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As a follow up to its March 2016 reporting involving a Monaco oil company’s bribery scandal, the Huffington Post recently published an interview with a former employee of the Monaco-based company who has admitted to paying bribes to a manager in Libya’s state-owned oil company in order to win a government contract. The individual, a former manager at the Monaco-based company, told the Huffington Post and the Australian newspaper, The Age,that in the summer of 2009 he was summoned to a meeting with a production manager from a subsidiary company of the Libyan National Oil Company. At the meeting, the Libyan company's production manager provided the individual with details relating to an upcoming bid for a $45 million Libyan government contract. Huffington Post reports that the individual contacted the father and two sons who ran the Monaco-based oil company. That afternoon, another manager from the Monaco-based company met with the individual at a company staffhouse, to deliver an envelope full of cash, which the individual delivered to the manager of the Libyan subsidiary company. A few days later, the individual who had delivered the cash resigned. It is unclear whether the Monaco-based company ever won the contract though the manager told the individual that “he expected a 5-10 percent kickback ― about $2-4 million ― if the [Monaco-based company] won the contract.” According to the interview, the individual who resigned has recently been cooperating with U.S., U.K., Australian, and Canadian law enforcement authorities. The individual’s former employer has denied his allegations and denies paying bribes to foreign officials in order to win deals for its multinational clients. For further coverage of this story, visit FCPA Scorecard Blog.
Department of Education Releases Final Regulations Creating Additional Protections for Student Borrowers and Establishing New Federal Standard for Borrower Defense to Repayment of Student Loans
On October 28, the Department of Education announced new Final Regulations (81 FR 75926) to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. The new regulations establish the conditions under and process through which a borrower may assert a defense to repayment, also referred to as a “borrower defense,” of a Federal Direct Loan. Specifically, a borrower may now be eligible for discharge of Federal loans whenever a postsecondary institution: (i) makes false and misleading statements about school or career outcomes, (ii) makes false and misleading statements about financing needed to pay for those programs; or (iii) the institution fails to fulfill specific contractual promises regarding program offerings or educational services. By contrast, the current standard allows borrowers to assert a borrower defense only where a cause of action would arise under applicable state law.
Under the new regulations, a school participating in the Direct Loan program is also prohibited from obtaining any form of pre-dispute arbitration agreement or waiver of a borrower’s right to initiate or participate in a class action lawsuit. Further, participating schools may no longer require that students engage in internal dispute processes before seeking relief under the new “borrower defense” provisions. The final regulations also impose certain notification and disclosure requirements on any school that is the subject of a lawsuit filed in court or that are voluntarily submitted to arbitration after a dispute has arisen. The new regulations are effective July 1, 2017.
In a press release published on November 2, the Fed announced its decision to: (i) leave unchanged the interest rate paid on required and excess reserve balances at 0.50 percent; and (ii) take no action to change the discount rate (the primary credit rate), which remains at 1.00 percent. This decision came in response to a monetary policy statement released earlier Wednesday by the Federal Open Market Committee (FOMC), following its vote to “maintain the target range for the federal funds rate at 1/4 to 1/2 percent” for the seventh consecutive meeting. More information regarding open market operations may be found on the Federal Reserve Bank of New York's website.
On October 26, the CFPB published Bulletin 2016-02 on service providers to amend previously issued guidance covered in Bulletin 2012-03. Bulletin 2016-02 seeks to clarify that supervised banks and nonbanks have flexibility in managing the risks of service provider relationships. Specifically, the CFPB advises that “the depth and formality of the risk management program for service providers may vary depending upon the service being performed —its size, scope, complexity, importance and potential for consumer harm—and the performance of the service provider in carrying out its activities in compliance with Federal consumer financial laws and regulations.” The CFPB plans to post Bulletin 2016-02 on its website on October 31, 2016.
On October 25, the CFPB released its latest monthly report of consumer complaint trends. This month’s report highlights prepaid complaints, noting that since July 21, 2011, the CFPB has received approximately 6,000 prepaid complaints. According to the report, the “most common issues identified by consumers are problems with managing, opening or closing an account (32 percent) and unauthorized transactions or other transaction issues (30 percent).” Additional prepaid complaints highlighted in the report include: (i) consumers experiencing delays in receiving a replacement card after having notified a company of fraudulent or unauthorized charges to their prepaid cards; (ii) difficulty using a prepaid card after having purchased one; (iii) assessing dormancy fees that depleted the card’s balance; and (iv) balance discrepancies. Consistent with past reports, this month’s issue lists the top ten most-complained-about companies across all financial products, as well as the top seven most-complained about companies for prepaid-related issues. Finally, the report identifies North Carolina as its geographical spotlight, observing that, as of October 1, 2016, the CFPB has received about 27,600 complaints from North Carolina consumers.
CFPB Issues Warning Letters to 44 Mortgage Lenders and Brokers for Potential HMDA Reporting Failures
On October 27, the CFPB issued warning letters to 44 mortgage lenders and mortgage brokers informing them that they may not be in compliance with certain provisions of the Home Mortgage Disclosure Act (HMDA) and Regulation C. The warning letters state that the recipients may be required to collect, record, and report housing-related lending data, and that they may be violating those requirements. Under HMDA, financial institutions that meet certain criteria are required to collect and report data related to their housing-related activity, including home purchase loans, home improvement loans, and refinancings they originate or purchase, or for which the institutions receive applications. The letters recite HMDA’s coverage criteria for lenders who are not banks, credit unions, or savings associations, suggesting that the CFPB is particularly concerned about HMDA compliance for non-depository mortgage lenders. While the letters state that the CFPB has not made any determinations that the recipients are in violation of HMDA filing requirements, the letters urge recipients to review their practices to ensure compliance with the relevant laws, and encourage recipients to advise the CFPB if the institution has taken steps or will take steps to ensure compliance. The letters advise recipients of the CFPB’s authority to impose civil money penalties for noncompliance with HMDA. In October 2013, the CFPB fined a bank and a nonbank mortgage lender for filing inaccurate HMDA data. In October 2015, the CFPB finalized a rule amending the HMDA reporting requirements under Regulation C, with the majority of the provisions taking effect on January 1, 2018.
Last week, the CFPB’s final rule amending the mortgage servicing provisions of Regulations X and Z was published in the Federal Register. The amendments were previously covered in BuckleySandler’s August 9 Special Alert. The majority of the final rule will take effect on October 19, 2017, exactly one year after its Federal Register publication date. Certain provisions related to successors in interest and bankruptcy periodic statements will become effective on April 19, 2018. The CFPB’s interpretive rule under the FDCPA addressing industry concerns and conflicts with the servicing rules in Regulations X and Z was simultaneously published in the Federal Register on October 19, 2016.
On October 20, the CFPB released a new report titled “Project Catalyst report: Promoting consumer-friendly innovation-Innovation Insights.” The report provides an overview of Project Catalyst’s work to promote “consumer-friendly innovation and entrepreneurship,” and outlines the importance of ensuring that consumer protections are built into emerging products and services from the outset. The CFPB released the report in conjunction with remarks given by Director Cordray at Money 20/20, an industry conference focused on payments and financial services innovation.
The report emphasizes the CFPB’s “very sensitive” approach to new technologies, such as its “active role in the push for faster payments systems,” as well as its more general efforts “to identify innovative trends in the marketplace to inform our work.” Throughout the report, the CFPB highlights its efforts to establish “effective communication channels” with “innovators,” including the agency’s pilot program with a credit card company to evaluate the effectiveness of certain practices to encourage prepaid card users to develop regular saving behavior. In its last section, the report discusses various “marketplace developments that may hold the potential for consumer benefits.”
The report similarly summarizes ongoing efforts to coordinate with state, federal, and international regulators, cautioning that the agency “will take action as necessary to protect consumers from innovations that may be unfair, deceptive, abusive, or discriminatory.” In addressing industry members, both the report and Director Cordray at Money 20/20 discuss the CFPB’s authority to provide greater latitude for companies to test alternatives to standard disclosures over time – using as an example, the CFPB’s trial disclosure waiver policy and its no-action letter policy through which the Bureau “can reduce regulatory uncertainty for consumer-friendly innovations.” The report and Director Cordray call for industry participants to propose alternative means of disclosure to consumers.
On October 25, CFPB Director Richard Cordray delivered remarks to the Mortgage Bankers Association (MBA). Cordray highlighted the CFPB's role in helping the housing economy to recover, including regulatory actions from 2014 to the present. Director Cordray also advised industry participants that they should expect more regulation and oversight over the coming year, explaining that the cost of compliance, though burdensome, was "inevitable" in light of the "far-reaching" effects of the financial crisis that Congress was trying to fix.
Director Cordray revealed three priority areas for enforcement and supervision in the next year: (i) consumer complaints, explaining that the CFPB will now require underperforming servicers to document the technology and process changes used to implement the agency’s recently released servicing regulations, because, among other reasons, the Bureau considers monitoring and addressing the process through which complaints are handled part of "a basic component" of any compliance effort; (ii) redlining, noting that the Bureau has identified “redlining” as a target for its supervisory work in the coming year, and has teamed up with the DOJ to bring “major enforcement actions” against institutions found to be discriminatory in their lending practices; (iii) RESPA violations, announcing that the CFPB will continue to adhere to its 2015 bulletin regarding marketing servicing agreements despite the recent PHH ruling. He further noted that the PHH case "is not final at this point" and that the Bureau "respectfully disagrees" with the finding.
A Brazilian aircraft manufacturer, will pay more than $205 million to the SEC and the DOJ to resolve alleged FCPA violations stemming from payments made through its third-party agents to officials in the Dominican Republic, Saudi Arabia, and Mozambique that allegedly resulted in more than $83 million in profits for the company. Pursuant to a Deferred Prosecution Agreement with DOJ, the Brazilian company must pay a penalty of more than $107 million and must retain an independent corporate compliance monitor for three years. The company will also pay more than $98 million in disgorgement and interest to the SEC, but it may receive a credit of up to a $20 million depending on the amount of disgorgement it pays in a parallel civil proceeding in Brazil. Additional FCPA Scorecard coverage of the company's investigation can be found here, here, and here.
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Benjamin W. Hutten to discuss "BSA program reporting, management and board of directors responsibilities" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- H Joshua Kotin to discuss "Recent developments in fair lending and avoiding the pitfalls" at the Arkansas Community Bankers/Bankers Assurance 2019 Compliance Conference
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Valerie L. Hletko to discuss "Banking on guns ‘n drugs: Social policy meets financial services" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference