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CFPB Releases Winter Issue of Supervisory Highlights, Schedules Date for Field Hearing on Payday Lending
On March 11, the CFPB released its seventh issuance of Supervisory Highlights, which highlights the CFPB’s supervision work completed between July 2014 and December 2014, detailing examination findings and observations in consumer reporting, debt collection, deposits, mortgage origination, and fair lending examinations. The winter issue also reveals recent supervisory resolutions reached in the areas of payday lending, mortgage servicing, and mortgage origination have resulted in remediation of approximately $19.4 million to more than 92,000 consumers during the time reported. Other notable information included within the report is the addition of Credit Card Account Management examination procedures to the CFPB’s Supervision and Examination Manual. In a separate announcement, the CFPB also announced it will host a field hearing on payday lending, scheduled for Thursday, March 26 in Richmond, VA.
CFPB Releases Final Study on Arbitration
On March 10, the CFPB announced the release of its final arbitration study, accompanied by a fact sheet, to coincide with its field hearing held in Newark, NJ. The study examined approximately 850 consumer financial agreements, of which almost 50% were credit card agreements, to analyze the prevalence of arbitration clauses and their terms. Among other data, the Bureau also reviewed over 1,800 arbitration disputes, more than 3,400 individual federal court lawsuits, 42,000 credit card cases filed in small claims court, and 420 class action settlements filed in federal courts.
CFPB OIG Report on Agency's Diversity and Inclusion Efforts Calls for Enhancement
On March 4, the CFPB Office of Inspector General (OIG) issued a report on its audit of the CFPB’s diversity and inclusion efforts, which was completed at Congress’s request. The report outlines its findings, noting that while the Bureau has worked to create a diverse and inclusive environment, there are four main areas where its efforts could be improved: (i) currently, diversity and inclusion training is not mandatory for employees, senior managers, and supervisors; (ii) ongoing issues exist in connection with data quality in the CFPB’s tracking of potential diversity and inclusion concerns; (iii) the diversity and inclusion strategic plan should incorporate opportunities “to strengthen supervisors’ and senior managers’ accountability for implementing diversity and inclusion initiatives and human resources-related policies;” and (iv) an official succession planning process should be implemented to ensure that candidates applying for senior management positions are diverse. The OIG made several recommendations that are intended to further enhance the Bureau’s “monitoring and promotion of diversity and inclusion,” and the CFPB has since approved new standard operating procedures to address these recommendations.
OCC Revises Guidance Regarding Consumer Protection Requirements to Overdraft Lines and Protection Services
As previously reported in our March 11 Special Alert Update, on March 6, 2015, the OCC issued its revised “Deposit-Related Credit” booklet (“DRC booklet”) of the Comptroller’s Handbook, which replaced the “Deposit-Related Consumer Credit” booklet issued on February 11, 2015 (previously covered in this Special Alert). While the new booklet covers the same products – check credit (overdraft lines of credit, cash reserves, and special drafts), overdraft protection services, and deposit advances – the OCC made significant amendments to scale back the provisions of the prior version. Specifically, the new DRC booklet no longer contains supervisory principles that could be read to require that banks provide substantive consumer protections that are not currently required by the applicable consumer protection regulations. For example, the DRC booklet no longer requires that banks:
- only enroll customers into an overdraft protection service if they have affirmatively requested that product;
- ensure the ability to repay for all applicants enrolled in an overdraft protection service; and
- ensure that any fees charged in connection with an overdraft protection service are reasonably related to the program’s costs and associated risks.
In making these changes, the OCC requires supervisors to assess DRC products more in line with existing consumer protection laws. The OCC states as much in OCC Bulletin 2015-17, which announced the DRC booklet. There, the OCC acknowledges that the DRC booklet “is intended as a summary restatement of existing laws, regulations, and policies [and] ... [n]othing in this booklet should be interpreted as changing existing OCC policy.”
DOJ Announces Settlement with California Bank Over BSA & FIRREA Violations
On March 10, the DOJ announced a $4.9 million civil and criminal settlement with a California-based bank. The bank admitted to the DOJ’s allegations that, from December 2011 through July 2013, it ignored warning signs indicating that its third party processor was defrauding hundreds of thousands of consumers by allowing fraudulent merchants to withdraw money from customers’ accounts without consent. The bank chose to ignore the complaints and inquiries it received regarding the third party processor’s activity, failing to terminate its affiliation with the entity or file a Suspicious Activity Report. The DOJ’s complaint alleges that the bank violated FIRREA; the $4.9 million settlement will cover both the criminal and civil charges, however under an agreed deferred prosecution agreement, criminal charges will be deferred for two years contingent upon the bank admitting to wrongdoing and giving up claims to approximately $2.9 million from accounts seized by the government.
OFAC Announces New Ukraine-Related Designations, Includes Russian National Bank
On March 11, OFAC updated its Specially Designated Nationals (SDNs) list comprising of individuals and entities including a Russian national bank, Russian National Commercial Bank. The SDN list identifies persons and entities with which U.S. citizens and permanent residents are prohibited from doing business and whose assets or interests in assets that come within U.S. jurisdiction must be frozen.
White House Issues Executive Order Targeting Venezuela
On March 8, President Obama signed an executive order imposing sanctions on Venezuela in response to the country’s ongoing human rights violations and abuses in anti-governmental protests. Specifically, the Order (i) designates seven Venezuelan government officials as Specially Designated Nationals (SDNs), (ii) provides authorization for the designation of additional parties as SDNs who are determined to be engaged in specified activities, and (iii) suspends entry into the United States of persons designated under the Order. While the Order stems from defending human rights and democratic governance, according to Treasury Secretary Jack Lew, the Order “will be used to protect the U.S. financial system from the illicit financial flows from public corruption in Venezuela.”
U.S. Marshals Announce Latest Bitcoin Auction Results
On March 5, the U.S. Marshals Service auctioned 50,000 bitcoins seized in relation to the case involving the black market website Silk Road. Three individuals – out of the 14 registered bidders – were the winning bidders. At this time, the bidders have not been officially identified, but reports indicate that one bidder received 27,000, another received 20,000, and a third received 3,000 bitcoins. This was the third auction by the U.S. Marshals Service and more are expected.
New York DFS Takes Action Against Bank for BSA/AML Compliance Deficiencies
On March 12, the New York DFS issued a consent order against a Germany-based global bank for alleged Bank Secrecy Act and other anti-money laundering (BSA/AML) compliance violations that occurred between 2002 and 2008. According to the DFS’s press release, certain bank employees were selected “to manually process Iranian transactions — specifically, to strip from SWIFT payment messages any identifying information that could trigger OFAC-related controls and possibly lead to delay or outright rejection of the transaction in the United States.” The DFS also alleges that the bank’s New York branch failed to implement proper BSA/AML compliance thresholds, allowing certain alerts regarding suspicious transactions to be excluded. Under the terms of the consent order, the bank must pay a $1.45 billion penalty, to be distributed as follows: $610 million to the DFS; $300 million to the U.S. Attorney’s Office for the Southern District of New York; $200 million to the Federal Reserve; $172 million to the Manhattan District Attorney’s Office; and $172 million to the U.S. DOJ. Additionally, the order requires that the bank “terminate individual employees who engaged in misconduct, and install an independent monitor for Banking Law violations in connection with transactions on behalf of Iran, Sudan, and a Japanese corporation that engaged in accounting fraud.”
New York AG Announces Settlement with Three National Credit Reporting Agencies
On March 9, New York AG Eric Schneiderman announced a settlement agreement with three national credit reporting agencies. Schneiderman noted that inaccuracies in credit reports, such as the collection of debts not owed, misrepresentations of medical debt, identity theft or fraud, and identity mistakes on behalf of the agencies, continue to negatively affect consumers, most notably preventing minority and low-income individuals from gaining access to jobs and housing. The agencies fully cooperated with the NY AG’s office to find solutions to the credit report issues and, per the terms of the agreement, will (i) hire specially trained employees to review consumer documentation concerning identity theft or fraud and mixed files; (ii) review all disputes and supporting documentation submitted via the automated dispute resolution system; (iii) put into effect a 180-day waiting period before reporting any medical debts; (iv) increase the visibility of consumers’ right to access one free annual credit report via annualcreditreport.com; and (v) develop a National Credit Reporting Working Group to put in place a set of best practices and policies that will strengthen furnisher monitoring and data reporting. The full version of the settlement agreement provides additional requirements that the agencies must observe to increase fairness and effectiveness within credit reporting system.