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Freddie Mac updates Covid-19 FAQs
On July 29, Freddie Mac updated its Covid-19 frequently asked questions regarding mortgage origination, underwriting, and loan eligibility for sellers. The update addresses questions regarding, among other things, (i) obtaining 2019 tax returns; (ii) borrower creditworthiness; (iii) construction conversion and renovation mortgages; and (iv) appraisal reports. Previous InfoBytes coverage on FAQ updates is available here.
California Consumer Financial Protection Law still pending
On June 29, California Governor, Gavin Newsom, signed SB 74, Budget Act of 2020 (and accompanying budget summary), which allocates $10.2 million in 2020-21 growing to $19.3 million in 2022-23 to the Department of Business Oversight, contingent on the enactment of the California Consumer Financial Protection Law (Law). As previously covered by a Buckley Special Alert (which details an earlier version of the proposal), the Law was originally proposed as a trailer bill to the state’s budget, but was not finalized by lawmakers prior to the June 15th budget deadline. In this version, the proposed budget and Law would: (i) revamp and rename the state’s Department of Business Oversight (DBO) to the Department of Financial Protection and Innovation (DFPI); (ii) establish an Office of Financial Technology Innovation to study emerging technologies in the financial industry; (iii) expand the DFPI’s authority to protect consumers from predatory practices by, among other things, prohibiting unlawful, unfair, deceptive, or abusive acts (consistent with Section 17200); and (iv) foster the responsible development of new financial products. California lawmakers now have until August 31 (end of session) to finalize “the statutory framework needed to implement the [Law].”
Notably, on August 6, the Assembly is holding a hearing to discuss the proposal and is seeking public feedback. Written comments should be submitted to BudgetSub6@asm.ca.gov prior to the hearing date.
FINRA fines firm for failing to follow its own AML policies
On July 27, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver and Consent (AWC), fining a California-based securities firm $50,000 for allegedly failing to implement and follow its own anti-money laundering (AML) compliance procedures. As a result, the firm allegedly failed to detect red flags concerning potentially suspicious activity and failed to investigate or report the activity in a timely manner. According to FINRA, a sales practice examination detected instances between November 2012 and December 2016 in which the firm failed to detect red flags in four related accounts, including suspicious activity related to: (i) the “ownership of multiple accounts without an apparent business purpose for multiple accounts”; (ii) an account owner with a “significant disciplinary history related to securities fraud”; (iii) possible manipulative trading activity; (iv) unusual, unexpected transfer activity between related accounts without an apparent business purpose; and (v) unexplained third-party wire transfers, inconsistent with expected account activity. FINRA stated that although the “firm’s AML procedures indicated that when the firm detected any red flags of potentially suspicious activity, it would determine whether and how to investigate further,” the firm failed to implement these measures. The firm neither admitted nor denied the findings set forth in the AWC agreement but agreed to pay the fine and address identified deficiencies in its programs to ensure compliance with its AML obligations.
DOJ sues companies for laundering funds for North Korean banks
On July 23, the DOJ announced it filed a complaint in the U.S. District Court for the District of Columbia, alleging that four companies engaged in a scheme to launder U.S. dollars on behalf of sanctioned North Korean banks and seeking forfeiture of $2,372,793. The DOJ claims that the North Korean banks illegally accessed the U.S. financial market and used the companies to make and receive U.S. dollar payments to and from North Korean front companies. According to the DOJ, the complaint “illuminates how a global money laundering network coordinates with front companies to move North Korean money through the [U.S.] and violate the sanctions imposed by [the] government on North Korea.” The DOJ further refers to a United Nations Panel of Experts statement that North Korean networks access formal banking channels by, among other things, maintaining correspondent bank accounts and representative offices abroad staffed by foreign nationals that make use of front companies, which permit North Korean banks “to conduct illicit procurement and banking activity.”
OFAC sanctions individuals for supporting Maduro regime
On July 23, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions against two individuals for allegedly assisting, sponsoring, or providing “financial, material, or technological support for, or goods or services to or in support of” either the previously designated son of Nicolás Maduro Moros, or to Venezuelan government senior officials. The individuals, sanctioned pursuant to Executive Order 13692, are allegedly central figures in Venezuela’s gold industry and “oversee the financial mechanism of [an] illicit gold scheme.” As a result, all property and interests in property belonging to the identified individuals subject to U.S. jurisdiction are blocked, and “any entities that are owned, directly or indirectly, 50 percent or more by the designated individuals, are also blocked.” U.S. persons are generally prohibited from dealing with any property or interests in property of blocked or designated persons.
State AGs ask court to vacate Department of Education’s 2019 “Institutional Accountability” regulations
On July 15, a coalition of state attorneys general from 22 states and the District of Columbia filed a complaint in U.S. District Court for the Northern District of California against Secretary of Education Betsy DeVos and the Department of Education, asking the court to vacate the Department’s 2019 final Institutional Accountability regulations (2019 Rule). As previously covered by InfoBytes, the 2019 Rule—which took effect July 1, 2020—revises protections for student borrowers who were significantly misled or defrauded by their higher education institutions, and establishes standards for “adjudicating borrower defenses to repayment claims for Federal student loans first disbursed on or after July 1, 2020.” Loans disbursed prior to July 1, 2020 remain subject to defenses under prior regulations issued in 2016 (2016 Rule). Earlier this year, H.J. Res. 76, which provided for congressional disapproval of the 2019 Rule (covered by InfoBytes here), was vetoed by President Trump.
The AGs allege in their complaint that the Department’s 2019 Rule, among other things, “completely eliminate[s] violations of applicable state consumer protection law as a viable defense to repayment of federal student loans” and “impose[s] additional requirements on a viable misrepresentation defense that are so onerous that they make this defense impossible for a student borrower to assert successfully.” Moreover, the AGs contend that the Department has “failed to meet its congressional mandate to specify actual borrower defenses” by promulgating a rule that serves only to prevent borrowers from obtaining relief. On these grounds, the AGs claim the 2019 Rule violates the Administrative Procedure Act (APA).
The AGs highlight several aspects of the 2019 Rule that support its claims, including that the elimination of the 2016 Rule’s limitations on the use of class action waivers and mandatory predispute arbitration agreements is arbitrary and capricious. According to the AGs, the Department’s “conclusion that requiring schools to disclose their use of mandatory predispute arbitration agreements and class action waivers will adequately protect borrowers is also contrary to substantial evidence and [the Department’s] own prior conclusions.”
DOJ, national bank settle Fair Housing Act discrimination claims
On July 23, the DOJ and U.S. Attorney’s Office for the Eastern District of New York filed a complaint and proposed settlement agreement with a national bank to settle charges that the bank engaged in a pattern or practice of discrimination against people with disabilities in violation of the Fair Housing Act. According to the complaint, policies put in place by the bank beginning in January 2010 allegedly denied mortgage and home equity loans to adults with disabilities living under guardianships or conservatorships. The complaint further claims that the bank, in certain circumstances, denied mortgage loans to applicants who “made explicit requests” for the bank to “reconsider its denial” and accept court orders specifically permitting the guardian or conservator to act on behalf of the disabled individual. These policies were changed in 2016 for mortgage loans and in 2017 for home equity loans, the DOJ noted. The bank, however, denied the allegations, asserting that it did not, and does not, unlawfully discriminate on any prohibited basis, and that during the time period in question, it made “mortgage loans to persons with handicaps and disabilities without restrictions, including some adult applicants who had legal guardians or conservatorships.” Under the terms of the proposed settlement, the bank has agreed to pay $4,000 to each affected loan applicant, with a total expected payout of approximately $300,000. The bank is also required to (i) maintain the revised loan underwriting policies; (ii) train employees on the new policies; and (iii) monitor loan processing and underwriting activities to ensure Fair Housing Act compliance.
District court enters $13.9 million judgment in FTC robocall action
On July 27, the U.S. District Court for the Middle District of Florida entered a nearly $13.9 million partially suspended judgment against six corporate and three individual defendants (collectively, “defendants”) allegedly operating an illegal robocall scheme offering consumers credit card interest rate reduction services in violation of the FTC Act and the Telemarketing Sales Rule. The action is part of a 2019 FTC crackdown on illegal robocalls named “Operation Call it Quits,” which included 94 enforcement actions from around the country brought by the FTC and 25 other federal, state, and local agencies (covered by InfoBytes here). According to the complaint, the defendants made deceptive guarantees to consumers that, for a fee, they could lower their credit card interest rates to zero percent permanently for the life of the credit card debt. However, the FTC alleged that not only do consumers not see a permanent reduction on their credit card interest rates, in some instances, the defendants obtained new credit cards with promotional “teaser” zero percent interest rates that only lasted a limited time, after which the interest rates increased significantly. Moreover, the defendants allegedly failed to tell consumers that they would have to pay additional bank or transaction fees. In addition, the complaint contended that the defendants also (i) initiated illegal telemarketing calls to consumers, including many whose phone numbers appear in the National Do Not Call Registry; (ii) tricked consumers into providing personal financial information, including social security numbers and credit card numbers; and (iii) in many instances, applied for credit cards on behalf of consumers who did not agree to use the service without their knowledge, authorization, or express informed consent.
The court’s order enters a nearly $13.9 million judgment, which will be partially suspended due to inability to pay. The defendants are also prohibited from collecting or assigning any right to collect payments from consumers who purchased the service, and are permanently banned from, among other things, engaging in the illegal behaviors involved in the action and from using the information obtained from consumers during the robocall operation.
CFPB to release ANPR on consumer access to financial records
On July 24, the CFPB announced plans to issue an Advanced Notice of Proposed Rulemaking (ANPR) on consumer-authorized access to financial records later this year. The future ANPR relates to the February Symposium held by the Bureau covering this subject and Section 1033 of the Dodd-Frank Act, which deals with consumers’ rights to access information about their financial accounts. As previously covered by InfoBytes, the purpose of this symposium was “to elicit a variety of perspectives on the current and future state of the market for services based on consumer-authorized use of financial data.” The symposium consisted of three panels: (i) the current landscape and benefits and risks of consumer-authorized data access; (ii) market developments; and (iii) considerations for policymakers. Along with the ANPR announcement, the Bureau released a report summarizing the February symposium.
According to the Bureau, the future ANPR will solicit feedback on (i) how the Bureau can effectively and efficiently implement the financial access rights described in Section 1033 of Dodd-Frank; (ii) the possible scope of data that might be subject to protected access; and (iii) how the Bureau may be able to solve the regulatory uncertainty of Section 1033’s interaction with other statutes, such as the FCRA.
FDIC finalizes policy statement on bank employment standards
On July 24, the FDIC issued a final rule, which formalizes the agency’s Federal Deposit Insurance Act (FDI Act) Section 19 policy statement covering individuals seeking to work in the banking industry who have been convicted of certain crimes. In general, Section 19 of the FDI Act prohibits, without the prior written consent of the FDIC, any person who has been convicted of any criminal offense involving dishonesty, breach of trust, or money laundering—or who has entered into a pretrial diversion or similar program in connection with such an offense—from participating in the banking industry. In August 2018, the FDIC updated the statement of policy to, among other things, expand the criteria of de minimis offenses for which the FDIC will not require the filing of an application (covered by InfoBytes here), and in November 2019, the FDIC issued the proposed rule to finalize the policy statement (covered by InfoBytes here).
The final rule, among other things, (i) exempts all individuals whose covered offenses have been expunged; (ii) expands the scope of the de minimis exception for certain qualifying offenses involving the use of false or fake identification, as well as for small-dollar, simple theft offenses; (iii) eliminates waiting periods for applicants who have had only one qualifying covered offense; and (iv) allows a person with two de minimis offenses to qualify for the de minimis exception, and decreases the waiting period for two such offenses to three years (or 18 months for those who were 21 or younger at the time of the offense).