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FDIC Updates Videos on Interest Rate Risk
On February 3, the FDIC issued FIL-10-2016 announcing the release of updated videos on interest rate risk. The new videos are intended to provide directors, management, and staff of financial institutions with a better understanding of interest rate risk and how to manage it. The FDIC previously released an interest rate video made specifically for directors, and a series of more technical videos tailored to management and staff responsible for interest rate risk management. The FDIC’s updated videos (i) reflect recent industry data and expand on relevant topics; (ii) emphasize the FDIC’s expectation that institutions prudently manage interest rate risk; and (iii) address industry trends, board and management responsibilities, types of interest rate risk, various risk measurement systems, key modeling assumptions, internal controls, and independent review. Finally, according to the FDIC, “[f]inancial institution balance sheets continue to reflect a heightened mismatch between asset and funding maturities that, coupled with tighter net interest margins, have left financial institutions more vulnerable to rising interest rates.”
Federal Reserve Releases Progress Report on Efforts to Improve US Payment System
On February 2, the Federal Reserve published a report titled, “Progress Report: Strategies for Improving the U.S. Payment System.” The report details “progress made and outlin[es] anticipated steps for moving forward with [the Federal Reserve’s] initiative to enhance payment system speed, efficiency, and security.” The report highlights the significance of industry collaboration among stakeholders, commenting on the creation of the Faster Payments and Secure Payments Task Forces, which are comprised of more than 500 industry members. Looking ahead, the Federal Reserve plans to continue enhancing its 2015 initiative by, among other things, (i) providing additional opportunities for stakeholders to engage in strategy efforts; (ii) publishing, in early 2017, an assessment of faster payments solution proposals brought forward by participants of the Faster Payments Task Force; (iii) developing greater end-to-end efficiency for domestic and cross-border payments by creating a “detailed plan and timeline for implementation of the ISO 20022 format for wire transfers”; and (iv) releasing operational details regarding enhancements to its payment, settlement, and risk management services.
FDIC Issues Winter 2015 Supervisory Insights
On February 1, the FDIC published its Winter 2015 issue of Supervisory Insights to promote sound principles and practices for bank supervision. The most recent issue of Supervisory Insights focuses on the following four areas: (i) cybersecurity, highlighting the importance of maintaining a cybersecurity awareness training program and ensuring that a bank’s “executive management and Board of Directors (board) play a key role in overseeing programs to protect data and technology assets and establishing a corporate culture consistent with the bank’s risk tolerance”; (ii) marketplace lending, emphasizing associated risks, such as third-party arrangements, and the significance of examining the overall marketplace lending model to ensure that it is aligned with the bank’s business strategy; (iii) an assessment of the lending landscape for banks, describing current lending conditions and the risks reported in the FDIC’s Credit and Consumer Products/Services Survey; and (iv) an overview of recently released regulations and supervisory guidance, including the revised interagency examination procedures for the new TRID rule.
The FDIC’s marketplace lending guidance comes after the California Department of Business Oversight’s December inquiry into the industry, requesting that 14 firms provide information on their business models and online platforms.
SEC Names Jane Jarcho Deputy Director of National Exam Program
On February 3, the SEC named Jane Jarcho Deputy Director of its Office of Compliance Inspections and Examinations (OCIE). Jarcho will continue to serve as the National Director of the OCIE’s Investment Adviser/Investment Company examination program, a role she assumed in 2013. As the head of the Investment Adviser/Investment Company examination program, Jarcho increased company examinations more than 27% and “targeted areas such as cybersecurity, never before examined investment advisers and investment companies, alternative mutual funds, fixed incomes, and retirement accounts.” Jarcho’s SEC career began in 1990 in the Division of Enforcement, where she held various positions, including Branch Chief, Senior Trial Counsel, and Assistant Regional Director. In 2008, Jarcho joined the OCIE; prior to being named National Director of the office, she served as Associate Director of the Investment Adviser/Investment Company examination program.
HUD Announces $1.9 Million Settlement with Memphis-Based Bank over Alleged FHA Discrimination
On February 1, HUD announced a $1.9 million settlement with a Memphis-based bank to resolve alleged violations of the Fair Housing Act. Specifically, the complainant alleged that the bank “was responsible for discriminatory terms and conditions for making loans, discrimination in the making of loans, and discriminatory financing, with respect to real estate transactions.” In addition, the complainant alleged that the bank engaged in discriminatory practices by failing to place bank branches in minority-concentrated areas, ultimately denying African-American and Hispanic applicants mortgage loans. The bank denied the allegations, but agreed to “voluntarily settle [the] controversy and resolve [the] matter without the necessity of an evidentiary hearing or other judicial process . . . .” Under the agreement, the bank will (i) establish a subsidy fund of $1.5 million over three years to provide interest rate reductions on home mortgages, along with down payment or closing cost assistance to qualified borrowers in identified regional areas; (ii) contribute $270,000 over the course of three years to support governmental or community-based organizations’ efforts to help homeowners repair properties in predominantly minority communities, or to provide credit, financial, homeownership, or foreclosure-prevention services to homeowners in affected areas; (iii) pay directly to the complainant $105,000 to fund similar home repair, credit, financial, homeownership, and foreclosure services; and (iv) pay directly to the complainant $25,000 in damages.
FDIC Announces RMBS-Related Settlement with New York-Based Financial Institution
On February 2, the FDIC announced a settlement for more than $62 million with a New York-based financial institution to resolve “federal and state securities law claims based on misrepresentations in the offering documents for 14 RMBS [residential mortgage-backed securities] purchased by three failed banks.” The FDIC, as the receiver of the three failed banks, filed four lawsuits from February 2012 to January 2014 against the financial institution and other defendants for their alleged involvement in the sale of the RMBS to the three failed banks. These lawsuits are four of the 19 RMBS-related lawsuits that the FDIC has filed, as of December 31, 2015, on behalf of eight failed institutions.
OFAC Issues Finding of Violation for Alleged Violations of Sudanese Sanctions Regulations
On February 4, OFAC announced that a subsidiary of a New Jersey-based manufacturer violated the Sudanese Sanctions Regulations, for a period of 7 months in 2010, by facilitating the exportation of goods to Sudan by coordinating and supervising shipments of goods from an Egyptian branch of the company to Khartoum, Sudan. Pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, OFAC issued a Finding of Violation to the subsidiary based in part on the following “aggravating” factors: (i) acting with reckless disregard for U.S. sanctions requirements by making exports to Sudan when it knew it may be subject to restrictions under U.S. sanctions; (ii) failing to properly take into consideration the implications of OFAC regulations – even though it is part of a corporation with experience in international trade – when it restructured its consumer business and placed a U.S. company in charge of sales to Sudan; and (iii) failing to include in its compliance program training on OFAC regulations for its General Manager, who was responsible for sales to Sudan. OFAC also determined that the subsidiary’s General Manager for Emerging Markets in the Middle East and North Africa was not only aware of but also involved in conduct giving rise to the violations. OFAC issued a Finding of Violation in lieu of a civil money penalty, after considering various mitigating factors, including the subsidiary’s effort to take remedial action, such as implementing additional compliance training and conducting an internal investigation of the violations, the absence of a prior OFAC sanctions history and its cooperation with OFAC’s investigation.
District Court Concludes Mortgage Servicer's Actions Violated RESPA
On January 28, the U.S. District Court for the Western Division of Washington, having determined that a mortgage loan servicer violated the Real Estate Settlement Procedures Act (RESPA) and committed the tort of outrage, ordered the servicer to pay more than $200,000 in economic and emotional distress damages to a borrower. Lucero v. Cenlar FSB, No. 13-0602 (W.D. Wash. Jan. 28, 2016). The borrower and servicer had agreed to a loan modification in early 2013. However, the borrower believed that the servicer was misreporting her loan as delinquent, in spite of the modification. In April 2013, the borrower filed a lawsuit against the mortgage servicer alleging “that [it] violated its credit reporting obligations” and “seeking damages related to the way in which [the mortgage servicer] (and others) had sought to foreclose on her mortgage.” The servicer then began charging the plaintiff for attorney’s fees and costs that it was incurring in defending the ongoing litigation. The plaintiff requested additional information regarding the charges on numerous occasions, but it was not until June 2014 that the servicer’s counsel said “that the fees that were charged to her account had incurred in this litigation, that they are recoverable under the Deed of Trust, and that the notifications were required by a federal regulation.” The court found that the servicer “failed to timely and fully respond to [the plaintiff’s] March 25, 2014 requests for information regarding the nature of and jurisdiction for the fees that were appearing on her monthly statements,” a violation RESPA, which requires “servicers to respond to a qualified written request…for information within specified time frames.” It also held that the charging of attorney’s fees to the borrower was not permitted under the Deed of Trust under the circumstances. In awarding emotional distress damages, the court stated that the servicer’s message to the plaintiff – “continue this litigation and we will take your home” – was “beyond the bounds of decency and [] utterly intolerable.”
European Commission Announces Agreement with the US on the Framework for Transatlantic Data Flows
On February 2, the members of the European Commission approved a new framework for transatlantic data flows: EU-US Privacy Shield. The European Commission and the United States agreed to a deal that reflects the requirements set forth in the Court of Justice of the European Union’s (CJEU) October 6, 2015 decision declaring the old Safe Harbor framework invalid. The agreement aims to protect “fundamental rights of Europeans where their data is transferred to the United States and ensure legal certainty for businesses.” Specifically, the drafters of the new framework attempt to provide (i) robust obligations on U.S. companies to ensure that they are protecting Europeans’ personal data, such as strengthened monitoring by the Department of Commerce and the FTC and increased cooperation with European Data Protection Authorities; (ii) written commitments by the U.S. that “the access of public authorities for law enforcement and national security will be subject to clear limitations, safeguards and oversight mechanisms”; and (iii) effective protection of Europeans’ rights regarding how their data is handled, including several redress possibilities and the creation of an Ombudsperson to whom they can raise inquiries or complaints. Commenting on the agreement, Commission Vice-President Ansip stated, “[t]oday’s decision helps us build a Digital Single Market in the EU, a trusted and dynamic online environment; it further strengthens our close partnership with the US.” In the upcoming weeks, the U.S. will prepare to put in place the new framework while Vice-President Ansip and Commissioner Jourová prepare a draft “‘adequacy decision,’” which could be “adopted by the [Commission] after obtaining the advice of the Article 29 Working Party (WP29) and after consulting a committee composed of representatives of the Member States."
In a February 3 statement, the WP29 maintained that it has concerns regarding the current U.S. legal framework to protect non-U.S. persons’ data. While it recognizes recent efforts by the U.S. to improve protection of personal data to meet the four essential guarantees for intelligence activities, the WP29 emphasized it will need to “consider if its concerns regarding the U.S. legal framework can be alleviated following the introduction of the EU-US Privacy Shield . . . [and] analyse to what extent [the] new arrangement will provide legal certainty for the other transfer tools.”
European Commission Releases Fact Sheet on Plan to Strengthen the Fight Against Terrorist Financing
On February 2, the European Commission issued a fact sheet regarding its plan to strengthen the fight against terrorist financing, posing and answering questions on topic areas including, but not limited to: (i) the measures the EU has already taken to combat the financing of terrorism; (ii) how the EU addresses terrorist financing risks linked to high-risk third countries; (iii) the possibility of defining a legal framework for freezing the assets of terrorists posing a threat to EU internal security; (iv) the risks associated with prepaid cards as used by terrorists; and (v) how the EU tackles the movement of large volumes of cash across borders. The fact sheet frequently refers to the Fourth Anti-Money Laundering package, which was adopted in May 2015 and, among other things, seeks to protect credit and financial institutions against the risks associated with money laundering and terrorist financing.