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Financial Services Law Insights and Observations


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  • Treasury undersecretary delivers remarks on the importance of network sanctions

    Financial Crimes

    On July 31, Department of Treasury Under Secretary for Terrorism and Financial Intelligence (TFI) Sigal Mandelker delivered remarks at the Center for Strategic and International Studies in Washington, D.C. to discuss the use of sanctions in combating critical national security and illicit financial threats. After summarizing several achievements related to the exposure and disruption of global financial schemes, Mandelker discussed TFI’s collaboration with other Treasury agencies, such as the Office of Foreign Assets Control, the Financial Crimes Enforcement Network, the Office of Intelligence and Analysis, and the Office of Terrorist Financing and Financial Crimes, to create an organizational structure that “integrates unparalleled insight into the financing of emerging global threats with powerful economic authorities to counter them.” Mandelker noted that while sanctions can be very powerful tools to cut off both financial and material support to terrorist groups and regimes, a broader strategic approach is necessary, including, among other things, anti-money laundering measures, enforcement actions, foreign engagement, intelligence and analysis, and private-sector partnerships. She noted that one method employed by the agencies to maximize their impact in combating illicit financial threats is through the use of network sanctions, which recognize that “bad actors” rarely act alone, and instead frequently rely upon complicated structures using shell companies, business partners, and facilitators to disguise activities and launder money. “When we focus on these broader networks and their assets, we can more effectively block a bad actor’s ability to access their ill-gotten gains, making it more difficult for them to use the global marketplace or continue in their business arrangements,” Mandelker stated. Mandelker further commented that in 2019 alone, Treasury has “issued nearly $1.3 billion in civil monetary penalties and settlements for financial institutions and corporate actors related to violations of our sanctions programs.” 

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

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  • FCC adopts rules addressing spoofed texts and international robocalls

    Privacy, Cyber Risk & Data Security

    On August 1, the FCC announced the adoption of new rules that will extend the Truth in Caller ID’s prohibitions against robocalls to caller ID spoofing of text messages and international calls, and implement measures passed last year in the RAY BAUM’s Act. As previously covered by InfoBytes, the rules are supported by a bipartisan group of more than 40 state attorneys general, and will allow the FCC to bring enforcement actions and assess fines on international players who try to defraud U.S. residents. However, while Commissioner Michael O’Rielly voted in favor of the measure, he raised concerns that the FCC may encounter problems when trying to enforce the rules across international borders. “As I expressed before, the expanded extraterritorial jurisdiction may prove difficult to execute in uncooperative nations and come back to bite us in other contexts,” O’Rielly stated. “In addition, the definitions of text messaging and voice services are broader than my liking and may cause future unintended consequences.” However, his statement did not specify what these unintended consequences might be.

    Privacy/Cyber Risk & Data Security FCC Robocalls

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  • OCC issues guidance on CRA designations

    Agency Rule-Making & Guidance

    On July 31, the OCC issued Bulletin 2019-40, which provides guidelines for requesting designation as a wholesale or limited purposes bank for Community Reinvestment Act (CRA) purposes, or requesting confirmation of exemption as a special purposes bank under the CRA. The guidelines summarize the process for requesting or confirming designation, including (i) information that a bank should provide to substantiate its request; (ii) instructions on how to submit requests; and (iii) the review and approval process. Among other things, the OCC encourages banks seeking confirmation or designation to request an informal consultation with the bank’s supervisory office. As for such a request, the OCC notes that it is customary to include a description on how the bank satisfies the definition for a wholesale bank, limited purposes bank, or special purposes bank, including facts and data sufficient to describe the nature of the bank's current and prospective business, the credit products offered, and the market area served. Within 60 days of receiving a complete designation or confirmation request, the OCC will notify the bank of its decision to approve or deny the request. For designations as wholesale or limited purpose, the designation will remain in effect until the bank requests revocation or one year after the OCC notifies the bank it has revoked the designation. For special purpose confirmations, the exemption remains in effect until the OCC is informed the exemption no longer applies. Designation and confirmation requests may be made available to the public under the Freedom of Information Act (FOIA), but a bank may request confidential treatment for information that would normally be exempt from FOIA disclosure requirements.

    Agency Rule-Making & Guidance OCC CRA

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  • OCC consolidates supervision support

    Agency Rule-Making & Guidance

    On July 31, the OCC announced two new units, which consolidates bank supervision support, risk analysis, and oversight of national trust banks and significant service providers. One hundred and fifty staff members were realigned to create the news units, the OCC reported, with the intention of eliminating redundancies and “presenting a single voice to supervised institutions.” The OCC additionally noted that the agency’s Committee on Bank Supervision “will provide strategic direction and oversight to both units, and will review and approve strategic plans and initiatives, annual business plans or operating plans, and major projects and initiatives.”

    The first unit, Supervision System and Analytical Support, consists of OCC supervisory and policy unit teams that oversee supervisory information systems, data management, business intelligence, risk analysis, and supervision risk management. The second unit, Systemic Risk Identification Support and Specialty Supervision, includes lead experts from Large Bank Supervision and Midsize Bank Supervision, in addition to teams responsible for supervising trust companies from the Northeastern District National Trust Banks team and significant service providers from Bank Supervision Policy.

    The OCC further noted that Midsize and Community Bank Supervision and Large Bank Supervision will retain primary responsibility for overseeing the banks, savings associations, and federal branches and agencies of foreign banks that compose the federal banking system.

    Agency Rule-Making & Guidance OCC Bank Supervision

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  • Maximum LTV lowered for FHA cash-out refinances

    Federal Issues

    On August 1, HUD issued Mortgagee Letter 2019-11, which lowers the maximum loan-to-value (LTV) and combined maximum loan-to-value (CLTV) from 85 percent to 80 percent on cash-out refinances for FHA-insured mortgage loans. The letter notes that the total number of cash-out refinance mortgages of FHA-insured mortgage loans has increased 250.47 percent from FY 2013 to FY 2018, and that the FHA therefore has concluded that the reduction in LTV is prudent “in order to strengthen the equity position of cash-out refinances and reduce loss severities in the event of default, [and] stay ahead of any potential future shift in the housing market.” The new LTV is effective for any mortgage loans insured by FHA on or after September 1.

    Federal Issues HUD FHA Mortgages Refinance Cash-Out Refinance

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  • DOJ announces $3 million SCRA settlement with auto finance company

    Federal Issues

    On August 1, the Department of Justice (DOJ) announced a $3 million settlement with a captive auto finance company, resolving allegations that it violated the Servicemembers Civil Relief Act (SCRA) by repossessing 113 vehicles owned by SCRA-protected servicemembers without first obtaining court orders and failing to refund upfront capitalized cost reduction (CCR) amounts to servicemembers who lawfully terminated vehicle leases early under the SCRA. According to the DOJ’s complaint, when a servicemember terminated their lease early pursuant to the SCRA, the finance company retained the entire CCR amount even though the SCRA requires that it refund all lease amounts paid in advance for a period after the effective date of the termination. The settlement agreement covers all repossessions of servicemembers vehicles and leases terminated by servicemembers since January 2008, and requires the finance company to create an almost $3 million settlement fund to compensate affected servicemembers and pay the U.S. Treasury $62,000. Moreover, the agreement requires the finance company to review and update its SCRA policies and procedures to prevent future violations and to provide SCRA compliance training to specified employees.

    Federal Issues DOJ SCRA Servicemembers Department of Treasury

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  • VA encourages relief for Hurricane Barry-affected borrowers

    Federal Issues

    On July 30, the Department of Veterans Affairs (VA) issued Circular 26-19-21, encouraging mortgagees to provide relief for VA borrowers affected by Hurricane Barry on the Gulf Coast. Among other forms of assistance, the Circular encourages loan holders and servicers to (i) extend forbearances to borrowers in distress because of the severe storms and flooding; (ii) establish a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting. The Circular is effective until July 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.

    Find continuing InfoBytes coverage on disaster relief guidance here.

    Federal Issues Disaster Relief Department of Veterans Affairs Consumer Finance Mortgages

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  • Senators ask DOJ to clarify website accessibility under ADA

    Federal Issues

    On July 30, seven Republican Senators sent a letter to Attorney General William Barr requesting updates on the DOJ’s efforts to clarify website accessibility requirements for businesses under the Americans with Disabilities Act (ADA). This request follows a letter previously sent to the DOJ in September 2018, requesting the Department’s help in resolving uncertainties regarding website accessibility regulations and requesting guidance to address conflicting court opinions. According to the Senators, the DOJ withdrew two Notices of Proposed Rulemaking concerning website accessibility standards in 2017 under claims that it is “evaluating whether promulgating regulations about the accessibility of Web information and services is necessary and appropriate. Such an evaluation will be informed by additional review of data and further analysis. The Department will continue to assess whether specific technical standards are necessary and appropriate to assist covered entities with complying with the ADA.” The DOJ responded a month later, stating that “absent the adoption of specific technical requirements for websites through rulemaking, public accommodations have flexibility in how to comply with the ADA’s general requirements of nondiscrimination and effective communication. Accordingly, noncompliance with a specific voluntary technical standard for website accessibility does not necessarily indicate noncompliance with the ADA.”

    In their 2019 letter, the Senators stressed that, because the DOJ did not specify further concrete plans to address website accessibility guidance, businesses are subject to litigation risk and inconsistent outcomes. Moreover, the Senators urged the DOJ to provide further clarity, particularly because the issue of whether private websites must comply with the ADA “continues to be subject to conflicting judicial opinions.” Additionally, they pointed to the Web Content Accessibility Guidelines 2.0 standard, which governs website accessibility for federal government websites, and noted that if the government gets the benefit of clear guidance, then the public should as well.

    Federal Issues DOJ U.S. Senate Americans with Disabilities Act

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  • HUD proposes burden-shifting framework for Disparate Impact Regulation

    Agency Rule-Making & Guidance

    On July 31, national media outlets released HUD’s proposed rule amending the agency’s interpretation of the Fair Housing Act’s disparate impact standard (also known as the “2013 Disparate Impact Regulation”) to bring the rule “into closer alignment with the analysis and guidance” provided in the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (covered by a Buckley Special Alert) and to codify HUD’s position that its rule is not intended to infringe on the states’ regulation of insurance.

    The proposal codifies the burden shifting framework outlined in Inclusive Communities, adding five elements that a plaintiff must plead to support allegations that a specific, identifiable, policy or practice has a discriminatory effect. The five elements would require a plaintiff to adequately allege (i) the challenged policy or practice is “arbitrary, artificial, and unnecessary” to achieve a valid interest or legitimate objective; (ii) a “robust causal link” between the challenged policy or practice and a disparate impact on members of a protected class; (iii) the challenged policy or practice has an adverse effect on members of a protected class; (iv) the disparity caused by the policy or practice is significant (the disparity must be material); and (v) the complaining party’s alleged injury is directly caused by the challenged policy or practice. HUD emphasizes that plaintiffs alleging a single event, “will likely not meet the standard” of the proposal unless “the plaintiff can establish that the one-time decision is in fact a policy or practice.”

    The proposed rule also provides methods for defendants to rebut a disparate impact claim, including (i) showing its discretion is materially limited by a third party, such as through a controlling law or binding court order; and (ii) showing the algorithmic model relied on does not use inputs that are substitutes for protected characteristics and is predictive of risk or other valid objective, was created or maintained by a recognized third party, or that a neutral third party has analyzed the model and determined it is a demonstrably and statistically sound algorithm.

    The proposal, which has yet to be released by HUD, is reportedly under review by Congress and is set to be published in the Federal Register afterward. Comments will be due 60 days after publication.

    Agency Rule-Making & Guidance HUD Fair Housing Act Disparate Impact Fair Lending

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  • CFPB reopens comment period for certain aspects of HMDA rulemaking

    Agency Rule-Making & Guidance

    On July 31, the CFPB announced that it is reopening the comment period for certain aspects of its May Notice of Proposed Rulemaking (covered by InfoBytes here), which would permanently raise coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under the HMDA rules. The comment period originally closed on June 12, but to allow for the submission of comments that reflect the national loan level dataset for 2018 (which will be released “later this summer”), the Bureau is reopening the comment period for certain aspects of the May proposal. Specifically, the Bureau is reopening comments on (i) the proposed changes to the permanent coverage threshold for closed-end mortgage loans, which would permanently raise the reporting threshold from 25 loans in each of the two preceding calendar years to either 50 or 100 closed-end loans in each of the preceding two calendar years; (ii) the proposed changes to the permanent coverage threshold for open-end lines of credit, which would extend the temporary threshold of 500 loans for calendar years 2018 and 2019 to January 1, 2022, and then permanently lower the threshold to 200 open-end lines of credit after that date; and (iii) the appropriate effective date for any change to the closed-end coverage threshold. Comments are due by October 15.

    Agency Rule-Making & Guidance CFPB HMDA Mortgages

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