InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
New York DFS Proposes Anti-Terrorism and Anti-Money Laundering Regulation
On December 1, the New York DFS announced a proposed anti-terrorism and anti-money laundering regulation, Transaction Monitoring and Filtering Program Requirements and Certifications. Key requirements of the proposed regulation include maintaining programs (i) to monitor transactions after they’ve been executed for potential BSA/AML violations and Suspicious Activity Reporting; and (ii) to ban certain transactions that are prohibited by applicable sanctions, politically exposed persons lists, and internal watch lists. The proposed regulation outlines the programs’ respective minimum requirements, including ensuring that they are based on the Risk Assessment of the institution. Critically, the proposal also requires a Certifying Senior Officer of the regulated financial institutions to file with the Department executed certifications ensuring compliance with the requirements by April 15 of each year.
DOJ Announces Mortgage Lending Discrimination Charges Against Massachusetts Bank
On November 30, the DOJ announced the filing of a complaint and proposed consent order against a Massachusetts-based bank alleged to have violated the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) by charging African-American and Hispanic borrowers higher prices for home loans than similarly situated white borrowers. From 2011 until at least 2014, the bank allegedly used a “target pricing” mortgage origination policy, assigning loan officers with a Minimum Base Price (MBP) they were expected to achieve on each home loan without regard to the borrower’s creditworthiness. According to the DOJ’s complaint, “African-American and Hispanic borrowers were served disproportionately by loan officers with higher MBPs than the loan officers serving white borrowers.” The complaint further alleges that, from April 2011 through December 2013, the bank authorized loan officers to price a loan higher than their assigned MBP, without documenting the reasons for doing so. Pending court approval, the DOJ’s proposed consent order will require the bank to (i) pay $1,175,000 as compensation to borrowers affected by its practices; (ii) establish a new loan pricing policy and a new loan officer compensation policy; (iii) provide fair lending and fair housing training to loan officers and bank employees; and (iv) establish a monitoring program designed to, at a minimum, assess loan pricing disparities.
In May 2013, the FDIC conducted a consumer compliance examination of the bank and found reason to believe that its lending practices violated the FHA and ECOA, prompting the agency to refer the matter to the DOJ on February 7, 2014.
Agencies Announce 2016 Consumer Credit, Lease Transaction Thresholds
On November 25, the Federal Reserve and the CFPB announced that the dollar thresholds in Regulation Z and Regulation M for exempt consumer credit and lease transactions will not change in 2016. Based on the annual percentage decrease in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2015, TILA and Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $54,600 or less beginning January 1, 2016 – the same thresholds that applied in 2015. Regardless of the loan amount, private education loans and loans secured by real property remain subject to TILA. The agencies published notices of thresholds in Regulation Z and Regulation M in the Federal Register on November 27, 2015.
CFPB Monthly Complaint Snapshot Highlights Bank Account and Service Complaints
On November 24, the CFPB released its monthly complaint report, which focuses on bank account and service complaints. According to the report, the most commonly reported bank account or service complaints include (i) problems opening and managing an account; (ii) difficulties disputing transactions; and (iii) issues with depositing and withdrawing funds. Nationwide, the CFPB identified debt collection as the most-complained-about financial product or service, representing about 28% of complaints submitted. According to the report, complaints about prepaid products rose 193%, while payday loan complaints showed the greatest decrease. The report also identifies the most-complained-about companies. The CFPB acknowledged that Idaho showed the greatest increase in complaint volume and placed Connecticut in its geographic spotlight, noting that as of November 1, 2015, Connecticut consumers submitted more than 8,000 complaints, with mortgage-related complaints taking the lead.
Massachusetts AG Announces Settlements with Student Debt Relief Companies; Reveals Initiative to Aid Student Borrowers
On November 24, Massachusetts AG Maura Healey announced settlements with two student debt relief companies over allegations of charging consumers upfront fees prior to delivering the services offered. According to the AG’s Office, at least 200 students were affected by the companies’ deceptive practices, which included misleading consumers to believe that the companies were affiliated with the government or had special connections with the Department of Education and, therefore, could assist borrowers lower their monthly loan payments. To resolve the AG’s allegations, the companies will pay $56,000 and $40,000, respectively and agree to no longer provide or advertise services in Massachusetts.
Concurrent with the settlement announcements, the AG’s Office revealed an initiative designed to assist borrowers repay their loans. Working with trained attorneys in the Insurance and Financial Services Division, the new Student Loan Assistance Unit will provide borrowers with access to a dedicated hotline and mediation program. The program will review current student loan and payment situations to help borrowers (i) get out of default or delinquency; (ii) apply for various income-driven repayment plans offered by the federal government; and (iii) advocate for complete discharges of the loans in appropriate circumstances.
London-based Engineering and Construction Firm Admits to Middle East Bribery
On December 2, a London-based engineering and construction firm admitted to violating Section 7 of the U.K.’s Bribery Act of 2010 – failure to prevent bribery – regarding its conduct in the Middle East. According to the firm, the underlying conduct was related to alleged bribery from 2009 to 2011 involving a former employee located in Dubai.
While the SFO has not yet announced specifics associated with the conduct or any penalties that may be imposed, it previously announced the opening of its investigation into the firm’s activities in the United Arab Emirates and elsewhere. This investigation appeared to have been triggered by a 2013 Wall Street Journal article that reported allegations of bribery involving the construction of a hospital in Morocco. According to the WSJ, a bribe was offered to a United Arab Emirates official’s personal foundation in order to secure the design work contract for the $100 million project.
SEC Files Complaint Against Bitcoin Mining Companies for Running Alleged Ponzi Scheme
On December 1, the SEC announced that it charged two Connecticut-based Bitcoin mining companies and their founder with allegedly running a Ponzi scheme, from approximately August 2014 through December 2014, to defraud investors by purportedly offering shares of a digital Bitcoin mining operation. The companies offered shares in mining profits via investment contracts called “Hashlets,” which entitled the investor to a portion of the profits from the defendants’ calculated “hashing power.” The SEC’s complaint alleges that the “defendants sold far more Hashlets worth of computing power than they actually had in their computer centers,” and that the investors ultimately paid for a share of “hashing power” that did not exist. The SEC further alleged that the defendants misrepresented to investors the potential of their virtual currency mining operations by making false statements about the profitability and life-span of Hashlets and how the payouts for Hashlets were derived, among other things. The defendants earned approximately $19 million in revenue from selling Hashlets to more than 10,000 investors. The SEC’s complaint seeks permanent injunctive relief and the disgorgement of the defendants’ ill-gotten gains, plus pre-judgment interest.
SEC Announces Katherine Martin as Associate Director in Office of International Affairs
On November 30, the SEC named Katherine Martin as Associate Director in its Office of International Affairs. In her new role, Martin will “oversee the development of the SEC’s policy on cross-border regulatory matters, including its participation in multilateral standard-setting bodies and its bilateral dialogues with foreign authorities.” Martin previously served at the SEC as Assistant Director in the Office of International Affairs, Senior Special Counsel in the Office of Clearance and Settlement in the Division of Trading and Markets, Assistant Chief Counsel in the Division of Economic and Risk Analysis, and a Senior Counsel in the Office of International Affairs. Prior to joining the SEC over a decade ago, Martin worked as an associate in private practice.
New York DFS Requires Mortgage Originator to Surrender License for Exam Cheating Scheme
On November 19, the New York DFS announced a consent order with a nonbank mortgage originator to resolve allegations that its employees engaged in a scheme to cheat on state-required continuing education courses and exams. Specifically, the DFS alleged that at least 20 Mortgage Loan Originators (MLOs), including the Chief Executive Officer and former Chief Operating Officer, encouraged compliance staff to take required continuing education courses and exams on their behalf. Furthermore, the MLOs “shared information acquired during licensing exams with . . . senior management, despite the fundamental obligation of test-takers to preserve the confidentiality of all such information.” The DFS’s examination of the mortgage originator revealed additional state banking law violations, including (i) failing to provide mandatory disclosures on more than 100 subprime loans; (ii) misstating applicable late fees on at least three loans; (iii) failing to maintain the minimum line of credit; and (iv) underreporting its total New York revenue in its 2010 and 2011 Volume of Operations Report. The settlement requires the mortgage originator to immediately surrender its mortgage banker’s license and its status as an exempt mortgage servicer in New York, and pay a civil money penalty in the amount of $1 million.
California DBO Reaches Settlement with Mortgage Lender regarding Affiliate Settlement Service Fees
On November 19, the California DBO announced a settlement with a residential retail mortgage lender to resolve allegations that, from September 30, 2009 through January 21, 2014, it overcharged consumers for a settlement service fee to cover third-party services, and also failed to disclose that the third-party servicer was an affiliated business and that some of its services were performed by the lender’s employees. Additionally, the DBO alleged that the company did not provide examiners with the necessary documentation to account for the full third-party settlement service fee. To resolve Federal and State compliance violations, the company will pay an estimated $2.8 million of combined restitution to more than 70,000 borrowers across the country, and $7.4 million in administrative penalties to participating states where the company is licensed. The settlement requires the company to revise its policies and procedures and, by December 31, 2015, provide adequate training on those revisions to management, mortgage loan originators, and support staff.