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Democratic senators concerned with CFPB retiring HMDA search tool
On April 29, nine Democratic Senators, led by Sherrod Brown (D-Ohio), wrote to the CFPB expressing “deep concern” regarding the Bureau’s plan to retire its tools for public exploration of HMDA data—HMDA Explorer Tool and the Public Data Platform API. In the letter, the Senators argue that retiring the tools with no plan for adequate replacements “threatens to undermine the statutory purposes of HMDA and does not live up the commitments to transparency and accountability” that Director Kraninger promised to uphold during her nomination hearing. The Senators cite to the Bureau’s decision to move the Office of Fair Lending and Equal Opportunity from the Supervision and Enforcement section to the Office of the Director and argue that “[r]reductions in available data and its accessibility, combined with weakened [fair lending] enforcement, is a disservice to the consumers the CFPB was created to protect.” The letter urges the CFPB to reverse course and requests that the Bureau provide a “detailed briefing” on the decision by May 10.
In the notice regarding the tools’ retirement, the Bureau states that the FFIEC “will publish a query tool for the 2018 data in the coming months.”
Federal Reserve issues BSA/AML enforcement action against Japanese bank
On April 25, the Federal Reserve Board announced an enforcement action against a Japanese bank for alleged weaknesses in its New York branch’s anti-money laundering risk management and compliance programs, including a failure to comply with applicable rules and regulations, including the Bank Secrecy Act. Under the terms of the order, the bank is required to, among other things, (i) develop and implement a written plan to strengthen the board of directors’ oversight of Bank Secrecy Act/anti-money laundering (BSA/AML) compliance and Office of Foreign Assets Control (OFAC) regulations; (ii) submit an enhanced written compliance program that complies with BSA/AML requirements; (iii) submit an enhanced, written customer due diligence plan; (iv) submit a written program to ensure compliant, timely, and accurate suspicious activity monitoring and reporting; (v) submit a written plan to enhance OFAC regulation compliance; and (vi) submit a written plan for independent testing of the bank’s compliance with all applicable BSA/AML requirements. A civil money penalty was not assessed against the bank or the branch. This is the latest in a long string of BSA/AML and OFAC-related regulatory enforcement actions against the U.S. operations of foreign banking organizations. Intense regulatory scrutiny of such institutions’ BSA/AML and OFAC risk management appears to continue unabated.
FDIC fines banks for TCPA, BSA violations; releases March enforcement actions
On April 26, the FDIC announced a list of administrative enforcement actions taken against banks and individuals in March. The 13 orders include “three consent orders; two orders terminating consent orders; four Section 19 orders; one removal and prohibition order; two voluntary terminations of insurance orders; and two orders to pay civil money penalty.” The FDIC assessed, among other things, a $200,000 civil money penalty against an Oklahoma-based bank for allegedly violating the FTC Act and the TCPA by (i) using telemarketers who misrepresented themselves as employees or affiliates of the federal government; and (ii) placing calls to consumers who appeared on the National Do Not Call Registry or who requested to be added to the bank’s internal Do Not Call List.
The FDIC also assessed a consent order against an Illinois-based bank related to alleged weaknesses in its Bank Secrecy Act (BSA) compliance program. Among other things, the bank is ordered to (i) designate a senior official to enforce and take corrective action related to its BSA compliance policy; (ii) implement a revised, comprehensive written BSA compliance program and system of internal controls to address provisions, including currency transaction reporting, customer identification program, beneficial ownership, and information sharing requirements; (iii) adopt a written Customer Due Diligence Program to assure the reasonable detection of suspicious activity, specifically for money services businesses and privately-owned ATM customers; (iv) implement a process for account transaction monitoring; (v) implement a comprehensive BSA training program for appropriate personnel; (vi) conduct a look back review to ensure certain transactions were appropriately identified and reported; and (vii) revise its internal control programs to correct the identified deficiencies.
Department of Defense updating data-sharing agreement with Department of Education to preserve servicemember benefit
On April 16, the Department of Defense (DoD) published a proposal in the Federal Register to amend its routine use policy to accommodate a new data-sharing agreement between DoD and the Department of Education (ED). The new agreement ensures that servicemembers with student loans under Part D, Title IV of the Higher Education Act of 1965 receive the “no interest accrual benefit” on eligible loans during the period in which they received imminent danger or hostile fire pay. Through the proposal and the new agreement, ED will be able to access information in the Defense Manpower Data Center Data Base to identify servicemembers eligible for “no interest accrual benefit.” The proposal will take effect after the comment period ends on May 16 “unless comments are received which result in a contrary determination.”
Kraninger’s focus is preventing consumer harm, clarifying “abusive”
On April 17, Kathy Kraninger, Director of the CFPB, spoke before the Bipartisan Policy Center where she reiterated the Bureau’s focus on prevention of harm and announced a symposium that will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act. In her remarks, Kraninger touched on the four “tools” the Bureau has at its disposal to execute its mission: education, rulemaking, supervision, and enforcement.
- Education. The Bureau wants to help consumers protect their own interests and choose the right products and service to help themselves. Specifically, the Bureau is focusing on ensuring that American consumers learn to save to be able to absorb a financial shock.
- Rulemaking. The Bureau will comply with Congressional mandates to promulgate rules or address specific issues through rulemaking, but when the Bureau has discretion, it will focus on “preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices which undermine the ability of consumers to choose the products and services that are best for them.” In the coming weeks, the Bureau will release its proposed rules to implement the FDCPA, which will include (i) bright line limits on the number of calls consumers can receive from debt collectors on a weekly basis; (ii) clarity on how collectors may communicate through new technology such as, email and text messages; and (iii) requiring more information at the outset of collection to help consumers better identify debts and understand payment and dispute options. Kraninger stated, “the CFPB must acknowledge that the costs imposed on regulated entities absolutely affect access to, and the availability of, credit to consumers.”
- Supervision. This tool is the “heart of the agency,” according to Kraninger, as it helps to prevent violations of laws and regulations from happening in the first place. The Bureau will keep in mind that it is not the only regulator examining most entities and will focus on coordination and collaboration with the other regulators so as not to impose unmanageable burdens in examinations.
- Enforcement. The Bureau will continue to enforce against bad actors that do not comply with the law, as enforcement is “an essential tool that Congress gave the Bureau.” The Bureau will have a “purposeful enforcement regime” to foster compliance and help prevent consumer wrongs. Kraninger is “committed to ensuring that enforcement investigations proceed carefully and purposefully to ensure a fair and thorough evaluation of the facts and law… [and ensuring they] move as expeditiously as possible to resolve enforcement matters, whether through public action or a determination that a particular investigation should be closed.”
Kraninger also touched on how the Bureau plans to measure success going forward. Kraninger noted that in the past, the Bureau touted its outgoing statistics as a measurement, such as amount of consumer redress and number of complaints handled. However, according to Kraninger, if the Bureau succeeds in fostering a goal of prevention of harm, certain outputs like meritorious complaints would actually be lower. Therefore, the Bureau’s success should be based on how it uses all of its tools. Lastly, Kraninger announced a symposia series that would convene to discuss consumer protections in “today’s dynamic financial services marketplace.” The first will explore the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act, specifically, to address issues with the “reasonableness” standard. There are no additional details on the date for the symposium but Kraninger noted that this would be the next step in exploring future rulemaking on the issue. The series will also have future events discussing behavioral law and economics, small business loan data collection, disparate impact and the Equal Credit Opportunity Act, cost-benefit analysis, and consumer authorized financial data sharing.
Additionally, on April 9, acting Deputy Director, Brian Johnson, spoke at the George Mason University Law & Economics Center's Ninth Annual Financial Services Symposium. In his prepared remarks, Johnson emphasized that regulatory rules should be “as simple as possible” when dealing with complex markets as they are easier for a greater portion of actors to understand and adapt to and also promote compliance, “which has the ancillary benefit of making it easier for consumers (not to mention regulators) to distinguish between good and bad actors.” Johnson argued that regulators should not try and dictate specific outcomes in rulemaking. Instead, Johnson stated that “financial regulators should recognize that complex market systems are not a means to accomplish their specific goals” and should “narrowly-tailor rules to address a discrete market failure.” Johnson also touched on the Bureau’s new Office of Innovation, noting that the Bureau’s proposed No Action Letter Program and Product Sandbox will offer firms “the opportunity to expand credit while still preserving important consumer protections,” while assisting the Bureau in learning about new technologies and potential consumer risks. As for the Bureau’s cost-benefit analysis, Johnson said that this activity will not be limited to future actions, but will also be used for “periodic retrospective analysis” because financial markets are “constantly changing, requiring constant reappraisal and verification of the rules that govern the system.”
Federal regulators discuss national bank’s remediation progress
On April 9, Senators Elizabeth Warren (D-Mass) and Sherrod Brown (D-Ohio) released responses to inquiries sent last month to the Federal Reserve Board, the OCC, and the CFPB, which expressed, among other things, concern about the level of response taken by a national bank regarding its auto-lending practices, as well as the bank’s remediation plans and compliance risk management efforts. In response, the regulators individually discussed the bank’s progress to satisfy its obligations under existing consent orders.
Federal Reserve Chairman Jerome Powell wrote that the asset cap imposed on the bank will remain in place until the bank has implemented—to the Board’s satisfaction—remedies to address risk management breakdowns. Powell noted that the bank and the Board are comprehensively addressing the progress.
OCC Comptroller Joseph Otting emphasized that the agency continues “to monitor the bank’s work to remediate deficiencies” identified in previously issued orders, and commented that while the OCC is disappointed with the bank’s current corporate governance and risk management programs, it “is fully engaged and prepared to bring [the bank’s] matters to resolution.”
CFPB Director Kathy Kraninger stated that “while the Bureau is working with [the bank] to ensure its compliance with the consent order, I am not satisfied with the [b]ank’s progress to date and have instructed staff to take all appropriate actions to ensure the [b]ank complies with the consent order and [f]ederal consumer financial law.”
FHFA director Calabria stresses urgency in housing finance reform
On April 15, Mark Calabria was sworn in as the new Director of the FHFA and stressed the importance of mortgage finance reform in his first remarks in the role. Calabria warned that the current mortgage finance system remains “vulnerable,” noting that “[a]fter years of strong house price growth, too many remain locked out of housing, while others are dangerously leveraged. We must not let this opportunity for reform pass.” Calabria also acknowledged the March memo released by the White House, outlining the Administration’s plan for federal housing finance reform (covered by InfoBytes here) which, among other things, directs the Secretary of the Treasury to develop a plan to end the conservatorships of Fannie Mae and Freddie Mac (GSEs). Calabria stated that he looks forward to working with the Administration on such reforms.
OMB requires review of all regulatory materials, including guidance
On April 11, acting Director of the Office of Management and Budget (OMB), Russel Vought, sent a memorandum to the heads of all executive agencies announcing that on May 11, agencies will be required to submit all regulatory guidance materials to the Office of Information and Regulatory Affairs (OIRA) for review prior to publication. The memo asserts that the Congressional Review Act (CRA) “applies to more than just notice-and-comment rules; it also encompasses a wide range of other regulatory actions, including, inter alia, guidance documents, general statements of policy and interpretive rules” and therefore, agencies should not publish a regulatory action in the Federal Register without first submitting the document to OIRA to determine whether it is considered a “major rule” under the CRA. The CRA defines a “major rule” as one having (i) an annual effect on the economy of at least $100 million; (ii) a major increase in costs or prices for consumers, individual industries, or federal and state governments; or (iii) significant adverse effects on competition, employment, and U.S.-based enterprises. Should OIRA consider the regulatory action to be a “major rule,” the rule will be submitted to Congress with OIRA’s report and will not become effective sooner than 60 days after its submission. The memo instructs agencies to provide OIRA a quantitative analysis, which includes costs, benefits, and transfer impacts relative to a baseline, “when reasonably possible.” Additionally, the agency’s analysis should include whether the regulatory action would impose a disproportionate cost on a particular group or place a significant burden on the economy.
FTC obtains $2.7 million judgment against “free samples” operation; settles deceptive marketing matter
On April 11, the FTC announced that the U.S. District Court for the Northern District of Illinois ordered a New York-based office supply operation to pay $2.7 million to resolve allegations that the defendants targeted consumers, such as small businesses, hotels, municipalities, and charitable organizations, by deceptively misrepresenting the terms of their “free samples.” Specifically, the FTC alleged in 2017 that the defendants violated the Telemarketing and Consumer Fraud and Abuse Prevention Act (Telemarketing Act) and the Unordered Merchandise Statute by calling consumers with offers of free product and then billing the consumers after shipping the samples. In some instances, the FTC stated, consumers refused the offer of the free product, but the defendants sent it anyway. Once the samples were shipped, the FTC claimed the defendants sent follow-up invoices demanding payment for the product, and would then send dunning notices and place collection calls. Under the terms of the order, the defendants are permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of unordered merchandise, or from misrepresenting material facts, and are required to pay $2.7 million to be refunded to affected consumers.
Separately, on April 10, the FTC announced proposed settlements (see here and here) issued against twelve corporate and four individual defendants for allegedly claiming their “cognitive improvement” supplements increase brain power and performance. According to the complaint, the defendants’ deceptive acts and practices included using “sham news” websites to market false and misleading efficacy claims, such as fraudulent celebrity endorsements and fictitious clinical studies. Furthermore, the FTC alleged that, while the defendants claimed to offer a “100% Money Back Guarantee” on their supplements, consumers found it difficult or nearly impossible to get a refund, and that some consumers were allegedly charged for supplements they ordered but never received. The proposed settlements, among other things, prohibits the specified behavior and impose monetary judgments of $14,564,891 and $11,587,117, both of which will be partially suspended due to the defendants’ inability to pay.
FTC permanently bans payment processor
On April 11, the FTC announced that a payment processing company and its owner agreed to a $1.8 million settlement resolving allegations that the company repeatedly violated a 2009 court order. That order found that the payment processer knowingly or consciously avoided knowing that debit card transactions it processed, on behalf of an allegedly fraudulent enterprise, were not authorized by the consumers. The FTC alleged that the company violated the 2009 order by, among other things, (i) failing to engage in a reasonable investigation of prospective clients before processing payments on their behalf; (ii) failing to monitor clients’ transactions to ensure that clients were not engaged in illegal behavior; and (iii) failing to adhere to administrative requirements of the order, including submitting a written compliance report to the agency. In addition to the monetary penalty, the new settlement permanently bans the company from working as a payment processor and subjects the company to reporting and recordkeeping requirements.