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FDIC fines banks for flood insurance violations, releases January enforcement actions
On February 23, the FDIC released a list of 12 administrative enforcement action orders taken against banks and individuals in January. Civil money penalties were assessed against two banks, including one against a Michigan-based bank citing violations of the Flood Disaster Protection Act (FDPA) and the National Flood Insurance Act (NFIA) for allegedly: (i) failing to obtain flood insurance on a borrower’s behalf at origination in multiple instances, and twice failing to maintain adequate flood insurance; (ii) failing twice to follow force placed flood insurance procedures; and (iii) failing to notify borrowers in multiple instances that the “collateral for the loan was in a designated special flood hazard area.” The other civil money penalty was assessed against a Wisconsin-based bank for allegedly engaging in a pattern of violating requirements under the FDPA and the NFIA, which included failing to provide borrowers with a “Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance” in a timely fashion.
Also on the list are four Section 19 orders, which allow applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and three terminations of consent orders, among others.
There are no administrative hearings scheduled for March 2018. The FDIC database containing all 12 enforcement decisions and orders may be accessed here.
OCC makes technical changes to stress testing rule; regulators submit unified stress test report for OMB approval
On February 23, the OCC finalized technical changes to its annual stress testing rule. Specifically, the final rule (i) changes the range of possible “as-of” dates used in the global market shock component to conform to changes already made by the Federal Reserve Board (Fed) to its annual stress testing regulations; (ii) extends the transition process for covered institutions with $50 billion or more in assets (“a national bank or federal savings association that becomes an over $50 billion covered institution in the fourth quarter of a calendar year will not be subject to the stress testing requirements applicable to over $50 billion covered institutions until the third year after it crosses the asset threshold”); and (iii) makes certain technical clarifications to the requirements of the OCC’s stress testing rule. The final rule takes effect March 26.
The same day, the Fed, the OCC, and the FDIC submitted a notice to the Office of Management and Budget (OMB) requesting approval of a new stress test report form (FFIEC 016) to be implemented for the stress test report due July 31. If approved, FFIEC 016 would replace the agencies’ three separate, yet identical, forms currently used to collect information from financial institutions and holding companies with total assets of more than $10 billion but less than $50 billion. Comments on the proposed change must be received on or before March 26.
FTC files charges against operations that target elder Americans as part of DOJ’s elder fraud enforcement sweep
On February 22, the FTC announced two separate legal actions taken against individuals and their operations for allegedly engaging in schemes exploiting elder Americans. The two cases are part of an enforcement sweep spearheaded by the DOJ in conjunction with the FBI, the FTC, the Kansas Attorney General, and foreign law enforcement agencies, which—according to a press release issued the same day by the DOJ—includes cases from around the globe involving over 250 defendants accused of victimizing more than a million U.S. citizens, the majority of whom are elderly. Charges were brought against both transnational criminal organizations and individuals who allegedly engaged in schemes including (i) mass mailings; (ii) telemarketing and investment frauds; and (iii) guardian identity theft.
According to the FTC’s announcement, charges were brought against two individuals and their sweepstake operation accusing them of allegedly bilking consumers out of tens of millions of dollars though personalized mailers that falsely implied the recipients had won or were likely to win a cash prize if they paid a fee. Since 2013, the FTC claims consumers have paid more than $110 million towards the scheme. The second complaint was brought against a group of telemarketers who claimed their software and technical support services would prevent cyber threats. However, the FTC alleges that the telemarketers instead charged up to tens of thousands of dollars for “junk” software or older software available for free or for a much lower price, and communicated “phony” reasons for consumers to purchase additional software to avoid the risk of new threats.
FHA offers further relief to eligible borrowers in disaster areas
On February 22, the Federal Housing Administration (FHA) announced it will extend its foreclosure relief for borrowers with FHA-insured mortgages whose homes were affected by presidentially-declared natural disasters in 2017. Under Mortgagee Letter ML 2018-01 (ML 2018-01), the new “Disaster Standalone Partial Claim” loss mitigation option will allow borrowers whose property or employment is located in designated disaster areas to cover up to 12 months of missed mortgage payments through an interest-free second loan on the mortgage without a required trial payment plan. The second loan will become payable only when the borrower sells the home or refinances. Additionally, the loss mitigation option will streamline income documentation and other requirements to expedite relief to eligible borrowers struggling to pay their mortgages. ML 2018-01 instructs mortgagees to implement the policies set forth no later than May 1.
Find more InfoBytes disaster relief coverage here.
DOJ settles SCRA lease termination allegations against motor vehicle finance company
On February 22, the DOJ announced a settlement agreement with a motor vehicle finance company regarding allegations that the company did not refund a portion of the capitalized cost reduction (CCR), after the motor vehicle leases were terminated early under the Servicemembers Civil Relief Act (SCRA). The DOJ took the position that the CCR was a prepayment subject to refund upon termination. Consistent with industry practice, the finance company treated the CCR as an amount comparable to a down payment in a finance agreement, not subject to refund, rather than a prepayment. Though not admitting any violation of law, the company agreed to refund certain portions of CCR pre-payments and update its policies and procedures, among other relief. Buckley Sandler attorneys John Redding and Sasha Leonhardt represented the company in this matter.
Treasury releases Orderly Liquidation Authority report
On February 21, the U.S. Department of the Treasury released a report on the Orderly Liquidation Authority (OLA) and Bankruptcy Reform. The report is in response to the April 2017 Presidential Memorandum requiring the Treasury Department to review and provide recommendations for improving the OLA under the Dodd-Frank Act, previously covered by InfoBytes here. According to the Treasury Department’s announcement, the recommendations outlined in the report “ensure that taxpayers are protected by strengthening the bankruptcy procedure for a failed financial company and retaining OLA in very limited circumstances with significant reforms.” In addition to recommending a new Chapter 14 of the Bankruptcy Code for distressed financial companies, the report recommends significant reforms to the OLA process, such as (i) creating clear rules administered with impartiality, including restricting the FDIC’s ability to treat similarly situated creditors differently; (ii) ensuring market discipline and strengthening protection for taxpayers by, among other things, only allowing the FDIC to lend on a secured basis; and (iii) strengthening judicial review to provide a stronger check on the decision to invoke OLA.
FDIC releases 2017 annual report, among key issues are living wills, cybersecurity, and simplifying regulations
On February 15, the FDIC released its 2017 Annual Report, which includes, among other things, the audited financial statements of the Deposit Insurance Fund and the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund. The report also provides an overview of key FDIC initiatives, performance results, and other aspects of FDIC operations, supervision developments, and regulatory enforcement, including the following:
- Living Wills. The report discusses the FDIC’s continued evaluation of resolution plans for Systemically Important Financial Institutions (SIFIs) and notes there remain “inherent challenges and uncertainties” associated with the plans, specifically within four areas: “intra-group liquidity; internal loss-absorbing capacity; derivatives; and payment, clearing, and settlement activities.” Further, the FDIC and Federal Reserve (who share joint responsibility for reviewing and assessing resolution plans) reviewed plans submitted by the eight largest U.S. SIFIs and noted that four of the firms’ plans had shortcomings—although no deficiencies were identified—and stipulated that the plans must be resubmitted by July 1, 2019. (See previous InfoBytes coverage here on recent comments by FDIC Chairman Martin concerning living will challenges.)
- Cybersecurity. Among other initiatives, the report discusses a collaboration between the FDIC, the Federal Reserve, and the OCC to update the interagency Cybersecurity Assessment Tool, which “helps financial institutions determine their cyber risk profile, inherent risks, and level of cybersecurity preparedness.” The report provides feedback from institutions currently using the tool.
- Simplifying Regulation. In accordance with the requirements of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), the report discusses the FDIC’s, Federal Reserve Board’s, and OCC’s regulatory review process done in conjunction with the National Credit Union Administration and the members of the Federal Financial Institutions Examination Council (FFIEC). As previously covered in InfoBytes here and here, a report was issued in March outlining initiatives designed to reduce regulatory burdens, particularly on community banks and savings associations, and last September a proposed rule to simplify capital rule compliance requirements and reduce the regulatory burden was issued.
CFPB releases RFI on external engagements
On February 21, the CFPB released its fifth Request for Information (RFI) in a series seeking feedback on the bureau’s operations. This RFI solicits public comment on how the Bureau can best “conduct future external engagements while continuing to achieve the Bureau’s statutory objectives.” According to the RFI, the Bureau’s “external engagements” are public and non-public meetings, including: field hearings, town halls, roundtables, and meetings of its advisory board and councils. The Bureau is required by the Dodd-Frank Act to have a Consumer Advisory Board. The Bureau has also chosen to form three advisory councils: the Community Bank Advisory Council, the Credit Union Advisory Council, and the Academic Research Council.
The RFI broadly requests feedback on all aspects of these external engagements but also highlights specific topics on which comment is requested, including (i) strategies for seeing feedback from diverse external stakeholders; (ii) information related to the methods, such as town halls and field hearings, the Bureau uses to receive feedback; (iii) the current process for transparency in the details of the events; (iv) strategies for promoting transparency while protecting confidential business information; and (v) other approaches not currently utilized by the Bureau. The RFI is expected to be published in the Federal Register on February 26. Comments will be due 90 days from publication.
FDIC Chairman discusses challenges associated with living wills
On February 16, FDIC Chairman, Martin J. Gruenberg, spoke at an event hosted by The Wharton School in Philadelphia about the challenges associated with managing the orderly failure of a systemically important financial institution. In prepared remarks, Gruenberg discussed his views on how the FDIC’s Title II Orderly Liquidation Authority granted under Dodd-Frank—which allows the regulator “to manage the orderly failure of any financial institution whose failure in bankruptcy could pose a risk to the financial system”—is complementary to the Title I living will process. Title I requires firms to “make significant changes in their organizational structure and operations to facilitate orderly failure in bankruptcy.” Gruenberg outlined the evolution of the living will process from its inception under Dodd-Frank in 2010, to the efforts undertaken by the eight largest, most complex banks when assembling their mandated resolution plans, which are reviewed by the FDIC and the Federal Reserve (the agencies). While the banks have demonstrated “substantial” progress on their resolution plans, Gruenberg commented “there is still a great deal of work to do.” Specifically, Gruenberg noted that in 2016, the agencies determined that (i) five of the eight submitted plans “would not facilitate an orderly resolution of the firm under the Bankruptcy Code,” and (ii) all eight plans contained “shortcomings” that raised questions about the plans’ feasibility. All systematically important financial institutions were directed to address their shortcomings in their next submissions. During his remarks, Gruenberg cited examples of progress made in 2017, and highlighted the “structural and operational improvements” firms have made to improve resolvability. However, he closed his remarks by noting these resolutions have not yet been tested and emphasized the need to continue to address challenges as they arise.
House passes bill that would effectively overturn Madden; others amend RESPA disclosure requirements and adjust points and fees definitions under TILA
On February 14, in a bipartisan vote of 245-171, the House passed H.R. 3299, the “Protecting Consumers Access to Credit Act of 2017,” to codify the “valid-when-made” doctrine and ensure that a bank loan that was valid as to its maximum rate of interest in accordance with federal law at the time the loan was made shall remain valid with respect to that rate, regardless of whether the bank subsequently sells or assigns the loan to a third party. As previously covered in InfoBytes, this regulatory reform bill would effectively overturn the 2015 decision in Madden v. Midland Funding, LLC, which ruled that debt buyers cannot use their relationship with a national bank to preempt state usury limits. Relatedly, the Senate Banking Committee is considering a separate measure, S. 1642.
The same day, in a separate bipartisan vote of 271-145, the House approved H.R. 3978, the “TRID Improvement Act of 2017,” which would amend the Real Estate Settlement Procedures Act of 1974 (RESPA) to modify disclosure requirements applicable to mortgage loan transactions. Specifically, the bill states that “disclosed charges for any title insurance premium shall be equal to the amount charged for each individual title insurance policy, subject to any discounts as required by either state regulation or the title company rate filings.”
Finally, last week on February 8, the House voted 280-131 to pass H.R. 1153, the “Mortgage Choice Act of 2017,” to adjust definitions of points and fees in connection with mortgage transactions under the Truth in Lending Act (TILA). Specifically, the bill states that “neither escrow charges for insurance nor affiliated title charges shall be considered ‘points and fees’ for purposes of determining whether a mortgage is a ‘high-cost mortgage.’” On February 12, the bill was received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.