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Financial Services Law Insights and Observations


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  • Treasury official discusses U.S. efforts in response to Russian invasion of Ukraine

    Financial Crimes

    On September 20, Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg delivered prepared remarks before a Senate Committee on Banking, Housing, and Urban Affairs hearing, in which she provided an overview of recent efforts taken by the U.S. Treasury Department to hold Russia accountable for its invasion of Ukraine. Rosenberg explained that these measures are intended to “squeeze Russia’s access to finance and technology for strategic sectors of its economy and degrade its industrial capacity for years to come” and highlighted sanctions imposed against hundreds of Russian individuals and entities, including Russia’s largest financial institutions and key nodes in the country’s military-industrial supply chains, to cut them off from the U.S. financial system. She noted that Treasury has also implemented restrictions on dealings in Russian sovereign debt and has “prohibited economic dealings with the so-called Donetsk People’s Republic and Luhansk People’s Republic regions of Ukraine” as well as new investments in the Russian Federation. Rosenberg added that Treasury has “also imposed prohibitions on importing certain commodities from Russia into the United States, including oil and natural gas, and similarly imposed prohibitions on exporting certain items like luxury goods and dollar-denominated banknotes.” Additionally, Rosenberg discussed international efforts, including “implementing the largest sanctions regime in modern history[,]” and working with allies to facilitate information sharing, law enforcement data, and relevant financial records. She emphasized that “Treasury has mounted an aggressive campaign to close the global financial policy and regulatory loopholes across jurisdictions that Russian aiders and abettors of this war, and other criminals, use to perpetuate their illicit activity[,]” and stated that Treasury remains focused on denying funds to Russia through its oil exports.

    Find continuing InfoBytes coverage on the U.S. sanctions response to Russia’s invasion of Ukraine here.

    Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC Senate Banking Committee Russia Ukraine Ukraine Invasion OFAC Sanctions OFAC Designations

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  • CFPB releases 2021 HMDA data

    Federal Issues

    On September 15, the CFPB released a Data Point report titled 2021 Mortgage Market Activity and Trends, which analyzes residential mortgage lending activity and trends for 2021. The 2021 HMDA data encompasses the fourth year of data that incorporates amendments to HMDA by Dodd-Frank. The changes include new data points, revisions to some existing data points, and authorizes the CFPB to require new data points. As covered by a Buckley Special Alert, the CFPB issued a final rule that implemented significant changes that reflected the needs of homeowners and the evolution in the mortgage market.

    The Bureau previously reported a 66.8 percent increase in originations from 2019 to 2020, largely driven by refinances. However, most of the increase from 2020 to 2021 was a result of jumbo home purchase loans. Other highlighted trends in mortgage applications and originations found in the 2021 HMDA data point include, among other things:

    • 4,332 financial institutions reported at least one closed-end record in 2021, down by 3.1 percent from 4,472 financial institutions who reported in 2020;
    • At least one closed-end mortgage loan had been reported by 4,332 financial institutions, down by 3.1 percent from 4,472 financial institutions in 2020;
    • Black borrowers’ share of home purchase loans increased from 7.3 percent in 2020 to 7.9 percent in 2021; and
    • “The refinance boom, especially in non-cash-out refinance that dominated mortgage market activities in 2019 and 2020, peaked in March 2021.”

    Federal Issues CFPB Consumer Finance HMDA Mortgages Dodd-Frank

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  • VA clarifies Covid-19 forbearance timeline

    Federal Issues

    On September 19, the Department of Veterans Affairs issued a change to Circular 26-21-20 extending the rescission date to align with the end of Covid-19 pandemic, including conforming changes to VA’s expectation as to the completion of a forbearance period. As previously covered by InfoBytes, the VA issued Circular 26-21-20 in September 2021 to clarify timeline expectations for forbearance requests submitted by affected borrowers. The September 2021 Circular stated thar “[f]or borrowers who have not received a COVID-related forbearance as of the date of this Circular, servicers should approve requests from such borrowers provided that the borrower makes the request during the National Emergency Concerning the Novel Coronavirus Disease 2019 (COVID-19) Pandemic,” and that all Covid-19 related forbearances would end by September 30, 2022. However, Change 1 stated that “September 30, 2022” should be replaced with “six months after the end of the National Emergency Concerning the Novel COVID-19 Pandemic.” The circular is rescinded March 1, 2023.

    Federal Issues Department of Veterans Affairs Covid-19 Mortgages Forbearance Consumer Finance

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  • FTC, DFPI shut down operation offering mortgage relief

    Federal Issues

    On September 19, the FTC and the California Department of Financial Protection (DFPI) announced a lawsuit against several companies and owners for allegedly operating an illegal mortgage relief operation. (See also DFPI’s announcement here.) The filing marks the agencies’ first joint action, which alleges the defendants’ conduct violated the California Consumer Financial Protection Law, the FTC Act, the FTC’s Mortgage Assistance Relief Services Rule (the MARS Rule or Regulation O), the Telemarketing Sales Rule, and the Covid-19 Consumer Protection Act. The agencies claimed that the defendants preyed on distressed consumers with false promises of mortgage assistance relief. According to the complaint, the defendants made misleading claims during telemarketing calls to consumers, including those with numbers on the National Do Not Call Registry, as well as through text messages and in online ads. In certain cases, defendants represented they were affiliated with government agencies or were part of a Covid-19 pandemic assistance program. Among other things, defendants falsely claimed they were able to lower consumers’ interest rates or payments, and instructed consumers not to pay their mortgages, leading to late fees and significantly lower credit score. Defendants also allegedly told consumers not to communicate directly with their lenders, which caused consumers to miss default notices and face foreclosure. Additionally, defendants charged consumers illegal up-front fees ranging from $500 to $2,900 a month, and told consumers they were negotiating loan modifications that in most cases never happened.

    The U.S. District Court for the Central District of California granted a restraining order temporarily shutting down the defendants’ operations. In freezing the defendants’ assets and ordering them to submit financial statements, the court noted that the agencies established a likelihood of success in showing that the defendants “have falsely, deceptively, and illegally marketed, advertised, and sold mortgage relief assistance services.”

    Federal Issues FTC DFPI State Issues California Mortgages Consumer Finance Mortgage Relief Enforcement California Consumer Financial Protection Law FTC Act MARS Rule Regulation O Telemarketing Sales Rule Covid-19 Consumer Protection Act Covid-19 UDAP

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  • Treasury seeks info on illicit finance, national security risks of digital assets

    Agency Rule-Making & Guidance

    On September 19, the U.S. Treasury Department issued a request for comment (RFC) seeking feedback on illicit finance and national security risks posed by digital assets. The RFC, issued pursuant to Executive Order 14067 “Ensuring Responsible Development of Digital Assets” (covered by InfoBytes here), requests public input on illicit finance risks, anti-money laundering and combating the financing of terrorism (AML/CFT) regulation and supervision, global implementation of AML/CFT standards, private sector engagement, and central bank digital currencies. The RFC also seeks feedback on actions the U.S. government and Treasury should take to mitigate these risks, in addition to whether public-private collaboration may improve efforts to address risks. Comments on the RFC are due November 3.

    “Without appropriate controls and enforcement of existing laws, digital assets can pose a significant risk to national security by facilitating illicit finance, such as money laundering, cybercrime and terrorist actions,” U.S. Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson said in the announcement. “As we work to implement the Illicit Finance Action Plan, hold bad actors accountable and identify potential gaps in existing enforcement, we look forward to receiving the public’s input on this urgent work.”

    The RFC follows the September 16 release of Treasury’s Action Plan to Address Illicit Financing Risks of Digital Assets (covered by InfoBytes here).

    Agency Rule-Making & Guidance Financial Crimes Federal Issues Digital Assets Department of Treasury Anti-Money Laundering Combating the Financing of Terrorism CBDC Risk Management Fintech

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  • California passes UDAAP legislation

    State Issues

    On September 15, the California governor signed AB 1904, which amends Section 1770 of the Civil Code relating to financial institutions. Among other things, the bill prohibits a covered person or a service provider from engaging in unlawful, unfair, deceptive, or abusive acts or practices regarding consumer financial products or services, such as, among other things: (i) misrepresenting the source, sponsorship, approval, or certification; (ii) using deceptive representations of geographic origin; (iii) representing that goods are original or new if they have deteriorated unreasonably or are altered; (iv) advertising goods or services with the intent not to sell them as advertised; and (v) making false or misleading statements of fact concerning reasons for, existence of, or amounts of, price reductions. The law authorizes the California Department of Financial Protection and Innovation to bring a civil action for a violation of the law. The bill would also make unlawful the failure to include certain information, including a prescribed disclosure, in a solicitation by a covered person, or an entity acting on behalf of a covered person, to a consumer for a consumer financial product or service.

    State Issues State Legislation California UDAAP DFPI State Regulators

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  • New NYDFS proposal to implement Commercial Finance Disclosure Law

    State Issues

    On September 14, NYDFS published a notice of proposed rulemaking under New York’s Commercial Financing Disclosure Law (CFDL) related to disclosure requirements for certain providers of commercial financing transactions in the state. As previously covered by InfoBytes, the CFDL was enacted at the end of December 2020, and amended in February to expand coverage and delay the effective date. (See S5470-B, as amended by S898.) Under the CFDL, providers of commercial financing, which include persons and entities who solicit and present specific offers of commercial financing on behalf of a third party, are required to give consumer-style loan disclosures to potential recipients when a specific offering of finance is extended for certain commercial transactions of $2.5 million or less. Last December, NYDFS announced that providers’ compliance obligations under the CFDL will not take effect until the necessary implementing regulations are issued and effective (covered by InfoBytes here).

    The newest proposed regulations (see Assessment of Public Comments for the Revised Proposed New Part 600 to 23 NYCRR) introduce several revisions and clarifications following the consideration of comments received on proposed regulations published last October (covered by InfoBytes here). Updates include:

    • A new section stating that a “transaction is subject to the CFDL if one of the parties is principally directed or managed from New York, or the provider negotiated the commercial financing from a location in New York.”
    • A new section requiring notice be sent to a recipient if a change is made to the servicing of a commercial financing agreement.
    • An revised definition of “recipient” to now “include entities subject to common control if all such recipients receive the single offer of commercial financing simultaneously.”
    • Clarifying language stating that the “requirements pertaining to the statement of a rate of finance charge or a financing amount, as that term appears in Section 810 of the CFDL, shall be in effect only upon the quotation of a specific commercial financing offer.”
    • Provisions allowing providers to perform calculations based upon either a 30-day month/360-day year or a 365-day year, with the acknowledgment that different methods of computation may lead to slightly different results.
    • An amendment stating that “a ‘provider is not required to provide the disclosures required by the CFDL when the finance charge of an existing financing is effectively increased due to the incurrence, by the recipient, of avoidable fees and charges.’”
    • An acknowledgement of comments asking that 23 NYCRR Part 600 be identical to California’s disclosure requirements (covered by InfoBytes here) “or as consistent as possible.” In response, NYDFS said that while it generally agrees, and has consulted with the California Department of Financial Protection and Innovation (DFPI), the regulations cannot be identical because the CFDL differs from the California Consumer Financial Protection Law and the Department cannot anticipate any future revisions DFPI may make to its proposed regulations.

    Comments on the proposed regulations are due October 31.

    State Issues Agency Rule-Making & Guidance Bank Regulatory State Regulators NYDFS Commercial Finance Disclosures New York CFDL California DFPI

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  • Debt buyer will pay $12 million following allegations of unfair, deceptive practices

    State Issues

    On September 20, the Massachusetts attorney general announced that a California-based debt collection company and its subsidiaries agreed to pay $12 million, including restitution and debt relief, for allegedly engaging in unfair and deceptive debt buying practices. According to the assurance of discontinuance, the debt collector allegedly violated state law by, among other things, (i) purchasing debts without obtaining all relevant documentation from the seller to ensure the debts were valid and accurate; (ii) exceeding the number of calls permitted when attempting to collect a debt and placing harassing debt collection calls; (iii) failing to prevent its collection law firm from using falsified or otherwise incorrect information about the existence of lawsuits and judgments; and (iv) attempting to collect debts that were beyond the statute of limitations or time-barred. The debt collector also allegedly “represented that certain vulnerable consumers were required to make good faith payments or enter an agreement for judgment with payment on a debt when the consumer had only exempt sources of income like social security disability benefits and pensions,” the AG said in the announcement. While the debt collector expressly denied the allegations, it agreed to pay $4.5 million and will reform its debt collection practices and cease to collect on more than 4,200 debts placed with the collection law firm for which a judgment could not be verified. These debts total approximately $7.5 million.

    State Issues State Attorney General Enforcement Debt Collection Consumer Finance

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  • SEC targets crypto developer and influencer for sale of unregistered securities


    On September 19, the SEC issued a cease and desist order against a software development company and its founder (collectively, “respondents”) for the unregistered offer and sale of crypto asset securities. The SEC also announced charges against a crypto influencer involved in promoting the company. According to the SEC’s order, from April 2018 into July 2018, the respondents allegedly conducted an unregistered securities offering of crypto asset securities, which raised approximately $30 million from nearly 4,000 investors. The SEC noted that the respondents told investors that the crypto asset securities would raise in value, that the company’s management would continue to improve the company, and that they would make the tokens available on a crypto trading platform. The order also found that the crypto asset securities were not registered with the SEC and were not applicable for a registration exemption. The SEC alleged the respondents violated the offering registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933.

    According to the SEC’s complaint against the influencer, which was filed in the U.S. District Court for the Western District of Texas, the influencer purchased $5 million worth of the company’s crypto asset securities and promoted it on social media platforms from approximately May 2018 to July 2018. He also allegedly failed to disclose that the company had agreed to provide him a 30 percent bonus on the tokens that he purchased, as consideration for his promotional efforts. Additionally, the SEC alleged that he also organized an investing pool, despite not registering the offering with the SEC. The complaint alleged violations of the offering registration provisions of Section 5(a) and (c) of the Securities Act, as well as violations of Section 17(b) of the Act, and seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.

    Without admitting or denying the allegations, the company agreed to pay $30 million in disgorgement, $4 million in prejudgment interest, and a $500,000 civil penalty. The company also agreed to destroy its remaining tokens, request the removal of its tokens from trading platforms, and publish the SEC’s order on its website and social media channels. The founder, without admitting or denying the SEC’s findings, agreed to refrain from participating in offerings of crypto asset securities for a period of five years and will pay a $250,000 civil penalty.

    Securities Enforcement SEC Digital Assets Cryptocurrency Securities Act

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  • Brazilian airline agrees to $41 million FCPA settlement

    Financial Crimes

    On September 15, a São Paulo-based domestic airline agreed to pay over $41 million to resolve parallel civil and criminal investigations by the SEC and DOJ. The investigations related to a bribery scheme executed by the airline to secure favorable payroll tax and fuel tax treatment through two pieces of new legislation. At the time of the conduct, the airline was the largest air transportation and travel services group in Brazil and its shares traded on the New York Stock Exchange. The favorable tax treatment provided the airline, along with all other Brazilian airlines, reduced taxes and expenses.

    According to the SEC and DOJ, a member of the airline’s Board of Directors (the “Director”) orchestrated the scheme, meeting and communicating with Brazilian officials and politicians and their close associates on numerous occasions. At one point, the Director communicated with a close associate of a Brazilian official who, “in turn, discussed the bribe schemes . . . with the Brazilian Official . . . via an ephemeral messaging application that uses end-to-end encrypted and content-expiring messages.” The servers of this messaging application were exclusively located in the United States (one the jurisdictional hooks relied on by the government).

    The Director ultimately authorized and directed the bribe payments from the airline to officials, and payments were made both directly from the airline and from companies controlled by the Director to various companies controlled by Brazilian officials or their close associates. Some of the intermediary companies receiving the corrupt payments were based in the U.S. and some of the payments were transmitted through a U.S. correspondent bank. The payments made directly by the airline were authorized from the Director’s own “Cost Center,” which had been created under the airline’s legal department and over which the Director had full discretion with no clearly defined controls or limits. The payments were inaccurately recorded in the airline’s books and records as payments to various third-party vendors for services that were never actually rendered. The airline did not have an effective review process of the documentation submitted before or after the disbursement of funds to monitor whether the invoices were authentic or whether the payments were for bona fide expenditures.

    As a result of this conduct, the SEC and DOJ determined that the airline violated the anti-bribery provisions, the books and records provisions, and the internal controls provisions of the FCPA.

    To resolve the civil charges, the airline agreed to a cease-and-desist order, disgorgement and pre-judgment interest totaling $70 million, although all but $24.5 million was waived based upon the airline’s present financial condition.

    To resolve the criminal charges, the airline entered into a deferred prosecution agreement (DPA). The original criminal penalty was calculated to be $87 million but was reduced to $17 million in light of the airline’s financial condition. In calculating the penalty, the DOJ acknowledged full credit for the airline’s cooperation, despite the fact that the airline did not self-report the violations. The DOJ also considered the airline’s remedial measures, which included terminating the Director at issue and relationships with all third-party vendors involved in the underlying misconduct, and a complete overhaul of its compliance program. However, the DPA did not require the appointment of a corporate compliance monitor.

    The DOJ and SEC each agreed to offset $1.7 million in penalties the airline is expected to pay to resolve the parallel Brazilian proceedings against their respective resolutions.

    Financial Crimes FCPA SEC DOJ Enforcement Of Interest to Non-US Persons Brazil Bribery

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