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OCC Updates Electronic Fund Transfer Act Booklet
On August 28, the OCC issued Bulletin 2014-43, which announces the issuance of a revised “Electronic Fund Transfer Act” booklet of the Comptroller’s Handbook. This booklet replaces the similarly titled booked issued in October 2011, and provides updated guidance to examiners and bankers relevant to recent changes made to Regulation E regarding remittance transfers. Specific updates address: (i) the transfer of rulemaking authority for the EFTA from the Board of Governors of the Federal Reserve System to the CFPB; (ii) Dodd-Frank’s amendments to the EFTA, which create a new system of consumer protections for remittance transfers; and (iii) the issuance of the CFPB’s final rule that restructures Regulation E and provides specific requirements for remittance service providers in new subpart B.
CFPB Warns Credit Card Issuers Regarding Offering Promotional APRs
On September 3, the CFPB published Bulletin 2014-02 warning credit card issuers of the risk of engaging in deceptive or abusive acts and practices in connection with solicitations offering a promotional annual percentage rate (APR). In particular, the bulletin discusses the risk associated with balance transfer solicitations that fail to clearly disclose all material costs of the promotional APR offer, including the failure to disclose that consumers will lose their interest-free grace periods on new purchases if the entire statement balance—including the transferred balance—is not paid in full. The bulletin warns that, depending on the facts and circumstances, card issuers’ solicitations may be considered deceptive and/or abusive if they do not disclose that transferring an outstanding balance may result in additional interest charges for new purchases until a consumer’s grace period is restored by paying in in full. Furthermore, the bulletin notes that while Regulation Z does not require marketing materials to include additional disclosures alerting consumers to the potential effect of accepting a promotional APR offer, some offers may risk being deceptive or abusive even if Regulation Z is not violated. In a press release regarding the bulletin, Director Cordray stated, “[W]e are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.” Finally, the bulletin states that the CFPB expects card issuers to incorporate adequate measures into their compliance management systems in order to prevent violation of Federal consumer financial laws, including the prohibition on deceptive, unfair, or abusive practices. These measures should include steps to ensure that all marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.
New AAA Consumer Arbitration Rules Effective September 1
The American Arbitration Association (AAA) launched new Consumer Arbitration Rules that became effective on September 1. The new Consumer Arbitration Rules, comprised of 55 rules, replace the eight rules in the Consumer-Related Disputes Supplementary Procedures and apply to cases filed on or after September 1, 2014. Most notably under the new rules, the AAA will not administer consumer arbitration for a company unless and until the company submits its arbitration agreement to the AAA for review and the AAA determines that such agreement substantially complies with the AAA’s Consumer Due Process Protocol guidelines. Once reviewed and approved, the name of the business, the address, and the consumer arbitration clause, along with any related documents deemed necessary by the AAA will appear on the newly established and publicly-available Consumer Clause Registry (Registry). There is a non-refundable $500 annual fee to conduct the review and maintain the Registry. However, at least initially, a $650 fee paid in 2014 will be sufficient to maintain the business in the Registry through 2015. If a business does not submit its arbitration agreement for review and a consumer arbitration is filed with the AAA, the AAA will conduct an expedited review of the business’ arbitration agreement at that time, which would require an additional $250 in expediting fees.
FHFA Proposes Affordable Housing Goals for GSEs
On August 29, the FHFA released proposed affordable housing goals for Fannie and Freddie that would leave in place the benchmark requiring the government-owned mortgage companies finance 23% of their mortgages in low-income areas through 2017. The proposal also included new alternative measures for the affordable housing goals, including one that would evaluate Fannie and Freddie based on how much of their business is directed to low-income areas as compared to how much the overall mortgage market serves those same areas. For the first time, the proposed rule would set benchmarks applicable to financing small, multifamily rental properties that are affordable for low-income families. FHFA’s current affordable housing goals are effective through the end of 2014. Comments on the proposal are due by October 28, 2014.
OCC Finalizes Heightened Standards for Large Financial Institutions
On September 2, the OCC published its final guidelines to purportedly strengthen the governance and risk management practices of large financial institutions. The guidelines provide that covered institutions should establish and adhere to a written risk governance framework to manage and control risk-taking activities. The guidelines also provide minimum standards for the institutions’ boards of directors to oversee the risk governance framework. The covered institutions include insured national banks, insured federal savings associations, and insured federal branches of foreign banks with $50 billion or more in average total consolidated assets. The guidelines also apply to OCC-regulated institutions with less than $50 billion in average total consolidated assets if the institution’s parent company controls at least one other covered institution. The size of the covered institution’s average total consolidated assets determines when that institution is expected to begin complying with the new guidelines following publication in the Federal Register, with the largest institutions (and their qualifying subsidiaries) being expected to comply sooner (or even immediately) than smaller ones.
New York AG Sues Bank for Alleged Redlining
On September 2, the NY AG sued a regional bank claiming the bank engaged in unlawful discriminatory practices by intentionally avoiding offering mortgage loan products to predominately African-American neighborhoods in Buffalo. People of the State of New York v. Evans Bancorp, Inc. et al., No. 14-cv-00726 (W.D.N.Y. Sept. 2, 2014). In the complaint, the NY AG asserts that by creating a map of its lending area in Buffalo that included most of the city and its surroundings, but excluded certain African-American neighborhoods on the city’s east side, the bank engaged in redlining in violation of the Fair Housing Act, New York state human rights law, and city code. The suit also alleges that the bank did not market its loan products to minority customers and located bank branches and ATMs outside of minority neighborhoods. The NY AG further claims that the bank’s rates of lending and receiving applications from African-American borrowers allegedly lags behind comparable banks and that these purported discriminatory effects are due to the bank’s alleged redlining practices. The NY AG seeks injunctive relief, damages, civil penalties, punitive damages, fees and costs. In its release announcing the lawsuit, the NY AG stated that the suit is part of ongoing investigations by the AG into potential mortgage redlining across the state.
Illinois Adds Omitted Subordinate Interest Provisions to Mortgage Foreclosure Law
On August 26, Illinois amended its Code of Civil Procedure by adding Section 15-1603.5 to address situations where a foreclosure sale occurred, but a junior lienholder was not named in the foreclosure complaint. Specifically, the law permits a holder of a certificate of sale who discovers an omitted subordinate interest to file a strict foreclosure complaint naming the person who has the omitted subordinate interest as the defendant. Unless the defendant objects, the court must enter a judgment extinguishing the omitted subordinate interest. If the defendant objects, the court must hold a hearing and order either (i) that the defendant has not agreed to pay the redemption amount, in which case the court must enter judgment; or (ii) that the defendant has agreed to pay the redemption amount. The law also sets forth the items that must and must not be included in the redemption amount, and provides that the defendant has 30 days after the entry of the order to pay the redemption amount. Although the person who has an omitted subordinate interest does not have a right to file a strict foreclosure action, the person does maintain the right to claim surplus proceeds from the foreclosure sale.
Eastern District Court of Texas Holds that Bitcoin Investments Are Securities
On August 26, the U.S. District Court for the Eastern District of Texas held that the Bitcoin investments at issue are “investment contracts” and “securities” within the meaning of the Securities Act of 1933 and the Exchange Act of 1934. S.E.C. v. Shavers, et al., No. 4:13-CV-416, (E.D. Tex. Aug. 26, 2014). The Court found that the Bitcoin investments in the case satisfy the “investment of money” prong established by the Supreme Court in S.E.C. v. W.J. Howey & Co., 328 U.S. 293, 298-99 (1946), because Bitcoin has a measure of value, can be used as a form of payment, and is used as a method of exchange. The essence of an investment contract, the court reasoned, was the contribution of an exchange of value, rather than “money” in the narrow sense of legal tender only. The SEC alleged that the Defendants made a number of solicitations aimed at enticing lenders to invest in Bitcoin-related investment opportunities. The Court granted the Defendants’ motion to reconsider its prior decision on subject-matter jurisdiction, but denied the Defendants’ motion to dismiss for lack of subject-matter jurisdiction.
CFPB Enforcement Action Targets Debt-Settlement Payment Processor For Aiding Collection Of Upfront Fees
On August 25, the CFPB announced a consent order with an Oklahoma-based debt-settlement payment processor for allegedly helping other companies collect unlawful upfront fees from consumers. The CFPB specifically alleged that the company violated the Telemarketing Sales Rule by making it possible for debt-settlement companies to charge consumers advance fees before settling any of their debts. The CFPB believes the company processed tens of millions of dollars in illegal advance fees from tens of thousands of customers on behalf of hundreds of debt relief companies across the country. The consent order requires the company to pay $6,099,000 in consumer relief and a civil money penalty of $1 million. In addition, the company is subject to monitoring by the CFPB and a third-party monitor, and must submit compliance reports.
CFPB Announces Field Hearing On Vehicle Finance
On August 28, the CFPB announced that it will hold a field hearing on vehicle finance on September 18, 2014 in Indianapolis. Consistent with its past field hearing announcements, the CFPB did not reveal the specific topics to be addressed. The hearing may relate to the CFPB’s planned larger participant rule for nonbank auto finance companies. In addition, earlier this year, Director Cordray stated in an appearance before the House Financial Services Committee that a white paper on the proxy methodology the CFPB uses to identify alleged discrimination in indirect auto finance was forthcoming.