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  • Department of Education held in contempt for continuing to collect certain student loans

    Courts

    On October 24, a magistrate judge for the U.S. District Court for the Northern District of California held the Department of Education and Secretary Betsy DeVos in civil contempt and ordered them to pay $100,000 in sanctions for violating a May 2018 preliminary injunction that prohibited them from collecting on student loans used for programs at a now defunct for-profit college (previously covered by InfoBytes here). According to the October 24 order, the defendants allegedly showed “only minimal efforts to comply with the preliminary injunction.” Moreover, a compliance report filed in September was “silent as to the normal actions one would expect from an entity facing a binding court order: multiple in-person meetings or telephone calls to explain the preliminary injunction and to confirm that the contractors were complying with the preliminary injunction.” The court further stated that the defendants acknowledged in their compliance report, among other things, that (i) more than 16,000 former student were told they had payments due on their student loans after the court-ordered prohibition went into effect in May 2018; (ii) nearly 3,300 of the borrowers made one or more payments; and (iii) more than 1,800 other borrowers had wages or tax returns garnished to collect on unpaid student loans. In addition to the finding of contempt and the monetary penalty, the defendants are required to file monthly status reports on their compliance with the injunction and “submit a revised notice to be sent to the entire potential class regarding [d]efendants’ noncompliance with the preliminary injunction and their forthcoming efforts to fully comply.”

    Courts Student Lending Department of Education

  • FDIC releases September enforcement actions

    Federal Issues

    On October 25, the FDIC announced its release of a list of administrative enforcement actions taken against banks and individuals in September. According to the press release, the FDIC issued 24 orders, which include “one consent order; five removal and prohibition orders; six assessments of civil money penalty; three voluntary terminations of deposit insurance; six section 19 orders; and three terminations of orders of restitution.”

    Among other actions, the FDIC assessed separate civil money penalties (CMPs) against four banks for alleged violations of the Flood Disaster Protection Act:

    • New Jersey-based bank CMP: Failure to (i) notify borrowers that they should obtain flood insurance; and (ii) follow force-placement flood insurance procedures;
    • Wisconsin-based bank CMP: Failure to (i) maintain flood insurance coverage for the term of a loan; (ii) follow force-placement flood insurance procedures; and (iii) provide written notice to borrowers concerning flood insurance coverage prior to extending, increasing, or renewing a loan;
    • Wisconsin-based bank CMP: Failure to (i) follow escrow requirements for flood insurance; and (ii) provide borrowers with notice of the availability of federal disaster relief assistance;
    • Wisconsin-based bank CMP: Failure to (i) obtain flood insurance coverage on loans at the time of origination; (ii) obtain adequate flood insurance; (iii) follow escrow requirements for flood insurance; (iv) follow force-placement flood insurance procedures; and (v) provide borrowers with notice of the availability of federal disaster relief assistance.

    The FDIC also assessed a CMP against an Oregon-based bank for allegedly violating RESPA and the TCPA by (i) placing telemarketing calls to consumers listed on the Do-Not-Call registry; and (ii) using an automated dialing system to send pre-recorded calls or text messages to consumers’ cell phones.

    Additionally, the FDIC entered a notice of charges and hearing against a Georgia-based bank relating to alleged weaknesses in its Bank Secrecy Act compliance program.

    Federal Issues FDIC Enforcement Flood Disaster Protection Act Civil Money Penalties RESPA TCPA Bank Secrecy Act Bank Compliance

  • Agencies finalize living will requirements

    Agency Rule-Making & Guidance

    On October 28, the Federal Reserve Board and the FDIC issued a joint press release to announce the adoption of a final rule amending resolution planning requirements (known as living wills) for large domestic and foreign firms with more than $100 billion in total consolidated assets, while tailoring requirements to the level of risk a firm poses to the financial system. The final rule—which is substantially similar to the April 2019 proposal (previous InfoBytes coverage here)—makes improvements to the November 2011 joint resolution plan rule, and is consistent with amendments to Dodd-Frank made by the Economic Growth, Regulatory Relief, and Consumer Protection Act. Among other things, the final rule tailors resolution planning requirements by using four “risk-based categories,” and extends the default resolution plan filing cycle. Global systemically important bank holding companies (GSIBs) will continue to be required to submit resolution plans on a two-year cycle; however, firms that do not pose the same systemic risk as GSIBs will only be required to submit their resolution plans on a three-year cycle. The agencies note in their release that both groups will alternate between submitting full and targeted resolution plans, and that “[f]oreign firms with relatively limited U.S. operations would be required to submit reduced resolution plans.” Additionally, firms with less than $250 billion in total consolidated assets that do not meet certain risk criteria will now be  exempt under the final rule. The agencies also emphasize a change from the proposed rule: only smaller and less complex firms may request changes to their full resolution plans, subject to approval by both agencies prior to taking effect.

    The final rule takes effect 60 days following publication in the Federal Register.

    Agency Rule-Making & Guidance FDIC Federal Reserve Living Wills Of Interest to Non-US Persons EGRRCPA

  • District Court holds debt collection letter properly named creditor

    Courts

    On October 21, the U.S. District Court for the Eastern District of New York granted judgment for a debt collection law firm, concluding the law firm properly identified the current owner of the consumer’s debt in its collection letter. According to the opinion, the law firm sent a letter in March 2018 seeking to collect a debt from the consumer. The letter acknowledges the law firm is a debt collector and provides the balance due, a reference number, the last four digits of the associated bank account, and in two places, states “Re: [bank name].” The consumer filed the action against the law firm, alleging it violated the FDCPA because the least sophisticated consumer would be confused as to whether the bank or the law firm is “the creditor to whom the alleged debt is now purportedly owed.” Both parties moved for judgment and the court agreed with the law firm. Specifically, the court noted that the letter refers to the original creditor twice by stating, “Re: [bank name],” and also the subject line of the letter “identifies both the creditor, [the bank], and plaintiff’s account number with that institution,” which “strongly suggests” that the listed bank is the current creditor. Moreover, the court rejected the consumer’s argument that the least sophisticated consumer would understand the bank is the “source” of the debt but would not understand the bank is the “owner” of the debt, concluding that the least sophisticated consumer would “not likely make such a leap” to assume the debt may have been subsequently sold to another party not mentioned in the letter.

    Courts FDCPA Debt Collection Least Sophisticated Consumer

  • California says all CFL licensees should use NMLS

    On October 25, the California Department of Business Oversight (DBO) published proposed regulations that (i) require all licensees under the California Financing Law (CFL) to register through NMLS; and (ii) establishes regulatory requirements for the oversight of Property Assessed Clean Energy (PACE) program administrators. Currently, under the CFL, some licensees engaged in residential mortgage origination and brokering are already licensed through the NMLS, while other lenders and brokers not engaged in the business of making or brokering loans secured with residential real property or financing PACE transactions are not on NMLS. According to the initial statement of reasons, the proposed regulations would amend existing licensing rules to transition all licensees under the CFL to registration through NMLS. Moreover, the proposed regulations implement AB 1284—which was signed into law on October 4, 2017, and, beginning January 1, 2019, requires a private entity that administers a PACE program on behalf of a public agency to be licensed under the CFL—and make conforming changes to the existing rules under the CFL. According to the DBO, the objectives of the proposed regulations “are to protect property owners who are offered PACE financing from deception, misrepresentations, or misunderstandings, to promote transparency in PACE financing, to provide oversight of persons soliciting property owners, and to facilitate a fair marketplace where the financing option can provide benefits to both property owners and the environment.” Comments on the proposed regulations are due by December 9.

    Licensing State Issues CDBO PACE Programs NMLS State Regulators Mortgage Origination

  • FATF updates jurisdictions with AML/CFT deficiencies

    Financial Crimes

    On October 18, the Financial Action Task Force (FATF) published its updated list of jurisdictions identified as having “strategic deficiencies” in their anti-money laundering and combating the financing of terrorism (AML/CFT) regimes that have also developed action plans with the FATF to address the deficiencies. The list of jurisdictions includes the Bahamas, Botswana, Cambodia, Ghana, Iceland, Mongolia, Pakistan, Panama, Syria, Trinidad and Tobago, Yemen, and Zimbabwe. Notably, Ethiopia, Sri Lanka, and Tunisia have been removed from the list and are no longer subject to the FATF’s AML/CFT compliance process due to making “significant progress” in their regimes, while Iceland, Mongolia, and Zimbabwe have been added since the last update in June (covered by InfoBytes here). The FATF further notes that several jurisdictions have not yet been reviewed, and that it “continues to identify additional jurisdictions, on an ongoing basis, that pose a risk to the international financial system.” While the FATF does not instruct members to apply enhanced due diligence to these jurisdictions, it encourages members to take this information into account when conducting money laundering risk assessments and due diligence.

    Financial Crimes FATF Anti-Money Laundering Combating the Financing of Terrorism Of Interest to Non-US Persons Customer Due Diligence

  • CFTC announces LabCFTC independence, releases AI primer

    Fintech

    On October 24, the Commodity Futures Trading Commission (CFTC) announced that LabCFTC will operate as an independent operating office of the agency, reporting directly to the chair of the CFTC. As previously covered by InfoBytes, LabCFTC was established in 2017 as an initiative to engage innovators in the financial technology industry and promote responsible fintech innovation. According to the CFTC, the change reflects the importance the agency places on examining the value of innovation within the financial marketplace and making the agency accessible to fintech innovators. The CFTC also released the Artificial Intelligence in Financial Markets primer to provide an “overview of how AI is applied in financial markets” as well as resources for market participants, consumers, and the public. The primer is part of a LabCFTC series on fintech innovation. (Previous InfoBytes coverage here.)

    Fintech CFTC Artificial Intelligence

  • Senate Banking Committee members urge CFPB to continue collecting all HMDA data

    Federal Issues

    On October 16, eight members of the Senate Banking Committee submitted a comment letter in response to the CFPB’s Advance Notice of Proposed Rulemaking (ANPR) issued last May seeking information on the costs and benefits of reporting certain data points under HMDA. (Previous InfoBytes coverage here.) In the comment letter, committee members urged the Bureau to continue collecting all HMDA data points added in the Bureau’s 2015 final rule rather than considering limitations on the information that must be collected. The committee members asserted that they are “deeply troubled” by the CFPB’s announcement that it would “reopen the 2015 HMDA rule before the new data points had even been collected,” and urged the Bureau to “follow the intent of Congress and maintain collection of all data points added by the 2015 final rule,” stressing the data’s importance when monitoring market trends, credit access, and mortgage lending discrimination.

    As previously covered by InfoBytes, on October 15, a coalition of state attorneys general also submitted a comment letter asserting, among other things, that the ANPR will open the door for financial institutions to engage in discriminatory lending.

    Federal Issues Senate Banking Committee CFPB HMDA State Attorney General Mortgages

  • FinCEN final rule designates Iran a primary money laundering concern; new Treasury and State department mechanism to make humanitarian trade more transparent

    Financial Crimes

    On October 25, the U.S. Treasury Department announced the issuance of a final rule by the Financial Crimes Enforcement Network (FinCEN) to impose a fifth special measure against Iran as a jurisdiction of primary money laundering concern under Section 311 of the USA Patriot Act. The final rule prohibits U.S. financial institutions from opening or maintaining a correspondent account on behalf of an Iranian financial institution, and also prohibits U.S. financial institutions from processing transactions involving Iranian financial institutions. The final rule takes effect ten days after publication in the Federal Register.

    FinCEN stated that its action is based on Iran’s abuse of the international financial system, including providing support for terrorist groups such as Hizballah and HAMAS, and builds upon Treasury’s Office of Foreign Assets Control’s (OFAC) September designation of Iran’s central bank for providing financial support to the Islamic Revolutionary Guards Corps, its Qods Force, and Hizballah (previous InfoBytes coverage here). Additionally, FinCEN determined that the Iranian regime continues to engage in deceptive financial practices through the use of front companies and shell companies, among other things, to facilitate military purchases. These actions, FinCEN noted, are “further compounded by Iran’s continued failure to adequately address its AML/CFT deficiencies, as identified by the Financial Action Task Force,” which recently re-imposed countermeasures and enhanced due diligence strategies on Iran and “called on its members and urged all jurisdictions to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran.” (Previous InfoBytes coverage here.) 

    Concurrent with the imposition of the fifth special measure, Treasury and the U.S. Department of State announced a new mechanism to increase the transparency of humanitarian trade with Iran that will establish processes for participating foreign governments and financial institutions when conducting enhanced due diligence designed to mitigate the higher risks associated with Iran-related transactions. OFAC’s guidance outlines due diligence and reporting requirements for participating entities, and stipulates that “[p]rovided that foreign financial institutions commit to implement stringent enhanced due diligence steps, the framework will enable them to seek written confirmation from Treasury that the proposed financial channel will not be exposed to U.S. sanctions.”

    Financial Crimes FinCEN Department of Treasury Anti-Money Laundering Combating the Financing of Terrorism Of Interest to Non-US Persons Patriot Act

  • NYDFS is latest regulator to join Global Financial Innovation Network

    State Issues

    On October 25, NYDFS Superintendent Linda Lacewell announced that the state regulator has joined the Global Financial Innovation Network (GFIN). The GFIN was created by the United Kingdom’s Financial Conduct Authority in 2018 and is an international network of 50 organizations, including most recently the Commodity Futures Trading Commission, FDIC, OCC, and SEC. (Previous InfoBytes coverage here.) According to NYDFS, participation will provide opportunities to engage with international partners to support financial innovation, increase financial market resiliency, and create “better uses of technology for overseeing supervised marketplaces” by, among other things, facilitating cross-border testing of new products and services. NYDFS also reiterated the recent establishment of its new Research and Innovation Division (previous InfoBytes coverage here) as a demonstration of its commitment to innovation.

    State Issues NYDFS Fintech State Regulators

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