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CFPB Enters Proposed Final Judgment Against Student Debt Relief Company
On March 15, the CFPB filed a proposed Stipulated Final Judgment and Order in a California federal court against a California-based student debt relief company and its owner for alleged violations of the CFPA and the Telemarketing Sales Rule (TSR). In its December 2014 complaint, the CFPB alleged that the company violated the CFPA by (i) falsely misrepresenting itself as an affiliate of the Department of Education; (ii) charging consumers an upfront enrollment fee and a recurring monthly fee for “consultation” services; and (iii) deceiving consumers about the costs of their student loan debt relief services. The CFPB contended that the company violated the TSR by “primarily rel[ying] on a direct mailer and outbound telemarketing to attract consumers.” If approved by the court, the CFPB’s proposed consent order would require the company to (i) cease all operations within 45 days of the order’s effective date; (ii) stop enrolling consumers in its services and notify customers that it is ceasing operations; (iii) stop advertising, marketing, promoting, offering for sale, selling, or providing debt relief and student loan services; and (iv) ensure that borrowers confirm their income-driven repayment plans with the Department of Education and submit any necessary documentation for recertification or renewal. The order also imposes $8.2 million in damages, but the defendants will only be required to pay approximately $326,000 due to their inability to pay. Finally, the company will pay $1 to the CFPB’s Civil Money Penalty Fund, ensuring that consumers affected by the company’s practices are eligible for additional relief, if such relief becomes available in the future.
OCC Publishes Proposed Regulatory Relief Rule
On March 14, the OCC published a proposed rule to provide regulatory relief to national banks and federal savings associations. Specifically, the proposed rule would, among other things, (i) revise certain licensing rules for business combinations involving Federal mutual savings associations; (ii) remove certain notice and approval requirements for changes in permanent capital involving national banks; (iii) clarify national bank director oath requirements; (iv) revise national banks’ and Federal savings associations’ fiduciary activity requirements; (v) remove certain requirements in the electronic activities rule for Federal savings associations; (vi) update recordkeeping and confirmation requirements for national banks’ and Federal savings associations’ securities transactions; and (vii) remove certain fidelity bond rules for Federal savings associations. Comments on the proposed rule, which is part of the OCC’s regulatory review under the Economic Growth and Regulatory Paperwork Reduction Act, are due by May 13, 2016.
FinCEN Highlights Existing AML Program Obligations on MSB Principal-Agent Relationships
On March 11, FinCEN issued FIN-2016-G001 to provide clarity to money services business (MSB) principals regarding the risks associated with foreign agents’ AML compliance. FinCEN’s guidance, which complements recently issued state guidance, encourages coordination among Federal and state regulators on issues related to MSBs’ AML program obligations. FinCEN emphasizes that an MSB “remains independently and wholly responsible for implementing adequate AML program requirements,” noting, therefore, that “neither the agent nor the principal can avoid liability for failing to establish and maintain an effective AML program by pointing to a contract assigning this responsibility to another party (whether the agent or principal).” According to FinCEN’s guidance and pursuant 31 CFR § 1022.210, an effective AML program must, at a minimum, (i) incorporate policies, procedures, and internal controls reasonably designed to ensure BSA compliance; (ii) designate an individual responsible for monitoring day-to-day BSA compliance; (iii) provide adequate training to the appropriate personnel regarding their responsibilities under the program; and (iv) provide for independent testing of the program to ensure there are no material weaknesses. In addition, FinCEN reminds MSB principals that, when conducting monitoring of their agents, they must (i) identify the owners of the MSB’s agents; (ii) continually evaluate agents’ operations; and (iii) evaluate agents’ implementation of policies, procedures, and controls. Finally, the guidance advises MSB principals to consider certain risk factors when conducting agent monitoring, including, but not limited to, (i) whether the agent has an established and adhered to AML program; (ii) whether the owners are known or suspected to be linked to criminal conduct or terrorism; (iii) the nature of the markets the agent serves and whether money laundering or terrorist financing are associated risks of the markets; (iv) the anticipated level of activity of the agent’s services; and (v) the nature and duration of the relationship.
OFAC Updates Cuban Assets Control Regulations
On March 15, OFAC issued a final rule updating the Cuban Assets Control Regulations (CACR), 31 C.F.R. Part 515. The amendments advance policy changes announced by the Obama administration in 2014 by further facilitating travel to Cuba for authorized purposes, expanding the range of authorized financial transactions, and authorizing business and physical presence in Cuba. Regarding financial transactions, the final rule (i) amends section 515.584(d) to authorize certain U-turn payments through the U.S. financial system; (ii) adds new section 515.584(g) to allow U.S. banking institutions to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions; and (iii) adds new section 515.584(h) to “authorize banking institutions to open and maintain accounts solely in the name of a Cuban national located in Cuba for the purposes only of receiving payments in the United States in connection with transactions authorized pursuant to or exempt from the prohibitions of this part and remitting such payments to Cuba.”
OFAC’s amendments to the CACR were published in the Federal Register on March 16, 2016 and are effective immediately. OFAC simultaneously released a revised set of FAQs and a fact sheet regarding the changes set forth in the CACR.
FIFA Seeks to Collect Millions as Victim in U.S. Case
On March 15, FIFA filed a Victim Statement and Request for Restitution (Statement) with the DOJ seeking a portion of the hundreds of millions of dollars that authorities could collect from the former FIFA employees who allegedly engaged in longstanding kickback and bribery schemes. In its Statement, FIFA asserts that the more than 40 defendants charged by the DOJ “grossly abused their positions of trust to enrich themselves,” thereby causing significant harm to FIFA including financial losses and damage to FIFA’s reputation. FIFA asserts that as the victim of the defendants’ crimes, it is entitled to recover restitution under the Mandatory Restitution to Victims Act, 18 U.S.C. § 3663A. FIFA estimates its losses to be at least $28 million in salaries and benefits paid to the defendants, plus $10 million misappropriated as bribes. Time will tell if FIFA ultimately is deemed to qualify for restitution under the Act.
Oil and Gas Company Discloses SEC Investigation into Potential FCPA Violations
On March 15, an Ohio-based provider of sand products used in the oil and gas industry disclosed that in December 2015, the SEC notified it of an investigation of potential violations of the FCPA and other securities laws related to its international operations. The company had previously retained outside counsel to conduct an investigation and determined that no further action was necessary. The company did not estimate the potential costs of the SEC investigation or any potential penalties or fines that could result.
OFAC Issues Finding of Violation for Alleged Violations of the Reporting, Procedures, and Penalties Regulations
On March 16, OFAC issued a Finding of Violation to a New York-based international digital payments solutions and technology company for allegedly violating the Reporting, Procedures and Penalties Regulations (RPPR), 31 C.F.R. part 501. According to OFAC, the company failed to report that it held accounts – albeit dormant – in which two Iranian banks on OFAC’s SDN List had an interest. OFAC asserted that, while no company personnel appeared to have knowledge of the conduct that led to the violations, the company had reason to know that it maintained funds associated with the sanctioned Iranian banks because it is “a large and commercially sophisticated company that deals primarily with banks and other financial institutions.” OFAC also noted that the company’s failure to report the accounts resulted in OFAC’s reports to Congress being incomplete, that the failure to record interest on the accounts reduced the value of the blocked accounts, and that the company apparently did not have internal controls sufficient to prevent or identify the violations. On the other hand, OFAC acknowledged that there was no actual knowledge of the violations or a history of similar violations, that the funds did not reach the sanctioned parties, and that the company eventually disclosed the issue and then fully cooperated with the investigation.
HUD Releases Final Loan-Level Certification: Lenders Should Not Be Penalized for Minor Mistakes
On March 15, HUD announced the completion of FHA’s loan-level certification, Form 92900-A. Significantly, the final certification clarifies FHA’s “longstanding position” that “minor mistakes that do not affect the decision to approve a loan are not the focus of [FHA’s] compliance efforts” and that “lenders will be held accountable for only those mistakes that would have altered the decision to approve the loan.” The certification also clarifies that lenders are required to certify only “to what they know to be true to the best of their knowledge” and that they are not responsible for “mistakes or fraud committed by a third party that the lender did not or could not have had reason to know of.” Finally, the certification removes references to the pre-endorsement review requirement. HUD issued Mortgagee Letter 2016-16 to advise mortgagees of the revised certification, which is effective August 1, 2016.
On March 15, HUD’s proposed revisions to the FHA annual lender certification were published in the Federal Register. According to HUD’s announcement, the primary revision to the annual lender certification form is the “addition of language requiring lenders to certify that they have not been involved in fraud or other serious criminal or civil violations that would call into question their ability to carry out the responsibilities of the program.” Previously, this language was included in the loan-level certification. In addition, the proposal also amends the lender-level certification statement regarding compliance with all FHA regulations and requirements by (i) adding guidebooks to cover certain FHA policy; (ii) revising the language to clarify the intent and scope of the statement; (iii) removing timeframes and revising the qualifier so that it matches the similar qualifier in other statements; and (iv) detailing reporting requirements in HUD Handbook 4000.1. Comments on the proposal are due April 14, 2016.
FDIC Finalizes Rule to Increase DIF to Statutorily Required Level
On March 15, the FDIC approved a final rule to increase the Deposit Insurance Fund (DIF) reserve ratio from 1.15 percent to the statutorily required minimum of 1.35 percent. The final rule, which is substantially similar to the proposed rule adopted in October 2015, imposes on banks with at least $10 billion in assets a surcharge of 4.5 cents per $100 of their assessment base, after certain adjustments are made. The rule becomes effective on July 1, 2016. If the reserve ratio reaches 1.15 percent before the effective date, the surcharges will begin on that date; if the reserve ratio has not reached 1.15 percent by the effective date, surcharges will begin the first quarter after the reserve ratio reaches 1.15 percent. The FDIC noted that it expects the reserve ratio to reach the 1.35 percent statutory minimum approximately two years after the surcharges begin. FDIC Chairman Martin J. Gruenberg commented, “With these surcharges, the [DIF] is expected to reach the statutory minimum level ahead of the statutory deadline of 2020, reducing the risk that the FDIC will have to raise rates unexpectedly in the event of stress in the financial sector.”
Massachusetts AG Healey Continues Subprime Auto Loan Review; Lenders to Pay $7.4 Million in Consumer Relief
On March 16, Massachusetts AG Maura Healey announced that two national auto lenders, based in South Carolina and California respectively, agreed to collectively pay $7.4 million in relief to more than two thousand Massachusetts consumers to resolve allegations that they charged excessive interest rates on subprime auto loans. Under the terms of the assurance of discontinuance, the companies will eliminate the alleged excessive interest on certain loans resulting from add-on GAP insurance coverage, forgive outstanding interest on the loans, and reimburse consumers that already paid interest. The South Carolina-based lender will pay approximately $1.7 million in relief to consumers, while the California-based lender will pay the remaining $5.7 million. The settlement agreements further require the lenders to pay $225,000 for implementation of the agreements and to undergo additional auditing to determine if other loans are subject to refunds.
These settlements are part of AG Healey’s subprime loan review initiative. In November 2015, as part of this initiative, AG Healey announced a $5.4 million settlement with a national auto lender to resolve allegations similarly related to the practice of charging inflated interest rates because of add-on GAP insurance coverage.