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New York Department of Financial Services warns of Covid-19 medical scams
On May 21, the New York Department of Financial Services issued an advisory to New York regulated financial institutions warning of the increased risk of medical scams relating to Covid-19. The advisory incorporates recent red flag indicators for such scams identified by FinCEN (previously covered here).
NYDFS suspends license expiration for individual insurance producers for an additional 45 days
On May 21, the New York State Department of Financial Services issued a supplement to Insurance Circular Letter No. 9, previously covered here, suspending the expiration of licenses for all individual insurance producers - brokers, agents, intermediaries, and other persons required to be licensed in order to sell, solicit, or negotiate insurance in New York – through July 8, 2020.
FINRA provides guidance on whether member firms must disclose reliance on agency relief during Covid-19
On May 21, FINRA updated its frequently asked questions (previously discussed here, here, here, here, here, and here) to provide additional detail on how and when to document that it has relied on temporary relief from FINRA rules during the Covid-19 pandemic. Among other things, the updated FAQs also address Form U4 filings and temporary extensions of time to pass qualification examinations for operations professionals.
NCUA approves interim final rule regarding corrective action regulations
On May 21, the NCUA approved an interim final rule (IFR) making two temporary changes to its prompt corrective action regulations to provide relief for credit unions that temporarily fall below the well-capitalized level due to the Covid-19 pandemic. The first change will temporarily reduce the earnings retention requirement for “adequately capitalized” credit unions, and will allow these credit union to decrease earnings retention amounts without submitting a written application requesting approval. Credit unions that exhibit material safety and soundness concerns or pose an undue risk to the Share Insurance Fund may be required to submit an earnings transfer waiver request. The second change will temporarily allow undercapitalized credit unions to submit streamlined, “significantly simpler” net worth restoration plans, provided the credit union is able to demonstrate that the reduction in capital was primarily caused by share growth and that such share growth is a temporary condition due to the Covid-19 pandemic. The IFR’s temporary changes will expire December 31, 2020, and take effect upon publication in the Federal Register. Comments will be received for 30 days.
The same day, the NCUA also approved a proposed rule to amend its share insurance regulation, which governs the requirements for a share account to be separately insured as a joint account. Specifically, the proposed rule will provide an alternative method for credit unions to satisfy the membership card or account signature card requirement by “explicitly provid[ing] that the signature-card requirement could be satisfied by information contained in the account records of the insured credit union establishing co-ownership of the share account.” Comments on the proposed rule are due 30 days after publication in the Federal Register.
SBA gives guidance on collecting PPP processing fees
On May 21, the Small Business Administration (SBA) released a procedural notice detailing the Form 1502 reporting process through which lenders will be able to collect the processing fees on eligible Paycheck Protection Program (PPP) loans. The SBA will pay lenders’ processing fees for PPP loans, based on the balance of the loan at the time of full disbursement, in the following amounts: (i) five percent for loans of not more than $350,000; (ii) three percent for loans of more than $350,000 and less than $2 million; and (iii) one percent for loans of at least $2 million. Lenders are required to report to the SBA on Form 1502 loans have been fully disbursed or canceled. Form 1502 should be submitted electronically to the SBA by the later of (i) May 29, or (ii) 10 calendar days after disbursement or cancellation of the PPP loan. (This is an updated deadline that was recently reflected in the SBA’s FAQs and was first announced in an interim final rule regarding disbursements under the PPP, covered by InfoBytes here.)
The SBA will begin accepting 1502 reports on fully disbursed or cancelled PPP loans on May 22. Lenders will not receive a processing fee payment if the loan is canceled before disbursement or if a disbursed loan is canceled or voluntarily terminated but repaid before May 18 (the borrower certification safe harbor date). As detailed in the procedural notice, lenders will be required to create an account in the Fiscal Transfer Agent Lender portal to access and submit Form 1502. The procedural notice includes, among other things, specifics on account creation and reporting. Additionally, the procedural notice contains useful questions and answers, including how the processing fees will be disbursed and when processing fees may be subject to clawbacks from the SBA.
CFPB: March and April set records for most complaints
On May 21, the CFPB issued a consumer complaint bulletin analyzing complaints the Bureau has received during the Covid-19 pandemic. The bulletin analyzes complaints mentioning “COVID, coronavirus, pandemic, or CARES Act” that were received as of May 11. Of the over 143,000 complaints the Bureau has received in 2020, 4,541 complaints were related to Covid-19. Highlights of the bulletin include: (i) overall, the Bureau had the highest complaint volumes in its history in March and April at 36,700 and 42,500, respectively; (ii) mortgage and credit cards are the top complaint categories for Covid-19 complaints; (iii) eight percent of complaints submitted by servicemembers were Covid-19 related compared to five percent of non-servicemembers; and (iv) after the emergency declaration, the weekly average complaint volume for prepaid cards grew 84 percent, while the volume for student loans decreased by 19 percent. Among other things, the bulletin includes breakdowns of complaint volumes by consumer financial products and examples of common issues from complaint narratives that mention a Covid-19 keyword.
Treasury designates Chinese GSA for providing support to Iranian airline
On May 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated a China-based company pursuant to Executive Order (E.O.) 13224 for allegedly acting as a general sales agent (GSA) for or on behalf of an Iranian airline. According to OFAC, this is the seventh time a GSA has been designated to the airline since 2018, which was previously designated under E.O.s 13224 and E.O, 13382 for providing support to Iran’s Islamic Revolutionary Guard Corps-Qods Force. OFAC emphasized that entities operating in the airline industry “should conduct due diligence to avoid performing services, including GSA services, for or on behalf of a designated person, which may be sanctionable,” and referred the industry to a 2019 advisory that outlined potential civil and criminal consequences for providing unauthorized support to or for designated Iranian airlines.
As a result of the sanctions, “all property and interests in property of [the GSA] that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC further noted that its regulations “generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve property or interests in property of blocked or designated persons,” and warned foreign financial institutions that knowingly facilitating significant transactions or providing significant financial services to designated individuals may subject them to U.S. correspondent account or payable-through sanctions.
Auto financing company settles multistate subprime lending action for $550 million
On May 19, the California attorney general, along with 33 other attorneys general, announced a multistate $550 million settlement with an auto sales financing company for allegedly placing subprime borrowers in auto loans that carried a high risk of default, in violation of state consumer protection laws. Specifically, California’s complaint alleges that the company violated the state’s Unfair Competition Law by, among other things, (i) extending auto loan credit to borrowers the company knew or should have known were likely to result in default and repossession; (ii) failing to disclose to borrowers the high risk of failure associated with the loans; (iii) requiring borrowers to make payments through methods that resulted in third-party fees; and (iv) misrepresenting borrowers’ ability to acquire repossessed vehicles already sent to auction. Additionally, the attorney general alleges that the company “turned a blind eye” to dealer abuse, resulting in higher origination prices for borrowers.
According to the press release, the company will pay approximately $433 million in forgiveness of loans still owned by the company across the U.S. and will waive deficiency balances for borrower loans that the company no longer owns. Notably, certain borrowers who had defaulted as of December 31, 2019 but were still in possession of their vehicle will be allowed to keep the vehicle and have the deficiency balance on the loan waived. California’s settlement also requires injunctive measures such as (i) requiring the company to consider the borrower’s ability to repay the loan; (ii) barring the company from purchasing loans where the borrower’s residual income is zero or negative; (iii) setting reasonable debt to income ratios; and (iv) no longer requiring dealers to sell ancillary products.
In addition to California, the multistate settlement includes: Illinois, Maryland, New Jersey, Oregon and Washington, who together with Attorney General Becerra comprise the executive committee; as well as the attorneys general of Arizona, Arkansas, Connecticut, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Nebraska, New Hampshire, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, West Virginia, Wyoming, and the District of Columbia.
District court allows class autodialer claims to proceed against mortgage lender
On May 18, the U.S. District Court for the Eastern District of Michigan denied a request to dismiss a putative class action concerning alleged violations of the TCPA, ruling that the plaintiff plausibly alleged the mortgage lender (defendant) sent unsolicited texts through the use of an automatic telephone dialing system (autodialer). The plaintiff claimed, among other things, that (i) the texts came by way of SMS short codes, which are “reserved for automatically made text messages”; (ii) the messages were generic and non-personal; (iii) the messages followed a similar calling pattern; and (iv) the plaintiff continued to receive them after opting out. The defendant countered that the claims should be dismissed because the plaintiff’s argument is “devoid of plausible allegations” under the TCPA that it used an autodialer that has the capacity to produce telephone numbers using a random or sequential number generator. However, the court determined that, in the absence of direction from the U.S. Court of Appeals for the Sixth Circuit “as to the kind of supporting factual allegations that must be included to sufficiently allege the [autodialer] element of a TCPA case,” the court will follow other district courts that have allowed TCPA suits to continue if the plaintiff sufficiently alleges facts to plausibly support a finding that an autodialer was used.
FTC announces $40 million settlement with payment processor in credit card laundering case
On May 19, the FTC filed a complaint against a large payment processing company and its former executive for allegedly participating in deceptive or unfair acts or practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR) by processing payments and laundering, or assisting in the laundering of, credit card transactions targeting hundreds of thousands of consumers. The FTC’s complaint alleges, among other things, that the payment processing company received and ignored repeated “warnings and direct evidence” dating back to 2012 showing that the former executive was using his company to open hundreds of fake merchant accounts and shell companies, and allowed him to continue to open merchant accounts until 2014. According to the FTC, the “schemes included, but were not limited to, a debt relief scam that used deceptive telemarketing, business opportunity scams that used deceptive websites, and a criminal enterprise that used stolen credit card data to bill consumers without their consent” in which the both defendants received fees for processing the scheme’s payments. The FTC also claims that the payment processing company violated its own anti-fraud policies by failing to adequately underwrite, monitor, or review its sales agents and their risk management processes, and failed to timely terminate the merchant accounts involved in the scheme.
The payment processing company’s proposed settlement imposes a $40 million monetary judgment and prohibits the company from assisting or facilitating TSR and FTC Act violations related to payment processing. Additionally, the company will be required to (i) screen and monitor prospective restricted clients; (ii) establish and implement a written oversight program to monitor its wholesale independent sales organizations (ISO); and (iii) hire an independent assessor to monitor the company’s compliance with the settlement’s ISO oversight program.
The former executive’s proposed settlement imposes a $270,373.70 monetary judgment, and bans him from payment processing or acting as an ISO for certain categories of high-risk merchants. He is also prohibited from credit card laundering activities, making or assisting others in making false or misleading statements, and assisting or facilitating violations of the FTC Act or TSR.
Neither defendant admitted or denied the allegations, except as specifically stated within the proposed settlements.