civil money penalty against a Texas-based bank for alleged violations of the Flood Disaster Protection Act, including failing to (i) obtain flood insurance coverage on loans at the time of origination, increase, extension, or renewal; (ii) maintain flood insurance coverage for the term of a loan; (iii) follow force-placement flood insurance procedures; or (iv) provide borrowers with notice of the availability of federal disaster relief assistance “in all cases whether or not flood insurance is available under the [National Flood Insurance Act] for the collateral securing the loan.”
CFPB files claims against Maryland debt collectors
On September 25, the CFPB filed a complaint in the U.S. District Court for the District of Maryland against a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”) for allegedly violating the FCRA, FDCPA, and the CFPA. In the complaint, the Bureau alleges that the defendants violated the FCRA and its implementing Regulation V by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnishing information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The Bureau separately alleges that the violations of the FCRA and Regulation V constitute violations of the CFPA. Additionally, the Bureau alleges that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts. The Bureau is seeking an injunction, damages, redress to consumers, disgorgement, the imposition of a civil money penalty, and costs.
Deputy Treasury Secretary discusses priorities and developments
On September 23, Department of Treasury Deputy Secretary Justin Muzinich delivered remarks at the 2019 Treasury Market Structure Conference. He discussed broadly the Department’s domestic and international finance priorities, including housing finance reform, digital taxation, cryptocurrency, and securities. Muzinich first addressed Treasury’s housing finance reform plan released September 5 (previously covered by InfoBytes here), stating that the “plan includes nearly 50 recommended legislative and administrative reforms that are incremental, realistic, and balanced, and aim to preserve widespread and affordable access to the 30-year fixed-rate mortgage.” With respect to digital taxation, Muzinich discussed the disproportionate effect of taxing digital businesses’ revenue on U.S. firms, and stated that the Department is actively seeking a multilateral solution. He next addressed several concerns regarding the use of cryptocurrency to evade existing legal frameworks, such as those governing taxation, anti-money laundering, and countering the financing of terrorism. Muzinich emphasized that the existing legal frameworks “apply to digital assets in no uncertain terms,” and referred to guidance released by the Department’s Office of Foreign Assets Control, which clarified that U.S. sanctions compliance obligations are the same regardless of whether a transaction is denominated in digital currency or traditional fiat currency (previously covered by InfoBytes here.) Muzinich noted, however, that there still exist several concerns that the government must consider regarding the effect cryptocurrency has on financial stability, the monetary base, consumer protection and privacy. The Deputy Secretary noted that these issues are being discussed both internationally and domestically. Muzinich closed his remarks by discussing the securities market and announced, among other things, that the Department is working with the Financial Industry Regulatory Authority to begin publicly releasing aggregated data on Treasury volumes, which will ensure that all market participants have access to the same comprehensive data.
House passes one marijuana banking bill while state AGs urge passage of another
On September 25, the U.S. House passed the SAFE Banking Act (H.R. 1595) by a vote of 321-103. As previously covered by InfoBytes, in March, the House Financial Services Committee passed the bipartisan measure, which would provide a safe harbor for depository institutions that provide a financial product or service to a covered business in a state that has implemented laws and regulations that ensure accountability in the marijuana industry.
Additionally, on September 23, a bipartisan group of 21 state attorneys general wrote to members of Congress to urge the advancement of a different piece of legislation that would allow banks to serve marijuana-related businesses in states and territories that have legalized certain uses of marijuana. Specifically, the letter expresses support for the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act), which “would allow each [s]tate and territory to determine, for itself, the best approach to marijuana legalization within its borders, while at the same time creating protections to ensure that such regulation does not impose negative externalities on those states and territories that choose other approaches.” The AGs emphasize that neither the SAFE Act (S.B. 1028 and H.R. 2093) nor the letter serve as an endorsement of any “particular approach to cannabis policy,” but rather are intended to prevent residents of states and territories that have legalized some form of marijuana from being subjected to “a confusing and dangerous regulatory limbo.” The STATES Act would effectively exempt marijuana from the Controlled Substances Act (CSA) in states where the drug has been legalized. In addition to providing an exemption from the CSA, the STATES Act would reduce businesses’ reliance on cash-only models—which, the AGs argue, make it more difficult to track revenue for tax and regulatory compliance purposes—and provide certain protections for states that choose to operate in this industry.
House Republicans push OCC for Madden regulatory fix
On September 19, 26 Republican members of the House Financial Services Committee wrote to the OCC, urging the agency to update its interpretation of the definition of “interest” under the National Bank Act (NBA) to limit the impact of the U.S. Court of Appeals for the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC (covered by a Buckley Special Alert here). The letter argues that Madden deviated from the longstanding valid-when-made doctrine—which provides that if a contract that is valid (not usurious) when it was made, it cannot be rendered usurious by later acts, including assignment—and has “caused significant uncertainty and disruption in many types of lending programs.” Specifically, the letter asserts that the decision “threatens bank-fintech partnerships” that may provide better access to capital and financing to small business and consumers. The letter acknowledges the recently filed amicus brief in the U.S. District Court for the District of Colorado by the OCC and the FDIC, which criticized the Madden decision for disregarding the valid-when-made doctrine and the “stand-in-the-shoes-rule” of contract law (previously covered by InfoBytes here), and requests that the OCC prioritize rulemaking to address the issue.
FTC settles with Belizean bank over real estate scheme
On September 24, the FTC announced a proposed $23 million settlement with a Belizean bank resolving allegations that it assisted various entities in deceiving U.S. consumers into purchasing parcels of land in a luxury development in Belize. As previously covered by InfoBytes, in November 2018, the FTC filed charges and obtained a temporary restraining order against the operators of an international real estate investment scheme, which allegedly violated the FTC Act and the Telemarketing Sales Rule by advertising and selling parcels of land through the use of deceptive tactics and claims. The FTC asserted that consumers who purchased lots in the development purchased them outright or made large down payments and sizeable monthly payments, including HOA fees, and that defendants used the money received from these payments to fund their “high-end lifestyles,” rather than invest in the development. The FTC argued that “consumers either have lost, or will lose, some or all of their investments.” At the time, the FTC filed separate charges against the Belizean bank for allegedly assisting and facilitating the scam.
According to the FTC, the bank has now agreed to the proposed consent order to settle the allegations. The consent order requires the bank to pay $23 million, which will be used to provide equitable relief, including consumer redress, and to cease all non-liquidation business activities permanently. Additionally, the consent order prohibits the liquidator or anyone else from seeking to re-license and operate the bank’s business. The consent order must be approved by the U.S. District Court for the District of Maryland.
FHFA advises GSEs on fraud reporting
On September 18, the FHFA issued Advisory Bulletin AB 2019-04, which provides guidance to Fannie Mae and Freddie Mac (GSEs) on fraud reporting requirements pursuant to 12 C.F.R. Part 1233 (FHFA Regulation). The Bulletin states that the GSEs are required to notify designees of the Director of the FHFA through the secure methods established by the FHFA within one calendar day from when the GSE discovers fraud or possible fraud that may have a “significant impact” on the GSE. The Bulletin defines “significant impact” as an event that “may create substantial financial or operational risk for the Enterprise, whether from a single event/incident or because it is systemic.” Moreover, the GSEs are required to submit a monthly fraud status report to the FHFA containing instances where they have (i) filed a suspicious activity report (SAR) with the Treasury Department or the Financial Crimes Enforcement Network; or (ii) discovered that the Enterprise purchased or sold a fraudulent loan or financial instrument, or suspects a possible fraud related to the purchase or sale of any loan or financial instrument, and the Enterprise has not filed a SAR. Additionally the GSEs are required to submit quarterly reports summarizing information concerning the GSE fraud risk management environments. The Bulletin is effective January 1, 2020.