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Financial Services Law Insights and Observations


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  • Federal Reserve issues proposal amending stress test requirements

    Agency Rule-Making & Guidance

    On January 8, the Federal Reserve Board (Board) issued a notice of proposed rulemaking (NPR) that would revise company-run stress test and supervisory stress test requirements to conform with Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). Similar to the previously issued NPRs by the FDIC and the OCC (covered by InfoBytes here), the proposed rule will, among other things, change the minimum threshold for applicability from $10 billion to $250 billion in consolidated assets and revise the frequency of required company-run stress tests for most state member banks from annual to biannual. However, the proposed rule notes that certain state member banks will still be required to conduct annual stress tests, such as (i) those that are subsidiaries of global systemically important bank holding companies; (ii) bank holding companies that have $700 billion or more in total assets; or (iii) cross-jurisdictional activity of $75 billion or more. Furthermore, the proposed rule will remove the “adverse” stress testing scenario—which the Board states has provided “limited incremental information”—and require stress tests to be conducted under the “baseline” and “severely adverse” stress testing scenarios. Comments on the NPR must be received by February 19.

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC EGRRCPA

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  • OFAC adds illicit foreign exchange operation participants to Specially Designated Nationals List; issues Venezuela-related General License and new FAQ

    Financial Crimes

    On January 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced additions to the Specially Designated Nationals List pursuant to Executive Order 13850. OFAC’s additions to the list include seven individuals—including former Venezuelan government officials—and 23 entities for their participation in a bribery scheme involving the Venezuelan Office of the National Treasury in order to conduct illicit foreign exchange operations in the country. According to OFAC, the designated persons engaged in transactions involving deceptive practices and corruption, including wiring payments that were “hidden behind a sophisticated network of U.S. and foreign companies that hid the individuals’ beneficial ownership.” As a result, all assets belonging to the identified individuals and entities subject to U.S. jurisdiction are blocked, and U.S. persons generally are prohibited from dealing with them.

    Concurrently, OFAC issued Venezuela-related General License 6 (GL 6) to allow U.S. persons to engage in otherwise prohibited wind-down transactions with two of the designated companies through January 8, 2020. Specifically, GL 6 authorizes certain activities with the designated companies relating to the maintenance and wind-down of operations, contracts, and agreements that were effective prior to January 8, 2019. OFAC also published a new FAQ to provide additional guidance on the types of activities considered “maintenance” under GL 6.

    As FCPA Scorecard previously reported, the owner was indicted under seal in August for conspiracy to violate the FCPA, conspiracy to commit money laundering, and nine counts of money laundering.

    Visit here for additional InfoBytes coverage on Venezuela sanctions.

    Financial Crimes Sanctions OFAC Department of Treasury Venezuela International

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  • Maryland appeals court holds HOAs may be vicariously liable under Maryland Consumer Protection Act

    State Issues

    On December 21, 2018, the Maryland Special Appeals Court held that a homeowners association (HOA) is not shielded from liability under the Maryland Consumer Protection Act (MCPA) simply because the law firm used by the HOA to collect certain debts is exempt from the law. According to the opinion, after an HOA was awarded a judgment of over $3,000 against homeowners for unpaid fines, the homeowners filed an action against the HOA asserting violations of the MCPA and the Maryland Consumer Debt Collection Act (MCDCA), and the HOA responded by filing a third-party complaint against its law firm, arguing the firm agreed to indemnify it. The lower court granted summary judgment in favor of the HOA on the MCPA claim, holding that because the statute specifically exempts attorneys, the HOA cannot be held vicariously liable under the statute. Additionally, among other things, the lower court held the homeowners improperly used the MCDCA to dispute the validity of the debt and granted the HOA judgment as a matter of law.

    The appellate court disagreed and held that the HOA is not shielded from liability under the MCPA solely because the law firm used to collect the debts is exempt from the statute. The court reasoned that a “debt collector should not be able to hire an attorney to engage in illegal debt collection practices on its behalf as a means of avoiding liability” under the MCPA. The court also vacated the lower court’s judgment in favor of the HOA on the MCDCA claims, concluding that the homeowners were challenging the HOA’s methods in filing liens in the collection of the debt, as opposed to disputing the validity of the debt itself.

    State Issues Courts Debt Collection Vicarious Liability

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  • District Court holds debt collector effectively stated account balance


    On December 20, 2018, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a debt collector, holding the collection letters effectively stated the amount of the debt under the FDCPA. According to the opinion, a consumer received four collection letters from a debt collector stating an account balance of $794.67. The consumer sued the debt collector, alleging the letters were false, deceptive, or misleading and failed to effectively state the amount of the debt in violation of the FDCPA because, according to the terms in the creditor’s online sample agreement, the original creditor could have collected interest on post-charge off fees after the debt collector closed the account. Both parties moved for summary judgment. The court determined the collection letter at issue complied with the FDCPA because the debt collector “sought to collect only the amount due on the date it sent the letter” and was not “trying to collect the listed balance plus the interest running on it or other charges.” Moreover, the court rejected the consumer’s argument that the letter was false, deceptive, or misleading because it failed to include whether the creditor could charge additional interest or other fees on the original debt, determining the letter could not mislead or deceive an unsophisticated consumer. Specifically, citing the U.S. Court of Appeals for the 7th Circuit’s decision in Wahl v. Midland Credit Management, the court stated that a debt collector “need only request the amount it is owed; it need not provide whatever the credit-card company may be owed more than that.” Because a consumer of reasonable intelligence and basic financial knowledge would read the collection letter and determine that he or she owes $794.67, the court granted summary judgment in favor of the debt collector.

    Courts Debt Collection FDCPA Seventh Circuit Appellate

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  • District Court: Privacy claims related to incentive compensation sales program can proceed


    On December 31, 2018, the U.S. District Court for the District of Utah granted in part and denied in part a national bank’s motion to dismiss putative class action claims concerning the bank’s use of confidential customer information to open deposit and credit card accounts as part of its incentive compensation sales program. (See previous InfoBytes coverage here.) According to the court, the plaintiffs claiming accounts were opened in their name plausibly alleged that the bank benefited from an increase in the number of accounts and products, and disagreed with the bank that the misappropriation of name claim should fail because those plaintiffs’ names and identities had value beyond those of the general public. While the majority of the state claims and all federal claims were dismissed, the court allowed four state claims to remain, including invasion of privacy. However, the court requested that the parties address why it should not decline to exercise jurisdiction over the state law claims following the dismissal of all federal claims.

    Additionally, the court dismissed claims brought by “Bystander Plaintiffs” who did not allege the opening of any unauthorized accounts in their names, or claim that their information was ever improperly used or accessed or that they were subject to improper sales practices. Because the Bystander Plaintiffs claimed only that they would not have opened accounts if bank employees had told them about the alleged issues, the court dismissed their claims for lack of Article III standing, reasoning that they did not allege any injury.

    Courts Incentive Compensation Privacy/Cyber Risk & Data Security Spokeo

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  • For-profit education company forgoes collection on almost $494 million in student loans

    State Issues

    On January 3, an Illinois-based for-profit education company settled with 49 state attorneys general, agreeing to forgo collection of nearly $494 million in debts owed by almost 180,000 students nationally. According to the Illinois Attorney General’s announcement, after a seven-year investigation into the company’s practices, the participating states allege that, among other things, the company (i) deceived students about the total costs of enrollment; (ii) failed to adequately disclose that certain programs lacked programmatic accreditation, which would negatively affect a student’s ability to get a license or employment in that field; and (iii) misled prospective students about post-graduate job rates. Under the settlement, the company has agreed to forgo collection of debts owed by students who either attended a company institution that closed before Jan. 1, 2019, or whose final day of attendance at two participating online institutions occurred on or before Dec. 31, 2013. In addition to the debt relief, the settlement also requires the company to, among other things, reform its recruiting and enrollment practices, including providing students with a single page disclosure that covers the (i) anticipated total direct cost; (ii) median debt for completers; (iii) programmatic cohort default rate; (iv) program completion rate; (v) notice concerning transferability of credits; (vi) median earnings for completers; and (vii) the job placement rate.

    State Issues State Attorney General Student Lending Debt Collection Debt Relief

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  • Illinois authorizes higher verification fee under Payday Loan Reform Act

    State Issues

    On January 4, the Illinois governor signed HB 4873, which amends the state’s Payday Loan Reform Act (the Act) to increase from $1 to $3 the maximum verification fee that a certified consumer reporting service may charge a lender—and that the lender may pass on to the borrower—for verifying an installment payday loan as required by the Act. The increased verification fees may be charged beginning July 1, 2010. The verification fee paid by the borrower cannot exceed the fee paid by the lender.

    State Issues Payday Lending Fees Consumer Reporting Agency Lending

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  • NYDFS, New York Attorney General reach $9 million settlement with student loan servicer

    State Issues

    On January 4, NYDFS and the New York Attorney General announced a joint $9 million settlement with a national student loan servicer to resolve allegations that the servicer, among other things, deceived student loan borrowers about their repayment options and steered them into higher-cost repayment plans. According to a press release issued by the Attorney General’s office, the servicer “steered distressed borrowers away from available income-based repayment plans towards other, more expensive options, thus costing them money and increasing their risk of default.” Additionally, the consent order alleges that the servicer misinformed borrowers—including servicemembers—about their repayment options, such as telling borrowers they were not eligible for Public Service Loan Forgiveness plans when they may have qualified after consolidating their loans. Furthermore, the servicer allegedly (i) improperly processed applications for income-based repayment; (ii) allocated underpayment for certain borrowers to maximize late fees; (iii) improperly processed payments; (iv) failed to accurately report information to credit reporting agencies; (v) failed to “properly recalculate monthly payments for servicemembers when adjusting their interest rates under the Servicemembers’ Civil Relief Act”; (vi) charged improper late fees; and (vii) did not provide borrowers notification of their eligibility for a co-signer release.

    The servicer, while neither admitting nor denying the findings alleged by NYDFS and the Attorney General, has agreed to pay $8 million in restitution to New York borrowers and a $1 million fine. Moreover, the servicer has agreed to stop servicing private and federal loans—with the exception of Perkins Loans—over the next five years.

    State Issues NYDFS Student Lending Settlement Student Loan Servicer Servicemembers SCRA State Attorney General

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  • Freddie Mac releases temporary guidance for government shutdown

    Federal Issues

    On January 3, Freddie Mac released guidance relating to loan origination and loan servicing during the government shutdown. According to Bulletin 2019-1, loans made to borrowers directly impacted by the government shutdown are still eligible for sale to Freddie Mac, even if the borrower is not receiving pay when the loan is delivered, so long as (i) all income and employment documentation requirements are met; (ii) the seller has no knowledge that the borrower will not return to work after the shutdown ends; and (iii) all other requirements of the “Seller’s Purchase Documents” are met. Freddie Mac also emphasizes that the IRS Form 4506-T and flood insurance requirements will remain unchanged during the shutdown. Additionally, Freddie Mac notes that loan servicers may offer forbearance to borrowers directly impacted by the shutdown.

    Federal Issues Freddie Mac Mortgages Loan Origination Mortgage Servicing

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  • Reverse mortgage servicer settles FCA allegations for $4.25 million

    Federal Issues

    On December 21, the DOJ announced a $4.25 million settlement with a Michigan-based servicer in connection with alleged violations of the False Claims Act related to the servicing of federally-insured home equity conversion mortgages (reverse mortgages). According to the DOJ, for the period between November 2011 and May 2016, the servicer allegedly failed to meet eligibility requirements for receiving FHA insurance payments on interest that accrued after reverse mortgages became due and payable, including meeting deadlines for obtaining property appraisals, commencing foreclosure proceedings, and/or prosecuting the foreclosure proceedings to completion. As a result, mortgagees on relevant reverse mortgage loans obtained additional interest payments they were not entitled to receive. The claims were resolved by the settlement without a determination of liability.

    Federal Issues DOJ FHA False Claims Act / FIRREA Reverse Mortgages

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