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SEC Adopts Cross-Border Security-Based Swap Rules
On February 10, the SEC released a fact sheet on rules that would require non-U.S. companies using personnel located in a U.S. branch or office “to arrange, negotiate, or execute a security-based swap transaction in connection with its dealing activity to include that transaction in determining whether it is required to register a security-based swap dealer.” The rules, which the SEC voted to adopt in its February 10 open meeting, are intended to ensure that U.S. and foreign dealers engaging in security-based swap dealing activity in the United States are subject to Title VII of the Dodd Frank Act. In addition, the final rules would exempt certain international organizations – those excluded from the definition of U.S. person in Exchange Act rule 3a71-3(a)(4)(iii) – from the requirement that non-U.S. persons include transactions they arranged, negotiated, or executed using personnel located in a U.S. branch or office in their dealer de minimis threshold calculations. Effective 60 days after publication in the Federal Register, but with a later compliance date, the rules should, according to SEC Chair Mary Jo White, “improve transparency and enhance stability and oversight in the security-based swap market, while reducing potential competitive disparities, lessening the likelihood of market fragmentation, and mitigating the risk that may flow into U.S. financial markets.”
Senator Brown Requests Funding for Dodd-Frank Small Dollar Loan Programs
On January 6, U.S. Senator Sherrod Brown, who serves on the Senate Committee on Banking, Housing, and Urban Affairs, sent a letter to President Obama requesting that the FY 2017 budget proposal prioritize funding for programs outlined in Title XII – Improving Access to Mainstream Financial Institutions of the Dodd-Frank Act, which has yet to be implemented. According to Senator Brown, resources are needed in order to implement Title XII, which would, among other things, (i) allow the Treasury to establish partnerships with certain eligible entities to help low and moderate income individuals access accounts at banks and credit unions; and (ii) foster partnerships with non-profits, federally insured depository institutions, community development financial institutions (CDFIs), or State, local, or tribal governments to provide low-cost, small dollar loans to traditionally unbanked or underbanked Americans as a more affordable option to the more costly alternative financial services (AFS), such as payday loans, money orders, cash checking, remittances, and auto title loans.
CFPB Issues Report Summarizing Fiscal Year 2015
On December 31, the CFPB issued a report to the Senate and House Committees on Appropriations to fulfill its statutory responsibility under Section 1017(e)(4) of the Dodd-Frank Act. The report covers the CFPB’s 2015 fiscal year (FY), spanning from October 1, 2014 through September 30, 2015, and provides an overview of the Bureau’s operations and finances. In its report, the Bureau highlights that, during FY 2015, among other things, the CFPB (i) began to publish consumer complaint narratives in the Consumer Complaint Database and launched monthly reports to highlight trends in the complaints submitted to the Bureau; (ii) brought supervisory actions and announced orders through enforcement efforts for $209 million and $5.819 billion in consumer redress, respectively; (iii) released three editions of Supervisory Highlights Report; (iv) published new examination procedures, supervisory guidance documents and studies; and (v) published several proposed rules, final rules, and requests for information, as well as plain-language compliance guides and video presentations summarizing certain Bureau rules. During FY 2015, the Bureau collected more than $183 million in civil money penalties, and more than $108 million in Bureau Administered Redress funds. Looking ahead, the report identifies potential rulemaking initiatives, as reflected in its Fall 2014 and Spring 2015 regulatory agendas.
GAO Publishes Report Regarding the Impact of Dodd-Frank Regulations on Community Banks, Credit Unions, and Systemically Important Institutions
On December 30, the United States Government Accountability Office (GAO) released its fifth report mandated by Section 1573(a) of the Department of Defense and Full-Year Continuing Appropriations Act of 2011 (Act), which amended Dodd-Frank, and requires the GAO to annually review financial services regulations, including those of the CFPB. The report reviews 26 Dodd-Frank rules that became effective from July 23, 2014 through July 22, 2015 to examine whether the agencies conducted the required regulatory analyses and coordination. In addition, it examines nine Dodd-Frank rules that were effective as of October 2015 to determine their impact on community banks and credit unions. Finally, the report assesses Dodd-Frank’s impact on large bank holding companies. The GAO found that the agencies conducted the required regulatory analyses for rules issued under Dodd-Frank and reported required coordination. In addition, surveys of community banks and credit unions suggest that the Dodd-Frank rules under review have resulted in an increased compliance burden, a decline in certain business activities in some cases (e.g., loans that are not qualified mortgages), and moderate to minimal initial reductions in the availability of credit. Although “regulatory data to date have not confirmed a negative impact on mortgage lending,” “these results do not necessarily rule out significant effects or the possibility that effects may arise in the future.” Finally, the GAO concluded that the full impact of Dodd-Frank on large bank holding companies remains uncertain, but summarized the results of certain analyses in the report.
SEC Releases Reports on Credit Rating Agencies
On December 28, the SEC, as required by Dodd-Frank and the 2006 Credit Rating Agency Reform Act, released two annual staff reports on credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs) – the Annual Examination Report and the Annual Report to Congress. The Annual Examination Report reviewed the NRSROs’ (i) policies, procedures, and practices regarding quantitative models used in the rating process; (ii) policies and procedures, controls, and documentation relating to IT and cybersecurity; and (iii) the use of third-party vendors and non-NRSRO affiliates in “determining, issuing, or contributing to the NRSROs’ credit ratings or credit rating processes.” Overall, the SEC noted that the report “shows that all of the NRSROs have enhanced their understanding of their obligations as regulated entities and that at many of the firms, operational improvements made in prior years are being further integrated and enhanced.”
The simultaneously-released Annual Report to Congress relates to the period from June 26, 2014 to June 25, 2015, and summarizes the SEC’s views on the NRSROs’ state of competition, transparency, and conflicts of interest.
CFPB Takes Action Against "Buy-Here, Pay-Here" Auto Dealer and Affiliated Financing Company
On December 17, the CFPB announced a consent order against a Minnesota-based auto dealer and its affiliated financing company for alleged violations of the FCRA and the CFPA. The CFPB alleged that the auto dealer, acting through its financing company, (i) repeatedly furnished inaccurate consumer credit information for more than 84,000 customers from January 2009 through September 2013; and (ii) engaged in deceptive acts and practices by failing to report “good credit” to the credit reporting agencies (CRAs) for tens of thousands of consumers after making written representations that the it would report positive credit information to help consumers build and maintain good credit. Alleged FCRA violations include: (i) inaccurately reporting that vehicles were repossessed and borrowers owed balances after the vehicles were returned to the dealer in accordance with the company’s 72-hour return policy; (ii) inaccurately reporting that consumers had outstanding balances after issuing documentation that disputed accounts had been settled; and (iii) failing to establish and maintain reasonable written policies and procedures to ensure the accuracy and integrity of consumer information furnished to CRAs.
Under the terms of the consent order, the companies are required to pay a $6,465,000 civil money penalty. In addition, the companies must (i) establish and implement written consumer-information furnishing policies and procedures that comply with the Furnisher Rule; (ii) identify and correct inaccurate consumer-information that was furnished to the CRAs (iv) cease from making false representations that it will report “good credit” or other positive information to the CRAs; (v) provide affected consumers with free credit reports; and (vi) implement an effective audit program of its credit reporting practices.
CFPB Orders Small-Dollar Lender to Pay $10 Million for Debt Collection Practices; Releases Compliance Bulletin
On December 16, the CFPB announced a consent order against a Texas-based small-dollar lender for alleged violations of the Consumer Financial Protection Act, the Electronic Fund Transfer Act (EFTA), and the EFTA’s implementing regulation, Regulation E. According to the CFPB, beginning in July 2011, the company engaged in unfair or deceptive acts or practices and violated Regulation E by (i) visiting consumers’ homes and places of employment to collect debts; (ii) contacting third parties for reasons other than to acquire consumers’ location information, which put consumers at risk of their information being disclosed to third parties, and ignoring requests to stop calling consumers’ workplaces; (iv) making false threats of litigation if consumers did not pay the past due amount; (v) misrepresenting the company’s ability to, and routine practice to, run credit checks on loan applicants; (vi) requiring consumers to pay using pre-authorized electronic fund transfers; (vii) causing consumers to incur fees from their banks due to electronic withdrawal practices; and (viii) misrepresenting a consumer’s ability to repay loans early and to revoke authorization for electronic withdrawal authorization. The CFPB’s administratively-filed consent order requires the company to pay $7,500,000 towards refunding consumers affected by its practices, and pay a civil money penalty of $3,000,000. In addition, the order prohibits the company from collecting on defaulted loans owed by approximately 130,000 consumers, and from engaging in unfair and deceptive debt collection practices in the future.
The CFPB simultaneously released Compliance Bulletin 2015-07, warning creditors, debt buyers, and third-party collectors of potentially unlawful in-person debt collection practices. Specifically, the bulletin reminds the financial services industry of debt collection practices prohibited by the Dodd-Frank Act and the Fair Debt Collection Practices Act, including (i) engaging in unfair, deceptive, or abusive acts or practices; (ii) communicating with a consumer at any place or time that the debt collector knows, or should know, to be inconvenient to the consumer; (iii) communicating with persons other than the consumer (and other identified parties, except in certain circumstances) for purposes other than acquiring location information; (iv) “‘us[ing] unfair or unconscionable means to collect, or attempt to collect, debt’”; and (v) “‘engag[ing] in any conduct the consequences of which is to harass, oppress, or abuse a person in connection with collecting a debt.’”
CFPB Announces Complaint and Proposed Consent Order Against Massachusetts Debt Collection Firm
On December 7, the CFPB announced the filing of a complaint and a proposed consent order against a Massachusetts-based debt collection firm for alleged violations of the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Dodd-Frank Act. In 2012, the firm’s subsidiary purchased a debt portfolio from a telephone service provider containing over three million defaulted, and predominantly outdated, cellphone accounts. The firm and its subsidiary entered into a collection services agreement, with the firm agreeing to remit money collected from consumers, less fees and expenses, to its subsidiary. According to the CFPB, the firm, having prior experience in the collection of telecommunications debt, knew that the portfolio likely contained defects, including inaccurate and incomplete dispute histories and unverified documentation. Still, even after customers disputed certain debt, the firm continued to report the debt to credit reporting companies and to collect on time-barred, disputed, fraudulent, and settled or paid debts. The CFPB further alleges that the firm reported faulty information to the credit reporting companies by initially reporting that the entire debt portfolio was disputed, and then removing and subsequently reinserting the dispute flags on the entire portfolio. The firm’s purportedly deceptive practices resulted in the collection of about $743,000 on more than 2,000 disputed accounts, where the debt was not verified.
Under the proposed consent order, the firm would be required to: (i) refund to customers the payments that it received for disputed debt that was not verified; (ii) cease collecting and reporting on unverified, disputed debt, and request the removal by the credit reporting companies of such reported information from customer files; (iii) for five years, review original account-level documents to verify a debt before collecting on it; (iv) for five years, refrain from reselling its purchased debt to other debt collectors; and (v) pay a penalty of $1.85 million.
CFPB Releases Diversity and Inclusion Plan for 2016-2020
On October 27, following a March 4 CFPB Office of the Inspector General report on the CFPB’s diversity and inclusion efforts, the CFPB released a five-year Diversity and Inclusion Strategic Plan. Based on regulations and guidance from the Equal Employment Opportunity Commission and the Dodd-Frank Act, the plan is built around the following objectives: (i) recruit a diverse workforce; (ii) enable individuals to contribute to their full potential; (iii) ensure sustainability of the plan; (iv) increase opportunities for minority and women owned businesses; and (v) assess diversity practices of regulated entities. Regarding the fifth objective, the report states that, through the Office of Minority and Women Inclusion, the CFPB will use interagency policy standards to assess regulated entities’ diversity and inclusion policies and procedures and collect baseline data that will serve as a survey of best practices for institutions.
FDIC Adopts Proposed Rule to Increase DIF to Statutorily Required Level
On October 22, the FDIC Board of Directors adopted a proposed rule to increase the Deposit Insurance Fund (DIF) reserve ratio from 1.15 percent to the statutorily required minimum of 1.35 percent. The proposed rule would impose on banks with at least $10 billion in assets a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments. The surcharge would begin the quarter after the DIF reserve ratio first reaches or exceeds 1.15 percent and would continue until the reserve ratio first reaches or exceeds 1.35 percent. The proposed rule would implement provisions of the Dodd-Frank Act requiring the DIF reserve ratio to reach 1.35 percent by September 30, 2020 and requiring that the FDIC offset the cost of raising the reserve ratio on banks with assets of less than $10 billion. The FDIC expects that the proposed surcharges combined with its regular assessments would raise the reserve ratio to 1.35 percent before December 31, 2018. The proposed rule also provides for assessment credits for banks with assets of less than $10 billion for the portion of their regular assessments that contributes to the growth in the reserve ratio between 1.15 percent and 1.35 percent.