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CFPB Releases QM Compliance Chart for Small Creditors
On September 24, the CFPB released an additional mortgage rule implementation resource, entitled the Small Creditor Qualified Mortgages Flowchart. The flowchart walks small creditors through a series of questions to help those institutions determine the types of qualified mortgages they can originate. The chart is included on the CFPB’s broader mortgage rule implementation resources website.
Federal Agencies Issue Guidance On Reporting Elder Financial Abuse Under Gramm-Leach-Bliley
On September 23, eight federal agencies, including the Federal Reserve Board, the CFPB, the OCC, and the FDIC, issued interagency guidance to clarify the applicability of Gramm-Leach Bliley Act privacy provisions to reporting suspected financial exploitation of older adults. The guidance states that although the Act generally prohibits a financial institution from disclosing nonpublic personal information about a consumer to any nonaffiliated third party without notifying the consumer and providing an opportunity to opt-out of the disclosure, the Act contains several exemptions that generally allow for the reporting of suspected elder financial abuse, either at the request of a local, state, or federal agency or on the financial institution’s own initiative.
Federal Authorities Announce Two BSA/AML Enforcement Actions
This week, federal authorities announced the assessment of civil money penalties against two financial institutions for alleged Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance failures. In the first action, FinCEN and the OCC alleged that a national bank failed to file suspicious activity reports (SARs) from April 2008 to September 2009 for activity in accounts belonging to a law firm through which one of the firm’s principals ran a Ponzi scheme. The agencies claim that the bank willfully violated the BSA’s reporting requirements by failing to detect and adequately report suspicious activities in a timely manner, even when the bank’s anti-money laundering surveillance software identified the suspicious activity (the bank subsequently filed five late SARs related to this conduct in 2011). FinCEN and the OCC assessed concurrent $37.5 million penalties. The FinCEN penalty is the first assessed by that agency’s recently created Enforcement Division. In addition, the SEC charged the bank and a former executive with related securities violations and ordered the bank to pay an additional $15 million penalty and to cease and desist from the alleged activity, including providing misleading information to investors as to amounts of money in particular accounts and actions the bank had taken to limit fraudulent activity.
In a second action, coordinated among FinCEN, the OCC, and the U.S. Attorney for the District of New Jersey, federal authorities assessed $8.2 million in total penalties against a now defunct community bank for compliance failures related to Mexican and Dominican Republic money exchange houses. The government alleged that the bank willfully violated the BSA by (i) failing to implement an effective AML program reasonably designed to manage risks of money laundering and other illicit activity, (ii) failing to conduct adequate due diligence on foreign correspondent accounts, and (iii) failing to detect and adequately report suspicious activities in a timely manner. FinCEN and the OCC assessed concurrent $4.1 million penalties, and the DOJ will collect an additional $4.1 million through civil asset forfeiture.
FDIC Promises Guidance on Bank Payment Processing
On September 17, FDIC Chairman Martin Gruenberg responded to a letter sent recently by Republican members of the House of Representatives, in which the members objected to the agency’s approach toward online lending and the banks that process payments on behalf of online lenders. In his response letter, Chairman Gruenberg explains the FDIC’s approach to the issue, describes the challenges for banks who do business with online lenders and third party payment processors, and promises “ a Financial Institution Letter . . . to make it clear that the FDIC's focus is the proper management of the banks' relationships with their customers, particularly those engaged in higher risk activities, and not underlying activities that are permissible under state and federal law.”
Federal Reserve Board Issues Rules on Incorporating Basel III Into Stress Tests
On September 24, the Federal Reserve Board issued two interim final rules that clarify how companies should incorporate the Basel III regulatory capital reforms into their capital and business projections during the next cycle of capital plan submissions and stress tests. The first interim final rule clarifies that in the next capital planning and stress testing cycle, bank holding companies with $50 billion or more in total consolidated assets must incorporate the revised capital framework into their capital planning projections and into the stress tests using the transition paths established in the Basel III final rule. This rule also clarifies that for the upcoming cycle, capital adequacy at these companies will continue to be assessed against a minimum 5% tier 1 common ratio calculated in the same manner as under previous stress tests and capital plan submissions. For most banking organizations with between $10 billion and $50 billion in total consolidated assets, the second interim final rule provides a one-year transition period. During their first stress test cycle (scheduled to begin October 1), these companies will be required to calculate their projections using the current regulatory capital rules in order to allow time to adjust their internal systems to the revised capital framework. Both rules clarify that covered companies will not be required to use the advanced approaches in the Basel III capital rules to calculate their projected risk-weighted assets in a given capital planning and stress testing cycle unless the companies have been notified by September 30 of that year.
NCUA Files Additional RMBS Actions
On September 23, the NCUA announced that it filed separate lawsuits against nine financial institutions on behalf of five insolvent credit unions for alleged violations of federal and state securities laws in the sale of $2.4 billion in mortgage-backed securities. The complaints, which the NCUA filed in the U.S. District Court for the District of Kansas, claim that the securitizer made numerous misrepresentations and omissions in the offering documents regarding adherence to the originators’ underwriting guidelines, which concealed the true risk associated with the securities and routinely overvalued them. The NCUA claims that when the allegedly risky securities lost value, the credit unions were forced into conservatorship and liquidated as a result of the losses sustained. The NCUA has filed numerous similar suits, and it has previously settled similar claims for more than $335 million with four financial institutions.
NCUA Files LIBOR Action
On September 23, the NCUA announced a lawsuit against 13 international banks alleging violations of federal and state antitrust laws by artificially manipulating the London Interbank Offered Rate (LIBOR) system. The NCUA filed the complaint in the U.S. District Court for the District of Kansas on behalf of five failed credit unions. The NCUA claims the institutions individually and collectively gave false interest rate information through the LIBOR rate-setting process to benefit their own LIBOR-related investments, to reduce their borrowing costs, to deceive the marketplace as to the true state of their creditworthiness and to deprive investors of interest rate payments. According to the NCUA, the now defunct credit unions held tens of billions of dollars in investments and other assets that paid interest streams tied to LIBOR, and that the alleged conspiracy to artificially depress LIBOR caused the failed credit unions to receive less in interest income than they otherwise were entitled to receive.
Senator Expands Data Broker Investigation
On September 25, Senator Jay Rockefeller (D-WV) released letters he recently sent to 12 popular “personal finance, health, and family-focused websites” for assistance in an ongoing Senate Commerce Committee investigation into the way data brokers collect and share personal information. According to Senator Rockefeller, the letters were sent in part because “several data brokers have refused to disclose to the Committee specific sources of consumer data, preventing the Committee from fully understanding how the industry operates.” Senator Rockefeller began this investigation in October 2012 with letters to a number of data brokers. In connection with this latest round of letters, the Senator states that “hundreds of thousands of websites that gather information directly from consumers may be a source of consumer information for data brokers,” and that he believes some websites’ privacy policies “leave room for sharing a consumer’s information with data brokers or other third parties.” The Senate investigation parallels an investigation by members of the House of Representatives and the FTC’s ongoing activity with regard to data brokers.
FTC Files Amicus Brief in Tribal Payday Lending Case
On September 26, the FTC announced that it had filed an amicus brief in the U.S. Court of Appeals for the Seventh Circuit in a class action suit against a Native American payday lender. In that case, the putative class is challenging a payday lender’s practice of requiring borrowers to submit to arbitration at a Native American reservation in South Dakota. The FTC notes that it is pursuing its own action against the same lender, challenging its jurisdiction over borrowers who do not belong to the tribe and who do not reside on the reservation or in South Dakota. In its Seventh Circuit filing, the FTC argues that Native American tribes and tribal courts have legal authority over their own members and not over non-members, unless non-members conduct activities inside the reservation or enter into a commercial relationship with the tribe or a member of the tribe. The FTC claims that borrowers who take out payday loans from these companies via the Internet do not conduct business on the reservation and should not be subject to arbitration there.
FTC Announces Settlement of First Text Message Debt Collection Action
On September 25, the FTC announced the settlement of its first case against a debt collector for using text messaging to attempt to collect debts in an allegedly unlawful manner. The complaint, filed on August 23, alleged that an individual and the two debt collection companies he controlled violated the FDCPA and FTC Act when the companies failed to disclose in English- and Spanish-language text messages and phone calls that the companies were debt collectors and that they falsely portrayed themselves as law firms. The FTC also alleged that the defendants illegally revealed debts to the consumers’ family members, friends, and co-workers. To resolve the FTC’s claims, the companies agreed to pay a $1 million civil penalty, agreed not to send text messages omitting the disclosures required by law and agreed to obtain a consumer’s express consent before contacting them by text message. The defendants are also barred from falsely claiming to be law firms and from falsely threatening to sue or take any action – such as seizure of property or garnishment – that they do not actually intend to take.