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On September 29, the Federal Reserve released the interagency examination procedures for the DOD’s Military Lending Act (MLA) final rule published in July of 2015. Also on September 29, the CFPB released its own examination procedures under the final rule, providing guidance as to how the CFPB will conduct reviews under what will be a broader scope of coverage under the MLA, including credit cards, deposit advance products, overdraft lines of credit (not traditional overdraft services), and certain types of installment loans. The final rule goes into effect on Monday, October 3 for most extensions of consumer credit to active duty servicemembers and their dependents.
On September 26, the Federal Reserve released a proposed rule that would essentially remove bank holding companies defined to be “large and noncomplex” from the qualitative portion of annual Comprehensive Capital Analysis and Review (CCAR) assessment process (“stress tests”). Under the proposed rule, large and noncomplex bank holding companies are those with total consolidated assets of at least $50 billion, but less than $250 billion, less than $10 billion in foreign exposure, and less than $75 billion in average nonbank assets. Currently, the Fed applies the CCAR process to bank holding companies with more than $50 billion in total consolidated assets. Fed Governor Daniel Tarullo indicated that the Fed was also considering adoption of a “stress capital buffer” approach for larger, global systemically important banks (GSIB). The new approach would replace the uniform 2.5-percent capital conservation buffer, and would instead require GSIBs to retain capital “equal to the maximum decline in a firm's common equity tier 1 capital ratio under the severely adverse scenario of the supervisory stress test before the inclusion of the firm's planned capital distributions.”
On September 23, the Federal Reserve released a proposed rule outlining new risk-based capital and other regulatory requirements for banks that transact in physical commodities. Among other things, the proposed rule would require financial holding companies to retain additional capital if the company is engaged in activities involving commodities for which existing laws impose certain environmental liability. The rule also looks to accomplish the following: (i) to restrict the amount of physical commodity trading activity firms may conduct; (ii) to rescind authorizations that allow firms to engage in physical commodity activities involving power plants; (iii) to remove copper from the list of precious metals that all bank holding companies are permitted to own and store; and (iv) to establish reporting requirements on the nature and extent of firms' physical commodity holdings and activities. In the memo discussing the proposal, the Fed indicated that it was addressing circumstances where “damages can exceed the market value of the physical commodity involved in the catastrophic events, and can exceed the committed capital and insurance policies of the organization.” The deadline to submit comments is set at December 22.
On September 26, the DOJ announced charges against a Chinese trading company and its executives for conspiracy to violate the International Emergency Economic Powers Act (IEEPA), and to defraud the United States; as well as for conspiracy to launder monetary instruments through U.S. financial institutions. The criminal complaint alleges that the company served as a third-party payer, using an illicit network of front companies, financial facilitators, and trade representatives to purchase sugar and fertilizer for a banking entity based in North Korea that OFAC had designated as a Specially Designated National (SDN) in 2009. The civil forfeiture complaint seeks forfeiture of funds spread out across 25 different bank accounts located in China and connected to the affairs of the company. In addition, OFAC imposed sanctions on the company, which is located near the North Korean border and openly worked with the SDN banking entity after 2009.
On September 29, the DOJ announced a settlement with a large regional bank, whereby the bank agreed to pay $83 million to resolve allegations that it violated the False Claims Act by originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable FHA requirements. In addition to underwriting defects, the DOJ alleged deficiencies in the bank’s quality control function, especially during periods of increased loan volume, as well as failures to adequately self-report loans with material defects. The settlement is not an admission of liability by the bank. BuckleySandler represented the bank in this matter.
On September 29, the DOJ and OCC announced separate settlement agreements with a major U.S. bank regarding alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ’s complaint alleged that the bank repossessed vehicles owned by active duty servicemembers without the required court orders. Under the DOJ consent order, the bank agreed to pay $10,000 to each affected servicemembers whose vehicles were repossessed between from January 2008 to July 2015 not in compliance with SCRA, plus any lost equity in the repossessed vehicle, with interest. The DOJ identified 413 affected servicemembers and the bank agreed to set aside $4,130,000 (or more if needed) to pay the required compensation. The bank also agreed to pay a $60,000 civil penalty. The DOJ acknowledged that the bank had in 2014, prior to the investigation, taken steps to ensure SCRA compliance with a full-scale review of its portfolio to identify servicemembers for SCRA protection, and had previously and voluntarily commenced efforts to compensate any affected borrowers. In the OCC consent order, the OCC found errors and deficiencies by the bank in four areas: (i) applying the 6% interest rate cap; (ii) filing accurate military status affidavits; (iii) repossessing servicemembers automobiles while they were on active duty; and (iv) implementing its SCRA compliance program. Under the consent order for a civil money penalty, the bank agreed to pay a civil money penalty of $20 million, to create a remediation plan for affected servicemembers, and to bolster its SCRA-related policies and procedures.
On September 27, the House Financial Institutions and Consumer Credit Subcommittee heard testimony on HR 4116, a bill that would affect how the FDIC determines the amount of deposits at insured banks that qualify as “brokered deposits.” The Federal Deposit Insurance Act currently requires larger premiums for banks with higher ratios of brokered deposits as compared to traditional deposits. This bill would exclude reciprocal deposits from the definition of brokered deposits where the condition of the institution at its most recent examination was adjudged either good or outstanding, or where the total reciprocal deposits of the institution do not exceed either $10 billion or 20% of its total liabilities. This narrowed scope of brokered deposits would come on the heels of the FDIC’s decision to exclude smaller community banks from including reciprocal deposits are brokered deposits announced earlier this year.
On September 28, OCC Comptroller Thomas J. Curry announced Wednesday during a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference that the OCC is developing guidance for banks to manage AML/BSA risks in their foreign correspondent banking relationships.
A foreign bank has agreed to pay $1.1 billion to settle lawsuits brought in Kansas and California in 2011 by the National Credit Union Administration Board (NCUA) as the liquidating agent for two corporate credit unions. The lawsuit centered on claims that the bank sold faulty mortgage-backed securities, contributing to the failures of the two credit unions during the financial crisis.
On September 29, a New York-based publicly-traded hedge fund agreed to pay approximately $412 million to the DOJ and SEC to resolve related criminal and civil charges of violating the FCPA in connection with the bribery of high-level government officials across Africa. This is the fourth-largest FCPA enforcement settlement of all time, and the first time a hedge fund has been held accountable for violating the FCPA. In the criminal case, the hedge fund entered into a three-year deferred prosecution agreement (DPA) to resolve charges of conspiracy to violate the FCPA, falsification of books and records, and failure to implement adequate internal controls. The hedge fund agreed to pay a criminal penalty of approximately $213 million, and to retain a compliance monitor for three years. The DPA’s Statement of Facts describes bribes paid to government officials in the Democratic Republic of Congo (Congo) and Libya to help the hedge fund obtain special access and preferential prices for investment opportunities in government controlled-mining sectors in Congo, and secure an investment from the Libyan Investment Authority, Libya’s sovereign wealth fund. In parallel proceedings, the hedge fund agreed to pay $199 million to the SEC and entered into an Administrative Order Instituting Cease-and-Desist Proceedings to settle the FCPA civil charges. The SEC’s allegations covered Libya, Chad, Niger, and the Congo, and alleged that the fund used intermediaries, agents, and business partners to corruptly influence foreign officials. The Order found that the hedge fund executives ignored red flags and corruption risks and permitted the corrupt transactions to proceed. Both the fund’s CEO and CFO agreed to settle related allegations, without admitting or denying the findings. The CEO agreed to pay nearly $2.2 million to the SEC in the settlement, and a penalty will be assessed against the CFO at a future date.
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Tim Lange to discuss "Ease your pain at the state level: Recommendations for navigating the licensing issues in the states" at the Online Lenders Alliance Compliance University
- Amanda R. Lawrence, Aaron C. Mahler, and Jonice Gray Tucker to discuss "Expanded role for the FTC ahead: Implications for bank and nonbank financial institutions" at an American Bar Association Banking Law Committee Webinar
- Buckley Webcast: Flirting with alternatives — Opportunities and challenges created by alternative data, modeling, and technology
- Daniel P. Stipano to discuss "Reporting requirements for credit unions: CTRs and SARs" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Daniel P. Stipano and Moorari K. Shah to discuss "Vendor management: What is the NCUA looking for?" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Summer Regulatory Compliance School
- Warren W. Traiger to discuss "CRA modernization" at the National Association of Industrial Bankers and the Utah Association of Financial Services Annual Convention
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" 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
- 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
- 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
- Amanda R. Lawrence to discuss "Data privacy litigation" 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
- 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