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On December 16, the CFPB announced that it had entered a stipulation and consent order assessing a $250,000 civil monetary penalty and other remediation against a financial-services company that offers payday loans and check-cashing services based on allegations that it misled consumers through deceptive online advertisements and collections letters and made unauthorized electronic transfers from consumers’ bank accounts. Among other things, the Bureau took particular issue with the fact that Bureau examiners had previously identified “significant compliance-management-system weaknesses that heightened the risk that violations w[ould] occur,” and that “[a]t the times the violations described in this order, the company had not adequately addressed these issues.”
According to the terms of the consent order, the company is required to: (i) end its deceptive practices and obtain authorization for any electronic-fund transfers; (ii) pay approximately $255,000 to redress harm caused to affected consumers; and (iii) pay a civil monetary penalty of $250,000. As explained by CFPB Director Richard Cordray, “consumers were making decisions based on false and deceptive information, and today’s action will give the company’s customers the redress they are owed.”
On December 19, the CFPB announced it had filed enforcement actions (3:16cv987, 3:16cv988, 1:16cv1566, 1: 16cv1567) in federal district court against four Virginia pawnbrokers for misleading customers through deceptively low annual percentage rates that intentionally omit or hide certain fees and charges. In each Complaint, the Bureau alleges both TILA violations and unfair, deceptive, or abusive acts or practices under Dodd-Frank and the CPA. The complaints seek injunctive relief ordering the pawnbrokers to stop the allegedly illegal practices, restitution for consumers, and statutory penalties.
On December 19, the CFPB announced the release of “Consumer Credit Trends,” a beta version of its new web-based tool to help the public monitor developments in the mortgage, credit card, auto loan, and student loan markets. According to the Bureau, the data used by Consumer Credit Trends “draws from a nationally representative sample of credit records maintained by one of the top three U.S. credit repositories.” The CFPB plans to update this information regularly, and will offer analyses on notable findings as warranted. It also clarifies that “before being provided to the Bureau,” the credit records are “stripped of any information that might reveal consumers’ identities, such as names, addresses, and Social Security numbers.” The ability to “chart the state of consumer markets,” says CFPB Director Richard Cordray, “will help us identify and act on trends that warn of another crisis or that show credit is too constricted.”
On December 15, the Fed finalized a rule requiring the biggest global banks to guard against potential collapse by holding minimum amounts of long-term debt and regulatory capital. The rule applies to bank holding companies, U.S. global systemically important banks (GSIB), as well as U.S. branches of foreign banks, and aims to shift the costs of bank failure to shareholders rather than taxpayers by requiring lenders to maintain sufficient amounts of long-term debt, which can be converted to equity to keep a failing bank’s key operations afloat. Specifically, the measure will establish minimum required levels for long-term debt and total loss-absorbing capacity, as well as restrictions on certain short-term debt financing arrangements by parents of GSIB-designated financial institutions. In prepared opening remarks, Fed Chair Janet Yellen explained that “[t]he rule is guided by common sense principles: bank shareholders and debt investors should place their own money at risk so depositors and taxpayers are well protected, and the biggest banks must bear the costs that come with their size.”
In a memorandum to the Board of Governors, the Fed’s staff noted that covered banks are currently about $70 billion short altogether of the new requirements. The Fed staff estimated that the aggregate increased funding of approximately $680 million to $2 billion annually would be required to make up the shortfall.
On December 19, the CFPB entered a consent order against a Virginia-based credit services provider assessing a $200,000 penalty and other remediation for making loans with improper disclosures. It was the CFPB’s second enforcement action against the company, as the Bureau had previously taken action against the company, requiring it, among other things, to revise its contract disclosures back in 2014. Under the terms of the consent order released this week, the company must hire an independent consultant with specialized experience in consumer-finance compliance to conduct an independent review of the company’s issuance and servicing of credit, and report to the CFPB a compliance plan based on the findings of such review. The Bureau also assessed a $200,000 civil monetary penalty.
On December 19, the Prudential Regulators have issued guidance in the form of a cover letter (OCC 2016-45; SR 16-19; FIL-79-2016) and FAQs to assist financial institutions and bank examiners interpret and apply new accounting standards applicable to estimated allowances for credit losses. Though applicable to all financial institutions, regardless of size, there are different effective dates for the new standard depending on the institutions status as a public entity and/or SEC filer. The above-referenced FAQs summarize key elements of the new accounting standard, such as effective dates, scope, and transition, while also highlighting the specific GAAP accounting provisions affected by the new standard, including: (i) purchased credit-deteriorated financial assets; (ii) held-to-maturity debt securities; (iii) available-for-sale debt securities; (iv) troubled debt restructuring; and (v) off-balance-sheet credit exposures. The guidance also outlines steps regulators have encourage financial institutions to take to prepare for the transition to the new accounting standard, including: (i) initial supervisory views on measurement methods, (ii) the use of vendors, (iii) scalability, (iv) data needs, and (v) allowance processes.
FHFA published a final rule in the December 18 Federal Register implementing certain “Duty to Serve” provisions of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. Among other things, these provisions require that Fannie Mae and Freddie Mac adopt formal plans to improve the availability of mortgage financing in a “safe and sound manner” for residential properties that serve “very low-, low-, and moderate-income families” in three specified underserved markets: manufactured housing, affordable housing preservation, and rural markets. FHFA’s new rule addresses this obligation by requiring both Fannie Mae and Freddie Mac to submit to FHFA a three-year “Underserved Markets Plan” that describes the activities and objectives they will undertake to meet their Duty to Serve requirements. The Plans will become effective January 2018, after which time, the new rule requires further that FHFA annually evaluate, rate, and report to Congress each Enterprise's compliance with its Duty to Serve obligations as required by the statute.
On December 16, President Obama signed into law H.R. 3784, the SEC Small Business Advocate Act of 2016. The legislation, which had broad bipartisan support in the House and Senate, establishes (within the SEC) an Office of the Advocate for Small Business Capital Formation and a Small Business Capital Formation Advisory Committee. Both the Office of the Advocate and the Advisory Committee will be tasked with the dual role of helping small businesses navigate the securities laws and advocate against the application of overly burdensome regulations to small businesses. The small-business advocate is modeled after the SEC’s office of the investor advocate, which was created under the Dodd-Frank Act as a voice for investors.
Israeli Multinational Pharmaceutical Company Settles FCPA Violations with SEC and DOJ for $519 Million
On December 22, an Israeli multinational pharmaceutical company announced an agreement with the SEC and DOJ to resolve FCPA violations stemming from conduct in Ukraine, Mexico, and Russia, with a $519 million settlement and a deferred prosecution agreement. The company will pay more than $236 million in disgorgement and interest to the SEC, the second largest FCPA-related corporate disgorgement to date. As part of its agreement with the DOJ, the company will pay a $283 million criminal fine and enter into a three-year deferred prosecution agreement under the supervision of an independent compliance monitor.
Prior Scorecard coverage of the company's investigation can be found here.
On December 21, a Brazilian construction company and its petrochemical affiliate, reached a $3.5 billion combined global settlement with U.S., Brazilian, and Swiss authorities to resolve FCPA allegations, in which both companies agreed to plead guilty in the U.S. to conspiracy to violate the FCPA. The DOJ alleged that the companies operated an extremely broad and profitable global bribery scheme, including creating an internal bribery department to systematically pay hundreds of millions of dollars to corrupt government officials around the world from 2001 to 2016. The companies attempted to conceal the bribes by disguising the source and disbursement of bribe payments by passing funds through a series of shell companies and by using off-shore bank accounts. While the scheme in large part involved bribes paid to a Brazilian multinational company and Brazilian officials, it also included government officials in numerous other South and Central American countries, and in Africa.
The construction company agreed to an overall criminal fine of $4.5 billion, but based on its representation of its ability to pay, may end up paying only $2.6 billion. Ten percent of the criminal fine was earmarked for the U.S., with the remainder to Brazil (80%) and Switzerland (10%). The DOJ faulted the construction company for failing to voluntarily disclose the conduct, but granted full cooperation credit based on Odebrecht’s actions once it started to deal with the government. As part of its own related resolution, the petrochemical company agreed to pay over $632 million in criminal fines, with the vast majority ($443 million) going to Brazil, and 15%, or $94.8 million, to each of the DOJ and Switzerland. The petrochemical company also agreed to disgorge $325 million, with $65 million going to the SEC and the rest to Brazil. The DOJ noted the petrochemical company’s failure to voluntarily disclose the conduct, and granted only partial cooperation credit due to the petrochemical company’s failure to turn over any evidence from its internal investigation until seven months after it first talked to the DOJ. Both the construction company and the petrochemical company agreed to engage independent compliance monitors for at least three years
The resolution is, by far, the largest FCPA resolution ever, with the bulk of the money going to Brazil in apparent recognition of the heavy lifting done by Brazilian prosecutors.
Prior Scorecard coverage of the ongoing Brazilian multinational company investigations can be found here.
- Amanda R. Lawrence and Sherry-Maria Safchuk to discuss "California privacy rule" on an NAFCU webinar
- Sasha Leonhardt to discuss "The Servicemembers Civil Relief Act and the Military Lending Act: Common pitfalls and emerging issues" at a NAFCU webinar
- Michelle L. Rogers to discuss "BigLaw" at the Women in Business Law Leadership Conference
- Buckley Webcast: NYDFS mortgage servicing rules: Untangling federal and state servicing requirements
- H Joshua Kotin and Jessica M. Shannon to discuss "TILA/RESPA mortgage servicing and origination" at the NAFCU Regulatory Compliance School
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS International AML & Financial Crime Conference
- Benjamin W. Hutten to discuss "Understanding OFAC sanctions" at a NAFCU webinar
- Brandy A. Hood to discuss "RESPA 8 (TRID applied compliance)" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- John P. Kromer to discuss "Navigating the multi-state fintech regulatory regime" at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Critique of direct examination; Questions and answers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Hank Asbill to discuss "What judges want from trial lawyers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Steven R. vonBerg to speak at the "Conference super session" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference