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On October 11, the OCC announced that a national bank has agreed to pay a $30 million civil money penalty to resolve allegations relating to the holding period of other real estate owned (OREO). According to the OCC’s consent order, the bank violated the statutory holding period for OREO. (See previous InfoBytes coverage on OCC OREO regulations here.) The OCC asserted that the bank’s processes and controls for identifying and monitoring the OREO holding period were deficient, and following an investigation it determined the bank allegedly “failed to meet its commitment to implement corrective actions, resulting in additional violations.” While the OCC noted that it will continue to monitor the bank’s corrective actions, it determined that the bank’s implementation of effective policies and procedures to ensure OREO compliance over the last 12 months has “significantly reduced its inventory of OREO assets.”
On October 11, the SEC announced it obtained a temporary restraining order through an emergency action filed against two offshore entities that allegedly raised more than $1.7 billion of investor funds. According to the complaint, the entities sold approximately 2.9 million digital tokens worldwide, including more than 1 billion tokens to 39 U.S. purchasers. The entities promised that the tokens would be delivered upon the launch of its own blockchain by the end of October 2019. The SEC alleges the entities violated Sections 5(a) and 5(c) of the Securities Act by failing to register its offers and sales of securities with the SEC. In addition to the emergency relief, the SEC is seeking a permanent injunction, disgorgement, and civil penalties against the offshore entities.
On October 10, the Senate Banking, Housing, and Urban Affairs Committee released a letter from Senators Sherrod Brown (D-Ohio) and Patty Murray (D-Wash) to the new CFPB Student Loan Ombudsman, Robert Cameron, outlining their expectations for his tenure in the Ombudsman’s Office. The senators state that Cameron should, among other things, (i) advocate for student loan borrowers by utilizing the Bureau’s statutory authority and tools, including policymaking and evidence gathering for supervision and enforcement; (ii) reestablish the information sharing Memorandum of Understanding (MOU) between the U.S. Department of Education and the Bureau; (iii) resume examinations of federal student loan servicers; and (iv) carry out his duties free of conflict of interests. The Senators request that Cameron provide additional information by October 25 regarding a potential conflict of interest (based on his prior work as Deputy Chief Counsel at a student loan servicer), the Bureau’s history of PSLF supervisory examinations, and current staffing in the Ombudsman Office.
On October 11, the SEC, Commodity Futures Trading Commission (CFTC), and Financial Crimes Enforcement Network (FinCEN) issued a joint statement to remind persons who engage in digital asset activities or handle cryptocurrency transactions of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA). According to the agencies, AML/CFT obligations apply to entities defined as “financial institutions” under the Bank Secrecy Act, which include “futures commission merchants and introducing brokers obligated to register with the CFTC, money services businesses (MSB) as defined by FinCEN, and broker-dealers and mutual funds obligated to register with the SEC.” The obligations include, among other things, (i) establishing and implementing an effective AML program; and (ii) complying with recordkeeping and reporting requirements such as suspicious activity reporting (SARs).
The agencies note that persons who engage in digital asset-related activities may have AML/CFT obligations regardless of the “label or terminology used to describe a digital asset or a person engaging in or providing financial activities or services involving a digital asset.” According to the agencies, the facts and circumstances underlying the asset or service, “including its economic reality and use,” is what determines how the asset is categorized, the applicable regulatory treatment, and whether the persons involved are financial institution under the BSA.
Additionally, FinCEN reminded financial institutions of its supervisory and enforcement authority to “ensure the effectiveness of the AML/CFT regime,” emphasizing that persons who provide money transmission services are MSBs subject to FinCEN regulation. FinCEN also referred to its May 2019 interpretive guidance, which consolidated and clarified current FinCEN regulations, guidance, and administrative rulings related to money transmissions involving virtual currency. (Previous InfoBytes coverage here.)
On October 11, the CFPB announced the Taskforce on Federal Consumer Financial Law that will examine the existing legal and regulatory environment facing consumers and financial services providers. The Bureau is accepting applications for the task force and seeking to fill the membership with a broad range of expertise in the areas of consumer protection and consumer financial products or services. Inspired by a commission established by the Consumer Credit Protection Act in 1968, the Bureau states that the task force will report to Director Kraninger and will “produce new research and legal analysis of consumer financial laws in the United States, focusing specifically on harmonizing, modernizing, and updating the enumerated consumer credit laws—and their implementing regulations—and identifying gaps in knowledge that should be addressed through research, ways to improve consumer understanding of markets and products, and potential conflicts or inconsistencies in existing regulations and guidance.”
On October 7, California’s governor signed SB 187, which amends the state’s Rosenthal Fair Debt Collection Practices Act and provides that consumer debt under the act now includes mortgage debt. SB 187 also removes the exception for an attorney or counselor at law from the definition of debt collector, and makes other nonsubstantive changes. The amendments take effect January 1, 2020.
Federal Reserve finalizes capital and liquidity requirement rules for large firms; proposes changes to assessment fees
On October 10, the Federal Reserve Board approved final rules, consistent with changes made by the Economic Growth, Regulatory Relief, and Consumer Protection Act, to establish a framework that revises the criteria for determining the applicability of regulatory capital and liquidity requirement for large U.S. banking organizations and U.S. intermediate holding companies (IHC) of certain foreign banking organizations with $100 billion or more in total assets. The framework—jointly developed with the FDIC and the OCC—establishes “four risk-based categories for determining the regulatory capital and liquidity requirements applicable to large U.S. banking organizations and the U.S. intermediate holding companies of foreign banking organizations, which apply generally based on indicators of size, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure.” According to the Fed, while the framework is “generally similar” to proposals released for comment over the past year (see InfoBytes coverage here and here), the final rule further simplifies the proposals by applying liquidity standards to a foreign bank’s U.S. IHC that are based on the IHC’s risk profile instead of the combined U.S. operations of the foreign bank. For larger firms, the framework applies standardized liquidity requirements at the higher end of the range that was originally proposed for both domestic and foreign banks.
The following categories are established under the framework: (i) Category I will be reserved for U.S.-based global systemically important banks; (ii) Category II will apply to U.S. and foreign banking organizations with total U.S. assets exceeding $700 billion or $75 billion in cross-border activity that do not meet Category I criteria; (iii) Category III will apply to U.S. and foreign banking organizations with more than $250 billion in U.S. assets or $75 billion in weighted short-term wholesale funding, nonbank assets, or off balance sheet exposure; and (iv) Category IV will apply to other banking organizations with total U.S. assets of more than $100 billion that do not otherwise meet the criteria of the other three categories.
The framework will take effect 60 days after publication in the Federal Register.
Additionally, the Fed separately issued a notice of proposed rulemaking to raise the minimum threshold for being considered an assessed company and to adjust the amount charged to assessed companies. The notice also announces the Fed’s intention to issue a capital plan proposal that will “align capital planning requirements with the two-year supervisory stress testing cycle and provide greater flexibility for Category IV firms.” Comments on the proposal are due December 9.
On October 10, the FDIC issued Financial Institution Letter FIL-56-2019 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Texas affected by Tropical Storm Imelda. In the letter, the FDIC encourages institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to borrowers affected by the severe weather. Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.
Separately on October 8, the Department of Veterans Affairs (VA) issued Circular 26-19-27 to encourage mortgagees to provide relief for VA borrowers affected by Hurricane Dorian. Among other forms of assistance, the Circular encourages loan holders and servicers to (i) extend forbearances to borrowers in distress as a result of the disaster; (ii) establish a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting. The Circular will be rescinded October 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.
Buckley Special Alert
Last week, the California attorney general released the highly anticipated proposed regulations implementing the California Consumer Privacy Act (CCPA). The CCPA — which was enacted in June 2018 (covered by a Buckley Special Alert), amended several times and with the most recent amendments signed into law on Oct. 11, and is currently set to take effect on Jan. 1, 2020 — directed the California attorney general to issue regulations to further the law’s purpose.
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If you have any questions about the CCPA or other related issues, please visit our Privacy, Cyber Risk & Data Security practice page, or contact a Buckley attorney with whom you have worked in the past.
On October 7, the U.S. District Court for the Southern District of California denied a national bank’s motion for partial summary judgment in a class action alleging the bank wrongfully charged ATM fees in violation of the bank’s standardized account agreement. According to the opinion, the plaintiffs filed the action asserting that the bank charges its customers two out-of-network (OON) fees when an account holder conducts a balance inquiry and then obtains a cash withdrawal at an OON ATM. The bank moved for summary judgment on the breach of contract claim, arguing that the terms and conditions of the contract provide for the charge of a fee “for each balance inquiry, cash withdrawal, or funds transfer undertaken at a non-[bank] branded ATM.” After conducting a limited discovery on the breach of contract issue, the district court denied the bank’s motion, concluding there are “ambiguities regarding the contract terms.” Specifically, the court noted that contract documents describe a “Foreign ATM Fee” as “initiated at an ATM other than a [bank] ATM” and that it uses the singular term of “fee” while providing “no further explanation as to what ‘initiated’ means.” According to the court, there is “ambiguity in the term ‘initiate’ that is ‘susceptible to at least two reasonable alternative interpretations.’” Moreover, the court also concluded that certain onscreen warnings about the right to cancel caused “uncertainty and ambiguity” regarding the assessment of fees, and because there are ambiguities regarding the fee terms, the court could not conclude that the plaintiffs failed to prove a breach of contract.
- Daniel P. Stipano to discuss "BSA/AML culture of compliance roundtable" at the FiSCA Annual Conference
- Daniel P. Stipano to discuss "Is there a better way to fight money laundering" at the FiSCA Annual Conference
- Michelle L. Rogers to discuss "What's trending in enforcement" at the Mortgage Bankers Association Annual Convention & Expo
- Kathryn L. Ryan and Moorari K. Shah to discuss "Today's regulatory environment - Are you in the know?" at the Equipment Leasing and Finance Association Annual Convention
- Buckley Webcast: Smoke and mirrors: Navigating the regulatory landscape in banking the marijuana industry
- H Joshua Kotin to discuss "CMS - Components of a successful monitoring program" at the RegList Annual Workshop
- Tim Lange to discuss "Temporary authority to operate - Are you prepared? Hear what the states are doing" at the RegList Annual Workshop
- Sherry-Maria Safchuk to discuss "Cybersecurity" at the RegList Annual Workshop
- Jeffrey P. Naimon to discuss "Hot topics in mortgage origination" at the Conference on Consumer Finance Law Annual Consumer Financial Services Conference
- Sherry-Maria Safchuk to discuss "CCPA: Countdown to compliance – A discussion of common questions and what is next on the CA privacy horizon" at the Conference on Consumer Finance Law Annual Consumer Financial Services Conference
- 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
- Daniel P. Stipano to discuss "Adapting to the rapidly changing compliance landscape involving marijuana and marijuana-related businesses" at an ACAMS webinar
- 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