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CSBS Hosts Emerging Payments Hearing
On May 16, the Conference of State Bank Supervisors Emerging Payments Task Force held a public hearing to examine the changing payments landscape and opportunities and risks presented by current and emerging technologies. The Legacy Payment Systems panel focused on continued efforts to improve efficiency and speed while simultaneously “preserving consumer confidence and system stability.” The Retail Payments Innovations panelists described innovative electronic and mobile payment systems and suggested that further innovation would be best supported by existing regulatory framework, which offers sufficient consumer protections. Finally, the Virtual Currencies panel urged state and federal regulators to “provide clear and consistent regulatory expectations and guidance without restricting innovation.” The event was the most recent of a number held by federal and state policymakers to address the proliferation of emerging financial technologies used to move money and transfer funds, which range from enhancements of traditional ACH or credit and debit methods of payment to virtual currencies that disrupt the traditional model. The CSBS is expected to use public hearings like this one to develop a proposed regulatory framework for state agencies.
Swiss Bank Pleads Guilty In Alleged Tax Evasion Conspiracy
On May 19, the DOJ announced that a Swiss bank pleaded guilty and entered into agreements with federal and state regulators to resolve a multi-year investigation into the bank’s alleged conspiracy to assist U.S. taxpayers in filing false income tax returns and other documents with the IRS by helping those individuals conceal undeclared foreign bank accounts. Under the plea agreement, the bank agreed to (i) disclose its cross-border activities; (ii) cooperate in treaty requests for account information; (iii) provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed; (iv) close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and (v) enhance compliance, recordkeeping, and reporting programs. The plea agreement also reflects a prior related settlement with the SEC in which the bank paid $196 million in disgorgement, interest, and penalties. Under the current agreements, the bank will pay $2.6 billion in fines and penalties, including $1.8 billion to the DOJ, $100 million to the Federal Reserve Board, and $715 million to the New York DFS. Federal authorities did not individually charge any officers, directors, or senior managers, and the agreements do not require the bank to dismiss any officers or employees, but eight bank executives have been indicted since 2011 and two of those individuals pleaded guilty. Further, federal and state regulators did not directly restrict the bank’s ability to operate in the U.S.—the New York Federal Reserve Bank allowed the bank to remain a primary dealer and the New York DFS did not revoke the bank’s state banking license.
Fannie Mae Updates Delinquency Management, Default Prevention Policies
On May 16, Fannie Mae announced through Servicing Guide Announcement SVC-2014-07, that for a borrower who submits a complete Borrower Response Package (BRP) or incomplete documentation 37 days or less prior to a foreclosure sale, the servicer (i) must explain its plans for evaluating the borrower for a workout option and suspending the foreclosure sale in the BRP acknowledgement notice, if applicable; and (ii) is encouraged to work with borrowers who submit incomplete documentation to obtain a complete BRP but is not required to send an Incomplete Information Notice. Fannie Mae is eliminating all Servicing Guide requirements related to a substantially complete BRP, and thus servicers need no longer postpone foreclosure due to the receipt of a substantially complete BRP. But when a borrower has been offered a workout based on a complete BRP, the servicer must not refer the loan to foreclosure or proceed with the motion for judgment or order of sale until the borrower’s time period for submitting the initial payment to accept the offer has expired without payment. The announcement also states that, where additional amounts have accrued and/or the due dates of the initial workout offer have changed because the borrower was awaiting the outcome of the appeal decision, the servicer must adjust the payment amount of the initial offer, use the same adjustment approach on all Fannie Mae loans, and reissue the initial offer to reflect adjusted dates or amounts. Finally, servicers are no longer required to refer a mortgage loan secured by a principal residence to foreclosure within 5 business days after the 121st day of delinquency.
Senate Banking Committee Leaders Seek Regulators' Views On Virtual Currencies
On May 19, the Senate Banking Committee’s chairman and ranking member, Senators Tim Johnson (D-SD) and Mike Crapo (R-ID), sent a letter to the leaders of the Treasury Department, the SEC, the CFTC, the OCC, the FDIC, and the Federal Reserve Board regarding recent developments in the use of virtual currencies and their interaction with the global payment system. The Senators ask the regulators a series of questions related to the role of virtual currencies in the U.S. banking system, payment system, and trading markets, and the current role of federal regulators in developing local, national, and international enforcement policies related to virtual currencies. The Senators also seek the agencies’ expectations on virtual currency firms’ BSA compliance, and ask whether an enhanced regulatory framework for virtual currencies is needed.
CA AG Publishes Guide On Online Privacy Policies
On May 21, California AG Kamala D. Harris issued a guide providing recommendations to businesses affected by the 2013 amendments to the California Online Privacy Protection Act (CalOPPA). Those amendments require website operators to disclose how they respond to “do not track” signals or other mechanisms that provide consumers a choice regarding the collection of personally identifiable information (PII) over time and across different sites or online services. In developing an online privacy policy, the guide advises companies to use plain language, in an easily readable format, and to clearly and conspicuously identify and explain its online tracking and PII collection and sharing practices. Additionally, the guide recommends that policies provide (i) the choices a consumer has regarding the collection, use, and sharing of PII; (ii) a link to any privacy policy maintained by third parties receiving PII; and (iii) contact information for questions or concerns.
Texas Supreme Court Allows Capitalization Of Interest, Fees, Escrow Items For Home Equity Loan Modifications
On May 16, The Texas Supreme Court held that the state constitution does not prohibit the restructuring of a home equity loan as long as the original loan met constitutional requirements and terms of the original extension of credit are maintained. Sims v. Carrington, No. 13-638, 2014 WL 1998397 (Tex. May 16, 2014). The court’s holding came in response to a series of questions certified by the U.S. Court of Appeals for the Fifth Circuit, which asked whether (i) a modification agreement that capitalizes past due interest, fees, property taxes or insurance premiums into the principal, but does not satisfy or replace the original note, is a modification or refinance for purposes of the constitutional home equity lending provisions; (ii) the capitalization of past-due interest, fees, property taxes, or insurance premiums constitutes an impermissible “advance of additional funds” under regulations implementing the constitutional provisions; (iii) a modification must comply with constitutional requirements that a home equity loan have a maximum loan-to-value ratio of 80%; and (iv) repeated modifications convert a home equity loan into an open-end account that must comply with certain constitutional requirements related to home equity lines of credit. The Texas Supreme Court determined that the restructuring of a home equity loan that involves capitalization of past-due amounts owed under the terms of the initial loan and a lowering of the interest rate and the amount of installment payments, but does not involve the satisfaction or replacement of the original note, an advancement of new funds, or an increase in the obligations created by the original note, is not a new extension of credit, and is thus not required to comply with the constitutional requirements. The court further held that such a restructuring (i) is not an “advance of additional funds” if those amounts were related to the original loan; and (ii) is not subject to LTV limits because it is not a new extension of credit. Finally, the court held that repeated restructurings, as described, do not convert the loan into a line of credit subject to other restrictions, explaining that in the case of a line of credit repeat transactions are contemplated upfront, a situation that “does not remotely resemble” the modification at issue here.
FinCEN Advisory Addresses Risks Presented By Citizenship-by-Investment Program
On May 20, FinCEN issued Advisory FIN-2014-A004, warning financial institutions about the risk of illicit financial activity conducted by individuals with passports from St. Kitts and Nevis (SKN), which allows individuals to obtain passports through a citizenship-through-investment program. The program offers citizenship to any non-citizen who either invests in designated real estate with a value of at least $400,000, or contributes $250,000 to the SKN Sugar Industry Diversification Foundation. FinCEN believes that illicit actors are using the program to obtain SKN citizenship in order to mask their identity and geographic background for the purpose of evading U.S. or international sanctions or engaging in other financial crime. FinCEN advises financial institutions to conduct risk-based customer due diligence to mitigate the risk that a customer is disguising his or her identity for such an illicit purchase. FinCEN further reminds institutions of SAR filing obligations related to known or suspected illegal activity and potential OFAC obligations.
OCC Integrates Interagency Rules, Proposes Integrated Licensing Rules
On May 16, the OCC issued a final rule to integrate its interagency rules, which would combine, without any substantive amendments, rules related to consumer protection in insurance sales, BSA compliance, management interlocks, appraisals, disclosure and reporting of CRA-related agreements, and the FCRA. On May 21, the OCC issued a notice of proposed rulemaking to integrate the OCC’s licensing rules. The OCC states that for many of the licensing rules, the proposal incorporates the licensing provisions for federal savings associations into the existing national bank rule, but in other cases, the proposal includes separate rules for national banks and federal savings associations because the rules do not apply to both charters, are better organized as separate rules, or are difficult to integrate because of their differences and complexity. Some rules that would continue to apply only to national banks are revised to be consistent with the changes proposed for federal savings associations. The OCC also proposes substantive changes to certain licensing rules to “eliminate unnecessary requirements, promote fairness in supervision, and further the safe and sound operation of the institutions the OCC supervises.”
California DBO Announces New Online Portal For Certain Licensees
On May 19, the California Department of Business Oversight announced it will transition certain license application and maintenance functions to a new online system. Beginning June 18, 2014, companies and individuals seeking licensure under the California Finance Lenders Law, the California Deferred Deposit Transaction Law, and the Escrow Law will visit a new online self-service portal to (i) submit applications for licensure; (ii) view the status of their license application; (iii) submit Annual Report information; and (iv) update contact information. Later this year licensees will be able to pay application, renewal, and qualification fees using this portal.
Kansas Bill Phases Out Mortgage Registration Tax
On May 14, Kansas Governor Sam Brownback signed HB 2643, which gradually eliminates the state’s mortgage registration tax. Under current law, state-chartered banks must charge mortgage loan borrowers a registration tax. Over a five-year period, the bill will gradually replace mortgage registration tax revenue with other fees collected by county registers of deeds applicable from all mortgage lenders. In addition, beginning on January 1, 2015 the maximum fee for recording single family mortgages of $75,000 or less will be $125.