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FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in September 2017
On October 27, the FDIC released a list of 23 orders of administrative enforcement actions that it has taken against banks and individuals in September, as well as one consent order termination issued in August. Civil money penalties were assessed against two banks, including one citing violations of the Flood Disaster Protection Act and the National Flood Insurance Act for (i) failing to obtain flood insurance during loan origination or to obtain “adequate” flood insurance, and (ii) failing to provide written notice in a timely fashion—or at all—to borrowers that the property securing the loan was in a special flood hazard area.
Consent orders were issued against eight institution-affiliated parties related to unsafe or unsound banking practices and breaches of fiduciary duty concerning their actions when supervising a Pennsylvania bank’s mortgage division. Also on the list are five 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 November 2017. The FDIC database containing all 24 enforcement decisions and orders may be accessed here.
Global Securities Firm Agrees to Pay Million Dollar Penalty Related to Alleged Securities Fraud Scheme
On October 26, the United States Attorney for the District of Connecticut announced a non-prosecution agreement between the office and a global securities firm. The resolution was a result of a government investigation, which concluded that the firm perpetrated a scheme to defraud its customers in trades of residential mortgage-backed securities (RMBS) and collateralized loan obligations (CLOs) between 2008 and 2013. Specifically, the investigation alleges that the firm, (i) misrepresented material facts in trades and monetarily benefited from the misrepresentations; (ii) instructed traders to use fraudulent trading practices; (iii) lied to affected customers who suspected the fraudulent activity; (iv) ignored complaints from its own employees regarding the fraudulent activity; (v) deceived rival broker-dealers in trades by using a purportedly independent propriety trading operation; and (vi) concealed the fraudulent conduct from customers and employees in order to prevent or delay discovery.
The agreement, which was entered into on October 25, requires that the firm pay a $35 million monetary penalty and pay around $9 million in restitution to affected customers.
VA Extends Foreclosure Moratorium Following Hurricane Disasters; Federal Agencies Issue Appraisal Exceptions; Freddie Mac Extends Temporary Selling Requirements Related to Wildfire Areas
Hurricane Relief. The Department of Veterans Affairs (VA) is extending the foreclosure moratorium on properties affected by the recent hurricanes. For disaster areas impacted by Harvey, Irma, and Maria, the VA is updating the original circulars to change the 90-day moratorium to 180 days (a complete list of change notices can be found here).
On October 24, the FDIC, Federal Reserve, National Credit Union Administration, and the OCC issued a temporary exception to the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) appraisal requirements for areas affected by the recent hurricanes. More specifically, the FDIC's Financial institution Letter states that the agency will not require financial institutions to obtain appraisals for affected transactions, if (i) the properties involved are located in areas declared major disasters; (ii) there are binding commitments to fund the transactions within 36 months of the date the areas were declared major disasters; and (iii) the value of the real properties support the institutions' decisions to enter into the transactions.
California Wildfire Relief. On October 25, Freddie Mac released Guide Bulletin 2017-24 extending the temporary selling requirements applied to hurricane disaster areas to eligible disaster areas impacted by the California wildfires. As previously covered by InfoBytes, Freddie Mac is requiring servicers to suspend foreclosure sales and eviction activities and has agreed to reimburse sellers for certain property inspections for property located in eligible disaster areas.
Here is a complete list of InfoBytes disaster relief coverage.
Federal Reserve Updates Requirements for Processing FOIA Requests
On October 19, the Federal Reserve Board finalized amendments to regulations for the processing of Freedom of Information Act (FOIA) requests by the Board. The amendments (i) “clarify and update procedures for requesting information from the Federal Reserve Board”; (ii) “extend the deadline for administrative appeals”; and (iii) “add information on dispute resolution services.”
The Board published the final rule in the Federal Register on October 25; the rule will become effective on November 24 of this year.
FinCEN Encourages Communication from Financial Institutions Affected by the California Wildfires; FDIC Offers Regulatory Relief; FHA Extends Foreclosure Moratorium
California Wildfire Relief. On October 19, FinCEN announced that financial institutions affected by the California wildfires should contact FinCEN and their functional regulator regarding any delays in their ability to file Bank Secrecy Act reports and to keep FinCEN and the regulators apprised of subsequent changes in their circumstances.
On October 20, the FDIC announced steps to provide regulatory relief to financial institutions and facilitate recovery in areas of California affected by recent wildfires. The FDIC is encouraging banks to work constructively with borrowers affected by the wildfires, including extending repayment terms, restructuring existing loans, or easing terms for new loans. The FDIC noted that financial institutions may receive favorable Community Reinvestment Act (CRA) consideration in support of disaster recovery and will consider regulatory relief from certain filing and publishing requirements.
Hurricane Relief. On October 20, HUD issued an additional 90-day extension of the initial disaster foreclosure moratorium for FHA mortgaged properties located in specified areas impacted by the recent hurricanes. The foreclosure moratorium applies to the initiation of foreclosures and foreclosures already in process. The new extended dates are as follows: February 21, 2018 for Hurricane Harvey, March 9, 2018 for Hurricane Irma, and March 19, 2018 for Hurricane Maria.
As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.
FDIC Chairman Delivers Remarks Concerning the Strengths and Challenges Facing Community Banks
On October 23, FDIC Chairman, Martin J. Gruenberg, spoke at an event hosted by the Illinois Department of Financial and Professional Regulation and the Conference of State Bank Supervisors about the important role community banks play in the U.S. financial system. Gruenberg noted that comparing the performance of community banks to noncommunity banks in the post-crisis period can be instructive. For instance, “community bank loans have grown faster than loans held at noncommunity banks in: 1- to 4-family mortgages, commercial real estate loans, and commercial and industrial loans.” In fact, Gruenberg stated, “[i]n each of the past three years, annual growth in community bank net income has equaled or exceeded growth at noncommunity banks.” Further, community banks continue to provide more credit for small business and banking services in general in non-metro areas.
Gruenberg went on to highlight some of the challenges facing community banks: (i) fewer resources for burdensome regulatory compliance; (ii) appraiser availability and shortages, especially in rural areas; (iii) complex capital requirements; (iv) the ability to effectively respond to information technology challenges, such as maintaining strong cybersecurity programs; and (v) succession planning and staff recruitment. Beyond agency efforts to address these concerns through advisors and proposed changes, Gruenberg spoke about the FDIC’s Community Banking Initiative, which offers resources and tools to help community banks stay informed of regulatory changes and manage costs.
OCC to Host Workshop for Bank Directors in December; FDIC, CFPB Announce Webinar to Discuss Financial Education Resources
On October 23, the OCC announced it will host a workshop December 4-6 in Albuquerque, New Mexico, for directors, senior management team members, and other key executives of OCC-supervised national community banks and federal savings associations. The “Building Blocks for Directors” workshop will (i) focus on the duties and cores responsibilities of directors and management; (ii) discuss major laws and regulations; and (iii) provide insight on the examination process.
Also on October 23, the FDIC and CFPB announced they will co-host a webinar on November 15 to discuss financial education resources designed to help people with disabilities make informed financial decisions. Topics of discussion will include recent enhancements to the FDIC’s Money Smart curriculum and the CFPB’s Your Money, Your Goals toolkit.
Senate Nullifies CFPB Arbitration Rule
On October 24, the Senate cleared a resolution under the Congressional Review Act to nullify the CFPB’s recently adopted final arbitration rule, with Vice President Mike Pence casting the deciding vote to break the 50-50 tie. As previously covered in InfoBytes, the House passed H.J. Res. 111 earlier in July to invalidate the rule, which prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. The resolution now heads to President Trump.
Both CFPB Director Richard Cordray and Acting Comptroller of the Currency Keith A. Noreika issued statements following the vote. Noreika stated: “The elected representatives acted to stop a rule from going into effect that would have likely increased the cost of credit for hardworking Americans and made it more difficult for small community banks to resolve differences with their customers without achieving the rule’s goal of deterring future financial abuse.” Noreika labeled the action by Congress as a “victory for consumers and small banks across the country.”
However, according to many media outlets, Director Cordray condemned the Senate’s action. Cordray explained: “Tonight's vote is a giant setback for every consumer in this country. Wall Street won and ordinary people lost. This vote means the courtroom doors will remain closed for groups of people seeking justice and relief when they are wronged by a company.”
OCC Announces Recent Enforcement Actions and Terminations
On October 19, the OCC released a list of new enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The OCC also released a list of recently terminated enforcement actions. The new enforcement actions include cease and desist orders, civil money penalty orders, personal cease and desist orders, removal/prohibition orders, and notices. The personal cease and desist orders relate to four directors of a Texas bank that were each fined $5,000 for breaches of fiduciary duty and unsafe or unsound practices. These practices allegedly included approving and ratifying loans with “concessionary and liberal terms to unqualified borrowers” in order to “finance the borrower’s purchase of stock in the [b]ank’s holding company to raise capital for the Bank.” (See civil money penalties here, here, here, and here.)
Treasury Releases Report Criticizing CFPB Arbitration Rule
On October 23, the Treasury Department released a report criticizing the CFPB’s arbitration rule (Rule)—finding the Rule did not satisfy the statutory prerequisites under the Dodd-Frank Act for banning arbitration agreements. Specifically, the report concludes that “the Bureau has not made a reasoned showing that increased consumer class action litigation will result in a net benefit to consumers or the public as a whole.” Like the OCC’s findings (as covered by InfoBytes previously), the Treasury Department found that the Rule will result in increased costs to consumers as affected businesses are unlikely to absorb the new financial costs associated with increased class action litigation. Moreover, the report notes that (i) the CFPB’s data shows that the majority of class action lawsuits deliver no relief to consumers; (ii) that despite the rule’s high costs, the CFPB did not demonstrate the Rule would help increase compliance with federal consumer laws; and (iii) the CFPB failed to consider less burdensome alternatives to the rule.
In addition to the Treasury Department, the Rule is also under scrutiny by Congress and the subject of a lawsuit filed by the U.S. Chamber of Commerce and other financial industry groups (previously discussed in InfoBytes here and here, respectively).