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Fed Governor: "Tailor Regulations to the Institution"
On December 2, Fed Governor Brainard delivered remarks at the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) Outreach Meeting in California. Governor Brainard noted the significance of safety and soundness in the banking system, but noted that some Dodd-Frank regulations should target only larger institutions so that undue burdens are not placed on community banks: “Applying a one-size-fits-all approach to regulations may produce a small benefit at a disproportionately large compliance cost to smaller institutions.” The EGRPRA review, conducted every 10 years, provides an opportunity for federal financial regulators to consider whether current regulations are outdated, unnecessary, or unduly burdensome.
FFIEC Releases Updated BSA/AML Examination Manual
On December 2, the FFIEC announced the release of its revised BSA/AML examination manual. The updated revisions address supervisory expectations and include regulatory changes since the manual’s last publication in 2010. Significantly modified sections of the examination include (i) Suspicious Activity Reporting, (ii) Currency Transaction Reporting, (iii) Foreign Bank and Financial Accounts Reporting, and (iv) Third-Party Payment Processors. The manual is available on the FFIEC BSA/AML InfoBase.
FinCEN Fines Small Credit Union for BSA Violations
On November 25, FinCEN fined a small Florida-based credit union $300,000 in civil monetary penalties for violating the Bank Secrecy Act (BSA). From 2009 through 2014, FinCEN charged that, among other deficiencies within its anti-money laundering program, the credit union lacked proper internal controls and failed to designate a BSA compliance officer to monitor suspicious transactions. The credit union admitted that it violated Section 314(a) of the USA PATRIOT ACT, which requires financial institutions to search their records of accounts and transactions of individuals who may be involved in money laundering or terrorist financing activities. The credit union, with assets of $4 million and five employees, contracted with a third party vendor to provide services and subaccounts to 56 money services businesses located in Central America, Middle East, and Mexico. FinCEN stated that 90% of the credit union’s annual revenue was generated from these accounts.
OFAC Settles with Independent Manufacturer for Alleged Violations of the Cuban Assets Control Regulations
Recently, OFAC settled with a Portland, Oregon based manufacturer for allegedly violating the Cuban Assets Control Regulations, 31 C.F.R. part 515. The manufacturer agreed to pay $2,057,540 for the actions of its subsidiary, which “purchased nickel briquettes made or derived from Cuban-origin nickel between on or about November 7, 2007, and on or about June 11, 2011.” OFAC concluded that the manufacturer self-disclosed the supposed violations and such violations “constitute a non-egregious case.” Under the Economic Sanctions Enforcement Guidelines, OFAC noted that the manufacturer “acted with reckless disregard for Cuba sanctions program,” and caused “significant harm to…its policy objectives by conducting large-volume and high-value transactions in products made or derived from Cuban-nickel.”
Senate Confirms New HUD Deputy Secretary
On December 2, the U.S. Senate confirmed Nani Coloretti to be appointed as the new Deputy Secretary of HUD. Nominated in March, Coloretti currently serves as the Assistant Secretary for Management at the Department of Treasury where she advises on the development and execution of Treasury’s budget, strategic plans, and the internal management of the Department and its bureaus. Following the passage of the Dodd-Frank Act, she also helped stand-up the CFPB by serving as its Acting COO.
New York Announces New Regulations of Abusive Third-Party Debt Collection Practices
On December 3, New York Governor Cuomo announced that the DFS finalized regulations to help end abusive debt collection practices. The new regulations will (i) require debt collectors and debt buyers to provide enhanced disclosures regarding the debt; (ii) protect consumers who may have debts where the statute of limitations has expired; (iii) require that the debt collector substantiate that the debt is actually owed; (iv) ensure that consumers receive written confirmation of settlement agreements; and (v) allow consumers to communicate with debt collectors via personal email. The new regulations will take effect on March 3, 2015, with the exception of Sections 1.2(b) and 1.4, which will take effect August 30, 2015. Section 1.2(b) refers to disclosure requirements and 1.4 refers to substantiation of debts.
Federal District Court Looks to State Statute of Limitations for SCRA Action
On November 25, 2014, the U.S. District Court for the Eastern District of Michigan applied the state’s three-year statute of limitations for conversion in granting a motion to dismiss a servicemember’s claims of wrongful foreclosure and eviction under the SCRA. Johnson v. MERS, Inc., No. 14-CV-10921, 2014 WL 6678951 (E.D. Mich. Nov. 25, 2014). The plaintiffs argued that, because the SCRA does not explicitly provide its own limitations period within which a suit must be brought, there was no limit for SCRA-based claims; however, the court rejected this argument. Following Supreme Court precedent, the court looked to the most analogous state law and applied its limitations period to the plaintiffs’ SCRA claim. The court considered, and ultimately rejected, plaintiffs’ argument to apply Michigan’s unlimited limitations period for egregious acts under the state’s criminal law. Similarly, the court held that both the ten-year limitations period for breach of contract and the six-year catch-all limitations period did not apply. Ultimately the court concluded that Michigan’s three-year statute of limitations for civil conversion claims was the most analogous to plaintiffs’ SCRA claims. As a result, plaintiffs’ claims were dismissed as time-barred.
Minnesota Federal Judge Allows Data Breach Suit Against Target to Proceed
On December 2, District Judge Paul Magnuson denied Target’s motion to dismiss the class action suit brought by banks in response to its 2013 data breach. In re: Target Corporation Customer Data Security Breach Litigation, MDL No. 14-2522 (D. Minn., Dec. 2, 2014). The banks have alleged four claims against Target: (i) a general negligence claim that Target breached its duty to provide security and prevent the data breach; (ii) that Target violated Minnesota’s Plastic Security Card Act (PSCA) by retaining customer data which was subsequently stolen; (iii) that a violation of the PSCA is negligence per se; and (iv) a negligent misrepresentation by omission claim that Target made public statements regarding the strength of their data security system when they knew or should have known it was deficient. The first three were allowed to proceed and the last was dismissed with leave to amend the complaint for a failure to allege the requisite reliance upon Target’s assertion of its secure system. Notably, Judge Magnuson found that the PSCA applies to all transactions completed by a company operating in Minnesota, not just transactions occurring within the state.
Tenth Circuit Reverses District Court Ruling, Allows Credit Union To Pursue Lawsuit Against Mortgage Lender For Misappropriating Loan Funds
Recently, the United States Court of Appeals for the Tenth Circuit reversed a district ruling allowing a Texas-based credit union to sue against a mortgage lender. In 2003, the credit union’s predecessor in interest entered into a funding service agreement with the mortgage lender which originated 26 mortgage loans to individual borrowers. The credit union alleged that the mortgage lender and its closing agents wrongfully induced the predecessor to fund loans to “straw borrowers” as a vehicle to misappropriate $14 million in loan proceeds. In 2007, the credit union and its predecessor in interest entered into a purchase and assumption agreement (PAA). According to the Court, when two parties to a contract agree to its terms, as pursuant to the PAA, a third party cannot object. Further, the Court noted that, because of the PAA, the credit union had all rights to pursue claims on behalf of the predecessor in interest. A district court had previously ruled that the credit union was not a proper plaintiff and dismissed the case. The dismissal was reversed. Security Service FCU v. First American Mortgage Funding, LLC, No. 13-1133 (10th Cir. Nov. 4, 2014).
New York Federal Reserve Bank Establishes Integrated Policy Analysis Group
On December 3, the New York Fed announced the formation of its Integrated Policy Analysis Group (IPA). Designed to develop the New York Fed’s view of the economic and financial environment globally, the IPA will (i) integrate information from within and outside the Bank to assess the developing economic and financial environment; (ii) assess risks with the potential to impact the Fed’s objectives and “consider policy options to mitigate those risks;” and (iii) manage international relationships. Alberto G. Musalem was appointed as the head of IPA, and the new group is scheduled to begin its work in January 2015.