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  • CFPB examines student loan servicers in special edition of Supervisory Highlights

    Federal Issues

    On September 29, the CFPB released a special edition of its Supervisory Highlights focusing on recent examination findings related to practices by student loan servicers and schools that directly lend to students. Highlights of the supervisory findings include:

    • Transcript withholding. The Bureau found several instances where in-house lenders (i.e., where the schools themselves are the lender) are withholding transcripts as a debt collection practice. According to the Bureau, many post-secondary institutions choose to withhold official transcripts from borrowers as an attempt to collect education-related debts. The Supervisory Highlights states the position that the blanket withholding of transcripts to coerce borrowers into making payments is an “abusive” practice under the Consumer Financial Protection Act.
    • Supervision of federal student loan transfers. The Bureau identified certain consumer risks linked to the transfer of nine million borrower account records to different servicers after two student loan servicers ended their contracts with the Department of Education (DOE). The review, which was handled in partnership with the DOE and other state regulators, identified several concerns, such as (i) the information received during the transfer was insufficient to accurately service the loan; (ii) transferee and transferor servicers reported different numbers of total payments that count toward income-driven repayment forgiveness for some borrowers; (iii) information inaccurately stated the borrower’s next due date; (iv) certain accounts were placed into transfer-related forbearances following the transfer, instead of in more advantageous CARES Act forbearances; and (v) multiple servicers experienced significant operational challenges.
    • Payment relief programs. The Bureau found occurrences where federal student loan servicers allegedly engaged in unfair acts or practices when they improperly denied a borrower’s application for loan cancellation through Teacher Loan Forgiveness or Public Service Loan Forgiveness. The Bureau claimed that many servicers “illegally misrepresented borrowers’ eligibility dates and the number of payments the borrower needed to make to qualify for relief,” and “provided misinformation about borrowers’ entitlement to progress toward loan forgiveness during the pandemic payment suspension.” The Bureau said it will continue to monitor servicers’ practices to ensure borrowers receive the relief for which they are entitled, and directed servicers to address consumer harm caused by these actions.

    The Bureau issued a reminder that it will continue to supervise student loan servicers and lenders within its supervisory jurisdiction regardless of institution type. Student loan servicers, originators, and loan holders are advised to review the supervisory findings and take any necessary measures to ensure their operations address these risks.

    Federal Issues CFPB Supervision Examination Student Lending Student Loan Servicer Debt Collection UDAAP CFPA Consumer Finance CARES Act

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  • DOJ announces amended SCRA settlement with auto loan provider

    Federal Issues

    On September 28, the DOJ announced an amended settlement with an auto loan provider resolving allegations that it failed to fully provide qualified servicemembers with interest rate benefits afforded to them under the Servicemembers Civil Relief Act (SCRA). According to the DOJ, while monitoring the auto lender’s compliance with the original DOJ settlement, the DOJ found that the auto loan provider was failing to apply interest rate benefits back to the date orders were issued calling the servicemember to active duty, and that it had improperly delayed the approval of interest rate benefits to some servicemembers. Under this amended settlement agreement, the auto loan provider agreed to pay an additional $185,460 to 250 servicemembers who did not receive proper interest rate benefits. The DOJ also noted that each servicemember who did not receive interest rate benefits back to the date their orders were issued will receive a refund of any excess interest they paid, as well as an additional payment of three times the overpayment or $100, whichever is higher. The auto loan provider is required to pay an additional $40,000 civil penalty to the U.S. and must revise its SCRA policies and training regarding interest rate benefits for servicemembers.

    Federal Issues DOJ SCRA Servicemembers Enforcement Auto Finance

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  • CFPB sues online lender for overcharging servicemembers

    Federal Issues

    On September 29, the CFPB filed a complaint against a New York-based online lender and 38 of its subsidiaries for allegedly violating the Military Lending Act (MLA) and the Consumer Financial Protection Act by imposing excessive charges on loans to servicemembers and their dependents. The Bureau alleges that the defendants required consumers to join its membership program and pay monthly membership fees ranging from $19.99 to $29 to access certain “low-APR” installment loans. The complaint says that when the membership fees are combined with loan-interest-rate charges, the total fees exceed the MLA’s allowable rate cap, contending that the MLA serves to protect active duty servicemembers and their dependents by limiting the APR applicable to extensions of credit to 36 percent. The Bureau further claims that the defendants deceived consumers by representing that they owed loan payments and fees that were actually void under the MLA. In addition, the Bureau claims that the defendants refused to allow customers to cancel their memberships and stop paying monthly fees until their loans were paid, despite leading many consumers to believe they could cancel their memberships for any reason at any time, thereby “avoid[ing] such automatic renewals and associated membership fees.” In certain cases, the defendants refused to cancel memberships if a consumer had unpaid membership fees even if the loan was paid off, the Bureau says. The Bureau is seeking permanent injunctive relief, damages, restitution, disgorgement, civil money penalties, and other relief.

    Federal Issues CFPB Enforcement Online Lending Servicemembers Consumer Finance Fees Military Lending Act CFPA Fintech

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  • Fed takes action against bank for flood insurance violations

    On September 27, the Federal Reserve Board announced a civil money penalty against a Pennsylvania-based bank. In the order, the Fed alleged that the bank violated the National Flood Insurance Act (NFIA) and Regulation H. The order assesses a $41,500 penalty against the bank for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,392 per violation.

    Bank Regulatory Federal Issues Federal Reserve Flood Insurance National Flood Insurance Act Regulation H Enforcement

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  • OFAC reports on licensing activities

    Financial Crimes

    On September 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced its Quarterly Reports of Licensing Activities pursuant to Section 906(b) of the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), covering activities undertaken by OFAC under Section 906(a)(1) of the TSRA from April 2019 through September 2021. According to OFAC, as required by TSRA-related regulations, OFAC processes license applications requesting authorization to export agricultural commodities, medicine, and medical devices to Iran and Sudan under the specific licensing regime set forth in Section 906 of the TSRA.

    Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC OFAC Sanctions OFAC Designations Iran Sudan

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  • OFAC sanctions state prosecutor in Bosnia and Herzegovina

    Financial Crimes

    On September 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14033 against a state prosecutor in Bosnia and Herzegovina. According to OFAC, the individual has played a central role in enabling corruption and has been designated for being “responsible for or complicit in, or having directly or indirectly engaged in, actions or policies that undermine democratic processes or institutions in the Western Balkans.” As a result of the sanctions, all property and interests in property belonging to the sanctioned individual subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons unless authorized by an OFAC general or specific license. U.S. persons who violate these prohibitions may face civil or criminal penalties.

    Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC OFAC Sanctions OFAC Designations Bosnia Herzegovina SDN List

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  • OFAC settles with banks for violating multiple sanctions regulations

    Financial Crimes

    On September 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $720,258 settlement with an indirect subsidiary of a Switzerland-based bank for allegedly processing transactions in violation of the Cuba, Ukraine-related, Iran, Sudan, and Syria sanctions programs. According to OFAC’s web notice, from April 2013 to April 2016, the bank processed 273 transactions totaling approximately $3,076,180 on behalf of individuals residing in Cuba, Crimea, Iran, Sudan, and Syria. Specifically, OFAC noted that customers in sanctioned jurisdictions were able to continue to purchase and sell securities through the U.S. financial system and to receive related dividend and interest payments until the bank took further steps to prevent such payments.

    In arriving at the settlement amount of $720,258, OFAC considered various aggravating factors, including that bank personnel “had reason to know they were processing transactions through the U.S. financial system for individual customers located in comprehensively sanctioned jurisdictions based on the underlying [know-your-customer (KYC)] data obtained by [the bank], which included address information indicating the customers’ location,” and “conferred approximately $3,076,180 in economic benefit to persons in Cuba, Crimea, Iran, Sudan, and Syria,” which caused harm to multiple sanctions programs' integrity. OFAC also considered various mitigating factors, including that the bank cooperated with OFAC throughout the investigation, and has undertaken remedial measures intended to minimize the risk of recurrence of similar conduct.

    Separately, the same day OFAC announced a $401,039 settlement with a different indirect subsidiary of the Switzerland-based bank for allegedly processing transactions in violation of the Cuba, Ukraine-related, Iran, Sudan, and Syria sanctions programs. According to OFAC’s web notice, from December 2011 until July 2016, the bank processed 426 transactions totaling approximately $1,233,967 on behalf of individuals ordinarily resident in Cuba, Iran, and Syria.

    In arriving at the settlement amount of $401,039, OFAC considered various aggravating factors, including that bank personnel “had reason to know they were processing transactions through the U.S. financial system for individual customers located in comprehensively sanctioned jurisdictions based on the underlying KYC data [the bank had] obtained,” and the bank “conferred approximately $1,233,967 in economic benefit to persons in Cuba, Iran, and Syria,” which caused harm to multiple sanctions programs' integrity. OFAC also considered various mitigating factors, including that the bank cooperated with OFAC throughout the investigation, and has undertaken remedial measures intended to minimize the risk of recurrence of similar conduct.

    Financial Crimes OFAC Department of Treasury Of Interest to Non-US Persons SDN List Cuba Ukraine Iran Sudan Syria Enforcement OFAC Sanctions OFAC Designations Securities

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  • DC passes debt collection bill

    State Issues

    On September 23, the District of Columbia mayor signed B24-0357, which updates the District’s collection laws by expanding protections to cover most consumer debt, in addition to strengthening existing protections for DC consumers. Among other things, the bill: (i) prohibits deceptive behavior from debt collectors, such as making threats; (ii) clarifies that no one can be jailed for failing to pay a debt; (iii) prohibits debt collectors from communicating any information regarding a person’s debt to employers or family members; and (vi) clarifies that debt buyers are required to follow all laws applicable to debt collectors. The law is currently effective.

    State Issues State Legislation District of Columbia Debt Collection Debt Buyer Consumer Finance

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  • District Court rules in favor of FHFA on shareholders’ net worth sweep claims

    Courts

    On September 23, the U.S. District Court for the District of Columbia partially granted FHFA’s motion for summary judgment resolving claims brought by Fannie Mae and Freddie Mac (GSEs) shareholders in a lawsuit alleging the government exceeded its authority when it adjusted its Senior Preferred Stock Purchase Agreements (PSPAs) to allow net worth sweeps. The plaintiff shareholders claimed that FHFA acted outside its statutory authority when it adopted a third amendment to the PSPAs, which replaced a fixed-rate dividend formula with a variable one calculated on a quarterly basis (known as the “net worth sweep”). These sweeps, the plaintiffs contended, harmed their future dividend prospects. FHFA disagreed, arguing that the U.S. Supreme Court had already held in Collins v. Yellen (covered by InfoBytes here) that “the Third Amendment [to the PSPAs] was both authorized and a reasonable exercise of FHFA’s broad statutory power” and that “it is time to end this case.” With respect to the plaintiffs’ “remaining claim for breach of the implied covenant of good faith and fair dealing arising under Delaware and Virginia law,” the agency contended that the “Supreme Court unanimously held in Collins that FHFA—exercising its ‘expansive authority in its role as a conservator’—‘reasonably viewed [the Third Amendment] as more certain to ensure market stability’ than ‘the shareholders’ suggested strategy.’ … This holding alone forecloses Plaintiffs’ implied covenant claim.”

    Following several years of litigation, the court granted FHFA’s motion for summary judgment “insofar as no genuine dispute remains on the fact of harm on the theory that plaintiffs were denied dividends that they otherwise were reasonably certain to receive, and insofar as plaintiffs’ proposed alternative remedy of rescission and restitution is barred as a matter of law.” However the court denied the motion “insofar as a genuine dispute of material fact remains on the fact of harm on the theory that plaintiffs’ shares lost much of their value, and in all other respects.” A memorandum opinion was filed under seal as it referenced documents filed under seal by the parties.

    Courts FHFA Net Worth Sweep Fannie Mae Freddie Mac U.S. Supreme Court

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  • District Court criticizes CFPB’s cost-benefit analysis in HMDA 2020 rule change

    Courts

    On September 23, the U.S. District Court for the District of Columbia granted partial summary judgment to a group of consumer fair housing associations (collectively, “plaintiffs”) that challenged changes made in 2020 that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. As previously covered by InfoBytes, the 2020 Rule, which amended Regulation C, permanently increased the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increased the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200. The plaintiffs sued the CFPB in 2020, arguing, among other things, that the final rule “exempts about 40 percent of depository institutions that were previously required to report” and undermines HMDA’s purpose by allowing potential violations of fair lending laws to go undetected. (Covered by InfoBytes here.) The plaintiffs also claimed that the agency’s cost-benefit analysis underlying the 2020 Rule was “flawed because the Bureau exaggerated the ‘benefits’ of increasing the loan-volume reporting thresholds by failing to adequately account for comments suggesting that the savings would be much smaller than estimated, and by relying on overinflated estimates of cost savings to newly-exempted lending institutions with smaller loan volumes.” The plaintiffs asked that the 2020 Rule be vacated and set aside on the grounds that the Bureau acted outside of its statutory authority in issuing the 2020 Rule and violated the Administrative Procedure Act. The Bureau countered that issuing the 2020 Rule was within its scope of authority because HMDA’s text “does not unambiguously foreclose” the agency’s interpretation of the statute.

    The court first determined that promulgation of the 2020 Rule did not exceed the Bureau’s statutory authority because “HMDA grants broad discretion ‘in the judgment of the’ agency to create ‘exceptions’ to the statutory reporting requirements…” “[E]ven a regulation relieving roughly forty percent of institutions from data collection and reporting requirements is an exception to the ‘rule’ of disclosure, which continues to apply to the majority of institutions,” the court wrote, adding that the 2020 Rule preserves the reporting requirements, “as compared to the 2015 Rule, for most institutions, the vast majority of loans, and the vast majority of communities.”

    However, the court agreed with the plaintiffs that the cost-benefit analysis for the 2020 Rule’s increased reporting threshold for closed-end mortgage loans was arbitrary and capricious. The court expressed criticism of the cost-benefit analysis used by the Bureau to justify setting the minimum number of closed-end loans in each of the two preceding calendar years at 100, and found that the Bureau failed to adequately explain or support its rationales for revising and adopting the closed-end reporting thresholds under the 2020 Rule. The Bureau “conceded the new rule would cause identifiable harms to the public, but effectively threw up its proverbial hands, citing an inability to incorporate these harms into its analysis as quantifiable ‘costs,’ and moved on to the next topic of discussion,” the court said.

    The Bureau “exaggerated the savings to ‘covered persons’ under the new rule, and did not engage appropriately with the nonquantifiable ‘harms’ of the 2020 Rule, and the disparate impact of those harms on the traditionally underserved populations HMDA is intended to protect, even as it conceded the revised threshold would certainly result in some harm to consumers,” the court said, questioning the Bureau’s analysis of disparate impacts on rural and low-to-moderate-income communities. The court determined that the plaintiffs identified several flaws in the Bureau’s cost-benefit analysis supporting the increased closed-end mortgage loan threshold, thus rendering this aspect of the 2020 Rule “arbitrary, capricious and requiring vacatur.” The court asked the Bureau for a “more reasoned explanation as to whether and how the cost-benefit analysis accounted for the ongoing need to collect data on home mortgages pursuant to other statutory requirements and underwriting purposes, and why, when a lender must collect and report multiple data points for each mortgage and loan application, the marginal cost of collecting the additional, HMDA-specific data points is so significant that the increased reporting threshold of the 2020 Rule renders unique cost savings.”

    Courts HMDA Mortgages CFPB Fair Lending Administrative Procedure Act Regulation C

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