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Financial Services Law Insights and Observations


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  • Senate Republicans say Chopra’s refusal to answer questions should disqualify him as next CFPB director

    Federal Issues

    On July 13, Republican members of the Senate Banking Committee sent a follow-up letter to CFPB director nominee and FTC Commissioner Rohit Chopra, claiming Chopra’s refusal to answer questions concerning potential violations of law at the Bureau should disqualify him from consideration as its next director. The Senators referred to Ranking Member Pat Toomey’s June 17 letter, which asked Chopra whether he was aware of any alleged improper treatment of, or efforts to, “sideline” Bureau employees. A similar letter was sent to CFPB acting Director Dave Uejio, asking for certain records on staff departures, separation incentives, and investigations. Uejio initially responded that the CFPB needed additional time to respond to the Senators’ request, then later sent a letter stating “it would not be appropriate for me to confirm or deny the placement of any Bureau employee on administrative leave or the pendency of any internal investigations into alleged employee misconduct” citing, among other things, confidentiality restrictions under the Privacy Act. Uejio stressed the CFPB’s compliance with all applicable laws and regulations designed to protect career employees and added that “no career Bureau Executive has been involuntarily separated” from the agency under his watch, nor has the CFPB taken disciplinary or adverse action against any such individuals or offered voluntary separation compensation (VSC) incentives “for any political or partisan reason.” Uejio also emphasized that Chopra has had no involvement with VSC decisions or internal investigations into employees.

    Chopra currently awaits a Senate confirmation vote on his nomination.

    Federal Issues CFPB U.S. Senate

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  • Federal agencies seek comments on third-party relationships

    Agency Rule-Making & Guidance

    On July 13, the Federal Reserve Board, FDIC, and OCC announced a request for public comments on proposed guidance designed to aid banking organizations manage risks related to third-party relationships, including relationships with financial technology-focused entities. The guidance also responds to industry feedback requesting alignment among the agencies with respect to third-party risk management guidance. The proposed guidance provides “a framework based on sound risk management principles for banking organizations to consider in developing risk management practices for all stages in the life cycle of third-party relationships that takes into account the level of risk, complexity, and size of the banking organization and the nature of the third-party relationship.” The proposal addresses key components of risk management, such as (i) planning, due diligence and third-party selection; (ii) contract negotiation; (iii) oversight and accountability; (iv) ongoing monitoring; and (v) termination. Comments on the proposal are due 60 days after publication in the Federal Register. 

    Agency Rule-Making & Guidance FDIC OCC Federal Reserve Board Third-Party Fintech Risk Management

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  • 2nd Circuit: Willful FBAR violations capped at 50 percent of aggregate balance


    On July 13, the U.S. Court of Appeals for the Second Circuit held 2-1 that, under 31 U.S.C. § 5321 as amended, the maximum penalty for failing to file a Foreign Bank and Financial Accounts Report (FBAR) is 50 percent of the aggregate balance in the accounts at the time of the failure. According to the opinion, after a now deceased individual willfully failed to file an FBAR in 2008 for two foreign bank accounts, the IRS assessed a “willful penalty” that amounted to 50 percent of the aggregate account balances (approximately $4.2 million). The individual passed away without paying the penalty, and the U.S. government filed a lawsuit against his estate’s co-executors (defendants). A 1987 regulation limited the penalties for willful violations to $100,000 per account, but a 2004 amendment to the statute increased the maximum penalty for willful violations, to the greater of $100,000 or 50 percent of the aggregate account balance at the time of the violation. The defendants argued that the 1987 $100,000 penalty cap should apply, but the district court granted summary judgment for the government, though it noted that, despite the 2004 amendment, Treasury did not amend the 1987 regulation’s “now-inconsistent FBAR penalty provision,” which remains codified in the Code of Federal Regulations.

    On appeal, the majority agreed with the district court, holding that the 2004 statute amended the penalty provisions: “Given that, [] Congress in 2004 raised the maximum penalty for such violations after being informed by the Secretary [of the Treasury] that perhaps as many as 800,000 persons required to file FBARs were noncompliant, a regulation purporting to nullify the statutory increase plainly does not ‘carry out’ Congress’s goal of encouraging compliance with the FBAR requirement.” The 2nd Circuit also rejected the defendants’ argument that the rule of lenity requires that any ambiguity be resolved in their favor, pointing out that “[t]here is no ambiguity or uncertainty as to what Congress intended in the 2004 Statute when it” increased the penalties. The dissenting judge stated that the majority’s decision “departs from basic administrative law and unjustifiably accommodates ‘the Treasury’s relaxed approach to amending its regulations.’”

    Courts FBAR Of Interest to Non-US Persons Appellate Second Circuit Department of Treasury

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  • Connecticut adds additional protections for student loans

    State Issues

    On July 13, the Connecticut governor signed SB 716 to provide additional protections for student loan borrowers and impose new requirements on student loan servicers. Among other things, the act requires servicers to provide certain information to borrowers and cosigners regarding their rights and responsibilities, including cosigner release eligibility and the cosigner release application process. The law also prohibits a student loan servicer from engaging in an abusive act or practice when servicing a student loan and expands the definition of “servicing” in state student loan servicer law. The law provides a list of exempt persons, which includes banks and credit unions and their wholly-owned subsidiaries. The act states it took effect July 1.

    State Issues State Legislation Student Lending Student Loan Servicer Abusive

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  • New York expands definition of telemarketing to include text messages

    State Issues

    On July 13, the New York governor signed S.3941, which expands the state’s definition of telemarketing to include marketing by text message. A press release issued by the governor noted that expanding the definition closes a loophole in state law that previously limited the definition to phone calls, including unwanted robocalls. “Electronic text messages to [] mobile devices have become the newest unwelcomed invasive marketing technique. Consumers should not be burdened with excessive and predatory telemarketing in any form, including text messages,” the press release stated. The act takes effect 30 days after becoming law.

    State Issues State Legislation Privacy/Cyber Risk & Data Security Robocalls Consumer Protection Telemarketing

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  • OFAC issues advisory for China’s Xinjiang region

    Financial Crimes

    On July 13, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), along with the Departments of State, Commerce, Homeland Security, and Labor, as well as the Office of the U.S. Trade Representative, issued an updated advisory on the risks for businesses with possible exposure in their supply chain to entities involved in human rights abuses in the Xinjiang Region. The recent advisory updates the original version released in July 2020 (covered by InfoBytes here), which was issued after OFAC announced sanctions pursuant to Executive Order 13818 against a Chinese government entity and four current or former government officials for alleged corruption violations of the Global Magnitsky Human Rights Accountability Act. The updated advisory outlines risks to be considered when “assessing business partnerships with, investing in, sourcing from, or providing other support to companies operating in Xinjiang, linked to Xinjiang, or with laborers from Xinjiang.”

    Financial Crimes OFAC Department of Treasury Of Interest to Non-US Persons Department of Homeland Security Department of Labor China OFAC Sanctions

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  • OFAC issues new general license and related FAQs involving Venezuela

    Financial Crimes

    On July 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License (GL) 40, “Authorizing Certain Transactions Involving the Exportation or Reexportation of Liquefied Petroleum Gas to Venezuela.” GL 40 permits transactions and activities otherwise prohibited by Executive Order 13884 (covered by InfoBytes here) involving “the Government of Venezuela, Petróleos de Venezuela, S.A. (PdVSA), or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest.” OFAC also published two new FAQs, 914 and 915, related to GL 40.

    Financial Crimes OFAC Of Interest to Non-US Persons Department of Treasury OFAC Sanctions FAQs Venezuela

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  • 8th Circuit affirms summary judgment for mortgage servicer


    On July 9, the U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment in favor of a mortgage loan servicer (defendant), concluding that the defendant’s communications were not in connection with an attempt to collect a debt. The plaintiff had alleged that the defendant violated the FDCPA by engaging in misrepresentations and unfair conduct when processing the plaintiff’s application for loss mitigation assistance and selling the plaintiff’s home through a foreclosure sale. According to the 8th Circuit, “the district court applied the ‘animating purpose’ test, which considers the content of each communication individually, and determined that they were not made in connection with the collection of a debt.”

    In affirming the district court’s recent order, the 8th Circuit agreed with the district court’s decision that the defendant did not violate the FDCPA because the substance of each of the communications indicates that none were made in connection with an attempt to collect on the underlying mortgage debt.

    Courts Eighth Circuit Mortgages FDCPA Appellate

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  • District Court says retailer not an intended third-party beneficiary of a credit card arbitration provision


    On July 8, the U.S. District Court for the Central District of California denied a retailer’s motion to compel arbitration in a consumer data sharing putative class action, ruling that the retailer was not an intended third-party beneficiary of an arbitration provision in a credit card agreement. The proposed class had filed an amended complaint accusing several national retailers of illegally sharing consumer transaction data in violation of the FCRA, the California Consumer Privacy Act, and California’s unfair competition law, among others. The motion at issue, filed by one of the retailers, addresses a named plaintiff’s opposition to compel arbitration. The retailer argued that as an “intended” third-party beneficiary of the contract, it had the right to enforce an arbitration clause contained in a credit card agreement purportedly signed by the plaintiff when she opened a retailer credit card account issued by an online bank.

    The court disagreed, finding that the contract’s arbitration provisions specifically referred to the bank, and that the contract did not clearly “express an intention to confer a separate and distinct benefit on [the retailer].” Moreover, the court noted the contract at issue instructed the plaintiff to send any arbitration demand notices to the bank, adding that “[i]t seems unlikely that the parties would expect a demand for arbitration solely against the [retailer]—that does not involve [the bank]—to be sent to [the bank].”

    Courts Arbitration Third-Party Credit Cards Class Action State Issues CCPA FCRA Privacy/Cyber Risk & Data Security

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  • District Court allows CFPB to pursue 2016 structured settlement claims


    On July 12, the U.S. District Court for the District of Maryland issued an opinion denying several motions filed by parties in litigation stemming from a 2016 complaint filed by the CFPB, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. As previously covered by InfoBytes, the Bureau claimed the defendants violated the CFPA by encouraging consumers to take advances on their structured settlements and falsely representing that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” After the court rejected several of the defendants’ arguments to dismiss based on procedural grounds and allowed the CFPB’s UDAAP claims against the structured settlement buyer and its officers to proceed, the CFPB filed an amended complaint in 2017 alleging unfair, deceptive, and abusive acts and practices and seeking a permanent injunction, damages, disgorgement, redress, civil penalties and costs.

    In the newest memorandum opinion, the court considered a motion to dismiss the amended complaint and a motion for judgment on the pleadings on the grounds that the enforcement action was barred by the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that that the director’s for-cause removal provision was unconstitutional (covered by a Buckley Special Alert), and that the ratification of the enforcement action “came too late” because the statute of limitations on the CFPA claims had already expired. The court reviewed, among other things, whether the doctrine of equitable tolling saved the case from dismissal and cited a separate action issued by the Middle District of Pennsylvania which concluded that an “action was timely filed under existing law, at a time where there was no finding that a provision of the Dodd-Frank Act was unconstitutional.” While noting that the ruling was not binding, the court found the facts in that case to be similar to the action at issue and the analysis to be persuasive. As such, the court denied the motion to dismiss and the motion for judgment on the pleadings, and determined that the Bureau may pursue the enforcement action originally filed in 2016.

    Courts CFPB Enforcement UDAAP Structured Settlement CFPA Unfair Deceptive

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